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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-75723
PROSPECTUS SUPPLEMENT
(To prospectus dated April 30, 1999)
$15,000,000,000
LEHMAN BROTHERS HOLDINGS INC.
MEDIUM-TERM NOTES, SERIES F
DUE NINE MONTHS OR MORE FROM THE DATE OF ISSUE
GENERAL TERMS OF SALE
The following terms will generally apply to the medium-term notes that we
will sell from time to time using this prospectus supplement and the attached
prospectus. Lehman Brothers Holdings will include information on the specific
terms for each note in a pricing supplement to this prospectus supplement that
Lehman Brothers Holdings will deliver to prospective buyers of any note. The
maximum amount that Lehman Brothers Holdings expects to receive from the sale of
the notes is between $14,906,250,000 and $14,981,250,000 after paying the agent
commissions of between $12,500,000 and $62,500,000.
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MATURITY: 9 months or more from the
date of issue.
INDEXED NOTES: Payments of interest or
principal may be linked to
the price of one or more
securities, currencies,
commodities or other goods.
REDEMPTION: Terms of specific notes may
permit or require redemption
or repurchase at our option
or your option.
RISKS: Index and currency risks may
exist.
INTEREST Fixed, floating or zero
RATES: coupon.
RANKING: Senior notes are part of our
senior indebtedness.
OTHER TERMS: You should review
"Description of the Notes"
and the pricing supplement
for other terms that apply
to your notes.
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CONSIDER CAREFULLY THE INFORMATION UNDER "RISK FACTORS" BEGINNING ON PAGE
S-3 OF THIS PROSPECTUS SUPPLEMENT.
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.
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LEHMAN BROTHERS
April 30, 1999
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT
Risk Factors............................................................................................... S-3
Important Currency Information............................................................................. S-6
Description of the Notes................................................................................... S-6
Plan of Distribution....................................................................................... S-29
PROSPECTUS
Prospectus Summary......................................................................................... 2
Use of Proceeds and Hedging................................................................................ 6
Ratio of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and
Preferred Stock Dividends................................................................................ 7
European Monetary Union.................................................................................... 7
Description of Debt Securities............................................................................. 8
Description of Outstanding Preferred Stock................................................................. 14
Description of Offered Preferred Stock..................................................................... 15
Description of Depositary Shares........................................................................... 18
Book-Entry Procedures and Settlement....................................................................... 20
United States Federal Income Tax Consequences.............................................................. 22
Plan of Distribution....................................................................................... 32
ERISA Considerations....................................................................................... 34
Legal Matters.............................................................................................. 34
Experts.................................................................................................... 34
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YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS AND ANY PRICING
SUPPLEMENT. LEHMAN BROTHERS HOLDINGS HAS NOT, AND THE AGENT HAS NOT, AUTHORIZED
ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES
YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT.
LEHMAN BROTHERS HOLDINGS IS NOT, AND THE AGENT IS NOT, MAKING AN OFFER TO SELL
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS, AS WELL AS INFORMATION LEHMAN BROTHERS HOLDINGS PREVIOUSLY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND INCORPORATED BY REFERENCE,
IS ACCURATE AS OF THE DATE OF THE APPLICABLE DOCUMENT. LEHMAN BROTHERS HOLDINGS'
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THAT DATE.
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RISK FACTORS
CHANGES IN EXCHANGE RATES AND EXCHANGE CONTROLS COULD RESULT IN A SUBSTANTIAL
LOSS TO YOU.
An investment in foreign currency notes, which are notes denominated in a
specified currency other than U.S. dollars, entails significant risks that are
not associated with a similar investment in a security denominated in U.S.
dollars. Similarly, an investment in an indexed note, on which all or a part of
any payment due is based on a currency other than U.S. dollars, has significant
risks that are not associated with a similar investment in non-indexed notes.
The risks include, but are not limited to:
- the possibility of significant market changes in rates of exchange between
U.S. dollars and the specified currency,
- the possibility of significant changes in rates of exchange between U.S.
dollars and the specified currency resulting from official redenomination
relating to the specified currency, and
- the possibility of the imposition or modification of foreign exchange
controls by either the United States or foreign governments.
These risks generally depend on factors over which Lehman Brothers Holdings
has no control and which cannot be readily foreseen, such as:
- economic events,
- political events, and
- the supply of, and demand for, the relevant currencies.
In recent years, rates of exchange between the U.S. dollar and some foreign
currencies in which Lehman Brothers Holdings' notes may be denominated and
between these foreign currencies and other foreign currencies, have been
volatile. This volatility may be expected in the future. Fluctuations that have
occurred in any particular exchange rate in the past are not necessarily
indicative, however, of fluctuations that may occur in the rate during the term
of any foreign currency note. Depreciation of the specified currency of a
foreign currency note against U.S. dollars would result in a decrease in the
effective yield of the foreign currency note below its coupon rate and could
result in a substantial loss to the investor on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a specified currency other than U.S. dollars at the time of payment of
principal, any premium, or interest on a foreign currency note. There can be no
assurance that exchange controls will not restrict or prohibit payments of
principal, any premium, or interest denominated in any such specified currency.
Even if there are no actual exchange controls, it is possible that the
specified currency would not be available to Lehman Brothers Holdings when
payments on the note are due because of circumstances beyond the control of
Lehman Brothers Holdings. In this event, Lehman Brothers Holdings will make
required payments in U.S. dollars on the basis described in this prospectus
supplement. You should consult your own financial and legal advisors as to the
risks of an investment in notes denominated in a currency other than U.S.
dollars. See "--The unavailability of currencies could result in a substantial
loss to you" and "Description of the Notes--Payment of Principal and Interest"
below.
The information set forth in this prospectus supplement is directed to
prospective purchasers of notes who are United States residents. Lehman Brothers
Holdings disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States regarding any matters that
may affect the purchase or holding of, or receipt of payments of principal,
premium or interest on, notes.
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Such persons should consult their advisors with regard to these matters. Any
pricing supplement relating to notes having a specified currency other than U.S.
dollars will contain a description of any material exchange controls affecting
the currency and any other required information concerning the currency.
THE UNAVAILABILITY OF CURRENCIES COULD RESULT IN A SUBSTANTIAL LOSS TO YOU.
Except as set forth below, if payment on a note is required to be made in a
specified currency other than U.S. dollars and the currency is:
- unavailable due to the imposition of exchange controls or other
circumstances beyond Lehman Brothers Holdings' control,
- no longer used by the government of the country issuing the currency, or
- no longer used for the settlement of transactions by public institutions
of the international banking community,
then all payments on the note will be made in U.S. dollars until the currency is
again available or so used. The amounts so payable on any date in the currency
will be converted into U.S. dollars on the basis of the most recently available
market exchange rate for the currency or as otherwise indicated in the
applicable pricing supplement. Any payment on the note made under such
circumstances in U.S. dollars will not constitute an event of default under the
indenture under which the note will have been issued.
If the specified currency of a note is officially redenominated, other than
as a result of European Monetary Union, such as by an official redenomination of
the specified currency that is a composite currency, then the payment
obligations of Lehman Brothers Holdings on the note will be the amount of
redenominated currency that represents the amount of Lehman Brothers Holdings'
obligations immediately before the redenomination. The notes will not provide
for any adjustment to any amount payable as a result of:
- any change in the value of the specified currency of the notes relative to
any other currency due solely to fluctuations in exchange rates, or
- any redenomination of any component currency of any composite currency,
unless the composite currency is itself officially redenominated.
For a description of European Monetary Union, see "European Monetary Union" in
the prospectus and any disclosure on European Monetary Union in an applicable
pricing supplement.
Currently, there are limited facilities in the United States for conversion
of U.S. dollars into foreign currencies, and vice versa. In addition, banks do
not generally offer non-U.S. dollar-denominated checking or savings account
facilities in the United States. Accordingly, payments on notes made in a
currency other than U.S. dollars will be made from an account at a bank located
outside the United States, unless otherwise specified in the applicable pricing
supplement.
JUDGMENTS IN A FOREIGN CURRENCY COULD RESULT IN A SUBSTANTIAL LOSS TO YOU.
The notes will be governed by, and construed in accordance with, the law of
New York State. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of New York State provides,
however, that an action brought under New York law and based upon an obligation
denominated in a currency other than U.S. dollars will be rendered in the
foreign currency of the underlying obligation. Any judgment awarded in such an
action will be converted into U.S. dollars at the rate of exchange prevailing on
the date of the entry of the judgment or decree. In the event an action based on
an obligation denominated in a foreign currency were commenced in a court in the
United States outside New York, the currency of judgment and/or applicable
exchange rate may differ. The indenture governing the notes provides that if it
is
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necessary for the purpose of obtaining a judgment in any court to convert any
currency into any other currency, such conversion will be made at a rate of
exchange prevailing on the date Lehman Brothers Holdings makes payment to any
person in satisfaction of the judgment. If pursuant to any judgment conversion
is to be made on a date other than the payment date, the indenture provides that
Lehman Brothers Holdings will pay any additional amounts necessary to indemnify
such person for any change between the rate of exchange prevailing on the
payment date and the rate of exchange prevailing on such other date.
CHANGES IN THE VALUE OF UNDERLYING ASSETS OF INDEXED NOTES COULD RESULT IN A
SUBSTANTIAL LOSS TO YOU.
An investment in indexed notes may have significant risks that are not
associated with a similar investment in a debt instrument that:
- has a fixed principal amount,
- is denominated in U.S. dollars, and
- bears interest at either a fixed rate or a floating rate based on
nationally published interest rate references.
The risks of a particular indexed note will depend on the terms of the
indexed note. The risks may include, but are not limited to, the possibility of
significant changes in the prices of:
- the underlying assets,
- another objective price, and
- economic or other measures making up the relevant index.
Underlying assets could include:
- securities,
- currencies,
- commodities, or
- other goods.
The risks associated with a particular indexed note generally depend on
factors over which Lehman Brothers Holdings has no control and which cannot
readily be foreseen. These risks include:
- economic events,
- political events, and
- the supply of, and demand for, the underlying assets.
In recent years, currency exchange rates and prices for various underlying
assets have been highly volatile. Such volatility may be expected in the future.
Fluctuations in rates or prices that have occurred in the past are not
necessarily indicative, however, of fluctuations that may occur during the term
of any indexed note.
In considering whether to purchase indexed notes, you should be aware that
the calculation of amounts payable on indexed notes may involve reference to:
- an index determined by an affiliate of Lehman Brothers Holdings, or
- prices that are published solely by third parties or entities which are
not regulated by the laws of the United States.
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The risk of loss as a result of linking of principal or interest payments on
indexed notes to an index and to the underlying assets can be substantial. You
should consult your own financial and legal advisors as to the risks of an
investment in indexed notes.
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each note in a currency specified by
Lehman Brothers Holdings for the note. If requested by a prospective purchaser
of a note having a specified currency other than U.S. dollars, the agent may at
its discretion arrange for the exchange of U.S. dollars into the specified
currency to enable the purchaser to pay for the note. Each such exchange will be
made by the agent on the terms, conditions, limitations and charges that the
agent may from time to time establish in accordance with its regular foreign
exchange practice. The purchaser must pay all costs of exchange.
References in this prospectus supplement to "U.S. dollars," "U.S.$,"
"dollar" or "$" are to the lawful currency of the United States.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Medium-Term Notes,
Series F supplements the description of the general terms and provisions of the
debt securities set forth in the prospectus. If any specific information
regarding the notes in this prospectus supplement is inconsistent with the more
general terms of the debt securities described in the prospectus, you should
rely on the information in this prospectus supplement.
The pricing supplement for each offering of notes will contain the specific
information and terms for that offering. If any information in the pricing
supplement, including any changes in the method of calculating interest on any
note, is inconsistent with this prospectus supplement, you should rely on the
information in the pricing supplement. The pricing supplement may also add,
update or change information contained in the prospectus and this prospectus
supplement. It is important for you to consider the information contained in the
prospectus, this prospectus supplement and the pricing supplement in making your
investment decision.
GENERAL
INTRODUCTION
The senior notes are a series of senior debt securities issued under Lehman
Brothers Holdings' senior debt indenture. At the date of this prospectus
supplement, the notes offered pursuant to this prospectus supplement are limited
to an aggregate initial public offering price or purchase price of up to
$15,000,000,000 or its equivalent in one or more foreign or composite
currencies. This amount is subject to reduction as a result of the sale of other
securities under the registration statement of which this prospectus supplement
and the accompanying prospectus form a part.
Lehman Brothers Holdings reserves the right to withdraw, cancel or modify
the offer made by this prospectus supplement without notice. The aggregate
amount of notes may be increased from time to time to such larger amount as may
be authorized by Lehman Brothers Holdings.
The U.S. dollar equivalent of the public offering price or purchase price of
a note having a specified currency other than U.S. dollars will be determined on
the basis of the market exchange rate. This market exchange rate will be the
noon buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York for the
specified currency on the applicable issue date. The determination will be made
by Lehman Brothers Holdings or its agent, as the exchange rate agent for the
applicable series of notes.
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RANKING
The senior notes will constitute part of the senior indebtedness of Lehman
Brothers Holdings and will rank on an equal basis with all other unsecured debt
of Lehman Brothers Holdings other than subordinated debt.
As of February 28, 1999, the aggregate principal amount of senior
indebtedness of Lehman Brothers Holdings outstanding was approximately $170.2
billion.
FORMS OF NOTES
The notes will be issued in fully registered form only, without coupons.
Each note will be issued initially as a book-entry note, which will be a global
security registered in the name of a nominee of DTC, as depository, or another
depository named in the pricing supplement. Alternatively, if specified in the
applicable pricing supplement, each note will be issued initially as a
certificated note, which will be a certificate issued in temporary or definitive
form. Except as set forth in the prospectus under "Book-Entry Procedures and
Settlement," book-entry notes will not be issuable as certificated notes. See
"Book-Entry System" below.
DENOMINATIONS
Unless otherwise specified in the applicable pricing supplement, the
authorized denominations of notes denominated in U.S. dollars will be $100,000
and any larger amount that is a whole multiple of $1,000. The authorized
denominations of notes that have a specified currency other than U.S. dollars
will be the approximate equivalents in the specified currency.
MATURITY
Unless otherwise specified in the applicable pricing supplement, each note
will mature on a stated maturity date. The stated maturity date will be a
business day more than nine months from its date of issue, as selected by the
purchaser and agreed to by Lehman Brothers Holdings. The stated maturity date
may be extended at the option of Lehman Brothers Holdings. Each note may also be
redeemed at the option of Lehman Brothers Holdings, or repaid at the option of
the holder, prior to its stated maturity. Each note that has a specified
currency of pounds sterling will mature in compliance with the regulations the
Bank of England may promulgate from time to time.
ADDITIONAL INFORMATION
The pricing supplement relating to a note will describe the following terms:
- the specified currency for the note,
- whether the note:
(1) is a fixed rate note,
(2) is a floating rate note,
(3) is an amortizing note, meaning that a portion or all the principal
amount is payable prior to stated maturity in accordance with a schedule,
by application of a formula, or based on an index, and/or
(4) is an indexed note on which payments of interest or principal may be
linked to the price of one or more securities, currencies, commodities or
other goods,
- the price at which the note will be issued, which will be expressed as a
percentage of the aggregate principal amount or face amount,
- the original issue date on which the note will be issued,
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- the stated maturity date,
- if the note is a fixed rate note, the rate per annum at which the note
will bear any interest, and whether and the manner in which the rate may
be changed prior to its stated maturity,
- if the note is a floating rate note, relevant terms such as:
(1) the base rate,
(2) the initial interest rate,
(3) the interest reset period or the interest reset dates,
(4) the interest payment dates,
(5) any index maturity,
(6) any maximum interest rate,
(7) any minimum interest rate,
(8) any spread or spread multiplier, and
(9) any other terms relating to the particular method of calculating the
interest rate for the note and whether and how the spread or spread
multiplier may be changed prior to stated maturity,
- whether the note is a note issued originally at a discount,
- if the note is an amortizing note, the terms for repayment prior to stated
maturity,
- if the note is an indexed note, in the case of an indexed rate note, the
manner in which the amount of any interest payment will be determined or,
in the case of an indexed principal note, its face amount and the manner
in which the principal amount payable at stated maturity will be
determined,
- whether the note may be redeemed at the option of Lehman Brothers
Holdings, or repaid at the option of the holder, prior to stated maturity
as described under "Optional Redemption, Repayment and Repurchase" below
and the terms of its redemption or repayment,
- whether the note may have an optional extension beyond its stated maturity
as described under "Extension of Maturity" below,
- whether the note will be represented by a global security or a certificate
issued in definitive form,
- any special United States federal income tax consequences of the purchase,
ownership and disposition of a particular issuance of notes,
- whether the note is a renewable note, and, if so, its specific terms,
- the use of proceeds, if materially different than that disclosed in the
accompanying prospectus, and
- any other terms of the note provided in the accompanying prospectus to be
set forth in a pricing supplement or that are otherwise consistent with
the provisions of the indenture under which the note will be issued.
