LEHMAN BROTHERS SECURITIES N.V. LEHMAN BROTHERS (LUXEMBOURG) EQUITY FINANCE S.A.

Transkript

1 This document comprises two base prospectuses, one per Issuer, in respect of different categories of securities pursuant to Art. 22 para. (6) of the Commission Regulation (EC) No. 809/2004 of 29 April 2004 (the "Regulation") regarding non-equity securities within the meaning of Art. 22 para. (6) no. (4) of the Regulation (together the "Base Prospectus"). BASE PROSPECTUS RELATING TO DERIVATIVE SECURITIES 28 August 2007 LEHMAN BROTHERS SECURITIES N.V. (INCORPORATED IN THE NETHERLANDS ANTILLES) LEHMAN BROTHERS (LUXEMBOURG) EQUITY FINANCE S.A. (INCORPORATED IN THE GRAND DUCHY OF LUXEMBOURG) WARRANT AND CERTIFICATE PROGRAMME UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY LEHMAN BROTHERS HOLDINGS INC. Under the Warrant and Certificate Programme described in this Base Prospectus (the "Programme"), each of Lehman Brothers Securities N.V. and Lehman Brothers (Luxembourg) Equity Finance S.A. (together the "Issuers" and each an "Issuer"), subject to compliance with all relevant laws, regulations and directives, may from time to time issue warrants (the "Warrants") and Certificates (the "Certificates") (as specified in the relevant Final Terms) (the "Derivative Securities"), in each case guaranteed (such guarantee, as amended or restated from time to time, the "Guarantee") by Lehman Brothers Holdings Inc. (the "Guarantor" or "LBHI"). The Bundesanstalt für Finanzdienstleistungsaufsicht ("BaFin") as competent authority under the Prospectus Directive (as defined herein) has approved this Base Prospectus pursuant to 13 paragraph (1) sentence 2 of the German Securities Prospectus Act (Wertpapierprospektgesetz), which requires the scrutiny of the Base Prospectus in relation to its completeness, coherence and comprehensibility. This document contains the binding English language version of the Base Prospectus, including a German language translation of the Summary Note, and contains a non-binding German translation of the Base Prospectus which was not reviewed and approved by BaFin. Lehman Brothers International (Europe), Frankfurt Branch, ("LBIE") may request BaFin to provide competent authorities in other host Member States within the European Economic Area with a certificate of approval attesting that this Base Prospectus has been drawn up in accordance with the German Securities Prospectus Act which implements the Prospective Directive into German law. Application may, in the future, be made to list Derivative Securities of any series on a regulated market of any Stock Exchange in a Member State within the European Economic Area except for Germany, or to trade Derivative Securities on a Freiverkehr segment of any Stock Exchange in Germany or on an equivalent market of a Stock Exchange in any other Member State within the European Economic Area, or Derivative Securities may not be so listed or so traded at all, in each case as specified in the relevant Final Terms. The Derivative Securities, the Guarantee and the securities, if any, to be delivered upon any redemption or exercise of the Derivative Securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States, and trading in the Derivative Securities has not been approved by the U.S. Commodity Futures Trading Commission under the U.S. Commodity Exchange Act, as amended. The Derivative Securities will be issued in bearer form and are subject to certain U.S. tax law requirements. Derivative Securities and the securities, if any, to be delivered upon any redemption or exercise of the Derivative Securities may not be offered, sold or delivered within the United States or, to or for the account or benefit of, any U.S. Person (as defined in the U.S. Internal Revenue Code of 1986, as amended, and regulations thereunder). The Derivative Securities are being offered and sold outside the United States to non-u.s. Persons pursuant to Regulation S under the Securities Act of 1933 ("Regulation S") and may not be legally or beneficially owned at any time by any U.S. Person. Interests in a Temporary Global Security will be exchangeable, in whole or in part, for interests in a Permanent Global Security on or after the date 40 days after the later of the commencement of the offering of the Derivative Securities and the relevant issue date (the "Exchange Date"), upon certification as to non-u.s. beneficial ownership. A Warrant with physical settlement may not be exercised by or on behalf of any U.S. Person unless registered under the Securities Act or an exemption from registration is available. Arranger and Dealer Lehman Brothers International (Europe)

2 Contents SUMMARY...1 Summary relating to Lehman Brothers Securities N.V and Lehman Brothers (Luxembourg) Equity Finance S.A. as the Issuers and Lehman Brothers Holdings Inc. as the Guarantor... 1 Lehman Brothers Securities N.V ("LBS")... 1 Incorporation and Registered Address... 1 Principal Business Activity... 1 Auditors... 1 Management... 2 Share Capital and Organisational Structure... 2 Recent Developments/Trend Information... 2 Financial Information... 3 Lehman Brothers (Luxembourg) Equity Finance S.A. ("LBEF")... 4 Incorporation and Registered Address... 4 Principal Business Activity... 5 Auditors... 5 Management... 5 Share Capital and Organisational Structure... 5 Recent Developments/Trend Information... 5 Financial Information... 5 Lehman Brothers Holdings Inc. ("LBHI")... 7 Incorporation, Registered Address and Executive Office... 7 Principal Business Activity... 7 Auditors... 8 Management... 8 Organizational Structure... 8 Recent Developments...9 Trend Information... 9 Financial Information Summary of Risk Factors Risks relating to the Issuers and the Guarantor Risks relating to the Derivative Securities General Risks in relation to Derivative Securities Risk Factors relating to Payments on the Securities Market Risks Special Investment Risks Conflicts of Interests Additional Risks in the case of Redemption by Physical Delivery Summary of the Offering Programme in relation to the Derivative Securities Reasons for the Issue Issue Statistics and Prospective Timetable Use of Proceeds Details of the Programme in relation to the Derivative Securities Documents Available for Inspection ZUSAMMENFASSUNG i

