<Page>
EXHIBIT 1.10
CALCULATION AGENCY AGREEMENT
AGREEMENT, dated as of October 2, 2001 (the "AGREEMENT"), between
Lehman Brothers Holdings Inc. (the "COMPANY") and Lehman Brothers Inc., as
Calculation Agent.
WHEREAS, the Company has authorized the issuance of up to $21,000,000
aggregate principal amount of Prudential Research Universe Diversified Equity
NotesSM, PRUDENTSSM Due July 2, 2006, Linked to a Basket of Healthcare Stocks
(the "SECURITIES");
WHEREAS, the Securities will be issued under an Indenture 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:
1. 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.
2. 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 the Maturity
Payment Amount and notify the Trustee of its determination. The Calculation
Agent shall also be responsible for (a) the determination of the Level of the
Underlying Basket on each Calculation Date, (b) the determination of the Average
Level of the Underlying Basket, (c) determining if any adjustments to the
Underlying Basket and/or the Multipliers should be made and (d) whether a Market
Disruption Event has occurred. The Calculation Agent shall notify the Trustee of
any such adjustment or if a Market Disruption Event has occurred. In addition,
the Calculation Agent shall provide information to the American Stock Exchange
that is necessary for the AMEX's daily calculation and dissemination of the
level of the Underlying Basket if the AMEX is unable to obtain such information.
Annex A hereto sets forth the procedures the Calculation Agent will use to
determine the information described in this Section 2.
3. 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.
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4. 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.
5. 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:
(i) in acting under this Agreement, the Calculation Agent is acting
solely as an independent expert and not as agent 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;
(ii) 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;
(iii) the Calculation Agent shall be obliged to perform only such
duties as are set out specifically herein and any duties necessarily
incidental thereto;
(iv) 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
(v) the Calculation Agent shall incur no liability hereunder except
for loss sustained by reason of its gross negligence or wilful misconduct.
6. 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 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.
(b) 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
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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.
(c) 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.
(d) 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.
7. CERTAIN DEFINITIONS. Terms not otherwise defined herein or in Annex
A hereto are used herein as defined in the Indenture or the Securities.
8. 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.
9. 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 Business Days), (a) in the case of the
Company, to it at Three World Financial Center, New York, New York 10285
(facsimile: (212) 526-7603) (telephone: (212) 526-0511), Attention: Treasurer,
with copies to (i) 101 Hudson Street, Jersey City, New Jersey 07302 (facsimile:
(201) 524-5451) (telephone: (201) 524-4174), Attention: Treasurer, (ii) One
World Financial Center, New York, New York 10281 (facsimile: (646) 836-0627)
(telephone: (646) 836-2150), Attention: Corporate Secretary and (iii) 101 Hudson
Street, Jersey City, NJ 07302 (facsimile: (201) 524-4940) (telephone: (201)
524-5640), Attention: Corporate Secretary, (b) in the case of the Calculation
Agent, to it at Three World Financial Center, 200 Vesey Street, New York, New
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York 10285-0600 (facsimile: (212) 526-2755) (telephone: (212) 526-0900),
Attention: Equity Derivatives Trading, with a copy to 101 Hudson Street, Jersey
City, New Jersey 07302 (facsimile: (201) 524-5451) (telephone: (201) 524-2000),
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.
10. GOVERNING LAW. This Agreement shall be governed by and continued in
accordance with the laws of the State of New York.
11. 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.
12. 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.
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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: /s/ Barrett DiPaolo
------------------------------
Name: Barrett DiPaolo
Title: Vice President
LEHMAN BROTHERS INC.,
as Calculation Agent
By: /s/ Barrett DiPaolo
------------------------------
Name: Barrett DiPaolo
Title: Vice President
<Page>
ANNEX A
1. THE UNDERLYING BASKET.
The Prudential Securities Equity Research Department has selected a
portfolio of twenty publicly traded common stocks and other equity securities
that it believes to be an attractive investment over the term of the notes (the
"UNDERLYING BASKET").
The Underlying Basket represents an initially equally-weighted
portfolio of the Underlying Equity Securities, as adjusted by certain
extraordinary corporate events involving the issuers of the Underlying Equity
Securities as described herein. Except as set forth below, the Underlying Equity
Securities in the Underlying Basket shall remain constant for the term of the
Securities.
