Document:

Exhibit 10.17

Option
Number «OptionNumber_»

MERGE
TECHNOLOGIES INCORPORATED

DIRECTOR
NONQUALIFIED STOCK OPTION

This
NONQUALIFIED STOCK OPTION (hereinafter, “Stock Option” or “Stock Option
Agreement”) is granted _____, 20__, by MERGE TECHNOLOGIES INCORPORATED, a
Wisconsin corporation (hereinafter, the “Company”), to «FirstName» «LastName» (hereinafter, the “Eligible Participant”), pursuant to the 2005 Equity Incentive Plan of
Merge Technologies Incorporated adopted March 4, 2005 by the Board of Directors
of the Company and approved by the shareholders of the Company on May 24, 2005
(hereinafter, the “Plan”), and resolutions adopted by the Compensation
Committee of the Board of Directors on ______, 20__, which authority was
granted by the Board of Directors (hereinafter,
the “Board”) at its meeting on May 24, 2005.

In
consideration of the Eligible Participant’s covenants contained in the Eligible
Participant’s Acknowledgement and Receipt hereof, appearing below, the
Company hereby grants to the Eligible Participant the option to purchase from
time to time, all or any part of a total of Fifteen Thousand (15,000) shares of
the Company’s Common Stock, One Cent ($0.01) par value, at a price of ________
Dollars and _________ Cents in the currency of the United States of America
(U.S.$______) per share (hereinafter, the “Options”), upon the following terms
and conditions:

1.             The term of the Stock Option shall
be for ten (10) years from the date hereof, and it shall expire on      _____________, 20__, unless sooner terminated
as hereinafter provided.

2.             (a)           At any time or times after the date
hereof (but in no event after the above expiration date or, except as provided
in Paragraph 3 hereof, the prior termination of this Stock Option), the
Eligible Participant may exercise this Stock Option, in whole or in part, as of
the date hereof.  The Options granted
hereunder are nonqualified stock options and are not incentive stock options as
described in Section 422 of the Internal Revenue Code of 1986, as amended.

(b)           This Stock Option shall be exercised
only by timely signed written notice delivered to the Company’s Corporate
Secretary or his or her office, in terms of the prescribed “Exercise of Option” form attached hereto
as Exhibit A, specifying the
number of shares and accompanied by payment, in U. S.  Dollars, in immediately available funds
provided by check, money order, certified check, or wire transfer, of the full
Stock Option purchase price therefore and any amount required to be withheld by
the Company for Federal, state and/or local tax purposes (including any
applicable Canadian tax requirements). 
The certificate or certificates for shares as to which the Option shall
have been so exercised shall be registered in the name of the person or persons
exercising the Option.

(c)           The obligation of the Company to sell
and deliver shares upon the due exercise of this Stock Option shall be subject
to:  (i) all applica­ble laws, rules and
regulations and to such approvals of any governmental agencies as may be
required, including, but not

 

 

 by way of limitation, the effectiveness of an
S-8 Registration Statement under The Securities Act of 1933, as amended (the “Act”),
or the availability of an exemption from registration under said Act, whichever
may be deemed necessary or appropriate by counsel for the Company; and (ii) the
satisfaction of all stock exchange requirements, if any, necessary to
accomplish the listing or complete the listing of the shares upon the stock
exchange upon which the shares of the Company may be listed.

3.             This Stock Option, to the extent
not then already exercised or otherwise terminated or lapsed or expired, shall
terminate on the effective date of the Eligible Participant’s Termination of
Participation; provided, however, that the Eligible Participant
(or his personal representative of his estate) shall have the right to purchase
such quantity of shares which the Eligible Participant could have purchased
pursuant to this Stock Option as of the effective date of the Eligible
Participant’s Termination of Participation, within six (6) months following
such Termination of Participation.

The foregoing
notwithstanding, in no event may this Stock Option be exercised by the Eligible
Participant or the Eligible Participant’s personal representative after the expiration
date specified in Paragraph 1 hereof.

4.             This Stock Option is not
transferable other than by Will or the laws of descent and distribution, may be
exercised during the life of the Eligible Participant only by the Eligible
Participant personally, and after the Eligible Participant’s death, only to the
extent, if any, as provided in Paragraph 3 hereof.  Any attempted transfer by the Eligible
Participant (voluntarily or by operation of law) shall be null and void, and
this Stock Option shall then become null and void.

5.             This Stock Option is subject to the
terms and conditions of the Plan as of the date hereof and the uniform rules
and regulations from time to time issued by the Board or any committee of the
Board pursuant thereto.

6.             The Company hereby represents and
warrants to the Eligible Participant, that it has reserved and will at all
times while this Stock Option is in force, have available sufficient shares to
fulfill this Stock Option.

7.             This Stock Option and the
Acknowledgement and Receipt thereof have been executed in two (2) counterparts,
each of which when so executed and delivered shall be deemed an original and
all of which counterparts, taken together, shall constitute but one and the
same instrument.

MERGE TECHNOLOGIES INCORPORATED

By:      ___________________________________________

   ____________________________, President

 2
 

 

ACKNOWLEDGEMENT AND RECEIPT

I hereby acknowledge the
receipt of the foregoing Stock Option upon the terms and conditions therein
stated.

In
consideration thereof, I hereby covenant and agree:

1.             That except as otherwise provided
in the aforesaid Stock Option Agreement, my rights, interests and benefits
there under are personal to me and may not be assigned, transferred or pledged
by me in any way, voluntarily or by operation of law.

2.             That this Stock Option Agreement shall be binding upon
me, my heirs, legatees, executors and administrators, and shall inure to the
benefit of and be binding upon the Company, its successors and assigns.

3.             That upon exercise of all or any part
of the aforesaid Stock Option, I will, as a condition to receiving such shares,
execute and deliver to the Company such instruments and undertakings as may, in
the opinion of counsel to the Company, be required to comply with those matters
described in Section 2(c) of the Stock Option.

I
hereby acknowledge receipt of a copy of the 2005 Equity Incentive Plan of Merge
Technologies Incorporated adopted March 4, 2005 by the Board of Directors of
the Company and approved by the shareholders of the Company on May 24, 2005, a
signed counterpart of the foregoing Stock Option and this Acknowledgement and
Receipt.

Dated
this __________ day of ____________________, 20__.

__________________________________________________________

«FirstName» «LastName»

 

 3

 

Exhibit A

Exercise of Option

Corporate Secretary

MERGE TECHNOLOGIES INCORPORATED

6737 West Washington Street

Suite 2250

Milwaukee, Wisconsin  53214

RE:                              Stock Option
Dated:        _____, 20__
                                 Stock Option Number:        «OptionNumber_»

I hereby exercise the
foregoing Stock Option to the extent of ___________________________ Shares of
the Common Stock of Merge Technologies Incorporated, one cent ($.01) par value,
at the option price of _______ Dollars and _____ Cents in the currency of the
United States of America (U.S.$_____) per share, in accordance with the terms
and conditions of the aforesaid 2005 Equity Inventive Plan of Merge
Technologies Incorporated adopted March 4, 2005 by the Board of Directors of the Company and approved
by the shareholders of the Company on May 24, 2005, under which it was issued.

Unless
a registration statement under the Securities Act of 1933 is in effect with
respect to the shares to be issued, I hereby certify that I intend by this
exercise of such Stock Option to acquire such shares for purposes of investment
and that I have no intention of reselling them after I have acquired them.

I
further agree that said shares when issued to me (and any additional or other
shares acquired by me in relation to such number of shares whether as a stock dividend
or otherwise) shall be subject to the Plan and that I will comply with said
provi­sions and perform all of the covenants on my part required under the
Plan, the Stock Option and my Acknowledgement and Receipt thereof.

Dated:
___________________________________________

________________________________________________

«FirstName» «LastName»Exhibit 4.01

CUSIP NO. 524908TU4. In the event that no election is
made to extend the maturity date of all or any portion of this Note, the
principal amount of this Note for which such election was not exercised will be
assigned a new CUSIP number, as described in the attached RIDER.

ISIN NO. US524908TU47. In the event that no election
is made to extend the maturity date of all or any portion of this Note, the
principal amount of this Note for which such election was not exercised will be
assigned a new ISIN number, as described in the attached RIDER.

REGISTERED                                                                                                        FACE
AMOUNT: $300,000,000

No. R-1

If this Note is an OID Note (as defined below) the
following legend is applicable:

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE
UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE ISSUE PRICE OF
THIS NOTE IS _____% OF ITS PRINCIPAL AMOUNT, AND THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT, THE YIELD TO MATURITY COMPOUNDED _____________, AND THE ISSUE DATE
ARE AS SET FORTH BELOW. IN THE CASE OF A NOTE SUBJECT TO THE RULES OF TREASURY
REGULATION SECTION 1.1275-4(b), THE COMPARABLE YIELD AND PROJECTED PAYMENT
SCHEDULE CAN BE OBTAINED BY SUBMITTING A WRITTEN REQUEST TO: CONTROLLER’S
OFFICE, LEHMAN BROTHERS HOLDINGS INC., 745 SEVENTH AVENUE, NEW YORK, NEW YORK
10019.

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTE, SERIES I

(FLOATING RATE)

If the registered owner of this Note (as indicated
below) is The Depository Trust Company (the “Depository”) or a nominee of the
Depository, this Note is a Note in global form (a “Global Security”) and the
following legends are applicable except as specified on the reverse hereof:

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 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, 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.

