1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-9466 LEHMAN BROTHERS HOLDINGS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> DELAWARE 13-3216325 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3 WORLD FINANCIAL CENTER 10285 NEW YORK, NEW YORK (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) </TABLE> REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 526-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT: <TABLE> <CAPTION> NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------------------------------------------------------------------------ <S> <C> Common Stock, $0.10 par value New York Stock Exchange Pacific Stock Exchange Select Technology Index Call Warrants Expiring May 15, 1998 American Stock Exchange Global Telecommunications Stock Upside Note Securities(SM) Due 2000 American Stock Exchange 8 3/4% Notes Due 2002 New York Stock Exchange 8.30% Quarterly Income Capital Securities Series A, Due December 31, 2035 New York Stock Exchange $55 Million Serial Zero Coupon Senior Notes Due May 16, 1998 American Stock Exchange </TABLE> SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the common equity held by non-affiliates of the Registrant at February 10, 1998 was approximately $6,868,507,423. For purposes of this information, the outstanding shares of common stock owned by certain executive officers of the Registrant were deemed to be shares of common stock held by affiliates. As of February 10, 1998, 119,097,077 shares of the Registrant's Common Stock, $0.10 par value per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: (1) Lehman Brothers Holdings Inc. 1997 Annual Report to Stockholders (the "Annual Report") -- Incorporated in part in Form 10-K, Parts I, II and IV. (2) Lehman Brothers Holdings Inc. Proxy Statement for its 1998 Annual Meeting of Stockholders (the "Proxy Statement") -- Incorporated in part in Form 10-K, Parts I and III. ================================================================================
2 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS As used herein, "Holdings" or the "Registrant" means Lehman Brothers Holdings Inc., a Delaware corporation, incorporated on December 29, 1983. Holdings and its subsidiaries are collectively referred to as the "Company", the "Firm" or "Lehman Brothers," and the principal subsidiary of Holdings, Lehman Brothers Inc., a Delaware corporation, is referred to herein as "LBI." The Company is one of the leading global investment banks serving institutional, corporate, government and high-net-worth individual clients and customers. Its executive offices are located at 3 World Financial Center, New York, New York 10285 and its telephone number is (212) 526-7000. LEHMAN BROTHERS The Company's worldwide headquarters in New York and regional headquarters in London and Tokyo are complemented by offices in additional locations in North America, Europe, the Middle East, Latin America and the Asia Pacific region. The Company is engaged primarily in providing financial services. Other businesses in which the Company is engaged represent less than 10 percent of consolidated assets, revenues or pre-tax income. The Company's business includes capital raising for clients through securities underwriting and direct placements; corporate finance and strategic advisory services; merchant banking; securities sales and trading; research; and the trading of foreign exchange, derivative products and certain commodities. The Company acts as a market-maker in all major equity and fixed income products in both the domestic and international markets. Lehman Brothers is a member of all principal securities and commodities exchanges in the United States, as well as the National Association of Securities Dealers, Inc. ("NASD"), and holds memberships or associate memberships on several principal international securities and commodities exchanges, including the London, Tokyo, Hong Kong, Frankfurt, Paris, Stockholm and Milan stock exchanges. The Company's business activities are highly integrated and constitute a single industry segment. Financial information concerning the Company for the fiscal years ended November 30, 1997, November 30, 1996 and November 30, 1995, including the amount of revenue contributed by classes of similar products or services that accounted for 10% or more of the Company's consolidated revenues in any one of those periods, is set forth in the Consolidated Financial Statements and the Notes thereto in the 1997 Annual Report and is incorporated herein by reference. Information with respect to the Company's operations by geographic area are set forth in Note 14 to the Notes to Consolidated Financial Statements on pages 92-93 of the 1997 Annual Report and is incorporated herein by reference. Since 1990, Lehman Brothers has focused on a "client/customer-driven" strategy. Under this strategy, Lehman Brothers concentrates on serving the needs of major issuing and advisory clients and investing customers worldwide to build an increasing flow of business that leverages the Company's research, underwriting and distribution capabilities. Customer flow continues to be the primary source of the Company's net revenues. Developing long-term relationships with issuing clients and investing customers is a central premise of the Company's client/customer-driven strategy. Based on management's belief that each client and customer directs a majority of its financial transactions to a limited number of investment banks, Lehman Brothers' investment banking and institutional and private client sales professionals focus on a targeted group of clients and customers worldwide to identify and develop lead relationships. The Company believes that such relationships position Lehman Brothers to receive a substantial portion of its clients' and customers' financial business and lessen the volatility of net revenues generally associated with the financial services industry. LEHMAN BUSINESSES Lehman Brothers is a leading underwriter of global fixed income and equity securities in the public and private markets. The Company is also a prominent advisor for corporations and governments around the world. 1
3 INVESTMENT BANKING Lehman Brothers' Investment Banking professionals are responsible for developing and maintaining relationships with issuing clients, gaining a thorough understanding of their specific needs and bringing together the full resources of Lehman Brothers to accomplish their financial objectives. Investment Banking is organized into industry, product and geographic coverage groups, enabling individual bankers to develop specific expertise in particular industries and markets. Global industry coverage groups include Financial Services, Healthcare, Industrial, Media and Telecommunications, Natural Resources, Power, Real Estate and Technology. Where appropriate, specialized product groups are partnered with the industry and geographic groups to provide tailor-made solutions for Lehman Brothers' clients. These groups include Equity Capital Markets, which includes equity and equity-related securities and derivatives; Debt Capital Markets, which incorporates expertise in syndicate, liability management, derivatives and private placements; Mergers and Acquisitions; and Leveraged Finance, which includes high yield debt and bank loan syndication. Mergers and Acquisitions/Strategic Advisory. Lehman Brothers has a long history of providing strategic advisory services to corporate, institutional and government clients around the world on a wide range of financial matters, including mergers and acquisitions, restructurings and spin-offs, targeted stock transactions, share repurchase strategies, takeover defenses, corporate governance issues and tax optimization strategies. Linkages between strategic advisory services and the Firm's foreign exchange, derivatives and leveraged financing products are widely utilized. The Company's Mergers and Acquisitions group works closely with product, industry and geographic coverage bankers around the world. Geographically, Lehman Brothers maintains investment banking offices in six cities within the U.S. and in 18 cities in Europe, Canada, the Middle East, Asia and Latin America. FIXED INCOME Lehman Brothers actively participates in all key fixed income markets worldwide and maintains a 24-hour trading presence in global fixed income securities. The Company combines professionals from the distribution, research and trading areas of Fixed Income, together with investment bankers, into teams to serve the financial needs of the Company's clients and customers. The Company is a leading underwriter of new issues, and is also a preeminent market-maker in these and other fixed income securities. The Company's global presence facilitates client and customer transactions and provides liquidity in marketable fixed and floating rate debt securities. Fixed Income businesses include the following: Government and Agency Obligations. Lehman Brothers is one of the leading primary dealers in U.S. government securities, as designated by the Federal Reserve Bank of New York, participating in the underwriting and market-making of U.S. Treasury bills, notes and bonds, and securities of federal agencies. The Company is also a market-maker in the government securities of all G7 countries, and participates in other major European and Asian government bond markets. The Company is active in the Canadian market through its Toronto office, in France as a reporting dealer and in Italy as a super-primary dealer. Money Market Products. Lehman Brothers holds a dominant market position in the origination and distribution of commercial paper. The Company is an appointed dealer for over 600 commercial paper programs on behalf of companies and government agencies worldwide. Corporate Debt Securities. Lehman Brothers engages in the underwriting and market making of fixed and floating rate investment grade debt worldwide. Since 1995, the Company has received global medium-term note mandates for over 270 programs with a borrowing capacity of $657 billion. The Company is also a major participant in the preferred stock market, managing numerous offerings of long-term and perpetual preferreds and auction rate securities. High Yield Securities and Bank Loans. The Company also underwrites and makes markets in non-investment grade debt securities and bank loans. The Company now provides a "one-stop" leveraged finance solution for corporate and financial acquirers and high yield issuers. 2
