PROSPECTUS SUPPLEMENT
(To prospectus dated February 17, 1998)
$21,830,000
LEHMAN BROTHERS HOLDINGS INC.
Notes Due February 24, 2007
Performance Linked to a Basket of Five U.S. Stocks
General:
- -- Senior unsecured debt The alternative redemption
securities of Lehman Brothers amount per $1,000 note is equal
Holdings. to the level of the basket on
the stated maturity date,
- -- Basket: The common stocks of multiplied by a conversion ratio
five U.S. companies: determined by dividing $1,000 by
Affymetrix Inc., Amgen Inc., 124.09, which represents 124.09%
Human Genome Sciences Inc., of the initial level of the
Millennium Pharmaceuticals Inc. basket of 100. You can perform
and The Chase Manhattan this calculation using the
Corporation. These companies following formula:
are not involved in this
offering and have no $1,000
obligations with respect to the _________
notes. 124.09 x the level of the basket
- -- Denominations: $100,000 and
whole multiples of $1,000 in As a result, you will only
excess of $100,000. receive the alternative
redemption amount if, on the
- -- Stated maturity date: February stated maturity date, the level
24, 2007, subject to of the basket is greater than
postponement if a market 124.09.
disruption event occurs.
-- After February 15, 2002, Lehman
Payments: Brothers Holdings may redeem
each $1,000 note at a price
- -- Lehman Brothers Holdings will equal to the amount that would
pay you interest semi-annually be payable to you at the stated
at a rate equal to 0.25% per maturity date, but calculated as
year, beginning August 24, of the redemption date.
2000.
-- After February 15, 2002, you may
- -- On the stated maturity date, require Lehman Brothers Holdings
Lehman Brothers Holdings will to repurchase each $1,000 note
pay to you, per $1,000 note, at a price equal to the
the greater of: alternative redemption amount,
plus accrued but unpaid
(1) $1,000, plus accrued but interest.
unpaid interest; and
(2) the alternative redemption
amount, plus accrued but
unpaid interest.
<PAGE>
Investing in the notes involves risks. Risk Factors begin on page S-5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
<C> <S> <S>
Per Total
Note
Public offering price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% $21,830,000
Underwriting discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% $0
Proceeds to Lehman Brothers Holdings . . . . . . . . . . . . . . . . . . . . . 100% $21,830,000
</TABLE>
The notes are expected to be ready for delivery in book-entry form only through
The Depository Trust Company on or about February 24, 2000.
Lehman Brothers Inc., a wholly-owned subsidiary of Lehman Brothers Holdings,
makes a market in Lehman Brothers Holdings' securities. It may act as
principal or agent in, and this prospectus may be used in connection with,
those transactions. Any such sales will be made at varying prices related to
prevailing market prices at the time of sale.
Lehman Brothers February 18, 2000
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. No
one has been authorized to provide you with different information.
You should not assume that the information contained in this prospectus
supplement or the accompanying prospectus is accurate as of any date other than
the date on the front cover of the document. Securities are not being offered
in any jurisdiction where the offer is not permitted.
TABLE OF CONTENTS
Page
Prospectus Supplement
SUMMARY INFORMATION--Q&A ................................................ S-3
RISK FACTORS............................................................. S-6
USE OF PROCEEDS AND HEDGING.............................................. S-11
RATIO OF EARNINGS TO FIXED CHARGES....................................... S-11
DESCRIPTION OF THE NOTES ................................................ S-12
THE BASKET .............................................................. S-17
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES S-21 BOOK-ENTRY ISSUANCE . S-23
UNDERWRITING ............................................................ S-25
EXPERTS ................................................................. S-25
Prospectus
AVAILABLE INFORMATION ................................................... 2
DOCUMENTS INCORPORATED BY REFERENCE ..................................... 2
THE COMPANY ............................................................. 2
USE OF PROCEEDS ......................................................... 3
RATIO OF EARNINGS TO FIXED CHARGES ...................................... 3
DESCRIPTION OF DEBT SECURITIES .......................................... 4
DESCRIPTION OF WARRANTS ................................................. 11
GLOBAL SECURITIES ....................................................... 17
UNITED STATES TAXATION .................................................. 19
CAPITAL REQUIREMENTS .................................................... 19
PLAN OF DISTRIBUTION .................................................... 20
ERISA MATTERS ........................................................... 21
LEGAL OPINIONS .......................................................... 21
INDEPENDENT ACCOUNTANTS ................................................. 21
<PAGE>
SUMMARY INFORMATION--Q&A
This summary highlights selected information from the prospectus supplement and
accompanying prospectus to help you understand the notes. You should carefully
read this prospectus supplement and the accompanying prospectus to understand
fully the terms of the notes and the tax and other considerations that are
important to you in making a decision about whether to invest in the notes. You
should pay special attention to the "Risk Factors" section beginning on page S-5
to determine whether an investment in the notes is appropriate for you. For
your convenience, there are references throughout this document to specific
page numbers where more detailed information on some of the terms and concepts
discussed can be found.
What are the notes?
The notes are a series of senior debt of Lehman Brothers Holdings whose value
is tied to the performance of the five common stocks in the basket. The notes
will rank equally with all other unsecured debt of Lehman Brothers Holdings
except subordinated debt, and will mature on February 24, 2007, unless
postponed because a market disruption event occurs. See "Description of the
Notes--Determination of alternative redemption amount" beginning on page S-10.
What is the basket?
The basket is made up of the common stocks of five U.S. companies: Affymetrix
Inc., Amgen Inc., Human Genome Sciences Inc., Millennium Pharmaceuticals Inc.
and The Chase Manhattan Corporation. See "The Basket" beginning on page S-14.
What payments will I receive on the notes?
Lehman Brothers Holdings will pay you interest semiannually at a rate of 0.25%
per year, beginning August 24, 2000. You will also receive a payment at the
redemption, the repurchase or the stated maturity of the notes.
<PAGE>
What will I receive if I hold the notes until the stated maturity date?
Lehman Brothers Holdings has designed the notes for investors who want to
protect their investment by receiving at least the principal amount of their
investment on the stated maturity date and who also want to participate in a
possible increase in the basket. On the stated maturity date, you will receive
a payment per $1,000 note equal to the greater of:
- -- $1,000, plus accrued but unpaid interest; and
- -- the alternative redemption amount, plus accrued
but unpaid interest.
<PAGE>
As a result, if you hold the notes until the stated maturity date, you will not
receive less than the principal amount.
How does the redemption feature work?
Lehman Brothers Holdings may redeem all or part of the notes on one or more
occasions on or after February 15, 2002 at a redemption price per $1,000 note
equal to the greater of:
- -- $1,000, plus accrued but unpaid interest; and
- -- the alternative redemption amount, plus accrued
but unpaid interest.
As a result, if Lehman Brothers Holdings redeems your notes, you will not
receive less than the principal amount.
Citibank, N.A., the trustee for the notes, will give you at least 30 days'
notice of any redemption.
How can you require Lehman Brothers Holdings to
repurchase your notes?
On or after February 15, 2002 you may instruct Lehman Brothers Holdings to
repurchase all or part of your notes at a price per $1,000 note equal to the
alternative redemption amount, plus accrued but unpaid interest, by giving
Lehman Brothers Holdings notice on any business day at the corporate trust
office of Citibank, N.A., the trustee for the notes. The repurchase date will
be the third business day following the five business day period which begins
on the business day after you have given notice, unless payment is postponed
because a market disruption event occurs. See "Description of the Notes--
Determination of alternative redemption amount" beginning on page S-10.
If Lehman Brothers Holdings repurchases your notes, the amount you receive may
be greater or less than $1,000 per $1,000 note.
How will the alternative redemption amount be calculated?
The alternative redemption amount per $1,000 note
will be calculated by the following formula:
$1,000
_______
124.09 x the level of the basket
<PAGE>
This formula accounts for the fact that the level of the basket, on the stated
maturity date, must be greater than 124.09% of the initial level of the basket
for you to receive any amount above $1,000 per $1,000 note and the portion of
any increase that you will receive if the basket is greater than 124.09% of 100.
<PAGE>
The level of the basket on the stated maturity date or upon redemption or
repurchase will generally be based on the closing prices of the common stocks
in the basket, on the third business day prior to the stated maturity date, the
redemption date or the repurchase date, as the case may be. The level of the
basket will also include any other equity securities or any cash included in
the basket as a result of extraordinary corporate transactions as described
below. See "Description of the Notes--Determination of alternative redemption
amount" beginning on page S-10 for details.
Alternative redemption amount--examples
Here are two examples of hypothetical alternative redemption amount
calculations:
Example 1: The level of the basket is 105.
Alternative redemption amount per $1,000 note =
$1,000 x 105 = $846.16
_______
124.09
As a result, on the stated maturity date or upon redemption, you will receive
$1,000, plus accrued but unpaid interest, per $1,000 note because $1,000 is
greater than $846.16. If you require Lehman Brothers Holdings to repurchase
your notes, you will only receive $846.16, plus accrued but unpaid interest,
per $1,000 note.
Example 2: The level of the basket is 150.
Alternative redemption amount per $1,000 note =
$1,000 x 150 = $1,208.80
________
124.09
As a result, on the stated maturity date or upon redemption, you will receive
$1,208.80, plus accrued but unpaid interest, per $1,000 note because $1,208.80
is greater than $1,000. If you require Lehman Brothers Holdings to repurchase
your notes, you will also receive $1,208.80, plus accrued but unpaid interest,
per $1,000 note.
<PAGE>
How have the five common stocks in the basket performed historically?