ISSUE PRICE: 
$300,000,000

ISSUE DATE: August 24, 2006

MATURITY DATE: See “Initial Maturity Date” below and
attached RIDER

INTEREST RATE: N/A

INTEREST RATE BASIS: Federal Funds (Open) Rate

SPREAD:

	
  For the Issue Date

  and Interest Reset

  Dates Occurring:

  	
   

  	
  Spread

  
	
  From and including
  the Issue Date to but excluding the August 22, 2007 Interest Reset Date

  	
   

  	
  plus   0.12%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2007 Interest Reset Date to but excluding the August
  22, 2008 Interest Reset Date

  	
   

  	
  plus   0.12%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2008 Interest Reset Date to but excluding the August
  22, 2009 Interest Reset Date

  	
   

  	
  plus   0.13%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2009 Interest Reset Date to but excluding the August
  22, 2010 Interest Reset Date

  	
   

  	
  plus   0.14%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2010 Interest Reset Date to but excluding the August
  22, 2011 Interest Reset Date

  	
   

  	
  plus   0.15%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2011 Interest Reset Date to but excluding the August
  22, 2012 Interest Reset Date

  	
   

  	
  plus   0.16%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2012 Interest Reset Date to but excluding the August
  22, 2013 Interest Reset Date

  	
   

  	
  plus   0.16%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2013 Interest Reset Date to but excluding the August
  22, 2014 Interest Reset Date

  	
   

  	
  plus   0.16%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2014 Interest Reset Date to but excluding the August
  22, 2015 Interest Reset Date

  	
   

  	
  plus   0.16%

  
	
   

  	
   

  	
   

  
	
  From and
  including the August 22, 2015 Interest Reset Date to and including the August
  22, 2016 Final Maturity Date

  	
   

  	
  plus   0.16%

  

 

 2
 

 

SPREAD MULTIPLIER: N/A

MAXIMUM INTEREST RATE: N/A

MINIMUM INTEREST RATE: 0%

INTEREST RESET DATES: Each Business Day, commencing on August 24,
2006, provided that (a) the Federal Funds (Open) Rate in effect for any day
that is not a Business Day shall be the Federal Funds (Open) Rate in effect for
the prior Business Day and (b) the Federal Funds (Open) Rate in effect on the
second Business Day preceding an Interest Payment Date shall remain in effect
for all days following such day prior to such Interest Payment Date.

INTEREST RESET PERIOD: N/A

INTEREST DETERMINATION DATES: Each Interest Reset Date

INTEREST PAYMENT DATES:
Quarterly, on each February 22, May 22, August 22 and November 22, commencing
on November 22, 2006; provided that if such day is not a Business Day, then
such day will be the following Business Day unless such day falls in the
following month and is not a maturity date or date of redemption, in which case
it will be the preceding Business Day; provided, further that the final Interest
Payment Date for any notes shall be the applicable maturity date

REGULAR RECORD DATES: 15 calendar days immediately
preceding the Interest Payment Date

EXCHANGE RATE AGENT: N/A

DEPOSITORY: The Depository Trust Company

DUAL CURRENCY NOTE:

o YES    x NO

OPTION ELECTION DATES: N/A

OPTIONAL PAYMENT CURRENCY: N/A

DESIGNATED EXCHANGE RATE: N/A

OTHER PROVISIONS: N/A

OPTION TO RECEIVE PAYMENTS IN THE SPECIFIED CURRENCY:

o YES    x NO

SPECIFIED CURRENCY:

BUSINESS DAY: New York

 3
 

 

AMORTIZING NOTE:

o YES    x NO

SINKING FUND: N/A

OID NOTE:

o YES    x NO

AUTHORIZED DENOMINATIONS: $1,000/$1,000

EXTENSION OF MATURITY NOTE:

See RIDER

EXTENSION PERIOD: See RIDER

NUMBER OF EXTENSION PERIODS: See RIDER

OPTION TO ELECT REPAYMENT:

o YES    x NO

OPTIONAL REPAYMENT DATES: N/A

OPTIONAL REPAYMENT PRICES: N/A

OPTIONAL INTEREST RATE RESET:

o YES    x NO

OPTIONAL RESET DATES: N/A

OPTIONAL REDEMPTION:

x YES   o NO

INITIAL REDEMPTION DATE:  August 22, 2015

INITIAL REDEMPTION PERCENTAGE:  100%

APPLICABILITY OF ANNUAL REDEMPTION PERCENTAGE
REDUCTION:

o YES    x NO

If yes, state Annual Percentage Reduction: 
%

EXTENDIBLE NOTE:

x YES   o NO

INITIAL MATURITY DATE: August 22, 2008

SPECIAL ELECTION INTERVAL: N/A

SPECIAL ELECTION PERIOD:N/A

 4

 

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
the Principal Amount hereof (as defined below) and, if so specified above, to
pay interest thereon from the Issue Date specified above or from the most
recent Interest Payment Date specified above to which interest has been paid or
duly provided for at the rate per annum determined in accordance with the
provisions on the reverse hereof, depending on the Interest Rate Basis
specified above, until the principal hereof is paid or made available for
payment and (to the extent that the payment of such interest shall be legally
enforceable) at such rate per annum on any overdue principal and premium and on
any overdue instalment of interest. Unless otherwise specified above, and
except as provided in Section 9 on the reverse hereof if this Note is a Dual
Currency Note (as hereinafter defined), payments of principal, premium, if any,
and interest hereon will be made in U.S. dollars; if the Specified Currency set
forth above is a currency other than U.S. dollars (a “Foreign Currency”), such
payments will be made in U.S. dollars based on the equivalent of that Foreign
Currency converted into U.S. dollars in the manner set forth in Section 2 on
the reverse hereof. If the Specified Currency is a Foreign Currency and it is
so provided above, the Holder may elect to receive such payments in that
Foreign Currency by delivery of a written request to the Trustee (or to any
duly appointed Paying Agent) at the Corporate Trust Office (as defined below)
not later than 10 calendar days prior to the applicable payment date, and such
election will remain in effect for the Holder until revoked by written notice
to the Trustee (or to any such Paying Agent) at the Corporate Trust Office
received not later than 10 calendar days prior to the applicable payment date;
provided, however, no such election or revocation may be made if, with respect
to this Note, (i) an Event of Default has occurred, (ii) the Company has
exercised any discharge or defeasance options or (iii) the Company has given a
notice of redemption. In the event the Holder makes any such election pursuant
to the preceding sentence, such election will not be effective on any
transferee of such Holder and such transferee shall be paid in U.S. dollars
unless such transferee makes an election pursuant to the preceding sentence;
provided, however, that such election, if in effect while funds are on deposit
with the Trustee to satisfy and discharge this Note, will be effective on any
such transferee unless otherwise specified above. The “Principal Amount” of
this Note at any time means (i) if this Note is an OID Note, the Amortized Face
Amount at such time as described in Section 8 on the reverse hereof and (ii) in
all other cases, the Face Amount hereof.

If this Note is subject to an Annual Percentage
Reduction as specified above, the Redemption Price shall initially be the
Initial Redemption Percentage of the Principal Amount of this Note on the
Initial Redemption Date and shall decline at each anniversary of the Initial
Redemption Date (each such date, a “Redemption Date”) by the Annual Percentage
Reduction of such Principal Amount until the Redemption Price is 100% of such
Principal Amount.

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, the
term “Maturity” when used herein shall refer, where applicable, to the date of
redemption, repayment, acceleration or other prepayment of this Note.

Except as provided in the following paragraph, the
Company will pay interest on each Interest Payment Date specified above,
commencing with the first Interest Payment Date

 5
 

 

next succeeding the Issue
Date, and at Maturity; provided that any payment of principal, premium, if any,
or interest to be made on any Interest Payment Date or on a date of Maturity
that is not a Business Day shall be made on the next succeeding Business Day
with the same force and effect as if made on such Interest Payment Date or such
date of Maturity, as the case may be, and additional interest shall accrue as a
result of such delayed payment up to, but excluding, the date of Maturity,
except that if this Note is a LIBOR Note or a EURIBOR Note (as defined in
Section 3 on the reverse hereof) and such next succeeding Business Day falls in
the next calendar month, such payment shall be made on the preceding day that
is a Business Day. The term “Business Day” means any day, that is not a
Saturday or Sunday, and that is not a day on which banking institutions in New
York City are generally authorized or obligated by law or executive order to be
closed; for LIBOR notes only, is also a London Business Day; for notes having a
specified currency other than U.S. dollars only, other than notes denominated
in Euros, is also not a day on which banking institutions in the principal
financial center (as defined below) of the country of the specified currency
generally are authorized or obligated by law or executive order to close; and
for EURIBOR notes, notes denominated in Euros or LIBOR notes for which the
index currency is Euros only, is also a Euro business day. A principal
financial center means 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. A “London Business Day” means any day that is
not a Saturday or Sunday and on which dealings in deposits in U.S. dollars are
transacted, or with respect to any future date are expected to be transacted,
in the London interbank market and a “Euro Business Day” means any day that is
not a Saturday or Sunday on which the Trans-European Automated Real-Time Gross
Settlement Express Transfer System is open. 
Unless otherwise specified above, the interest payable on each Interest
Payment Date or at Maturity will be the amount of interest accrued from and
including the Issue Date or from and including the last Interest Payment Date
to which interest has been paid, as the case may be, to, but excluding, such
Interest Payment Date or the date of Maturity, as the case may be; provided,
however, that if interest on this Note is reset daily or weekly, interest
payable on each Interest Payment Date will be the amount of interest accrued
from and including the Issue Date or from and excluding the last date to which
interest has been paid, as the case may be, to, and including, the date 15
calendar days prior to such Interest Payment Date (“Regular Record Date”)
immediately preceding such Interest Payment Date, except that at Maturity the
interest payable will include interest accrued to, but excluding, the date of
Maturity.

Unless otherwise specified above, the interest payable
on any Interest Payment Date will, as provided in the Indenture, be paid to the
person in whose name this Note (or one or more predecessor Notes) is registered
at the close of business on the Regular Record Date indicated above next
preceding such Interest Payment Date; provided that, notwithstanding any
provision of the Indenture to the contrary, interest payable on any date of
Maturity shall be payable to the Person to whom principal shall be payable; and
provided, further, that, unless otherwise specified above, in the case of a
Note initially issued between a Regular Record Date and the Interest Payment
Date relating to such Regular Record Date, interest for the period beginning on
the Issue Date and ending on such Interest Payment Date shall be paid on the
Interest Payment Date following the next succeeding Regular Record Date to the
registered Holder on such next succeeding Regular Record Date.