3 Zusammenfassung der Angaben zu Lehman Brothers Securities N.V. und Lehman Brothers (Luxembourg) Equity Finance S.A. als Emittentinnen und der Angaben zu Lehman Brothers Holdings Inc. als Garantin Lehman Brothers Securities N.V ("LBS") Gründung und eingetragener Sitz Haupttätigkeitsbereich Wirtschaftsprüfer Geschäftsführer Stammkapital und Organisationsstruktur Entwicklungen in jüngster Vergangenheit / Tendenzielle Informationen Finanzinformationen Lehman Brothers (Luxembourg) Equity Finance S.A. ("LBEF") Gründung und eingetragener Sitz Haupttätigkeitsbereich Wirtschaftsprüfer Geschäftsführer Stammkapital und Organisationsstruktur Entwicklungen in jüngster Vergangenheit / Tendenzielle Informationen Finanzinformationen Lehman Brothers Holdings Inc. ("LBHI") Gründung, eingetragener Sitz und Hauptort der Geschäftstätigkeit Haupttätigkeitsbereiche...32 Wirtschaftsprüfer Management Organisationsstruktur Entwicklungen in jüngster Vergangenheit Tendenzielle Informationen Finanzinformationen Zusammenfassung der Risikofaktoren Risiken betreffend die Emittentinnen und Garantin Risiken betreffend Lehman Brothers Securities N.V Risiken betreffend Lehman Brothers (Luxemburg) Equity Finance S.A Risiken betreffend die Derivativen Wertpapiere Generelle Risiken betreffend Derivative Wertpapiere Risikofaktoren hinsichtlich der Zahlungen auf die Wertpapiere Marktrisiken Besondere Investitionsrisiken Interessenkonflikte Zusätzliche Risiken im Falle der Rückzahlung durch pysische Lieferung Zusätzliche Risiken in Bezug auf Optionsscheine sowie Zertifikate mit der Möglichkeit zur vorzeitigen Ausübung...42 Zusammenfassung des Angebotsprogramms hinsichtlich der Derivativen Wertpapiere Gründe für das Angebot Angebotsstatistiken und voraussichtlicher Zeitplan Erlösverwendung Einzelheiten zum Angebotsprogramm hinsichtlich der Derivativen Wertpapiere Einsehbare Dokumente RISK FACTORS Risk Factors relating to the Issuers and the Guarantor Risks relating to LBHI ii

4 Factors Affecting Lehman Brothers Results of Operations Market Risk Competitive Environment Business Environment Liquidity Credit Ratings Credit Exposure Operational Risk Legal, Regulatory and Reputational Risk Risks relating to Lehman Brothers Securities N.V Risks relating to Lehman Brothers (Luxembourg) Equity Finance S.A Risk Factors relating to the Securities General Risks in relation to Derivative Securities An investment in Derivative Securities may not be suitable for investors who have not sufficient knowledge of the finance sector Investments in Derivative Securities entail significant risks Risk Factors relating to Payments on the Derivative Securities Derivative Securities are unsecured Obligations An investment in Derivative Securities with derivative and structured interest and/or payment components is subject to specific risk associated with the relevant underlying Risk associated with Index Linked Derivative Securities in particular Risk associated with Share Linked Derivative Securities in particular Market Disruption No Subsequent correction of levels or prices Risk associated with Commodity Linked Derivative Securities in particular Risk associated with Currency Linked Derivative Securities in particular Foreign-Exchange Risk Early Redemption or Extraordinary Termination of Derivative Securities Determinations by the Calculation Agent Market Risks Market volatility and other factors No active trading market Special Investment Risks Transaction costs Risk-excluding or risk-limiting transactions Margin lending Tax impact of the investment Conflicts of interest in relation to underlyings, if applicable Additional Risks in case of Redemption or Settlement by Physical Delivery Additional Risks relating to Warrants and to Certificates providing for an Early Exercise Right Factors Affecting the Value and Trading Price of Warrants Limitations on Exercise and Settlement in the case of Warrants and Certificates providing for an Early Exercise Right Time Lag After Exercise and Delays GENERAL INFORMATION RESPONSIBILITY STATEMENT iii

5 THIRD PARTY INFORMATION DESCRIPTION OF THE ISSUERS GUARANTOR DESCRIPTION DOCUMENTS AVAILABLE FOR INSPECTION DOCUMENTS INCORPORATED BY REFERENCE SECURITIES NOTE A. General and Overview ) Derivative Securities - Overview ) Risk Factors ) Key Information B. Information Concerning the Derivative Securities to be Offered or Admitted to Trading ) Type and Class of the Securities ) Governing Law ) Form, Custody and Transfer of the Securities ) Currency ) Status and Ranking; Guarantee ) Early Redemption Rights - Rights and Procedure for the Exercise of Rights (i) General Early Redemption Right (ordentliches Kündigungsrecht) and Early Exercise Rights in the case of Certificates (ii) Extraordinary Terminations Rights (Sonderkündigungsrechte) and Termination Events in the case of Certificates (iii) Other Early Redemption Rights at the Option of the Issuer in the case of Certificates (iv) Early Redemption Procedure in the case of Certificates (v) Exercise Rights in the case of Warrants (vi) Extraordinary Terminations Rights (Sonderkündigungsrechte) and Termination Events in the case of Warrants (vii) Purchase of Derivative Securities ) Interest in the case of Certificates (i) Fixed Rate Certificates (ii) Floating Rate Certificates (iii) Interest Rates based on Derivative and Structured Interest Components (a) Interest linked to structured interest rates (b) Interest linked to a share or a share basket (Equity linked Certificates) (c) Interest linked to an index or index basket (Index linked Certificates) (d) Interest linked to currencies or a currency basket (e) Interest linked to commodities or commodities basket (f) Interest linked to funds or funds basket (v) Calculation Agent ) Prescription ) Yield ) Meetings of Holders iv