4 Emerging Market Securities. The Company is active in the trading, structuring and underwriting of Latin American, Eastern European, and Asian dollar and local currency instruments. The Company maintains investment banking offices in Mexico City, Sao Paulo, Buenos Aires and New Delhi, among other locations. Mortgage and Asset-Backed Securities. The Company is a leading underwriter of and market-maker in residential and commercial mortgage- and asset-backed securities and is active in all areas of secured lending, structured finance and securitized products. Lehman Brothers underwrites and makes markets in the full range of U.S. agency-backed mortgage products, mortgage-backed securities, asset-backed securities and whole loan products. The Company also is engaged in principal real estate investments. Internationally, the Firm has expanded its capabilities in mortgage and asset-backed securities, leases, mortgages, multi-family financing and commercial loans. Municipal and Tax-Exempt Securities. Lehman Brothers is a major dealer in municipal and tax-exempt securities, including general obligation and revenue bonds, notes issued by states, counties, cities, and state and local governmental agencies, municipal leases, tax-exempt commercial paper and put bonds. Lehman Brothers is also a leader in the structuring, underwriting and sale of tax-exempt and taxable securities and derivative products for city, state, not-for-profit and other public sector clients. Financing. The Company's Financing unit engages in three primary functions: managing the Company's matched book activities, supplying secured financing to customers, and providing funding for the Company's activities. Matched book funding involves lending cash on a short-term basis to institutional customers collateralized by marketable securities, typically government or government agency securities. The Company enters into these agreements in various currencies and seeks to generate profits from the difference between interest earned and interest paid. The Financing unit works with the Company's institutional sales force to identify customers that have cash to invest and/or securities to pledge to meet the financing and investment objectives of the Company and its customers. Financing also coordinates with the Company's treasury area to provide collateralized financing for a large portion of the Company's securities and other financial instruments owned. In addition to its activities on behalf of its U.S. clients and customers, the Company is a major participant in the European and Asian repurchase agreement markets, providing secured financing for the Firm's customers in those regions. Fixed Income Derivatives. The Company offers a broad range of derivative product services in all major currencies on a 24-hour-per-day global basis. Derivatives professionals are integrated into all of the Company's fixed income areas in response to the continued convergence of the cash and derivative markets worldwide. Foreign Exchange. Lehman Brothers' global foreign exchange operation provides its customers with 24-hour access and trade execution in all currencies for spot, forward and over-the-counter option markets. In a collaboration with the Firm's emerging markets unit, the Firm's foreign exchange activities have increasingly diversified into Latin America, Eastern Europe and Asian currencies. Lehman Brothers also provides advisory services to central banks, corporations and investors worldwide, structuring innovative products to fit their specific needs. The Firm makes extensive use of its worldwide macroeconomics research to advise clients on the appropriate strategies to minimize interest rate and currency risk. In addition to the Company's traditional client/customer-driven foreign exchange activities, Lehman Brothers also trades foreign exchange for its own account. EQUITIES Lehman Brothers has integrated professionals from the Equities sales, trading, investment banking and research areas to serve the financial needs of the Company's equity clients and customers. The Company's equity expertise and the integrated nature of the Company's global operations enable Lehman Brothers to structure and execute global equity transactions for clients worldwide. The Company is a leading underwriter of initial public and secondary offerings of equity and equity-related securities. Lehman Brothers also makes markets in these and other securities, and executes block trades on behalf of clients and customers. The Company actively participates in assisting governments around the world in raising equity capital as part of their privatization programs. 3
5 The Equities group is responsible for the Company's equity operations and all dollar and non-dollar equity and equity-related products worldwide. These products include listed and over-the-counter ("OTC") securities, American Depositary Receipts, convertibles, options, warrants and derivatives. The Company participates in the global equity and equity-related markets in all major currencies through its worldwide presence and membership in major stock exchanges, including among others, those in New York, London, Tokyo, Hong Kong, Frankfurt, Paris, Milan and Stockholm. Equity Derivatives. Lehman Brothers offers equity derivative capabilities across a wide spectrum of products and currencies, including domestic and international program trading, listed options and futures and structured derivatives. In 1997, Lehman Brothers reorganized its equity derivatives business into two major product areas - a global volatility business, encompassing options-related products, and a global portfolio trading business that specializes in index arbitrage, agency/risk baskets and other structured products. Equity Finance. Lehman Brothers maintains an extensive Equity Financing and Prime Broker business to provide liquidity to its clients and customers and supply a source of secured financing for the Firm. Equity Finance provides margin lending for the purchase of equities and other capital markets' products as well as securities lending and short selling facilitation. The Prime Broker business, which significantly increased its global business in 1997, engages in full operations, clearing and processing services for that unit's customers. MERCHANT BANKING Lehman Brothers' merchant banking activities include making principal investments in corporations in partnership with clients of the Firm, raising capital from institutional and high-net-worth investors and managing these investments until they are realized. The Firm's Merchant Banking group has more than 20 dedicated professionals based in New York, London and Hong Kong. In September 1997, the Firm established a new $2 billion merchant banking fund, for which a subsidiary of LBI will act as general partner. The Company has commitments to invest up to an additional $498 million in the partnerships, which in turn will make direct merchant banking related investments. The Company's current merchant banking activities include investments in nine active partnerships, for which the Company acts as general partner, as well as direct investments. These merchant banking investments include both publicly traded and privately held companies diversified on a geographic and industry basis. At November 30, 1997, the investment in merchant banking partnerships was $167 million and direct investments were $75 million. GLOBAL DISTRIBUTION Lehman Brothers' institutional and private client sales organizations encompass distinct global sales forces that have been integrated into the Fixed Income and Equities businesses to provide investors with the full array of products and research offered by the Firm. Fixed Income Sales. The Firm's Fixed Income sales force is one of the largest in the industry, with approximately 325 professionals in 14 locations worldwide, serving the investing and liquidity needs of major institutional investors. Employing a relationship management approach that provides superior information flow and product opportunities for the Firm's customers, the Fixed Income sales organization covers the major share of the buying power in the global fixed income markets. Further, the Firm's expertise in foreign exchange and derivatives provides customers with comprehensive solutions to their global risk management needs. Equity Sales. Lehman Brothers' institutional Equity sales group of over 315 professionals provides an extensive range of services to institutional investors through locations in the U.S., Europe and Asia. The Equity sales organization focuses on developing long-term relationships though a comprehensive understanding of customers' investment objectives, while providing proficient execution and consistent liquidity in a wide range of global equity securities and derivatives. 4
6 Private Client Sales. The Company's Private Client Services group of 288 professionals serves the investment needs of private investors with substantial assets as well as over 1,000 mid-sized institutional accounts worldwide. The group has a global presence with investment representatives located in 12 offices worldwide. Among other services, investment professionals provide their clients with direct access to fixed income, equity, foreign exchange and derivative products, as well as the Firm's research and execution capabilities, thereby serving as a valuable extension of the Firm's institutional sales force. RESEARCH Fixed Income Research. Fixed Income research at Lehman Brothers encompasses the full range of research disciplines: quantitative, economic, strategic, credit, portfolio, relative value and market-specific analysis. Fixed Income research is integrated with and supports the Company's investment banking, sales and trading activities. An important objective of Fixed Income research is to have in place high quality research analysts covering industry, geographic and economic sectors that support the activities of the Company's clients and customers. The department's 275 specialists provide expertise in U.S., European and Asian government and agency securities, derivatives, sovereign issues, corporate securities, high yield, asset- and mortgage-backed securities, real estate, emerging market debt and municipal securities. Equity Research. The Equity Research department, comprised of 260 professionals, is integrated with and supports the Company's investment banking, sales and trading activities. To ensure in-depth expertise within various markets, Equity Research has established regional teams on a worldwide basis that are staffed with industry and strategy specialists. OTHER BUSINESS ACTIVITIES Lehman Brothers also participates in business opportunities such as arbitrage and proprietary trading that leverage the Company's expertise, infrastructure and resources. These businesses may generate substantial revenues but generally entail a higher degree of risk as the Company trades for its own account. Arbitrage. Lehman Brothers engages in a variety of arbitrage activities. In traditional or "riskless" arbitrage, the Company seeks to benefit from temporary price discrepancies that occur when a security is traded in two or more markets, or when a convertible or derivative security is trading at a price disparate from its underlying security. The Company's "risk" arbitrage activities involve the purchase of securities at discounts from the expected values that would be realized if certain proposed or anticipated corporate transactions (such as mergers, acquisitions, recapitalizations, exchange offers, reorganizations, bankruptcies, liquidations or spin-offs) were to occur. To the extent that these anticipated