2. DETERMINATION OF THE MATURITY PAYMENT AMOUNT.
The Calculation Agent shall determine the Level of the Underlying
Basket on each Calculation Date, the Average Level of the Underlying Basket and
the Maturity Payment Amount payable for each Security.
The amount payable at Stated Maturity for each $1,000 principal amount
of Securities (the "MATURITY PAYMENT AMOUNT") shall equal the greater of (a)
$1,000 and (b) the Alternative Redemption Amount.
3. MULTIPLIERS.
The Multiplier relating to each Underlying Equity Security is the
number of shares or other units (including ADRs) (or fractional share or other
unit expressed as a decimal) of such Underlying Equity Security included in the
Underlying Basket. The initial Multipliers for the Underlying Equity Securities
are set forth below:
<Table>
<Caption>
UNDERLYING EQUITY SECURITY INITIAL MULTIPLIER (NUMBER OF SHARES)
-------------------------- -------------------------------------
Abbott Laboratories 0.1032
Aetna Inc. 0.1838
American Home Products Corporation 0.0892
Amgen Inc. 0.0885
Baxter International Inc. 0.0973
Bristol-Myers Squibb Company 0.0959
Cardinal Health, Inc. 0.0717
Eli Lilly and Company 0.0648
Forest Laboratories, Inc. 0.0726
Genentech, Inc. 0.1236
Genzyme Corporation-- General Division 0.1126
Gilead Sciences, Inc. 0.0955
IMS Health Incorporated 0.1961
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<Caption>
Johnson & Johnson 0.0944
MedImmune, Inc. 0.1513
Medtronic, Inc. 0.1214
Merck & Co., Inc. 0.0801
Pfizer Inc. 0.1352
Serono S.A. (ADRs) 0.2577
WellPoint Health Networks, Inc. 0.0490
</Table>
The Multiplier with respect to each Underlying Equity Security shall remain
constant for the term of the notes unless adjusted for certain extraordinary
corporate events as described below. Each Multiplier shall be rounded at the
Calculation Agent's discretion.
4. ADJUSTMENTS TO THE MULTIPLIERS AND THE UNDERLYING BASKET.
Adjustments to a Multiplier and the Underlying Basket shall be made in
the following circumstances. For purposes of these adjustments, except as noted
below, American Depository Receipts ("ADRS") are treated like common stock if a
comparable adjustment to the foreign shares underlying the ADRs is made pursuant
to the terms of the depository agreement for the ADRs or if the holders of ADRs
are entitled to receive property in respect of the underlying foreign share.
(a) If an Underlying Equity Security is subject to a stock
split or reverse stock split, then once the split has become effective,
the Multiplier relating to the Underlying Equity Security shall be
adjusted. The Multiplier shall be adjusted to equal the product of the
number of shares outstanding of the Underlying Equity Security after
the split with respect to each share of such Underlying Equity Security
immediately prior to effectiveness of the split and the prior
Multiplier.
(b) If an Underlying Equity Security is subject to an
extraordinary stock dividend or extraordinary stock distribution that
is given equally to all holders of shares, then once the Underlying
Equity Security is trading ex-dividend, the Multiplier for such
Underlying Equity Security shall be increased by the product of the
number of shares of such Underlying Equity Security issued with respect
to one share of such Underlying Equity Security and the prior
Multiplier.
(c) If the issuer of an Underlying Equity Security, or if an
Underlying Equity Security is an ADR, the foreign issuer of the
underlying foreign share is being liquidated or dissolved or is subject
to a proceeding under any applicable bankruptcy, insolvency or other
similar law, such Underlying Equity Security shall continue to be
included in the Underlying Basket so long as the primary exchange,
trading system or market is reporting a market price for the Underlying
Equity Security. If a market price, including a price on a bulletin
board service, is no longer available for an Underlying Equity
Security, then the value of the Underlying Equity Security shall equal
zero for so long as no market price is available, and no attempt shall
be made to find a replacement stock or increase the level of the
Underlying Basket to compensate for the deletion of such Underlying
Equity Security.