As used in this prospectus supplement, business day means:
- for any note, any day that is not a Saturday or Sunday and that, in New
York City, is not a day on which banking institutions generally are
authorized or obligated by law or executive order to close,
- for LIBOR notes only, a London business day, which will be any such day on
which dealings in deposits in U.S. dollars are transacted in the London
interbank market,
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- for notes having a specified currency other than U.S. dollars only, other
than notes denominated in Euros, any day that, in the principal financial
center (as defined below) of the country of the specified currency, is not
a day on which banking institutions generally are authorized or obligated
by law to close, and
- for notes denominated in Euros, a day on which the Trans-European
Automated Real-Time Gross Settlement Express Transfer System is open.
As used above, a principal financial center means the capital city of the
country issuing the specified currency. However, for U.S. dollars, Australian
dollars, Canadian dollars, German deutschmarks, Dutch guilders, Italian lire and
Swiss francs, the principal financial center will be New York City, Sydney,
Toronto, Frankfurt, Amsterdam, Milan and Zurich, respectively.
PAYMENT OF PRINCIPAL AND INTEREST
Lehman Brothers Holdings will pay the principal of, and any premium and
interest on, each note in the specified currency for the note. If the specified
currency for a note is other than U.S. dollars, Lehman Brothers Holdings will,
unless otherwise specified in the applicable pricing supplement, arrange to
convert all payments in respect of the note into U.S. dollars in the manner
described in the following paragraph.
The holder of a note having a specified currency other than U.S. dollars
may, if stated in the applicable pricing supplement and the note, elect to
receive all payments on the note in the specified currency by delivering a
written notice to the trustee for the note not later than the applicable record
date, except under the circumstances described under "Risk Factors--The
unavailability of currencies could result in a substantial loss to you" above.
The election will remain in effect until revoked by a written notice to the
trustee that is received not later than ten calendar days prior to the
applicable payment date. If an event of default has occurred or Lehman Brothers
Holdings has exercised any discharge or defeasance options or given notice of
redemption of a note, no such change of election may be made.
The amount of any U.S. dollar payment on a note having a specified currency
other than U.S. dollars will be determined by the exchange rate agent in
accordance with the following procedures in the order set forth below:
- The payment amount will be based on the highest firm bid quotation
expressed in U.S. dollars received by the exchange rate agent at
approximately 11:00 a.m., New York City time, on the second business day
preceding the applicable payment date, or if no such rate is quoted on
that date, the last date on which the rate was quoted.
- If the above quotations cannot be obtained, the exchange rate agent will
obtain quotations from three, or if three are not available, then two,
recognized foreign exchange dealers in New York City, one or more of which
may be the agent, and another of which may be the exchange rate agent,
that are selected by the exchange rate agent after consultation with
Lehman Brothers Holdings.
- If the above quotations cannot be obtained, payment will be made in the
foreign currency.
The exchange rate agent will also determine prior to settlement the
aggregate amount of the specified currency payable on a payment date for all
notes denominated in the specified currency. All currency exchange costs will be
deducted from payments to the holders of the notes. If no such bid quotations
are available, the payments will be made in the specified currency, unless the
specified currency is unavailable due to the imposition of exchange controls or
due to other circumstances beyond Lehman Brothers Holdings' control. In that
case, the payments will be made as described under "Risk Factors--The
unavailability of currencies could result in a substantial loss to you" above.
Unless otherwise specified in the applicable pricing supplement, U.S. dollar
payments of interest on notes, other than interest payable at stated maturity,
will be made, except as provided below, by wire transfer or by check mailed to
the registered holders of the notes. In the case of global securities
representing
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book-entry notes, the payments of interest on notes will be made to a nominee of
the depositary. However, in the case of a note issued between a regular record
date and the related interest payment date, interest for the period beginning on
the original issue date for the note and ending on such interest payment date
generally will be paid to the holder on the next interest payment date.
A holder of $10,000,000, or its equivalent in a specified currency other
than U.S. dollars, or more in aggregate principal amount of notes of like tenor
and term, will be entitled to receive U.S. dollar payments by wire transfer of
immediately available funds. However, such a holder is entitled to receive the
payments only if the trustee receives written appropriate wire transfer
instructions for the notes on or prior to the applicable interest payment date.
Unless otherwise specified in the applicable pricing supplement, principal and
any premium and interest payable at the stated maturity of a note will be paid
in immediately available funds upon surrender of the note at the corporate trust
office or agency of the trustee in New York City.
Unless otherwise specified in this prospectus supplement or the applicable
pricing supplement, any payment required to be made on a note on a date,
including the stated maturity date, that is not a business day for the note will
instead be made on the next business day, except in the case of a LIBOR Note. In
that case, if the next business day falls in the next calendar month, the date
will be the preceding business day. A payment may be made on the next business
day with the same force and effect as if made on such date.
Unless otherwise specified in the applicable pricing supplement, if the
principal of any OID note, other than an indexed note, is declared to be due and
payable immediately as a result of the acceleration of stated maturity, the
amount of principal due and payable relating to the note will be limited to the
aggregate principal amount of the note multiplied by the sum of (1) its issue
price, expressed as a percentage of the aggregate principal amount, plus (2) the
original issue discount amortized from the date of issue to the date of
declaration. Amortization will be calculated using the interest method, computed
in accordance with generally accepted accounting principles in effect on the
date of declaration.
The regular record date for any interest payment date for a floating rate
note, fixed rate note or an indexed rate note will be the date, whether or not a
business day, fifteen calendar days immediately preceding the interest payment
date.
FIXED RATE NOTES
Each fixed rate note will bear interest from its original issue date, or
from the last interest payment date to which interest has been paid or duly
provided for, at the rate per annum stated in the applicable pricing supplement
until its principal amount is paid or made available for payment. However, as
described below under "Subsequent Interest Periods" and "Extension of Maturity,"
or as otherwise may be described in the applicable pricing supplement, the rate
of interest payable on fixed rate notes may be adjusted from time to time.
Unless otherwise set forth in the applicable pricing supplement, interest on
each fixed rate note will be payable semiannually in arrears on the dates as set
forth in the applicable pricing supplement, with each such day being an interest
payment date, and at stated maturity. Unless otherwise specified in the
applicable pricing supplement, interest on fixed rate notes will be computed on
the basis of a 360-day year of twelve 30-day months or, in the case of an
incomplete month, the number of days elapsed.
Unless "accrue to pay" is specified in the applicable pricing supplement or
unless otherwise specified in the applicable pricing supplement, if an interest
payment date for any fixed rate note would otherwise be a day that is not a
business day, any payment required to be made on the note on such date,
including the stated maturity date, may be made on the next business day with
the same force and effect as if made on such date. No additional interest will
accrue as a result of the delayed payment. If in connection with any fixed rate
note, "accrue to pay" is specified in the applicable pricing supplement, and any
interest payment date for the fixed rate note would otherwise be a day that is
not a business day, such interest payment date will be
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postponed to the next business day. Any payment of interest on the interest
payment date will include interest accrued through the day before the interest
payment date.
FLOATING RATE NOTES
The initial interest period is the period from the original issue date to,
but not including, the first interest reset date. Each floating rate note will
bear interest at the initial interest rate set forth, or otherwise described, in
the applicable pricing supplement. The interest reset period is the period from
each interest reset date to, but not including, the following interest reset
date. The initial interest period and any interest reset period is an interest
period. The interest rate for each floating rate note will be determined based
on an interest rate basis, the base rate, plus or minus any spread, or
multiplied by any spread multiplier. A basis point or bp equals one-hundredth of
a percentage point. The spread is the number of basis points that may be
specified in the applicable pricing supplement as applicable to the note. The
spread multiplier is the percentage that may be specified in the applicable
pricing supplement as applicable to the note. As described below under
"Subsequent Interest Periods" and "Extension of Maturity," or as may otherwise
be specified in the applicable pricing supplement, the spread or spread
multiplier on floating rate notes may be adjusted from time to time.
The applicable pricing supplement will designate one of the following base
rates as applicable to a floating rate note:
- the CD Rate,
- the Commercial Paper Rate,
- the Federal Funds Rate,
- LIBOR,
- the Treasury Rate,
- the Prime Rate,
- the J.J. Kenny Rate,
- the Eleventh District Cost of Funds Rate, or
- such other base rate as is set forth in the applicable pricing supplement
and in the note.
The following terms are used in describing the various base rates.
The "index maturity" for any floating rate note is the period of maturity of
the instrument or obligation from which the base rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"H.15 Daily Update" means the daily update of the Board of Governors of the
Federal Reserve System at http://www.bog.frb.fed.us/releases/H15/update, or any
successor site or publication.
"Calculation date" means the date by which the calculation agent is to
calculate the interest rate for floating rate notes which will be the earlier of
(1) the tenth calendar day after the related rate determination date, or if any
such day is not a business day, the next business day and (2) the business day
preceding the applicable interest payment date or the stated maturity.
As specified in the applicable pricing supplement, a floating rate note may
also have either or both of the following, which will be expressed as a rate per
annum on a simple interest basis:
- maximum interest rate, which will be a maximum limitation, or ceiling, on
the rate at which interest may accrue during any interest period, and/or
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- minimum interest rate, which will be a minimum limitation, or floor, on
the rate at which interest may accrue during any interest period.
In addition to any maximum interest rate that may be applicable to any
floating rate note, the interest rate on a floating rate note will in no event
be higher than the maximum rate permitted by applicable law. The notes will be
governed by the law of New York State. As of the date of this prospectus
supplement, the maximum rate of interest under provisions of the New York penal
law, with a few exceptions, is 25% per annum on a simple interest basis. The
maximum rate of interest only applies to obligations that are less than
$2,500,000.
Lehman Brothers Holdings will appoint and enter into agreements with
calculation agents to calculate interest rates on floating rate notes. Unless
otherwise specified in the applicable pricing supplement, Citibank, N.A. will be
the calculation agent for each senior note that is a floating rate note. All
determinations of interest by the calculation agent will, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of the
floating rate notes.
The interest rate on each floating rate note will be reset on an interest
reset date, which means that the interest rate is reset daily, weekly, monthly,
quarterly, semiannually or annually, as specified in the applicable pricing
supplement.
Unless otherwise specified in the applicable pricing supplement, the
interest reset dates will be as follows:
- in the case of floating rate notes that reset daily, each business day,
- in the case of floating rate notes that reset weekly, other than Treasury
Rate notes, the Wednesday of each week,
- in the case of Treasury Rate notes that reset weekly and except as
provided below under "Treasury Rate Notes," the Tuesday of each week,
- in the case of floating rate notes that reset monthly, other than Eleventh
District Cost of Funds Rate notes, the third Wednesday of each month,
- in the case of floating rate notes that are Eleventh District Cost of
Funds Rate notes, the first calendar day of each month,
- in the case of floating rate notes that reset quarterly, the third
Wednesday of March, June, September and December of each year,
- in the case of floating rate notes that reset semiannually, the third
Wednesday of each of two months of each year specified in the applicable
pricing supplement, and
- in the case of floating rate notes that reset annually, the third
Wednesday of one month of each year specified in the applicable pricing
supplement,
provided, however, that (i) the interest rate in effect from the issue date to
the first interest reset date with respect to a floating rate note will be the
initial interest rate (as set forth in the applicable pricing supplement) and
(ii) the interest rate in effect for the ten days immediately prior to maturity
will be that in effect on the tenth day preceding maturity.
If an interest reset date for any floating rate note would fall on a day
that is not a business day, the interest reset date will be postponed to the
next business day. In the case of a LIBOR note, if postponement to the next
business day would cause the interest reset date to be in the next calendar
month, the interest reset date will instead be the immediately preceding
business day. If an auction of direct obligations of United States Treasury
bills falls on a day that is an interest reset date for Treasury Rate notes, the
interest reset date will be the succeeding business day.
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Unless otherwise specified in the applicable pricing supplement and except
as set forth below, the rate of interest that goes into effect on any interest
reset date will be determined on a rate determination date preceding the
interest reset date, as further described below.
Unless otherwise specified in the applicable pricing supplement, interest
payable on floating rate notes will be the interest accrued from and including
the original issue date or the last date to which interest has been paid, as the
case may be, to but excluding the applicable interest payment date.
Accrued interest on a floating rate note with more than one interest reset
date will be calculated by multiplying the principal amount of the note by an
accrued interest factor. If the floating rate note is an indexed principal note,
the face amount of the note will be multiplied by the accrued interest factor.
The accrued interest factor will be computed by adding the interest factors
calculated for each day in the period for which accrued interest is being
calculated. Unless otherwise specified in the applicable pricing supplement, the
interest factor for each such day will be computed by dividing the interest rate
in effect on that day by 360, in the case of CD Rate notes, Commercial Paper
Rate notes, Federal Funds Rate notes, LIBOR notes, Prime Rate notes, J.J. Kenny
Rate notes, and Eleventh District Cost of Funds Rate notes. In the case of
Treasury Rate notes, the interest factor for each such day will be computed by
dividing the interest rate by the actual number of days in the year. The
interest factor will be expressed as a decimal calculated to seven decimal
places without rounding. For purposes of making the foregoing calculation, the
interest rate in effect on any interest reset date will be the applicable rate
as reset on that date.
For all other floating rate notes, accrued interest will be calculated by
multiplying the principal amount of the note by the interest rate in effect
during the period for which accrued interest is being calculated. That product
is then multiplied by the quotient obtained by dividing the number of days in
the period for which accrued interest is being calculated by 360, in the case of
CD Rate notes, Commercial Paper Rate notes, Federal Funds Rate notes, LIBOR
notes, Prime Rate notes, J.J. Kenny Rate notes, and Eleventh District Cost of
Funds Rate notes. In the case of Treasury Rate notes, the product is multiplied
by the quotient obtained by dividing the number of days in the period for which
accrued interest is being calculated by the actual number of days in the year.
Unless otherwise specified in the applicable pricing supplement, all
percentages resulting from any calculation of the rate of interest on a floating
rate note will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward. All
currency amounts used in, or resulting from, the calculation on floating rate
notes will be rounded to the nearest one-hundredth of a unit. For purposes of
such rounding, .005 of a unit will be rounded upward.
Unless otherwise indicated in the applicable pricing supplement and except
as provided below, interest will be payable as follows:
- In the case of floating rate notes that reset daily, weekly or monthly,
other than Eleventh District Cost of Funds Rate notes, interest will be
payable on the third Wednesday of each month or on the third Wednesday of
March, June, September and December of each year, as specified in the
applicable pricing supplement.
- In the case of Eleventh District Cost of Funds Rate notes, interest will
be payable on the first calendar day of each March, June, September and
December.
- In the case of floating rate notes that reset quarterly, interest will be
payable on the third Wednesday of March, June, September, and December of
each year.
- In the case of floating rate notes that reset semiannually, interest will
be payable on the third Wednesday of each of two months of each year
specified in the applicable pricing supplement.
- In the case of floating rate notes that reset annually, interest will be
payable on the third Wednesday of one month of each year specified in the
applicable pricing supplement.
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In each of these cases, interest will also be payable at maturity.
If for any floating rate note, the applicable pricing supplement provides
that the note does not accrue to pay, and if an interest payment date for the
floating rate note would otherwise be a day that is not a business day, the
interest payment date will not be postponed. Any payment required to be made on
the floating rate note, however, may be made on the next business day with the
same force and effect as if made on the due date. No additional interest will
accrue as a result of the delayed payment.
Upon the request of the holder of any floating rate note, the calculation
agent for the note will provide the interest rate then in effect and, if
determined, the interest rate that will become effective on the next interest
reset date for the floating rate note.
CD RATE NOTES
Each CD Rate note will bear interest for each interest reset period at an
interest rate based on the CD Rate and any spread or spread multiplier specified
in the note and in the applicable pricing supplement.
The calculation agent will determine the CD Rate on each CD Rate
determination date. The CD Rate determination date is the second business day
prior to the interest reset date for each interest reset period. The CD Rate
will be the rate for negotiable certificates of deposit having the index
maturity designated in the applicable pricing supplement as published in
H.15(519) under the heading "CDs (Secondary Market)."
The following procedures will be followed if the CD Rate cannot be
determined as described above:
- If the above rate is not published prior to 3:00 p.m., New York City time,
on the calculation date pertaining to the CD Rate determination date, then
the CD Rate for the interest reset period will be the rate on that date
for negotiable certificates of deposit of the index maturity designated in
the applicable pricing supplement as published in the H.15 Daily Update.
- If by 3:00 p.m., New York City time, on the calculation date, the above
rate is not yet published in either H.15(519) or in the H.15 Daily Update,
then the CD Rate will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on that date of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit
in New York City selected by the calculation agent after consultation with
Lehman Brothers Holdingsfor negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the
market for negotiable certificates of deposit) with a remaining maturity
closest to the index maturity designated in the pricing supplement in a
denomination of $5,000,000.
- If the dealers selected by the calculation agent, however, are not quoting
offered rates as mentioned in the preceding sentence, the CD Rate for the
interest reset period will be the same as the CD Rate for the immediately
preceding interest reset period. If there was no such interest reset
period, the CD Rate will be the initial interest rate.
COMMERCIAL PAPER RATE NOTES
Each Commercial Paper Rate note will bear interest for each interest reset
period at an interest rate based on the Commercial Paper Rate and any spread or
spread multiplier, specified in the note and the applicable pricing supplement.
The calculation agent will determine the Commercial Paper Rate on each
Commercial Paper Rate determination date. The Commercial Paper Rate
determination date is the second business day prior to the interest reset date
for each interest reset period. The Commercial Paper Rate will be the money
market yield on that date of the rate for commercial paper having the index
maturity specified in the applicable pricing supplement, as the rate will be
published in H.15(519) under the heading "Commercial Paper."
