CALCULATION AGENCY AGREEMENT

     CALCULATION AGENCY AGREEMENT, dated as of August 27, 2003 (the
"Agreement"), between Lehman Brothers Holdings Inc. (the "Company") and Lehman
Brothers Inc., as Calculation Agent.

     WHEREAS, the Company proposes to issue and sell its Notes, Performance
Linked to the Value of a Common Stock, a Stock Index, a Basket of Common Stocks
or a Basket of Stock Indices (the "Securities") from time to time;

     WHEREAS, the terms of each series of the Securities will be described in a
pricing supplement (each such pricing supplement, a "Pricing Supplement") and a
prospectus supplement, dated August 20, 2003 (the "Synthetic Convertible
Prospectus Supplement"), to the prospectus dated June 14, 2001, as supplemented
by a prospectus supplement dated June 14, 2001;

     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 Redemption Payment Amount and the
     Optional Repurchase Payment Amount, the Calculation Agent shall determine
     such Payment Amount and notify the Trustee of its determination. The
     Calculation Agent shall also be responsible for (a) the determination of
     the Settlement Value, (b) in the case of Securities whose performance is
     linked to a common stock or a basket of common stocks, the Closing Price of
     each Settlement Value Security on any date that the Settlement Value is to
     be determined, (c) in the case of Securities whose performance is linked to
     a common stock or a basket of common stocks, the Multipliers for each of
     the Settlement Value Securities, (d) in the case of Securities whose
     performance is linked to a common stock or a basket of common stocks,
     whether adjustments to the Multipliers should be made, (e) in the case of
     Securities whose performance is linked to an index or a basket of




                                                                               2

     indices, the Closing Level of each Relevant Index on any date that the
     Settlement Value is to be determined, (f) in the case of Securities whose
     performance is linked to an index or a basket of indices, whether
     adjustment to any Relevant Index should be made, (g) in the case of
     Securities whose performance is linked to an index or a basket of indices,
     the determination of the Successor Index if publication of a Relevant Index
     is discontinued, (h) whether a Market Disruption Event has occurred, (i) if
     the Company elects the Stock Settlement Option, the number of shares of the
     Index Stock (and of any other equity securities used in the calculation of
     the Settlement Value), and the value of any fractional shares thereof,
     equal to the Maturity Payment Amount, (j) the Amortized Principal Amount,
     if applicable and (k) the amount payable upon repayment of the Securities
     on any Optional Reset Date, if applicable. The Calculation Agent shall
     notify the Trustee of all such determinations and any such adjustment or if
     a Market Disruption Event with respect to a series of Securities has
     occurred. Annex A hereto sets forth the procedures the Calculation Agent
     will use to determine the information described in this Section 2 with
     respect to a series of Securities.

          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


                                                                               3

     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 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


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     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 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.


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     IN WITNESS WHEREOF, this Agreement has been entered into as of the day and
year first above written.


                                       LEHMAN BROTHERS HOLDINGS INC.

                                       By:
                                           -------------------------------------
                                           Name:  Barrett S. DiPaolo
                                           Title: Vice President


                                       LEHMAN BROTHERS INC.,
                                         as Calculation Agent

                                       By:
                                           -------------------------------------
                                           Name:  Barrett S. DiPaolo
                                           Title: Senior Vice President


                                                                               6

                                     ANNEX A

          1. The Settlement Value Securities.

     In the case of Securities whose performance is linked to a common stock or
a basket of common stocks, the "Settlement Value Securities" shall mean the
securities included in the Settlement Value from time to time and shall
initially be (i) in the case of Securities whose performance is linked to a
common stock, the Index Stock specified in the relevant Pricing Supplement or
(ii) in the case of Securities whose performance is linked to a basket of common
stocks, the common stocks in the basket specified in the relevant Pricing
Supplement, unless adjusted for certain extraordinary corporate events as
described herein.

          2. The Relevant Indices

     In the case of Securities whose performance is linked to a stock index or a
basket of stock indices, the "Relevant Indices" shall mean each of the indices
specified in the relevant Pricing Supplement (each, a "Relevant Index").