6 11) Basis of Authorisation ) Issue Date C. Information Concerning the Redemption Amount and Settlement Amount of the Derivative Securities ) Relation between Underlying and Investment ) Expiration, Exercise or Redemption Date, Payment and Calculation Method and Settlement Procedure in respect of Certificates (i) Redemption (ii) Early Redemption and Exercise (iii) Method of Redemption (iv) Physical Delivery ) Expiration or Exercise Date, Payment and Calculation Method and Settlement Procedure in respect of Warrants (i) Payment (ii) Procedure of Exercise (iii) Early Termination (iii) Method of Settlement (iv) Physical Delivery ) Information Relating to the Underlyings a) Exercise Price or Final Reference Price of the Underlying b) Type of the Underlying and Information on the Underlying, Market Disruption Events and Adjustment Rules with Relation to Events Concerning the Underlying (i) Structured Interest Rates (ii) Shares or Share Baskets (Equity linked Derivative Securities) (iii) Indices or Index Baskets (Index linked Derivative Securities) (iv) Currencies or Currency baskets (Currency linked Derivative Securities) (v) Commodities or Commodity baskets (Commodity linked Derivative Securities) (vi) Funds or Fund baskets (Fund linked Derivative Securities) E. Selling Restrictions, Taxation and other Conditions applicable to all Derivative Securities ) Selling Restrictions (i) EEA States (ii) United States (iii) United Kingdom (iv) The Netherlands Antilles ) Tax Treatment of the Securities a) Federal Republic of Germany (i) German Tax Residents (ii) Special Rules for Financial Innovations (iii) German Tax Non-Residents (iv) European Union Directive on the Taxation of Savings Income (v) Gift and Inheritance Taxation (vi) Stamp Duty (vii) Changes by reform of business taxation b) Luxembourg Withholding tax on interest Luxembourg non-resident individuals Luxembourg resident individuals Taxation of Luxembourg non-resident Holders c) Netherlands Antilles Withholding Tax Taxes on Income and Capital Gains v

7 Gift and Inheritance Taxes Sales Tax Other Taxes and Duties ) Terms and Conditions of the Offer a) Timetable and Action Required to Apply for the Offer b) Terms of the Offer c) Total Amount Issued d) Time Period of the Offer e) Subscription f) Subscription Price g) Delivery h) Result of the Offer i) Subscription Rights j) Allotment of the Securities k) Categories of Target Investors and Target Markets l) Allotment Procedure m) Pricing ) Placing and Underwriting a) Underwriters/Distributors b) Paying Agents c) Underwriting d) Subscription Agreement e) Calculation Agent ) Admission to Trading and Dealing Arrangements a) Admission to Trading b) Stock Exchange Listings c) Market Making ) Additional Information a) Advisers b) Audit Reports c) Experts d) Information Sources e) Credit Rating f) Post-Issuance Information ANNEX 1: TERMS AND CONDITIONS OF THE SECURITIES... A-1 ANNEX 2: FORM OF FINAL TERMS... B-1 ANNEX 3: FORM OF GUARANTEE... C-1 ANNEX 4: TERMS AND CONDITIONS OF THE SECURITIES AS SET OUT IN THE BASE PROSPECTUS DATED 30 AUGUST 2006 RELATING TO THE WARRANT AND CERTIFICATE PROGRAMME, UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY LEHMAN BROTHERS HOLDINGS INC.... D-1 vi

8 ANNEX 5: GUARANTEE AGREEMENT SET OUT ON THE BASE PROSPECTUS DATED 30 AUGUST 2006 RELATING TO THE WARRANT AND CERTIFICATE PROGRAMME, UNCONDITIONALLY AND IRREVOCABLY GUARANTEED BY LEHMAN BROTHERS HOLDINGS INC.... E-1 PARTIES, ADDRESSES, SIGNATURES... U-1 vii