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The following procedures will be followed if the Commercial Paper Rate
cannot be determined as described above:
- If the rate is not published prior to 3:00 p.m., New York City time, on
the calculation date pertaining to the Commercial Paper Rate determination
date, then the Commercial Paper Rate for the interest reset period will be
the money market yield on that date of the rate for commercial paper of
the specified index maturity as published in the H.15 Daily Update under
the heading "Commercial Paper."
- If by 3:00 p.m., New York City time, on the calculation date, the above
rate is not yet published in either H.15(519) or in the H.15 Daily Update,
then the Commercial Paper Rate for the interest reset period will be the
money market yield of the arithmetic mean of the offered rates, as of
11:00 a.m., New York City time, on that date, of three leading dealers of
commercial paper in New York City selected by the calculation agent after
consultation with Lehman Brothers Holdings for commercial paper of the
specified index maturity placed for an industrial issuer whose bonds are
rated "AA" or the equivalent by a nationally recognized rating agency.
- If the dealers selected by the calculation agent, however, are not quoting
offered rates as mentioned in the preceding sentence, the Commercial Paper
Rate for the interest reset period will be the same as the Commercial
Paper Rate for the immediately preceding interest reset period. If there
was no such interest reset period, the Commercial Paper Rate will be the
initial interest rate.
Money market yield will be calculated as follows:
<TABLE>
<S> <C> <C> <C>
Money market yield= D X 360 X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified index maturity.
FEDERAL FUNDS RATE NOTES
Each Federal Funds Rate note will bear interest for each interest reset
period at an interest rate based on the Federal Funds Rate and any spread or
spread multiplier specified in the note and the applicable pricing supplement.
The calculation agent will determine the Federal Funds Rate on each Federal
Funds Rate determination date. The Federal Funds Rate determination date is the
second business day prior to the interest reset date for the interest reset
period. The Federal Funds Rate will be the rate for Federal Funds as published
in H.15(519) under the heading "Federal Funds (Effective)."
The following procedures will be followed if the Federal Funds Rate cannot
be determined as described above:
- If the above rate is not published prior to 3:00 p.m., New York City time,
on the calculation date pertaining to the Federal Funds Rate determination
date, the Federal Funds Rate for the interest reset period will be the
rate on that date as published in the H.15 Daily Update under the heading
"Federal Funds/Effective Rate."
- If by 3:00 p.m., New York City time, on the calculation date the above
rate is not yet published in either H.15(519) or in the H.15 Daily Update,
then the Federal Funds Rate for the interest reset period will be the rate
on that date which the Federal Reserve Bank of New York makes publicly
available that is equivalent to the rate which appears in H.15(519) under
the heading "Federal Funds (Effective)."
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- If the rate, however, is not made publicly available by the Federal
Reserve Bank of New York by 3:00 p.m., New York City time, on the
calculation date, the Federal Funds Rate for the interest reset period
will be the same as the Federal Funds Rate in effect for the immediately
preceding interest reset period. If there was no such interest reset
period, the Federal Funds Rate will be the initial interest rate.
In the case of a Federal Funds Rate note that resets daily, the interest
rate on the note for the period from and including a Monday to but excluding the
succeeding Monday will be reset by the calculation agent for the note on the
second Monday, or, if not a business day, on the next business day, to a rate
equal to the average of the Federal Funds Rates in effect for each such day in
such week.
LIBOR NOTES
Each LIBOR note will bear interest for each interest reset period at an
interest rate based on LIBOR and any spread or spread multiplier specified in
the note and the applicable pricing supplement.
The calculation agent will determine LIBOR on each LIBOR determination date.
The LIBOR determination date is the second London banking day prior to the
interest reset date for each interest reset period.
On a LIBOR determination date, the calculation agent will determine LIBOR
for each interest reset period as follows:
- The calculation agent will determine the offered rates for deposits in the
specified currency for the period of the index maturity specified in the
applicable pricing supplement, commencing on the interest reset date,
which appears on the "designated LIBOR page" at approximately 11:00 a.m.,
London time, on that date.
- If "LIBOR Telerate" is designated in the applicable pricing supplement,
"designated LIBOR page" means the display designated as page "3750" on the
Bridge Telerate Service, and LIBOR will be the relevant offered rate
determined by the calculation agent. If page "3750" on the Bridge Telerate
Service is replaced by another page, or if the Bridge Telerate Service is
replaced by a nominee of the British Bankers' Association, then "LIBOR
Telerate" means the replacement page or service selected to display the
London interbank offered rates of major banks.
- If "LIBOR Reuters" is designated in the applicable pricing supplement,
"designated LIBOR page" means the arithmetic mean determined by the
calculation agent of the two or more offered rates on the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service. If
the LIBO page on the service is replaced by another page, or if the
Reuters Monitor Money Rates Service is replaced by a nominee of the
British Bankers' Association, then "LIBOR Reuters" means the arithmetic
mean determined by the calculation agent of the two or more offered rates
on the replacement page or service selected to display the London
interbank offered rates of major banks.
If LIBOR cannot be determined on a LIBOR determination date as described
above, then the calculation agent will determine LIBOR as follows:
- The calculation agent for the LIBOR note will select four major banks in
the London interbank market after consultation with Lehman Brothers
Holdings.
- The calculation agent will request that the principal London offices of
those four selected banks provide their offered quotations to prime banks
in the London interbank market at approximately 11:00 a.m., London time,
on the LIBOR determination date. These quotations will be for deposits in
the specified currency for the period of the specified index maturity,
commencing on the interest reset date. Offered quotations must be based on
a principal amount equal to at least $1,000,000 or the approximate
equivalent in the specified currency that is representative of a single
transaction in such market at such time.
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(1) If two or more quotations are provided, LIBOR for the interest reset
period will be the arithmetic mean of the quotations.
(2) If less than two quotations are provided, the calculation agent will
select three major banks in New York City after consultation with Lehman
Brothers Holdings and follow the steps in the two bullet points below.
- The calculation agent will then determine LIBOR for the interest reset
period as the arithmetic mean of rates quoted by those three major
banks in New York City to leading European banks at approximately
11:00 a.m., New York City time, on the LIBOR determination date. The
rates quoted will be for loans in the specified currency, for the
period of the specified index maturity, commencing on the interest
reset date. Rates quoted must be based on a principal amount of at
least $1,000,000 or the approximate equivalent in the specified
currency that is representative of a single transaction in such market
at such time.
- If fewer than three New York City banks selected by the calculation
agent are quoting rates, LIBOR for the interest reset period will be
the same as for the immediately preceding interest reset period. If
there was no such interest reset period, the LIBOR Rate will be the
initial interest rate.
TREASURY RATE NOTES
Each Treasury Rate note will bear interest for each interest reset period at
an interest rate based on the Treasury Rate and any spread or spread multiplier,
specified in the note and the applicable pricing supplement.
TREASURY RATE NOTES OTHER THAN CONSTANT MATURITY TREASURY RATE NOTES
Unless "Constant Maturity" is specified in the applicable pricing
supplement, the Treasury Rate for each interest reset period will be the rate
for the auction held on the Treasury Rate determination date for the interest
reset period of U.S. treasury securities as published in H.15(519) under the
heading "U.S. Government Securities--Treasury bills--auction average
(investment)." Treasury securities are direct obligations of the United States
that have the index maturity specified in the applicable pricing supplement.
If the Treasury Rate cannot be determined as described above, the following
procedures will be followed in the order set forth below:
(1) If the Treasury Rate is not published prior to 3:00 p.m., New York City
time on the calculation date pertaining to the Treasury Rate
determination date, then the Treasury Rate for the interest reset period
will be the auction average rate on the Treasury Rate determination date
as otherwise announced by the United States Department of the Treasury.
The auction average rate will be expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis.
(2) If the results of such auction are not published or reported as provided
in (1) above by 3:00 P.M., New York City time, on the calculation date,
or if no such auction is held on the Treasury Rate determination date,
then the Treasury Rate for the interest reset period will be calculated
by the calculation agent for the Treasury Rate note. In this case, the
Treasury Rate will be a yield to maturity of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on the Treasury Rate determination date, of three leading primary
United States government securities dealers selected by the calculation
agent for the issue of Treasury securities with a remaining maturity
closest to the specified index maturity. The yield to maturity will be
expressed as a bond equivalent on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis.
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(3) If the dealers selected by the calculation agent are not quoting bid
rates as mentioned in (2) above, then the Treasury Rate for the interest
reset period will be the same as the Treasury Rate for the immediately
preceding interest reset period. If there was no preceding interest reset
period, the Treasury Rate will be the initial interest rate.
The Treasury Rate determination date for each interest reset period will be
the day of the week in which the interest reset date for the interest reset
period falls on which treasury securities would normally be auctioned. Treasury
securities are normally sold at auction on Monday of each week unless that day
is a legal holiday. In that case the auction is normally held on the following
Tuesday, except that the auction may be held on the preceding Friday. If, as the
result of a legal holiday, an auction is held on the preceding Friday, that
Friday will be the Treasury Rate determination date pertaining to the interest
reset period commencing in the next week. If an auction date falls on any day
that would otherwise be an interest reset date for a Treasury Rate note, then
that interest reset date will instead be the business day immediately following
the auction date.
CONSTANT MATURITY TREASURY RATE NOTES
If "Constant Maturity" is specified in the applicable pricing supplement,
the Treasury Rate for each interest reset period will be the rate published in
H.15(519) under the caption "U.S. Governement Securities/Treasury Constant
Maturities/" in the index maturity with respect to the applicable Constant
Maturity Treasury Rate determination date (as defined below).
If the rate cannot be determined as described above, the following
procedures will be followed in the order set forth below:
(1) If H.15(519) is not published, the Treasury Rate will be the rate that
was set forth on Bridge Telerate Page 7055, or its successor page (as
determined by the calculation agent after consultation with Lehman
Brothers Holdings), on the applicable Constant Maturity Treasury Rate
determination date opposite the applicable index maturity.
(2) If no such rate is set forth, then the Treasury Rate for such interest
reset period shall be established by the calculation agent as follows:
- The calculation agent will contact the Federal Reserve Board and
request the Treasury Rate, in the applicable index maturity, for the
Constant Maturity Treasury Rate determination date.
- If the Federal Reserve Board does not provide such information, then
the Treasury Rate for such interest reset date will be the arithmetic
mean of bid-side quotations, expressed in terms of yield, reported by
three leading U.S. government securities dealers, according to their
written records, as of 3:00 p.m. (New York City time) on the Constant
Maturity Treasury Rate determination date, for the noncallable U.S.
Treasury note that is nearest in maturity to the index maturity, but
not less than exactly the index maturity and for the noncallable U.S.
Treasury note that is nearest in maturity to the index maturity, but
not more than exactly the index maturity.
- The calculation agent shall calculate the Treasury Rate by
interpolating to the index maturity based on an actual/actual date
count basis, the yield on the two Treasury notes selected.
- If the calculation agent cannot obtain three such adjusted quotations,
the Treasury Rate for such interest reset date will be the arithmetic
mean of all such quotations, or if only one such quotation is obtained,
such quotation, obtained by the calculation agent.
- In all events, the calculation agent shall continue polling dealers
until at least one adjusted yield quotation can be determined.
The "Constant Maturity Treasury Rate determination date" will be the
tenth business day prior to the interest reset date for the applicable
interest reset period.
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The CMT Rate for a Treasury security maturity as published as of any
business day is intended to be indicative of the yield of a U.S. Treasury
security having as of the business day a remaining term to maturity
equivalent to such maturity. The CMT Rate as of any business day is based
upon an interpolation by the U.S. Treasury of the daily yield curve of
outstanding Treasury securities. This yield curve, which relates the yield
on a security to its time to maturity, is based on the over-the-counter
market bid yields on actively traded Treasury securities. The yields are
calculated from composites of quotations reported by leading U.S. government
securities dealers, which may include one or more of the calculation agents
or other affiliates of Lehman Brothers Holdings. Certain constant maturity
yield values are read from the yield curve. The interpolation from the yield
curve provides a theoretical yield for a Treasury security having ten years
to maturity, for example, even if no outstanding Treasury security has as of
such date exactly ten years remaining to maturity.
PRIME RATE NOTES
Each Prime Rate note will bear interest for each interest reset period at an
interest rate based on the Prime Rate and any spread or spread multiplier
specified in the note and the applicable pricing supplement.
The calculation agent will determine the Prime Rate for each interest reset
period on each Prime Rate determination date. The Prime Rate determination date
is the second business day prior to the interest reset date for each interest
reset period. The Prime Rate will be the rate made available and subsequently
published on that date in H.15(519) under the heading "Bank Prime Loan."
The following procedures will be followed if the Prime Rate cannot be
determined as described above:
- If the rate is not published prior to 9:00 a.m., New York City time, on
the related calculation date, then the Prime Rate will be the rate on the
Prime Rate determination date that is published in the H.15 Daily Update
under the heading "Bank Prime Loan."
- If the rate is not published prior to 3:00 P.M., New York City time, on
the related calculation date, in either of those sources, then the Prime
Rate will be the arithmetic mean of the rates of interest offered by
various banks that appear on the Reuters Screen USPRIME1 Page as each such
bank's prime rate or base lending rate for the Prime Rate determination
date.
- If fewer than four such rates appear on the Reuters Screen USPRIME1 Page,
then the calculation agent will select four major banks in New York City
after consultation with Lehman Brothers Holdings. The Prime Rate will be
the arithmetic mean of the prime rates quoted by those four banks on the
basis of the actual number of days in the year divided by a 360-day year
as of the close of business on the Prime Rate determination date.
- If all four of the banks selected by the calculation agent do not provide
quotations, then the Prime Rate will be the arithmetic mean of four prime
rates quoted on the basis of the actual number of days in the year divided
by a 360-day year as of the close of business on the Prime Rate
determination date. These Prime Rate quotes will be provided by the
selected banks and by a reasonable number of substitute domestic banks or
trust companies that the calculation agent will select after consultation
with Lehman Brothers Holdings that have total equity capital of at least
$500,000,000.
- If the banks or trust companies selected by the calculation agent,
however, are not quoting rates as mentioned in the preceding sentence, the
Prime Rate for the interest reset period will be the same as the Prime
Rate in effect for the immediately preceding interest reset period. If
there was no such interest reset period, the Prime Rate will be the
initial interest rate.
"Reuters Screen USPRIME1 page" means the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service, or any successor service
or page, for the purpose of displaying prime rates or base lending rates of
major United States banks.
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J.J. KENNY RATE NOTES
Each J.J. Kenny Rate note will bear interest for each interest reset period
based on the J.J. Kenny Rate and any spread or spread multiplier specified in
the note and the applicable pricing supplement.
The calculation agent will determine the J.J. Kenny Rate on each J.J. Kenny
Rate determination date. The J.J. Kenny Rate determination date is the second
business day prior to the interest reset date for each interest reset period.
The J.J. Kenny Rate will be the per annum rate on that date equal to the
index made available and subsequently published by Kenny Information Systems or
its successor. The rate will be based upon 30-day yield evaluations at par of
bonds of not less than five "high grade" component issuers. The bonds evaluated
will be bonds on which the interest is excludable from gross income for federal
income tax purposes under the Internal Revenue Code of 1986. Kenny Information
Systems will select the issuers from time to time, including issuers of general
obligation bonds. However, the bonds on which the index is based will not
include any bonds the interest on which may trigger an "alternate minimum tax"
or similar tax under the Code, unless the tax may be imposed on all tax-exempt
bonds.
If the rate described above is not made available by 3:00 P.M., New York
City time, on the calculation date pertaining to the J.J. Kenny Rate
determination date, the J.J. Kenny Rate will be the rate quoted by a successor
indexing agent selected by Lehman Brothers Holdings. This rate will be equal to
the prevailing rate for bonds included in the highest short-term rating category
by Moody's Investors Service, Inc. and Standard & Poor's Corporation for issuers
selected by the successor indexing agent most closely resembling the "high
grade" component issuers selected by Kenny Information Systems. The bonds for
which rates are quoted will be bonds that may be tendered by their holders for
purchase on not more than seven days' notice and the interest on which:
- is variable on a weekly basis,
- is excludable from gross income for federal income tax purposes under the
Code, and
- does not give rise to an "alternate minimum tax" or similar tax under the
Code, unless all tax-exempt bonds give rise to such a tax.
However, if a successor indexing agent is not available, the J.J. Kenny Rate on
the J.J. Kenny Rate determination date will be the J.J. Kenny Rate for the
immediately preceding interest reset period. If there was no such interest reset
period, the J.J. Kenny Rate will be the initial interest rate.
ELEVENTH DISTRICT COST OF FUNDS RATE NOTES
Each Eleventh District Cost of Funds Rate note will bear interest for each
interest reset period based on the Eleventh District Cost of Funds Rate and any
spread or spread multiplier specified in the note and the applicable pricing
supplement.
The calculation agent will determine the Eleventh District Cost of Funds
Rate on each Eleventh District Cost of Funds Rate determination date. The
Eleventh District Cost of Funds Rate determination date is the last working day
of the month immediately prior to each interest reset date for each interest
reset period on which the Federal Home Loan Bank (FHLB) of San Francisco
publishes the Eleventh District Cost of Funds Index.