 6
 

 

Unless otherwise indicated above, each Holder shall
receive interest payments in immediately available funds by check mailed to
such Holder or by wire transfer, but only if complete and appropriate
instructions have been received in writing by the Trustee (or any such Paying
Agent) on or prior to the applicable Regular Record Date. Simultaneously with
any election by the Holder hereof to receive payments in respect hereof in a
Foreign Currency, such Holder may, if so entitled (as provided above), elect to
receive such payments in immediately available funds by providing complete and
appropriate instructions to the Trustee (or any such Paying Agent), and all
such payments will be made in immediately available funds to an account
maintained by the payee with a bank located outside the United States or as
otherwise provided above.

Unless otherwise indicated above, and except as
provided below if this Note is a Global Security, payments of principal,
premium, if any, and interest payable at Maturity will be made in immediately
available funds (unless otherwise indicated above, payable to an account at a
bank located outside the United States if payable in a Foreign Currency) 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 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.

Unless otherwise specified above, if this Note is a
Global Security, payments of interest hereon (other than at Maturity) will be
made in same-day funds in accordance with existing arrangements between the
Trustee (or any duly appointed Paying Agent) and the Depository.  Unless otherwise specified above, if this
Note is a Global Security, any principal, premium and/or interest payable
hereon at Maturity will be paid by wire transfer in immediately available funds
to an account specified by the Depository (which account, unless otherwise
provided above, will be at a bank located outside the United States if payable
in a Foreign Currency).

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 “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.

 7
 

 

IN WITNESS WHEREOF, Lehman Brothers Holdings Inc. has
caused this instrument to be signed by its Chairman of the Board, its
President, 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: August 24, 2006

[SEAL]

	
  

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
  Assistant Secretary

  

 8
 

 

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

  	
   

  

 

 9

 

[REVERSE OF NOTE]

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES I

(Floating Rate)

Section 1.               General.  This Note is one of a duly authorized series
of Notes of the Company designated as the Medium-Term Notes, Series I (Floating
Rate) of the Company (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 repayment 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.               Currency Exchanges and
Payments.  If the Holder elects to
receive all or a portion of payments of principal of, premium, if any, and
interest on this Note, if denominated in a Foreign Currency, in U.S. dollars,
the Exchange Rate Agent specified on the face hereof or a successor thereto
(the “Exchange Rate Agent”) will convert such payments into U.S. dollars. In
the event of such an election, payment to the Holder will be based upon the
exchange rate as determined by the Exchange Rate Agent based on the highest bid
quotation in New York City received by such Exchange Rate Agent at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent unless such Exchange Rate
Agent is an affiliate of the Issuer) for the purchase by the quoting dealer of
the Foreign Currency for U.S. dollars for settlement on such payment date in
the amount of the Foreign Currency payable in the absence of such an election
to such Holder and at which the applicable dealer commits to execute a
contract. If such bid quotations are not available, such payment will be made
in the Foreign Currency. All currency exchange costs will be borne by the
holder of this Note by deductions from such payments.

Unless otherwise specified on the face hereof, if
payment hereon is required to be made in a Foreign Currency and such currency
is unavailable to the Company for making payments thereof due to the imposition
of exchange controls or other circumstances beyond the Company’s control, or is
no longer used by the government of the country which issued such currency or
for the settlement of transactions by public institutions of or within the
international banking community, then the Company will be entitled to make
payments with respect hereto in U.S. dollars until such Foreign Currency is
again available or so used.  The amount
so payable on any date in such Foreign Currency shall be converted into U.S.
dollars at a rate determined by the Exchange Rate Agent on the basis of the
noon buying rate in New York City for cable

 10
 

 

transfers in the Foreign Currency as certified for
customs purposes by the Federal Reserve Bank of New York (the “Market Exchange
Rate”) for such Foreign Currency on the second Business Day prior to such
payment date, or on such other basis as may be specified on the face
hereof.  In the event such Market
Exchange Rate is not then available, the Company will be entitled to make
payments in U.S. dollars (i) if such Foreign Currency is not a composite
currency, on the basis of the most recently available Market Exchange Rate for
such Foreign Currency or (ii) if such Foreign Currency is a composite currency
in an amount determined by the Exchange Rate Agent to be the sum of the results
obtained by multiplying the number of units of each component currency of such
composite currency, as of the most recent date on which such composite currency
was used, by the Market Exchange Rate for such component currency on the second
Business Day prior to such payment date (or if such Market Exchange Rate is not
then available, by the most recently available Market Exchange Rate for such
component currency, or as otherwise specified on the face hereof).  Any payment in respect hereof made under such
circumstances in U.S. dollars will not constitute an Event of Default under the
Indenture.

If the official unit of any component currency of a
composite currency is altered by way of combination or subdivision, the number
of units of that currency as a component shall be divided or multiplied in the
same proportion.  If two or more
component currencies are consolidated into a single currency, the amounts of
those currencies as components shall be replaced by an amount in such single
currency equal to the sum of the amounts of the consolidated component
currencies expressed in such single currency. 
If any component currency is divided into two or more currencies, the
amount of that original component currency as a component shall be replaced by
amounts of such two or more currencies having an aggregate value on the date of
division equal to the amount of the former component currency immediately
before such division.

In the event of an official redenomination of the
Specified Currency or the Optional Payment Currency (including, without
limitation, an official redenomination of any such currency that is a composite
currency), the obligations of the Company to make payments in or with reference
to such currency shall, in all cases, be deemed immediately following such
redenomination to be obligations to make payments in or with reference to that
amount of redenominated currency representing the amount of such currency
immediately before such redenomination. 
In no event shall any adjustment be made to any amount payable hereunder
as a result of any redenomination of any component currency of any composite
currency (unless such composite currency is itself officially redenominated).

All determinations referred to above made by the
Exchange Rate Agent shall be at its sole discretion (except to the extent
expressly provided herein that any determination is subject to approval by the
Company) and, in the absence of manifest error, shall be conclusive for all
purposes and binding on the Holder hereof, and the Exchange Rate Agent shall
have no liability therefor.

All currency exchange costs will be borne by the
Holder hereof by deduction from the payments made hereon.

Section 3.               Determination of Interest Rate.
For the period from the Issue Date to the first Interest Reset Date set forth
on the face hereof, the interest rate hereon shall be the

 11
 

 

Initial
Interest Rate specified on the face hereof. Thereafter, the interest rate
hereon will be reset on each Interest Reset Date; provided, however, that the
interest rate in effect for the two Business Days immediately prior to Maturity
will be that in effect on the second Business Day preceding such Maturity. If
any Interest Reset Date would otherwise be a day that is not a Business Day,
the Interest Reset Date shall be the next day that is a Business Day.  If this Note is a (1) LIBOR Note and an
Interest Reset Date would otherwise be a day that is not a London Business Day,
the Interest Reset Date shall be the next day that is a London Business Day or
(2) EURIBOR Note and an Interest Reset Date would otherwise be a day that is
not a Euro Business Day, the Interest Reset Date shall be the next day that is
a Euro Business Day; provided that, if this Note is a LIBOR Note or a EURIBOR
Note and such Business Day is in the next succeeding calendar month, the
Interest Reset Date shall be the immediately preceding London Business Day, in
the case of a LIBOR Note, or Euro Business Day, in the case of a EURIBOR
Note.  If this Note is a Treasury Rate
Note (as defined below) and an auction date for Treasury bills shall fall on
any Reset Date, then such Interest Reset Date shall instead be the first Business
Day immediately following such auction date. Subject to applicable provisions
of law and except as specified herein, on each Interest Reset Date, the rate of
interest on this Note on and after the first Interest Reset Date shall be the
rate determined in accordance with the provisions of the heading below which
has been designated as the Interest Rate Basis on the face hereof plus or minus
the Spread, if any, specified on the face hereof or multiplied by the Spread
Multiplier, if any, specified on the face hereof.

Commercial Paper Rate Notes

If the Interest Rate Basis is the Commercial Paper
Rate, this Note is a “Commercial Paper Rate Note.” A Commercial Paper Rate Note
will bear interest at the interest rate calculated with reference to the
Commercial Paper Rate and the Spread and/or Spread Multiplier and will be
subject to the minimum interest rate and the maximum interest rate, if any.
Unless otherwise specified on the face hereof, “Commercial Paper Rate” means,
with respect to any Interest Determination Date, the Money Market Yield (calculated
as described below) of the rate on that date for commercial paper having the
applicable Index Maturity as such rate is published in the publication entitled
“Statistical Release H.15(519), Selected Interest Rates,” or any successor
publication, published by the Board of Governors of the Federal Reserve System
(“H.15(519)”) under the heading “Commercial Paper—Nonfinancial”. If such rate
is not published by 3:00 P.M., New York City time, on the Calculation Date (as
defined below) pertaining to such Interest Determination Date, then the
Commercial Paper Rate shall be the Money Market Yield of the rate on such
Interest Determination Date for commercial paper having the applicable Index
Maturity as published in the daily update of the Board of Governors of the
Federal Reserve System at http://www.federalreserve.gov/releases/H15/update, or
any successor site or publication (“H.15 Daily Update”) or another recognized
electronic source used for displaying this rate, under the heading “Commercial
Paper—Nonfinancial”.  If such rate is not
yet published in H.15(519), H.15 Daily Update or another recognized electronic
source by 3:00 P.M., New York City time, on such Calculation Date, then the
Commercial Paper Rate for such Interest Determination Date shall be calculated
by the Calculation Agent and shall be the Money Market Yield of the arithmetic
mean of the offered rates as of 11:00 A.M. New York City time, on such Interest
Determination Date of three leading dealers of commercial paper in New York
City selected by the Calculation Agent after consultation with the Company for
commercial paper having the applicable Index Maturity, placed for industrial
issuers whose bond

 12
 

 

rating is “AA”, or the
equivalent, from a nationally recognized securities rating agency; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, the Commercial Paper Rate for the
applicable period will be the Commercial Paper Rate in effect on such Interest
Determination Date.  If there was no Commercial Paper Rate in
effect on such Interest Determination Date, the Commercial Paper Rate will be
the initial interest rate.