Lehman Brothers Holdings has provided tables, beginning on page S-15, showing
the performance from 1996 through February 18, 2000 of the five common stocks
in the basket. Lehman Brothers Holdings has provided this historical
information to help you evaluate the behavior of the common stocks in the basket
so that you can make an informed decision with respect to an investment in the
notes. You should realize, however, that past performance is not necessarily
indicative of how the common stocks, the basket and the notes will perform in
the future.
<PAGE>
What changes will occur in the basket?
Changes will be made to the basket if the issuers whose common stocks comprise
the basket engage in extraordinary transactions. For example, if an issuer is
not the surviving entity in a merger, the issuer's common stock will be removed
from the basket and the basket will then include equity securities of the
successor entity or cash received in the merger plus accrued interest. Also as
an example, if an issuer distributes equity securities of a subsidiary to
shareholders, the subsidiary's equity securities will then be added to the
basket. See "The Basket--Adjustments to the multipliers and the basket"
beginning on page S-16.
How will I be able to find the level of the basket?
You may call Lehman Brothers Inc. at 212-526-0900 to obtain the level of the
basket and the number of shares of each of the common stocks and other equity
securities in the basket per $1,000 note.
Are there any risks associated with my investment?
Yes, the notes are subject to a number of risks. See "Risk Factors" beginning
on page S-5.
What about taxes?
The notes will be subject to U.S. Treasury regulations that apply to contingent
payment debt instruments. As a result, you will be subject to federal income
tax on the accrual of original issue discount in respect of the notes. In
addition, gain or loss on the sale, exchange or other disposition will
generally be ordinary gain or loss. See "United States Federal Income Tax
Consequences" beginning on page S-18.
Who is Lehman Brothers Holdings?
Lehman Brothers Holdings is one of the leading global investment banks, serving
institutional, corporate, government and high net worth clients and customers.
Lehman Brothers Holdings' worldwide headquarters in New York and regional
headquarters in London and Tokyo are complemented by offices in additional
locations in the United States, Europe, the Middle East, Latin America and the
Asia Pacific region. See "Available Information," "Documents Incorporated By
Reference" and "The Company" on pages 2 and 3 of the accompanying prospectus.
<PAGE>
What is the role of Lehman Brothers Inc.?
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, is the
underwriter for the offering and sale of the notes. Lehman Brothers Inc. will
also be the calculation agent for purposes of calculating the amount payable to
you. Potential conflicts of interest may exist between Lehman Brothers Inc. and
you as a beneficial owner of the notes. See "Risk Factors--Potential conflicts
of interest exist because Lehman Brothers Holdings controls Lehman Brothers
Inc., which acts as the calculation agent" on page S-8 and "Description of the
Notes--Calculation agent" beginning on page S-13.
After the initial offering, Lehman Brothers Inc. intends to buy and sell the
notes to create a secondary market in the notes, and may stabilize or maintain
the market price of the notes during the initial distribution of the notes.
However, Lehman Brothers Inc. will not be obligated to engage in any of these
market activities, or to continue them once they are begun.
In what form will the notes be issued?
The notes will be represented by one or more global securities that will be
deposited with and registered in the name of The Depository Trust Company or
its nominee. This means that you will not receive a certificate for your notes.
<PAGE>
RISK FACTORS
You should carefully consider the risk factors set forth below as well as the
other information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated herein by reference. As described in
more detail below, the trading price of the notes may vary considerably prior
to the maturity date due, among other things, to fluctuations in the price of
the common stocks and other equity securities that make up the basket and other
events that are difficult to predict and beyond Lehman Brothers Holdings'
control.
You should reach an investment decision only after you have carefully
considered with your advisors the suitability of an investment in notes in
light of your particular circumstances.
These notes are different from conventional debt securities of Lehman Brothers
Holdings in several ways.
- -- The yield may be lower than the yield on a conventional debt security of
comparable maturity. The amount Lehman Brothers Holdings pays you on the
stated maturity date may be less than the return you could earn on other
investments. Because the amount you receive on the stated maturity date
may be equal to or only slightly greater than $1,000 per $1,000 note, the
effective yield to maturity on the notes may be less than that which would
be payable on a conventional fixed-rate, non-callable debt security of
Lehman Brothers Holdings. In addition, any return may not fully
compensate you for any opportunity cost to you when you take into account
inflation and other factors relating to the time value of money.
- -- If the alternative redemption amount is less than $1,000 per $1,000 note,
you will only receive the principal amount of the notes on the stated
maturity date, plus accrued but unpaid interest. This may be true even if
the level of the basket exceeds 100 at some time during the life of the
notes because the basket must, on the stated maturity date, be greater
than 124.09% of 100 before the alternative redemption amount becomes
greater than $1,000 per $1,000 note.
<PAGE>
- -- The rate of interest paid on the notes is significantly less than interest
paid on a conventional debt security. The interest rate on the notes is
only 0.25% per year. However, because the notes will be classified as
contingent payment debt instruments, they will be considered to be issued
with original issue discount. As a result, you will be required to include
the original issue discount in income during your ownership of the notes,
subject to some adjustments. See "United States Federal Income Tax
Consequences" beginning on page S-18.
Your return on the notes could be less than if you owned the common stocks.
- -- You will not receive any appreciation unless the basket, on the stated
maturity date, is greater than 124.09% of its initial level. Because you
will not receive any appreciation unless the basket, on the stated
maturity date, is greater than 124.09% of its initial level of 100, your
return on the notes could be less than the return obtainable if you had
owned the common stocks that make up the basket. Even if the level of the
basket, on the stated maturity date, is greater than 124.09% of 100, you
will realize only a portion of the excess of the level of the basket
over 124.09%.
- -- Your return will not reflect dividends on the common stocks or other
equity securities in the basket. Your return on the notes will also not
reflect the return you would realize if you actually owned the common
stocks (or any other equity securities) in the basket and received the
dividends paid on those securities. This is because the calculation agent
will calculate the amount payable to you by reference to the prices of the
common stocks (and any other equity securities) in the basket without
taking into consideration the value of dividends paid on those securities.
<PAGE>
Historical values of the five common stocks should not be taken as an
indication of the future performance of the basket during the term of the
notes.
The trading prices of the common stocks and other equity securities in the
basket and any cash included in the basket will determine the level of the
basket. As a result, it is impossible to predict how much the level of the
basket will equal on the stated maturity date. Trading prices of the common
stocks and other equity securities in the basket will be influenced by complex
and interrelated political, economic, financial and other factors that can
affect the markets in which those securities are traded and the values of those
common stocks and other equity securities themselves.
The value of the notes will be affected by numerous factors, some of which are
related in complex ways.
The value of the notes in the secondary market will be affected by supply and
demand of the notes, the level of the basket at that time and a number of other
factors, some of which are interrelated in complex ways. As a result, the
effect of any one factor may be offset or magnified by the effect of another
factor. The price at which you will be able to sell the notes prior to stated
maturity may be at a discount, which could be substantial, from their principal
amount, if, at that time, the level of the basket is less than, equal to, or
not sufficiently above 124.09, which is 124.09% of the basket's initial level
of 100. You will not participate in the basket's appreciation unless the level
of the basket, on the stated maturity date, is greater than 124.09% of 100. A
change in a specific factor could have the following impacts on the market
value of the notes, assuming all other conditions remain constant.
- -- Redemption feature. Lehman Brothers Holdings' ability to redeem the notes
prior to the stated maturity date is likely to limit the secondary market
price at which the notes will trade.
<PAGE>
- -- Value. Lehman Brothers Holdings expects that the market value of the notes
will depend substantially on the amount, if any, by which the level of the
basket at any given point in time exceeds 124.09% of its initial level of
100. If you decide to sell your notes when the level of the basket exceeds
the initial level, you may nonetheless receive substantially less than the
amount that would be payable on the stated maturity date based on that
basket level because of expectations that the basket will continue to
fluctuate until the alternative redemption amount is determined. If you
decide to sell your notes when the level of the basket is below 124.09% of
its initial level of 100, you can expect to receive less than the
principal amount of the note. Political, economic and other developments
that affect the stocks in the basket may also affect the level of the
basket and, thus, the value of the notes.
- -- Interest rates. Because the notes repay at least their principal amount on
the stated maturity date, the trading value of the notes will be affected
by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the notes may be adversely affected, and if
U.S. interest rates decrease, the trading value of the notes may be
favorably affected.
- -- Volatility of the basket. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the basket
increases or decreases, the trading value of the notes may be adversely
affected.
- -- Merger and acquisition transactions. Some of the common stocks or other
equity securities in the basket may be affected by mergers and
acquisitions, which can contribute to volatility of the basket.
Additionally, as a result of a merger or acquisition, one or more common
stocks or other equity securities in the basket may be replaced in the
basket with a surviving or acquiring entity's securities. The surviving or
acquiring entity's securities may not have the same characteristics as the
common stock originally included in the basket.
<PAGE>
- -- Time remaining to maturity. The value of the notes may be affected by the
time remaining to maturity. As the time remaining to the maturity of the
notes decreases, this time value may decrease, adversely affecting the
trading value of the notes.
- -- Dividend yields. If dividend yields on the common stocks in the basket or
other equity securities in the basket increase, the value of the notes
may be adversely affected because the basket does not incorporate the
value of those payments.
- -- Lehman Brothers Holdings' credit ratings, financial condition and results.
Actual or anticipated changes in Lehman Brothers Holdings' credit ratings,
financial condition or results may affect the market value of the notes.
- -- Economic conditions and earnings performance of those companies whose
common stocks are in the basket. General economic conditions and earnings
results of the companies whose common stocks and other equity securities
make up the basket and real or anticipated changes in those conditions
or results may affect the market value of the notes.