The Eleventh District Cost of Funds Rate will be the rate equal to the
monthly weighted average cost of funds for the calendar month preceding the
Eleventh District Cost of Funds Rate determination date as set forth under the
caption "Eleventh District" on the Telerate page 7058. The page will be deemed
to include any successor page, determined by the calculation agent, as of 11:00
a.m., San Francisco time, on the Eleventh District Cost of Funds Rate
determination date.
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The following procedures will be followed if the Eleventh District Cost of
Funds Rate cannot be determined as described above:
- If the rate does not appear on Telerate page 7058 on any related Eleventh
District Cost of Funds Rate determination date, the Eleventh District Cost
of Funds Rate for the Eleventh District Cost of Funds Rate determination
date will be the Eleventh District Cost of Funds Rate Index.
- If the FHLB of San Francisco fails to announce the rate for the calendar
month next preceding the Eleventh District Cost of Funds Rate
determination date, then the Eleventh District Cost of Funds Rate for the
date will be the Eleventh District Cost of Funds Rate in effect on the
Eleventh District Cost of Funds Rate determination date.
The "Eleventh District Cost of Funds Rate Index" will be the monthly
weighted average cost of funds paid by member institutions of the Eleventh
Federal Home Loan Bank District that the FHLB of San Francisco most recently
announced as the cost of funds for the calendar month preceding the date of the
announcement.
INVERSE FLOATING RATE NOTES
Any floating rate note may be designated in the applicable pricing
supplement as an inverse floating rate note. In such an event, unless otherwise
specified in the applicable pricing supplement, the interest rate on the
floating rate note will be equal to:
- in the case of the period, if any, commencing on the issue date, or the
date on which the note otherwise begins to accrue interest if different
from the issue date, up to the first interest reset date, a fixed rate of
interest established by Lehman Brothers Holdings as described in the
applicable pricing supplement; and
- in the case of each period commencing on an interest reset date, a fixed
rate of interest specified in the pricing supplement minus the interest
rate determined based on the base rate as adjusted by any spread or spread
multiplier.
However, on any inverse floating rate note, the interest rate will not be less
than zero.
FLOATING/FIXED RATE NOTES
The applicable pricing supplement may provide that a note will be a floating
rate note for a specified portion of its term and a fixed rate note for the
remainder of its term. In such an event, the interest rate on the note will be
determined as if it were a floating rate note and a fixed rate note for each
such respective period, all as specified in the applicable pricing supplement.
SUBSEQUENT INTEREST PERIODS
The pricing supplement relating to each note will indicate whether Lehman
Brothers Holdings has the option to reset the interest rate, or the spread,
spread multiplier, or method of calculation, as the case may be, for the note.
If Lehman Brothers Holdings has the option to reset, the pricing supplement will
also indicate the optional reset date or dates on which the interest rate or the
spread, spread multiplier, or method of calculation, as the case may be, may be
reset.
Lehman Brothers Holdings will notify the trustee whether or not it intends
to exercise such option relating to the note at least 45 but not more than 60
days prior to an optional reset date for the note. Not later than five business
days after receipt thereof, the trustee will mail to the holder of the note a
reset notice indicating whether Lehman Brothers Holdings has elected to reset
the interest rate, or the spread, spread multiplier or method of calculation, as
the case may be.
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If Lehman Brothers Holdings elects to reset the interest rate, or the
spread, spread multiplier or method of calculation, as the case may be, the
trustee will mail to the holder in a manner described above a notice indicating
the new interest rate or the new spread, spread multiplier, or method of
calculation, as the case may be. The notice will also indicate any provisions
for redemption during the subsequent interest period. The subsequent interest
period is the period from the optional reset date to the next optional reset
date or, if there is no such next optional reset date, to the stated maturity of
the note, including the date or dates on which or the period or periods during
which and the price or prices at which the redemption may occur during the
subsequent interest period.
Upon the transmittal by the trustee of a reset notice to the holder of a
note, the new interest rate or the new spread, spread multiplier, and/or method
of calculation as the case may be, will take effect automatically. Except as
modified by the reset notice and as described below, the note will have the same
terms as prior to the transmittal of the reset notice.
Despite the foregoing, not later than 20 days prior to an optional reset
date for a note, Lehman Brothers Holdings may, at its option, revoke the
interest rate, or the spread or spread multiplier, provided for in the reset
notice relating to the optional reset date and establish a higher interest rate,
or a higher spread or spread multiplier, as applicable, for the subsequent
interest period commencing on the optional reset date.
Lehman Brothers Holdings can make such revocations by causing the trustee
for the note to mail notice of the higher interest rate or higher spread or
spread multiplier, as the case may be, first class, postage prepaid, to the
holder of the note. The notice will be irrevocable. All notes for which the
interest rate or spread or spread multiplier is reset on an optional reset date
will bear the higher interest rate, or higher spread or spread multiplier, as
the case may be, whether or not tendered for repayment.
The holder of a note will have the option to elect repayment by Lehman
Brothers Holdings on each optional reset date at a price equal to the principal
amount of the note plus interest accrued to the optional reset date. For a note
to be repaid on an optional reset date, the holder of the note must follow the
procedures set forth below under "Optional Redemption, Repayment and Repurchase"
for optional repayment. However, the period for delivery of the note or
notification to the trustee for the note will be at least 25 but not more than
35 days prior to the optional reset date. Further, a holder who has tendered a
note for repayment pursuant to a reset notice may, by written notice to the
trustee, revoke any such tender for repayment until the close of business on the
tenth day prior to the optional reset date.
AMORTIZING NOTES
Lehman Brothers Holdings may from time to time offer amortizing notes on
which a portion or all the principal amount is payable prior to stated maturity:
- in accordance with a schedule,
- by application of a formula, or
- based on an index.
Further information concerning additional terms and conditions of any amortizing
notes, including terms for repayment, will be set forth in the applicable
pricing supplement.
INDEXED NOTES
Lehman Brothers Holdings may from time to time offer indexed notes on which
some or all interest payments, in the case of an indexed rate note, and/or the
principal amount payable at stated maturity or earlier redemption or retirement,
in the case of an indexed principal note, is determined based on:
- the principal amount of the notes or, in the case of an indexed principal
note, the amount designated in the applicable pricing supplement as the
"face amount" of the indexed note, and
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- an index, which may be based on:
(1) prices, changes in prices, or differences between prices, of
securities, currencies, intangibles, goods, articles or commodities,
(2) the application of a formula, or
(3) an index which will be such other objective price, economic or other
measures as are described in the applicable pricing supplement.
A description of the index used in any determination of an interest or principal
payment, and the method or formula by which interest or principal payments will
be determined based on the index, will be set forth in the applicable pricing
supplement.
If a fixed rate note, floating rate note or indexed rate note is also an
indexed principal note, the amount of any interest payment will be determined
based on the face amount of the indexed note unless specified otherwise in the
applicable pricing supplement. If an indexed note is also an indexed principal
note, the principal amount payable at stated maturity or any earlier redemption
or repayment of the indexed note may be different from the face amount.
If a third party is appointed to calculate or announce the index for a
particular indexed note, and the third party either (1) suspends the calculation
or announcement of the index or (2) changes the basis upon which the index is
calculated in a manner that is inconsistent with the applicable pricing
supplement, then Lehman Brothers Holdings will select another third party to
calculate or announce the index. The agent or another affiliate of Lehman
Brothers Holdings may be either the original or successor third party selected
by Lehman Brothers Holdings.
If for any reason the index cannot be calculated on the same basis and
subject to the same conditions and controls as applied to the original third
party, then any indexed interest payments or any indexed principal amount of the
indexed note will be calculated in the manner set forth in the applicable
pricing supplement. Any determination by the selected third party will be
binding on all parties, except in the case of an obvious error.
Unless otherwise specified in the applicable pricing supplement, for the
purpose of determining whether holders of the requisite principal amount of
notes outstanding under the indenture have made a demand or given a notice or
waiver or taken any other action, the outstanding principal amount of indexed
notes will be deemed to be the face amount stated on the notes. Unless otherwise
specified in the applicable pricing supplement, in the event of an acceleration
of the stated maturity of an indexed note, the principal amount payable to the
holder of the note upon acceleration will be the principal amount determined
based on the formula used to determine the principal amount of the note on the
stated maturity of the note, as if the date of acceleration were the stated
maturity.
DUAL CURRENCY NOTES
Lehman Brothers Holdings may from time to time offer dual currency notes on
which Lehman Brothers Holdings has a one time option of making all payments of
principal, any premium and interest on the notes which are issued on the same
day and have the same terms, the payments on which would otherwise be made in
the specified currency of the notes, in the optional payment currency specified
in the applicable pricing supplement. The option will be exercisable in whole
but not in part on an option election date, which will be any one of the dates
specified in the applicable pricing supplement. Information as to the relative
value of the specified currency compared to the optional payment currency will
be set forth in the applicable pricing supplement.
The pricing supplement for each issuance of dual currency notes will
specify, among other things:
- the specified currency,
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- the optional payment currency, and
- the designated exchange rate.
The designated exchange rate will be a fixed exchange rate used for
converting amounts denominated in the specified currency into amounts
denominated in the optional payment currency. The pricing supplement will also
specify the option election dates and interest payment dates for the related
issuance of dual currency notes. Each option election date will be a particular
number of days before an interest payment date or stated maturity, as set forth
in the applicable pricing supplement. Each option election date will be the date
on which Lehman Brothers Holdings may select whether to make all scheduled
payments due thereafter in the optional payment currency rather than in the
specified currency.
If Lehman Brothers Holdings makes such an election, the amount payable in
the optional payment currency will be determined using the designated exchange
rate specified in the applicable pricing supplement. If the election is made,
notice will be mailed in accordance with the terms of the applicable tranche of
dual currency notes within five business days of the option election date. The
notice will state (1) the first date, whether an interest payment date and/or
stated maturity, on which scheduled payments in the optional payment currency
will be made and (2) the designated exchange rate. Any such notice by Lehman
Brothers Holdings, once given, may not be withdrawn. The equivalent value in the
specified currency of payments made after such an election may be less, at the
then current exchange rate, than if Lehman Brothers Holdings had made the
payment in the specified currency.
RENEWABLE NOTES
Lehman Brothers Holdings may from time to time offer renewable notes, which
will mature on an initial maturity date. The initial maturity date will be an
interest payment date specified in the applicable pricing supplement occurring
in, or prior to, the twelfth month following the original issue date of the
notes, unless the term of all or any portion of any the notes is renewed in
accordance with the procedures described below.
The term of a renewable note may be extended to the interest payment date
occurring in the twelfth month (or, if a special election interval is specified
in the applicable pricing supplement, the last month in a period equal to twice
the special election interval elected by the holder) after the renewal date. The
extension may be made on the initial renewal date. That date will be the
interest payment date occurring in the sixth month (unless a special election
interval is specified in the applicable pricing supplement) prior to the initial
maturity date of the note. Subsequent renewal dates will occur on the interest
payment date occurring in each sixth month (or in the last month of each special
election interval) after the initial renewal date.
If a holder does not elect to extend the term of any portion of the
principal amount of a renewable note during the specified period prior to any
renewal date, the portion will become due and payable on the existing maturity
date.
An election to renew the term of a renewable note is made by delivering a
notice to that effect to the trustee or any duly appointed paying agent at the
corporate trust office of the trustee or agency of the trustee in New York City.
The notice must be delivered not less than three nor more than 15 days prior to
the renewal date (unless another period is specified in the applicable pricing
supplement as the special election period). The election will be irrevocable and
will be binding upon each subsequent holder of the renewable note.
An election to renew the term of a renewable note may be exercised for less
than the entire principal amount of the renewable note only if so specified in
the applicable pricing supplement and only in the principal amount, or any
integral multiple in excess of that amount, that is specified in the applicable
pricing supplement. Despite the foregoing, the term of the renewable note may
not be extended beyond the stated maturity specified for the renewable note in
the applicable pricing supplement.
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If the holder does not elect to renew the term, the renewable note must be
presented to the trustee, or any duly appointed paying agent. If the renewable
note is a certificate issued in definitive form, it must be presented to the
trustee as soon as practicable following receipt of the renewable note. The
trustee, or any duly appointed paying agent, will issue a new note in exchange
for the renewable note. The new note will be in a principal amount equal to the
principal amount of the exchanged renewable note for which no election to renew
the term was exercised, with terms identical to those specified on the renewable
note. However, the note will have a fixed, nonrenewable stated maturity on the
new maturity date.
If an election to renew is made for less than the full principal amount of a
holder's renewable note, the trustee, or any duly appointed paying agent, will
issue in exchange for the note in the name of the holder, a replacement
renewable note. The replacement renewable note will be in a principal amount
equal to the principal amount elected to be renewed of the exchanged renewable
note, with terms otherwise identical to the exchanged renewable note.
EXTENSION OF MATURITY
The pricing supplement relating to each note will indicate whether Lehman
Brothers Holdings has the option to extend the stated maturity of the note for
an extension period. An extension period is one or more periods of one to five
whole years, up to but not beyond the final maturity date set forth in the
pricing supplement.
Lehman Brothers Holdings may exercise such option for a note by notifying
the trustee for the note at least 45 but not more than 60 days prior to the old
stated maturity of the note. Not later than five business days after receipt
thereof, the trustee will mail an extension notice to the holder of the note.
The extension notice will set forth:
- the election of Lehman Brothers Holdings to extend the stated maturity of
the note,
- the new stated maturity,
- in the case of a fixed rate note, the interest rate applicable to the
extension period,
- in the case of a floating rate note, the spread, spread multiplier or
method of calculation applicable to the extension period, and
- any provisions for redemption during the extension period, including the
date or dates on which, or the period or periods during which, and the
price or prices at which, the redemption may occur during the extension
period.
Upon the mailing by the trustee of an extension notice to the holder of a
note, the stated maturity of the note will be extended automatically, and,
except as modified by the extension notice and as described in the next
paragraph, the note will have the same terms as prior to the mailing of the
extension notice.
Despite the foregoing, not later than 20 days prior to the old stated
maturity of the note, Lehman Brothers Holdings may, at its option, revoke the
interest rate, or the spread or spread multiplier, as the case may be, provided
for in the extension notice for the note and establish for the extension period
a higher interest rate, in the case of a fixed rate note, or a higher spread or
spread multiplier, in the case of a floating rate note. Lehman Brothers Holdings
may so act by causing the trustee to mail notice of the higher interest rate or
higher spread or spread multiplier, as the case may be, to the holder of the
note. The notice will be irrevocable and will be mailed by the trustee within
three business days of receipt thereof. All notes for which the stated maturity
is extended will bear the higher interest rate, in the case of fixed rate notes,
or higher spread or spread multiplier, in the case of floating rate notes, for
the extension period, whether or not tendered for repayment.
If Lehman Brothers Holdings extends the stated maturity of a note, the
holder of the note will have the option to elect repayment of the note by Lehman
Brothers Holdings on the old stated maturity at a price
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equal to the principal amount of the note, plus interest accrued to such date.
For a note to be repaid on the old stated maturity once Lehman Brothers Holdings
has extended its stated maturity, the holder of the note must follow the
procedures set forth below under "Optional Redemption, Repayment and Repurchase"
for optional repayment. The period for delivery of the note or notification to
the trustee will be at least 25 but not more than 35 days prior to the old
stated maturity. A holder who has tendered a note for repayment pursuant to an
extension notice may give written notice to the trustee for the note to revoke
any such tender for repayment until the close of business on the tenth day
before the old stated maturity.
COMBINATION OF PROVISIONS
If so specified in the applicable pricing supplement, any note may be
required to comply with all of the provisions, or any combination of the
provisions, described above under "Subsequent Interest Periods," "Extension of
Maturity" and "Renewable Notes," and below under "Optional Redemption, Repayment
and Repurchase."
BOOK-ENTRY SYSTEM
Upon issuance, and unless the rules of DTC state otherwise, all book-entry
notes having the same original issue date and otherwise identical terms will be
represented by a single global security. Each global security representing
book-entry notes will be deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. Book-entry notes will not be exchangeable for
certificated notes and, except under the circumstances described in the
prospectus under "Book-Entry Procedures and Settlement," will not otherwise be
issuable as certificated notes.
If an issue of notes is denominated in a currency other than the U.S.
dollar, Lehman Brothers Holdings will make payments of principal and any
interest in the foreign currency in which the notes are denominated or in U.S.
dollars. DTC has elected to have all such payments of principal and interest in
U.S. dollars unless notified by any of its participants through which an
interest in the notes is held that it elects, in accordance with, and to the
extent permitted by, the applicable pricing supplement and the revelant note, to
receive the payment of principal or interest in the foreign currency. On or
prior to the third business day after the record date for payment of interest
and twelve days prior to the date for payment of principal, the participant will
notify DTC of (1) its election to receive all, or the specified portion, of the
payment in the foreign currency and (2) its instructions for wire transfer of
the payment to a foreign currency account.
A further description of DTC's procedures regarding global securities
representing book-entry notes is set forth in the prospectus under "Book-Entry
Procedures and Settlement." DTC has confirmed to Lehman Brothers Holdings, the
agent and the trustee that it intends to follow such procedures.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
The pricing supplement relating to each note will indicate either that (1)
the note cannot be redeemed prior to its stated maturity or (2) that the note
will be redeemable at the option of Lehman Brothers Holdings, in whole or in
part. The applicable pricing supplement will also indicate (1) the optional
redemption date or dates on which the note may be redeemed and (2) the
redemption price at which, together with accrued interest to the optional
redemption date, the note may be redeemed on each such optional redemption date.