“Money Market Yield” shall be a yield calculated in
accordance with the following formula:

	
  Money Market Yield

  	
   

  	
  =

  	
   

  	
  D X 360

  	
   

  	
  x

  	
   

  	
  100

  
	
   

  	
   

  	
  360 - (D X M)

  	
   

  	
   

  

 

where “D” refers to the per annum rate for the
commercial paper, quoted on a bank discount basis expressed as a decimal; and “M”
refers to the actual number of days in the interest period for which interest
is being calculated.

Federal Funds (Effective)
Rate Notes

If the Interest Rate Basis is the Federal Funds
(Effective) Rate, this Note is a “Federal Funds (Effective) Rate Note.” A
Federal Funds (Effective) Rate Note will bear interest at the interest rate
calculated with reference to the Federal Funds (Effective) Rate and the Spread
and/or Spread Multiplier and will be subject to the minimum interest rate or
the maximum interest rate, if any. Unless otherwise specified on the face
hereof, “Federal Funds (Effective) Rate” means, with respect to any Interest
Determination Date, the rate on that day for Federal Funds as published in
H.15(519) under the heading “Federal Funds (Effective),” as displayed on Moneyline
Telerate on page 120, or any successor service or page (“Telerate Page 120”)
or, if not so published by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, the Federal Funds
(Effective) Rate will be the rate on such Interest Determination Date as
published in the H.15 Daily Update, or another recognized electronic source
used for displaying this rate under the heading “Federal Funds (Effective).” If
such rate is not yet published in H.15(519), H.15 Daily Update, or another
recognized electronic source, by 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Interest determination Date, then the
Federal Funds (Effective) Rate for such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates as of 11:00 A.M., New York City time, on such Interest Determination Date
for the last transactions in overnight Federal Funds arranged by three leading
brokers of Federal Funds transactions in New York City selected by the
Calculation Agent after consultation with the Company; provided, however, that
if the brokers selected as aforesaid by the Calculation Agent are not quoting
as mentioned in this sentence, the Federal Funds (Effective) Rate for the
applicable period will be the Federal Funds Effective Rate in effect on such
Interest Determination Date.  If there was no Federal Funds (Effective)
Rate in effect on such Interest Determination Date, the Federal Funds
(Effective) Rate will be the initial interest rate.

 13
 

 

Federal
Funds (Open) Rate Notes

If the Interest Rate Basis is the Federal Funds (Open)
Rate, this Note is a “Federal Funds (Open) Rate Note.” A Federal Funds (Open)
Rate Note will bear interest at the interest rate calculated with reference to
the Federal Funds (Open) Rate and the Spread and/or Spread Multiplier and will
be subject to the minimum interest rate or the maximum interest rate, if any.
Unless otherwise specified on the face hereof, “Federal Funds (Open) Rate”
means, with respect to any Interest Determination Date, the rate on that day
for Federal Funds as published in H.15(519) under the heading “Federal Funds”
and opposite the caption “Open” as displayed on Moneyline Telerate on page 5,
or any successor service or page (“Telerate Page 5”), or, if not so published
by 3:00 P.M., New York City time, on the Calculation Date pertaining to such
Interest Determination Date, the Federal Funds (Open) Rate will be the rate on
such Interest Determination Date as reported by Prebon Yamane (or successor) on
Bloomberg that appears on FEDSPREB Index (“FEDSREB”). If such rate is not yet
published in either Telerate Page 5 or FEDSPREB by 3:00 P.M., New York City
time, on the Calculation Date pertaining to such Interest determination Date,
then the Federal Funds (Open) Rate for such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates before 9:00 A.M., New York City time, on such Interest Determination Date
for the last transaction in overnight Federal Funds arranged by three brokers
of Federal Funds transactions in New York City selected by the Calculation
Agent after consultation with the Company; provided, however, that if fewer
than three brokers are selected as mentioned in this sentence by the
Calculation Agent, the Federal Funds (Open) Rate for the applicable period will
be the Federal Funds (Open) Rate in effect on such Interest Determination
Date.  If there was no Federal Funds (Open) Rate in effect on such Interest Determination Date, the Federal Funds (Open) Rate will be the Federal Funds (Open) Rate will be the initial interest rate.

CD Rate Notes

If the Interest Rate Basis is the CD Rate, this Note
is a “CD Rate Note.” A CD Rate Note will bear interest at the interest rate
calculated with reference to the CD Rate and the Spread and/or Spread
Multiplier and will be subject to the minimum interest rate or the maximum
interest rate, if any. Unless otherwise specified on the face hereof, “CD Rate”
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the applicable Index Maturity as
published in H.15(519) under the heading “CDs (Secondary Market)” or, if not so
published by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the CD Rate will be the rate on such
Interest Determination Date for negotiable certificates of deposit of the
applicable Index Maturity as published in the H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying this rate,
under the heading “CDs (Secondary Market)”. If such rate is not yet published
in H.15(519), the H.15 Daily Update or another recognized electronic source by
3:00 P.M., New York City time, on such Calculation Date, then the CD Rate for
such Interest Determination Date will be calculated by the Calculation Agent
and will be the arithmetic mean of the secondary market offered rates as of
10:00 A.M., New York City time, on such Interest Determination Date, of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in
New York City selected by the Calculation Agent after consultation with the
Company for negotiable certificates of deposit of major United States money
center banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining

 14
 

 

maturity closest to the applicable Index Maturity in a
denomination that is representative for a single transaction in that market at
that time; provided, however, that if the dealers mentioned in this sentence by
the Calculation Agent are not quoting as mentioned in this sentence, the CD
Rate for the applicable period will be the CD Rate in effect on such Interest
Determination Date.  If there was no CD Rate in effect on such
Interest Determination Date, the CD Rate will be the initial interest rate.

LIBOR Notes

If the Interest Rate Basis is LIBOR, this Note is a “LIBOR
Note.” A LIBOR Note will bear interest at the interest rate calculated with
reference to LIBOR and the Spread and/or Spread Multiplier and will be subject
to the minimum interest rate and maximum interest rate, if any. Unless
otherwise indicated on the face hereof, “LIBOR” means the rate determined by
the Calculation Agent as follows:

(a)  With respect to an Interest Determination Date, LIBOR
will be, as specified on the face hereof, either (i) the arithmetic mean of the
offered rates for deposits in U.S. dollars or the applicable Foreign Currency
specified on the face hereof for the period (commencing on the Interest Reset
Date) of the applicable Index Maturity which appears on the display designated
as page “LIBO” on the Reuters Monitor Money Rates Service, or any successor
service or page for the purpose of displaying London interbank offered rates of
major banks (the “Reuters Screen LIBO Page”), at approximately 11:00 A.M.,
London time, on such Interest Determination Date, if at least two such offered
rates appear on the Reuters Screen LIBO Page (“LIBOR Reuters”) (unless Reuters Screen LIBO Page by its
terms provides only for a single rate, in which case such single rate shall be
used), or (ii) the offered rate for deposits in U.S. dollars or the
applicable Foreign Currency specified on the face hereof for the period (commencing
on the Interest Reset Date) of the applicable Index Maturity which appears on
Telerate Page 3750 (as defined below), as applicable, at approximately 11:00
A.M., London time, on such Interest Determination Date (“LIBOR Telerate”). If
neither LIBOR Reuters nor LIBOR Telerate is specified on the face hereof, LIBOR
will be determined as if LIBOR Telerate had been specified.

(b)  With respect to an Interest Determination Date on which
no rate appears on the Reuters Screen LIBO Page or the Telerate Page 3750, as
applicable, as specified in (a)(i) or (a)(ii) above, as applicable, the
Calculation Agent will request the principal London office of each of four
major banks in the London interbank market, as selected by the Calculation
Agent after consultation with the Company, to provide the Calculation Agent
with its offered quotation for deposits in the applicable currency for the
period (commencing on the Interest Reset Date) of the applicable Index Maturity
to prime banks in the London interbank market at approximately 11:00 A.M.,
London time, on such Interest Determination Date in a principal amount that is
representative of a single transaction in such market at such Interest
Determination Date.  If two or more
quotations are provided on such Interest Denomination Date, LIBOR in respect of
such Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, LIBOR in respect of
such Interest Determination Date will be the arithmetic mean of the rates
quoted on such Interest Determination Date by three leading European banks
selected by the Calculation Agent after consultation with the Company for loans
in the applicable currency to leading European banks, for the period
(commencing on the Interest Reset Date) of the applicable Index Maturity in a
principal amount that is representative of a

 15
 

 

single transaction in such market at such time,
provided, however, that if the European banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR for the
applicable period will be LIBOR as in effect on such Interest Determination
Date.  If there was no LIBOR Rate in effect on such Interest Determination Date,
the LIBOR Rate will be the initial interest rate. If the specified index
currency on such Interest Determination Date is the U.S. dollar, the applicable
principal financial center will be New York City and the approximate time for
which quotes for loans in U.S. dollars would be requested from New York City
banks will be 3:00 p.m., New York City time.

The term “Telerate Page 3750” means the display
designated as page “3750” on the Telerate Service, or such other service or
services as may be nominated by the British Bankers’ Association for the
purpose of displaying London interbank offered rates for deposits in U.S.
Dollars, British Pounds Sterling, Swiss Francs, Japanese Yen and Euros.

EURIBOR Notes

If the Interest Rate Basis is EURIBOR, this Note is a “EURIBOR
Note.” A EURIBOR Note will bear interest at the interest rate calculated with
reference to EURIBOR and the Spread and/or Spread Multiplier and will be
subject to the minimum interest rate or maximum interest rate, if any. Unless
otherwise indicated on the face hereof, “EURIBOR” means the rate determined by
the Calculation Agent as follows:

(a)  With
respect to an Interest Determination Date, EURIBOR means the offered rate for
deposits in Euros (commencing on the Interest Reset Date) of the applicable
Index Maturity as sponsored, calculated and published jointly by the European
Banking Federation and ACI—the Financial Market Association or any company
established by them for purposes of establishing those rates having the Index
Maturity which appears on the Moneyline Telerate on page 248 or any successor
service use for the purpose of displaying this rate (“Telerate Page 248”) on
such Interest Determination Date (“EURIBOR Telerate”). If EURIBOR Telerate is
not specified on the face hereof, EURIBOR will be determined as if EURIBOR
Telerate had been specified.