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(d) If the issuer of an Underlying Equity Security, or if an
Underlying Equity Security is an ADR, the foreign issuer of the
underlying foreign share, has been subject to a merger or consolidation
and is not the surviving entity and holders of the Underlying Equity
Security are entitled to receive cash, securities, other property or a
combination thereof in exchange for the Underlying Equity Security,
then the following shall be included in the Underlying Basket:
(i) To the extent cash is received, the Underlying Basket
shall include the amount of the cash consideration at the time holders
are entitled to receive the cash consideration (the "M&A CASH
COMPONENT"), plus accrued interest. Interest shall accrue beginning the
first London Business Day after the day that holders are entitled to
receive the cash consideration until the Stated Maturity (the "M&A CASH
COMPONENT INTEREST ACCRUAL PERIOD"). Interest shall accrue on the M&A
Cash Component at a rate equal to the London Interbank Offered Rate
("LIBOR") with a term corresponding to the M&A Cash Component Interest
Accrual Period.
(ii) To the extent that equity securities that are traded or
listed on an exchange, trading system or market are received, once the
exchange for the new securities has become effective, the former
Underlying Equity Security shall be removed from the Underlying Basket
and the new security shall be added to the Underlying Basket as a new
Underlying Equity Security. The Multiplier for the new Underlying
Equity Security shall equal the product of the last value of the
Multiplier of the original Underlying Equity Security and the number of
securities of the new Underlying Equity Security exchanged with respect
to one share of the original Underlying Equity Security.
(iii) To the extent that equity securities that are not traded
or listed on an exchange, trading system or market or non-equity
securities or other property (other than cash) are received, the
Calculation Agent shall determine the "Fair Market Value" of the
securities or other property received based on the Average Execution
Price. The Underlying Basket shall include an amount of cash equal to
the product of the Multiplier of the Underlying Equity Security and the
Fair Market Value (the "M&A SALE COMPONENT"). The Underlying Basket
shall also include accrued interest on the M&A Sale Component. Interest
shall accrue beginning the first London Business Day after the day that
an affiliate of Holdings sells the securities or other property used to
hedge Holdings' obligations under the Securities until the Stated
Maturity (the "M&A SALE COMPONENT INTEREST ACCRUAL PERIOD"). Interest
shall accrue at a rate equal to LIBOR with a term corresponding to the
M&A Sale Component Interest Accrual Period.
(e) If all of an Underlying Equity Security of an issuer is
converted into or exchanged for the same or a different number of
shares of any class or classes of common stock other than the
Underlying Equity Security, whether by capital reorganization,
recapitalization or reclassification or otherwise, then, once the
conversion has become effective, the former Underlying Equity Security
shall be removed from the Underlying Basket and the new common stock
shall be added to the Underlying Basket as a new Underlying Equity
Security. The Multiplier for each new Underlying Equity Security
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shall equal the product of the last value of the Multiplier of the
original Underlying Equity Security and the number of shares of the new
Underlying Equity Security issued with respect to one share of the
original Underlying Equity Security.
(f) If the issuer of an Underlying Equity Security issues to
all of its shareholders common stock or another equity security that is
traded or listed on an exchange, trading system or market of an issuer
other than itself, then the new common stock or other equity security
shall be added to the Underlying Basket as a new Underlying Equity
Security. The multiplier for the new Underlying Equity Security shall
equal the product of the last value of the Multiplier with respect to
the original Underlying Equity Security and the number of shares of the
new Underlying Equity Security with respect to one share of the
original Underlying Equity Security.
(g) If an ADR is no longer listed or admitted to trading on a
United States securities exchange or trading system registered under
the Securities Exchange Act of 1934 or is no longer a security quoted
on the Nasdaq, then the foreign share underlying the ADR shall be
deemed added to the Underlying Basket as a new Underlying Equity
Security. The initial Multiplier for that new Underlying Equity
Security shall equal the last value of the Multiplier for the ADR
multiplied by the number of underlying foreign shares represented by a
single ADR.
(h) If an Underlying Equity Security is subject to an
extraordinary dividend or an extraordinary distribution, including upon
liquidation or dissolution, of cash, equity securities that are not
traded or listed on an exchange, trading system or market, non-equity
securities or other property of any kind which is received equally by
all holders of such Underlying Equity Security, then the Underlying
Basket shall include the following:
(i) To the extent cash is entitled to be received, the
Underlying Basket shall include on each day after the time that the
Underlying Equity Security trades ex-dividend until the date the cash
consideration is entitled to be received, the present value of the cash
to be received, discounted at a rate equal to LIBOR, with a term
beginning that day and ending on the date that the cash is entitled to
be received (the "PV EXTRAORDINARY CASH COMPONENT"). When the cash
consideration is received, the PV Extraordinary Cash Component will be
deleted from the Underlying Basket and the Underlying Basket shall
include the amount of the cash consideration (the "EXTRAORDINARY CASH
COMPONENT"), plus accrued interest. Interest shall accrue on the
Extraordinary Cash Component beginning the first London Business Day
after the day that holders are entitled to receive the Extraordinary
Cash Component until the Stated Maturity (the "EXTRAORDINARY CASH
COMPONENT INTEREST ACCRUAL PERIOD"). Interest shall accrue at a rate
equal to LIBOR with a term corresponding to the Extraordinary Cash
Component Interest Accrual Period.
