Document:

Exhibit 10.32

 

2005 INCENTIVE AWARD
PLAN

 

OF

 

OWENS-ILLINOIS, INC.

 

RESTRICTED STOCK UNIT
AGREEMENT

 

THIS RESTRICTED STOCK UNIT (“RSU”)
AGREEMENT (“AGREEMENT”), dated                         ,
20        is made by and between
Owens-Illinois, Inc., a Delaware corporation (the “Company”) and [NAME],
an employee of the Company or a Parent Corporation or a Subsidiary (the “Employee”):

 

WHEREAS, the Company has established the 2005
Incentive Award Plan (the “Plan”); and

 

WHEREAS, the Plan provides for the issuance
of RSUs, subject to certain vesting conditions thereon and to other conditions
stated herein; and

 

WHEREAS, the Compensation Committee of the
Board of Directors of the Company (the “Committee”) has determined it
would be to the advantage and best interest of the Company and its stockholders
to issue the RSUs provided for herein to the Employee in partial consideration
of services rendered, or to be rendered, to the Company and/or its
subsidiaries.

 

NOW, THEREFORE, in consideration of the mutual
covenants herein contained and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE I.

 

DEFINITIONS

 

Whenever the following terms are used in this
Agreement, they shall have the meaning specified below, unless the context
clearly indicates to the contrary. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Plan. The masculine pronoun
shall include the feminine and neuter and the singular the plural, where the
context so indicates.

 

Section 1.1.           Cause

 

“Cause” shall mean dishonesty,
disloyalty, misconduct, insubordination, failure to reasonably devote working
time to assigned duties, failure or refusal to comply with any reasonable rule,
regulation, standard or policy which from time to time may be established by
the Company, including, without limitation, those policies set forth in the
Owens-Illinois Policy Manual in effect from time to time, or failure to fully
cooperate with any investigation of an alleged violation of any such rule,
regulation, standard or policy.

 

1

 

Section 1.2.           Common Stock

 

“Common Stock” shall mean the common
stock of the Company, $.01 par value.

 

Section 1.3.           Disability

 

“Disability” means the total disability of the Employee, as
determined in the sole discretion of the Committee.

 

Section 1.4.
– Competing Business

 

“Competing Business” shall mean any
person, corporation or other entity engaged in the United States of America or
in any other country in which the Company, any Parent Corporation or any
Subsidiary manufactures or sells its products, in the manufacture or sale of
glass containers, plastic containers, plastic closures, plastic prescription
containers, or any other products manufactured or sold by the Company, any
Parent Corporation or any Subsidiary within the last two (2) years prior to the
Employee’s Termination of Employment or Retirement.

 

Section 1.5.           Exchange Act

 

“Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.

 

Section 1.6.           Fair Market Value

 

“Fair Market Value” of a share of the
Company’s stock as of a given date shall be: (i) the closing price of a share
of the Company’s stock on the principal exchange on which shares of the Company’s
stock are then trading, if any, on the day previous to such date, or, if shares
were not traded on the day previous to such date, then on the next preceding
trading day during which a sale occurred; or (ii) if such stock is not traded
on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the
last sales price (if the stock is then listed as a National Market Issue under
the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
day previous to such date as reported by NASDAQ or such successor quotation
system; or (iii) if such stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the mean between the closing
bid and asked prices for the stock, on the day previous to such date, as
determined in good faith by the Committee; or (iv) if the Company’s stock is
not publicly traded, the fair market value established by the Committee acting
in good faith.

 

Section 1.7.           Parent Corporation

 

“Parent Corporation” shall mean any
corporation in an unbroken chain of corporations ending with the Company if
each of the corporations other than the Company then owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

 

2

 

Section 1.8.           Performance Period

 

“Performance Period” shall mean
January 1, 20       through December 31, 20      ,
or such shorter period ending on any Vesting Date occurring prior to December
31, 20      .

 

Section 1.9            Plan

 

“Plan” shall mean the 2005 Incentive
Award Plan of Owens-Illinois, Inc.

 

Section 1.10.        Retirement

 

“Retirement” shall mean the retirement
and “separation from service” (within the meaning of Section 409A of the Code) of
an Employee from the Company, a Parent Corporation or a Subsidiary after
reaching the Company’s normal retirement age or the early retirement of an
Employee from the Company, a Parent Corporation or a Subsidiary after reaching
the age of 60.

 

Section 1.11.        Rule 16b-3

 

“Rule 16b-3” shall mean that certain
Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to
time.

 

Section 1.12.        Secretary

 

“Secretary” shall mean the Secretary
of the Company.

 

Section 1.13.        Securities Act

 

“Securities Act” shall mean the
Securities Act of 1933, as amended.

