EXHIBIT 1.10
CALCULATION AGENCY AGREEMENT
AGREEMENT, dated as of April 26, 2001, between Lehman Brothers Holdings
Inc. (the "Company") and Lehman Brothers Inc., as Calculation Agent.
WHEREAS, the Company has authorized the issuance of $30,000,000
aggregate principal amount of NASDAQ-100 INDEX(R) SUNSSM, 109% Minimum
Redemption Stock Upside Note SecuritiesSM Due April 26, 2004 (the
"Securities")*;
WHEREAS, the Securities will be issued under an Indenture Agreement
dated as of September 1, 1987, between the Company and Citibank, N.A., as
Trustee (the "Trustee"), as supplemented and amended by supplemental indentures
dated as of November 25, 1987, November 27, 1990, September 13, 1991, October 4,
1993, October 1, 1995, and June 26, 1997, and incorporating Standard Multiple
Series Indenture Provisions dated July 30, 1987, as amended November 16, 1987
(collectively, the "Indenture"); and
WHEREAS, the Company requests the Calculation Agent to perform certain
services described herein in connection with the Securities;
NOW THEREFORE, the Company and the Calculation Agent agree as follows:
- --------
* The Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq(R) are trade or
service marks of The Nasdaq Stock Market, Inc. (which witH its
affiliates are the "Nasdaq Corporations") and are licensed for use by
the Company. The Securities have not been passed on by the Nasdaq
Corporations as to their legality or suitability. The Securities are
not issued, endorsed, sold, or promoted by the Nasdaq Corporations. THE
NASDAQ CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE SECURITIES.
"SUNSSM" and "Stock Upside Note SecuritiesSM" are service marks of
Lehman Brothers Inc.
APPOINTMENT OF AGENT. The Company hereby appoints Lehman Brothers Inc.
as Calculation Agent and Lehman Brothers Inc. hereby accepts such appointment as
the Company's agent for the purpose of performing the services hereinafter
described upon the terms and subject to the conditions hereinafter mentioned.
CALCULATIONS AND INFORMATION PROVIDED. In response to a request made by
the Trustee for a determination of the Maturity Payment Amount due at Stated
Maturity of the Securities, the Calculation Agent shall determine such Maturity
Payment Amount and notify the Trustee of its determination. The Calculation
Agent shall also be responsible for (a) the determination of the Capped
Quarterly Returns for each Reset Period, (b) the determination of the Equity
Return, (c) the determination of the Alternative Redemption Amount, (d) the
Successor Index if publication of the Index is discontinued and (e) whether a
Market Disruption Event has occurred. The Calculation Agent shall notify the
Trustee of any such adjustment or any such Successor Index, or if a Market
Disruption Event has occurred. Annex A hereto sets forth the procedures the
Calculation Agent will use to determine the information described in this
Section 2.
CALCULATIONS. Any calculation or determination by the Calculation Agent
pursuant hereto shall (in the absence of manifest error) be final and binding.
Any calculation made by the Calculation Agent hereunder shall, at the Trustee's
request, be made available at the Corporate Trust Office.
FEES AND EXPENSES. The Calculation Agent shall be entitled to
reasonable compensation for all services rendered by it as agreed to between the
Calculation Agent and the Company.
2
TERMS AND CONDITIONS. The Calculation Agent accepts its obligations
herein set out upon the terms and conditions hereof, including the following, to
all of which the Company agrees:
in acting under this Agreement, the Calculation Agent is
acting solely as an independent expert of the Company and does not
assume any obligation toward, or any relationship of agency or trust
for or with, any of the holders of the Securities;
unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company or the Trustee made or given under any provision of this
Agreement shall be sufficient if signed by any person who the
Calculation Agent reasonably believes to be a duly authorized officer
or attorney-in-fact of the Company or the Trustee, as the case may be;
the Calculation Agent shall be obliged to perform only such
duties as are set out specifically herein and any duties necessarily
incidental thereto;
the Calculation Agent, whether acting for itself or in any
other capacity, may become the owner or pledgee of Securities with the
same rights as it would have had if it were not acting hereunder as
Calculation Agent; and
the Calculation Agent shall incur no liability hereunder
except for loss sustained by reason of its gross negligence or wilful
misconduct.
RESIGNATION; REMOVAL; SUCCESSOR. (a) The Calculation Agent may at any
time resign by giving written notice to the Company of such intention on its
part, specifying the date on which its desired resignation shall become
effective, subject to the appointment of a successor Calculation Agent and
acceptance of such appointment by such successor Calculation Agent, as
hereinafter provided. The Calculation Agent hereunder may be removed at any time
by the filing with it of an instrument in writing signed by or on behalf of the
Company and specifying such removal and the date when it shall become effective.