You should understand that the impact of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any change in
the trading value of the notes attributable to another factor, such as an
increase in the level of the basket. In general, assuming all relevant factors
are held constant, the effect on the trading value of the notes of a given
change in most of the factors listed above will be less it if occurs later than
if it occurs earlier in the term of the notes.
The common stocks in the basket are heavily weighted in the biotechnology
industry.
You should consider the following risks related to an investment in the
biotechnology industry:
- Biotechnology company stock prices have been and will likely continue
to be extremely volatile. The trading prices of the stock of
biotechnology companies have been and are likely to be extremely
volatile. Biotechnology companies' stock prices could be subject to
wide fluctuations in response to a variety of factors, including:
<PAGE>
- announcements of technological innovations of new commercial
products;
- developments in patent or proprietary rights;
- government regulatory initiatives;
- public concern as to the safety or other implications
of biotechnology products;
- fluctuations in quarterly financial results; and
- market conditions.
- Biotechnology companies face uncertainty with respect to pricing and
third party reimbursement. Biotechnology companies will continue to be
affected by the efforts of governments and third party payors, such as
government health organizations, private health insurers and health
maintenance organizations, to contain or reduce health care costs. For
example, in certain foreign markets pricing or profitability of
biotechnology products and technologies is subject to control. In the
United States, there has been, and there will likely to continue to be,
a number of federal and state proposals to implement similar government
control. Also, an increasing emphasis on managed health care in the
United States will continue to put pressure on the pricing of the
products and technologies of biotechnology companies. The announcement
or adoption of such proposals could have a material adverse effect on
the biotechnology companies' business and financial condition. Further,
the sales of the products of many biotechnology companies are often
dependent, in part, on the availability of reimbursement from third
party payors. Third party payors are increasingly challenging the
prices charged for health care products and technologies and denying or
limiting coverage for new products. Even if a biotechnology company
can bring a product or technology to market, there can be no assurance
that these products or technologies will be considered cost-effective
by third party payors and that sufficient reimbursement will be
available to consumers to allow for the sale of the products and
services on a profitable basis.
<PAGE>
- Protection of patent and proprietary rights of biotechnology companies
is difficult and costly. The success of many biotechnology companies
is highly dependent on a biotechnology company's ability to obtain
patents on current and future products and technologies, to defend its
existing patents and trade secrets and operate in a manner that does
not infringe on the proprietary rights of other biotechnology
companies. Patent disputes are frequent and can preclude the
successful commercial introduction of products and technologies. As a
result, there is significant litigation in the biotechnology industry
regarding patent and other intellectual property rights. Litigation is
costly and could subject a biotechnology company to significant
liabilities to third parties. In addition, a biotechnology company
could be forced to obtain costly third-party licenses or cease using
the technology or product in dispute.
- Biotechnology companies are subject to extensive government regulation.
Products and technologies offered by biotechnology companies are
subject to strict regulation by the Food and Drug Administration in the
United States and similar agencies in other countries. Many of the
products will require extensive pre-clinical testing, clinical trials,
other testing, government review and final approval before any
marketing of the product will be permitted. This procedure could take
a number of years and involves the expenditure of substantial
resources. The success of a biotechnology company's current or future
products will depend, in part, upon obtaining and maintaining
regulatory approval to market products and, once approved, complying
with the continued review by regulatory agencies. The failure to
obtain necessary government approvals, the restriction of existing
approvals, loss of or changes to previously obtained approvals or the
failure to comply with regulatory requirements could result in fines,
unanticipated expenditures, product delays, non-approval or recall,
interruption of production and even criminal prosecution.
<PAGE>
- Biotechnology companies must keep pace with rapid technological change
to remain competitive. The biotechnology industry is highly
competitive and is subject to rapid and significant technological
change. Biotechnology companies will face continued competition as new
products enter the market and advanced technologies become available.
The success of a biotechnology company will depend on its ability to
develop products and technologies that are at least as clinically
effective or cost-effective as its competitors' products and
technologies or that would render its competitors' products and
technologies obsolete or uncompetitive.
- Results of research and development of new products and technologies
are unpredictable. Successful product or technology development in the
biotechnology industry is very uncertain and only a small number of
research and development programs will result in the marketing and sale
of new product or technology. Many products and technologies that
appear promising may fail to reach the market for many reasons,
including results indicating lack of effectiveness or harmful side
effects in clinical or pre-clinical testing, failure to receive
necessary regulatory approvals, uneconomical manufacturing costs or
competing proprietary rights. In addition, there is no certainty that
any product or technology in development will achieve market acceptance
from the medical community, third party payors or individual users.
- Biotechnology companies may be exposed to extensive product liability
costs. The testing, manufacturing, marketing and sale of many of the
products and technologies developed by biotechnology companies
inherently expose biotechnology companies to potential product
liability risks. Many biotechnology companies obtain limited product
liability insurance; further, there can be no assurance that a
biotechnology company will be able to maintain its product liability
insurance, that it will continue to be able to obtain adequate product
liability insurance on reasonable terms or that any product liability
insurance obtained will provide adequate coverage against potential
liabilities.
<PAGE>
- Biotechnology companies face challenges gaining governmental and
consumer acceptance of genetically altered products. Biotechnology
companies may be involved in the development of genetically engineered
agricultural and food products. The commercial success of these
products will depend, in part, on governmental and public acceptance of
their cultivation, distribution and consumption. Public attitudes may
be influenced by the media and by opponents who claim that genetically
engineered products are unsafe for consumption, pose unknown health
risks, risks to the environment or to social or economic practices.
Biotechnology companies may continue to have to expend significant
resources to foster governmental and consumer acceptance of genetically
engineered agricultural and food products, particularly in Europe where
securing governmental approvals for, and achieving consumer confidence
in, these products continues to pose numerous challenges. The success
of any genetically engineered agricultural and food products may be
delayed or impaired in certain geographical areas due to the existing
or future regulatory, legislative or public acceptance issues.
- Many biotechnology companies are dependent on key personnel for
success. The success of many biotechnology companies is highly
dependent on the experience, abilities and continued services of key
executive officers and key scientific personnel. If these companies
lose the services of any of these officers or key scientific personnel,
their future success could be undermined. The success of many
biotechnology companies also depends upon their ability to attract and
retain other highly qualified scientific, managerial sales and
manufacturing personnel and their ability to develop and maintain
relationships with qualified clinical researchers. Competition for
such personnel and relationships is intense and many of these companies
compete with each other and with universities and non-profit research
organizations. There is no certainty that any of these biotechnology
companies will be able to continue to attract and retain qualified
personnel or develop and maintain relationships with clinical
researchers.
<PAGE>
Lehman Brothers Holdings cannot control actions by the companies whose common
stocks or other equity securities make up the basket.
Actions by any company whose common stock or other equity security is part of
the basket may have an adverse effect on the price of its common stock or other
equity security, the basket and the notes. In addition, these companies are
not involved in the offering of the notes and have no obligations with respect
to the notes, including any obligation to take Lehman Brothers Holdings' or your
interests into consideration for any reason. These companies will not receive
any of the proceeds of the offering of the notes made hereby and are not
responsible for, and have not participated in, the determination of the timing
of, prices for, or quantities of, the notes to be issued. These companies are
not involved with the administration, marketing or trading of the notes and
have no obligations with respect to the amount to be paid to you on the stated
maturity date.
Potential conflicts of interest exist because Lehman Brothers Holdings controls
Lehman Brothers Inc., which will act as the calculation agent.
Lehman Brothers Inc. will act as the calculation agent, which determines the
amount you will receive on the notes, whether adjustments should be made to
the multipliers and the basket and whether a market disruption event has
occurred. As a result, potential conflicts of interest may exist between
Lehman Brothers Inc. and you. See "Description of the Notes--Payment on the
stated maturity date" on page S-10, "--Market disruption events" on page S-11
and "The Basket--Adjustments to the multipliers and the basket" beginning on
page S-16.
<PAGE>
Purchases and sales of the common stocks or other equity securities in the
basket by Lehman Brothers Holdings and its affiliates could affect the prices
of those common stocks or other equity securities or the level of the basket.
Lehman Brothers Holdings and its affiliates, including Lehman Brothers Inc.,
may from time to time buy or sell the common stocks or other equity securities
comprising the basket or derivative instruments related to those common stocks
or other equity securities for their own accounts in connection with their
normal business practices or in connection with hedging of Lehman Brothers
Holdings' obligations under the notes. These transactions could affect the
prices of those common stocks or other equity securities or the level of the
basket. See "Use of Proceeds and Hedging" on page S-9.
Tax consequences
For U.S. federal income tax purposes, the notes will be classified as
contingent payment debt instruments. As a result, they will be considered to be
issued with original issue discount, which you will be required to include in
income during your ownership of the notes, subject to some adjustments.
Additionally, you will generally be required to recognize ordinary income on
the gain, if any, realized on a sale, upon maturity, or other disposition of the
notes. See "United States Federal Income Tax Consequences" beginning on
page S-18.
<PAGE>
USE OF PROCEEDS AND HEDGING
An amount equal to approximately one-half of the proceeds to be received by
Lehman Brothers Holdings from the sale of the notes has been or will be used
by Lehman Brothers Holdings or one or more of its subsidiaries before and
immediately following the initial offering of the notes to acquire common
stocks that make up the basket. Lehman Brothers Holdings or one or more of its
subsidiaries may also acquire listed or over-the-counter options contracts
in, or other derivative or synthetic instruments related to, those common
stocks to hedge Lehman Brothers Holdings' obligations under the notes. The
balance of the proceeds will be used for general corporate purposes. See "Use
of Proceeds" on page 3 of the accompanying prospectus.