transactions do not materialize in a manner consistent with the Company's expectations, the Company is subject to the risk that the value of these investments will decline. Lehman Brothers' arbitrage activities benefit from the Company's presence in the global capital markets, access to advanced information technology, in-depth market research, proprietary risk management tools and general experience in assessing rapidly changing market conditions. Asset Management. In 1997, the Firm launched a series of 12 onshore and offshore funds managed by 25 third-party managers. The Firm also offers a number of tailored products to its client base, including an array of single client funds, managed accounts and advisory services. Proprietary Trading. In addition to its customer-flow activities, Lehman Brothers also takes proprietary positions in interest rates, foreign exchange, various securities, derivatives and commodities for its own account. The Company's proprietary trading activities bring together various research and trading disciplines allowing it to take market positions, which at times may be significant, consistent with the Company's expectations of future events (such as movements in the level of interest rates, changes in the shape of yield curves and changes in the value of currencies). The Company is subject to the risk that actual market events will be different from the Company's expectations, which may result in significant losses associated with such proprietary positions. The Company's proprietary trading activities are generally carried out in consultation with personnel from the relevant major product areas (e.g., mortgages, derivatives and foreign exchange). 5
7 TRADING SERVICES AND CORPORATE The Company's Trading Services and Corporate divisions provide support to its businesses through the processing of certain securities and commodities transactions; receipt, identification and delivery of funds and securities; safeguarding of customers' securities; and compliance with regulatory and legal requirements. In addition, this staff is responsible for technology infrastructure and systems development, treasury operations, financial control and analysis, tax planning and compliance, internal audit, expense management, career development and recruiting and other support functions. In 1997, the Company invested in a strategic global foundation for information technology upon which all future investments in technology will be leveraged. The Company's response to the Year 2000 issue is described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other -- Impact of the Year 2000" on page 59 of the Annual Report, and is incorporated herein by reference. RISK MANAGEMENT As a leading global investment banking company, risk is an inherent part of the Company's businesses. Global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. The Company has developed policies and procedures to identify, measure and monitor each of the risks involved in its trading, brokerage and investment banking activities on a global basis. The principal risks of Lehman Brothers are market, credit, liquidity, legal and operational risks. Risk Management is considered to be of paramount importance. The Company devotes significant resources across all of its worldwide trading operations to the measurement, management and analysis of risk, including investments in personnel, information technology infrastructure and systems. A complete description of the Firm's Risk Management procedures is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" on pages 55-58 of the Annual Report, and is incorporated herein by reference. NON-CORE ASSETS Prior to 1990, the Company participated in a number of activities that were not central to its current business as an institutional investment banking firm. As a result of these activities, the Company carries on its balance sheet a number of relatively illiquid assets (the "Non-Core Assets"), including a number of individual real estate assets, limited partnership interests and a number of smaller investments. Subsequent to their purchase, the values of certain of these Non-Core Assets declined below the recorded values on the Company's balance sheet, which necessitated the write-down of the carrying values of these assets and corresponding charges to the Company's Consolidated Statement of Income. Certain of these activities have resulted in various legal proceedings. Since 1990, management has devoted substantial resources to reducing the Company's Non-Core Assets. At November 30, 1997, the Company had $48 million of net exposure to these real estate activities, including investments, commitments and contingent liabilities under guarantees and credit enhancements. The value of the Company's Non-Core Assets includes carrying value plus contingent exposures net of reserves. Management's intention with regard to these Non-Core Assets is the prudent liquidation of these investments as and when possible. COMPETITION All aspects of the Company's business are highly competitive. The Company competes in domestic and international markets directly with numerous other brokers and dealers in securities and commodities, investment banking firms, investment advisors and certain commercial banks and, indirectly for investment funds, with insurance companies and others. The financial services industry has become considerably more concentrated as numerous securities firms have either ceased operations or have been acquired by or merged into other firms. In addition, several small 6
8 and specialized securities firms have been successful in raising significant amounts of capital for their merger and acquisition activities and merchant banking investment vehicles and for their own accounts. These developments have increased competition from firms, a number of whom have significantly greater equity capital than the Company. REGULATION The securities industry in the United States is subject to extensive regulation under both federal and state laws. LBI and certain other subsidiaries of Holdings are registered as broker-dealers and investment advisors with the Commission and as such are subject to regulation by the Securities and Exchange Commission (the "SEC") and by self-regulatory organizations, principally the NASD and national securities exchanges such as the New York Stock Exchange, which has been designated by the SEC as LBI's primary regulator, and the Municipal Securities Rulemaking Board. Securities firms are also subject to regulation by state securities administrators in those states in which they conduct business. LBI is a registered broker-dealer in all 50 states, the District of Columbia and the Commonwealth of Puerto Rico. The SEC, self-regulatory organizations and state securities commissions may conduct administrative proceedings, which may result in censure, fine, the issuance of cease-and-desist orders or suspension or expulsion of a broker-dealer or an investment advisor, its officers or employees. LBI is registered with the Commodity Futures Trading Commission (the "CFTC") as a futures commission merchant and is subject to regulation as such by the CFTC and various domestic boards of trade and other commodity exchanges. The Company's U.S. commodity futures and options business is also regulated by the National Futures Association, a not-for-profit membership corporation which has been designated as a registered futures association by the CFTC. The Company does business in the international fixed income, equity and commodity markets and undertakes investment banking activities through its London subsidiaries. The U.K Financial Services Act of 1986 (the "Financial Services Act") governs all aspects of the United Kingdom investment banking business, including regulatory capital, sales and trading practices, use and safekeeping of customer funds and securities, record keeping, margin practices and procedures, registration standards for individuals, periodic reporting and settlement procedures. Pursuant to the Financial Services Act, the Company is subject to regulations administered by The Securities and Futures Authority Limited, a self regulatory organization of financial services companies (which regulates the Company's equity, fixed income, commodities and investment banking activities), and the Bank of England (which regulates its wholesale money market, bullion and foreign exchange businesses). Holdings' subsidiary, Lehman Brothers Japan Inc., is a licensed securities company in Japan and a member of the Tokyo Stock Exchange, the Osaka Stock Exchange and the Tokyo Financial Futures Exchange and, as such, is regulated by the Japanese Ministry of Finance, the Japan Securities Dealers Association and such exchanges. The Company believes that it is in material compliance with the regulations described herein. CAPITAL REQUIREMENTS LBI, Lehman Brothers International (Europe) ("LBIE"), the Tokyo branch of Lehman Brothers Japan Inc. ("LBJTB") and other of Holdings' subsidiaries are subject to various securities, commodities and banking regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Regulatory Capital" on page 51 of the 1997 Annual Report, and Note 8 of Notes to Consolidated Financial Statements. EMPLOYEES As of November 30, 1997 the Company employed approximately 8,340 persons, including 5,832 in the U.S. and 2,508 internationally. The Company considers its relationship with its employees to be good. 7