9 Summary The following summary must be read as an introduction to this Base Prospectus (hereinafter "Base Prospectus"). Any decision to invest in the Derivative Securities should be based on a consideration of the Base Prospectus as a whole and the documents incorporated by reference as well as the applicable Final Terms and any supplement to the Base Prospectus, if applicable, which are published in connection with the issuance of Derivative Securities. Lehman Brothers International (Europe), Zweigniederlassung Frankfurt am Main (hereinafter "LBIE") assumes responsibility for this summary. Liability will attach to LBIE on the basis of this summary only, if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this Base Prospectus. Where a claim relating to the information contained in this Base Prospectus is brought before a court, the plaintiff may, under the national legislation of the state where the claim is brought, be required to bear the costs of translating the Base Prospectus before the legal proceedings are initiated. Summary relating to Lehman Brothers Securities N.V and Lehman Brothers (Luxembourg) Equity Finance S.A. as the Issuers and Lehman Brothers Holdings Inc. as the Guarantor Lehman Brothers Securities N.V ("LBS") Incorporation and Registered Address LBS was incorporated as a limited liability company (a "naamloze vennootschap" or "N.V.") under the laws of the Netherlands Antilles in Curaçao, The Netherlands Antilles, on 31 October, 2003 for an unlimited duration. LBS is registered with the Curaçao Chamber of Commerce and Industry under number The registered office of LBS is at E-Commercepark, E-Zone Vredenberg, Hoek Heelsumstraat, Hugenolzweg Z/N, Curaçao, The Netherlands Antilles. Principal Business Activity The present principal activity of LBS includes the issuance of certificates and warrants (on an index or a basket of indices, a share or basket of shares, a depositary receipt in respect of a share, a basket of depositary receipts in respect of the shares of a basket of companies, a debt instrument or basket of debt instruments, a currency or basket of currencies, an interest rate or a commodity or basket of commodities), the risk management of the foregoing security instruments and the execution of intercompany borrowing and lending transactions. Each security issued by LBS has the benefit of an unconditional and irrevocable guarantee of Lehman Brothers Holdings Inc. ("LBHI"). Securities issued by LBS are placed, for the vast majority, in the markets of EU Member States, though LBS operates globally and is represented through its affiliates in the major world financial centres. LBS acts in co-ordination with its Lehman Brothers affiliates. Certain of its operations have been delegated under the terms of service agreements to such affiliates. Auditors Ernst & Young, members as accountants of the NIVRA (Nederlands Instituut voor Register Accountants), Zeelandia Office Park, Kaya W.F.G. (Jombi) Mensing 16, P.O. Box 3626, Curaçao, 1

10 The Netherlands Antilles are the auditors of LBS. The last financial statements of LBS to be audited by Ernst & Young were the financial statements for the year ending 30 November, Management The sole managing director of LBS is Jonathan Josef Knapp. The managing director is supervised by the supervisory board of LBS. The supervisory board of LBS, whose powers and duties are described in the Articles of Association of LBS, consists of the following members: Piers Le Marchant, Lennie Fuller, Herbert Moos and Antony Rush. Share Capital and Organisational Structure LBS has an authorized share capital of U.S. Dollars ("USD") 500,000 (USD five hundred thousand), which is divided into five hundred registered, ordinary shares pursuant to the laws of the Netherland Antilles having a nominal value of USD 1,000 (USD one thousand) each, numbered 1 through 500. The issued and paid-in share capital is USD 100,000 (USD one hundred thousand). The issued share capital is held in full by Lehman Brothers Asia Holdings Limited ("LBAHL"). LBAHL is a subsidiary of LBHI. As of the date of this Base Prospectus LBS had no employees. Recent Developments/Trend Information Since 30 November, 2006, the date to which the latest audited financial statements of LBS were prepared, there has been no significant change in the financial position of LBS, and there has been no material adverse change in the prospects of LBS. 2

11 Financial Information Audited Profit and Loss Account Data Year Ended 30 November 2006 Year Ended 30 November 2005 (in US $) OPERATING INCOME Income from Option Warrant and Futures Transactions - - Interest Income 6,455 1,786 Revenues from Affiliated Companies 190, , , ,869 OPERATING EXPENSES General and Administration Expenses (172,947) (140,075) NET PROFIT BEFORE TAXATION 23,750 15,794 Taxation on profit on ordinary activities (8,194) (5,449) PROFIT AFTER TAX ON ORDINARY ACTIVITIES 15,556 10,345 PROFIT FOR THE FINANCIAL YEAR 15,556 10,345 Audited Balance Sheet Data ASSETS At 30 November 2006 At 30 November 2005 (in US $) Cash due from Banks on Demand 2,924 2,845 Receivables from Affiliated Companies and Banks 2,103,703,389 42,255,728 Option, Warrant and Swap positions (Cost $1,083,059,276 and 2005 $104,932,825) 1,109,782, ,960,051 Other Assets - - 3,213,488, ,218,624 LIABILITIES Payables to Affiliated Companies and Banks Option, Warrant and Swap positions (Proceeds $1,083,059,276 and 2005 $104,932,825) Accrued Expenses and Deferred Income CURRENT ASSETS LESS CURRENT LIABILITIES (2,103,549,194) (42,123,520) (1,109,782,535) (122,960,051) (19,430) (12,920) 137, ,133 SHAREHOLDERS EQUITY Share Capital (500 Shares of $1,000 each) 500, ,000 Unpaid Capital (400,000) (400,000) Retained Earnings 3

12 Carried Forward 22,133 11,788 Profit for the Year 15,556 10, , ,133 Audited Cash Flow Data Year Ended 30 November 2006 Year Ended 30 November 2005 Cash flow from operating activities (in US $) Profit for the year 15,556 10,345 (Increase) decrease in operating assets Receivable from affiliated companies (2,061,447,661) 167,529,537 Investments in options (1,080,885,280) 57,560,603 Proceeds from sale of options 94,062,796 97,317,486 Other assets - 1,678 Net decrease (increase) in operating assets (3,048,270,154) 207,288,098 Increase (decrease) in operating liabilities Payable to affiliate companies 2,061,425,674 (167,566,668) Liabilities arising from selling securities 1,080,885,280 57,560,603 short - warrants Repurchase of securities sold short (94,062,796) (97,317,486) warrants Accrued expenses and deferred income 6,510 8,869 Other liabilities - (918) Net (decrease) increase in operating 3,048,254,668 (207,315,600) liabilities Net cash provided by (used in) operating activities 79 (17,157) Cash flow from financing activities Proceeds from issuance of shares - - Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Net cash and cash equivalents, beginning of year Net cash and cash equivalents, end of year Supplemental disclosure of cash flow information Cash paid during the year for interest, taxesand dividends (17,157) 2,845 20,002 2,924 2, Lehman Brothers (Luxembourg) Equity Finance S.A. ("LBEF") Incorporation and Registered Address LBEF was incorporated as a limited liability company under the laws of the Grand-Duchy of Luxembourg in the City of Luxembourg, Grand Duchy of Luxembourg, on 8 June, 2004 for an 4