From time to time after the initial offering and prior to the maturity of the
notes, depending on market conditions, including the market price of the common
stocks and any other equity securities that underlie the basket, Lehman
Brothers Holdings expects that it or one or more of its subsidiaries will
increase or decrease their initial hedging positions using dynamic hedging
techniques. Lehman Brothers Holdings or one or more of its subsidiaries may
take long or short positions in those common stocks or other equity securities
or in listed or over-the-counter options contracts or other derivative or
synthetic instruments related to, those common stocks or other equity
securities. In addition, Lehman Brothers Holdings or one or more of its
subsidiaries may purchase or otherwise acquire a long or short position in notes
from time to time and may, in their sole discretion, hold or resell those
notes. Lehman Brothers Holdings or one or more of its subsidiaries may also
take positions in other types of appropriate financial instruments that may
become available in the future.
<PAGE>
To the extent that Lehman Brothers Holdings or one or more of its subsidiaries
has a long hedge position in the common stocks or other equity securities that
make up the basket, or option contracts or other derivative or synthetic
instruments related to those common stocks or other equity securities, Lehman
Brothers Holdings or one or more of its subsidiaries may liquidate a portion of
their holdings at or about the time of the maturity of the notes or at or about
the time of a change in the common stocks and other equity securities that
underlie the basket. Depending, among other things, on future market
conditions, the aggregate amount and the composition of the positions are
likely to vary over time. Profits or losses from any of those positions cannot
be ascertained until the position is closed out and any offsetting position or
positions are taken into account. Certain activity by Lehman Brothers Holdings
or one or more of its subsidiaries described above can potentially increase or
decrease the price of the common stocks or other equity securities that make up
the basket and, accordingly, increase or decrease the level of the basket.
Although Lehman Brothers Holdings has no reason to believe that any of those
activities will have a material impact on the price of the common stocks or
other equity securities that make up the basket, these activities could have
such an effect.
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S>
RATIO OF EARNINGS TO FIXED CHARGES
Eleven
Months
Ended Nine Months
November 30 Ended
( ) Year Ended November 30, August 31,
1994 1995 1996 1997 1998 1999
1.03 1.03 1.06 1.07 1.07 1.11
</TABLE>
In computing the ratios for Lehman Brothers Holdings above, "earnings" consist
of earnings from continuing operations before income taxes and fixed charges;
and "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.
<PAGE>
DESCRIPTION OF THE NOTES
General
You will find information about the notes in two separate documents that
progressively provide more detail:
- -- the accompanying prospectus; and
- -- this prospectus supplement.
Since the terms of the notes may differ from the general information Lehman
Brothers Holdings has provided in the prospectus, in all cases you should
rely on information in this prospectus supplement over different information in
the prospectus. The notes are to be issued as a series of debt securities
under the senior indenture, which is more fully described in the prospectus.
For a description of the rights attaching to different series of debt securities
under the senior indenture, you should refer to the section "Description of
Debt Securities" beginning on page 4 of the accompanying prospectus. The notes
are "Senior Debt" as described in the accompanying prospectus. Citibank, N.A.
is trustee under the senior indenture.
Lehman Brothers Holdings may initially issue up to $21,830,000 aggregate
principal amount of notes. The notes will be issued in denominations of
$100,000 and whole multiples of $1,000 in excess thereof.
Interest
Lehman Brothers Holdings will pay interest semi-annually at a rate of 0.25% per
year to the person in whose name the note is registered at the close of
business on the 15th day of the month in which the interest payment is made.
Lehman Brothers Holdings will pay interest on the notes on August 24 and
February 24 of each year, beginning August 24, 2000. Interest on the notes will
be calculated on the basis of a 360-day year of twelve 30-day months.
Additionally, if and to the extent that the amount received at stated maturity
or upon earlier redemption, repurchase or sale exceeds $1,000 per $1,000 note,
this amount will be treated as a payment of interest rather than a capital gain
under U.S. Treasury regulations.
<PAGE>
Payment on the stated maturity date
The notes will mature on February 24, 2007 unless postponed because a market
disruption event occurs; see "--Determination of alternative redemption amount"
below. Unless your notes have been previously redeemed by Lehman Brothers
Holdings or you instruct Lehman Brothers Holdings to repurchase the notes, you
will be entitled to receive per $1,000 note, on the stated maturity date, the
greater of:
- -- $1,000, plus accrued but unpaid interest; and
- -- the alternative redemption amount, as described
below, plus accrued but unpaid interest.
If the alternative redemption amount per $1,000 note is less than or equal to
$1,000 because the repayment of your principal amount is protected, you will be
entitled to receive $1,000, plus accrued but unpaid interest, per $1,000 note
on the stated maturity date.
Early redemption of the notes at the option of Lehman Brothers Holdings
On or after February 15, 2002, Lehman Brothers Holdings may redeem all or part
of the notes on one or more occasions, at a redemption price per $1,000 note
equal to the greater of:
- -- $1,000, plus accrued but unpaid interest; and
- -- the alternative redemption amount, plus accrued but unpaid interest.
If the alternative redemption amount per $1,000 note is less than or equal to
$1,000, because the repayment of your principal amount is protected, you
will be entitled to receive $1,000, plus accrued but unpaid interest per
$1,000 note upon redemption.
Citibank, N.A., the trustee for the notes, will give you at least 30 days'
notice of any redemption.
<PAGE>
Your option to require Lehman Brothers Holdings to repurchase the notes prior
to maturity
On or after February 15, 2002, you may instruct Lehman Brothers Holdings to
repurchase all or part of your notes at a price per $1,000 note equal to the
alternative redemption amount, plus accrued but unpaid interest, by giving
Lehman Brothers Holdings notice on any business day at the corporate trust
office of Citibank, N.A., the trustee for the notes. The repurchase date will
be the third business day following the five business day period which begins
on the business day after you have given notice that Lehman Brothers Holdings
must repurchase your notes, unless payment is postponed because a market
disruption event occurs. See "--Determination of alternative redemption amount"
below.
If Lehman Brothers Holdings repurchases your notes, the amount you receive per
$1,000 note may be greater or less than $1,000.
Your election to require Lehman Brothers Holdings to repurchase a note will be
irrevocable. All questions as to the validity, eligibility, including time of
receipt, and acceptance of any note for repurchase will be determined by Lehman
Brothers Holdings, whose determination will be final and binding.
Determination of alternative redemption amount.
The alternative redemption amount per $1,000 note will be determined by the
calculation agent by the following formula:
$1,000
______
124.09 x the level of the basket
This formula accounts for the fact that the level of the basket, on the stated
maturity date, must be greater than 124.09% of the initial level of the basket
for you to receive any amount above the principal amount of $1,000 per $1,000
note and the portion of any increase you will receive if the basket is greater
than 124.09% of 100.
<PAGE>
The level of the basket on the stated maturity date or upon redemption or
repurchase, as the case may be, will be determined by the calculation agent and
will be based on the closing prices of the common stocks and/or other equity
securities in the basket on the third business day prior to the stated maturity
date, the redemption date or the repurchase date, as the case may be, and any
cash included in the basket. However, if the calculation agent determines that
one or more market disruption events have occurred on such day with respect to
one or more common stocks or other equity securities in the basket, the
calculation agent will determine the closing price of those affected stocks or
securities on the next business day on which there is not a market disruption
event for it. This situation will cause the payment you receive to be postponed
until three business days after the date that the closing price of the affected
common stock or other equity security is determined.
"Closing price" means the last reported sales price on the relevant exchange,
trading system or market at 4:00 p.m., New York City time. If, however, any of
the common stocks or other equity securities in the basket are listed or traded
on a bulletin board at the time the alternative redemption amount is
determined, then the "closing prices" of those common stocks or other equity
securities will be determined using the average execution price that an
affiliate of Lehman Brothers Holdings receives upon the sale of those common
stocks or other equity securities used to hedge Lehman Brothers Holdings'
obligations under the notes.
Market disruption events
A market disruption event with respect to a common stock or other equity
security in the basket will occur on any day if the calculation agent
determines that:
<PAGE>
- -- A suspension, absence or material limitation of trading in that common
stock or other equity security has occurred on that day, in each case,
for more than two hours of trading or during the one-half hour period
preceding the close of trading on the primary organized U.S. exchange
or trading system on which that security is traded or, in the case of a
common stock or other equity security not listed or quoted in the United
States, on the primary exchange, trading system or market for such
security. Limitations on trading during significant market fluctuations
imposed pursuant to New York Stock Exchange Rule 80B or any applicable
rule or regulation enacted or promulgated by the New York Stock Exchange,
any other exchange, trading system, or market, any other self regulatory
organization or the SEC of similar scope or as a replacement for Rule 80B,
may be considered material. For purposes of this prospectus supplement,
"trading system" includes bulletin board services. Notwithstanding the
first sentence of this paragraph, a market disruption event for a security
traded on a bulletin board means a suspension, absence or material
limitation of trading of that security for more than two hours or during
the one hour period preceding 4:00 p.m., New York City time.
- -- A suspension, absence or material limitation has occurred on that day, in
each case, for more than two hours of trading or during the one-half hour
period preceding the close of trading in options contracts related to that
common stock or other equity security, whether by reason of movements in
price exceeding levels permitted by an exchange, trading system or market
on which those options contracts are traded or otherwise.