9 ITEM 2. PROPERTIES The Company's headquarters occupy approximately 1.1 million square feet of space at 3 World Financial Center in New York, New York, which is owned by the Company as tenants-in-common with American Express and various other American Express subsidiaries, and approximately 77,000 square feet of which has been subleased. The Company leases approximately 405,000 square feet for offices located at 101 Hudson Street in Jersey City, New Jersey (the "Operations Center"), of which approximately 63,000 square feet has been subleased. The Operations Center is used by systems, operations, and certain administrative personnel and contains certain back-up trading systems. The lease expires in December 2010. The Company leases approximately 338,000 square feet of office space in London, England. Most of the Company's other offices are located in leased premises, the leases for which expire at various dates through the year 2007. Facilities owned or occupied by the Company and its subsidiaries are believed to be adequate for the purposes for which they are currently used and are well maintained. ITEM 3. LEGAL PROCEEDINGS The Company is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Such proceedings include actions brought against the Company and others with respect to transactions in which the Company acted as an underwriter or financial advisor, actions arising out of the Company's activities as a broker or dealer in securities and commodities and actions brought on behalf of various classes of claimants against many securities and commodities firms, including the Company. Although there can be no assurance as to the ultimate outcome, the Company has denied, or believes it has a meritorious defense and will deny, liability in all significant cases pending against it including the matters described below, and intends to defend vigorously each such case. Although there can be no assurance as to the ultimate outcome, based on information currently available and established reserves, the Company believes that the eventual outcome of the actions against it, including the matters described below, will not, in the aggregate, have a material adverse effect on the consolidated financial condition of the Company. Bamaodah v. E.F. Hutton & Company Inc. In April 1986, Ahmed and Saleh Bamaodah commenced an action against E.F. Hutton & Company Inc., ("EFH") to recover all losses the Bamaodahs had incurred since May 1981 in the trading of commodity futures contracts in a nondiscretionary EFH trading account. The Dubai Civil Court ruled that the trading of commodity futures contracts constituted illegal gambling under Islamic law and that therefore the brokerage contract was void. In January 1987, a judgment was rendered against EFH in the amount of $48,656,000. On January 5, 1991, the Dubai Court of Appeals affirmed the judgment. On March 22, 1992, the Court of Cassation, Dubai's highest court, revoked and quashed the decision of the Court of Appeals and ordered that the case be remanded to the Court of Appeals for a further review. On April 26, 1994, the Dubai Court of Appeals again affirmed the judgment of the Dubai Civil Court. The Company appealed the judgment to the Court of Cassation, which reversed the Court of Appeals on November 27, 1994 and ordered that a new expert be appointed to review the case. A new expert has been appointed, with instructions to report back to the Court of Cassation. Actions Relating To First Capital Holdings Inc. Concurrent with the bankruptcy filing of First Capital Holdings ("FCH") in May, 1991 and the conservatorship and receivership of its two life insurance subsidiaries, First Capital Life Insurance Company ("First Capital Life") and Fidelity Bankers Life Insurance Company ("Fidelity Bankers Life") (First Capital Life and Fidelity Bankers Life collectively, the "Insurance Subsidiaries"), a number of lawsuits were commenced, naming one or more of Holdings, Lehman Brothers and American Express as defendants 8
10 (individually or collectively, as the case may be, the "American Express Defendants"). Most of these actions have been subsequently settled and/or dismissed. The matter still pending is described below. The Virginia Commissioner of Insurance Action. On December 9, 1992, a complaint was filed in the United States District Court for the Eastern District of Virginia (the "Virginia Court") by Steven Foster, the Virginia Commissioner of Insurance (the "Commissioner") as Deputy Receiver of Fidelity Bankers Life. The Complaint names Holdings and Weingarten, Ginsberg and Leonard Gubar, a former director of FCH and Fidelity Bankers Life, as defendants. The Complaint alleges that Holdings acquiesced in and approved the continued mismanagement of Fidelity Bankers Life and that it participated in directing the investment of Fidelity Bankers Life assets. The complaint asserts claims under the federal securities laws and asserts common law claims including fraud, negligence and breach of fiduciary duty and alleges violations of the Virginia Securities laws by Holdings. It allegedly seeks no less than $220 million in damages to Fidelity Bankers Life and its present and former policyholders and creditors and punitive damages. Holdings has answered the complaint, denying its material allegations. As a result of Holdings' motion for summary judgment, the court limited the damages the Commissioner may seek to less than approximately $30 million. Easton & Co. v. Mutual Benefit Life Insurance Co., et al., Easton & Co. v. Lehman Brothers Inc. Lehman Brothers was named as a defendant in two consolidated class action complaints pending in the United States District Court for the District of New Jersey (the "N.J. District Court"). Easton & Co. v. Mutual Benefit Life Insurance Co., et al. ("Easton I"), and Easton & Co. v. Lehman Brothers Inc. ("Easton II"). The plaintiff in both of these actions is Easton & Co., which is a broker-dealer located in Fort Lee, New Jersey. Both of these actions allege federal securities law claims and pendent common law claims in connection with the sale of certain municipal bonds as to which Mutual Benefit Life Insurance Company ("MBLI") has guaranteed the payment of principal and interest. MBLI is an insurance company which was placed in rehabilitation proceedings under the supervision of the New Jersey Insurance Department on or about July 16, 1991. Easton I was commenced on or about September 17, 1991. The litigation was purportedly brought on behalf of a class consisting of all persons and entities who purchased DeKalb, Georgia Housing Authority MultiFamily Housing Revenue Refunding Bonds (North Hill Ltd. Project), Series 1991, due November 30, 1994 (the "DeKalb Bonds") during the period from May 3, 1991 (when the DeKalb bonds were issued) through July 16, 1991. Lehman Brothers acted as underwriter for this bond issue, which was in the aggregate principal amount of $18.7 million. The complaint alleged that Lehman Brothers violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and sought damages in an unspecified amount or rescission. The complaint also alleged a common law negligent misrepresentation claim against Lehman Brothers and the other defendants. Easton II was commenced on or about May 18, 1992, and named Lehman Brothers as the only defendant. Plaintiff purported to bring this second lawsuit on behalf of a class composed of all persons who purchased "MBLI-backed Bonds" from Lehman Brothers during the period April 19, 1991 through July 16, 1991. The complaint alleged that Lehman Brothers violated Section 10(b) and Rule 10b-5, and seeks monetary damages in an unspecified amount, or rescission pursuant to Section 29(b) of the Exchange Act. The complaint also contained a common law claim of alleged breach of duty and negligence. On or about February 9, 1993, the N.J. District Court granted plaintiffs' motion for class certification in Easton I. The parties agreed to certification of a class in Easton II for purchases of certain fixed-rate MBLI-backed bonds during the class period. LBI, together with the other defendants in Easton I and Easton II, has agreed to settle both cases, subject to court approval. Warren D. Chisum, et al. v. Lehman Brothers Inc. et al. On February 28, 1994 a purported class action was filed in the United States District Court for the Northern District of Texas. An amended complaint was filed on December 15, 1994. The amended complaint names LBI and two former EFH employees as defendants. The complaint alleges that defendants violated Section 10(b) of the Exchange Act and RICO, breached their fiduciary duties and the limited partners' 9
11 contract and committed fraud in connection with the origination, sale and operation of nine EFH net lease real estate limited partnerships. Plaintiffs seek: (i) to certify a class of all persons who purchased limited partnership interests in the nine partnerships at issue, (ii) unspecified damages, plus interest or rescission, (iii) treble damages, (iv) punitive damages and (v) accounting and attorneys' fees. On April 2, 1996 the Court filed an opinion and order certifying the litigation as a class action, consisting of all persons who purchased interests in the nine EFH net lease limited partnerships. On July 11, 1996, the Court issued a memorandum and order dismissing plaintiffs' RICO claim. Defendants answered the complaint and denied its material allegations. The parties have entered into a settlement agreement which was preliminarily approved by the Court on February 20, 1998 and is subject to the Court's final approval. Actions Relating to the Sales and Marketing of Limited Partnerships Subsequent to a January 26, 1996 article in the Wall Street Journal entitled "SEC, Brokers Study Pact on Partnerships," various putative class actions were filed in different state courts relating to the sales and marketing of limited partnerships by E.F. Hutton & Co. and Shearson and their affiliates during the 1980s. Thereafter all of these actions were consolidated into the two actions described below, or were effectively stayed while these actions proceed. Under the terms of an agreement between American Express and Holdings, American Express has agreed to indemnify Holdings for liabilities which it may incur in connection with any action relating to any business conducted by The Balcor Company, a former Lehman Brothers subsidiary ("Balcor"), in which Holdings is named as a parent company or control person of Balcor. Holdings believes that some of the allegations in certain of the actions described below are covered by this indemnity. In re Lehman Brothers Limited Partnership Litigation. On October 18, 1996, a purported first consolidated and amended class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County on behalf of all persons who purchased units in various public, proprietary limited partnerships organized by Shearson or E.F. Hutton & Co. or operated by affiliates of those entities between 1981 and the present (with certain exceptions). Defendants are LBI and 56 Lehman-affiliated general partners. The complaint alleges that defendants breached their fiduciary duties or aided and abetted such a breach by allegedly misrepresenting and or failing to disclose the nature of the risks and the status and financial condition of the partnerships; collecting excessive fees; failing to exercise due care in selecting investments for the partnerships; and recommending and selling the partnerships as suitable investments. The complaint seeks, among other things (1) to certify the case as a class action; (2) to declare that defendants breached their duties; (3) to enjoin defendants from operating the partnerships for their own benefit; (4) to account for all profits and impose a constructive trust on them; and (5) to award compensatory damages, costs and expenses and attorneys' fees. Klein, et al. v. Lehman Brothers, Inc., et al. On January 15, 1998, a purported third amended class action complaint was filed in the Superior Court of New Jersey, Law Division: Union County on behalf of investors in certain specified limited partnerships sponsored by Balcor and sold by various entities, including, among others, Shearson and certain of its affiliates. Named as defendants are LBI, various affiliates of LBI, American Express Company, Smith Barney Holdings, Inc., Balcor, a number of Balcor-originated limited partnerships and various individuals and entities affiliated with Balcor. The complaint alleges claims in connection with the marketing, sale and operation of the limited partnerships for common law fraud and deceit, equitable fraud, negligent misrepresentation, breach of fiduciary duty and contract and violation of certain New Jersey statutes relating to the sale of securities. The complaint seeks compensatory damages for lost principal and interest, general damages and punitive damages, treble damages under the New Jersey statutes, and costs and attorneys' fees. Maxwell Related Litigation There is one remaining lawsuit arising out of transactions entered into with the late Robert Maxwell or entities controlled by Maxwell interests. 10