 

Section 1.14.        Subsidiary

 

“Subsidiary” shall mean any
corporation in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken chain
then owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain. “Subsidiary” shall also mean any partnership in which the Company and or
any Subsidiary owns more than fifty (50%) percent of the capital or profits
interests.

 

Section 1.15.        Termination of Employment

 

“Termination of Employment” shall mean
the time when the employee-employer relationship between the Employee and the
Company, a Parent Corporation or a Subsidiary is terminated for any reason,
with or without Cause, including, but not by way of limitation, a termination
by resignation or discharge, but excluding (a) a termination where there is a
simultaneous reemployment or continuing employment of the Employee by the
Company, a Parent Corporation or any Subsidiary, (b) a termination where the
Employee continues a relationship (e.g., as a director or as a consultant) with
the Company, a Parent Corporation or a Subsidiary, or (c) a termination
resulting from the Retirement, death or Disability of the 

 

3

 

Employee.
The Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for Cause, and all questions of whether a particular
leave of absence constitutes a Termination of Employment. Notwithstanding any
other provision of this Agreement, the Company, any Parent Corporation or any
Subsidiary has the absolute and unrestricted right to terminate the Employee’s
employment at any time for any reason whatsoever, with or without Cause.

 

Section 1.16. Vesting Date

 

“Vesting Date” shall mean January 1,
20   , or such earlier date on which (i) the Employee dies or
experiences a Retirement or Disability, or (ii) the Company experiences an event
described in Section 3.4 of this Agreement.

 

ARTICLE II.

 

ISSUANCE OF RSUs

 

Section 2.1.           Issuance of RSUs

 

 In
consideration of the services rendered or to be rendered to the Company, a
Parent Corporation or a Subsidiary and for other good and valuable consideration
which the Committee has determined to be equal to the par value of its Common
Stock, on the date hereof the Company awards to the Employee [          ]
RSUs, upon the terms and conditions set forth in this Agreement.

 

Section 2.2.           No Right to Continued Employment

 

Nothing in this Agreement or in the Plan
shall confer upon the Employee any right to continue in the employee of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, any Parent Corporation or any
Subsidiary, which are hereby expressly reserved, to discharge the Employee at
any time for any reasons whatsoever, with or without Cause.

 

4

 

ARTICLE III.

 

VESTING; PAYMENT

 

Section 3.1.           Vesting of RSUs

 

Except as otherwise provided in this Section
3.1, the RSUs shall vest in their entirety on the Vesting Date, provided that
the Employee does not experience a Termination of Employment prior to such date.
If the Employee experiences a Termination of Employment resulting from the
Company’s discharge of the Employee not for Cause, such Employee shall
immediately vest in that number of RSU’s, equal to the number of RSU’s in which
such Employee would have vested on January 1, 20  , but for such
Termination of Employment, times a fraction, the numerator of which is the
number of days from the date hereof to the Termination of Employment and the
denominator of which is the number of days from the date hereof to the Vesting
Date.

 

Section 3.2.           Termination of RSUs

 

Until vested pursuant to Section 3.1, all
RSUs issued to the Employee pursuant to this Agreement shall terminate
immediately upon a Termination of Employment. For the avoidance of doubt, if
the Employee experiences a Termination of Employment prior to a Vesting Date for
any reason not described in Section 3.1, all RSUs issued to the Employee
pursuant to this Agreement shall immediately terminate.

 

Section 3.3.           Payment of RSUs

 

Vested RSUs shall become payable, to the
extent any amount becomes payable in respect of a vested RSU, as soon as
practicable after the Vesting Date, but in any event within the period ending
on the later to occur of  the date that
is 2 1⁄2 months after the end of (i) the Employee’s tax year that includes the
Vesting Date, or (ii) the Company’s tax year that includes the Vesting Date, provided, that if the Vesting Date occurs prior to January
1, 20  , vested RSUs shall become payable as soon as practicable
after the Company determines the extent, if any, to which the performance
criteria below have been satisfied, but in any event during calendar year 20  .
Each vested RSU shall entitle the Employee to receive a number of shares of
Common Stock, if any, determined based on the following vesting schedule:

 

[Insert vesting schedule]

 

Section 3.4.           Merger, Consolidation,
Acquisition, Liquidation or Dissolution

 

Notwithstanding any other provision of this
Agreement, upon the merger or consolidation of the Company into another
corporation, the acquisition by another corporation or person (excluding any
employee benefit plan of the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company) of all or
substantially all of the Company ‘s assets or 51% or more of the Company’s then
outstanding voting stock, or the liquidation or dissolution of the Company, the
Committee shall then provide by resolution adopted prior to such event that, at
some time prior to the effective date of such event, all outstanding RSUs not
previously terminated pursuant to Section 3.2 shall fully vest.