- -- Information is unavailable on that date, through a recognized system of
public dissemination of transaction information, for more than two hours
of trading or during the one-half hour period preceding the close of
trading, of accurate price, volume or related information in respect
of that common stock or other equity security or in respect of options
contracts related to that common stock or other equity security, in each
case traded on any major U.S. exchange or trading system or, in the case
of securities of a non-U.S. issuer, traded on the primary non-U.S.
exchange, trading system or market.
<PAGE>
For purposes of determining whether a market disruption event has occurred:
- -- a limitation on the hours or number of days of trading will not constitute
a market disruption event if it results from an announced change in the
regular business hours of the relevant exchange, trading system or market;
- -- any suspension in trading in an option contract on common stock or other
equity security in the basket by a major securities exchange, trading
system or market by reason of:
-- a price change violating limits set by such securities market,
-- an imbalance of orders relating to those contracts, or
-- a disparity in bid and ask quotes relating to those contracts,
will constitute a market disruption event notwithstanding that the
suspension or material limitation is less than two hours;
- -- a suspension or material limitation on an exchange, trading system or in a
market will include a suspension or material limitation of trading by one
class of investors provided that the suspension continues for more than
two hours of trading or during the last one-half hour period preceding the
close of trading on the relevant exchange, trading system or market but
will not include any time when the relevant exchange, trading system or
market is closed for trading as part of that exchange's, trading system's
or market's regularly scheduled business hours; and
- -- "close of trading" means 4:00 P.M., New York City time.
Under certain circumstances, the duties of Lehman Brothers Inc. as the
calculation agent in determining the existence of market disruption events
could conflict with the interests of Lehman Brothers Inc. as an affiliate of the
issuer of the notes.
<PAGE>
Based on the information currently available to Lehman Brothers Holdings, on
October 27, 1997, the New York Stock Exchange suspended all trading during
the one-half hour period preceding the close of trading pursuant to New York
Stock Exchange Rule 80B. On April 3, 1992, no trading took place on the
Chicago Mercantile Exchange, as a flood that severely affected the operations
of many of the CME's member institutions caused the CME to suspend trading for
the entire day. On August 12, 1999, the Chicago Board of Trade suspended all
trading after 2 p.m., New York City time, as a power failure in the Chicago
downtown area caused the CBT to close an hour early. The same power failure
also caused the Chicago Board Options Exchange to halt trading for a one-half
hour period on August 12, 1999. On September 16, 1999, stormy weather from
Hurricane Floyd led the New York Mercantile and Commodity Exchange and the New
York Board of Trade to close early at noon and 1:00 p.m., respectively, New
York City time. If any of these suspensions of trading occurs during the term
of the notes, that event could constitute a market disruption event. The
existence or non-existence of such circumstances, however, is not necessarily
indicative of the likelihood of those circumstances arising or not arising in
the future.
Hypothetical returns
The table on the following page illustrates, for a range of hypothetical ending
levels of the basket three days prior to the stated maturity date:
- -- the hypothetical level of the basket per $1,000 note;
- -- the hypothetical alternative redemption amount per $1,000 note;
- -- the percentage change from the principal amount to the hypothetical
alternative redemption amount per $1,000 note;
- -- the hypothetical total amount payable per $1,000 note;
- -- the hypothetical total rate of return per $1,000 note without interest;
- -- the hypothetical pre-tax annualized rate of return per $1,000 note without
interest;
- -- the hypothetical total rate of return per $1,000 note including interest;
and
<PAGE>
- -- the hypothetical pre-tax annualized rate of return per $1,000 note
including interest.
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S> <S> <S>
TOTAL
PERCENTAGE AMOUNT ANNUALIZED
HYPOTHETICAL HYPOTHETICAL CHANGE OF PAYABLE AT PRE-TAX
ENDING ALTERNATIVE ALTERNATIVE STATED TOTAL RATE OF RATE OF ANNUALIZED
LEVEL OF THE REDEMPTION AMOUNT OVER MATURITY RETURN PER RETURN TOTAL RATE OF PRE-TAX RATE
BASKET AMOUNT PER THE PRINCIPAL PER $1,000 NOTE PER $1,000 RETURN PER OF RETURN PER
PER $1,000 $1,000 NOTE AMOUNT PER $1,000 WITHOUT NOTE WITHOUT $1,000 NOTE $1,000 NOTE
$1,000 NOTE NOTE INTEREST INTEREST WITH INTEREST WITH INTEREST
NOTE
50 $ 402.93 -59.71% $ 1,000.00 0.00% 0.00% 1.75% 0.25%
75 $ 604.40 -39.56% $ 1,000.00 0.00% 0.00% 1.75% 0.25%
100 $ 805.87 -19.41% $ 1,000.00 0.00% 0.00% 1.75% 0.25%
124.09 $ 1,000.00 0.00% $ 1,000.00 0.00% 0.00% 1.75% 0.25%
150 $ 1,208.80 20.88% $ 1,208.80 20.88% 2.75% 22.63% 2.96%
200 $ 1,611.73 61.17% $ 1,611.73 61.17% 7.06% 62.92% 7.22%
300 $ 2,417.60 141.76% $ 2,417.60 141.76% 13.44% 143.51% 13.56%
500 $ 4,029.33 302.93% $ 4,029.33 302.93% 22.03% 304.68% 22.10%
1000 $ 8,058.67 705.87% $ 8,058.67 705.87% 34.73% 707.62% 34.77%
2000 $16,117.33 1511.73% $ 16,117.33 1511.73% 48.75% 1513.48% 48.78%
</TABLE>
The above figures are for purposes of illustration only. The actual amount
received by investors and the resulting total and pre-tax rate of return will
depend entirely on the actual level of the basket and the alternative
redemption amount determined by the calculation agent. In particular, the
actual level of the basket could be lower or higher than those reflected in the
table.
You should compare the features of the notes to other available investments
before deciding to purchase the notes. Due to the uncertainty as to whether the
alternative redemption amount will be greater than $1,000 per $1,000 note or
the notes will be redeemed prior to the stated maturity date, the return on
investment with respect to the notes may be higher or lower than the return
available on other securities issued by Lehman Brothers Holdings or by others
and available through Lehman Brothers Inc. You should reach an investment
decision only after carefully considering the suitability of the notes in
light of your particular circumstances.
Calculation agent
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, will act as
calculation agent for the notes.
<PAGE>
The calculation agent will determine the amount you receive at the stated
maturity of the notes or upon Their earlier redemption or repurchase by Lehman
Brothers Holdings. In each case the calculation agent will determine the
alternative redemption amount and, in the case of the stated maturity or
redemption of the notes, whether you will receive the alternative redemption
amount or $1,000 per $1,000 note, plus accrued and unpaid interest.
In addition, the calculation agent will determine:
-- if adjustments are required to the multipliers or the basket under
various circumstances; see "The Basket--Adjustments to the
multipliers and the basket" beginning on page S-16; and
-- whether a market disruption event has occurred; see "Description of
the Notes--Market disruption events" on page S-11.
-- for a common stock or other equity security that is listed or quoted
on a bulletin board service, the value of that common stock or other
equity security using the average execution price that an affiliate
of Lehman Brothers Holdings receives upon a sale of that common stock
or other equity security used to hedge Lehman Brothers Holdings'
obligations under the notes.
-- for any foreign currency or foreign common stock or other equity
security received if an event occurs as described in "The Basket --
Adjustments to multipliers and the basket" beginning on page S-16,
the applicable foreign exchange conversion rate using the appropriate
official W.M. Reuters spot closing rate at 11:00 a.m., New York City
time, if available, to convert non-U.S. traded securities prices or
non-U.S. dollar denominated cash from the respective country's
currency to U.S. dollars. If there are several quotes at that time,
the first quoted rate in that minute will be used. In the event
there is no such exchange rate for a country's currency at
11:00 a.m., New York City time, securities will be valued at the last
available dollar cross-rate quote before 11:00 a.m., New York City
time.
<PAGE>
-- for an equity security that is not traded or listed on an exchange,
trading system or market or a non-equity security or other property
(other than cash), if an event occurs as described in "The Basket
Adjustments to the multipliers and the basket" beginning on page
S-16, as soon as reasonably practicable after the date the property
or security is received, the fair market value of that property or
security based on the average execution price that an affiliate of
Lehman Brothers Holdings receives upon a sale of that property or
security used to hedge Lehman Brothers Holdings' obligations under
the notes.
All determinations made by the calculation agent will be at the sole
discretion of the calculation agent and, in the absence of manifest
error, will be conclusive for all purposes and binding on Lehman
Brothers Holdings and you. The calculation agent will have no
liability for its determinations.
Events of default and acceleration.
If an event of default with respect to any notes has occurred and is
continuing, the amount payable to you upon any acceleration permitted
under the senior indenture will be equal to, per $1,000 note, the
greater of $1,000 or the alternative redemption amount, in each case
plus accrued but unpaid interest, calculated as though the date of
acceleration was the stated maturity date. If a bankruptcy proceeding
is commenced in respect of Lehman Brothers Holdings, the claims of
the holder of a note may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, as though the commencement of the
proceeding was the stated maturity.
<PAGE>
THE BASKET
The five common stocks comprising the basket
The five common stocks in the basket, their industry group, their principal
trading market, their stock symbol, their approximate market value, the initial
multiplier for each common stock and the percentage of the initial basket that
each common stock comprises are as follows:
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Market
Principal Capitalization as of Percentage
Issuer of the Trading Stock February 18, 2000 Initial of Initial
common stock Industry group Market Symbol (in millions) Multiplier Basket
Affymetrix Inc. Biotechnology Nasdaq AFFX $ 7,283 0.06999 20%
Amgen Inc. Biotechnology Nasdaq AMGN $72,847 0.27511 20%
Human Genome Sciences Biotechnology Nasdaq HGSI $ 9,265 0.09604 20%
Inc.