Such resignation or removal shall take effect upon the appointment by the
Company, as hereinafter provided, of a successor Calculation Agent and the
acceptance of such appointment by such successor Calculation Agent. In the event
a successor Calculation Agent has not been appointed and has not accepted its
duties
3
within 90 days of the Calculation Agent's notice of resignation, the Calculation
Agent may apply to any court of competent jurisdiction for the designation of a
successor Calculation Agent.
In case at any time the Calculation Agent shall resign, or shall be
removed, or shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or make an assignment for the benefit of its creditors or consent to
the appointment of a receiver or custodian of all or any substantial part of its
property, or shall admit in writing its inability to pay or meet its debts as
they mature, or if a receiver or custodian of it or all or any substantial part
of its property shall be appointed, or if any public officer shall have taken
charge or control of the Calculation Agent or of its property or affairs, for
the purpose of rehabilitation, conservation or liquidation, a successor
Calculation Agent shall be appointed by the Company by an instrument in writing,
filed with the successor Calculation Agent. Upon the appointment as aforesaid of
a successor Calculation Agent and acceptance by the latter of such appointment,
the Calculation Agent so superseded shall cease to be Calculation Agent
hereunder.
Any successor Calculation Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor, to the Company and to the Trustee an
instrument accepting such appointment hereunder and agreeing to be bound by the
terms hereof, and thereupon such successor Calculation Agent, without any
further act, deed or conveyance, shall become vested with all the authority,
rights, powers, trusts, immunities, duties and obligations of such predecessor
with like effect as if originally named as Calculation Agent hereunder, and such
predecessor, upon payment of its charges and disbursements then unpaid, shall
thereupon become obligated to transfer, deliver and pay over, and such successor
Calculation Agent shall be entitled to receive, all moneys, securities and other
property on deposit with or held by such predecessor, as Calculation Agent
hereunder.
4
Any corporation into which the Calculation Agent hereunder may be
merged or converted or any corporation with which the Calculation Agent may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Calculation Agent shall be a party, or any
corporation to which the Calculation Agent shall sell or otherwise transfer all
or substantially all of the assets and business of the Calculation Agent shall
be the successor Calculation Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
CERTAIN DEFINITIONS. Terms not otherwise defined herein or in Annex A
hereto are used herein as defined in the Indenture or the Securities.
INDEMNIFICATION. The Company will indemnify the Calculation Agent
against any losses or liability which it may incur or sustain in connection with
its appointment or the exercise of its powers and duties hereunder except such
as may result from the gross negligence or wilful misconduct of the Calculation
Agent or any of its agents or employees. The Calculation Agent shall incur no
liability and shall be indemnified and held harmless by the Company for or in
respect of any action taken or suffered to be taken in good faith by the
Calculation Agent in reliance upon written instructions from the Company.
NOTICES. Any notice required to be given hereunder shall be delivered
in person, sent (unless otherwise specified in this Agreement) by letter, telex
or facsimile transmission or communicated by telephone (confirmed in a writing
dispatched within two New York Business Days), (a) in the case of the Company,
to it at Three World Financial Center, New York, New York 10285 (facsimile:
(212) 526-3774) (telephone: (212) 526-1936), Attention: Legal Counsel, (b) in
the case of the Calculation Agent, to it at Three World Financial Center, 200
Vesey Street, New York, New York 10285-0600 (facsimile: (212) 526-2755)
(telephone: (212)
5
526-0900), Attention: Equity Derivatives Trading and (c) in the case of the
Trustee, to it at 111 Wall Street, 5th Floor, New York, New York 10043
(facsimile: (212) 657-3836) (telephone: (212) 657-7805), Attention: Corporate
Trust Department or, in any case, to any other address or number of which the
party receiving notice shall have notified the party giving such notice in
writing. Any notice hereunder given by telex, facsimile or letter shall be
deemed to be served when in the ordinary course of transmission or post, as the
case may be, it would be received.
GOVERNING LAW. This Agreement shall be governed by and continued in
accordance with the laws of the State of New York.
COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
BENEFIT OF AGREEMENT. This Agreement is solely for the benefit of the
parties hereto and their successors and assigns, and no other person shall
acquire or have any rights under or by virtue hereof.
6
IN WITNESS WHEREOF, this Calculation Agency Agreement has been entered
into as of the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.
By:___________________________
Name:
Title:
LEHMAN BROTHERS INC.,
as Calculation Agent
By:__________________________
Name:
Title:
7
ANNEX A
The Index.