13 unlimited duration. LBEF is registered in the Registre de Commerce et des Sociétés under the number "B ". Since 20 December 2004, the registered office of LBEF has been 1 Allee Scheffer, L-2520, Luxembourg. Principal Business Activity The principal activities of LBEF include the issuance of warrants, certificates and other debt instruments (denominated in various currencies and linked to the performance of equities, funds, indices, foreign exchange, fixed income, commodities, real estate or other underlyings), the risk management of the foregoing security instruments and the execution of borrowing and lending transactions with various subsidiaries of LBHI. The securities issued by LBEF are placed for the vast majority in the markets of EU Member States. To hedge its exposure to market risk arising from the issuance of securities LBEF will typically enter into total return swaps with other Lehman Brothers companies. Each security issued by LBEF has the benefit of an unconditional and irrevocable guarantee of LBHI. Auditors Ernst & Young, a member of the Institut des Réviseurs d'enterprises (IRE), 6, rue Jean Monnet, L Luxembourg, Luxembourg are the auditors of LBEF. The last financial statements of LBEF to be audited by Ernst & Young were the financial statements for the year ending 30 November, Management The Directors of LBEF are Urs Bressan, whose business address is at Talstrasse 82, CH-8021 Zurich (Switzerland), Leonard Murray Fuller, Ian Robert Maynard, Jorge Perez Lozano, whose business address is at 1 Allee Scheffer, L-2520, Luxembourg, and TMF Corporate Services S.A. whose business address is at 1 Allee Scheffer, L-2520, Luxembourg as of the date of this Base Prospectus. Share Capital and Organisational Structure The subscribed capital of LBEF is set at USD fifty thousand (USD 50,000), divided into five hundred (500) registered shares pursuant to Luxembourg law with a par value of USD one hundred (USD 100) each, fully paid up. The shares are held by LBHI (499 shares) and Lehman Brothers U.K. Holdings (Delaware) Inc. (1 share), which is in turn wholly-owned by LBHI. Recent Developments/Trend Information Since 30 November, 2006, the date to which the latest audited financial statements of LBEF were prepared, there has been no significant change in the financial position of LBEF, and there has been no material adverse change in the prospects of LBEF. Financial Information Audited Profit and Loss Account Data Year ended 30 November 2006 Year ended 30 November

14 (in US $ thousands) Realized result on certificates issued (745,017 (4,356) Realized result on total return swap 732,715 (710) Unrealized result on certificates issued (10,022) 0 Unrealized result on total return swap 10,022 0 Interest income 12,374 5,103 NET PROFIT BEFORE TAXATION Taxation on profit on ordinary activities (21) (11) PROFIT AFTER TAX ON ORDINARY ACTIVITIES PROFIT FOR THE FINANCIAL PERIOD Audited Balance Sheet Data At 30 November 2006 At 30 November 2005 (in US $ thousands) ASSETS Current Assets Debtors Amounts owed by affiliated undertakings 116,743 12,207 Other debtors 10, ,765 12, ,765 12,207 LIABILITIES Capital and reserves Subscribed capital Legal reserve 5 5 Profit Brought forward Profit for the financial period Provision for taxation Certificates issued 66,650 0 Creditors due and payable within one year Amounts owed to affiliated undertakings 59,923 12, ,765 12,207 6

15 Audited Cash Flow Data Year ended 30 November 2006 Year ended 30 November 2005 (in US $ thousands) Cash flows from operating activities Net Profit before extraordinary item Adjustments for: Interest (12,374) (5,103) Decrease/(Increase) in receivable from affiliated companies (104,536) 220,324 (Decrease)/Increase in liabilities arising with derivative 0 3,017 transactions Decrease/(Increase) in liabilities arising with derivative (10,022) 0 transactions (Decrease)/Increase in amounts owed to affiliated 47,836 (62,402) undertakings Cash generated (used) in operations (79,045) 149,828 Interest received 12,374 5,103 Increase in provision for tax liabilities Net cash used in operating activities (66,650) 154,942 Cash flows from investing activities Proceeds from (redemption)/issuance of certificates 66,650 (154,942) Net cash from investing activities 66,650 (154,942) Cash flows from financing activities Proceeds from issuance of share capital 0 0 Net cash from financing activities 0 0 Net increase in cash and cash equivalents 0 0 Cash and cash equivalents at beginning of period 0 0 Net Cash and cash equivalents at end of period 0 0 Lehman Brothers Holdings Inc. ("LBHI") Incorporation, Registered Address and Executive Office LBHI, a Delaware corporation, was incorporated on December 29, 1983, for an indefinite term, pursuant to Laws of the State of Delaware, U.S.A., with registration number LBHI s executive offices are located at 745 Seventh Avenue, New York, New York 10019, U.S.A., and its registered office is at c/o The Prentice-Hall Corporation System, Inc., 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, USA. LBHI also acts through its London Branch which is registered at Companies House with Branch Number BR Principal Business Activity LBHI and its subsidiaries ("Lehman Brothers") provide a full array of equities and fixed income sales, trading and research, investment banking services and investment management and advisory services. Lehman Brothers is engaged primarily in providing financial services, principally investment banking, capital markets and investment management. Lehman Brothers is a global market-maker in all major equity and fixed income products. 7