Millennium Biotechnology Nasdaq MLNM $12,124 0.06969 20%
Pharmaceuticals Inc.
The Chase Manhattan Financial NYSE CMB $61,652 0.25998 20%
Corporation
</TABLE>
Lehman Brothers Holdings has obtained the following information from the
respective companies' reports filed with the SEC:
Affymetrix Inc. develops and manufactures DNA chip technology. Its GeneChip
system acquires, analyzes, and manages genetic information in order to improve
the diagnosis, monitoring, and treatment of disease. Affymetrix's products
consist of DNA probe arrays containing gene sequences on a chip, a scanner to
process the probe arrays, and software to analyze the information.
Amgen Inc. discovers, develops, manufactures, and markets human therapeutics
based on cellular and molecular biology. It focuses its research on secreted
protein and small molecule therapeutics, with particular emphasis on
neuroscience and cancer. Amgen concentrates in the areas of hematology,
cancer, infectious disease, endocrinology, neurobiology, and inflammation.
Human Genome Sciences Inc. researches and develops proprietary pharmaceutical
and diagnostic products. Its products predict, prevent, detect, treat and cure
disease based on the discovery of human and microbial genes.
<PAGE>
Millennium Pharmaceuticals Inc. is a drug discovery and development company.
It incorporates large-scale genetics, genomics, high throughput screening, and
informatics in an integrated life science and technology platform. The platform
is applied in discovering and developing proprietary therapeutic and diagnostic
human healthcare products and services.
The Chase Manhattan Corporation is a bank holding company that conducts
domestic and international financial services through various bank and non-bank
subsidiaries. The Company provides corporate finance, wholesale banking, and
investment services, as well as emphasizes originations, underwriting,
distribution, risk management products, and private banking.
Historical information about the stocks in the basket
The following table sets forth the high and low prices for each of the common
stocks in the basket during 1996, 1997, 1998, 1999 and during 2000 (through
February 18, 2000), and the closing price on 1996, 1997, 1998 and 1999 and on
February 18, 2000. We obtained the prices listed below from the Bloomberg
(Registered Trademark) service and we believe such information to be accurate.
All values in the table are set forth in U.S. dollars. These prices are not
indications of future performance. There is no assurance that the prices
of these common stocks will increase enough so that the alternative redemption
amount will be greater than $1,000. The historical prices below have been
adjusted to reflect certain corporate events that affect their prices,
including scrips issues, rights issues, stock splits, reverse stock splits,
stock dividends, spin-offs and extraordinary dividends.
<PAGE>
High Price Low Price Closing Price
During Period During Period at Period End
Affymetrix Inc.
1996<F1> . . . . . $ 22.250 $11.250 $20.186
1997 . . . . . . . . 46.750 20.125 31.125
1998 . . . . . . . . 35.125 16.500 24.375
1999 . . . . . . . . 184.750 24.875 169.688
2000(through
February 18, 2000) . 289.875 146.000 281.000
Amgen Inc.
1996 . . . . . . . . $16.375 $12.875 $13.594
1997 . . . . . . . . 17.094 11.484 13.531
1998 . . . . . . . . 26.219 11.781 26.141
1999 . . . . . . . . 64.875 26.156 60.063
2000 (through
February 18, 2000) . 74.688 58.125 71.313
Human Genome Sciences Inc.
1996 . . . . . . . . $22.625 $12.625 $20.375
1997 . . . . . . . . 24.000 15.250 19.875
1998 . . . . . . . . 22.563 11.656 17.781
1999 . . . . . . . . 79.781 14.813 76.313
2000 (through
February 18, 2000) . 217.563 69.125 200.250
Millennium Pharmaceuticals Inc.
1996<F2> . . . . . $24.000 $11.250 $17.375
1997 . . . . . . . . 21.500 12.500 19.000
1998 . . . . . . . . 25.875 10.563 25.875
1999 . . . . . . . . 141.688 25.438 122.000
2000 (through
February 18, 2000) . 314.563 116.469 273.125
The Chase Manhattan Corporation
1996 . . . . . . . . $47.688 $27.063 $ 44.688
1997 . . . . . . . . 63.188 42.688 54.750
1998 . . . . . . . . 77.000 40.250 71.000
1999 . . . . . . . . 88.938 66.500 77.688
2000 (through
February 18, 2000) . 85.063 69.813 74.750
[FN]
1 The initial public offering of Affymetrix Inc.'s common stock took place
on June 6, 1996.
2 The initial public offering of Millennium Pharmaceuticals Inc.'s common
stock took place on May 7, 1996.
<PAGE>
Calculation of the basket
The basket will represent a weighted portfolio of the five common stocks in the
basket. The level of the basket will increase or decrease by the performance of
the common stocks and other equity securities that make up the basket from time
to time. The level of the basket will also include any cash in the basket.
The basket will be monitored daily for various types of corporate actions that
may require an adjustment to the basket. See "--Adjustments to the multipliers
and the basket" beginning on page S-16.
<PAGE>
Lehman Brothers Holdings or its affiliates, including Lehman Brothers Inc., may
from time to time engage in business with one or more of the issuers of the
common stocks or other equity securities in the basket or, in the case of
American Depositary Receipts, the underlying foreign shares, or with persons
seeking to acquire these issuers. The services provided may include advisory
services to the issuers or other persons, including merger and acquisition
advisory services. In the course of its business, Lehman Brothers Holdings or
its affiliates, including Lehman Brothers Inc., may acquire non-public
information with respect to these issuers. In addition, one or more affiliates
of Lehman Brothers Holdings may publish research reports with respect to these
issuers. The actions may directly adversely affect the market prices of the
common stock or other equity securities in the basket.
Notice of level of the basket
You may also call Lehman Brothers Inc. at 212-526-0900 to obtain the
level of the basket and the number of shares of each of the common stocks and
other equity securities in the basket per $1,000 note.
The multipliers for the common stocks that comprise the basket
The initial multiplier for each common stock in the basket will be the number
of shares, or fraction of a share, of each common stock required to be included
in the calculation of the basket so that each common stock represents
approximately 20% of the basket on a U.S. dollar weighted basis. The price used
to determine the multiplier for each common stock was determined based on the
average execution price for each common stock that an affiliate of Lehman
Brothers Holdings paid to hedge Lehman Brothers Holdings' obligations under the
notes during trading hours in New York City on February 17 and February 18,
2000. The multipliers for each security will remain constant unless adjusted
for the extraordinary corporate events described below. Each multiplier will be
rounded at the calculation agent's discretion. The initial multipliers for each
common stock in the basket are set forth in the table on page S-14.
Adjustments to the multipliers and the basket
Adjustments to a multiplier and the basket will be made in the circumstances
described below. For purposes of these adjustments, except as noted below, ADRs
are treated like common stock if a comparable adjustment to the foreign shares
underlying the ADRs is made pursuant to the terms of the depositary arrangement
for the ADRs or if holders of ADRs are entitled to receive property in respect
of the underlying foreign share.
<PAGE>
- -- If a common stock is subject to a stock split or reverse stock split, then
once the split has become effective, the multiplier relating to that
common stock will be adjusted. The multiplier will be adjusted to equal
the product of the number of shares outstanding after the split with
respect to each share immediately prior to effectiveness of the split and
the prior multiplier.
- -- If a common stock is subject to an extraordinary stock dividend or
extraordinary stock distribution that is given equally to all holders of
shares, then once the common stock is trading ex-dividend, the multiplier
will be increased by the product of the number of shares issued with
respect to one share and the prior multiplier.
- -- If the issuer of a common stock, or if a common stock is an ADR, the
foreign issuer of the underlying foreign share, is being liquidated or
dissolved or is subject to a proceeding under any applicable bankruptcy,
insolvency or other similar law, the common stock will continue to be
included in the basket so long as the primary exchange, trading system or
market is reporting a market price for the common stock. If a market
price, including a price on a bulletin board service, is no longer
available for a common stock in the basket, then the value of that common
stock will equal zero for so long as no market price is available, and no
attempt will be made to find a replacement stock or increase the level of
the basket to compensate for the deletion of the common stock.
- -- If the issuer of a common stock, or if a common stock is an ADR, the
foreign issuer of the underlying foreign share, has been subject to a
merger or consolidation and is not the surviving entity and holders of the
common stock are entitled to receive cash, securities, other property or a
combination thereof in exchange for the common stock, then the following
will be included in the basket:
<PAGE>
-- To the extent cash is received, the basket will include the amount of
the cash consideration at the time holders are entitled to receive
the cash consideration, plus accrued interest. Interest will accrue
beginning the first London business day after the day that holders
receive the cash consideration until the stated maturity date.
Interest will accrue at a rate equal to LIBOR with a term
corresponding to the interest accrual period stated in the preceding
sentence.
-- To the extent that equity securities that are traded or listed on an
exchange, trading system or market are received, once the exchange
for the new securities has become effective, the former common stock
will be removed from the basket and the new securities will be added
to the basket. The multiplier for the new securities will equal the
product of the last value of the multiplier of the original
underlying common stock and the number of securities of the new
security exchanged with respect to one share of the original common
stock.
-- To the extent that equity securities that are not traded or listed on
an exchange, trading system or market or non-equity securities or
other property (other than cash) is received, the calculation agent
will determine the fair market value of the securities or other
property received and the basket will include an amount of cash equal
to the product of the multiplier and the fair market value. The
basket will also include accrued interest on that amount. Interest
will accrue beginning the first London business day after the day
that an affiliate of Lehman Brothers Holdings sells the securities or
other property used to hedge Lehman Brothers Holdings' obligations
under the notes until the stated maturity date. Interest will accrue
at a rate equal to LIBOR with a term corresponding to the interest
accrual period stated in the preceding sentence.