Unless otherwise specfied in the applicable pricing supplement, not more
than 60 nor less than 30 days prior to the date of redemption, the trustee will
mail notice of redemption to the holder of the note. In the event of redemption
of a note in part only, a new note or notes for the unredeemed portion of the
note or notes will be issued to the holder of the note or notes upon the
cancellation of the note or notes.
The pricing supplement relating to each note will also indicate whether the
holder of the note will have the option to elect repayment of the note by Lehman
Brothers Holdings prior to its stated maturity. If so, the
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pricing supplement will specify (1) the optional repayment date or dates on
which the note may be repaid and (2) the optional repayment price. The optional
repayment price is the price at which, together with accrued interest to the
optional repayment date, the note may be repaid on each such optional repayment
date.
For a note to be repaid, the trustee must receive, at least 30 but not more
than 45 days prior to an optional repayment date:
(1) the note with the form entitled "Option to Elect Repayment" on the
reverse of the note duly completed, or
(2) a telegram, telex, fax or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company in the United States setting forth:
- the name of the holder of the note,
- the face amount of the note to be repaid,
- the certificate number or a description of the tenor and terms of the
note,
- a statement that the option to elect repayment is being exercised, and
- a guarantee that the note to be repaid with the form entitled "Option
to Elect Repayment" on the reverse of the note duly completed will be
received by the trustee not later than five business days after the
date of the telegram, telex, fax or letter.
If the guarantee procedure described in clause (2) above is followed, the
note and form duly completed must be received by the trustee by the fifth
business day. Any tender of a note by the holder for repayment, except pursuant
to a reset notice or an extension notice, will be irrevocable. The repayment
option may be exercised by the holder of a note for less than the entire
principal amount of the note, provided, that the principal amount of the note
remaining outstanding after repayment is an authorized denomination. Upon such
partial repayment, the note will be canceled and a new note or notes for the
remaining principal amount will be issued in the name of the holder of the
repaid note.
If a note is represented by a global security, DTC's nominee will be the
holder of the note and, therefore, will be the only entity that can exercise a
right to repayment. In order to ensure that DTC's nominee will timely exercise a
right to repayment relating to a particular note, the beneficial owner of the
note must instruct the broker or other direct or indirect participant through
which it holds an interest in the note to notify DTC of its desire to exercise a
right to repayment. Different firms have different cut-off times for accepting
instructions from their customers. Accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an interest in a note in order to ascertain the cut-off time by which such
an instruction must be given for timely notice to be delivered to DTC.
If Lehman Brothers Holdings redeems or repays a note that is an OID note
other than an indexed note prior to its stated maturity, then Lehman Brothers
Holdings will pay the amortized face amount of the note as of the date of
redemption or repayment regardless of anything else stated in this prospectus.
The amortized face amount of a note on any date means the amount equal to:
- the issue price set forth on the face of the applicable pricing
supplement, plus
- that portion of the difference between the issue price and the stated
principal amount of the note that has accrued by that date at:
(1) the bond yield to maturity set forth on the face of the applicable
pricing supplement, or
(2) if so specified in the applicable pricing supplement, the bond yield to
call set forth on the face of the note.
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These computations will be made in accordance with generally accepted United
States bond yield computation principles. However, the amortized face amount of
a note will never exceed its stated principal amount. The bond yield to call
listed on the face of a pricing supplement will be computed on the basis of:
- the first occurring optional redemption date with respect to the note, and
- the amount payable on the optional redemption date.
If any such note is not redeemed on the first occurring optional redemption
date, the bond yield to call that applies to the note will be recomputed on the
optional redemption date on the basis of:
(1) the next occurring optional redemption date, and
(2) the amount payable on the optional redemption date.
The bond yield to call will continue to be so recomputed on each succeeding
optional redemption date until the note is so redeemed.
Lehman Brothers Holdings may at any time purchase notes at any price in the
open market or otherwise. Notes so purchased by Lehman Brothers Holdings may, at
the discretion of Lehman Brothers Holdings, be held, resold or surrendered to
the trustee for cancellation.
OTHER PROVISIONS
The terms in the applicable pricing supplement may modify any provisions
relating to:
- the determination of an interest rate basis,
- the specification of an interest rate basis,
- calculation of the interest rate applicable to, or the principal payable
at maturity on, any note,
- interest payment dates, or
- any other related matters.
DEFEASANCE
The defeasance provisions described in the accompanying prospectus will be
applicable to the notes.
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PLAN OF DISTRIBUTION
The notes are being offered on a continuous basis by Lehman Brothers
Holdings through Lehman Brothers Inc., as agent. The agent has agreed to use its
reasonable efforts to solicit orders to purchase notes. Lehman Brothers Holdings
will have the sole right to accept orders to purchase notes and may reject
proposed purchases in whole or in part. The agent will have the right to reject
any proposed purchase in whole or in part. Lehman Brothers Holdings reserves the
right to withdraw, cancel or modify the offer made by this prospectus
supplement, the accompanying prospectus or any pricing supplement without
notice. Lehman Brothers Holdings will pay the agent a commission of from not
more than .125% to not more than .625% of the principal amount of notes sold
through it, depending upon the stated maturity.
Lehman Brothers Holdings may also sell notes at a discount to the agent for
its own account or for resale to one or more purchasers at varying prices
related to prevailing market prices or at a fixed public offering price. Unless
otherwise specified in the applicable pricing supplement, any note purchased by
the agent as principal will be purchased at 100% of the principal amount or face
amount less a percentage equal to the commission applicable to an agency sale of
a note of identical maturity. After any initial public offering of notes to be
resold to purchasers at a fixed public offering price, the public offering price
and any concession or discount may be changed. In addition, the agent may offer
and sell notes purchased by it as principal to other dealers. These notes may be
sold at a discount which, unless otherwise specified in the applicable pricing
supplement, will not exceed the discount to be received by the agent.
Lehman Brothers Holdings reserves the right to sell notes directly to
investors on its own behalf and to enter into agreements similar to the
distribution agreement with other parties. No commission will be payable nor
will a discount be allowed on any sales made directly by Lehman Brothers
Holdings.
No note will have an established trading market when issued. Unless
otherwise specified in the applicable pricing supplement, the notes will not be
listed on any securities exchange. The agent may make a market in the notes, but
the agent is not obligated to do so. The agent may discontinue any market-making
at any time without notice, at its sole discretion. There can be no assurance of
the existence or liquidity of a secondary market for any notes, or that the
maximum amount of notes will be sold.
The agent, whether acting as agent or principal, may be deemed to be an
underwriter within the meaning of the Securities Act of 1933. Lehman Brothers
Holdings has agreed to indemnify the agent against liabilities relating to
material misstatements and omissions, or to contribute to payments that the
agent may be required to make relating to these liabilities. Lehman Brothers
Holdings will reimburse the agent for customary legal and other expenses,
incurred by it in connection with the offer and sale of the notes.
Unless otherwise specified in the applicable pricing supplement, payment of
the purchase price of the notes will be required to be made in immediately
available funds in New York City on the date of settlement.
Concurrently with the offering of notes through the agent as described in
this prospectus supplement, Lehman Brothers Holdings may issue other securities
under either of the indentures referred to in the accompanying prospectus.
Lehman Brothers Inc., the broker-dealer subsidiary of Lehman Brothers
Holdings, is a member of the NASD and may participate in offerings of the notes.
Accordingly, offerings of the notes in which Lehman Brothers Inc. participates
will conform with the requirements set forth in Rule 2720 of the Conduct Rules
of the NASD.
This prospectus supplement, the accompanying prospectus and the related
pricing supplement may be used by the agent or other affiliates of Lehman
Brothers Holdings in connection with offers and sales of the notes offered by
this prospectus supplement in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. The agent or these
other affiliates may act as principal or agent in such transactions.
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PROSPECTUS
$15,000,000,000
LEHMAN BROTHERS HOLDINGS INC.
MAY OFFER--
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
----------------
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 are offered in an
aggregate principal amount of up to $15,000,000,000 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.
---------------------
April 30, 1999
<PAGE>
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
the 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, which (1) explains the specific
terms of the securities being offered and (2) updates and changes
information in this prospectus, and
- the documents referred to in "Where You Can Find More Information" on page
5 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 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, merchant banking, securities sales and trading, asset
management, research, and the trading of foreign exchange, derivative products
and certain commodities. Through one or more subsidiaries, 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 and Milan stock
exchanges.
Lehman Brothers Holdings' principal executive office is at 3 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
$15,000,000,000 of:
- debt securities,
- preferred stock, and
- depositary shares.
A prospectus supplement will describe the specific types, amounts, prices,
and detailed terms of any of these offered securities.
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 debt for money
borrowed that is not subordinated. Subordinated debt, so designated at the time
it is issued, would not be entitled to interest and principal payments if
payments on the senior debt were not made.
The senior and subordinated debt will be issued under separate indentures
between Lehman Brothers Holdings and a trustee. Below are summaries of the
general features of the debt securities from these indentures. For a more
detailed description of these features, see "Description of Debt Securities"
below. You are also encouraged to read the indentures, which are incorporated by
reference in or filed as exhibits to Lehman Brothers Holdings' registration
statement no. 333-75723. You can receive copies of these documents by following
the directions on page 5.
2
<PAGE>
GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT
- Neither indenture limits the amount of debt that Lehman Brothers Holdings
may issue or provides holders any protection should there be a highly
leveraged transaction involving Lehman Brothers Holdings, although the
indentures do limit Lehman Brothers Holdings' ability to pledge the stock
of any subsidiary that meets the financial thresholds in the indenture.
These thresholds are described below under "Description of Debt
Securities." Each indenture allows for different types of debt securities,
including indexed securities, to be issued in series.
- The indentures allow Lehman Brothers Holdings to merge or to consolidate
with another company, or sell all or substantially all of its assets to
another company. If any of these events occur, the other company would be
required to assume Lehman Brothers Holdings' responsibilities for the
debt. Unless the transaction resulted in an event of default, Lehman
Brothers Holdings would be released from all liabilities and obligations
under the debt securities when the other company assumed its
responsibilities.
- The indentures provide that holders of 66 2/3% of the principal amount of
the debt securities outstanding in any series may vote to change Lehman
Brothers Holdings' obligations or your rights concerning those securities.
However, changes to the financial terms of that security, including
changes in the payment of principal or interest on that security or the
currency of payment, cannot be made unless every holder of that security
consents to the change.
- Lehman Brothers Holdings may satisfy its obligations under the debt
securities or be released from its obligation to comply with the
limitations discussed above at any time by depositing sufficient amounts
of cash or U.S. government securities with the trustee to pay Lehman
Brothers Holdings' obligations under the particular securities when due.
- The indentures govern the actions of the trustee with regard to the debt
securities, including when the trustee is required to give notices to
holders of the securities and when lost or stolen debt securities may be
replaced.
EVENTS OF DEFAULT
The events of default specified in the indentures include:
- failure to pay principal when due,
- failure to pay required interest for 30 days,
- failure to make a required scheduled installment payment for 30 days,
- failure to perform other covenants for 90 days after notice, and
- certain events of insolvency or bankruptcy, whether voluntary or not.
REMEDIES
If there were a default, the trustee or holders of 25% of the principal
amount of debt securities outstanding in a series could demand that the
principal be paid immediately. However, holders of a majority in principal
amount of the securities in that series could rescind that acceleration of the
debt securities.
PREFERRED STOCK
Lehman Brothers Holdings may issue preferred stock with various terms to be
established by its board of directors or a committee designated by the board.
Each series of preferred stock will be more fully described in the particular
prospectus supplement that will accompany this prospectus, including redemption
provisions, rights in the event of liquidation, dissolution or winding up of
Lehman Brothers Holdings, voting rights and conversion rights.
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<PAGE>
Generally, each series of preferred stock will rank on an equal basis with
each other series of preferred stock and will rank prior to Lehman Brothers
Holdings' common stock. The prospectus supplement will also describe how and
when dividends will be paid on the series of preferred stock.
DEPOSITARY SHARES
Lehman Brothers Holdings may issue depositary shares representing fractional
shares of preferred stock. Each particular series of depositary shares will be
more fully described in the prospectus supplement that will accompany this
prospectus.
These depositary shares will be evidenced by depositary receipts and issued
under a deposit agreement between Lehman Brothers Holdings and a bank or trust
company. You are encouraged to read the standard form of the deposit agreement,
which is incorporated by reference in Lehman Brothers Holdings' registration
statement no. 333-75723. You can receive copies of this document by following
the directions on page 5.
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
indexed notes to hedge its exposure to payments that it may have to make on such
indexed notes 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
sells 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 its broker-dealer subsidiary, Lehman Brothers Inc. Lehman Brothers Inc.
also expects to offer and sell previously issued offered securities as part of
its business, and may act as a principal or agent in such transactions. Lehman
Brothers Holdings or Lehman Brothers Inc. may use this prospectus and the
related prospectus supplements and pricing supplements in connection with these
activities.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Act of 1933, Lehman Brothers Holdings filed a
registration statement (No. 333-75723) 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:
- Amended Annual Report on Form 10-K for the year ended November 30, 1998,
filed with the SEC on March 5, 1999;
- Quarterly Report on Form 10-Q for the quarter ended February 28, 1999,
filed with the SEC on April 14, 1999; and
- Current Reports on Form 8-K, filed with the SEC on January 7, January 27,
March 19 and April 20, 1999.
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 Lehman Brothers Inc. stops
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.
3 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.
5
<PAGE>
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, which means that it could
reduce its short-term liabilities or refund 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 a swap agreement in connection with the sale of the offered
securities and may earn additional income from that transaction.
USE OF PROCEEDS RELATING TO INDEXED NOTES. Lehman Brothers Holdings or one
or more of its subsidiaries may use all or some of the proceeds received from
the sale of indexed notes to purchase or maintain positions in the assets that
are used to determine the relevant index or indices. Lehman Brothers Holdings or
one or more of 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
index-related risk relating to such indexed notes.
Lehman Brothers Holdings expects that it or one or more of 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 index, the underlying assets, options, futures contracts, forward
contracts, swaps, or other derivative or similar instruments related to the
index and the underlying assets. These other hedging activities may occur from
time to time before the indexed notes mature and will depend on market
conditions and the value of the index and the underlying assets.
In addition, Lehman Brothers Holdings or one or more of its subsidiaries may
purchase or otherwise acquire a long or short position in indexed notes from
time to time and may, in their sole discretion, hold, resell, exercise, cancel
or retire such offered securities. Lehman Brothers Holdings or one or more of
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 one or more of its subsidiaries has a long
hedge position in, options contracts in, or other derivative or similar
instruments related to, the underlying assets or index, Lehman Brothers Holdings
or one or more of its subsidiaries may liquidate all or a portion of its
holdings at or about the time of the maturity of the indexed notes. 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 activity
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 index or the underlying assets. However, Lehman Brothers
Holdings cannot guarantee 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 indexed notes for the general corporate purposes described
above.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
ELEVEN
MONTHS
ENDED YEAR ENDED NOVEMBER 30,
NOVEMBER 30, ------------------------------------------
1994 1995 1996 1997 1998
----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................... 1.03 1.03 1.06 1.07 1.07
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends...................... 1.02 1.03 1.05 1.06 1.06
<CAPTION>
THREE MONTHS
ENDED FEBRUARY
28,
1999
---------------
<S> <C>
Ratio of Earnings to Fixed Charges................... 1.08
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends...................... 1.08
</TABLE>
In computing the ratios above, "earnings" consist of earnings from
continuing operations before income taxes and fixed charges; "fixed charges"
consist principally of interest expense and one-third of office rentals and
one-fifth of equipment rentals, which are deemed to be representative of the
interest factor.
EUROPEAN MONETARY UNION
The foreign currencies in which debt securities may be denominated or by
which amounts due on the offered securities may be calculated could be issued by
countries participating in Stage III of the European Economic and Monetary
Union.
Stage III began on January 1, 1999 for the eleven participating member
states of the European Union that satisfied the economic convergence criteria in
the Treaty on European Union: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. Other member
states of the European Union may still become participating member states after
January 1, 1999.
Stage III includes the introduction of the Euro, which, along with the
present national currency of each participating member state, is legal tender in
the participating member states. It is currently anticipated that on and after
January 1, 2002, the national currencies of participating member states will
cease to exist and the sole legal tender in such states will be the Euro. The
European Union has adopted regulations providing specific rules for the
introduction of the Euro in substitution for the respective current national
currencies of such member states, and may adopt additional regulations or
legislation in the future relating to the Euro. It is anticipated that these
regulations or legislation will be supplemented by legislation of the individual
member states.
Pursuant to European Council Regulation No. 2866/98 of December 31, 1998,
one Euro equals:
- 13.7603 Austrian schillings,
- 40.3399 Belgian francs,
- 5.94573 Finnish marks,
- 6.55957 French francs,
- 1.95583 German marks,
- 0.787564 Irish pounds,
- 1,936.27 Italian lire,
- 40.3399 Luxembourg francs,
- 2.20371 Dutch guilders,
- 200.482 Portuguese escudos, or
- 166.386 Spanish pesetas.