 

5

 

Section 3.5.           Adjustments

 

In the event of any change in the number or
type of outstanding shares of Common Stock as a result of a stock dividend,
stock split or otherwise, the Committee may make such adjustments to the number
of RSUs credited to the Employee, the shares subject to such RSUs, and/or the
applicable performance criteria, as the Committee deems appropriate in its sole
discretion.

 

ARTICLE IV.

 

NON-COMPETITION/NON-SOLICITATION

 

Section 4.1.           Covenant Not to Compete

 

Employee covenants and agrees that prior to
Employee’s Termination of Employment or Retirement and for a period of three
(3) years following the Employee’s Termination of Employment or Retirement,
including without limitation termination for Cause or without Cause, Employee
shall not, in any country in which the Company, any Parent Corporation or any
Subsidiary manufactures or sells it products, engage, directly or indirectly,
whether as principal or as agent, officer, director, employee, consultant,
shareholder or otherwise, alone or in association with any other person,
corporation or other entity, in any Competing Business.

 

Section 4.2.           Non-Solicitation of Employees

 

Employee agrees that prior to his Termination
of Employment or Retirement and for three (3) years following Employee’s
Termination of Employment or Retirement, including without limitation
termination for Cause or without Cause, Employee shall not, directly or
indirectly, solicit or induce, or attempt to solicit or induce, any employee of
the Company, any Parent Corporation or any Subsidiary to leave the employment
of the Company, any Parent Corporation or any Subsidiary for any reason
whatsoever, or hire any employee of the Company, any Parent Corporation or any
Subsidiary except into the employment of the Company, a Parent Corporation or a
Subsidiary.

 

Section 4.3            Equitable Relief

 

Employee agrees that it is impossible to
measure in money the damages that will accrue to the Company in the event that
Employee breaches any of the restrictive covenants provided in Sections 4.1 or
4.2 hereof. Accordingly, in the event that Employee breaches any such
restrictive covenant, the Company shall be entitled to an injunction
restraining Employee from further violating such restrictive covenant. If the
Company shall institute any action or proceeding to enforce any such
restrictive covenant, Employee hereby waives the claim or defense that the
Company has an adequate remedy at law and agrees not to assert such claim or
defense. The foregoing shall not prejudice the Company’s right to require
Employee to account for and pay over to the Company, and Employee hereby agrees
to account for and pay over, any compensation, profits, monies, accruals or
other benefits derived or received by Employee as a 

 

6

 

result
of any transaction constituting a breach of any of the restrictive covenants
provided in Sections 4.1 or 4.2 hereof.

 

ARTICLE V.

 

MISCELLANEOUS

 

Section 5.1.           Administration

 

The Committee shall have the power to
interpret the Plan and this Agreement, and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith, to interpret, amend or revoke any such rules. All action taken and
all interpretations and determinations made by the Committee in good faith
shall be final and binding upon the Employee, the Company and all other
interested persons. In its absolute discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee under
the Plan or this Agreement except with respect to matters which under Rule
16b-3, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee. No member of the Committee
or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the RSUs, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.

 

Section 5.2.           RSUs Not Transferable

 

No RSU or any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the Employee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any
other means, whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other legal
or equitable proceedings (including bankruptcy), any attempted disposition
thereof shall be null and void and of no effect; provided however, that this
Section 5.2 shall not prevent transfers by will or by the applicable laws of
descent and distribution.

 

Section 5.3.           Conditions to Issuance of Stock
Certificates

 

The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock pursuant to this
Agreement prior to fulfillment of all of the following conditions:

 

(a)           The
admission of such shares to listing on all stock exchanges on which such class
of stock is then listed; and

 

(b)           The
completion of any registration or other qualification of such shares under any
state or federal law or under rulings or regulations of the Securities and
Exchange Commission or of any other governmental regulatory body, which the
Committee shall, in its sole discretion, deem necessary or advisable; and

 

7

 

(c)           The
obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee shall, in its sole discretion,
determine to be necessary or advisable; and

 

(d)           Subject
to Section 5.10 the payment by the Employee of all amounts which, under
federal, state or local tax law, the Company (or other employer corporation) is
required to withhold upon vesting or payment of a RSU; and

 

(e)           The
lapse of such reasonable period of time as the Committee may from time to time
establish for reasons of administrative convenience.

 

Section 5.4.           Notices

 

Any notice to be given under the terms of
this Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Employee shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant
to this Section 5.4, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to the
Employee shall, if the Employee is then deceased, be given to the Employee’s
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 5.4. Any
notice shall be deemed duly given when enclosed in a properly sealed envelope
or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.