12 MCC Proceeds Inc. v. Lehman Brothers International (Europe). This action was commenced by issuance of a writ in the High Court of Justice in London, England on July 14, 1995. In this action, MCC Proceeds Inc., as successor to Macmillan, Inc., seeks a declaration of the rightful ownership of approximately 10.6 million shares of Berlitz International Inc. common stock. The High Court granted LBIE's application to dismiss the proceeding and assessed costs against MCC Proceeds. On December 19, 1997, the Court of Appeal affirmed the dismissal of this proceeding. Lehman Brothers Commercial Corporation and Lehman Brothers Special Financing Inc. v. Minmetals International Non-Ferrous Metals Trading Company On November 15, 1994, two Lehman Brothers subsidiaries, Lehman Brothers Commercial Corporation ("LBCC") and Lehman Brothers Special Financing Inc. ("LBSF"), commenced an action against Minmetals International Non-Ferrous Metals Trading Company ("Minmetals") and China National Metals and Minerals Import and Export Company ("CNM") in the United States District Court for the Southern District of New York alleging breach of contract against Minmetals and breach of guarantee against CNM. The litigation arose from the refusal by Minmetals and CNM to honor their obligations with respect to certain foreign exchange and swap transactions. LBCC and LBSF seek to recover approximately $52.5 million from Minmetals and/or CNM. On June 26, 1995, the court granted CNM's motion to dismiss the claims against it, but also granted LBCC and LBSF leave to replead. Minmetals filed fourteen counterclaims against Lehman entities based on violations of federal securities and commodities laws and rules, and theories of fraud, breach of fiduciary duty and conversion. The court denied a motion by the Lehman counterclaim defendants to dismiss the six fraud-based counterclaims. On June 24, 1996, the court granted the motion of LBCC and LBSF to file an amended complaint naming CNM as an additional defendant. Discovery is progressing. Actions Relating to National Association of Securities Dealers Automated Quotations System ("NASDAQ") Market Maker Antitrust and Securities Litigation. Beginning in May, 1994, several class actions were filed in various state and federal courts against various broker-dealers making markets in NASDAQ securities. With respect to a number of those actions LBI was either specifically named as a defendant or was not specifically named as a defendant but could be deemed to be a member of the defendant class as defined in the complaints. Plaintiffs in these cases have alleged violations of the antitrust laws, securities laws and have pled a variety of other statutory and common law claims. All of these actions are based on the theory that because odd-eighth quotes occur less often than quarter quotes, NASDAQ market makers must be colluding wrongfully to maintain a wider spread. By Order filed October 14, 1994, the Judicial Panel on Multidistrict Litigation consolidated these actions in the Southern District of New York and ordered that all related actions be transferred and coordinated for all pretrial purposes. The case is captioned In Re NASDAQ Market-Makers Antitrust Litigation, MDL No. 1023. On December 16, 1994, plaintiffs served a consolidated Amended Complaint naming 33 defendants including LBI. Plaintiffs claim violations of the federal antitrust laws including Section I of the Sherman Antitrust Act. Plaintiffs seek unspecified compensatory damages trebled in accordance with the antitrust laws, costs including attorneys' fees as well as injunctive relief. The court dismissed the action with leave to replead, stating that the complaint failed to identify the securities involved with sufficient specificity. The plaintiffs replied and the defendants answered the amended complaint on November 17, 1995. On December 23, 1997, LBI settled the class action along with 29 other broker-dealers. The settlement is subject to final approval by the court. LBI entered into a Stipulation and Order resolving a civil complaint filed by the U.S. Department of Justice alleging that LBI and 23 other NASDAQ market makers violated Section 1 of the Sherman Act in connection with certain market making practices. In entering into the Stipulation and Order the parties agreed that the defendants would not engage in certain types of market making activities and the defendants undertook specified steps to assure compliance with their agreement. The Stipulation and Order were approved by the United States District Court for the Southern District of New York, which decision is on 11
13 appeal to the Second Circuit Court of Appeals. If the approval is affirmed throughout the appellate process, the complaint will be dismissed with prejudice. Sonnenfeld v. The City and County of Denver, Colorado, et al. On August 4, 1995, a Consolidated Amended Class Action Complaint (the "Complaint") was filed in the United States District Court for the District of Colorado, consolidating and amending previously filed complaints and adding, among other defendants, LBI. The Complaint was purportedly brought on behalf of all persons, other than defendants, who purchased Denver Airport System Revenue Bonds during the period February 27, 1992 through May 3, 1994 that were issued by the City and County of Denver and who were damaged by their investments. The parties entered into a settlement of the action which was approved by the Court on December 8, 1997. AIA Holding SA et al. v. Lehman Brothers Inc. and Bear Stearns & Co., Inc. On July 9, 1997, LBI was served with a complaint in the U.S. District Court for the Southern District of New York in which 277 named plaintiffs assert 24 causes of action against LBI and Bear Stearns & Co., Inc. The amount of damages claimed is unspecified. The claims arise from the activities of an individual named Ahmad Daouk, who was employed by an introducing broker which introduced accounts to Shearson Lehman Hutton between 1988 and 1992. Daouk allegedly perpetrated a fraud upon the claimants, who are mostly investors of Middle Eastern origin, and the complaint alleges that Shearson breached various contractual and common law duties owed to the investors. LBI and Bear Stearns & Co., Inc. have filed a motion to dismiss the complaint and expect a ruling on such motion within the next several months. Actions Relating to Bre-X Minerals Ltd. McNamara et al. v. Bre-X Minerals Ltd. et al. On July 25, 1997, an Amended Class Action Complaint was filed in the United States District Court for the Eastern District of Texas against 16 defendants, including LBI, which seeks unspecified compensatory damages, interest, costs and attorney's fees on behalf of purchasers of Bre-X common stock and/or Bresea common stock. The Complaint raises claims under the federal securities laws and the common law of fraud and negligent misrepresentation. The Complaint's stated basis for naming LBI is that one of its securities analysts published research on Bre-X. On or about November 21, 1997, several defendants, including LBI, moved to dismiss the Complaint, or, in the alternative, to transfer venue to the Southern District of New York. Plaintiffs have also filed a motion for class certification, which is stayed pending resolution of the motions to dismiss. Klaasen v. Lehman Brothers Inc. et al. On October 2, 1997, William L. Klaasen, "individually and for all those similarly situated within the State of California," filed a Complaint against LBI in the Superior Court for the State of California in and for the County of San Diego. The Complaint raises a claim for common law negligence, and seeks, on behalf of California purchasers of Bre-X and Bresea stock, class certification, rescission, interest, compensatory and punitive damages, disgorgement and restitution of profits and compensation received by LBI, and costs. The action is currently stayed by consent until the earlier of April 1, 1998 or 30 days following the decision on the motion to dismiss in the McNamara case. Chow et al. v. Bre-X Minerals Ltd. et al. On October 10, 1997, 125 named plaintiffs filed an action in the Court of Queen's Bench of Alberta, in Calgary, Canada, against 35 named defendants, including LBI. Plaintiffs' claim against LBI, which has not yet been served, is for common law negligence. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 12
14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The approximate number of holders of record of the Registrant's Common Stock was 25,332 at February 10, 1998. Information concerning the market for the Registrant's common equity and related stockholder matters is set forth on page 98 of the Annual Report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data contained on pages 95-96 of the Annual Report is deemed a part of this Annual Report on Form 10-K and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is set forth under the same caption on pages 36-61 of the Annual Report. Such information is hereby incorporated herein by reference and should be read in conjunction with the Consolidated Financial Statements of the Registrant and its Subsidiaries together with the Notes thereto contained on pages 63-94 of the Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" on pages 55-58 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Registrant and its Subsidiaries together with the Notes thereto and the Report of Independent Auditors thereon required by this Item are contained in the Annual Report on pages 62-94 and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to Directors of the Registrant is set forth under the caption "Election of Directors" on pages 5-8 of the Proxy Statement and information relating to Executive Officers of the Registrant is set forth under the caption "Executive Officers of the Company" on pages 11-12 of the Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation is set forth under the captions "Compensation of Directors", "Compensation Committee Report of Executive Officer Compensation", "Compensation of Executive Officers", "Pension Benefits" and "Employment Contracts, Termination of Employment and Change of Control Arrangements" on pages 10, 13-18 of the Proxy Statement and is incorporated herein by reference. 13