7
<PAGE>
DESCRIPTION OF DEBT SECURITIES
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.
The following briefly summarizes the material provisions of the indentures
and the debt securities, other than pricing and related terms disclosed in the
accompanying prospectus supplement. You should read the more detailed provisions
of the applicable indenture, including the defined terms, for provisions that
may be important to you. You should also read the particular terms of a series
of debt securities, which will be described in more detail in the applicable
prospectus supplement. Copies of the indentures may be obtained from Lehman
Brothers Holdings or the applicable trustee. So that you may easily locate the
more detailed provisions, the numbers in parentheses below refer to sections in
the applicable indenture or, if no indenture is specified, to sections in each
of the indentures. Wherever particular sections or defined terms of the
applicable indenture are referred to, such sections or defined terms are
incorporated into this prospectus by reference, and the statement in this
prospectus is qualified by that reference.
Unless otherwise provided in the applicable 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).
GENERAL
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.
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.
Because Lehman Brothers Holdings is a holding company, the claims of
creditors of Lehman Brothers Holdings' subsidiaries will have a priority over
Lehman Brothers Holdings' equity rights and the rights of Lehman Brothers
Holdings' creditors, including the holders of debt securities, to participate in
the assets of the subsidiary upon the subsidiary's liquidation.
The applicable prospectus supplement relating to any series of debt
securities will describe the following terms, where applicable:
- the title of the debt securities,
- whether the debt securities will be senior or subordinated debt,
- the total principal amount of the debt securities,
- the percentage of the principal amount at which the debt securities will
be sold and, if applicable, the method of determining the price,
- the maturity date or dates,
- the interest rate or the method of computing the interest rate,
- the date or dates from which any interest will accrue, or how such date or
dates will be determined, and the interest payment date or dates and any
related record dates,
8
<PAGE>
- if other than in United States dollars, the currency or currency unit in
which payment will be made,
- any provisions for the payment of additional amounts for taxes,
- the denominations in which the currency or currency unit of any debt
securities will be issuable if other than denominations of $1,000 and any
integral multiple thereof,
- the location where payments on the debt securities will be made,
- the terms and conditions on which the debt securities may be redeemed at
the option of Lehman Brothers Holdings,
- any obligation of Lehman Brothers Holdings to redeem, purchase or repay
the debt 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 debt securities by deposit of funds or United States
government obligations,
- whether the debt securities are to trade in book-entry form and the terms
and any conditions for exchanging the global security in whole or in part
for paper certificates,
- any material provisions of the applicable indenture described in this
prospectus that do not apply to the debt securities, and
- any other specific terms of the debt securities.
The terms on which a series of debt securities may be convertible into or
exchangeable for other securities of Lehman Brothers Holdings 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 of Lehman Brothers
Holdings to be received by the holders of such series of debt securities may be
adjusted.
The debt securities will be issued only in registered form. As currently
anticipated, debt securities of a series will trade in book-entry form, and
global notes will be issued in physical (paper) form, as described below under
"Book-Entry Procedures and Settlement." Unless otherwise provided in the
accompanying prospectus supplement, debt securities denominated in United States
dollars will be issued only in denominations of $1,000 and whole multiples of
$1,000. The prospectus supplement relating to offered securities denominated in
a foreign or composite currency will specify the denomination of the offered
securities.
The debt securities may be presented for exchange, and debt securities other
than a global security may be presented for registration of transfer, at the
principal corporate trust office of the relevant trustee in New York City.
Holders will not have to pay any service charge for any registration of transfer
or exchange of debt securities, but Lehman Brothers Holdings may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection with such registration of transfer (Section 305).
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 (Sections 307 and
1002).
9
<PAGE>
SENIOR DEBT
The senior debt securities will be issued under the senior debt indenture
and will rank on an equal basis with all other unsecured debt of Lehman Brothers
Holdings except subordinated debt.
SUBORDINATED DEBT
The subordinated debt securities will be issued under the subordinated debt
indenture and will rank subordinated and junior in right of payment, to the
extent set forth in the subordinated debt indenture, to all "senior debt" (as
defined below) of Lehman Brothers Holdings.
If Lehman Brothers Holdings defaults in the payment of any principal of, or
premium, if any, or interest on any senior debt when it becomes due and payable
after any applicable grace period, then, unless and until the default is cured
or waived or ceases to exist, Lehman Brothers Holdings cannot make a payment on
account of or redeem or otherwise acquire the subordinated debt securities.
If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to Lehman Brothers Holdings, its creditors or its property,
then all senior debt must be paid in full before any payment may be made to any
holders of subordinated debt securities.
Furthermore, if Lehman Brothers Holdings defaults in the payment of the
principal of and accrued interest on any subordinated debt securities that is
declared due and payable upon an event of default under the subordinated debt
indenture, holders of all senior debt will first be entitled to receive payment
in full in cash before holders of such debt can receive any payments.
"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
(Subordinated Debt Indenture, Section 1401).
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.
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<PAGE>
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 (Section 1005).
"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, 1999, the designated
subsidiaries were Global Thai Property Fund, 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., Lehman Re Ltd. and Structured Asset
Securities Corp. (Section 101).
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 (Section 801).
Other than the restrictions described above, the indentures do not 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 (Section 901).
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,
11
<PAGE>
- 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, or
- change any obligation of Lehman Brothers Holdings to maintain an office or
agency (Section 902).
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,
- 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
(Section 501).
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 (Section 1006).
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 (Sections 502
and 512). 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 (Section 603).
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 (Section 506).
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 (Sections 502, 507 and 603).
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
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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" (Section 401), 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" (Section 1009).
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 "United
States Federal Income Tax Consequences--Tax Consequences of Defeasance" below.
CONCERNING THE TRUSTEES
Lehman Brothers Holdings has had and may continue to have banking
relationships with the trustees in the ordinary course of business.
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DESCRIPTION OF OUTSTANDING PREFERRED STOCK
As of the date of this prospectus, Lehman Brothers Holdings' authorized
capital stock includes 38 million shares of preferred stock. The following
briefly summarizes the material terms of Lehman Brothers Holdings' outstanding
preferred stock. You should read the more detailed provisions of Lehman Brothers
Holdings' certificate of incorporation or the certificate of designation
relating to a series of preferred stock for provisions that may be important to
you.
The general terms of Lehman Brothers Holdings' preferred stock are described
below under "Description of Offered Preferred Stock."
As of February 28, 1999, Lehman Brothers Holdings had outstanding the
following series of preferred stock with the following terms:
<TABLE>
<CAPTION>
DATE NEXT
REDEEMABLE
NUMBER OF REDEMPTION BY LEHMAN GENERAL
SHARES DIVIDENDS PRICE PER BROTHERS VOTING
TITLE OF SERIES OUTSTANDING PER YEAR SHARE HOLDINGS RIGHTS
- ---------------------------------------- ------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Redeemable Voting Preferred Stock....... 1,000 Variable(2) $ 1.00 Variable(3) Yes(5)
Cumulative Convertible Voting Preferred
Stock, Series A....................... 2,300(1) $ 1.955 $ 39.10 Variable(4) Yes(5)
Cumulative Convertible Voting Preferred
Stock, Series B....................... 9,161,384(1) $ 1.955 $ 39.10 Variable(4) Yes(5)
5.94% Cumulative Preferred Stock, Series
C..................................... 500,000 $ 29.70 $ 500.00 05/31/08 No
5.67% Cumulative Preferred Stock, Series
D..................................... 40,000 $283.50 $ 5,000.00 08/31/08 No
</TABLE>
Where the above table indicates that the holders of the preferred stock have
no general voting rights, this means that they do not vote on matters submitted
to a vote of the common stockholders. However, the holders of this preferred
stock do have other special voting rights (1) that are required by law, (2) that
apply if there is a default in paying dividends for the equivalent of six
calendar quarters, and (3) when Lehman Brothers Holdings wants to create any
class of stock having a preference as to dividends or distributions of assets
over such series or alter or change the provisions of the certificate of
incorporation so as to adversely affect the powers, preferences or rights of the
holders of such series. Some or all of these special voting rights apply to each
series of preferred stock listed above. In the event of a default in paying
dividends for the equivalent of six calendar quarters, the holders of the
Redeemable Voting Preferred Stock, the 5.94% Cumulative Preferred Stock, Series
C, and the 5.67% Cumulative Preferred Stock, Series D have the right
collectively to elect two additional directors to Lehman Brothers Holdings'
board of directors until such dividends are paid.
- ------------------------
(1) Each share of Cumulative Convertible Voting Preferred Stock, Series A and B,
is convertible at the holder's option into 0.3178313 of a share of common
stock, subject to anti-dilution adjustment.
(2) The holders of the Redeemable Voting Preferred Stock (as of the date of this
prospectus, The American Express Company and Nippon Life Insurance Company)
are entitled to 50% of the amount by which Lehman Brothers Holdings' net
income for a fiscal year exceeds $400 million, to a maximum of $50 million
per year (prorated for the final dividend period, which runs from December
1, 2001 to May 31, 2002).
(3) Redemption is mandatory on May 31, 2002. The holders also have the right to
require Lehman Brothers Holdings to redeem the Redeemable Voting Preferred
Stock if a Designated Event (as defined in Lehman Brothers Holdings'
certificate of incorporation) occurs, for an aggregate redemption payment of
$150 million if such event occurs prior to November 30, 1999, declining $50
million per year thereafter.
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(4) Redeemable at any time that there is a public market for Lehman Brothers
Holdings' common stock and the average market price per share thereof
exceeds the conversion price (at the date of this prospectus) of
$123.0212380.
(5) Holders of shares of Redeemable Voting Preferred Stock are entitled to 1,059
votes per share, and holders of shares of Cumulative Convertible Voting
Preferred Stock, Series A and B, are entitled to the number of votes per
share equal to the quotient obtained by dividing $39.10 by the conversion
price (at the date of this prospectus) of $123.0212380, when voting as a
class with the common stock, subject to anti-dilution adjustment. American
Express has agreed that as long as it holds Redeemable Voting Preferred
Stock, it will vote it in the same proportion as the common stock holders on
matters voted on generally.
DESCRIPTION OF OFFERED PREFERRED STOCK
The following briefly summarizes the material terms of Lehman Brothers
Holdings' preferred stock, other than pricing and related terms disclosed in the
accompanying prospectus supplement. You should read the particular terms of any
series of preferred stock offered by Lehman Brothers Holdings which will be
described in more detail in any prospectus supplement relating to such series,
together with the more detailed provisions of Lehman Brothers Holdings' restated
certificate of incorporation and the certificate of designation relating to each
particular series of preferred stock for provisions that may be important to
you. The certificate of designation relating to the particular series of
preferred stock offered by the accompanying prospectus supplement and this
prospectus will be filed as an exhibit to a document incorporated by reference
in the registration statement. The prospectus supplement will also state whether
any of the terms summarized below do not apply to the series of preferred stock
being offered. For a description of Lehman Brothers Holdings' outstanding
preferred stock, see "Description of Outstanding Preferred Stock."
GENERAL
Under Lehman Brothers Holdings' certificate of incorporation, the board of
directors of Lehman Brothers Holdings is authorized to issue shares of preferred
stock in one or more series, and to establish from time to time a series of
preferred stock with the following terms specified:
- the number of shares to be included in the series,
- the designation, powers, preferences and rights of the shares of the
series, and
- the qualifications, limitations or restrictions of such series, except as
otherwise stated in the certificate of incorporation.
Prior to the issuance of any series of preferred stock, the board of
directors of Lehman Brothers Holdings will adopt resolutions creating and
designating the series as a series of preferred stock and the resolutions will
be filed in a certificate of designation as an amendment to the certificate of
incorporation. The term "board of directors of Lehman Brothers Holdings"
includes any duly authorized committee.
The rights of holders of the preferred stock offered may be adversely
affected by the rights of holders of any shares of preferred stock that may be
issued in the future. The board of directors may cause shares of preferred stock
to be issued in public or private transactions for any proper corporate purpose.
Examples of proper corporate purposes include issuances to obtain additional
financing in connection with acquisitions or otherwise, and issuances to
officers, directors and employees of Lehman Brothers Holdings and its
subsidiaries pursuant to benefit plans or otherwise. Shares of preferred stock
issued by Lehman Brothers Holdings may have the effect of rendering more
difficult or discouraging an acquisition of Lehman Brothers Holdings deemed
undesirable by the board of directors of Lehman Brothers Holdings.
The preferred stock will be, when issued, fully paid and nonassessable.
Holders of preferred stock will not have any preemptive or subscription rights
to acquire more stock of Lehman Brothers Holdings.
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The transfer agent, registrar, dividend disbursing agent and redemption
agent for shares of each series of preferred stock will be named in the
prospectus supplement relating to such series.
RANK
Unless otherwise specified in the prospectus supplement relating to the
shares of any series of preferred stock, such shares will rank on an equal basis
with each other series of preferred stock and prior to the common stock as to
dividends and distributions of assets.
DIVIDENDS
Holders of each series of preferred stock will be entitled to receive cash
dividends, when, as and if declared by the board of directors of Lehman Brothers
Holdings out of funds legally available for dividends. The rates and dates of
payment of dividends will be set forth in the prospectus supplement relating to
each series of preferred stock. Dividends will be payable to holders of record
of preferred stock as they appear on the books of Lehman Brothers Holdings or,
if applicable, the records of the depositary referred to below under
"Description of Depositary Shares," on the record dates fixed by the board of
directors. Dividends on any series of preferred stock may be cumulative or
noncumulative.
Lehman Brothers Holdings may not declare, pay or set apart for payment
dividends on the preferred stock unless full dividends on any other series of
preferred stock that ranks on an equal or senior basis have been paid or
sufficient funds have been set apart for payment for
- all prior dividend periods of the other series of preferred stock that pay
dividends on a cumulative basis, or
- the immediately preceding dividend period of the other series of preferred
stock that pay dividends on a noncumulative basis.
Partial dividends declared on shares of preferred stock and any other series
of preferred stock ranking on an equal basis as to dividends will be declared
pro rata. A pro rata declaration means that the ratio of dividends declared per
share to accrued dividends per share will be the same for both series of
preferred stock.
Similarly, Lehman Brothers Holdings may not declare, pay or set apart for
payment non-stock dividends or make other payments on the common stock or any
other stock of Lehman Brothers Holdings ranking junior to the preferred stock
until full dividends on the preferred stock have been paid or set apart for
payment for
- all prior dividend periods if the preferred stock pays dividends on a
cumulative basis, or
- the immediately preceding dividend period if the preferred stock pays
dividends on a noncumulative basis.
CONVERSION AND EXCHANGE
The prospectus supplement for any series of preferred stock will state the
terms, if any, on which shares of that series are convertible into or
exchangeable for shares of Lehman Brothers Holdings' common stock.
REDEMPTION
If so specified in the applicable prospectus supplement, a series of
preferred stock may be redeemable at any time, in whole or in part, at the
option of Lehman Brothers Holdings or the holder thereof and may be mandatorily
redeemed.
Any partial redemptions of preferred stock will be made in a way that the
board of directors decides is equitable.
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<PAGE>
Unless Lehman Brothers Holdings defaults in the payment of the redemption
price, dividends will cease to accrue after the redemption date on shares of
preferred stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Lehman Brothers Holdings, holders of each series of preferred stock will be
entitled to receive distributions upon liquidation in the amount set forth in
the prospectus supplement relating to such series of preferred stock, plus an
amount equal to any accrued and unpaid dividends. Such distributions will be
made before any distribution is made on any securities ranking junior relating
to liquidation, including common stock.
If the liquidation amounts payable relating to the preferred stock of any
series and any other securities ranking on a parity regarding liquidation rights
are not paid in full, the holders of the preferred stock of such series and such
other securities will share in any such distribution of available assets of
Lehman Brothers Holdings on a ratable basis in proportion to the full
liquidation preferences. Holders of such series of preferred stock will not be
entitled to any other amounts from Lehman Brothers Holdings after they have
received their full liquidation preference.
VOTING RIGHTS
The holders of shares of preferred stock will have no voting rights, except:
- as otherwise stated in the prospectus supplement,
- as otherwise stated in the certificate of designation establishing such
series, or
- as required by applicable law.
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<PAGE>
DESCRIPTION OF DEPOSITARY SHARES
The following briefly summarizes the material provisions of the deposit
agreement and of the depositary shares and depositary receipts, other than
pricing and related terms disclosed in the accompanying prospectus supplement.
You should read the particular terms of any depositary shares and any depositary
receipts that are offered by Lehman Brothers Holdings and any deposit agreement
relating to a particular series of preferred stock which will be described in
more detail in a prospectus supplement. The prospectus supplement will also
state whether any of the generalized provisions summarized below do not apply to
the depositary shares or depositary receipts being offered. A copy of the form
of deposit agreement, including the form of depositary receipt, is incorporated
by reference as an exhibit in the registration statement of which this
prospectus forms a part. You should read the more detailed provisions of the
deposit agreement and the form of depositary receipt for provisions that may be
important to you.
GENERAL
Lehman Brothers Holdings may, at its option, elect to offer fractional
shares of preferred stock, rather than full shares of preferred stock. In such
event, Lehman Brothers Holdings will issue receipts for depositary shares, each
of which will represent a fraction of a share of a particular series of
preferred stock.