 

Section 5.5.           Rights as Stockholder; Dividends

 

No Employee shall, by virtue of any RSU, be
entitled to vote in any Company election, receive any dividend in respect of a
RSU or exercise any other rights of a stockholder of the Company. RSUs shall
not confer upon any Employee any rights of a stockholder of the Company unless
and until any such RSUs have vested and shares of Common Stock have been
distributed in respect of such RSUs.

 

Section 5.6.           Titles

 

Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.

 

Section 5.7.           Conformity to Laws

 

The Employee acknowledges that the Plan and
this Agreement are intended to conform to the extent necessary with all
provisions of applicable law, including without limitation the provisions of
the Securities Act and the Exchange Act, the regulations and rules promulgated
by the Securities and Exchange Commission thereunder, the applicable exemptive
conditions of Rule 16b-3 and any other applicable laws. Notwithstanding
anything herein to the contrary, this Agreement shall be administered only in
such a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

 

8

 

Section 5.8.           Section 409A

 

Section 409A of the Internal Revenue Code
provides that “nonqualified deferred compensation” that does not meet the
requirements specified in Section 409A may become subject to penalty taxes. Currently,
the Company does not believe that RSUs constitute nonqualified deferred
compensation within the meaning of Section 409A; however, if, in the future,
the RSUs are or may become subject to Section 409A, the Committee may make such
modifications to the Plan and this Agreement as may become necessary or
advisable, in the Committee’s sole discretion, to either comply with Section
409A or to avoid its application to the RSUs.

 

Section 5.9.           Amendments

 

This Agreement and the Plan may be amended
without the consent of the Employee provided that such amendment would not
impair any rights of the Employee under this Agreement. No amendment of this
Agreement shall, without the consent of the Employee, impair any rights of the
Employee under this Agreement.

 

Section 5.10.        Tax Withholding

 

The Company’s obligation to issue or deliver
to the Employee any certificate or certificates for shares of Common Stock is
expressly conditioned upon receipt from the Employee, on or prior to the date
reasonably specified by the Company of:

 

(a)           Full
payment (in cash or by check) of any amount that must be withheld by the
Company (or other employer corporation) for federal, state and/or local tax
purposes; or

 

(b)           Subject
to the Committee’s consent, full payment by delivery to the Company of
unrestricted shares of the Company’s Common Stock previously owned by the
Employee, duly endorsed for transfer to the Company by the Employee with an
aggregate Fair Market Value (determined, as applicable, as of the date of
vesting or as of the date of the distribution) equal to the amount that must be
withheld by the Company (or other employer corporation) for federal, state
and/or local tax purposes; or

 

(c)           With
respect to the withholding obligation for RSUs that become vested, subject to
the Committee’s consent, full payment by retention by the Company of a portion
of the shares deliverable in respect of such vested RSUs with an aggregated
Fair Market Value (determined on the payment date) equal to the amount that
must be withheld by the Company (or other employer corporation) for federal,
state and/or local tax purposes; or

 

(d)           Subject
to the Committee’s consent, a combination of payments provided for in the
foregoing subsections (a), (b) and (c).

 

Notwithstanding
anything herein to the contrary, the number of shares which may be withheld
with respect to the payment of any RSUs in order to satisfy the Company’s
federal, 

 

9

 

state and/or local tax withholding
obligations with respect to the payment of the RSUs shall be limited to the
number of shares which have a Fair Market Value on the date of withholding
equal to the aggregate amount of such withholding obligations based on the
minimum applicable statutory withholding rates for federal, state and/or local
income and payroll tax purposes.

 

Section 5.11.        Governing Law

 

This Agreement shall be administered,
interpreted and enforced under the internal laws of the State of Delaware without
regard to conflicts of laws thereof.

 

IN WITNESS HEREOF, this Agreement has been executed
and delivered by the parties hereto.

 

	
   

  	
  OWENS-ILLINOIS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  Employee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Employee’s Taxpayer

  	
   

  
	
  Identification Number:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

10Exhibit 4.01

 

	
  CUSIP NO. 52517PE98

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  REGISTERED

  	
   

  	
  PRINCIPAL AMOUNT: $3,000,000

  	
   

  
	
  No. R-1

  	
   

  	
   

  

 

LEHMAN BROTHERS HOLDINGS INC.

 

MEDIUM-TERM NOTE, SERIES H

 

PRINCIPAL PROTECTED CURRENCY APPRECIATION
BASKET FX-LINKED NOTE DUE MACH 15, 2011

 

THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY OR A NOMINEE OF THE DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER
STREET, NEW YORK, NEW YORK) TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN CERTIFICATED FORM (A “CERTIFICATED NOTE”), THIS GLOBAL SECURITY MAY NOT
BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.

