CALCULATION AGENCY AGREEMENT
CALCULATION AGENCY AGREEMENT, dated as of August 5, 2002 (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
$55,600,000 aggregate principal amount of Dow Jones Industrial Average(SM)
SUNS(R), 112.5% Minimum Redemption PrincipalPlus Stock Upside Note Securities(R)
Due August 5, 2007* (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
such Maturity Payment Amount and notify the Trustee of its determination. The
Calculation Agent shall also be responsible for (a) the determination of the
Closing Level on each Measurement Date, (b) the determination of the Capped
Quarterly Returns for each Measurement Date, (c) the determination of the Equity
Bonus, (d) the determination of the Successor Index if publication of the Index
is discontinued and (e) the determination of 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
- --------
* "Dow Jones" and "Dow Jones Industrial Average" are servicemarks of Dow
Jones & Company, Inc. and have been licensed for use by Lehman Brothers
Holdings Inc. The Securities, based on the performance of the Dow Jones
Industrial Average, are not sponsored, endorsed, sold or promoted by Dow
Jones, and Dow Jones makes no representation regarding the advisability of
investing in the Securities.
"SUNS" and "Stock Upside Note Securities" are trademarks of Lehman Brothers
Inc.
2
occurred. 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.
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:
(a) 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;
(b) 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;
(c) the Calculation Agent shall be obliged to perform only
such duties as are set out specifically herein and any duties
necessarily incidental thereto;
(d) 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
(e) 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
3
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 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.
4
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 745 Seventh Avenue, New York, New York 10019 (facsimile: (646)
758-3204) (telephone: (212) 526-7000), Attention: Treasurer, with a copy to 399
Park Avenue, New York, New York 10022 (facsimile: (212) 526-0357) (telephone:
(212) 526-7000), Attention: Corporate Secretary, (b) in the case of the
Calculation Agent, to it at 745 Seventh Avenue, New York, New York 10019
(facsimile: (646) 758-4942) (telephone: (212) 526-7000), 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.
5
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: Karen Corrigan
Title: Vice President
LEHMAN BROTHERS INC.,
as Calculation Agent
By:__________________________
Name: Karen Corrigan
Title: Vice President
ANNEX A
1. The Index.
The Index is the Dow Jones Industrial Average(SM), as calculated by Dow
Jones & Company, Inc. (the "Index").
The Index is a price-weighted index of 30 common stocks chosen by the
editors of The Wall Street Journal as representative of a broad cross-section of
U.S. industry. As of July 29, 2002, the component companies of the Dow Jones
Industrial Average were as follows: 3M Company, Alcoa Inc., American Express
Company, AT&T Corp., The Boeing Company, Caterpillar Inc., Citigroup Inc., The
Coca-Cola Company, E.I. du Pont de Nemours and Company, Eastman Kodak Company,
Exxon Mobil Corporation, General Electric Company, General Motors Corporation,
Hewlett-Packard Company, The Home Depot, Inc., Honeywell International Inc.,
Intel Corporation, International Business Machines Corporation, International
Paper Company, J.P. Morgan Chase & Co., Johnson & Johnson, McDonald's
Corporation, Merck & Co., Inc., Microsoft Corporation, Philip Morris Companies.
Inc., The Procter & Gamble Company, SBC Communications Inc., United Technologies
Corporation, Wal-Mart Stores, Inc. and The Walt Disney Company.
2. Determination of the Maturity Payment Amount.
The Calculation Agent shall determine (i) the Capped Quarterly Returns
for each of the 20 Measurement Periods, (ii) the Equity Bonus 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 sum of (a) $1,125 and (b)
the Equity Bonus.
3. Discontinuance of the Index.
(a) If Dow Jones & Company, Inc. ("Dow Jones") discontinues publication
of the Index and Dow Jones 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 Measurement 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.
(b) Upon any selection by the Calculation Agent of a Successor Index,
the Company shall promptly give notice to the holders of the Securities.
(c) If Dow Jones 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
A-1
computing the Equity Bonus. 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 security most recently comprising the Index on the primary organized U.S.
exchange or trading system.
4. 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 and the Equity Bonus 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).
5. Definitions.
Set forth below are the terms used in the Agreement and in this Annex
A.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"AMEX" shall mean the American Stock Exchange LLC.
"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, the
Nasdaq or the 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 Equity Bonus 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.
A-2
"Capped Quarterly Return", when used with respect to any Measurement
Period, shall mean the lesser of:
(x) Ending Index Level - Starting Index Level ; and
--------------------------------------------
Starting Index Level
(y) 6%.
"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 Dow Jones & Company, Inc. or the publisher of the Successor Index,
as the case may be.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Ending Index Level" shall mean, for any Measurement Period, the
Closing Level on the Measurement Date at the end of that Measurement Period.
"Equity Bonus" shall mean, with respect to each $1,000 principal amount
of Securities, the greater of (i) zero and (ii) the product of:
(1) $1,000; and
(2) the sum of the Capped Quarterly Returns for 20 quarterly
Measurement Periods less 12.5%.
"Indenture" shall have the meaning set forth in the preamble to this
Agreement.
"Index" shall have the meaning assigned thereto in Section 1 of this
Annex A.
"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 those stocks are traded or, if 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 or as replacement for Rule 80B, may be considered material.
Notwithstanding the first sentence of this paragraph, a Market Disruption
Event for a security traded on a bulletin
A-3
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 those options contracts 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
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 that 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 set forth in Section 2
of this Annex A.
A-4
"Measurement Date" shall mean November 1, 2002, February 1, 2003, May
1, 2003, August 1, 2003, November 1, 2003, February 1, 2004, May 1, 2004, August
1, 2004, November 1, 2004, February 1, 2005, May 1, 2005, August 1, 2005,
November 1, 2005, February 1, 2006, May 1, 2006, August 1, 2006, November 1,
2006, February 1, 2007, May 1, 2007 and August 1, 2007, or if such day is not a
Business Day, the next Business Day.
"Measurement Period" shall mean (a) the period between July 31, 2002
and the first Measurement Date and (b) the period between any two consecutive
Measurement Dates.
"Nasdaq" shall mean The Nasdaq Stock Market, Inc.
"NYSE" shall mean The New York Stock Exchange, Inc.
"Starting Index Level" shall mean (a) when used with respect to the
first Measurement Period, 8736.59, and (b) when used with respect to any other
Measurement Period, the Ending Index Level for the immediately preceding
Measurement Period.
"Stated Maturity" shall mean August 5, 2007, or if a Market Disruption
Event occurs on August 1, 2007, on the third Business Day after such Market
Disruption event ceases.
"Successor Index" shall mean such substitute index as the Calculation
Agent may select pursuant to the Calculation Agency Agreement upon
discontinuance of the Index.
"Trustee" shall have the meaning set forth in the preamble to this
Agreement.
A-5