(b)  If such
rate is not displayed on Telerate Page 248 as of 11:00 A.M., Brussels time, on
the Calculation Date pertaining to such Interest determination Date, then
EURIBOR for such Interest Determination Date will be determined on the basis of
the rates, at approximately 11:00 A.M., Brussels time, at which Euro deposits
having the relevant Index Maturity, beginning on the relevant interest reset
date, and in an amount representative of a single transaction in Euros in such
market are offered to prime banks in the euro-zone interbank market by the
principal London offices of each of four major banks in that market selected by
the Calculation Agent. The Calculation Agent will request the principal
euro-zone office of each of these banks provide their offered quotations. If at
least two quotations are provided, EURIBOR for such Interest Determination Date
will be the arithmetic mean of the quotations as aforesaid.  If fewer than two quotations are provided as
aforesaid by the Calculation Agent, EURIBOR in respect of such Interest
Determination Date will be the arithmetic mean of the rates quoted for the
leading euro-zone banks quoted at approximately 11:00 A.M., Brussels time on
such Interest Determination Date, by three major banks in the euro-zone
selected by the Calculation Agent for loans in Euros in a principal amount that
is representative of a single transaction in Euros in such

 16
 

 

market.  If fewer than three banks are selected
as aforesaid by the Calculation Agent, EURIBOR for the applicable period will
be EURIBOR in effect on such Interest Determination Date. If there was no EURIBOR Rate in effect on
such Interest Determination Date, the EURIBOR Rate will be the initial interest
rate.

Prime Rate Notes

If the Interest Rate Basis is the Prime Rate, this
Note is a “Prime Rate Note.” A Prime Rate Note will bear interest at the
interest rate calculated with reference to the Prime Rate and the Spread and/or
Spread Multiplier and will be subject to the minimum interest rate and the
maximum interest rate, if any. Unless otherwise specified on the face hereof, “Prime
Rate” means, with respect to any Interest Determination Date, the rate on that
day as published in H.15(519) under the heading “Bank Prime Loan” or, if not so
published by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Prime Rate will be the rate on that
day as published in the H.15 Daily Update, or another recognized electronic
source used for the purpose of displaying this rate, under the heading “Bank
Prime Loan.”  If such rate is not yet published in H.15(519), the H.15 Daily Update or
another recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Rate, the rate will
be determined by the Calculation Agent and will be the arithmetic mean
of the rates of interest publicly announced by each bank named on the display
designated on the Reuters Screen US PRIME1 Page as each such bank’s prime rate
or base lending rate for such Interest Determination Date, or such other page
as may replace such page on the service for the purpose of displaying prime
rates or base lending rates of major United States banks (the “US PRIME1 Page”),
as such bank’s prime rate or base lending rate as in effect for such Interest
Determination Date. If fewer than four such rates but more than one such rate
appear on the US PRIME1 Page for such Interest Determination Date, the Prime
Rate will be determined by the Calculation Agent and will be the arithmetic mean
of the Prime Rates quoted on the basis of the actual number of days in the year
divided by 360 as of the close of business on such Interest Determination Date
by three major banks in New York City selected by the Calculation Agent after
consultation with the Company; provided, however, that if the banks or trust
companies selected as aforesaid are not quoting as mentioned in this sentence,
the Prime Rate for the applicable period will be the Prime Rate in effect on
such Interest Determination Date.  If there was no Prime Rate in effect on such
Interest Determination Date, the Prime Rate will be the initial interest rate.

Treasury Rate Notes

If the Interest Rate Basis is the Treasury Rate, this
Note is a “Treasury Rate Note.” A Treasury Rate Note will bear interest at the
interest rate calculated with reference to the Treasury Rate and the Spread
and/or Spread Multiplier and will be subject to the minimum interest rate and
the maximum interest rate, if any. Unless otherwise specified on the face
hereof “Treasury Rate” means, with respect to any Interest Determination Date,
the rate for the auction held on such Interest Determination Date of U.S.
Treasury Securities (“Treasury securities”) having the applicable Index
Maturity as it appears on the display on Moneyline Telerate page 56 or 57, or
any successor page or service, under the heading “Investment Rate” or, if not
so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the auction average rate for
U.S. Treasury Securities (expressed as a bond

 17
 

 

equivalent, on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury securities having the applicable Index Maturity are not
published or reported as provided by 3:00 P.M., New York City time, on such
Calculation Date or if no such auction is held on such Interest Determination
Date, then the Treasury Rate shall be calculated by the Calculation Agent and
shall be the Index Maturity as published in H.15(519) under the heading “U.S.
Government Securities—Treasury Bills (Secondary Market)” or, if such rate is not yet published, in H.15(519) by 3:00 P.M., New
York City time, on the Calculation Date, then the Treasury Rate shall be the
Index Maturity as published in H.15 Daily Update, or other recognized
electronic source used for the purpose of displaying such rate, under the
caption “U.S. Government Securities—Treasury Bills (Secondary Market).”  If such Index Maturity is not published in
H.15(519), H.15 Daily Update or another recognized electronic source on the
Calculation Date pertaining to such Interest Determination Date, then the
Treasury Rate shall be calculated by the Calculation Agent and shall be the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on such Interest Determination Date, of three primary
United States government securities dealers selected by the Calculation Agent
after consultation with the Company for the issue of Treasury securities with a
remaining maturity closest to the applicable Index Maturity (expressed as a bond equivalent, on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis);
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Treasury Rate for the
applicable period will be the Treasury Rate in effect on such Interest
Determination Date.  If there was no Treasury Rate in effect on
such Interest Determination Date, the Treasury Rate will be the initial
interest rate.

Constant Maturity
Treasury Rate Notes

If the Interest Rate Basis is the Constant Maturity
Treasury Rate, this Note is a “Constant Maturity Treasury Rate Note.” A
Constant Maturity Treasury Rate Note will bear interest at the interest rate
calculated with reference to the Constant Maturity Treasury Rate (“CMT Rate”)
and the Spread and/or Spread Multiplier and will be subject to the minimum
interest rate and the maximum interest rate, if any. Unless otherwise specified
on the face hereof CMT Rate means, with respect to any Interest Determination
Date, the rate for the applicable Index Maturity specified under the caption “Treasury
Constant Maturities” on the “Designated Constant Maturity Treasury page” (as
defined below) for (1) such Interest Determination Date (if the Designated
Constant Maturity Treasury page is 7051) or (2) the week, or the month, as set
forth on the face hereof, ended immediately preceding the week or month in
which the applicable Calculation Date pertaining to such Interest Determination
Date occurs (if the Constant Maturity Treasury is 7052).  If the CMT Rate is not published as described
above by 3:00 P.M., New York City time, on the Calculation Date pertaining to
such Interest Determination Date, then the CMT Rate shall be the Treasury
Constant Maturity rate as published in H.15(519). If such Treasury Constant
Maturity rate is not published in H.15(519) as provided by 3:00 P.M., New York
City time, on such Calculation Date the CMT Rate will be the Treasury Constant
Maturity rate for the Index Maturity (or other United States Treasury Rate for
the specified Index Maturity) for such Interest Determination Date published by
either the Board of Governors of the Federal Reserve System or the United
States Department of the Treasury that the Calculation Agent determines is
comparable to the rate formerly displayed on the Designated Constant Maturity
Treasury page and published in the relevant H.15(519).  If the above information is not available by
3:00 P.M.,

 18
 

 

New York City time, the CMT Rate will be calculated as
a yield to maturity of the arithmetic mean of the secondary market offer side
prices as of approximately 3:30 p.m., New York City time, on such Interest
Determination Date reported, according to their written records, by three
primary U.S. government securities dealers in New York City (“Primary Dealers”).
The three Primary Dealers will be selected from five Primary Dealers selected
by the Calculation Agent by eliminating the highest quotation (or, in the event
of equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest), for the most recently issued direct noncallable
fixed rate U.S. Treasury securities with an original maturity of approximately
the specified Index Maturity and a remaining term to maturity of not less than
such specified index maturity minus one year. If the Calculation Agent cannot
obtain three quotations as described above on the Calculation Date pertaining
to such Interest Determination Date, the CMT Rate will be the yield to maturity
based on the arithmetic mean of the secondary market offer side prices as of approximately
3:30 p.m., New York City time, on the applicable interest determination date of
three Primary Dealers selected as described above for U.S. treasury securities
with an original maturity of the number of years that is closest to but not
less than the Index Maturity and a remaining term to maturity closest to the
Index Maturity and in an amount of at least $100 million. If two of the
aforesaid U.S. treasury securities have remaining terms to maturity equally
close to the Index Maturity, the quotes for the U.S. Treasury security with the
shorter remaining term to maturity will be used on the Calculation Date
pertaining to such Interest Determination Date. If fewer than five but more
than two Primary Dealers are quoting as described above, then the CMT Rate will
be based on the arithmetic mean of the offer prices obtained and neither the
highest nor lowest of those quotes will be eliminated. If fewer than three
primary dealers are quoting as described above, then the CMT Rate for the new
interest rate period will be the same as that for the immediately preceding
interest reset period. If there was no
CMT Rate in effect on such Interest Determination Date, the CMT Rate will be
the initial interest rate.

“Designated Constant Maturity Treasury page” means the
display on Moneyline Telerate on the page designated on the face hereof, or any
successor service or page for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519). If that page is not specified on the face
hereof, the designated Constant Maturity Treasury page will be 7052, for the
most recent week.

If no index maturity is specified on the face hereof,
the index maturity will be 2 years.