 

 

LEHMAN
BROTHERS HOLDINGS INC., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the “Company,” which term includes
any successor corporation under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to CEDE & Co., or
registered assigns, on the Maturity Date, an amount equal to the Redemption
Amount. The Notes do not bear interest. No payments on the Notes will be made
until the Maturity Date.

 

The “Maturity Date” is March 15, 2011, or if such
day is not a Business Day, on the next following Business Day.

 

The Redemption Amount, for each $1 principal amount of
the Notes represented hereby, is the amount equal to the sum of (a) $1 plus (b) the Additional Amount.

 

The “Additional Amount”, for each $1 principal amount
of the Notes represented hereby will be (subject to the occurrence of a
Disruption Event) the greater of (i) zero and (ii) 300% times the
Basket Value.

 

The “Reference Currencies”
are the Euro (EUR), Pound Sterling (GBP), Brazilian Real (BRL), Canadian Dollar
(CAD), Chinese Yuan (CNY), Hong Kong Dollar (HKD), Japanese Yen (JPY), Singapore Dollar (SGD) and U.S. Dollar (USD).

 

The “Basket Value” equals
the sum of:

 

(i) a quotient, the numerator of which
is 0.08388 and the denominator of which is the
Settlement Rate for EUR plus

 

(ii) a quotient, the numerator of which
is 0.05756 and the denominator of which is the
Settlement Rate for GBP plus

 

(iii) a quotient, the numerator of which
is 0.21653 and the denominator of which is the
Settlement Rate for BRL plus

 

(iv) a quotient, the numerator of which
is 0.23195 and the denominator of which is the
Settlement Rate for CAD plus

 

(v) a quotient, the numerator of which
is 1.20735 and the denominator of which is the
Settlement Rate for CNY plus

 

(vi) a quotient, the numerator of which
is 0.77612 and the denominator of which is the
Settlement Rate for HKD plus

 

(vii) a quotient, the numerator of which
is 17.64075 and the denominator of which is the
Settlement Rate for JPY plus

 

(viii) a quotient, the numerator of
which is 0.16283 and the denominator of which is the Settlement
Rate for SGD plus

 

(ix) a quotient, the numerator of which
is -1.0000 and the denominator of which is the Settlement Rate for USD.

 

2

 

The “Settlement
Rate” for each Reference Currency is the Reference Exchange Rate on the
Valuation Date, observed as per the Settlement Rate Option (subject to the
occurrence of a Price Source Unavailability Event).

 

The “Reference Exchange Rates”
are the spot exchange rates for each of the Reference Currencies quoted against
the U.S. dollar expressed as number of currency units per USD 1.

 

The “Settlement Rate
Option” for each Reference Currency is as follows:

 

	
  Reference

  Currency

  	
   

  	
  Settlement Rate Option

  
	
  EUR

  	
   

  	
  One divided by
  the spot rate in (A):

  

  (A) The U.S. Dollar/Euro official fixing rate, expressed as the amount
  of U.S. Dollars per one Euro, for settlement in two Business Days reported by
  the Federal Reserve Bank of New York which appears on Reuters Screen 1FED to
  the right of the caption “EUR” at approximately 10.00 a.m. New York
  time, on that Valuation Date.

  
	
   

  	
   

  	
   

  
	
  GBP

  	
   

  	
  One divided by
  the spot rate in (A):

  

  (A) The U.S. Dollar/Sterling official fixing rate, expressed as the
  amount of U.S. Dollars per one Pound Sterling, for settlement in two Business
  Days reported by the Federal Reserve Bank of New York which appears on
  Reuters Screen 1FED to the right of the caption “GBP” at approximately 10.00 a.m.
  New York time, on that Valuation Date.

  
	
   

  	
   

  	
   

  
	
  BRL

  	
   

  	
  The Brazilian Real/U.S. Dollar offered rate for U.S. Dollars,
  expressed as the amount of Brazilian Reais per one U.S. Dollar, for
  settlement in two Business Days reported by the Banco Central do Brasil on
  SISBACEN Data System under transaction code PTAX-800 (“Consulta de Cambio” or
  Exchange Rate Inquiry), Option 5 (“Cotacoes para Contabilidade” or Rates for
  Accounting Purposes), which appears on Reuters Screen BRFR Page under
  the caption “Dolar PTAX” at approximately 6:30 pm Sao Paolo time on the
  Valuation Date.