          3. Determination of the Payment Amount.

     The Calculation Agent shall determine the 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 (i) the greater of (a)
$1,000 and (b) the Alternative Redemption Amount and (ii) any accrued but unpaid
interest through but excluding the Stated Maturity Date. The amount payable upon
a Redemption of each $1,000 principal amount of Securities (the "Redemption
Payment Amount") shall equal (i) the greater of (a) $1,000 and (b) the
Alternative Redemption Amount and (ii) any accrued but unpaid interest through
but excluding the Non-Delaying Event Redemption Date or, if a Delaying Event
occurs, through the Delaying Event Redemption Date. The amount payable upon a
Repurchase of each $1,000 principal amount of Securities (the "Optional
Repurchase Payment Amount") shall equal (i) the Alternative Redemption Amount
and (ii) any accrued but unpaid interest through the Non-Delaying Event
Repurchase Date or, if a Delaying Event occurs, through but excluding the
Delaying Event Repurchase Date.

     The Settlement Value used to calculate the Alternative Redemption Amount
shall be determined by the Calculation Agent.

          4. Multipliers.

     "Multiplier" shall mean, with respect to each Settlement Value Security,
the number of shares or other units (including any fractional share or other
unit expressed as a decimal) of the Settlement Value Security included in the
calculation of the Settlement Value. The initial Multipliers relating to the
Index Stock or the common stocks included in the basket, as the case may be,
initially the only Settlement Value Securities, shall be specified in the
relevant Pricing Supplement. The initial Multiplier for any other security which
may subsequently become a Settlement Value Security shall be the number of
shares or other units of such security which are to be included in the
calculation of the Settlement Value at the time the security becomes a
Settlement Value Security. The Multiplier with respect to any Settlement Value
Security shall remain constant unless adjusted for certain extraordinary
corporate events as described below.


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          5. Adjustments to the Multipliers and the Settlement Value Securities.

     Adjustments to a Multiplier and the Settlement Value Securities shall be
made in the circumstances described below. For purposes of the following
adjustments, except as noted below, American Depositary Receipts ("ADRs") shall
be treated like common stock if a comparable adjustment to the foreign shares
underlying the ADRs is made pursuant to the terms of the depositary arrangement
for the ADRs or if holders of ADRs are entitled to receive property in respect
of the underlying foreign share.

          (a) If a Settlement Value Security is subject to a stock split or
reverse stock split, then once the split has become effective, the Multiplier
relating to such Settlement Value Security shall be adjusted. The Multiplier
shall be adjusted to equal the product of the number of shares outstanding of
the Settlement Value Security after the split with respect to each share of such
Settlement Value Security immediately prior to effectiveness of the split and
the prior Multiplier.

          (b) If a Settlement Value Security is subject to an extraordinary
stock dividend or extraordinary stock distribution that is given equally to all
holders of shares, then once the Settlement Value Security is trading
ex-dividend, the Multiplier for such Settlement Value Security shall be
increased by the product of the number of shares of such Settlement Value
Security issued with respect to one share of such Settlement Value Security and
the prior Multiplier.

          (c) If the issuer of a Settlement Value Security, or if a Settlement
Value 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 Settlement Value Security
shall continue to be included in the calculation of the Settlement Value so long
as the primary exchange, quotation system or market is reporting a market price
for the Settlement Value Security. If a market price, including a price on a
bulletin board service, is no longer available for a Settlement Value Security,
then the value of the Settlement Value 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 Settlement Value to compensate for the deletion of such
Settlement Value Security.

          (d) If the issuer of a Settlement Value Security, or if a Settlement
Value 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 Settlement Value Security are entitled to receive cash,
securities, other property or a combination thereof in exchange for the
Settlement Value Security, then the following shall be included as "Settlement
Property":

               (i) To the extent cash is received, the Settlement Property shall
     include an amount of cash equal to the product of (1) the cash
     consideration per share of Settlement Value Security, (2) the Multiplier
     for the Settlement Value Security and (3) the number of Securities
     outstanding, each determined as of the time the holders of the Settlement
     Value Security are entitled to receive the cash consideration (the "M&A
     Cash Component"), plus accrued interest. If the cash received is
     denominated in a foreign currency, such cash shall then be converted into
     U.S. dollars using the Official W.M. Reuters Spot Closing Rate at 11:00
     a.m., New York City time. If there are several quotes for the Official W.M.
     Reuters Spot Closing Rate at that time, 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