15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership of management and certain beneficial owners is set forth under the caption "Security Ownership of Directors and Executive Officers" on page 12 of the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions is set forth under the captions "Certain Transactions and Agreements with Directors and Executive Officers", "Certain Transactions and Agreements with American Express and Subsidiaries", "Certain Transactions and Agreements with Nippon Life" and "Certain Transactions with Other Institutional Investors and Their Subsidiaries" on pages 19-22 of the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The Financial Statements and the Notes thereto and the Report of Independent Auditors thereon and filed as a part hereof are listed on page F-1 hereof by reference to the corresponding page number in the Annual Report. 2. Financial Statement Schedules: The financial statement schedule and the notes thereto filed as a part are listed on page F-1 hereof. 3. Exhibits: <TABLE> <CAPTION> EXHIBIT NO. - ------- <S> <C> 3.1 Restated Certificate of Incorporation of the Registrant dated May 27, 1994 (incorporated by reference to Exhibit 3.1 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 3.2 By-Laws of the Registrant, amended as of March 26, 1997 (incorporated by reference to Exhibit 10 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997). 4.1 The instruments defining the rights of holders of the long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to section (b) (4) (iii) (A) of Item 601 of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request. 9.1 1997 Trust under Lehman Brothers Holdings Inc. Incentive Plans (incorporated by reference to the Registrant's Form 8-K dated September 4, 1997). 10.1 Agreement of Tenants-In-Common by and among American Express Company, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Shearson Lehman Brothers Inc., Shearson Lehman Government Securities, Inc. and Shearson Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.1 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 10.2 Tax Allocation Agreement between Shearson Lehman Brothers Holdings Inc. and American Express Company (incorporated by reference to Exhibit 10.2 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 10.3 Transaction Support Services Agreement dated as of September 30, 1994 by and between Bear, Stearns Securities Corp. and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.15 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). </TABLE> 14
16 <TABLE> <CAPTION> EXHIBIT NO. - ------- <S> <C> 10.4 Lease dated as of October 13, 1993 between 101 Hudson Leasing Associates and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10 of Holdings' Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.5 Lehman Brothers Inc. Executive and Select Employees Plan (incorporated by reference to Exhibit 10.4 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-12976)). 10.6 Lehman Brothers Holdings Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.11 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-12976)). 10.7 Amended and Restated Agreements of Limited Partnership of Shearson Lehman Hutton Capital Partners II (incorporated by reference to Exhibit 10.48 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.8 Lehman Brothers Holdings Inc. 1994 Management Ownership Plan (incorporated by reference to Exhibit 10.25 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.9 Lehman Brothers Holdings Inc. 1996 Management Ownership Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996). 10.10+ Lehman Brothers Holdings Inc. Short-Term Executive Compensation Plan (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996). 10.11+ Lehman Brothers Holdings Inc. 1996 Short-Term Executive Compensation Plan (incorporated by reference to Exhibit 10.26 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.12+ Lehman Brothers Holdings Inc. 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.27 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.13 Purchase and Exchange Agreement dated April 28, 1994, between the Registrant and American Express Company (incorporated by reference to Exhibit 10.29 of the Registrant's Transition Report Form 10-K for the Eleven Months ended November 30, 1994). 10.14 Option Agreement, dated May 27, 1994, by and among American Express Company, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.31 of the Registrant's Transition Report Form 10-K for the Eleven Months ended November 30, 1994). 10.15+ Lehman Brothers Inc. Voluntary Deferred Compensation Plan (For Select Executives) (incorporated by reference to Exhibit 10.33 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.16+ Lehman Brothers Inc. Voluntary Deferred Compensation Plan (For Transferred Participants' Vested Amounts as of July 31, 1993) (incorporated by reference to Exhibit 10.34 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.17+ Lehman Brothers Inc. Executive and Select Employees Plan (For Transferred Participants) (incorporated by reference to Exhibit 10.35 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.18+ Lehman Brothers Holdings Inc. Cash Award Plan. (incorporated by reference to Exhibit 10.36 of the Registrant's Transition Report on Form 10-K for the Eleven Months ended November 30, 1994). </TABLE> 15
17 <TABLE> <CAPTION> EXHIBIT NO. - ------- <S> <C> 10.19 Amended and Restated Agreement of Limited Partnership of Lehman Brothers Capital Partners III, L.P. (incorporated by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1995). 10.20 Agreement of Limited Partnership of Lehman Brothers Capital Partners IV, L.P.* 11.1 Computation of per share Earnings.* 12.1 Computation in support of ratio of earnings to fixed charges.* 12.2 Computation in support of ratio of earnings to combined fixed charges and preferred dividends.* 13. The following portions of the Company's 1997 Annual Report to Stockholders, which are incorporated by reference herein: 13.1 "Management's Discussion and Analysis of Financial Condition and Results of Operations", pages 36-61.* 13.2 Consolidated Financial Statements of the Registrant and its Subsidiaries together with the Notes thereto and the Report of Independent Auditors thereon, pages 62-94.* 13.3 "Selected Financial Data", pages 95-96.* 13.4 "Other Stockholder Information" and "Price Range of Common Stock", page 98.* 21.1 List of the Registrant's Subsidiaries.* 23.1 Consent of Ernst & Young LLP.* 24.1 Powers of Attorney.* 27.1 Financial Data Schedule.* (b) Reports on Form 8-K. 1. Form 8-K dated March 24, 1997, Items 5 and 7. 2. Form 8-K dated June 26, 1997, Items 5 and 7. 3. Form 8-K dated September 4, 1997, Item 7. 4. Form 8-K dated September 30, 1997, Items 5 and 7. 5. Form 8-K dated January 7, 1998, Items 5 and 7. </TABLE> - --------------- * Filed herewith. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 16
18 SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. LEHMAN BROTHERS HOLDINGS INC. Dated: February 27, 1998 By: /s/ KAREN M. MULLER ------------------------------------ Title: Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. <TABLE> <CAPTION> SIGNATURES TITLE DATE <S> <C> <C> * Chief Executive Officer and February 27, 1998 - --------------------------------------------- Chairman of the Board of Richard S. Fuld, Jr. Directors (principal executive officer) * Chief Financial Officer February 27, 1998 - --------------------------------------------- (principal financial and Charles B. Hintz accounting officer) * Director February 27, 1998 - --------------------------------------------- Michael L. Ainslie * Director February 27, 1998 - --------------------------------------------- John F. Akers * Director February 27, 1998 - --------------------------------------------- Roger S. Berlind * Director February 27, 1998 - --------------------------------------------- Thomas H. Cruikshank * Director February 27, 1998 - --------------------------------------------- Henry Kaufman * Director February 27, 1998 - --------------------------------------------- Hideichiro Kobayashi * Director February 27, 1998 - --------------------------------------------- John D. Macomber * Director February 27, 1998 - --------------------------------------------- Dina Merrill * Director February 27, 1998 - --------------------------------------------- Masahiro Yamada *By: /s/ KAREN M. MULLER - --------------------------------------------- Attorney-in-Fact February 27, 1998 </TABLE> 17
19 LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE <TABLE> <CAPTION> PAGE -------------------------- FORM 10-K ANNUAL REPORT --------- ------------- <S> <C> <C> FINANCIAL STATEMENTS Report of Independent Auditors....................................... 62 Consolidated Statement of Income for the Twelve Months Ended November 30, 1997, November 30, 1996 and November 30, 1995.................. 63 Consolidated Statement of Financial Condition at November 30, 1997 and November 30, 1996.............................................. 64 Consolidated Statement of Changes in Stockholders' Equity for the Twelve Months Ended November 30, 1997, November 30, 1996 and November 30, 1995.................................................. 66 Consolidated Statement of Cash Flows for the Twelve Months Ended November 30, 1997, November 30, 1996 and November 30, 1995......... 67 Notes to Consolidated Financial Statements........................... 69 FINANCIAL STATEMENT SCHEDULE Schedule I -- Condensed Financial Information of Registrant.......... F-2 </TABLE> F-1
20 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF INCOME (PARENT COMPANY ONLY) <TABLE> <CAPTION> TWELVE MONTHS ENDED NOVEMBER 30 -------------------------- 1997 1996 1995 ------ ------ ------ <S> <C> <C> <C> (IN MILLIONS) <CAPTION> <S> <C> <C> <C> Revenues Principal transactions......................................... $ 193 $ 23 $ 152 Investment banking............................................. 140 90 90 Interest and dividends......................................... 1,271 882 804 Other.......................................................... 8 6 1 ----- ----- ----- Total revenues............................................ 1,612 1,001 1,047 Interest expense............................................... 1,304 966 899 ----- ----- ----- Net revenues.............................................. 308 35 148 ----- ----- ----- Non-interest expenses Compensation and benefits...................................... 113 64 70 Other.......................................................... 116 105 87 Management fees................................................ (28) (81) (94) Severance charge............................................... 50 Restructuring charge........................................... 27 ----- ----- ----- Total non-interest expenses............................... 201 138 90 ----- ----- ----- Income (loss) before taxes.......................................... 107 (103) 58 Provision for (benefit from) income taxes...................... (48) (65) 47 ----- ----- ----- Income (loss) before equity in net income of subsidiaries........... 155 (38) 11 ----- ----- ----- Equity in net income of subsidiaries........................... 492 454 231 ----- ----- ----- Net income (loss)................................................... $ 647 $ 416 $ 242 ----- ----- ----- Net income (loss) applicable to common stock........................ $ 572 $ 378 $ 200 ----- ----- ----- </TABLE> See notes to condensed financial information of Registrant. F-2