(ii) To the extent that equity securities that are not traded
or listed on an exchange, trading system or market or non-equity
securities or other property (other than cash) is received, the
Calculation Agent shall determine the fair market value of the
securities or other property received based on the Closing Price and
the Underlying Basket shall include an amount of cash equal to the
product of the Multiplier of the
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Underlying Equity Security and the fair market value (the
"EXTRAORDINARY SALE COMPONENT"). The Underlying Basket shall also
include accrued interest on the Extraordinary Sale Component. Interest
shall accrue beginning the first London Business Day after the day that
an affiliate of Holdings sells the securities or other property used to
hedge Holdings' obligations under the Securities until the Stated
Maturity (the "EXTRAORDINARY SALE COMPONENT INTEREST ACCRUAL PERIOD").
Interest shall accrue at a rate equal to LIBOR with a term
corresponding to Extraordinary Sale Component Interest Accrual Period.
The payment of an ordinary cash dividend by an issuer of an Underlying
Equity Security from current income or retained earnings shall not result in an
adjustment to the Multiplier.
No adjustments of any Multiplier of an Underlying Equity Security shall
be required unless the adjustment would require a change of at least 0.1% in the
Multiplier then in effect. The Multiplier resulting from any of the adjustments
specified above shall be rounded at the Calculation Agent's discretion.
5. DETERMINATION OF DAILY LEVEL OF THE UNDERLYING BASKET.
If the AMEX is unable to obtain certain information necessary for its
daily calculation and dissemination of the level of the Underlying Basket, the
Calculation Agent shall provide the necessary information as follows below.
In order to determine the value of an Underlying Equity Security that
is listed on a non-United States exchange, trading system or market (the
"FOREIGN VALUE"), the Calculation Agent shall, once per Trading Day, value the
Underlying Equity Security using the most recent sales price of such Underlying
Equity Security available from the primary exchange, trading system or market in
the Underlying Equity Security's home market, quoted as of the Close of Trading.
In order to convert the Foreign Value into U.S. dollars, the
Calculation Agent shall use the Official W.M. Reuters Spot Closing Rate. If
there are several quotes for the Official W.M. Reuters Spot Closing Rate, the
first quoted rate starting at 11:00 a.m. shall be the rate used. If there is no
such Official W.M. Reuters Spot Closing Rate for a country's currency at 11:00
a.m., New York City time, the Foreign Value shall be determined using the last
available U.S. dollar cross-rate quote before 11:00 a.m., New York City time.
In order to determine the value of an Underlying Equity Security that
is listed or quoted on a bulletin board service, the Calculation Agent shall use
the average of the midpoint of the bid and ask prices provided by three market
makers in that Underlying Equity Security. The Calculation Agent shall obtain
the bid and ask prices promptly upon the opening of trading on that Trading Day
at 9:30 a.m., New York City time or at such other time as the Calculation Agent
determines.
The Calculation Agent shall provide AMEX with the value of the M&A Cash
Component, the M&A Sale Component, the PV Extraordinary Cash Component, the
Extraordinary Cash Component and the Extraordinary Sale Component as soon as
such values
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are available. The Calculation Agent shall, once per Trading Day, provide AMEX
with the interest accrued on the Cash Included in the Underlying Basket.
6. DEFINITIONS.
Set forth below are the definitions of the terms used in this
Agreement and in this Annex A.
"ADRS" shall have the meaning assigned thereto in paragraph 4.
"AGREEMENT" shall have the meaning set forth in the preamble to
this Agreement.
"ALTERNATIVE REDEMPTION AMOUNT" shall mean the product of (a) the
Issue Price and (b) the Average Level of the Underlying Basket divided by 100.
"AMEX" shall mean the American Stock Exchange.
"AVERAGE EXECUTION PRICE" shall mean, for a security or other
property, the average execution price that an affiliate of the Company receives
or pays for such security or property, as the case may be, to hedge the
Company's obligations under the Securities.