                                                                               8

     Closing Rate for a country's currency at 11:00 a.m., New York City time,
     the foreign currency-denominated cash shall be converted into U.S. dollars
     using the last available U.S. dollar cross-rate quote before 11:00 a.m.,
     New York City time. Interest shall accrue beginning the first London
     Business Day after the day that holders of the Settlement Value Security
     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, quotation system or market are received, once the
     exchange for the new securities has become effective, the former Settlement
     Value Security shall be removed from the calculation of the Settlement
     Value and the Settlement Property will include a number of shares of the
     new security per outstanding Security equal to the Multiplier for the new
     security as a new Settlement Value Security. The Multiplier for the new
     Settlement Value Security shall equal the product of the last value of the
     Multiplier of the original Settlement Value Security and the number of
     securities of the new Settlement Value Security exchanged with respect to
     one share of the original Settlement Value Security.

              (iii) To the extent that equity securities that are not traded or
     listed on an exchange, quotation 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 per share of Settlement Value Security based on the Average
     Execution Price. The Settlement Property shall include an amount of cash
     equal to the product of (1) the Fair Market Value per share of Settlement
     Value Security , (2) the Multiplier for the Settlement Value Security and
     (3) the number of Securities outstanding (the "M&A Sale Component"). The
     Multiplier and the number of Securities outstanding will be determined as
     of the time holders of the Settlement Value Security are entitled to
     receive the securities or other property. The Settlement Value 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 the shares of a Settlement Value Security of an issuer
are converted into or exchanged for the same or a different number of shares of
any class or classes of common stock other than such Settlement Value Security,
whether by capital reorganization, recapitalization or reclassification or
otherwise, then, once the conversion has become effective, the former Settlement
Value Security shall be removed from the calculation of the Settlement Value and
the Settlement Property will include a number of shares of the new common stock
per outstanding Security equal to the Multiplier for the new common stock as a
new Settlement Value Security. The Multiplier for each new Settlement Value
Security shall equal the product of the last value of the Multiplier of the
original Settlement Value Security and the number of shares of the new
Settlement Value Security issued with respect to one share of the original
Settlement Value Security.


                                                                               9


          (f) If the issuer of a Settlement Value Security, or if a Settlement
Value Security is an ADR, the issuer of the underlying foreign share, issues to
all of its shareholders common stock or another equity security that is traded
or listed on an exchange, quotation system or market of an issuer other than
itself, then the Settlement Property shall include a number of shares of the new
common stock per outstanding Security equal to the Multiplier for the new common
stock or other equity security as a new Settlement Value Security. The
Multiplier for the new Settlement Value Security shall equal the product of the
last value of the Multiplier with respect to the original Settlement Value
Security and the number of shares of the new Settlement Value Security with
respect to one share of the original Settlement Value Security.

          (g) If an ADR is no longer listed or admitted to trading on a United
States securities exchange registered under the Securities Exchange Act of 1934
or is no longer a security quoted on The Nasdaq Stock Market, then the ADR shall
be removed from the calculation of the Settlement Value, the foreign share
underlying the ADR shall be deemed to be a new common stock and the Settlement
Property shall include a number of shares of new common stock per outstanding
Security equal to the Multiplier for the new common stock as a new Settlement
Value Security. The initial Multiplier for that new Settlement Value Security
shall equal the product of the last value of the Multiplier with respect to the
original ADR and the number of underlying foreign shares represented by a single
such ADR.

          (h) If a Settlement Value 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, quotation system or market, non-equity securities or other property of
any kind which is received equally by all holders of such Settlement Value
Security, then the Settlement Property shall include the following:

               (i) To the extent cash is entitled to be received, the Settlement
     Property shall include on each day after the time that the Settlement Value
     Security trades ex-dividend until the date the cash consideration is
     entitled to be received, the present value of the cash to be received per
     share of Settlement Value Security multiplied by the Multiplier for the
     Settlement Value Security on such day and by the number of Securities
     outstanding on such day, 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 shall be
     deleted from the Settlement Value and the Settlement Property shall include
     an amount of cash equal to the product of (1) the cash consideration per
     share of Settlement Value Security, (2) the Multiplier for the Settlement
     Value Security and (3) the number of Securities outstanding, each
     determined as of the time the holders of the Settlement Value Security are
     entitled to receive the cash consideration (the "Extraordinary Cash
     Component"), plus accrued interest. If the cash consideration received or
     entitled to be received is denominated in a foreign currency, such cash or
     the present value of such cash, as the case may be, shall be converted into
     U.S. dollars using the Official W.M. Reuters Spot Closing Rate at 11:00
     a.m., New York City time. If there are several quotes for the Official W.M.
     Reuters Spot Closing Rate at that time, 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 currency-denominated cash shall be converted into
     U.S. dollars using the last available U.S. dollar cross-rate quote before
     11:00 a.m., New York City time. Interest shall accrue on the Extraordinary
     Cash Component beginning the first London Business Day after the day that
     holders of the Settlement Value Security are entitled to receive the