The shares of any series of preferred stock represented by depositary shares
will be deposited under a deposit agreement between Lehman Brothers Holdings and
a bank or trust company selected by Lehman Brothers Holdings having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000, as preferred stock depositary. Each owner of a
depositary share will be entitled to all the rights and preferences of the
underlying preferred stock, including dividend, voting, redemption, conversion
and liquidation rights, in proportion to the applicable fraction of a share of
preferred stock represented by such depositary share.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of preferred stock in accordance
with the terms of the applicable prospectus supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred stock depositary will distribute all cash dividends or other
cash distributions received in respect of the deposited preferred stock to the
record holders of depositary shares relating to such preferred stock in
proportion to the number of such depositary shares owned by such holders.
The preferred stock depositary will distribute any property received by it
other than cash to the record holders of depositary shares entitled thereto. If
the preferred stock depositary determines that it is not feasible to make such
distribution, it may, with the approval of Lehman Brothers Holdings, sell such
property and distribute the net proceeds from such sale to such holders.
REDEMPTION OF PREFERRED STOCK
If a series of preferred stock represented by depositary shares is to be
redeemed, the depositary shares will be redeemed from the proceeds received by
the preferred stock depositary resulting from the redemption, in whole or in
part, of such series of preferred stock. The depositary shares will be redeemed
by the preferred stock depositary at a price per depositary share equal to the
applicable fraction of the redemption price per share payable in respect of the
shares of preferred stock so redeemed.
Whenever Lehman Brothers Holdings redeems shares of preferred stock held by
the preferred stock depositary, the preferred stock depositary will redeem as of
the same date the number of depositary shares representing shares of preferred
stock so redeemed. If fewer than all the depositary shares are to be redeemed,
the depositary shares to be redeemed will be selected by the preferred stock
depositary by lot or ratably or by any other equitable method as the preferred
stock depositary may decide.
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VOTING DEPOSITED PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of any series of
deposited preferred stock are entitled to vote, the preferred stock depositary
will mail the information contained in such notice of meeting to the record
holders of the depositary shares relating to such series of preferred stock.
Each record holder of such depositary shares on the record date will be entitled
to instruct the preferred stock depositary to vote the amount of the preferred
stock represented by such holder's depositary shares. The preferred stock
depositary will try to vote the amount of such series of preferred stock
represented by such depositary shares in accordance with such instructions.
Lehman Brothers Holdings will agree to take all actions that the preferred
stock depositary determines as necessary to enable the preferred stock
depositary to vote as instructed. The preferred stock depositary will abstain
from voting shares of any series of preferred stock held by it for which it does
not receive specific instructions from the holders of depositary shares
representing such shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between Lehman Brothers Holdings and the preferred stock depositary. However,
any amendment that materially and adversely alters any existing right of the
holders of depositary shares will not be effective unless such amendment has
been approved by the holders of at least a majority of the depositary shares
then outstanding. Every holder of an outstanding depositary receipt at the time
any such amendment becomes effective shall be deemed, by continuing to hold such
depositary receipt, to consent and agree to such amendment and to be bound by
the deposit agreement, which has been amended thereby. The deposit agreement may
be terminated only if:
- all outstanding depositary shares have been redeemed, or
- a final distribution in respect of the preferred stock has been made to
the holders of depositary shares in connection with any liquidation,
dissolution or winding up of Lehman Brothers Holdings.
CHARGES OF PREFERRED STOCK DEPOSITARY; TAXES AND OTHER GOVERNMENTAL CHARGES
Lehman Brothers Holdings will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. Lehman Brothers Holdings also will pay charges of the depositary
in connection with the initial deposit of preferred stock and any redemption of
preferred stock. Holders of depositary receipts will pay other transfer and
other taxes and governmental charges and such other charges, including a fee for
the withdrawal of shares of preferred stock upon surrender of depositary
receipts, as are expressly provided in the deposit agreement to be for their
accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The preferred stock depositary may resign at any time by delivering to
Lehman Brothers Holdings notice of its intent to do so, and Lehman Brothers
Holdings may at any time remove the preferred stock depositary, any such
resignation or removal to take effect upon the appointment of a successor
preferred stock depositary and its acceptance of such appointment. Such
successor preferred stock depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The preferred stock depositary will forward all reports and communications
from Lehman Brothers Holdings which are delivered to the preferred stock
depositary and which Lehman Brothers Holdings is required to furnish to the
holders of the deposited preferred stock.
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Neither the preferred stock depositary nor Lehman Brothers Holdings will be
liable if it is prevented or delayed by law or any circumstances beyond its
control in performing its obligations under the deposit agreement. The
obligations of Lehman Brothers Holdings and the preferred stock depositary under
the deposit agreement will be limited to performance in good faith of their
duties thereunder and they will not be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares, depositary receipts or
shares of preferred stock unless satisfactory indemnity is furnished. Lehman
Brothers Holdings and the preferred stock depositary may rely upon written
advice of counsel or accountants, or upon information provided by holders of
depositary receipts or other persons believed to be competent and on documents
believed to be genuine.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Most debt securities will be book-entry 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 notes 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 common stock is 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. 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 and notices of
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redemption to security holders will mean payments and notices of redemption 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.
DTC's management is aware that some computer applications, systems, and the
like for processing dates that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its systems, as they
relate to the timely payment of distributions to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
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.
DTC may discontinue providing its services as securities depositary at any
time by giving reasonable notice. Under such circumstances, in the event that a
successor securities depositary is not obtained, securities certificates are
required to be printed and delivered. Additionally, Lehman Brothers Holdings may
decide to discontinue use of the system of book-entry transfers through DTC or
any successor depositary with respect to the preferred securities. In that
event, certificates for the securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Lehman Brothers Holdings believes to be
reliable, but Lehman Brothers Holdings does not take responsibility for the
accuracy thereof.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, our special United States tax
counsel, the following discussion is an accurate summary of the material United
States federal income tax consequences of the purchase, ownership and
disposition of debt securities as of the date hereof. Except where noted, this
summary deals only with debt securities held as capital assets by United States
holders 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, financial institutions,
tax-exempt entities or life insurance companies,
- tax consequences to persons holding debt securities as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle,
- tax consequences to holders of debt securities 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, and regulations, rulings and judicial decisions as of
the date of this hereof. Those authorities may be changed, perhaps
retroactively, so as to result in United States federal income tax consequences
different from those discussed below. We will summarize any special United
States federal tax considerations relevant to a particular issue of the debt
securities in the applicable prospectus supplement. We will also summarize
certain federal income tax consequences, if any, applicable to any offering of
preferred stock or depositary shares in the applicable prospectus supplement.
IF YOU ARE CONSIDERING THE PURCHASE OF DEBT SECURITIES, YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES TO YOU AND
ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
CONSEQUENCES TO UNITED STATES HOLDERS
The following is a summary of certain United States federal tax consequences
that will apply to you if you are a United States holder of debt securities.
Certain consequences to "non-United States holders" of debt securities are
described under "--Non-United States Holders" below.
"United States holder" means a beneficial owner of a debt security that is:
- 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 that (x) is subject to the supervision of a court within the
United States and the control of one or more United States persons or (y)
has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
PAYMENTS OF INTEREST
Except as set forth below, interest on a debt security will generally be
taxable to you as ordinary income from domestic sources at the time it is paid
or accrued in accordance with your method of accounting for tax purposes.
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ORIGINAL ISSUE DISCOUNT
If you own debt securities issued with original issue discount ("OID"), you
will be subject to special tax accounting rules, as described in greater detail
below. In that case, you should be aware that you generally must include OID in
gross income in advance of the receipt of cash attributable to that income.
However, you generally will not be required to include separately in income cash
payments received on the debt securities, even if denominated as interest, to
the extent those payments do not constitute qualified stated interest, as
defined below. Notice will be given in the applicable prospectus supplement when
we determine that a particular debt security will be an original issue discount
debt security.
A debt security with an issue price that is less than the "stated redemption
price at maturity" (the sum of all payments to be made on the debt security
other than "qualified stated interest") generally will be issued with OID if
that difference is at least 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity. The "issue price" of
each debt security in a particular offering will be the first price at which a
substantial amount of that particular offering is sold to the public. The term
"qualified stated interest" means stated interest that is unconditionally
payable in cash or in property, other than debt instruments of the issuer, and
the interest to be paid meets all of the following conditions:
- it is payable at least once per year,
- it is payable over the entire term of the debt security, and
- it is payable at a single fixed rate or, subject to certain conditions,
based on one or more interest indices.
We will give you notice in the applicable prospectus supplement when we
determine that a particular debt security will bear interest that is not
qualified stated interest.
If you own a debt security issued with "DE MINIMIS" OID, which is discount
that is not OID because it is less than 0.25% of the stated redemption price at
maturity multiplied by the number of complete years to maturity, you generally
must include the DE MINIMIS OID in income at the time payments, other than
qualified stated interest, on the debt securities are made in proportion to the
amount paid. Any amount of DE MINIMIS OID that you have included in income will
be treated as capital gain.
Certain of the debt securities may contain provisions permitting them to be
redeemed prior to their stated maturity at our option and/or at your option.
Original issue discount debt securities containing those features may be subject
to rules that differ from the general rules discussed herein. If you are
considering the purchase of original issue discount debt securities with those
features, you should carefully examine the applicable prospectus supplement and
should consult your own tax advisors with respect to those features since the
tax consequences to you with respect to OID will depend, in part, on the
particular terms and features of the debt securities.
If you own original issue discount debt securities with a maturity upon
issuance of more than one year you generally must include OID in income in
advance of the receipt of some or all of the related cash payments using the
"constant yield method" described in the following paragraph. This method takes
into account the compounding of interest. The accruals of OID on an original
issue discount debt security will generally be less in the early years and more
in the later years.
The amount of OID that you must include in income if you are the initial
United States holder of an original issue discount debt security is the sum of
the "daily portions" of OID with respect to the debt security for each day
during the taxable year or portion of the taxable year in which you held that
debt security ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an original issue discount debt
security may be of any length and may vary in length over the term of the debt
security, provided that each accrual period is no longer than one year and each
scheduled payment of principal or
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interest occurs on the first day or the final day of an accrual period. The
amount of OID allocable to any accrual period is an amount equal to the excess,
if any, of:
- the debt security's adjusted issue price at the beginning of the accrual
period multiplied by its yield to maturity, determined on the basis of
compounding at the close of each accrual period and properly adjusted for
the length of the accrual period, over
- the aggregate of all qualified stated interest allocable to the accrual
period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity, other than a payment of qualified stated interest, and the
adjusted issue price at the beginning of the final accrual period. The "adjusted
issue price" of a debt security at the beginning of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period,
determined without regard to the amortization of any acquisition or bond
premium, as described below, and reduced by any payments made on the debt
security (other than qualified stated interest) on or before the first day of
the accrual period. Under these rules, you will have to include in income
increasingly greater amounts of OID in successive accrual periods. We are
required to provide information returns stating the amount of OID accrued on
debt securities held of record by persons other than corporations and other
exempt holders.
Floating rate debt securities are subject to special OID rules. In the case
of an original issue discount debt security that is a floating rate debt
security, both the "yield to maturity" and "qualified stated interest" will be
determined solely for purposes of calculating the accrual of OID as though the
debt security will bear interest in all periods at a fixed rate generally equal
to the rate that would be applicable to interest payments on the debt security
on its date of issue or, in the case of certain floating rate debt securities,
the rate that reflects the yield to maturity that is reasonably expected for the
debt security. Additional rules may apply if:
- the interest on a floating rate debt security is based on more than one
interest index, or
- the principal amount of the debt security is indexed in any manner.
This discussion does not address the tax rules applicable to debt securities
with an indexed principal amount. If you are considering the purchase of
floating rate original issue discount debt securities or securities with indexed
principal amounts, you should carefully examine the applicable prospectus
supplement and should consult your own tax advisors regarding the United States
federal income tax consequences to you of holding and disposing of those debt
securities.
You may elect to treat all interest on any debt security as OID and
calculate the amount includible in gross income under the constant yield method
described above. For purposes of this election, interest includes stated
interest, acquisition discount, OID, DE MINIMIS OID, market discount, DE MINIMIS
market discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium. You must make this election for the taxable year
in which you acquired the debt security, and you may not revoke the election
without the consent of the Internal Revenue Service. You should consult with
your own tax advisors about this election.
SHORT-TERM DEBT SECURITIES
In the case of debt securities having a term of one year or less, all
payments, including all stated interest, will be included in the stated
redemption price at maturity and will not be qualified stated interest. As a
result, you will generally be taxed on the discount instead of stated interest.
The discount will be equal to the excess of the stated redemption price at
maturity over the issue price of a short-term debt security, unless you elect to
compute this discount using tax basis instead of issue price. In general,
individual and certain other cash method United States holders of short-term
debt securities are not required to include accrued discount in their income
currently unless they elect to do so, but may be required to include stated
interest in income as the income is received. United States holders that report
income for United States federal income tax purposes on the accrual method and
certain other United States holders are required to accrue discount on
short-term debt securities (as ordinary income) on a straight-line basis, unless
an election is made to accrue the discount according to a constant yield method
based on daily compounding. If you are not required, and
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do not elect, to include discount in income currently, any gain you realize on
the sale, exchange or retirement of a short-term debt security will generally be
ordinary income to you to the extent of the discount accrued by you through the
date of sale, exchange or retirement. In addition, if you do not elect to
currently include accrued discount in income you may be required to defer
deductions for a portion of your interest expense with respect to any
indebtedness attributable to the short-term debt securities.
MARKET DISCOUNT
If you purchase a debt security, other than an original issue discount debt
security, for an amount that is less than its stated redemption price at
maturity, or, in the case of an original issue discount debt security, its
adjusted issue price, the amount of the difference will be treated as "market
discount" for United States federal income tax purposes, unless that difference
is less than a specified DE MINIMIS amount. Under the market discount rules, you
will be required to treat any payment, other than qualified stated interest, on,
or any gain on the sale, exchange, retirement or other disposition of, a debt
security as ordinary income to the extent of the market discount that you have
not previously included in income and are treated as having accrued on the debt
security at the time of its payment or disposition. In addition, you may be
required to defer, until the maturity of the debt security or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness attributable to the debt security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the debt security, unless
you elect to accrue on a constant interest method. You may elect to include
market discount in income currently as it accrues, on either a ratable or
constant interest method, in which case the rule described above regarding
deferral of interest deductions will not apply. Your election to include market
discount in income currently, once made, applies to all market discount
obligations acquired by you on or after the first taxable year to which your
election applies and may not be revoked without the consent of the IRS. You
should consult your own tax advisor before making this election.
ACQUISITION PREMIUM, AMORTIZABLE BOND PREMIUM
If you purchase an original issue discount debt security for an amount that
is greater than its adjusted issue price but equal to or less than the sum of
all amounts payable on the debt security after the purchase date other than
payments of qualified stated interest, you will be considered to have purchased
that debt security at an "acquisition premium." Under the acquisition premium
rules, the amount of OID that you must include in gross income with respect to
the debt security for any taxable year will be reduced by the portion of the
acquisition premium properly allocable to that year.
If you purchase a debt security (including an original issue discount debt
security) for an amount in excess of the sum of all amounts payable on the debt
security after the purchase date other than qualified stated interest, you will
be considered to have purchased the debt security at a "premium" and, if it is
an original issue discount debt security, you will not be required to include
any OID in income. You generally may elect to amortize the premium over the
remaining term of the debt security on a constant yield method as an offset to
interest when includible in income under your regular accounting method. In the
case of instruments that provide for alternative payment schedules, bond premium
is calculated by assuming that (a) you will exercise or not exercise options in
a manner that maximizes your yield, and (b) we will exercise or not exercise
options in a manner that minimizes your yield (except that we will be assumed to
exercise call options in a manner that maximizes your yield). If you do not
elect to amortize bond premium, that premium will decrease the gain or increase
the loss you would otherwise recognize on disposition of the debt security. Your
election to amortize premium on a constant yield method will also apply to all
debt obligations held or subsequently acquired by you on or after the first day
of the first taxable year to which the election applies. You may not revoke the
election without the consent of the IRS. You should consult your own tax advisor
before making this election.
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SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
Your tax basis in a debt security will, in general, be your cost for that
debt security, increased by OID, market discount or any discount with respect to
a short-term debt security that you previously included in income, and reduced
by any amortized premium and any cash payments on the debt security other than
qualified stated interest. Upon the sale, exchange, retirement or other
disposition of a debt security, you will recognize gain or loss equal to the
difference between the amount you realize upon the sale, exchange, retirement or
other disposition (less an amount equal to any accrued qualified stated interest
that you did not previously include in income, which will be taxable as such)
and the adjusted tax basis of the debt security. Except as described above with
respect to certain short-term debt securities or with respect to market
discounts, that gain or loss will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations.
TAX CONSEQUENCES OF DEFEASANCE
We may discharge our obligations under the debt securities as more fully
described under "Description of Debt Securities--Defeasance" above. Such a
discharge would generally for United States federal income tax purposes
constitute the retirement of the debt securities and the issuance of new
obligations. As a result, you would realize gain or loss (if any) on this
exchange, which would be recognized subject to certain possible exceptions.