Eleventh
District Cost of Funds Rate Note

If the Interest Rate Basis is the Eleventh District
Cost of Funds Rate, this Note is an “Eleventh District Cost of Funds Rate Note.”
An Eleventh District Cost of Funds Rate Note will bear interest at the interest
rate calculated with reference to the Eleventh District Cost of Funds Rate and
the Spread and/or Spread Multiplier and will be subject to the minimum interest
rate or the maximum interest rate, if any. Unless otherwise specified on the
face hereof, “Eleventh District Cost of Funds Rate” means, with respect to any
Interest Determination Date, the rate equal to the monthly weighted average
cost of funds for the calendar month preceding such Interest Determination Date
as displayed under the caption “Eleventh District” on Moneyline Telerate page
7058 or any successor service or page, for the purpose of displaying the
monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal

 19
 

 

Home Loan Bank District (“Telerate Page 7058”) or, if
not so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Eleventh District Cost of
Funds Rate will be such rate for the prior Interest Reset Period. If there was
no prior interest period, the Eleventh District Cost of Funds Rate Index will
be the initial interest rate.

The “Eleventh District Cost of Funds Rate Index” will
be the monthly weighted average cost of funds paid by member institutions of
the Eleventh Federal Home Loan Bank District that the Federal Home Loan Bank of
San Francisco most recently announced as the cost of funds for the calendar
month preceding the date of the announcement.

CMS Rate
Note

If the Interest Rate Basis is the CMS Rate, this Note
is a “CMS Rate Note.” A CMS Rate Note will bear interest at the interest rate
calculated with reference to the CMS Rate and the Spread and/or Spread
Multiplier and will be subject to the minimum interest rate and the maximum
interest rate, if any. Unless otherwise specified on the face hereof, “CMS Rate
“ means, with respect to any Interest Determination Date, the rate that appears
on Reuters Screen ISDAFIX1 (“ISDAFIX1”) as of 11:00 a.m., New York city time,
on the Calculation Date pertaining to such Interest Determination Date. If such
rate is not published by 11:00 A.M., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, then the CMS Rate shall be
the rate reported as if ‘‘USD-CMS-Reference Banks’’ was specified as the
applicable rate.  ‘‘USD-CMS-Reference
Banks’’ means, on any Interest Determination Date, the rate determined on the
basis of the mid-market semi-annual swap rate quotations provided by the five
leading swap dealers in the New York city interbank market selected by the
Calculation Agent in consultation with us for the purposes of providing
quotations as provided above at approximately 11:00 a.m., New York city time on
such Interest Determination Date. The semi-annual swap rate means the mean of
the bid and offered rates for the semi-annual fixed leg, calculated on a 30/360
day count basis, of a fixed-for-floating U.S. Dollar interest rate swap
transaction with a term equal to the designated maturity commencing on that
date and in an amount that is representative for a single transaction in the
relevant market at the relevant time with an acknowledged dealer of good credit
in the swap market, where the floating leg, calculated on an actual/360 day
count basis, is equivalent to USD-LIBOR-BBA with the designated maturity
specified in the applicable pricing supplement. The rate for that date will be
the arithmetic mean of the quotations, eliminating the highest quotation (or,
in the event of equality, one of the highest) and the lowest quotation (or, in
the event of equality, one of the lowest). If such rate is not yet published on
with “USD-CMS-Reference Banks” specified as specified above or another
recognized electronic source on such Calculation Date, the CMS Rate for the
applicable period will be the CMS Rate Rate in effect on such Interest
Determination Date.  If there was no CMS Rate
in effect on such Interest Determination Date, the CMS Rate will be the initial
interest rate.

The term “Calculation Date”, for an interest
determination date, means the earlier of (1) the tenth Business Day after the
related Interest Determination Date, or if any such day is not a Business day,
the next Business Day and (2) the Business Day preceding the applicable
interest payment date or the stated maturity, unless otherwise specified on the
face hereof.

 20
 

 

Notwithstanding the foregoing, the Interest rate
hereof shall not be greater than the Maximum Interest Rate, if any, or less
than the Minimum Interest Rate, if any, shown on the face hereof. The interest
rate on this Note will in no event be higher than the maximum rate permitted by
New York law as the same may be modified by United States law of general
applicability.

The Calculation Agent will, upon the request of the
Holder of this Note, provide the interest rate then in effect and, if
determined, the interest rate which will become effective as a result of a
determination made on the most recent Interest Determination Date with respect
to this Note.

Unless otherwise specified on the face hereof, the
Interest Determination Date pertaining to an Interest Reset Date will be (a)
the day that is the Interest Reset Date for a Federal Funds (Open) Rate Note
(b) the first day preceding such Interest Reset Date for a Prime Rate Note and
Federal Funds (Effective) Rate Note and (b) the second Business Day preceding
such Interest Reset Date for a Constant Maturity Treasury Rate Note, Commercial
Paper Rate Note, CD Rate Note and CMS Rate Note. Unless otherwise specified on
the face hereof, the Interest Determination Date relating to a particular
Interest Reset Date for an Eleventh District Cost of Funds Rate Note will be
the last working day, in the first calendar month before that interest reset
date, on which the Federal Home Loan Bank of San Francisco publishes the
monthly average cost of funds paid by member institutions of the Eleventh
Federal Home Loan Bank District for the second calendar month before that
Interest Reset Date. Unless otherwise specified on the face hereof, the
Interest Determination Date pertaining to an Interest Reset Date for a LIBOR
Note will be the second London Business Day preceding such Interest Reset Date,
unless the index currency is pounds sterling, in which case the Interest
Determination Date pertaining to an Interest Reset Date will be the day that is
the Interest Reset Date.  Unless
otherwise specified on the face hereof, the Interest Determination Date
pertaining to an Interest Reset Date for a EURIBOR Note will be the second Euro
Business Day preceding such Interest Reset Date.  Unless otherwise specified on the face
hereof, the Interest Determination Date pertaining to an Interest Reset Date
for a Treasury Rate Note will be the day of the week in which such Interest
Reset Date falls on which Treasury bills of the applicable Index Maturity would
normally be auctioned. Treasury bills are usually sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the auction is
usually held on the following Tuesday, except that such auction may be held on
the preceding Friday. If, as the result of a legal holiday, an auction is so
held on the preceding Friday, such Friday will be the Interest Determination
Date pertaining to the Interest Reset Date occurring in the next succeeding
week.

Accrued interest from the Issue Date or from the last
date to which interest has been paid shall be calculated by multiplying the
face amount of this Note by an accrued interest factor. This accrued interest
factor shall be computed by adding the interest factors calculated for each day
from the Issue Date or from the last date to which interest has been paid, to
the date for which accrued interest is being calculated. The interest factor
for each such day is computed by dividing the interest rate applicable to such
date by 360, in the case of Commercial Paper Rate Notes, Federal Funds
(Effective) Rate Notes, Federal Funds (Open) Rate Notes, CD Rate Notes, LIBOR
Notes, EURIBOR Notes, Prime Rate Notes, Eleventh District Cost of Funds Rate
Notes or CMS Rate Notes or by the actual number of days in the year, in the
case of Treasury Rate

 21
 

 

Notes. The interest rate
applicable to any day that is an Interest Reset Date is the interest rate as
determined, in accordance with the procedures set forth above, with respect to
the Interest Determination Date pertaining to such Interest Reset Date. The
interest rate applicable to any other day is the interest rate for the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).

Unless otherwise specified on the face hereof, all
percentages resulting from any calculation of the rate of interest on this Note
will be rounded, if necessary, to the nearest one hundred-thousandth of a
percent (.0000001), with five one-millionths of a percentage point rounded
upward, and all currency amounts used in or resulting from such calculation
will be rounded to the nearest one-hundredth of a unit (with five
one-thousandths of a unit being rounded upwards).

Section 4.               Redemption.  If so specified on the face hereof, the
Company may at its option redeem this Note in whole or from time to time in
part on or after the date designated as the Initial Redemption Date on the face
hereof at either a price based on a constant percentage of the Principal Amount
of this Note as specified on the face hereof or at prices declining from the
premium specified on the face hereof, if any, to 100% of the Principal Amount
hereof, together, in each case, with accrued interest to the Redemption Date.
The Company may exercise such option by causing the Trustee to mail by
first-class mail to the Holder hereof a notice of such redemption at least 30
but not more than 60 days prior to the Redemption Date.  In the event of redemption of this Note in
part only, a new Note or Notes of this series for the unredeemed portion hereof
shall be issued in the name of the Holder hereof upon the cancellation hereof
in accordance with the terms of the Indenture. Unless otherwise specified on
the face hereof, if less than all of the Notes with like tenor and terms to
this Note are to be redeemed, the Notes to be redeemed shall be selected by the
Trustee by such method as the Trustee shall deem fair and appropriate.

Section 5.               Sinking Funds and Amortizing
Notes.  Unless otherwise specified on
the face hereof this Note will not be subject to any sinking fund.

Section 6.               Optional Repayment.  If so specified on the face hereof, this Note
will be repayable prior to the Maturity Date at the option of the Holder on the
Optional Repayment Dates specified on the face hereof at the Optional Repayment
Prices specified on the face hereof, together with accrued interest to the
applicable Optional Repayment Date. 
Unless otherwise specified on the face hereof, in order for this Note to
be so repaid, the Company must receive, at least 30 but not more than 45 days
prior to an Optional Repayment Date, either (i) this Note with the form below
entitled “Option to Elect Repayment” duly completed or (ii) a telegram, telex,
facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company in the United States setting forth the name of
the Holder hereof, the Face Amount hereof, the Face Amount to be repaid, the
certificate number hereof or a description of the tenor and terms of this Note,
a statement that the option to elect repayment is being exercised thereby and a
guarantee that this Note with the form below entitled “Option to Elect
Repayment” duly completed will be received by the Paying Agent not later than
five Business Days after the date of such telegram, telex, facsimile
transmission or letter and this Note and form duly completed are received by
the Paying Agent by such fifth Business Day. 
Exercise of this repayment option shall be

 22
 

 

irrevocable,
except as otherwise provided under Section 7 or Section 10.  The repayment option may be exercised by the
Holder of this Note with respect to less than the Face Amount then outstanding
provided that the Face Amount of the Note remaining outstanding after repayment
is an authorized denomination.  Upon such
partial repayment this Note shall be cancelled and a new Note or Notes for the
remaining Face Amount hereof shall be issued in the name of the Holder of this
Note.