                                                                              10


     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, quotation 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 per share of Settlement Value Security based on the Average
     Execution Price and the Settlement Property shall include an amount of cash
     equal to the product of (1) the Fair Market Value per share of Settlement
     Value Security , (2) the Multiplier for the Settlement Value Security and
     (3) the number of Securities outstanding (the "Extraordinary Sale
     Component"). The Multiplier and the number of Securities outstanding will
     be determined as of the time the holders of the Settlement Value Security
     are entitled to receive the securities or other property. The Settlement
     Property 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 the Extraordinary Sale Component Interest Accrual Period.

          (i) If other corporate events occur with respect to such issuer or a
Settlement Value Security, adjustments shall be made which, in the sole judgment
of the Calculation Agent, are appropriate to reflect the economic substance of
such events.

     The payment of an ordinary cash dividend by an issuer of a Settlement Value
Security, or if a Settlement Value Security is an ADR, by a foreign issuer of
the underlying foreign share, from current income or retained earnings shall not
result in an adjustment to the Multiplier.

     No adjustments of any Multiplier of a Settlement Value Security shall be
required unless the adjustment would result in a change of at least .1% (.001)
in the Multiplier then in effect. Adjustments which result in a change of less
than 1% (.001) shall be carried forward and included in the next adjustment, if
any. The Multiplier resulting from any of the adjustments specified above shall
be rounded at the Calculation Agent's discretion.

          6. Discontinuance of a Relevant Index

     In the case of notes whose performance is linked to an index or a basket of
indices, if the publisher of a Relevant Index discontinues publication of such
index and such publisher or another entity publishes a successor or substitute
index (the "Successor Index") that the calculation agent determines, in its good
faith judgment, to be comparable to the discontinued Relevant Index, then the
Calculation Agent shall calculate the Maturity Payment Amount, Redemption
Payment Amount or the Repurchase Payment Amount 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 Closing Level is to be determined for any Relevant
Index.

     Upon any selection by the calculation agent of any successor index, the
Company will promptly give notice to the holders of the notes.


                                                                              11


     If the publisher of a Relevant Index discontinues publication of such index
prior to, and such discontinuance is continuing on, the date any Closing Level
is to be determined for any Relevant Index and the calculation agent determines
that no Successor Index is available at such time, or if the publisher of such
Relevant Index fails to calculate and announce a Closing Level for the Relevant
Index on the date any Closing Level is to be determined, then, on such date, the
Calculation Agent shall determine the index to be used in computing the
Redemption Payment Amount, Repurchase Payment Amount or the Maturity Payment
Amount, as the case may be. The Redemption Payment Amount, Repurchase Payment
Amount and the Maturity Payment Amount shall be computed by the Calculation
Agent in accordance with the formula for and method of calculating the Relevant
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
Relevant Index on the primary organized U.S. exchange or quotation system.

          7. Alteration of Method of Calculating a Relevant Index

     If at any time the method of calculating a Relevant Index or a Successor
Index for such Relevant Index, or the Closing Level thereof, is changed in a
material respect, or if the Relevant Index or a Successor Index for such
Relevant Index is in any other way modified so that such Relevant Index does
not, in the opinion of the Calculation Agent, fairly represent the value of the
Relevant 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 any Closing Level is to be
determined for any Relevant Index, 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 Relevant Index or such
Successor Index, as the case may be, as if such changes or modifications had not
been made, and calculate the Redemption Payment Amount, Repurchase Payment
Amount or the Maturity Payment Amount, as the case may be, with reference to the
Relevant Index or such Successor Index, as adjusted. Accordingly, if the method
of calculating the Relevant 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 (for example, due to a split in the index), then the Calculation Agent
shall adjust such index in order to arrive at a level of the Relevant Index or
such Successor Index as if it had not been modified (for example, if such split
had not occurred).