16 Auditors Ernst & Young LLP, certified public accountants, which has its principal place of business at 5 Times Square, New York, New York 10036, U.S.A. are LBHI s auditors. The last consolidated financial statements to be audited by Ernst & Young LLP are the consolidated financial statements for the year ended 30 November, Management The following persons are the members of the Board of Directors of LBHI, as at the date of this Base Prospectus. The business address of each Director is 745 Seventh Avenue, New York, New York 10019, U.S.A. Name RICHARD S. FULD, JR. MICHAEL L. AINSLIE JOHN F. AKERS ROGER S. BERLIND THOMAS H. CRUIKSHANK MARSHA JOHNSON EVANS SIR CHRISTOPHER GENT ROLAND A. HERNANDEZ HENRY KAUFMAN JOHN D. MACOMBER Function at LBHI Chairman of the Board. Director Director Director Director Director Director Director Director Director The following persons are the Executive Officers of LBHI, as at the date of this Base Prospectus. The business address of each executive Officer is 745 Seventh Avenue, New York, New York 10019, U.S.A. Name RICHARD S. FULD, JR. SCOTT J. FREIDHEIM IAN T. LOWITT JOSEPH M. GREGORY CHRISTOPHER M. O MEARA THOMAS A. RUSSO Function at LBHI Chairman and Chief Executive Officer Co-Chief Administrative Officer Co-Chief Administrative Officer President and Chief Operating Officer Chief Financial Officer Chief Legal Officer Organizational Structure LBHI is the ultimate parent company of Lehman Brothers. Since LBHI is primarily a holding company, its cash flow and consequent ability to satisfy any obligations owed by it are dependent upon the earnings of its subsidiaries and dividends or other distributions of those earnings or loans or other payments by those subsidiaries to LBHI. 8

17 Recent Developments Since 30 November, 2006, the date to which the latest audited consolidated financial statements of LBHI were prepared, there has been no significant change in the consolidated financial position or trading position of LBHI. Trend Information Since 30 November, 2006, the date to which the latest audited consolidated financial statements of LBHI were prepared, there has been no material adverse change in the prospects of Lehman Brothers. 9

18 Financial Information Consolidated Statement of Income Information Revenues: Three months ended May 31, 2007 Three months ended February 28, 2007 Year ended November 30, 2006 Year ended November 30,2005 (in U.S.$ millions) Revenues: Principal transactions... $2,889 $2,921 $9,802 $7,811 Investment banking... 1, ,160 2,894 Commissions ,050 1,728 Interest and dividends... 10,558 9,089 30,284 19,043 Asset management and other , Total revenues... 15,579 13,795 46,709 32,420 Interest expense.,... 10,067 8,748 29,126 17,790 Net revenues... 5,512 5,047 17,583 14,630 Non-Interest Expenses: Compensation and benefits... 2,718 2,488 8,669 7,213 Total non-personnel expenses ,009 2,588 Total non-interest expenses... 3,633 3,348 11,678 9,801 Income before taxes and cumulative effect of accounting change... 1,879 1,699 5,905 4,829 Provision for income taxes ,945 1,569 Cumulative effect of accounting change Net income... $ 1,273 $ 1,146 $4,007 $3,260 Net income applicable to common stock $ 1,256 $ 1,129 $3,941 $3,191 Earnings per common share (diluted): $6.81 $5.43 Consolidated Statement of Financial Condition Information At May 31, 2007 At February 28, 2007 At November 30, 2006 At November 30, 2005 (in U.S.$ millions) 10

19 Total assets , , , ,063 Short-term borrowings... 27,712 23,997 20,638 11,351 Total long-term indebtedness ,819 90,775 81,178 53,899 Total liabilities , , , ,269 Total stockholders equity... 21,129 20,005 19,191 16,794 Preferred stock... 1,095 1,095 1,095 1,095 Common stock, $0.10 par value;... Shares authorized: 1,200,000,000 in 2007, 2006 and Shares issued: 610,865,692 in May 31 and Feb respectively; 609,832,302 in 2006 and 605,337,946 in Shares outstanding: ,153,162 and 534,877,435 in May 31 and Feb respectively; 533,368,195 in 2006 and 542,874,206 in Additional paid in capital... 9,610 9,273 8,727 6,283 Accumulated other (5) (17) (15) (16) comprehensive income (net of tax)... Retained earnings... 18,133 16,964 15,857 12,198 Other stockholders equity, net... (2,205) (2,274) (1,712) 765 Common stock in treasury, at cost 80,712,530 shares as at May 31 and Feb respectively; 76,464,107 shares in 2006 and 62,463,740 shares in (5,560) (5,097) (4,822) (3,592) Summary of Risk Factors The purchase of Derivative Securities issued under the Programme is associated with the risks summarised below. The specific risks in relation to the relevant underlying may be set out in the respective Final Terms, which must therefore always be taken into account in assessing the risks associated with an investment in those Derivative Securities. In this respect, investors should apart from the other information on the Issuers or the Guarantor and the Derivative Securities contained in this Base Prospectus and in the Final Terms also consider the description of risks for their investment decision. Investors in the Derivative Securities offered hereby should consider their current financial circumstances and investment objectives and always consult their own financial, legal and tax advisers with regard to the suitability of the relevant Derivative Securities to realise the envisaged 11

