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PAYMENT CALCULATIONS

DETERMINATION OF PAYMENT AMOUNTS


In determining payment amounts, eligible losses are calculated on a last-in first-out basis and included commissions and other fees charged by Settling Firms to the extent practicable. Losses are computed in nominal terms, with no adjustment for opportunity costs, inflation, or risk. Losses are determined by aggregating across transactions in each relevant equity security for the same entity.

In determining net losses eligible for payment, it is helpful to identify four categories of gains and losses:

• Realized Net Gain. Any person who bought in the "relevant period of purchase" and subsequently realized a net gain is ineligible for payment.
• Realized Net Loss. Any person who bought in the "relevant period of purchase" and subsequently realized a net loss before the Settlement Date is eligible for payment. If the person realized a net loss on or prior to 90 days after the end of the "relevant period of purchase," the person is eligible for payment up to the amount of the realized net loss. If, however, the person realized a net loss more than 90 days after the end of the "relevant period of purchase," the person will be eligible for payment up to the implied unrealized net loss (as determined below for unrealized net losses) or the actual realized net loss, whichever is smaller.
• Unrealized Net Gain. Any person who bought in the "relevant period of purchase" and had not sold as of the Settlement Date is not eligible for payment if the closing stock price on the Settlement Date implies an unrealized net gain.
• Unrealized Net Loss. Any person who bought in the "relevant period of purchase" and had not sold as of the Settlement Date is eligible for payment if the closing stock price on the Settlement Date implies an unrealized net loss. In this case, the person will be eligible for payment up to the implied unrealized net loss as determined using the average daily closing price for the equity security during the 90 days following the end of the "relevant period of purchase," or the implied unrealized net loss on the Settlement date, whichever is smaller.

Finally, in accordance with the cost-effectiveness mandate in the Final Judgments, payments will be made only if they exceed $100.

PAYMENT AMOUNT EXAMPLES

Assume an investor bought 1,000 shares of CAIS for $10 a share on November 8, 2000 during the relevant purchase period (Nov 7, 2000 through April 24, 2001). The 90-day period for this stock covers the time period from April 25, 2001 to July 23, 2001. The following examples illustrate the loss calculations and payment amounts:

Example - Realized Net Loss I

If the investor sold these shares on June 6, 2001 for $9* per share, the payment would be ($9 -$10) *1,000 or $1,000. In this case, the loss payment is calculated based on the actual sales price because the shares were sold prior to the end of the 90-day period.

Example - Realized Net Loss II

If the investor sold these shares on July 25, 2001 (after the 90-day period) for $4 per share, the loss payment is calculated based on the higher of the actual sales price or the average 90-day period price ($8). In this case, the payment would be ($8 -$10) *1,000 or $2,000.

Example - Realized Net Loss III

If the investor sold these shares on December 1, 2001 (after the 90-day period) for $9 per share, the loss payment is calculated based on the higher of the actual sales price or the average 90-day period price ($8). In this case, the payment would be ($9 -$10) *1,000 or $1,000.

Example - Unrealized Net Loss

If the investor still holds these shares and the price as of July 29, 2005 was $2, the loss payment is calculated based on the higher of the average 90-day period price ($8) or the price as of July 29, 2005 ($2). In this case, the payment would be ($8 -$10) *1,000 or $2,000.

* Loss payments are reduced by the actual dividend amounts accrued during the applicable time periods. Loss payments also reflect the effect of any stock splits during the applicable time period.

ADJUSTMENT PRINCIPALS

         If there is enough money available in a Distribution Fund to meet all claims for losses from purchases through the relevant Settlement Firm, investors will receive 100 cents on the dollar. If, however, there is not enough money to meet all claims, then a key goal is to distribute settlement funds to investors who are more likely to have been affected by the events that are the subject of the settlement. Although that goal may not be perfectly achievable, the plan uses two principles to achieve a better approximation of that goal.

          A. The Proximity Principle

         The first principle is that purchases of equity securities that were made shortly after the events that are the subject of the settlement are more likely to have been affected by those events than purchases made more distant in time from the events: the proximity principle. If funds are not sufficient to compensate investors in full for their eligible losses, the payment formula will involve a "proximity adjustment."

         Specifically, those investors who purchased the equity security closer to the beginning of the "relevant period of purchase" will receive a higher payment rate (that is, payment as a share of eligible losses) than those who purchased later

Example of Proximity Principle

Consider two persons who both realized a net loss of $10,000. If the first investor purchased the equity security six trading days after the beginning of the "relevant period of purchase," the investor would be eligible to receive up to 100 percent of net losses. If the second investor purchased the equity security 35 trading days after the beginning of the "relevant period of purchase," the investor would be eligible to receive up to approximately 50 percent of net losses.*

* The adjustment factor is applied multiplicatively after the eleventh trading day such that the proximity adjustment for an investor who purchased a relevant equity security 35 trading days after the beginning of the relevant period of purchase is equal to (1-.03) (35-11) or 0.48.

          B. The Information Principle

         The second principle focuses on the consumption of information prior to making equity security purchases: the information principle. Purchasers who make larger investments in equity securities are more likely to spend more on obtaining information regarding those equity securities. Conversely, purchasers of smaller amounts of equity securities are more likely to spend less on information. This principle suggests, therefore, that the events that are the subject of the settlement are more likely to have affected those investors making smaller purchases than those investors making larger purchases.

         Specifically, if an investor's total purchases from a Settling Firm over the relevant periods of purchase are larger than the median value for purchases of the relevant equity securities from the Settling Firm, the adjustment will equal a maximum of three percent for each multiple above the median. The information adjustment will not apply to those investors with total purchases from a Settling Firm over the relevant periods of purchase that are smaller than the median value for purchases of the relevant equity securities from the Settling Firm.

Example of Information Principle

If the median of all purchases of relevant equity securities from a Settling Firm is $25,000, an investor purchasing $100,000 of relevant securities from that Settling Firm will be assigned an adjustment of 8.7 percent.* For all investors purchasing less than $25,000 in relevant equity securities, this adjustment factor will be equal to zero.

* The adjustment factor is applied multiplicatively for each increment above the median. The $75,000 difference between the $100,000 purchase and the $25,000 median is three times the median. The adjustment factor is therefore (1-03)*(1-03)*(1-.03), or 0.912. The adjustment is therefore 8.7% (1-.912=.087).

Other Factors Affecting the Determination of Compensation

          The total payment rate for investors will be based on the adjusted net loss, which reflects both the proximity and information adjustments. For each investor, this adjusted net loss will not be less than ten percent of the investor's eligible net loss. For example, consider an investor who realized a net loss of $20,000. The investor's adjusted net loss will be no lower than $2,000. If the application of the proximity and information adjustment were to result in an adjusted net loss of less than $2,000, the investor's adjusted net loss will nonetheless be maintained at $2,000 (ten percent of eligible losses).

          If a Distribution Fund is insufficient to compensate persons in full for their adjusted net losses, each person will receive a proportion of such losses. That is, a Distribution Fund will use a simple proportional formula that allows all persons to receive the same payment per dollar of adjusted net losses.



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