          8. Definitions.

     Set forth below are the terms used in the Agreement and in this Annex A.

          "ADR" shall mean American Depositary Receipt.

          "Agreement" shall have the meaning set forth in the preamble to this
Agreement.

          "Alternative Redemption Amount" shall mean, per $1,000 Note, the
product of (a) $1,000 and (b) the Settlement Value on the relevant Payment
Determination Date, divided by the Threshold Value.

          "AMEX" shall mean the American Stock Exchange LLC.


                                                                              12


          "Average Execution Price" for a security or other property shall mean
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 Notes.

          "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, and, (a) if the Specified Currency is a Foreign Currency other than
Euros, not a day on which banking institutions are authorized or required by law
to close in the Principal Financial Center of the country issuing the Foreign
Currency and (b) if the Specified Currency is Euros, a day on which the
Trans-European Automated Real-Time Gross Settlement Express Transfer System is
open. "Principal Financial Center" shall mean the capital city of the country
issuing the specified currency. However, for U.S. dollars, Australian dollars,
Canadian dollars and Swiss francs, the Principal Financial Center will be New
York City, Sydney, Toronto and Zurich, respectively.

          "Calculation Agent" shall mean the person that has entered into an
agreement with the Company providing for, among other things, the determination
of the Settlement Value and the 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 Day" shall mean (a) for payment at the Stated Maturity
Date, the Valuation Date, (b) for a payment upon a Repurchase, the date which is
the number of Business Days equal to the Determination Period before the
Non-Delaying Event Repurchase Date or (c) for payment upon a Redemption, the
date the Redemption Notice is given in accordance with the Indenture.

          "Close of Trading" shall mean, in respect of any primary exchange or
quotation system, the scheduled weekday closing time on a day on which the
primary exchange or quotation system is scheduled to be open for trading for its
respective regular trading session, without regard to after hours or any other
trading outside of the regular trading session hours.

          "Closing Level", shall mean, when used with respect to any Relevant
Index on any Payment Determination Date, the official closing level of the
Relevant Index, the Successor Index for the Relevant Index or any security which
is a component of any such index, as the case may be, at the Close of Trading
for such day, as reported by the publisher of such index or the primary exchange
on which any such security then trades, as the case may be.

          "Closing Price" shall mean, for each Settlement Value Security, as
determined by the Calculation Agent based on information reasonably available to
it:

          (i) If the Settlement Value Security is listed on a United States
     national securities exchange or quotation system or is a security quoted on
     Nasdaq, the last reported sale price per share at the Close of Trading,
     regular way, on such day, on the primary securities exchange registered
     under the Securities Exchange Act of 1934 on which such Settlement Value
     Security is listed or admitted to trading or Nasdaq, as the case may be.

          (ii) If the Settlement Value Security is listed or quoted on a
     non-United States securities exchange, quotation 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


                                                                              13

     exchange, quotation system or market on which such Settlement Value
     Security is listed, quoted or admitted to trading, as the case may be. The
     Closing Price per share shall then be converted into U.S. dollars using the
     Official W.M. Reuters Spot Closing Rate at 11:00 a.m., New York City time.
     If there are several quotes for the Official W.M. Reuters Spot Closing Rate
     at that time, 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 Closing Price
     shall be converted into U.S. dollars using the last available U.S. dollar
     cross-rate quote before 11:00 a.m., New York City time.

          (iii) If the Settlement Value Security is not listed on a national
     securities exchange or quotation system or is not a Nasdaq security, and is
     listed or traded on a bulletin board, the Average Execution Price per share
     of the Settlement Value Security. If such Settlement Value 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 at 11:00 a.m., New York City time. If there are several
     quotes for the Official W.M. Reuters Spot Closing Rate at that time, 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 Closing Price shall be converted
     into U.S. dollars using the last available U.S. dollar cross-rate quote
     before 11:00 a.m., New York City time.

          "Company" shall have the meaning set forth in the preamble to this
Agreement.

          "Delaying Event" shall mean a Market Disruption Event for a Settlement
Value Security or a Relevant Index which occurs on the relevant Calculation Day.