"AVERAGE LEVEL OF THE UNDERLYING BASKET" shall mean the arithmetic
average of the Level of the Underlying Basket on each of the Calculation Dates.
"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,
Nasdaq or AMEX 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 AGENT" shall mean the person that has entered into an
agreement with the Company providing for, among other things, the determination
of the Level of the Underlying Basket and 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.
"CALCULATION DATE" shall mean each of December 25, 2001, March 25,
2002, June 25, 2002, September 25, 2002, December 25, 2002, March 25, 2003, June
25, 2003, September 25, 2003, December 25, 2003, March 25, 2004, June 25, 2004,
September 25, 2004, December 25, 2004, March 25, 2005, June 25, 2005, September
25, 2005, December 25, 2005, March 25, 2006 and June 25, 2006; PROVIDED, that if
any of these dates is not a Business Day, the Calculation Date for such
quarterly period shall be the next succeeding Business Day.
"CASH INCLUDED IN THE UNDERLYING BASKET" shall mean the M&A Cash
Component, the M&A Sale Component, the PV Extraordinary Cash Component, the
Extraordinary Cash Component, the Extraordinary Sale Component, and interest
accrued thereon as provided for herein.
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"CLOSE OF TRADING" shall mean 4:00 p.m., New York City time.
"CLOSING PRICE", with respect to each Underlying Equity Security
on any Calculation Date, means the following, determined by the Calculation
Agent based on information reasonably available to it:
(i) If the Underlying Equity Security is listed on a United States
national securities exchange or trading system or is a Nasdaq security,
the last reported sale price at the Close of Trading, regular way, on such
day, on the primary securities exchange or trading system registered under
the Securities Exchange Act of 1934 on which such Underlying Equity
Security is listed or admitted to trading or on Nasdaq, as the case may
be.
(ii) If the Underlying Equity Security is listed on a non-United
States securities exchange, trading system (other than a bulletin board)
or market, the last reported sale price at the Close of Trading, regular
way, on such day, on the primary exchange, trading system or market on
which such Underlying Equity Security is listed or admitted to trading, as
the case may be. The Closing Price shall then be converted into U.S.
dollars using the Official W.M. Reuters Spot Closing Rate.
(iii) If the Underlying Equity Security is not listed on a
national securities exchange or trading system or is not a Nasdaq
security, and is listed or traded on a bulletin board, the Average
Execution Price of the Underlying Equity Security. If such Underlying
Equity Security is listed or traded on a non-United States bulletin board,
the Closing Price will then be converted into U.S. dollars using the
Official W.M. Reuters Spot Closing Rate.
(iv) If a Market Disruption Event has occurred for the Underlying
Equity Security on such Calculation Date, the Closing Price for such
Underlying Equity Security shall initially be determined using the Closing
Price for such Underlying Equity Security on the next preceding Trading
Day on which a Market Disruption Event did not occur. Once the Market
Disruption Event has ceased, the Closing Price of such Underlying Equity
Security shall then be adjusted to equal the Average Execution Price of
the Underlying Equity Security.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement.
"EXTRAORDINARY CASH COMPONENT" shall have the meaning assigned
thereto in paragraph 4(h)(i).
"EXTRAORDINARY CASH COMPONENT INTEREST ACCRUAL PERIOD" shall have
the meaning assigned thereto in paragraph 4(h)(i).
"EXTRAORDINARY SALE COMPONENT" shall have the meaning assigned
thereto in paragraph 4(h)(ii).
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"EXTRAORDINARY SALE COMPONENT INTEREST ACCRUAL PERIOD" shall have
the meaning assigned thereto in paragraph 4(h)(ii).
"FOREIGN VALUE" shall have the meaning assigned thereto in
paragraph 5.
"INDENTURE" shall have the meaning set forth in the preamble to
this Agreement.
"ISSUE PRICE" shall mean $1,000.
"LEVEL OF THE UNDERLYING BASKET", when used with respect to any
Calculation Date, shall equal the sum of (a) the sum of the products of the
Closing Prices and the applicable Multipliers for each Underlying Equity
Security and (b) any Cash Included in the Underlying Basket on such Calculation
Date.
"M&A CASH COMPONENT" shall have the meaning assigned thereto in
paragraph 4(d)(i).