The Index is the Nasdaq-100 Index(R), as calculated by Nasdaq (the
"Index").
Determination of the Maturity Payment Amount.
The Calculation Agent shall determine (i) the Capped Quarterly Returns
for each of the twelve Reset Periods, (ii) the Equity Return and (iii) the
amount payable at Stated Maturity for each $1,000 principal amount of Securities
(the "Maturity Payment Amount").
The Maturity Payment Amount shall equal the greater of (a) $1,090 and
(b) the Alternative Redemption Amount.
Discontinuance of the Index.
If Nasdaq discontinues publication of the Index and
Nasdaq or another entity publishes a successor or
substitute index (the "Successor Index") that the
Calculation Agent determines, in its sole discretion,
to be comparable to the discontinued Index, then the
Calculation Agent shall calculate the Capped
Quarterly Returns for each Reset Period pursuant to
Section 2 hereof by reference to the index level of
such Successor Index at the Close of Trading on the
NYSE, AMEX, Nasdaq or the relevant exchange or market
for the Successor Index on the date that any Capped
Quarterly Return is to be determined.
Upon any selection by the Calculation Agent of a Successor
Index, the Company shall promptly give notice to the
holders of the Securities.
If Nasdaq discontinues publication of the Index prior
to, and such discontinuance is continuing on, the
date that any Capped Quarterly Return is to be
determined and the Calculation Agent determines that
no Successor Index is available at such time, then,
on such date, the Calculation Agent shall determine
the Capped Quarterly Return to be used in computing
the Alternative Redemption Amount. The ending index
level to be used in computing the Capped Quarterly
Return shall be computed by the Calculation Agent in
accordance with the formula for and method of
calculating the Index last in effect prior to such
discontinuance, using the Closing Level (or, if
trading in the relevant securities has been
materially suspended or materially limited, its good
faith estimate of the Closing Level that would have
prevailed but for such suspension or limitation) at
the close of the principal trading session on such
date of each
8
security most recently comprising the Index on
the primary organized U.S. exchange or
trading system.
Alteration of Method of Calculation.
If at any time the method of calculating the Index or a Successor
Index, or the ending index level to be used in computing the Capped Quarterly
Return, is changed in a material respect, or if the Index or a Successor Index
is in any other way modified so that such Index does not, in the opinion of the
Calculation Agent, fairly represent the value of the Index or such Successor
Index had such changes or modifications not been made, then, from and after such
time, the Calculation Agent will, at the Close of Trading in New York City on
the date that the ending index level to be used in computing the Capped
Quarterly Return is to be determined, make such calculations and adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a level of a stock index comparable to the Index or such Successor
Index, as the case may be, as if such changes or modifications had not been
made, and calculate the Capped Quarterly Returns, the Equity Return and the
Alternative Redemption Amount with reference to the Index or such Successor
Index, as adjusted. Accordingly, if the method of calculating the Index or a
Successor Index is modified so that the level of such index is a fraction of
what it would have been if it had not been modified (e.g., due to a split in the
index), then the Calculation Agent shall adjust such index in order to arrive at
a level of the Index or such Successor Index as if it had not been modified
(e.g., as if such split had not occurred).
Definitions.
Set forth below are the terms used in this Annex A to the Calculation
Agency Agreement.
"AMEX" shall mean the American Stock Exchange.
"Alternative Redemption Amount" shall mean, with respect to each $1,000
principal amount of Securities, the sum of (i) $1,000 and (ii) the Equity
Return.
"Business Day", notwithstanding any provision in the Indenture, shall
mean any day that is not a Saturday, a Sunday or a day on which the NYSE or
Nasdaq is not open for trading or banking institutions or trust companies in the
City of New York are authorized or obligated by law or executive order to close.
"Calculation Agency Agreement" shall mean the Calculation Agency
Agreement, dated as of April 26, 2001, between the Company and the Calculation
Agent, as amended from time to time.
"Calculation Agent" shall mean the person that has entered into an
agreement with the Company providing for, among other things, the determination
of the Maturity Payment Amount, which term shall, unless the context otherwise
requires, include its successors and assigns. The initial Calculation Agent
shall be Lehman Brothers Inc.
"Capped Quarterly Return" for any Reset Period shall mean the lesser
of:
9
(x) ENDING INDEX LEVEL - STARTING INDEX LEVEL; and
-----------------------------------------
starting index level
(y) 9%,
where (i) the ending index level for any Reset Period is the Closing
Level on the Reset Date at the end of the Reset Period or, in the case
of the last Reset Period, on the fifth Business Day prior to the Stated
Maturity and (ii) the ending index level, on any Reset Date, equals the
starting index level for the Reset Period beginning on that Reset Date.