<PAGE>
- -- If all of the common stock of an issuer in the basket are converted into
or exchanged for the same or a different number of shares of any class or
classes of common stock other than that common stock in the basket or
those underlying foreign shares, whether by capital reorganization,
recapitalization or reclassification, then, once the conversion has become
effective, the former common stock will be removed from the basket and the
new common stock will be added to the basket. The multiplier for each new
common stock added to the basket will equal the product of the last value
of the multiplier of the original common stock and the number of shares of
the new common stock issued with respect to one share of the original
common stock.
- -- If the issuer of a common stock in the basket, or if a common stock is an
ADR, the issuer of the underlying foreign share, issues to all of its
shareholders common stock or another equity security that is traded or
listed on an exchange, trading system or market of an issuer other than
itself, then the new common stock or other equity security will be added
to the basket. The multiplier for the new common stock or other equity
security will equal the product of the last value of the multiplier with
respect to the original common stock and the number of shares of the new
common stock or other equity security issued with respect to one share of
the original common stock.
- -- If an ADR is no longer listed or admitted to trading on a United States
securities exchange registered under the Securities Exchange Act or is no
longer a security quoted on The Nasdaq Stock Market, Inc., then the
foreign share underlying the ADR will be deemed to be a new underlying
common stock. The initial multiplier for that new common stock will equal
the last value of the multiplier for the ADR multiplied by the number of
underlying foreign shares represented by a single ADR.
- -- If a common stock in the basket is subject to an extraordinary dividend or
an extraordinary distribution (including upon liquidation or dissolution)
of cash, equity securities that are not traded or listed on an exchange,
trading system or market, non-equity securities or other property of any
kind which is received equally by all holders of its common stock, then
the basket will include the following:
<PAGE>
-- To the extent cash is entitled to be received, the basket will
include on each day after the time that the common stock trades
ex-dividend until the date the cash consideration is entitled to be
received, the present value of the cash to be received, discounted at
a rate equal to LIBOR, with a term beginning that day and ending on
the date that the cash is entitled to be received. When the cash
consideration is received, the basket will include the amount of the
cash consideration, plus accrued interest. Interest will accrue
beginning the first London business day after the day that holders
receive the cash consideration until the stated maturity date.
Interest will accrue at a rate equal to LIBOR with a term
corresponding to the interest accrual period stated in the preceding
sentence.
-- To the extent that equity securities that are not traded or listed on
an exchange, trading system or market or non-equity securities or
other property (other than cash) are received, the calculation agent
will determine the fair market value of the securities or other
property received and the basket will include an amount of cash equal
to the product of the multiplier and the fair market value. The
basket will also include accrued interest on that amount. Interest
will accrue beginning the first London business day after the day
that an affiliate of Lehman Brothers Holdings sells the securities or
other property used to hedge Lehman Brothers Holdings' obligations
under the notes until the stated maturity date. Interest will accrue
at a rate equal to LIBOR with a term corresponding to the interest
accrual period stated in the preceding sentence.
- -- If similar corporate events occur with respect to the issuer of an equity
security other than common stock that is included in the basket,
adjustments similar to the above will be made for that equity security.
The payment of an ordinary cash dividend from current income or retained
earnings will not result in an adjustment to the multiplier or entitle you to
any cash payments.
<PAGE>
No adjustments of any multiplier of a common stock will be required unless the
adjustment would require a change of at least .1% (.001) in the multiplier
then in effect. The multiplier resulting from any of the adjustments specified
above will be rounded at the calculation agent's discretion.
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, and disposition of notes as of the date
of this prospectus supplement. Except where noted, this summary deals only
with a note held as a capital asset by a United States holder who purchases
the note at its initial offering price in the initial offering, and does not
deal with special situations. For example, this summary does not address:
- -- tax consequences to holders who may be subject to special tax treatment,
such as dealers in securities or currencies, traders in securities that
elect to use the mark-to-market method of accounting for their securities,
financial institutions, regulated investment companies, real estate
investment trusts, tax-exempt entities or life insurance companies;
- -- tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle;
- -- tax consequences to non-United States holders;
- -- tax consequences to holders of notes whose "functional currency" is not
the U.S. dollar;
- -- alternative minimum tax consequences, if any; or
- -- any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions as of the date of this prospectus supplement. Those authorities may
be changed, perhaps retroactively, so as to result in United States federal
income tax consequences different from those discussed below.
If you are considering the purchase of notes, you should consult your own tax
advisors concerning the federal income tax consequences in light of your
particular situation and any consequences arising under the laws of any other
taxing jurisdiction.
<PAGE>
United States Holders
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a United States holder of
notes.
For purposes of this discussion a United States holder is the beneficial owner
of a note that is:
- -- 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 (x) that is subject to the supervision of a court within the
United States and the control of one or more United States persons as
defined in Section 7701(a)(30) of the Code or (y) that has a valid
election in effect under applicable Treasury regulations to be treated as
a United States person.
Accrual of interest
The Treasury regulations that apply to contingent payment debt obligations will
apply to the notes. All payments on the notes will be taken into account under
these Treasury regulations. As discussed more fully below, the effect of these
Treasury regulations will be to:
- -- require you, regardless of your usual method of tax accounting, to use the
accrual method with respect to the notes;
- -- result in the accrual of original issue discount by you in excess of
stated interest payments actually received by you; and
- -- generally result in ordinary rather than capital treatment of any gain,
and to some extent loss, on the sale, exchange, repurchase or redemption
of the notes.
<PAGE>
Under the contingent payment debt rules, you will be required to accrue
original issue discount in income each year, regardless of your usual method of
tax accounting, based on the comparable yield of the notes. In order to
determine your income, these rules require Lehman Brothers Holdings to
determine, as of the issue date, the comparable yield for the notes. The
comparable yield of the notes will generally be the rate at which Lehman
Brothers Holdings would issue a fixed rate debt instrument with terms and
conditions similar to the notes.
Lehman Brothers Holdings is required to provide the comparable yield to you
and, solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the notes and estimates
the amount and timing of contingent payments on the notes. Lehman Brothers
Holdings has determined that the comparable yield is an annual rate of 8.15%
compounded semi-annually. Based on Lehman Brothers Holdings' determination of
the comparable yield, the projected payment schedule per $1,000 note is $1.25
semi-annually and $1,726.26 due on the stated maturity date (which includes the
final interest payment).
The comparable yield and the projected payment schedule are not provided for
any purpose other than the determination of your interest accruals and
adjustments thereof in respect of the notes and do not constitute a
representation regarding the actual amounts of the payments on a note.
The amount of original issue discount on a note for each accrual period is
determined by multiplying the comparable yield of the note, adjusted for the
length of the accrual period, by the note's adjusted issue price at the
beginning of the accrual period, determined in accordance with the rules set
forth in the contingent payment debt rules. The amount of original issue
discount so determined is then allocated on a ratable basis to each day in the
accrual period that you held the note. Lehman Brothers Holdings is required to
provide information returns stating the amount of original issue discount
accrued on notes held of record by persons other than corporations and other
exempt owners.
If the actual contingent payment made on the notes on the stated maturity date
differs from the projected contingent payment, an adjustment will be made for
the difference. A positive adjustment, for the amount by which an actual
contingent payment exceeds a projected contingent payment, will be treated as
additional interest income. A negative adjustment will:
<PAGE>
- -- first, reduce the amount of original issue discount required to be accrued
in the current year; and
- -- second, any negative adjustment that exceeds the amount of original issue
discount accrued in the current year will be treated as ordinary loss to
the extent of your total prior original issue discount inclusions with
respect to the note.
You are generally bound by the above comparable yield and projected payment
schedule. However, if you believe that Lehman Brothers Holdings' projected
payment schedule is unreasonable, you may set your own projected payment
schedule so long as you explicitly disclose the use of that schedule and the
reason for its use. Unless otherwise prescribed by the Commissioner of the
Internal Revenue Service, this disclosure must be made in a statement attached
to your timely filed federal income tax return for the taxable year in which a
note is acquired.
Sale, exchange or other disposition of notes
Gain on the sale, exchange, repurchase or redemption of a note generally will
be treated as ordinary income. Loss from the disposition of a note will be
treated as ordinary loss to the extent of your prior net original issue discount
inclusions with respect to the note. Any loss in excess of this amount will be
treated as capital loss.
Special rules apply in determining the tax basis of a note. Your basis in a
note is generally increased by original issue discount you previously accrued
on the note and reduced by the projected amount of any payments previously
scheduled to be made.
Non-United States Holders
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a non-United States holder of
notes.
United States federal withholding tax.
The 30% United States federal withholding tax will not apply to any payment,
including original issue discount, with respect to a note provided that:
- -- you do not actually, or constructively, own 10% or more of the total
combined voting power of all classes of Lehman Brothers Holdings' voting
stock within the meaning of the Code and the Treasury regulations;
<PAGE>
- -- you are not a controlled foreign corporation that is related to Lehman
Brothers Holdings through stock ownership;
- -- you are not a bank whose receipt of interest on a note is described in
Section 881(c)(3)(A) of the Code; and
- -- either (a) you provide your name and address on an IRS Form W-8 (or
successor form), and certify, under penalty of perjury, that you are not a
United States holder or (b) a financial institution holding a note on your
behalf certifies, under penalty of perjury, that it has received an IRS
Form W-8 (or successor form) from the beneficial owner and provides Lehman
Brothers Holdings with a copy.