  
	
   

  	
   

  	
   

  
	
  CAD

  	
   

  	
  The Canadian Dollar/U.S. Dollar official fixing rate, expressed as the
  amount of Canadian Dollars per one U.S. Dollar, for settlement in one
  Business Day reported by the Federal Reserve Bank of New York which appears
  on Reuters Screen 1FED to the right of the caption “CAD” at approximately
  10.00 a.m. New York time, on that Valuation Date.

  
	
   

  	
   

  	
   

  
	
  CNY

  	
   

  	
  The Chinese Yuan/U.S. Dollar official fixing rate, expressed as the
  amount of Chinese Yuan per one U.S. Dollar, for settlement in two Business
  Days reported by the Federal Reserve Bank of New York which appears on Reuters
  Screen 1FEE to the right of the caption “CNY” at approximately 12.00 p.m.
  New York time, on that Valuation Date.

  
	
   

  	
   

  	
   

  
	
  HKD

  	
   

  	
  The Hong Kong Dollar/U.S.
  Dollar official fixing rate, expressed as the amount of Hong Kong Dollars per
  one U.S. Dollar, for settlement in two Business Days reported by the Federal
  Reserve Bank of New York which appears on Reuters Screen 1FEE to the right of
  the caption “HKD” at approximately 12.00 p.m. New York time, on that
  Valuation Date.

  
	
   

  	
   

  	
   

  
	
  JPY

  	
   

  	
  The Japanese Yen/U.S. Dollar official fixing rate, expressed as the
  amount of Japanese Yen per one U.S. Dollar, for settlement in two Business
  Days reported by the Federal Reserve Bank of New York which appears on
  Reuters Screen 1FED to the right of the caption “JPY” at approximately 10.00 a.m.
  New York time, on that Valuation Date.

  
	
   

  	
   

  	
   

  
	
  SGD

  	
   

  	
  The Singapore Dollar/U.S.
  Dollar spot rate at 11:00 a.m., Singapore time, expressed as the amount
  of Singapore Dollar per one U.S. Dollar, for settlement in two Business Days,
  reported by the Association of Banks in Singapore which appears on the
  Reuters Page ABSIRFIX01 to the right of the caption “Spot” under the
  column “SGD” at approximately 11:30 a.m., Singapore time, on that
  Valuation Date.

  

 

The screen or time of
observation indicated in relation to any Settlement Rate Option above shall be
deemed to refer to such screen or time of observation as modified or amended
from time to time, or to any substitute screen thereto.

 

The “Valuation
Date” is March 10, 2011 or, if such day is not a Valuation Business Day,
the next following Valuation Business day.

 

3

 

A “Valuation Business Day” means, with respect to each Reference
Currency, any day, other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which commercial banks are authorized or required by law,
regulation or executive order to close (including for dealings in foreign
exchange in accordance with the practice of the foreign exchange market) in the
city or jurisdiction indicated in the Settlement Rate Option for that Reference
Currency.

 

A
“Business Day”, notwithstanding any provision in the Indenture, is any day that
is not is not a Saturday or Sunday and that is not a day on which banking
institutions in New York City generally are authorized or obligated by law or
executive order to be closed.

 

Upon the occurrence of a Disruption Event with
respect to any Reference Currency on any day during the term of the notes, the
Calculation Agent shall determine the Additional Amount payable on the Maturity
Date in good faith and in a commercially reasonable manner.

 

A “Disruption Event” means any of the following
events (other than a Price Source Unavailability Event), as determined in good
faith by the Calculation Agent:

 

(A)                              the occurrence and/or existence of an event on any
day that has the effect of preventing or making impossible, for any Reference
Currency other than EUR, (x) the delivery of USD from accounts inside the
country for which a Reference Currency is the lawful currency (such
jurisdiction with respect to such Reference Currency, the “Reference Currency
Jurisdiction”) to accounts outside that Reference Currency Jurisdiction or (y)
of any Reference Currency between accounts inside any Reference Currency
Jurisdiction or to a party that is a non-resident of such Reference Currency
Jurisdiction;

 

(B)                                the occurrence of any
event causing the Reference Exchange Rate for any Reference Currency to be
split into dual or multiple currency exchange rates; or

 

(C)                                the occurrence and/or existence
of any event (other than those set forth in (A) or (B) above or those
constituting a Price Source Unavailability Event) with respect to any Reference
Currency that prevents or makes impossible (x) the Calculation Agent’s ability
to calculate the Additional Amount, (y) the fulfilment of our obligations under
the notes, or (z) our ability or the ability of any of our affiliates through
which we hedge our position under the notes to hedge such position or to unwind
all or a material portion of such hedge.

 

Upon the occurrence of a Price Source Unavailability
Event with respect to a Reference Currency, the Settlement Rate for the
affected Reference Currency will be determined in accordance with the Fallback
Rate Observation Methodology.