20 investment objective in the light of their personal circumstances before acquiring such Derivative Securities. Should one or more of the circumstances described below occur, this could lead to a material and long-term decline in the price of the Derivative Securities or, in extreme cases, to a total loss of interest and of the amount invested by the investor. Risks relating to the Issuers and the Guarantor LBHI as the ultimate parent company of the Lehman Brothers group (consisting of LBHI and its subsidiaries, and also defined as "Lehman Brothers") is a holding company whose primary assets consist of shares of stock or other equity interests in or amounts due from subsidiaries; hence, almost all of its income is derived from those subsidiaries. Accordingly, LBHI will be dependent on dividends and other distributions or loans from its subsidiaries to generate the funds necessary to meet obligations with respect to debt securities guaranteed by it, including as to payment of principal and interest. Lehman Brothers financial condition and results of operations, on which payment of any dividends and other distributions or loans to LBHI depends, may be affected by uncertain or unfavourable economic, market, legal and other conditions. These conditions include but are not limited to the risks arising from: Market Risk: - changes in interest and foreign exchange rates, financial instruments and real estate valuations and increases in volatility; Competitive Environment: - the fact that Lehman Brothers' competitive ability in the global financial markets depends on factors such as its reputation, the quality of its services, product innovation, execution ability, pricing, sales and the talent of its employees; Business Environment: - the global financial markets being affected by concerns about geopolitical developments; Liquidity: - liquidity and liquidity management being affected by Lehman Brothers inability, however temporary, to access the long-term or short-term debt, repurchase or securitieslending markets or to draw under credit facilities; Credit Ratings: - Lehman Brothers ability and costs to access to the unsecured funding markets being dependent on its credit ratings; Credit Exposure: - the possibility, however unforeseen or remote, that a counterparty may be unable to honour its contractual obligations to Lehman Brothers; Operational Risk: - is the risk of loss resulting from inadequate or failed internal or outsourced processes, people, infrastructure and technology systems; and Legal, Regulatory and Reputational Risk: - any increases in the costs of compliance requirements under, together with the legal, reputational and/or administrative costs of any violation of, the extensive regulation to which the securities and financial services industries are subject in the many jurisdictions in which Lehman Brothers do business. Risks relating to Lehman Brothers Securities N.V. As each company of Lehman Brothers, LBS may be affected by uncertain or unfavourable economic, market, legal and other conditions that are likely to affect Lehman Brothers. 12

21 By purchasing securities issued by LBS, investors will take a credit risk on LBS (that is the risk of LBS not being able to meet its payment obligations (if any) with respect to any securities issued by LBS and purchased by the investors). LBS is fully hedging its obligations by offsetting derivatives instruments with other Lehman Brothers companies. LBS' ability to perform its obligations may therefore be affected by any inability or failure to perform obligations owed to LBS by other Lehman Brothers companies. LBS is not rated and to the extent it taps the unsecured funding markets, its ability to do so will also be dependent on the credit ratings of LBHI. Several Lehman Brothers companies are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of their business. Possible losses in connection with the actions against Lehman Brothers may be material to Lehman Brothers operating results for any particular future period, depending on the level of our income for such period. Risks relating to Lehman Brothers (Luxembourg) Equity Finance S.A. As each company of Lehman Brothers, LBEF may be affected by uncertain or unfavourable economic, market, legal and other conditions that are likely to affect Lehman Brothers. By purchasing securities issued by LBEF, investors will take a credit risk on LBEF (that is the risk of LBEF not being able to meet its payment obligations (if any) with respect to any securities issued by LBEF and purchased by the investors). LBEF is fully hedging its obligations by offsetting derivatives instruments with other Lehman Brothers companies. LBEF's ability to perform its obligations may therefore be affected by any inability or failure to perform obligations owed to LBEF by other Lehman Brothers companies. LBEF is not rated and to the extent it taps the unsecured funding markets, its ability to do so will also be dependent on the credit ratings of LBHI. Several Lehman Brothers companies are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Possible losses in connection with the actions against Lehman Brothers may be material to Lehman Brothers operating results for any particular future period, depending on the level of our income for such period. Risks relating to the Derivative Securities General Risks in relation to Derivative Securities Holding Derivative Securities involves a high degree of risk, which may include interest rate, corporate, market, foreign exchange, time value and/or political risks. Derivative Securities may expire worthless or be redeemable without any payment. The value of Warrants tends to decline over time, even if all other factors are held constant and Warrants may become worthless when they expire (except to the extent of any minimum expiration value). An investment in Derivative Securities will always include the risk that the invested capital may be lost in whole or in part and that no interest or premium will be paid. An investment requires exact knowledge of the circumstances of the transaction. Investors should have adequate knowledge of and experience in financial and business matters and be experienced with investments in the underlyings (e.g. structured interest rates, shares, 13