If you cannot satisfy the requirements described above, payments of principal
and interest, including original issue discount, made to you will be subject
to the 30% United States federal withholding tax, unless you provide Lehman
Brothers Holdings with a properly executed (1) IRS Form 1001 (or successor
form) claiming an exemption from, or reduction in, withholding under the
benefit of an applicable tax treaty or (2) IRS Form 4224 (or successor form)
stating that interest paid on a note is not subject to withholding tax because
it is effectively connected with your conduct of a trade or business in the
United States.
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, or other
disposition of a note.
United States federal income tax.
If you are engaged in a trade or business in the United States and interest,
including original issue discount, on the notes is effectively connected with
the conduct of that trade or business, although exempt from the 30% withholding
tax, you will be subject to United States federal income tax on that interest on
a net income basis in the same manner as if you were a United States holder.
In addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30%, or lower applicable treaty rate, of your earnings and
profits for the taxable year, subject to adjustments, that are effectively
connected with the conduct by you of a trade or business in the United States.
For this purpose, interest on the notes will be included in earnings and
profits.
<PAGE>
United States federal estate tax.
Your estate will not be subject to United States federal estate tax on notes
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of Lehman
Brothers Holdings' voting stock, within the meaning of the Code and the
Treasury regulations, and
(2) interest on that note would not have been, if received at the time of your
death, effectively connected with the conduct by you of a trade or business in
the United States.
Information reporting and backup withholding
If you are a United States holder of notes, information reporting requirements
will generally apply to all payments of interest, including original issue
discount, and principal on a note and to the proceeds from the sale of a note
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 if you
fail to report in full interest income.
If you are a non-United States holder of notes, you will not be required to pay
backup withholding and provide information reporting regarding payments Lehman
Brothers Holdings makes to you provided that Lehman Brothers Holdings does not
have actual knowledge that you are a United States holder and Lehman Brothers
Holdings has received from you the statement described above under "Non-United
States Holders -- United States federal withholding tax." In addition, you will
not be required to pay backup withholding and provide information reporting
regarding the proceeds of the sale of a note within the United States or
conducted through certain 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 holder, or you otherwise establish an exemption.
Treasury regulations were recently issued that generally modify the information
reporting and backup withholding rules applicable to certain payments made
after December 31, 2000. In general, the new Treasury regulations would not
significantly alter the present rules discussed above, except in certain
special situations.
<PAGE>
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
BOOK-ENTRY ISSUANCE
The notes will be represented by one or more global securities that will be
deposited with and registered in the name of DTC or its nominee. This means
that Lehman Brothers Holdings will not issue certificates to you for the notes.
Each global security will be issued to DTC which will keep a computerized
record of its participants (for example, a broker) whose clients have purchased
the notes. Each participant will then keep a record of its clients. Unless it
is exchanged in whole or in part for a certificated security, a global security
may not be transferred. However, DTC, its nominees and their successors may
transfer a global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and
its participants. DTC holds securities that its direct participants deposit
with DTC. DTC also records the settlements among direct participants
of securities transactions, such as transfers and pledges, in deposited
securities through computerized records for direct participants' accounts. This
eliminates the need to exchange certificates. Direct participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC's book-entry system is also used by other
organizations such as securities brokers and dealers, banks and trust companies
that work through a direct participant.
When you purchase notes through the DTC system, the purchases must be made by
or through a direct participant, who will receive credit for the notes on DTC's
records. Since you actually own the notes, you are the beneficial owner. Your
ownership interest will only be recorded on the direct or indirect
participants' records. DTC has no knowledge of your individual ownership of the
notes. DTC's records only show the identity of the direct participants and the
amount of the notes held by or through them. You will not receive a written
confirmation of your purchase or sale or any periodic account statement
directly from DTC. You should instead receive these from your direct or
indirect participant. As a result, the direct or indirect participants are
responsible for keeping accurate account of the holdings of their customers
like you.
The trustee for the notes will wire payments on the notes to DTC's nominee.
Lehman Brothers Holdings and the trustee will treat DTC's nominee as the owner
of each global security for all purposes. Accordingly, Lehman Brothers
Holdings, the trustee and any paying agent will have no direct responsibility
or liability to pay amounts due on the global security to you or any other
beneficial owners in the global security. Any redemption notices will be sent
by Lehman brothers Holdings directly to DTC, who will in turn inform the direct
participants or the indirect participants, who will then contact you as a
beneficial holder. If less than all of the notes are being redeemed, DTC will
proportionally allot the amount of the interest of each direct participant to
be redeemed.
<PAGE>
It is DTC's current practice, upon receipt of any payment of interest,
distributions or liquidation amount, to proportionally credit direct
participants' accounts on the payment date based on their holdings. In
addition, it is DTC's current practice to pass through any consenting or voting
rights to the participants by using an omnibus proxy. Those participants in
turn will make payments to and solicit votes from you, the ultimate owner of
notes based on customary practices. Payments to you will be the responsibility
of the participants and not of DTC, the trustee or Lehman Brothers Holdings.
Notes represented by a global security will be exchangeable for certificated
securities with the same terms in authorized denominations only if:
- -- DTC is unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under applicable law and a successor is not
appointed by Lehman Brothers Holdings within 90 days; or
Lehman Brothers Holdings decides to discontinue use of the book-entry
system.
If the global security is exchanged for certified securities, the trustee will
keep the registration books for the notes at its corporate office and follow
customary practices and procedures.
DTC has provided Lehman Brothers Holdings with the following information: DTC
is a limited-purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the United States Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC is owned by a number of its direct participants and
by the New York Stock Exchange, the American Stock Exchange and the National
Association of Securities Dealers, Inc. The rules that apply to DTC and its
participants are on file with the SEC.
Cedelbank and Euroclear
Links have been established among DTC, Cedelbank and Euroclear (two European
book-entry depositories similar to DTC), to facilitate the initial issuance of
the notes and cross-market transfers of the notes associated with secondary
market trading.
Although DTC, Cedelbank and Euroclear have agreed to the procedures provided
below in order to facilitate transfers, they are under no obligation to perform
those procedures and those procedures may be modified or discontinued at any
time.
Cedelbank and Euroclear will record the ownership interests of their
participants in much the same way as DTC, and DTC will record the aggregate
ownership of each U.S. agent of Cedelbank and Euroclear, as participants in
DTC.
<PAGE>
When notes are to be transferred from the account of a DTC participant to
the account of a Cedelbank participant or a Euroclear participant, the
purchaser must send instructions to Cedelbank or Euroclear through a
participant at least one business day prior to settlement. Cedelbank or
Euroclear, as the case may be, will instruct its U.S. agent to receive the
notes against payment. After settlement, Cedelbank or Euroclear will credit
its participant's account. Credit for the notes will appear on the next day,
European time.
Because the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending notes to the
relevant U.S. agent acting for the benefit of Cedelbank or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant, a cross-market transaction will
settle no differently than a trade between two DTC participants.
When a Cedelbank or Euroclear participant wishes to transfer notes to a DTC
participant, the seller must send instructions to Cedelbank or Euroclear
through a participant at least one business day prior to settlement. In these
cases, Cedelbank or Euroclear will instruct its U.S. agent to transfer notes
against payment. The payment will then be reflected in the account of the
Cedelbank or Euroclear participant the following day, with the proceeds
back-valued to the value date; which day would be the preceding day, when
settlement occurs in New York. If settlement is not completed on the intended
value date (i.e., the trade falls), proceeds credited to the Cedelbank or
Euroclear participant's account would instead be valued as of the actual
settlement date.
<PAGE>
UNDERWRITING
Lehman Brothers Holdings has agreed to sell to Lehman Brothers Inc., the
underwriters, all of the notes.
The underwriter has advised Lehman Brothers Holdings that it proposes to
initially offer the notes to the public at the public offering price set forth
on the cover page of this prospectus supplement. After the initial public
offering of the notes is completed, the public offering price may be changed.
In connection with the offering, the rules of the SEC permit the underwriter to
engage in various transactions that stabilize the price of the notes.
These transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the notes. If the underwriter creates a
short position in the notes in connection with the offering (that is, if it
sells a larger number of the notes than is set forth on the cover page of this
prospectus supplement), the underwriter may reduce that short position by
purchasing notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. Neither
Lehman Brothers Holdings nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither Lehman
Brothers Holdings nor the underwriter makes any representation that the
underwriter will in fact engage in transactions described in this paragraph,
or that those transactions, once begun, will not be discontinued without
notice.
<PAGE>
Lehman Brothers Holdings will pay certain expenses, expected to be
approximately $25,000, associated with the offer and sale of the notes.
The underwriter may not confirm sales to any account over which it exercises
discretionary authority without the prior written approval of the customer.
Lehman Brothers Holdings has agreed to indemnify the underwriter against some
liabilities, including liabilities under the Securities Act of 1933.
The underwriting arrangements for this offering comply with the requirements of
Rule 2720 of the NASD regarding an NASD member firm underwriting securities
of its affiliate.
EXPERTS
The consolidated financial statements and financial statement schedule of
Lehman Brothers Holdings 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 accountant's 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 supplement.
The consolidated financial statements of Lehman Brothers Holdings referred to
above are incorporated by reference in this prospectus supplement in reliance
upon the report given on the authority of Ernst & Young LLP as experts in
accounting and auditing.
<PAGE>
$21,830,000
LEHMAN BROTHERS HOLDINGS INC.
Notes Due February 24, 2007
Performance Linked to a Basket of Five U.S. Stocks
Prospectus Supplement
February 18, 2000
(Including Prospectus dated
February 17, 1998)
Lehman Brothers