 

A “Price Source Unavailability Event” means, as determined in good
faith by the Calculation Agent, the Settlement Rate being unavailable for a
Reference Currency, or the occurrence of an event (other than an event
constituting a Disruption Event) that generally makes it impossible to obtain
the Settlement Rate for a Reference Currency, on the relevant Valuation Date.

 

The “Fallback Rate
Observation Methodology” means that the Settlement Rate for a Reference
Currency will be calculated on the basis of the arithmetic mean of the
applicable spot quotations received by the Calculation Agent at approximately
10:00 a.m., New York City time, on the Valuation Business Day next
succeeding the Valuation Date for the purchase or sale 

 

4

 

for deposits in the
Reference Currency by the New York offices of three leading banks engaged in
the interbank market (selected in the sole discretion of the Calculation Agent)
(the “Reference Banks”). If fewer than three Reference Banks provide spot quotations
then the Settlement Rate for such Reference Currency will be determined by the
Calculation Agent in good faith and in a commercially reasonable manner.

 

Except
as provided below, the Redemption Amount may, at the option of the Company, be
made by check mailed to the person entitled thereto at such person’s address as
it appears on the registry books of the Company.

 

Payment
of the Redemption Amount will be made in immediately available funds upon
surrender of this Note at the corporate trust office or agency of the Trustee
(or any duly appointed Paying Agent) maintained for that purpose in the Borough
of Manhattan, New York City (the “Corporate Trust Office”), provided that this
Note is presented to the Trustee (or any such Paying Agent) in time for the
Trustee (or any such Paying Agent) to make such payments in such funds in
accordance with its normal procedures.

 

The
Company will pay any administrative costs imposed by banks in making payments
in immediately available funds, but any tax, assessment or governmental charge
imposed upon payments hereunder, including, without limitation, any withholding
tax, will be borne by the Holder hereof.

 

References
herein to “USD”, “U.S. dollars” or “U.S.$” or “$” are to the coin or currency
of the United States as at the time of payment is legal tender for the payment
of public and private debts.

 

REFERENCE
IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE
HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS
IF SET FORTH AT THIS PLACE.

 

This
Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed by the Trustee
under the Indenture.

 

5

 

IN WITNESS
WHEREOF, Lehman Brothers Holdings Inc. has caused this instrument to be signed
by its Chairman of the Board, its President, its Vice Chairman, its Chief
Financial Officer, one of its Vice Presidents or its Treasurer, by manual or
facsimile signature under its corporate seal, attested by its Secretary or one
of its Assistant Secretaries by manual or facsimile signature.

 

Dated:  March 15, 2006

 

	
  [SEAL]

  	
  LEHMAN BROTHERS
  HOLDINGS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is one of the
Securities of the series designated herein referred to in the
within-mentioned Indenture.

 

	
  CITIBANK, N.A.

  
	
  as Trustee

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Officer

  

 

6

 

[REVERSE OF NOTE]

 

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES H

PRINCIPAL PROTECTED CURRENCY APPRECIATION
BASKET FX-LINKED NOTE
DUE MARCH 15, 2011

 

Section 1. General. This Note is one of a duly
authorized series of Notes of the Company designated as the Medium-Term
Notes, Series H, Principal Protected Currency Appreciation Basket
FX-Linked Note (herein called the “Notes”).
The Notes are one of an indefinite number of series of debt
securities of the Company (collectively, the “Securities”) issued or issuable
under and pursuant to an indenture dated as of September 1, 1987, as
amended and supplemented (the “Indenture”), duly executed and delivered by the
Company and Citibank, N.A., as Trustee (herein called the “Trustee”), to which
Indenture and all indentures supplemental thereto reference is hereby made for
a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Securities. The separate series of Securities may be issued in
various aggregate principal amounts, may mature at different times, may bear
interest (if any) at different rates, may be subject to different
redemption provisions or repurchase rights (if any), may be subject to
different sinking, purchase or analogous funds (if any), may be subject to
different covenants and Events of Default and may otherwise vary as in the
Indenture provided.

 

Section 2.
Principal Amount for Indenture Purposes. For the purpose of determining
whether Holders of the requisite amount of Notes of this series outstanding
under the Indenture have made a demand, given a notice or waiver or taken any
other action, the principal amount of this Note will be deemed to be the
principal amount of this Note then outstanding.