          "Delaying Event Redemption Date" shall mean, if a Delaying Event
occurs on the Calculation Day for a Redemption, the later of (a) the
Non-Delaying Event Redemption Date and (b) the number of Business Days equal to
the Determination Period after the Payment Determination Date thereof.

          "Delaying Event Repurchase Date" shall mean, if a Delaying Event
occurs on the Calculation Day for a Repurchase, the number of Business Days
equal to the Determination Period after the Payment Determination Date thereof.

          "Determination Period" shall have the meaning specified in the
relevant Pricing Supplement.

          "Ending Multiplier" shall mean, for each Settlement Value Security,
the initial Multiplier for such Settlement Value Security adjusted from time to
time for the occurrence, prior to the Close of Trading on the relevant
Calculation Day, of any of the extraordinary corporate transactions described in
Section 4 of this Annex A.

          "Indenture" shall have the meaning set forth in the preamble to this
Agreement.

          "Index Weight" shall mean, if the Reference Equity is a basket of
stock indices, for each Relevant Index, the number by which the Closing Level of
such Relevant Index will be multiplied in order to calculate the Settlement
Value. The Index Weight relating to each


                                                                              14


Relevant Index included in the Reference Equity shall be specified in the
relevant Pricing Supplement.

          "LIBOR" shall mean London Interbank Offered Rate.

          "London Business Day" shall mean any day in the United Kingdom that is
a Saturday, a Sunday or a day on which the London Stock Exchange is not open for
trading or banking institutions or trust companies in the City of London are
authorized or obligated by law or parliamentary order to close.

          "Market Disruption Event", unless indicated otherwise in the relevant
Pricing Supplement, with respect to a Settlement Value Security or a Relevant
Index shall mean any of the following events has occurred on any day as
determined by the Calculation Agent:

          (1) (a) In the case of a Settlement Value Security, a material
     suspension of, or limitation imposed on trading relating to, such
     Settlement Value Security, or (b) in the case of a Relevant Index, a
     suspension of, or limitation imposed on trading relating to, the securities
     that then comprise 20% or more of such Relevant Index or any Successor
     Index, in each case, by the Relevant Exchange, at any time during the
     one-hour period that ends at the Close of Trading on such day, whether by
     reason of movements in price exceeding limits permitted by that primary
     exchange or quotation system or otherwise. Limitations on trading during
     significant market fluctuations imposed pursuant to NYSE Rule 80B or any
     applicable rule or regulation enacted or promulgated by the NYSE, any other
     exchange, quotation 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.

          (2) A material suspension of or limitation imposed on trading in
     futures or options contracts relating to such Settlement Value Security or
     to such Relevant Index or any Successor Index, as the case may be, by the
     primary exchange or quotation system on which those futures or options
     contracts are traded, at any time during the one-hour period that ends at
     the Close of Trading on such day, whether by reason of movements in price
     exceeding limits permitted by that primary exchange or quotation system or
     otherwise.

          (3) Any event, other than an early closure, that disrupts or impairs
     the ability of market participants in general to effect transactions in, or
     obtain market values for, (a) in the case of a Settlement Value Security,
     that Settlement Value Security, or (b) in the case of a Relevant Index, the
     securities that then comprise 20% or more of such Relevant Index or any
     Successor Index, in each case, on the primary U.S. exchange or quotation
     system on which that Settlement Value Security or those securities are
     traded, or in the case of a Settlement Value Security or a security not
     listed or quoted in the United States, on the primary exchange, quotation
     system or market for such Settlement Value Security or security, at any
     time during the one hour period that ends at the Close of Trading on such
     day.

          (4) Any event, other than an early closure, that disrupts or impairs
     the ability of market participants in general to effect transactions in, or
     obtain market values for, the futures or options contracts relating to such
     Settlement Value Security or to such Relevant Index or any Successor Index,
     as the case may be, on the primary exchange or


                                                                              15


     quotation system on which those futures or options contracts are traded at
     any time during the one hour period that ends at the Close of Trading on
     such day.