"Close of Trading" shall mean 4:00 p.m., New York City time.
"Closing Level" shall mean the last reported level of the Index or the
Successor Index, as the case may be, at 4:00 p.m., New York City time, as
reported by Nasdaq or the publisher of the Successor Index, as the case may be.
"Equity Return" shall mean the product of (i) $1,000 and (ii) the sum
of the Capped Quarterly Returns for twelve Reset Periods.
"Index" shall mean the Nasdaq-100 Index(R), as calculated by Nasdaq.
"Market Disruption Event", on any day, shall mean any of the following
events as determined by the Calculation Agent:
(i) A suspension, absence or material limitation of trading in
20% of more of the underlying stocks which then comprise the Index or
any Successor Index, as the case may be, has occurred on that day, in
each case, for more than two hours of trading or during the one-half
hour period preceding the Close of Trading on the primary organized
U.S. exchange or trading system on which such stocks are traded or, in
the case of a common stock not listed or quoted in the United States,
on the primary exchange, trading system or market for that security.
Limitations on trading during significant market fluctuations imposed
pursuant to the rules of any primary organized U.S. exchange or trading
system similar to NYSE Rule 80B (or any applicable rule or regulation
enacted or promulgated by the NYSE, any other exchange, trading system,
or market, any other self regulatory organization or the Securities and
Exchange Commission of similar scope as determined by the Calculation
Agent), may be considered material. Notwithstanding the first sentence
of this paragraph, a Market Disruption Event for a security traded on a
bulletin board means a suspension, absence or material limitation of
trading of that security for more than two hours or during the one hour
period preceding 4:00 p.m., New York City time.
(ii) A suspension, absence or material limitation has occurred
on that day, in each case, for more than two hours of trading or during
the one-half hour period preceding the Close of Trading in options
contracts related to the Index or any Successor Index, as the case may
be, whether by reason of movements in price exceeding levels permitted
by an exchange, trading system or market on which such options
contracts are traded or otherwise.
10
(iii) Information is unavailable on that date, through a
recognized system of public dissemination of transaction information,
for more than two hours of trading or during the one-half hour period
preceding the Close of Trading, of accurate price, volume or related
information in respect of 20% or more of the underlying stocks which
then comprise the Index or any Successor Index, as the case may be, or
in respect of options contracts related to the Index or any Successor
Index, as the case may be, in each case traded on any major U.S.
exchange or trading system or in the case of securities of a non-U.S.
issuer, traded on the primary non-U.S. exchange, trading system or
market.
For purposes of determining whether a Market Disruption Event has
occurred:
(i) a limitation on the hours or number of days of trading
shall not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant
exchange, trading system or market;
(ii) any suspension in trading in an options contract on the
Index or any Successor Index, as the case may be, by a major securities
exchange, trading system or market by reason of (a) a price change
violating limits set by such securities market, (b) an imbalance of
orders relating to those contracts, or (c) a disparity in bid and ask
quotes relating to those contracts, shall constitute a Market
Disruption Event notwithstanding that the suspension or material
limitation is less than two hours;
(iii) a suspension or material limitation on an exchange,
trading system or in a market shall include a suspension or material
limitation of trading by one class of investors provided that the
suspension continues for more than two hours of trading or during the
last one-half hour period preceding the Close of Trading on the
relevant exchange, trading system or market but shall not include any
time when the relevant exchange, trading system or market is closed for
trading as part of that exchange's, trading system's or market's
regularly scheduled business hours; and
(iv) "Trading systems" include bulletin board services.
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"NYSE" shall mean the New York Stock Exchange.
"Payment Determination Date" shall mean the fifth Business Day prior to
the Stated Maturity.
"Reset Dates" shall mean January 19, April 19, July 19 and October 19
of each year, beginning July 19, 2001, or if any such day is not a Business Day,
the next Business Day.
"Reset Periods" shall mean the periods (i) from and including April 19,
2001 to and including the first Reset Date, (ii) from and including one Reset
Date to and including the next succeeding Reset Date and (iii) from and
including the last Reset Date to and including the fifth Business Day prior to
the Stated Maturity.
11
"Stated Maturity" shall mean April 26, 2004, or (i) if April 26, 2004
is not a Business Day, the next Business Day, or (ii) if a Market Disruption
Event occurs on April 26, 2004, the first Business Day after April 26, 2004 on
which a Market Disruption Event does not occur.
"Successor Index" shall mean such substitute index as the Calculation Agent may
select pursuant to the Calculation Agency Agreement upon discontinuance of the
Index.
12