"M&A CASH COMPONENT INTEREST ACCRUAL PERIOD" shall have the
meaning assigned thereto in paragraph 4(d)(i).
"M&A SALE COMPONENT" shall have the meaning assigned thereto in
paragraph 4(d)(ii).
"M&A SALE COMPONENT INTEREST ACCRUAL PERIOD" shall have the
meaning assigned thereto in paragraph 4(d)(iii).
"MARKET DISRUPTION EVENT", with respect to an Underlying Equity
Security, means any of the following events as determined by the Calculation
Agent:
(i) A suspension, absence or material limitation of trading of
such Underlying Equity Security has occurred on that day, in each case,
for more than two hours of trading or during the one-half hour period
preceding the Close of Trading on the primary organized U.S. exchange or
trading system on which such Underlying Equity Security is traded or, in
the case of an Underlying Equity Security not listed or quoted in the
United States, on the primary exchange, trading system or market for such
Underlying Equity 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 or as a replacement
for Rule 80B, may be considered material. Notwithstanding the first
sentence of this paragraph, a Market Disruption Event for an Underlying
Equity Security traded on a bulletin board means a suspension, absence or
material limitation of trading of such Underlying Equity Security for more
than two hours or during the one hour period preceding the Close of
Trading.
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(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 such Underlying Equity Security, whether by reason of movements
in price exceeding levels permitted by an exchange, trading system or
market on which options contracts related to such Underlying Equity
Security are traded or otherwise.
(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 such Underlying Equity Security or in respect of
options contracts related to such Underlying Equity Security, in each case
traded on any major U.S. exchange or trading system or, in the case of
Underlying Equity Securities of a non-U.S. issuer, 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 an
Underlying Equity Security 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.
"MATURITY PAYMENT AMOUNT" shall have the meaning assigned thereto
in paragraph 2 of this Annex A.
"MULTIPLIER" shall have the meaning assigned thereto in
paragraph 3.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
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"NYSE" shall mean the New York Stock Exchange.
"OFFICIAL W.M. REUTERS SPOT CLOSING RATE" shall mean the closing
spot rate published on Reuters page "WMRA" relevant for an Underlying Equity
Security.
"PV EXTRAORDINARY CASH COMPONENT" shall have the meaning assigned
thereto in paragraph 4(h)(i).
"SECURITIES" shall have the meaning assigned thereto in the
preamble to this Agreement.
"STATED MATURITY DATE" shall mean July 2, 2006, or if July 2, 2006
is not a Business Day, the next succeeding Business Day; PROVIDED, that if a
Market Disruption Event with respect to one or more Underlying Equity Securities
occurs on the Valuation Date, then the Stated Maturity Date shall be five
Business Days after the date on which an affiliate of the Company has completed
the sale of each such common stock or other equity security used to hedge the
Company's obligations under the Securities.
"TRADING DAY" shall mean a day on which trading generally is
conducted on the NYSE, AMEX and Nasdaq and in the over-the-counter market for
equity securities, as determined by the Calculation Agent.
"TRUSTEE" shall have the meaning set forth in the preamble to this
Agreement.
"UNDERLYING BASKET" shall have the meaning assigned thereto in
paragraph 1.
"UNDERLYING EQUITY SECURITIES" shall mean the securities included
in the Underlying Basket from time to time and shall initially be the following
twenty common stocks or other equity securities (as identified by trading
symbol): Abbott Laboratories (ABT), Aetna Inc. (AET), American Home Products
Corporation (AHP), Amgen Inc. (AMGN), Baxter International Inc. (BAX),
Bristol-Myers Squibb Company (BMY), Cardinal Health, Inc. (CAH), Eli Lilly and
Company (LLY), Forest Laboratories, Inc. (FRX), Genentech, Inc. (DNA), Genzyme
Corporation--General Division (GENZ), Gilead Sciences, Inc. (GILD), IMS Health
Incorporated (RX), Johnson & Johnson (JNJ), MedImmune, Inc. (MEDI), Medtronic,
Inc. (MDT), Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), Serono S.A. (ADR's)
(SRA) and WellPoint Health Networks, Inc. (WLP). The Underlying Equity
Securities shall only be adjusted by the Calculation Agent pursuant to the
Agreement for certain extraordinary corporate events.
"VALUATION DATE" shall mean June 25, 2006; PROVIDED, that if such
date is not a Business Day, the Valuation Date shall be the next succeeding
Business Day.