          (5) The closure of the primary exchange or quotation system on which,
     (a) in the case of a Settlement Value Security, that Settlement Value
     Security is traded or on which futures or options contracts relating to
     that Settlement Value Security are traded, or (b) in the case of a Relevant
     Index, securities that then comprise 20% or more of such Relevant Index or
     any Successor Index are traded or on which futures or options contracts
     relating to such Relevant Index or any Successor Index are traded, in each
     case, prior to its scheduled closing time unless the earlier closing time
     is announced by the primary exchange or quotation system at least one hour
     prior to the earlier of (i) the actual closing time for the regular trading
     session on the primary exchange or quotation system and (ii) the submission
     deadline for orders to be entered into the primary exchange or quotation
     system for execution at the Close of Trading on such day.

          (6) The Company, or any of its affiliates, is unable, after using
     commercially reasonable efforts to unwind or dispose of, or realize,
     recover or remit the proceeds of, any transactions or assets it deems
     necessary to hedge the equity price risk of entering into and performing
     its obligations with respect to the Securities.

          If the Reference Equity (as specified in the relevant Pricing
Supplement) is a basket of common stocks or indices, a Market Disruption Event
with respect to the basket will occur if a Market Disruption Event occurs with
respect to any of the common stocks or indices included in the basket.

          For purposes of determining whether a Market Disruption Event has
occurred:

          (i) the relevant percentage contribution of a security to the level of
     a Relevant Index or any Successor Index will be based on a comparison of
     (x) the portion of the level of the Relevant Index attributable to that
     security and (y) the overall level of the Relevant Index, in each case
     immediately before the occurrence of the Market Disruption Event.

          "Maturity Date" shall mean the Stated Maturity Date (except as
otherwise provided in the case of an Extendible Note or a Renewable Note);
provided, that if a Market Disruption Event with respect to one or more of the
Settlement Value Securities or Relevant Indices, as the case may be, occurs on
the Calculation Day, or if the Calculation Day is not a Scheduled Trading Day,
then the Maturity Date shall be postponed by a number of Business Days equal to
the Determination Period after the date on which the Settlement Value is finally
determined. In the event of any optional redemption by the Company, any
repayment at the option of the Holder, acceleration of the maturity of this Note
or other prepayment of this Note prior to the Maturity Date specified above, the
term "Maturity" when used herein shall refer, where applicable, to the date of
redemption, repayment, acceleration or other prepayment of this Note.

          "Maturity Payment Amount" shall have the meaning set forth in Section
3 of this Annex A.

          "Multiplier" shall have the meaning set forth in Section 4 of this
Annex A.


                                                                              16


          "Nasdaq" shall mean The Nasdaq Stock Market, Inc.

          "Non-Delaying Event Redemption Date" shall mean the date set forth in
the Redemption Notice, which date shall not be less than 30 nor more than 60
days after the date of the Redemption Notice, unless otherwise specified in the
relevant Pricing Supplement..

          "Non-Delaying Event Repurchase Date" shall mean the date which is the
number of Business Days equal to the Optional Repurchase Notice Period following
the Business Day on which the Company receives notice of an Optional Repurchase
from a Holder.

          "NYSE" shall mean The New York Stock Exchange, Inc.

          "Official W.M. Reuters Spot Closing Rates" shall mean the closing spot
rates published on Reuters page "WMRA" relevant for such Settlement Value
Security.

          "Optional Repurchase Notice Period" shall mean eight Business Days,
unless otherwise specified in the relevant Pricing Supplement

          "Optional Repurchase Payment Amount" shall have the meaning set forth
in Section 3 of this Annex A.

          "Optional Reset Date" shall have the meaning specified in the relevant
Pricing Supplement.

          "Payment Amount" shall mean the Maturity Payment Amount, the
Redemption Payment Amount or the Optional Repurchase Payment Amount, as the case
may be.

          "Payment Determination Date" shall mean the relevant Calculation Day,
unless a Delaying Event occurs with respect to such Payment Determination Date,
in which case the first Business Day after the Calculation Day on which the
Closing Prices for all Settlement Value Securities or the Closing Levels for all
Relevant Indices, as the case may be, that have been subject to a Delaying Event
have been determined.

          "Pricing Supplement" shall mean the pricing supplement issued by the
Company relating to the series of the Securities.

          "Redemption" shall mean the option of the Company to redeem, at any
time on or after the date specified in the relevant Pricing Supplement, in whole
or from time to time in part, the Securities.

          "Redemption Payment Amount" shall have the meaning set forth in
Section 3 of this Annex A.

          "Redemption Notice" shall mean the notice of Redemption mailed to the
Holders, as described in the relevant Pricing Supplement.