Section 7.               Optional Interest Reset or
Spread Multiplier Reset.  If so
specified on the face hereof, the Spread and/or Spread Multiplier, if any, set
forth on the face hereof may be reset at the option of the Company, in the
manner set forth below (unless otherwise specified on the face hereof), on the
Optional Reset Date or Optional Reset Dates specified on the face hereof.  The Company may exercise such option by
notifying the Trustee in writing of such exercise at least 45 but not more than
60 days prior to an Optional Reset Date. 
Not later than five Business Days after receipt thereof, the Trustee
will mail by first-class mail to the Holder of this Note a notice (the “Reset
Notice”) setting forth (i) the election of the Company to reset the Spread
and/or Spread Multiplier, (ii) such new Spread and/or Spread Multiplier and
(iii) the provisions, if any, for redemption during the period from such
Optional Reset Date to the next Optional Reset Date or, if there is no such
next Optional Reset Date, to the Maturity Date of this Note (each such period a
“Subsequent Interest Period”), including the date or dates on which or the
period or periods during which and the price or prices at which such redemption
may occur during such Subsequent Interest Period.  The Reset Notice shall be substantially in
the form of Exhibit A to this Note.  Upon
the transmittal by the Trustee of a Reset Notice to the Holder of this Note,
such new Spread and/or Spread Multiplier shall take effect automatically, and,
except as modified by the Reset Notice and as described in the next paragraph,
this Note will have the same terms as prior to the transmittal of such Reset
Notice.

Notwithstanding the foregoing, not later than 20 days
prior to an Optional Reset Date, the Company may, at its option, revoke the
Spread or Spread Multiplier provided for in the Reset Notice and establish the
Spread and/or Spread Multiplier that is higher than the interest rate provided
for in the Reset Notice for the Subsequent Interest Period commencing on such
Optional Reset Date by causing the Trustee to mail by first-class mail notice
of such higher Spread or Spread Multiplier to the Holder of this Note.  Such notice shall be irrevocable and shall be
mailed by the Trustee within five Business Days after receipt thereof.  All Notes with respect to which the Spread
and/or Spread Multiplier is reset on an Optional Reset Date will bear such
higher Spread and/or Spread Multiplier for the Subsequent Interest Period.

If the Company elects to reset the Spread and/or
Spread Multiplier of this Note, the Holder of this Note will have the option to
elect repayment by the Company of this Note, or any portion hereof, on any
Optional Reset Date at a price calculated with reference to the Face Amount
hereof to be repaid, plus any interest accrued to, such Optional Reset
Date.  In order to obtain repayment on an
Optional Reset Date, the Holder must follow the procedures set forth above in
Section 6 for optional repayment except that the period for delivery or
notification to the Trustee shall be at least 25 but not more than 35 days
prior to such Optional Reset Date and except that, if the Holder has tendered
this Note for repayment pursuant to the Reset Notice, the Holder may, by
written notice to the Trustee, revoke such tender for repayment until the close
of business on the tenth day prior to such Optional Reset Date; provided,
however, that if such day is not a Business Day, then such notice may be given on
the next succeeding Business Day.

 23

 

Section 8.               OID Notes.  If this Note is an OID Note, the amount
payable in the event of redemption by the Company, repayment at the option of
the Holder or acceleration of Maturity shall be the Amortized Face Amount of
this Note as of the date of such redemption, repayment or declaration of
acceleration rather than the Face Amount hereof.  The “Amortized Face Amount” of this Note
shall be the amount equal to (a) the Issue Price (as set forth on the face
hereof) plus (b) the original issue discount amortized from the Issue Date to
the date as of which the Amortized Face Amount is calculated, which
amortization shall be calculated using the “interest method” (computed in
accordance with generally accepted accounting principles in effect on such
date), but in no event shall the Amortized Face Amount of this Note exceed the
Face Amount.

Section 9.               Dual Currency Notes.  If it is specified on the face hereof that
this Note is a Dual Currency Note, the Company has a one time option,
exercisable on any one of the Option Election Dates specified on the face
hereof in whole, but not in part, with respect to all Dual Currency Notes
issued on the same day and having the same terms as this Note (this “Tranche”),
of thereafter making all payments of principal, premium, if any, and interest
(which payments would otherwise be made in the Specified Currency of such
Notes) in the Optional Payment Currency specified on the face hereof.  If the Company makes such an election, the
amount of Optional Payment Currency payable in respect hereof shall be
determined by the Exchange Rate Agent by converting the amount of Specified
Currency that would otherwise be payable into the Optional Payment Currency at
the Designated Exchange Rate specified on the face hereof.

The Company may exercise such option by notifying the
Trustee of such exercise on or prior to the Option Election Date.  The Trustee will mail by first-class mail to
each holder of a Note of this Tranche a notice of such election within five
Business Days of the Option Election Date which shall state (i) the first date,
whether an Interest Payment Date and/or the Maturity Date, on which scheduled
payments in the Optional Payment Currency will be made and (ii) the Designated
Exchange Rate.  Any such notice by the
Company, once given, may not be withdrawn.

If this Note is a Dual Currency Note, unless otherwise
specified on the face hereof and notwithstanding any prior election made by the
Company, the amount payable hereon in the event of any optional redemption by
the Company, any repayment at the option of the Holder, any acceleration of the
Maturity of this Note or other prepayment of this Note prior to the Maturity
Date shall be an amount equal to the Principal Amount hereof otherwise due and
payable plus accrued interest to but excluding the date of redemption,
repayment, acceleration or other prepayment minus the Total Option Value
multiplied by a fraction, the numerator of which is the Principal Amount hereof
and the denominator of which is the aggregate Principal Amount of all Dual
Currency Notes of this Tranche.  In no
event will such payment be less than zero. Notwithstanding any prior election
made by the Company, such payment shall be made in the Specified Currency
unless otherwise provided on the face hereof.

The term “Total Option Value” means, with respect to
any Dual Currency Note on any date, an amount (calculated as of such date by
the Option Value Calculation Agent) equal to the sum of the Option Values
(calculated as of such date by the Option Value Calculation Agent) for all
Interest Payment Dates occurring after the date of calculation up to and
including

 24
 

 

the Maturity Date. 
The term “Option Value” means, with respect to an Interest Payment Date
or the Maturity Date, the amount calculated by the Option Value Calculation
Agent to be the arithmetic average of the prices quoted on the date of
calculation by three reference banks (which banks shall be selected by the
Option Value Calculation Agent and shall be reasonably acceptable to the
Company) for the right on the Option Election Date immediately preceding such
Interest Payment Date or Maturity Date to purchase for value on such Interest
Payment Date or Maturity Date from such reference banks (A) the aggregate
amount of the Specified Currency due on such Interest Payment Date or Maturity
Date with respect to all of the Dual Currency Notes of this Tranche in exchange
for (B) the amount of the Optional Payment Currency that would be received if
the amount in clause (A) were converted into the Optional Payment Currency at
the Designated Exchange Rate.

All determinations referred to above made by the
Exchange Rate Agent or the Option Value Calculation Agent shall be at their
sole discretion (except to the extent expressly provided herein that any
determination is subject to approval by the Company) and, in the absence of
manifest error, shall be conclusive for all purposes and binding on the Holder
hereof, and neither the Exchange Rate Agent nor the Option Value Calculation
Agent shall have any liability therefor.

Section 10.             Extension of Maturity.  If it is specified on the face hereof that
this Note is an Extension of Maturity Note, the Company has the option to
extend the Maturity Date hereof for the number of Extension Periods set forth
on the face hereof, each of which Extension Periods shall be a period of from
one to five whole years.  Unless
otherwise specified on the face hereof, the following procedures shall apply if
this Note is an Extendible Note.

The Company may exercise its option by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to the
Maturity Date hereof in effect prior to the exercise of such option (the “Original
Stated Maturity”).  Not later than five
Business Days after receipt thereof, the Trustee will mail to the Holder a
notice (the “Extension Notice”), first class, postage prepaid, setting forth
(i) the election of the Company to extend the Maturity Date, (ii) the new
Maturity Date, (iii) the Spread and/or Spread Multiplier applicable to the
Extension Period and (iv) the provisions, if any, for redemption during the
Extension Period, including the date on which or the period or periods during
which and the price at which such redemption may occur during the Extension
Period.  Upon the mailing by the Trustee
of an Extension Notice to the Holder, the Maturity Date hereof shall be
extended automatically, and, except as modified by the Extension Notice and as
described in the next paragraph, this Note will have the same terms as prior to
the mailing of such Extension Notice.

Notwithstanding the foregoing, not later than 20 days
prior to the Original Stated Maturity hereof, the Company may, at its option,
revoke the interest rate provided for in the Extension Notice and establish a
higher interest rate for the Extension Period by causing the Trustee to mail
notice of such higher interest rate, first class, postage prepaid, to the
Holder.  Such notice shall be irrevocable
and shall be mailed by the Trustee within three Business Days after receipt
thereof.  This Note will bear such higher
interest rate for the Extension Period, whether or not tendered for repayment.

 25
 

 

If the Company extends the Maturity Date of this Note,
the Holder will have the option to elect repayment by the Company of this Note,
or any portion hereof, on the Original Stated Maturity at a price calculated
with reference to the Face Amount hereof to be repaid plus any accrued interest
to such date.  In order for this Note to
be so repaid on the Original Stated Maturity, the Holder must follow the
procedures set forth in Section 5 hereof for optional repayment, except that
the period for delivery of this Note or notification to the Trustee shall be at
least 25 but not more than 35 days prior to the Original Stated Maturity and
except that the Holder may, by written notice to the Trustee, revoke any such
tender for repayment until the close of business on the tenth day prior to the
Original Stated Maturity; provided, however, that if such day is not a Business
Day, then such notice may be given on the next succeeding Business Day.