21 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET (PARENT COMPANY ONLY) <TABLE> <CAPTION> NOVEMBER 30 ------------------- 1997 1996 ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) <S> <C> <C> ASSETS Cash and cash equivalents............................................... $ 675 Securities and other financial instruments owned........................ $ 8,751 3,540 Equity in net assets of subsidiaries.................................... 3,922 3,755 Accounts receivable and accrued interest................................ 596 513 Due from subsidiaries................................................... 17,230 11,048 Other assets............................................................ 693 586 ------- ------- Total assets.................................................. $31,192 $20,117 ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper and short-term debt.................................... $ 4,472 $ 3,175 Securities and other financial instruments sold but not yet purchased... 122 198 Securities sold under agreements to repurchase.......................... 8,758 2,618 Accrued liabilities, due to subsidiaries and other payables............. 1,586 766 Senior notes............................................................ 11,531 9,286 Subordinated indebtedness............................................... 200 200 ------- ------- Total liabilities............................................. 26,669 16,243 ------- ------- Commitments and Contingencies Stockholders' equity: Preferred stock, $1.00 par value; 38,000,000 shares authorized: 5% Cumulative Convertible Voting, 13,000,000 shares authorized; $39.10 liquidation preference per share Series A -- shares issued and outstanding: 33,050 in 1997 and 13,000,000 in 1996........................................... 1 508 Series B -- shares issued and outstanding: 12,966,950 in 1997......................................................... 507 Redeemable Voting, 1,000 shares issued and outstanding; $1.00 liquidation preference per share Common stock, $0.10 par value; 300,000,000 shares authorized; Shares issued: 119,513,337 in 1997 and 106,793,538 in 1996; Shares outstanding: 116,612,074 in 1997 and 100,449,144 in 1996.............. 12 11 Common stock issuable................................................... 155 326 Additional paid-in capital.............................................. 3,436 3,198 Foreign currency translation adjustment................................. 12 20 Retained earnings (accumulated deficit)................................. 498 (43) Common stock in treasury, at cost: 2,901,263 shares in 1997 and 6,344,394 shares in 1996.............................................. (98) (146) ------- ------- Total stockholders' equity.................................... 4,523 3,874 ------- ------- Total liabilities and stockholders' equity.................... $31,192 $20,117 ------- ------- </TABLE> See notes to condensed financial information of Registrant. F-3
22 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY) <TABLE> <CAPTION> TWELVE MONTHS ENDED NOVEMBER 30 ----------------------------- 1997 1996 1995 ------- ------- ------- (IN MILLIONS) <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................................. $ 647 $ 416 $ 242 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in net income of subsidiaries.................................. (492) (454) (231) Severance charge...................................................... 50 Restructuring charge.................................................. 27 Other adjustments..................................................... 186 131 126 Net change in: Securities and other financial instruments owned...................... (5,211) (945) (778) Accounts receivable and accrued interest, due from subsidiaries and other assets........................................................ (6,380) (1,262) 945 Securities and other financial instruments sold but not yet purchased and Securities sold under agreements to repurchase................... 6,064 567 858 Accrued liabilities, due to subsidiaries and other payables........... 770 (84) (576) Dividends and capital distributions received.......................... 304 609 851 ------- ------- ------- Net cash provided by (used in) operating activities.............. (4,112) (972) 1,464 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes..................................... 3,925 2,686 4,226 Principal payments of senior notes......................................... (1,689) (1,778) (3,196) Proceeds from issuance of subordinated indebtedness........................ 200 Principal payments of subordinated indebtedness............................ (150) Payments for commercial paper and short-term debt, net..................... 1,297 1,073 (1,670) Payment for repurchase of preferred stock.................................. (200) Payment for treasury stock purchases....................................... (77) (130) (1) Dividends paid............................................................. (58) (55) (64) Issuance of common stock................................................... 23 6 1 ------- ------- ------- Net cash provided by (used in) financing activities.............. 3,421 1,802 (854) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Equity in net assets of subsidiaries....................................... 16 (173) (610) ------- ------- ------- Net cash provided by (used in) investing activities.............. 16 (173) (610) ------- ------- ------- Net change in cash and cash equivalents.......................... (675) 657 Cash and cash equivalents, beginning of period............................. 675 18 18 ------- ------- ------- Cash and cash equivalents, end of period......................... $ 0 $ 675 $ 18 ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN MILLIONS) Interest paid totaled $1,277 in 1997, $933 in 1996 and $884 in 1995. Income taxes (received) paid totaled $33 in 1997, $(48) in 1996 and $(163) in 1995. </TABLE> See notes to condensed financial information of Registrant. F-4
23 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) NOTE 1. BASIS OF PRESENTATION The condensed financial statements of Lehman Brothers Holdings Inc. (the "Company") should be read in conjunction with the consolidated financial statements of Lehman Brothers Holdings Inc. and subsidiaries and the notes thereto. Certain amounts reflect reclassifications to conform to the current period's presentation. NOTE 2. LONG-TERM DEBT <TABLE> <CAPTION> U.S. DOLLAR NON-U.S. DOLLAR ---------------- ---------------- NOVEMBER 30 FIXED FLOATING FIXED FLOATING ----------------- RATE RATE RATE RATE 1997 1996 ------ ------ ------ ------ ------- ------ (IN MILLIONS) <S> <C> <C> <C> <C> <C> <C> Senior Notes Maturing in Fiscal 1997.................... $1,626 Maturing in Fiscal 1998.................... $1,559 $ 371 $ 68 $ 71 $ 2,069 2,051 Maturing in Fiscal 1999.................... 1,516 402 674 20 2,612 2,082 Maturing in Fiscal 2000.................... 2,178 638 32 2,848 1,229 Maturing in Fiscal 2001.................... 440 70 510 91 Maturing in Fiscal 2002.................... 1,132 198 1,330 895 December 1, 2002 and thereafter............ 2,090 33 39 2,162 1,312 ------ ------ ------ ------ ------- ------ Senior Notes.......................... $8,915 $1,712 $ 781 $ 123 $11,531 $9,286 ------ ------ ------ ------ ------- ------ Subordinated Indebtedness December 1, 2002 and thereafter............ $ 200 $ 200 $ 200 ------ ------ ------ ------ ------- ------ Long-Term Debt............................. $9,115 $1,712 $ 781 $ 123 $11,731 $9,486 ====== ====== ====== ====== ======= ====== </TABLE> Of the Company's long-term debt outstanding as of November 30, 1997, $642 million is repayable prior to maturity at the option of the holder, at par value. These obligations are reflected in the above table at their put dates, which range from fiscal 1998 to fiscal 2002, rather than at their contractual maturities, which range from fiscal 2000 to fiscal 2019. In addition, $415 million of the Company's long-term debt is redeemable prior to maturity at the option of the Company under various terms and conditions. These obligations are reflected in the above table at their contractual maturity dates. As of November 30, 1997, the Company's U.S. dollar and non-U.S. dollar debt portfolios included approximately $134 million and $54 million, respectively, of debt for which the interest rates and/or redemption values have been linked to various indices including industry baskets of stocks or commodities. END USER DERIVATIVE ACTIVITIES The Company utilizes a variety of derivative products including interest rate and currency swaps as an end user to modify the interest rate characteristics of its long-term debt portfolio. The Company actively manages the interest rate exposure on its long-term debt portfolio to more closely match the terms of its debt portfolio to the assets being funded and to minimize interest rate risk. In addition, the Company utilizes cross-currency swaps to hedge its exposure to foreign currency risk as a result of its non-U.S. dollar debt obligations, after consideration of non-U.S. dollar assets which are funded with long-term debt obligations in the same currency. F-5
24 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) At November 30, 1997 and 1996, the notional values of the Company's interest rate and currency swaps related to its long-term debt obligations were approximately $10.5 billion and $8.6 billion, respectively. In terms of notional amounts outstanding, these derivative products mature as follows: <TABLE> <CAPTION> NOVEMBER 30 NON-U.S. CROSS- ----------------- U.S. DOLLAR DOLLAR CURRENCY 1997 1996 ----------- -------- -------- ------- ------ (IN MILLIONS) <S> <C> <C> <C> <C> <C> Maturing in Fiscal 1997........................ $1,302 Maturing in Fiscal 1998........................ $ 1,640 $120 $ 1,760 1,773 Maturing in Fiscal 1999........................ 1,650 674 2,324 1,992 Maturing in Fiscal 2000........................ 2,422 32 2,454 1,112 Maturing in Fiscal 2001........................ 468 468 56 Maturing in Fiscal 2002........................ 1,167 1,167 845 December 1, 2002 and thereafter................ 2,262 $ 4 35 2,301 1,496 ----------- -------- -------- ------- ------ Total.......................................... $ 9,609 $ 4 $861 $10,474 $8,576 ----------- -------- -------- ------- ------ Weighted average rate(1)....................... Receive rate................................... 7.21% 3.32% 4.30% 6.97% 6.88% Pay rate....................................... 6.49% 0.77% 6.43% 6.48% 6.24% </TABLE> - --------------- (1) Weighted average interest rates were calculated utilizing non-U.S. dollar interest rates, where applicable. F-6