Even though federal income tax on the deemed exchange may be imposed on you,
you would not receive any cash until the maturity or an earlier redemption of
the debt securities, except for any current interest payments.
Any gain realized would generally not be taxable to Non-United States
holders under the circumstances outlined below. Furthermore, following
discharge, the debt securities might be subject to withholding, backup
withholding and/or information reporting and might be issued with OID.
Under current federal income tax law, a covenant defeasance would not be
treated as a taxable exchange of the debt securities. You should consult your
own tax advisor as to the tax consequences of a defeasance and discharge and a
covenant defeasance, including the applicability and effect of tax laws other
than the federal income tax law.
EXTENDIBLE DEBT SECURITIES, RENEWABLE DEBT SECURITIES AND RESET DEBT
SECURITIES
If so specified in an applicable prospectus supplement relating to a debt
security, we may have the option to extend the maturity of a debt security. In
addition, we may have the option to reset the interest rate, the spread or the
spread multiplier.
The United States federal income tax treatment of a debt security with
respect to which such an option has been exercised is unclear and will depend,
in part, on the terms established for such debt securities by us pursuant to the
exercise of the option. You may be treated for federal income tax purposes as
having exchanged your debt securities for new debt securities with revised
terms. If this is the case, you would realize gain or loss equal to the
difference between the issue price of the new debt securities and your tax basis
in the old debt securities, and the other consequences described above under
"Tax Consequences of Defeasance" would also apply.
If the exercise of the option is not treated as an exchange of old debt
securities for new debt securities, you will not recognize gain or loss as a
result of such exchange.
ORIGINAL ISSUE DISCOUNT. The presence of such options may also affect the
calculation of OID, among other things. Solely for purposes of the accrual of
OID, if we issue a debt security and have an option or combination of options to
extend the term of the debt security, we will be presumed to exercise such
option or options in a manner that minimizes the yield on the debt security.
Conversely, if you are treated as having a put option, such an option will be
presumed to be exercised in a manner that maximizes the yield on the
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debt security. If we exercise such option or options to extend the term of the
debt security, or your option to put does not occur (contrary to the assumptions
made), then solely for purposes of the accrual of OID, the debt security will be
treated as reissued on the date of the change in circumstances for an amount
equal to its adjusted issue price on the date.
You should carefully examine the applicable prospectus supplement and should
consult your own tax advisor regarding the United States federal income tax
consequences of the holding and disposition of such debt securities.
FOREIGN CURRENCY DEBT SECURITIES
PAYMENTS OF INTEREST. If you receive interest payments made in a foreign
currency and you use the cash basis method of accounting, you will be required
to include in income the U.S. dollar value of the amount received, determined by
translating the foreign currency received at the "spot rate" for such foreign
currency on the date such payment is received regardless of whether the payment
is in fact converted into U.S. dollars. You will not recognize exchange gain or
loss with respect to the receipt of such payment.
If you use the accrual method of accounting, you may determine the amount of
income recognized with respect to such interest in accordance with either of two
methods. Under the first method, you will be required to include in income for
each taxable year the U.S. dollar value of the interest that has accrued during
such year, determined by translating such interest at the average rate of
exchange for the period or periods during which such interest accrued. Under the
second method, you may elect to translate interest income at the spot rate on:
- the last day of the accrual period,
- the last day of the taxable year if the accrual period straddles your
taxable year, or
- on the date the interest payment is received if such date is within five
days of the end of the accrual period.
Upon receipt of an interest payment on such debt security, you will
recognize ordinary gain or loss in an amount equal to the difference between the
U.S. dollar value of such payment (determined by translating the foreign
currency received at the "spot rate" for such foreign currency on the date such
payment is received) and the U.S. dollar value of the interest income you
previously included in income with respect to such payment.
ORIGINAL ISSUE DISCOUNT. OID on a debt security that is also a foreign
currency debt security will be determined for any accrual period in the
applicable foreign currency and then translated into U.S. dollars, in the same
manner as interest income accrued by a holder on the accrual basis, as described
above. You will recognize exchange gain or loss when OID is paid to the extent
of the difference between the U.S. dollar value of the accrued OID (determined
in the same manner as for accrued interest) and the U.S. dollar value of such
payment (determined by translating the foreign currency received at the "spot
rate" for such foreign currency on the date such payment is received). For these
purposes, all receipts on a debt security will be viewed:
- first, as the receipt of any stated interest payments called for under the
terms of the debt security,
- second, as receipts of previously accrued OID (to the extent thereof),
with payments considered made for the earliest accrual periods first, and
- third, as the receipt of principal.
MARKET DISCOUNT AND BOND PREMIUM. The amount of market discount on foreign
currency debt securities includible in income will generally be determined by
translating the market discount determined in the foreign currency into U.S.
dollars at the spot rate on the date the foreign currency debt security is
retired or otherwise disposed of. If you have elected to accrue market discount
currently, then the amount which accrues is determined in the foreign currency
and then translated into U.S. dollars on the basis of the average exchange rate
in effect during such accrual period. You will recognize exchange gain or loss
with respect to
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market discount which is accrued currently using the approach applicable to the
accrual of interest income as described above.
Bond premium on a foreign currency debt security will be computed in the
applicable foreign currency. If you have elected to amortize the premium, the
amortizable bond premium will reduce interest income in the applicable foreign
currency. At the time bond premium is amortized, exchange gain or loss, which is
generally ordinary gain or loss, will be realized based on the difference
between spot rates at such time and the time of acquisition of the foreign
currency debt security.
If you elect not to amortize bond premium, you must translate the bond
premium computed in the foreign currency into U.S. dollars at the spot rate on
the maturity date and such bond premium will constitute a capital loss which may
be offset or eliminated by exchange gain.
SALE, EXCHANGE OR RETIREMENT. Your tax basis in a foreign currency debt
security will be the U.S. dollar value of the foreign currency amount paid for
such foreign currency debt security determined at the time of your purchase. If
you purchased the foreign currency debt security with previously owned foreign
currency, you will recognize exchange gain or loss at the time of the purchase
attributable to the difference at the time of purchase, if any, between your tax
basis in the foreign currency and the fair market value of the debt security in
U.S. dollars on the date of purchase. Such gain or loss will be ordinary income
or loss.
For purposes of determining the amount of any gain or loss you recognize on
the sale, exchange retirement or other disposition of a foreign currency debt
security, the amount realized on such sale, exchange, retirement or other
disposition will be the U.S. dollar value of the amount realized in foreign
currency (other than amounts attributable to accrued but unpaid interest not
previously included in your income), determined at the time of the sale,
exchange, retirement or other disposition.
You may also recognize exchange gain or loss attributable to the movement in
exchange rates between the time of purchase and the time of disposition
(including the sale, exchange, retirement or other disposition) of a foreign
currency debt security. Such gain or loss will be treated as ordinary income or
loss. The realization of such gain or loss will be limited to the amount of
overall gain or loss realized on the disposition of a foreign currency debt
security.
Under proposed Treasury Regulations issued on March 17, 1992, if a foreign
currency debt security is denominated in one of certain hyperinflationary
currencies, generally:
- exchange gain or loss would be realized with respect to movements in the
exchange rate between the beginning and end of each taxable year (or such
shorter period) the debt security was held, and
- such exchange gain or loss would be treated as an addition or offset,
respectively, to the accrued interest income on, and an adjustment to the
holder's tax basis in, the foreign currency debt security.
Your tax basis in foreign currency received as interest on (or OID with
respect to), or received on the sale, exchange, retirement or other disposition
of, a foreign currency debt security will be the U.S. dollar value thereof at
the spot rate at the time you receive such foreign currency. Any gain or loss
recognized by you on a sale, exchange or other disposition of foreign currency
will be ordinary income or loss and will not be treated as interest income or
expense, except to the extent provided in Treasury Regulations or administrative
pronouncements of the IRS.
DUAL CURRENCY DEBT SECURITIES. If so specified in an applicable prospectus
supplement relating to a foreign currency debt security, we may have the option
to make all payments of principal and interest scheduled after the exercise of
such option in a currency other than the specified currency. The United States
federal income tax treatment of dual currency debt securities is uncertain.
Treasury Regulations currently in effect do not address the tax treatment of
dual currency debt securities.
Under the approach of proposed Treasury Regulations issued on March 17,
1992, a dual currency debt security would be bifurcated into two hypothetical
instruments:
- a zero coupon bond denominated in the currency of the stated redemption
price at maturity, and
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- an installment obligation denominated in the currency of the qualified
stated interest payments.
The proposed Treasury regulations are effective only for debt securities
issued or transactions occurring after final regulations are published. If you
are considering purchasing dual currency debt securities, you should carefully
examine the applicable prospectus supplement and should consult your own tax
advisors regarding the United States federal income tax consequences of the
holding and disposition of such debt securities.
If we exercise such an option, you may be considered to have exchanged your
debt security denominated in the specified currency for a debt security
denominated in the optional payment currency. If the exercise is treated as a
taxable exchange, you will recognize gain or loss if any, equal to the
difference between your basis in the debt security denominated in the specified
currency and the value of the debt security denominated in the optional payment
currency. If the exercise of the option is not treated as an exchange, you will
not recognize gain or loss and your basis in the debt security will be
unchanged.
CONTINGENT PAYMENT DEBT SECURITIES
The OID Regulations contain special rules for determining the timing and
amount of OID to be accrued with respect to certain debt securities providing
for one or more contingent payments. Under these rules, you will accrue OID each
year based on the "comparable yield" of the debt securities. The comparable
yield of the debt securities will generally be the rate at which we would issue
a fixed rate debt instrument with terms and conditions similar to the debt
securities.
We are required to provide the comparable yield to you and, solely for tax
purposes, are also required to provide a projected payment schedule that
includes the actual interest payments on the debt securities and estimates the
amount and timing of contingent payments on the debt securities. We will give
notice in the applicable prospectus supplement when we determine that a
particular debt security will be treated as contingent debt.
The amount of OID on a contingent payment debt security for each accrual
period is determined by multiplying the comparable yield of the contingent
payment debt security (adjusted for the length of the accrual period) by the
debt security's adjusted issue price at the beginning of the accrual period
(determined in accordance with the rules set forth in the OID Regulations
relating to contingent payment debt instruments). The amount of OID so
determined will then be allocated on a ratable basis to each day in the accrual
period that you hold the contingent payment debt security.
If the actual payments made on the contingent payment debt securities in a
taxable year differ from the projected contingent payments, adjustments will be
made for such differences. A positive adjustment, for the amount by which an
actual payment exceeds a projected contingent payment, will be treated as
additional interest. A negative adjustment will:
- first, reduce the amount of interest required to be accrued in the current
year,
- second, any negative adjustments that exceed the amount of interest
accrued in the current year will be treated as ordinary loss to the extent
that your total interest inclusions exceed the total amount of net
negative adjustments treated as ordinary loss in prior taxable years, and
- third, any excess negative adjustments will be carried forward to offset
future income or amount realized on disposition.
Gain on the sale, exchange or retirement of a contingent payment debt
security generally will be treated as ordinary income. Loss from the disposition
of a contingent payment debt security will be treated as ordinary loss to the
extent your prior net interest inclusions (reduced by the total net negative
adjustments previously allowed as an ordinary loss). Any loss in excess of such
amount will be treated as capital loss.
You are generally bound by the comparable yield and projected payment
schedule provided by us. However, if you believe that our projected payment
schedule is unreasonable, you may set your own projected payment schedule so
long as you explicitly disclose the use of such schedule and the reason
therefor. Unless
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otherwise prescribed by the Commissioner of the IRS, such disclosure must be
made in a statement attached to your timely filed federal income tax return for
the taxable year in which the debt security is acquired.
For special treatment of foreign currency debt securities or dual currency
debt securities that are also contingent payment debt securities, see the
applicable prospectus supplement.
The rules regarding contingent payment debt securities are complex. If you
are considering the purchase of debt securities providing for one or more
contingent payments, you should carefully examine the applicable prospectus
supplement and consult your own tax advisors regarding the United States federal
income tax consequences of the holding and disposition of such debt securities.
CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a summary of certain United States federal income tax
consequences that will apply to you if you are a non-United States holder of
debt securities.
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% United States federal withholding tax will not apply to any payment
of principal or interest, including OID, on debt securities provided that:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and United States Treasury Regulations,
- you are not a controlled foreign corporation that is related to us through
stock ownership,
- you are not a bank whose receipt of interest on the debt securities is
described in section 881(c)(3)(A) of the Code, and
- either (a) you provide your name and address on an IRS Form W-8, and
certify, under penalty of perjury, that you are not a United States person
or (b) a financial institution holding the debt securities on your behalf
certifies, under penalty of perjury, that it has received an IRS Form W-8
from you as the beneficial owner and provides us with a copy.
If you cannot satisfy the requirements described above, payments of premium,
if any, and interest, including OID, made to you will be subject to the 30%
United States federal withholding tax, unless you provide us with a properly
executed
- IRS Form 1001 claiming an exemption from, or reduction in, withholding
under the benefit of a tax treaty, or
- IRS Form 4224 stating that interest paid on the debt securities is not
subject to withholding tax because it is effectively connected with your
conduct of a trade or business in the United States.
Except as discussed below, the 30% United States federal withholding tax
will not apply to any gain or income that you realize on the sale, exchange,
retirement or other disposition of debt securities.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to United States federal estate tax on debt
securities beneficially owned by you at the time of your death, provided that
(1) you do not own 10% or more of the total combined voting power of all classes
of our voting stock, within the meaning of the Code and United States Treasury
Regulations, and (2) interest on those debt securities would not have been, if
received at the time of your death, effectively connected with the conduct by
you of a trade or business in the United States.
UNITED STATES FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and premium,
if any, or interest, including OID, on the debt securities is effectively
connected with the conduct of that trade or business, you will be subject to
United States federal income tax on that interest and OID on a net income basis
(although exempt from the 30% withholding tax) in the same manner as if you were
a United States holder. In addition, if you
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are a foreign corporation, you may be subject to a branch profits tax equal to
30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments. For this purpose, any premium and
interest, including OID, on debt securities will be included in your earnings
and profits.
You will generally not be subject to United States federal income tax on the
disposition of a debt security unless:
- the gain is effectively connected with your conduct of a trade or business
in the United States, or
- you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other conditions
are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on debt securities and to
the proceeds of sale of a debt security made to you (unless you are an exempt
recipient such as a corporation). A 31% backup withholding tax will apply to
such payments if you fail to provide a taxpayer identification number, a
certification of exempt status, or fail to report in full dividend and interest
income.
NON-UNITED STATES HOLDERS
In general, you will not be required to provide information reporting and
backup withholding regarding payments that we make to you provided that we do
not have actual knowledge that you are a United States person and we have
received from you the statement described above under "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 debt security made
within the United States or conducted through certain United States related
financial intermediaries, if the payor receives the statement described above
and does not have actual knowledge that you are a United States person or you
otherwise establish an exemption.
Final United States Treasury regulations generally modify the information
reporting and backup withholding rules applicable to certain payments made after
December 31, 1999. In general, the new United States Treasury Regulations would
not significantly alter the present rules discussed above, except in certain
special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
PREFERRED STOCK AND DEPOSITARY SHARES
If you are considering the purchase of preferred stock or depositary shares,
you should carefully examine the applicable prospectus supplement regarding the
United States federal income tax consequences of the holding and disposition of
such preferred stock or depositary shares.
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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.
The prospectus supplement relating to an offering of offered 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.
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These transactions may be effected on the NYSE, in the over-the-counter
market, or otherwise. Underwriters are not required to engage in any of these
activities, or to continue such activities if commenced.
If dealers are utilized in the sale of offered securities, Lehman Brothers
Holdings will sell such offered securities to the dealers as principals. The
dealers may then resell such offered securities to the public at varying prices
to be determined by such dealers at the time of resale. The names of the dealers
and the terms of the transaction will be set forth in the prospectus supplement
relating to that transaction.
Offered securities may be sold directly by Lehman Brothers Holdings to one
or more institutional purchasers, or through agents designated by Lehman
Brothers Holdings from time to time, at a fixed price or prices, which may be
changed, or at varying prices determined at the time of sale. Any 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 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. 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. Lehman Brothers Inc. may act as
principal or agent in such transactions. Lehman Brothers Inc. has 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.
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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, and a "disqualified person" under corresponding
provisions of the Internal Revenue Code of 1986, 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 which such provisions of ERISA
or the Code apply proposing to acquire the offered securities should consult
with its legal counsel.
LEGAL MATTERS
Karen M. Muller, Esq., Deputy General Counsel of Lehman Brothers Holdings,
or other counsel identified in the applicable prospectus supplement, will act as
legal counsel to Lehman Brothers Holdings. Ms. Muller beneficially owns, or has
rights to acquire under Lehman Brothers Holdings' employee benefit plans, an
aggregate of less than 1% of Lehman Brothers Holdings' common stock. 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, 1998 and 1997, and for each of
the years in the three-year period ended November 30, 1998, 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,
1998, 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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$15,000,000,000
LEHMAN BROTHERS HOLDINGS INC.
MEDIUM-TERM NOTES, SERIES F
DUE NINE MONTHS OR MORE FROM THE DATE OF ISSUE
----------------
PROSPECTUS SUPPLEMENT
APRIL 30, 1999
(INCLUDING PROSPECTUS
DATED APRIL 30, 1999)
---------------------
LEHMAN BROTHERS