          "Reference Equity" shall mean the common stock, stock index, basket of
common stocks or basket of stock indices specified as such in the relevant
Pricing Supplement.

          "Relevant Exchange" shall mean (a) for each Settlement Value Security,
the primary United States national securities exchange, quotation system,
including any bulletin


                                                                              17


board service, or market on which such Settlement Value Security is traded, or
in case such Settlement Value Security is not listed or quoted in the United
States, the primary exchange, quotation system or market for such Settlement
Value Security and (b) for each Relevant Index, the primary exchange(s) or
quotation system(s), including any bulleting board service(s), on which the
securities included in such Relevant Index are traded.

          "Relevant Index" shall have the meaning set forth in Section 2 of this
Annex A.

          "Repurchase" shall mean the option of a beneficial holder to elect to
require the Company to repurchase, at any time until the earlier of (a) the date
the Company gives the Redemption Notice or (b) the date which is the number of
Business Days equal to the Optional Repurchase Notice Period before the Stated
Maturity Date, in whole or from time to time in part, such holder's Securities.

          "Scheduled Trading Day" shall mean any day on which each Relevant
Exchange is scheduled to be open for trading for its respective regular trading
session.

          "Securities" shall have the meaning set forth in the preamble to this
Agreement.

          "Settlement Property" shall mean the property described in Section 5
of this Annex A.

          "Settlement Value", when used with respect to any Payment
Determination Date, shall equal:

          (1) if the Reference Equity (as specified on the face hereof) is a
common stock or a basket of common stocks, the sum of (a)(i) the products of the
Closing Prices and the applicable Ending Multipliers for each Settlement Value
Security for which a Delaying Event does not occur on the related Calculation
Day and for which the related Calculation Day is a Scheduled Trading Day or (ii)
if a Delaying Event occurs for a Settlement Value Security on the related
Calculation Day, or if the related Calculation Day is not a Scheduled Trading
Day, the product of the Closing Price for such Settlement Value Security on the
next Business Day on which a Market Disruption Event does not occur for such
Settlement Value Security and the Ending Multiplier for such Settlement Value
Security and (b) in each case, any cash included in the Settlement Value on such
Calculation Day;

          (2) if the Reference Equity (as specified on the face hereof) is a
stock index, the Closing Level of the Relevant Index so long as a Delaying Event
does not occur for such Relevant Index on the related Calculation Day and the
related Calculation Day is a Scheduled Trading Day. If a Delaying Event occurs
for such Relevant Index on the related Calculation Day, or if the related
Calculation Day is not a Scheduled Trading Day, the Settlement Value shall equal
the Closing Level of the Relevant Index on the next Business Day on which a
Market Disruption Event does not occur for such Relevant Index; or

          (3) if the Reference Equity (as specified on the face hereof) is a
basket of stock indices, the sum of (i) the products of the Closing Levels and
the applicable Index Weight for each Relevant Index for which a Delaying Event
does not occur on the related Calculation Day and for which the related
Calculation Day is a Scheduled Trading Day or (ii) if a Delaying Event occurs
for a Relevant on the related Calculation Day, or if the related Calculation Day
is not a Scheduled Trading Day, the product of the Closing Level for such
Relevant Index on the next


                                                                              18


Business Day on which a Market Disruption Event does not occur for such Relevant
Index and the Index Weight for such Relevant Index.

          "Settlement Value Securities" shall have the meaning set forth in
Section 1 of this Annex A.

          "Stated Maturity Date" shall mean the date specified as such in the
relevant Pricing Supplement.

          "Stock Settlement Option" shall mean the Company's option, exercisable
in its sole discretion with not less than 15 days' notice to the Trustee and the
registered holders of the Securities if so specified on the face hereof, to pay
the Maturity Payment Amount in shares of the Reference Equity (and any other
equity securities used in the calculation of the Settlement Value), rather than
in cash.

          "Successor Index" shall have the meaning set forth in Section 6 of
this Annex A.

          "Threshold Value" shall have the meaning set forth in the relevant
Pricing Supplement.

          "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.

          "Valuation Date" shall mean the date specified as such in the relevant
Pricing Supplement; provided that if a Market Disruption Event occurs on such
date, the Valuation Date shall be the next Business Day on which no Market
Disruption Event occurs.