25 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) The Company's end user derivative activities resulted in the following changes to the Company's mix of fixed and floating rate debt and effective weighted average rates of interest: <TABLE> <CAPTION> NOVEMBER 30, 1997 ----------------------------------------------------- LONG-TERM DEBT WEIGHTED AVERAGE(1) -------------------- ----------------------------- BEFORE AFTER CONTRACTUAL EFFECTIVE RATE END USER END USER INTEREST AFTER END USER ACTIVITIES ACTIVITIES RATE ACTIVITIES -------- -------- ----------- -------------- (IN MILLIONS) <S> <C> <C> <C> <C> USD Obligations Fixed Rate................................... $ 9,115 $ 86 7.39% 9.34% Floating Rate................................ 1,712 11,602 6.03% 6.47% -------- -------- ----------- ------- 10,827 11,688 7.17% 6.50% Non-USD Obligations............................... 904 43 4.03% 1.12% -------- -------- ----------- ------- Total............................................. $11,731 $11,731 6.93% 6.48% -------- -------- ----------- ------- </TABLE> <TABLE> <CAPTION> NOVEMBER 30, 1996 ----------------------------------------------------- LONG-TERM DEBT WEIGHTED AVERAGE(1) -------------------- ----------------------------- BEFORE AFTER CONTRACTUAL EFFECTIVE RATE END USER END USER INTEREST AFTER END USER ACTIVITIES ACTIVITIES RATE ACTIVITIES -------- -------- ----------- -------------- (IN MILLIONS) <S> <C> <C> <C> <C> USD Obligations Fixed Rate................................... $ 6,810 $ 122 7.77% 9.22% Floating Rate................................ 1,566 9,210 5.79% 6.39% -------- -------- ----------- ------- 8,376 9,332 7.40% 6.42% Non-USD Obligations............................... 1,110 154 3.73% 2.74% -------- -------- ----------- ------- Total............................................. $ 9,486 $ 9,486 6.97% 6.36% -------- -------- ----------- ------- </TABLE> - --------------- (1) Weighted average interest rates were calculated utilizing non-US dollar interest rates, where applicable. NOTE 3. NET REVENUES Net revenues in 1995 include a special revenue gain of $129 million related to the sale of the Company's interest in Omnitel Sistemi Radiocellullari Italiani S.p.A. ("Omnitel"), recognized in the Statement of Income in Principal transactions. Following recognition of related compensation and taxes, the Company recognized a $47 million gain in 1995 related to the Omnitel sale transaction. NOTE 4. OTHER CHARGES 1996 Severance Charge In the fourth quarter of 1996, Lehman Brothers Holdings Inc. and subsidiaries (collectively, "LBHI") recorded an $84 million severance charge ($50 million aftertax) related to certain strategic actions taken to improve ongoing profitability. The severance charge reflected the culmination of LBHI's worldwide business unit economic performance review that was undertaken in the fourth quarter of 1996 to focus LBHI on its core investment banking, equity and fixed income sales and trading areas. This formalized review resulted in personnel reductions of approximately 270 people across a number of underperforming fixed income and equities businesses, including exiting the precious metals business in the U.S., Europe and Asia; exiting energy F-7
26 SCHEDULE I LEHMAN BROTHERS HOLDINGS INC. NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) trading in the U.S. and Europe, consolidating Asian fixed income risk management activities into one center in Tokyo; refocusing foreign exchange trading activities and combining the Firm's New York Private Client Services offices. Additionally, the charge reflects various other strategic personnel reductions aimed at delayering management. The LBHI severance charge has led to personnel cost savings of approximately $90 million annually. The LBHI severance charge also resulted in a permanent decrease in nonpersonnel expenses of approximately $20 million annually. LBHI intends to reinvest substantially all these savings into certain businesses to expedite LBHI's strategic initiatives; these actions are expected to result in improved operating revenues. The Company recorded a $50 million severance charge ($30 million aftertax) in the fourth quarter of 1996 related to these actions. The Company's cash outlays relating to the charge were approximately $9 million in the fourth quarter of 1996 and approximately $38 million during fiscal 1997. The remaining residual payments will be paid as deferred payment arrangements are completed. 1995 Restructuring Charge During the fourth quarter of 1995, the Company recorded a charge of $27 million pretax ($16 million aftertax) for occupancy-related real estate expenses. This charge resulted from a complete global review of the Company and its affiliates' real estate requirements at current headcount levels and the elimination of excess real estate primarily in its New York location. The charge included the cost to write-down the carrying value of leasehold improvements as well as the difference between expected operating costs and projected sublease recoveries. NOTE 5. MANAGEMENT FEES The Company incurs charges including occupancy, administration and computer processing, which are related to its activities and that of certain of its subsidiaries (the "Related Parties"). Such charges are allocated between the Related Parties, based upon specific identification and allocation methods. The allocation of such charges to other affiliates is recognized as management fees. NOTE 6. COMMITMENTS AND CONTINGENCIES The Company has fully guaranteed certain of its subsidiaries and guaranteed certain unsecured lines of credit and other contractual obligations of other subsidiaries. F-8
27 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ <S> <C> 3.1 Restated Certificate of Incorporation of the Registrant dated May 27, 1994 (incorporated by reference to Exhibit 3.1 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 3.2 By-Laws of the Registrant, amended as of March 26, 1997 (incorporated by reference to Exhibit 10 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997). 4.1 The instruments defining the rights of holders of the long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to section (b) (4) (iii) (A) of Item 601 of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request. 9.1 1997 Trust under Lehman Brothers Holdings Inc. Incentive Plans (incorporated by reference to the Registrant's Form 8-K dated September 4, 1997). 10.1 Agreement of Tenants-In-Common by and among American Express Company, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Shearson Lehman Brothers Inc., Shearson Lehman Government Securities, Inc. and Shearson Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.1 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 10.2 Tax Allocation Agreement between Shearson Lehman Brothers Holdings Inc. and American Express Company (incorporated by reference to Exhibit 10.2 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 10.3 Transaction Support Services Agreement dated as of September 30, 1994 by and between Bear, Stearns Securities Corp. and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.15 of the Registrant's Transition Report on Form 10-K for the eleven months ended November 30, 1994). 10.4 Lease dated as of October 13, 1993 between 101 Hudson Leasing Associates and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10 of Holdings' Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). 10.5 Lehman Brothers Inc. Executive and Select Employees Plan (incorporated by reference to Exhibit 10.4 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-12976)). 10.6 Lehman Brothers Holdings Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.11 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-12976)). 10.7 Amended and Restated Agreements of Limited Partnership of Shearson Lehman Hutton Capital Partners II (incorporated by reference to Exhibit 10.48 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.8 Lehman Brothers Holdings Inc. 1994 Management Ownership Plan (incorporated by reference to Exhibit 10.25 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.9 Lehman Brothers Holdings Inc. 1996 Management Ownership Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996). 10.10+ Lehman Brothers Holdings Inc. Short-Term Executive Compensation Plan (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996). 10.11+ Lehman Brothers Holdings Inc. 1996 Short-Term Executive Compensation Plan (incorporated by reference to Exhibit 10.26 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). </TABLE>
28 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ <S> <C> 10.12+ Lehman Brothers Holdings Inc. 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.27 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.13 Purchase and Exchange Agreement dated April 28, 1994, between the Registrant and American Express Company (incorporated by reference to Exhibit 10.29 of the Registrant's Transition Report Form 10-K for the Eleven Months ended November 30, 1994). 10.14 Option Agreement, dated May 27, 1994, by and among American Express Company, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.31 of the Registrant's Transition Report Form 10-K for the Eleven Months ended November 30, 1994). 10.15+ Lehman Brothers Inc. Voluntary Deferred Compensation Plan (For Select Executives) (incorporated by reference to Exhibit 10.33 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.16+ Lehman Brothers Inc. Voluntary Deferred Compensation Plan (For Transferred Participants' Vested Amounts as of July 31, 1993) (incorporated by reference to Exhibit 10.34 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.17+ Lehman Brothers Inc. Executive and Select Employees Plan (For Transferred Participants) (incorporated by reference to Exhibit 10.35 of the Registrant's Registration Statement on Form S-1 (Reg. No. 33-52977)). 10.18+ Lehman Brothers Holdings Inc. Cash Award Plan. (incorporated by reference to Exhibit 10.36 of the Registrant's Transition Report on Form 10-K for the Eleven Months ended November 30, 1994). 10.19 Amended and Restated Agreement of Limited Partnership of Lehman Brothers Capital Partners III, L.P. (incorporated by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1995). 10.20 Agreement of Limited Partnership of Lehman Brothers Capital Partners IV, L.P.* 11.1 Computation of per share Earnings.* 12.1 Computation in support of ratio of earnings to fixed charges.* 12.2 Computation in support of ratio of earnings to combined fixed charges and preferred dividends.* 13. The following portions of the Company's 1997 Annual Report to Stockholders, which are incorporated by reference herein: 13.1 "Management's Discussion and Analysis of Financial Condition and Results of Operations", pages 36-61.* 13.2 Consolidated Financial Statements of the Registrant and its Subsidiaries together with the Notes thereto and the Report of Independent Auditors thereon, pages 62-94.* 13.3 "Selected Financial Data", pages 95-96.* 13.4 "Other Stockholder Information" and "Price Range of Common Stock", page 98.* 21.1 List of the Registrant's Subsidiaries.* 23.1 Consent of Ernst & Young LLP.* 24.1 Powers of Attorney.* </TABLE>
29 <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------ <S> <C> 27.1 Financial Data Schedule.* </TABLE> - --------------- * Filed herewith. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c).