 

Section 3.
Modification and Waivers. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of the Holders of not less than
66-2/3% in aggregate principal amount of each series of the Securities at
the time Outstanding to be affected, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the holders of
the Securities of all such series; provided, however, that no such supplemental
indenture shall, among other things, (i) change the fixed maturity of any
Security, or reduce the Redemption Amount or the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon or reduce any
premium or other amount payable on redemption, or make the Redemption Amount or
the principal amount thereof, premium or other amount payable, if any, or
interest thereon payable in any coin or currency other than that hereinabove
provided, without the consent of the Holder of each Security so affected, or (ii) change
the place of payment on any Security, or impair the right to institute suit for
payment on any Security, or reduce the aforesaid percentage of Securities, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of each Security so affected. It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of any series of Securities, the holders of a majority in
aggregate principal amount of the Securities of such series Outstanding may on
behalf of the holders of all the Securities of such series waive any past 

 

 

default or Event of
Default under the Indenture with respect to such series and its
consequences, except a default in the payment of interest, if any, on the
Redemption Amount or the principal amount, or premium, if any, on any of the
Securities of such series, or in the payment of any sinking fund installment or
analogous obligation with respect to Securities of such series. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future holders and owners of this Note and any
Notes of this series which may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Note or such other Notes of this series.

 

Section 4.
Obligations Unconditional. No reference herein to the Indenture and no
provisions of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
Redemption Amount or the principal amount on this Note at the place, at the
respective times, at the rate, and in the coin or currency herein prescribed.

 

Section 5.
Defeasance. The Indenture contains provisions for the discharge of the
Indenture and defeasance at any time of the indebtedness on this Note upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Note.

 

Section 6.
Authorized Form and Denominations. The Notes of this series are
issuable in registered form, without coupons. Each Note will be issued
initially as either a Global Security or a Certificated Note, at the option of
the Company, in denominations of $10,000 or whole multiples of $10,000, either
at the office or agency to be designated and maintained by the Company for such
purpose in the Borough of Manhattan, New York City, pursuant to the provisions
of the Indenture or at any of such other offices or agencies as may be
designated and maintained by the Company for such purpose pursuant to the
provisions of the Indenture, and in the manner and subject to the limitations
provided in the Indenture, but without the payment of any service charge,
except for any tax or other governmental charges imposed in connection
therewith. Notes of this series are exchangeable for a like aggregate
principal amount of Notes of this series of a different authorized
denomination, except that Global Securities will not be exchangeable for
Certificated Notes of this series.

 

Section 7.
Registration of Transfer. As provided in the Indenture and subject to
certain limitations as therein set forth, the transfer of this Note is
registrable in the Security Register, upon surrender of this Note for
registration of transfer, at the Corporate Trust Office or agency in a Place of
Payment for this Note, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar
requiring such written instrument of transfer duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more
new Notes of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

 

If at
any time the Depository notifies the Company that it is unwilling or unable to
continue as Depository or if at any time the Depository shall no longer be
eligible under the Indenture, the Company shall appoint a successor Depository.
If a successor Depository for the Notes of this series is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, the Company will issue, and the Trustee will
authenticate and deliver, Notes of this series in definitive form in
an aggregate principal amount equal to the principal amount of this Note.

 

 

No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.

 

Prior
to due presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the person
in whose name this Note is registered as the owner hereof for all purposes, and
neither the Company nor the Trustee nor any agent of the Company or of the
Trustee shall be affected by any notice to the contrary.

 

Section 8.
Events of Default. If an Event of Default with respect to Notes of this series shall
occur and be continuing, the amount declared due and payable upon any acceleration
of the Notes will be determined by the Calculation Agent and will equal the
Redemption Amount calculated as though the maturity of the Notes were the date
of early repayment in the manner and with the effect provided in the Indenture.
The amount payable to the Holder hereof upon any acceleration permitted under
the Indenture will be equal to the Redemption Amount calculated as though the
date to which the maturity has been accelerated were the Maturity Date as
determined by the Calculation Agent.

 

Section 9.
No Recourse Against Certain Persons. No recourse for the payment of the
Redemption Amount or for any claim based hereon or otherwise in respect hereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture or any Indenture supplemental thereto or in any Note,
or because of the creation of any indebtedness represented thereby, shall be
had against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly
waived and released.

 

Section 10.
Tax Treatment. The Company agrees, and by acceptance of beneficial
ownership interest in the Notes of this series, each Holder of such Notes will
be deemed to have agreed, for United States federal income tax purposes, (i) to
treat the Notes of this series as indebtedness that is subject to Treas.
Reg. Sec. 1.1275-4 (the “Contingent Payment Regulations”) and (ii) to be
bound by the Company’s determination of the “comparable yield” and “projected
payment schedule,” within the meaning of the Contingent Payment Regulations,
with respect to the Notes of this series.

 

Section 11. Defined Terms. All terms used but
not defined in this Note are used herein as defined in the Indenture.

 

Section 12.
GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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