22 indices, currencies, commodities or investment funds or baskets of such underlyings) and know the associated risks. The underlying or basket of underlyings may be subject to significant changes during the term of the Derivative Securities due to various circumstances including fluctuations in its components. A Derivative Security referring to more than one underlying may have a cumulative or even leveraged risk compared to a Security which is only related to one underlying. Investors may not be able to secure themselves against these different risks with regard to Derivative Securities. A material market disruption could lead to a substitution of the underlying or an early redemption or termination of the Derivative Security, so that the original assessment of risks may no longer apply or the investor would be exposed to reinvestment risk. The value of the Derivative Securities, as it is dependent on one or several underlyings, will accordingly be subject to cumulative risks in a secondary market. The performance of the respective underlying is subject to a series of associated factors, including economic, financial and political events beyond the control of the relevant Issuer. If the formula used to determine the amount of principal, premium and/or interest payable with respect to Derivative Securities contains a multiplier or leverage factor or maximum/minimum interest or repayment limits, the effect of any change in the applicable underlying will be increased with regard to the amount payable. The historical performance of the underlying may not be regarded as significant for the future performance during the term of Derivative Securities. Risk Factors relating to Payments on the Securities Derivative Securities are unsecured obligations. Derivative Securities with derivative and structured interest and/or payment components bear the specific risks associated with the underlying: Fluctuations in the value of the relevant underlyings or interest rates will affect the value of the Derivative Securities linked to such underlyings or interest rates. The absence of last sale information and the limited availability of quotations for the relevant underlying may make it difficult for investors to obtain timely, accurate data for the price or yield of such underlyings. The underlyings may be subject to change or substitution following the occurrence of certain events set out in the Final Terms, in particular if the underlyings cease to exist or are subject to a material change or modification. A market disruption may have an adverse effect on the value of the Derivative Securities or the determination of the level or price of underlyings and/or may delay settlement in respect of the Derivative Securities. Subsequent corrections of levels or prices of underlyings published by the relevant issuer, index sponsor or price source may be excluded. Foreign currency Derivative Securities expose investors to foreign-exchange risks as well as to issuer risks. 14

23 As a consequence of early redemption or termination of the Derivative Securities, the amount to be paid in the case of such an early redemption or termination may be lower than the nominal amount or issue price per Certificate or the purchase price for Warrants paid by the Holder. In the event of early redemption there is a reinvestment risk, which means that an investor may not be able to purchase another investment, which, at the time of such early redemption, has a pay out structure and risk profile equivalent to those of the redeemed Derivative Securities. Prospective investors should be aware that any determination made by the Calculation Agent may have an impact on the value and financial return of the Derivative Securities. Market Risks The trading market for debt securities may be volatile and may be adversely affected by various circumstances. An active trading market for the Derivative Securities may not develop, even if the Derivative Securities are listed or traded on a stock exchange. Special Investment Risks The actual pay out on the Derivative Securities may be reduced from the stated pay out by transaction costs. Holders may not rely upon being able to enter into transactions which may exclude or limit loss exposure to the Derivative Securities during the term of the Derivative Securities. Margin lending, where it is permitted, can materially increase the risk of non-performance of the Derivative Securities to a Holder. An actual premium, profit or income generated by the Derivative Securities may be reduced by any tax payable in respect of the Derivative Securities. Conflicts of Interests The Issuers, the Guarantor, the Dealer, the Calculation Agent and their respective subsidiaries or affiliates may from time to time engage in transactions and activities relating to the Derivative Securities or any underlyings. Such activities could be conducted in circumstances where the interest of holders of the Derivative Securities may be in conflict with the interests of the Issuer, the Guarantor, the Dealer, the Calculation Agent or those of any of their subsidiaries or affiliates and such transactions and activities may adversely affect the value of the Derivative Securities. Additional Risks in the case of Redemption by Physical Delivery Prospective investors should note that the Final Terms may provide, that the Derivative Securities will be redeemed by physical delivery of a given number of underlyings and not by cash, except in special circumstances specified in the Final Terms. It follows that: By purchasing the Derivative Securities prospective investors are also making a potential investment decision with respect to the underlyings. The Final Terms may provide that no fractions of underlyings will be delivered and/or that physically settled Derivative Securities may only be exercised or redeemed in such amounts as will ensure that the number of underlyings to be delivered is equal to a whole multiple of 15

24 the minimum of a size of Derivative Securities that can be delivered through the clearing system ( Board Lot ). The value of the delivered underlyings might be significantly less than the capital invested by the investor and may, in extreme cases, even be zero. If the delivered underlyings are denominated in a currency other than the Specified Currency of the Derivative Securities, Holders are exposed to the risk of exchange rate fluctuations. The delivered underlyings may not be liquid at all or only to a limited extent. Investors may be required to bear all costs, fees, expenses and taxes associated with the delivery of the underlyings. Delivery of the underlyings may be impossible or delayed due to various circumstances including the occurrence of a settlement disruption event. Such settlement disruption event may have the consequence that the delivery of the specified underlyings may be replaced by payment of the cash amount or by other deliverable assets specified in the Final Terms. In some cases an Issuer may at its discretion change the stated method of settlement or redemption in respect of the Derivative Securities. The exercise of such option by the Issuer may have an adverse effect on the value of the relevant Derivative Securities. Additional Risks relating to Warrants and Certificates The time value of the Warrants which influences the Cash Settlement Amount and the Physical Settlement Amount is influenced by the price and/or level of the underlying, as well as by a number of other interrelated factors, including the length of the period remaining to expiration and expectations concerning the value of the underlying. The exercise of Warrants and Certificates may be subject to a minimum or maximum number of Warrants or Certificates, respectively, exercisable (early) on any day. There may be a time lag between the time a Holder gives instructions to exercise (early) any Warrants or Certificates, respectively, and the time the applicable Cash Settlement Amount (in the case of Cash Settled Warrants or Certificates) or the Physical Settlement Amount (in the case of physically settled Warrants or Certificates) relating to such exercise is determined. If the dividend rates on the underlying, where applicable, increase, the trading value of a Put Warrant or similar Security (a "Put Security") is expected to increase and the trading value of a Call Warrant or similar Security (a "Call Security") is expected to decrease. Summary of the Offering Programme in relation to the Derivative Securities Reasons for the Issue Under the Programme, the Issuers may inter alia issue derivative bearer Derivative Securities (Inhaberschuldverschreibungen) the terms and conditions of which are governed by German law, including Derivative Securities without a denomination ("Derivative Securities"). 16