Section 11.             Extendible Notes.  If it is specified on the face hereof that
this Note is an Extendible Note, this Note will mature on the Initial Maturity
Date specified on the face hereof unless the Maturity of all or any portion of
this Note is extended in accordance with the procedures described below.

On the Interest Payment Date occurring in the sixth
month (unless a different Special Election Interval is specified on the face
hereof) prior to the Initial Maturity Date hereof (the “Initial Maturity
Extension Date”) and on the Interest Payment Date occurring in each sixth month
(or the last month of each Special Election Interval) after such Initial
Maturity Extension Date (each, together with the Initial Maturity Extension
Date, a “Maturity Extension Date”), the Maturity of this Note will be extended
to the Interest Payment Date occurring in the twelfth month (or, if a Special
Election Interval is specified on the face hereof, the last month in a period
equal to twice the Special Election Interval) after such Maturity Extension
Date, unless the Holder elects to terminate the automatic extension of the
Maturity hereof or any portion hereof as described below.

If the Holder elects to terminate the automatic
extension of the Maturity of any portion of the principal amount of this Note
during the specified period prior to any Maturity Extension Date, such portion
will become due and payable on the Interest Payment Date occurring in the sixth
month (or the last month in the Special Election Interval) after such Maturity
Extension Date (the “Extended Maturity Date”).

The Holder may elect to terminate the automatic
extension of the Maturity of this Note, or if so specified above, any portion
hereof, by delivering a notice to such effect to the Trustee (or any duly
appointed Paying Agent) at the Corporate Trust Office not less than 15 nor more
than 30 days prior to such Maturity Extension Date (unless another period is
specified on the face hereof as the “Special Election Period”).  Such election will be irrevocable and will be
binding upon each subsequent Holder of this Note.  An election to terminate the automatic
extension of the Maturity of this Note may be exercised with respect to less
than the entire Face Amount hereof only if so specified on the face hereof and
only in such Face Amount, or any integral multiple in excess thereof, as is
specified on the face hereof. Notwithstanding the foregoing, the Maturity of
this Note will not be extended beyond the Maturity Date specified on the face
hereof.

 26
 

 

Unless otherwise specified above, any such election to
terminate will be effective only if this Note, with the “Option to Elect
Termination of Automatic Extension” included herein duly executed, is presented
to the Trustee (or any duly appointed Paying Agent) simultaneously with notice
of such election (or, in the event notice of such election, together with a
guarantee of delivery within five Business Days, is transmitted on behalf of
the Holder from a member of a national securities exchange, the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
in the United States, within five Business Days of the date of such notice). As
soon as practicable following receipt of this Note the Trustee (or any duly
appointed Paying Agent) shall issue in exchange herefor in the name of the
Holder (i) a Note, in a face amount equal to the face amount of this Note for
which the election to terminate the automatic extension of Maturity was
exercised, with terms identical to those specified herein (except for the Issue
Date and the Initial Interest Rate and except that such Note shall have a
fixed, non- extendable Maturity on the Extended Maturity Date) and (ii) if such
election is made with respect to less than the full Face Amount hereof, a
replacement Renewable Note, in a face amount equal to the Face Amount of this
Note for which no election was made, with terms identical to this Note.

Section 12.             Principal Amount For Indenture
Purposes.  For the purpose of
determining whether Holders of the requisite amount of Notes outstanding under
the Indenture have made a demand, given a notice or waiver or taken any other
action, the outstanding principal amount of this Note will be deemed to be the
Principal Amount, provided, however, if this Note is an OID Note, the
outstanding principal amount of this Note will be deemed to be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the maturity thereof.

Section 13.             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) extend the fixed maturity of any
Security, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon or reduce any premium payable on
redemption, or make the principal thereof, or premium, 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 or the principal of, 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

 27
 

 

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 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.

Section 14.             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
principal of, premium, if any, and interest, if any, on this Note at the place,
at the respective times, at the rate, and in the coin or currency herein
prescribed.

Section 15.             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 16.             Authorized Form and
Denominations.  The Notes of this
series are issuable in registered form, without coupons.  Unless otherwise set forth on the face
hereof, Notes denominated in U.S. dollars will be issued in Face Amount
denominations of U.S. $100,000 and any integral multiple of U.S. $1,000 in
excess thereof.  Notes denominated in a
Foreign Currency will be issued in the denomination or denominations set forth
on the face hereof.  Each Note will be
issued initially as either a Global Security or a Certificated Note, at the
option of the holders thereof, 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 Face Amount of Notes of this
series of a different authorized denomination, except that Global Securities
will not be exchangeable for Certificated Notes.

Section 17.             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 Face Amount, will be issued to the designated transferee or
transferees.

If this Note is a Global Security and 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 Securities
of such series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such

 28
 

 

ineligibility, the
Company will issue, and the Trustee will authenticate and deliver, Notes in
definitive form in an aggregate Face Amount equal to the Face Amount hereof.

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 18.             Events of Default.  If an Event of Default with respect to Notes
of this series shall occur and be continuing, the principal of the Notes of
this series may be declared due and payable in the manner and with the effect
provided in the Indenture.  In the event
that this Note is an OID Note or a Dual Currency Note, the amount of principal
of this Note that becomes due and payable upon such acceleration shall be equal
to the amount calculated as set forth in Section 8 or Section 9, respectively,
hereof.  Upon payment (i) of the
aggregate applicable amounts of principal of the Notes of this series so
declared due and payable and (ii) of interest on any overdue principal and
overdue interest (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Company’s obligations in respect of
the payment of the principal of and interest, if any, on the Notes of this
series shall terminate.

Section 19.             No Recourse Against Certain
Persons.  No recourse for the payment
of the principal of, premium, if any, or interest on this Note, 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 20.             Defined Terms.  All terms used but not defined in this Note
are used herein as defined in the Indenture.

Section 21.             GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 29

 

 

OPTION TO ELECT REPAYMENT

The undersigned owner of this Note hereby irrevocably
elects to have the Company repay the Face Amount of this Note or portion hereof
below designated at (i) the Optional Repayment Percentage multiplied by the
Principal Amount of this Note to be repaid in respect of such Face Amount plus
accrued interest to the Optional Repayment Date, if this Note is to be repaid
pursuant to the Optional Repayment provision described in Section 6 hereof, or
(ii) 100% of the Principal Amount of this Note to be repaid in respect of such
Face Amount plus accrued interest to the Optional Reset Date, if this Note is
to be repaid pursuant to the Optional Interest Reset provision described in
Section 7 hereof or the Extension of Maturity Notes provision described in
Section 10 hereof.  Any such election is
irrevocable except as provided in Section 7 or Section 10 hereof.

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
  Sign exactly as name appears on the front of this 

  
	
   

  	
   

  	
  Note [SIGNATURE GUARANTEED - required

  
	
   

  	
   

  	
  only if Notes are to be issued and delivered to other

  
	
   

  	
   

  	
  than the registered Holder]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							

Face Amount to
be                          Fill in for
registration of repaid, if amount to be                    Notes if to be issued otherwise
repaid is less than the                                         than
to the registered Holder: Face Amount of this

Note (Face Amount                          Name:  ___________________________ remaining must be
an                         

Address:________________________ authorized denomination)
________________________

	
  

  	
   

  	
   

  	
  (Please print name

  
	
  $

  	
   

  	
   

  	
   

  	
   

  	
  and address including

  
	
   

  	
   

  	
   

  	
  zip code)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SOCIAL SECURITY OR OTHER TAXPAYER

  
	
   

  	
   

  	
  ID NUMBER

  
	
   

  	
   

  	
   

  	
   

  
							

 

 

 

OPTION TO ELECT TERMINATION OF AUTOMATIC EXTENSION

The undersigned owner of this Note hereby irrevocably
elects to terminate the automatic extension of this Note or of the portion of
the Face Amount of this Note below designated. 
Any such election is irrevocable and will be binding on any subsequent
Holder hereof.

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
  Sign exactly as name appears on the front of this 

  
	
   

  	
   

  	
  Note [SIGNATURE GUARANTEED - required

  
	
   

  	
   

  	
  only if Notes are to be issued and delivered to other

  
	
   

  	
   

  	
  than the registered Holder]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							

Face Amount to
be                 Fill in for
registration of terminated, if amount to be                  Notes if to be issued
otherwise terminated is less than the                than to the registered Holder:
Face Amount of this

Note (such Face Amount            Name:  ___________________________ must be an
authorized               

Address:________________________ denomination)
______________________

	
  

  	
   

  	
   

  	
  (Please print name

  
	
  $

  	
   

  	
   

  	
   

  	
   

  	
  and address including

  
	
   

  	
   

  	
   

  	
  zip code)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SOCIAL SECURITY OR OTHER TAXPAYER

  
	
   

  	
   

  	
  ID NUMBER

  
	
   

  	
   

  	
   

  	
   

  
							

 

 

 

ABBREVIATIONS

The following abbreviations, when used in the
inscription on the face of this instrument, shall be construed as though they
were written out in full according to applicable laws or regulations:

	
   

  	
  TEN COM

  	
  —

  	
   

  	
  as
  tenants in common

  
	
   

  	
  TEN
  ENT

  	
  —

  	
   

  	
  as
  tenant by the entireties

  
	
   

  	
  JT
  TEN

  	
  —

  	
   

  	
  as
  joint tenants with right of survivorship and not as tenants in common

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UNIF
  GIFT

  	
  —

  	
   

  	
   

  	
  Custodian

  	
   

  	
   

  
	
   

  	
  MIN
  ACT

  	
   

  	
   

  	
  (Cust)

  	
  (Minor)

  
	
   

  	
   

  	
   

  	
   

  	
  Under
  Uniform Gifts to Minors Act

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (State)

  	
   

  

 

Additional abbreviations may also be used though not
in the above list.

FOR VALUE RECEIVED, the undersigned

hereby sell(s), assign(s) and transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE

	
  

  	
  Please print or type name and

  
	
  address, including zip code of assignee

  	
   

  
	
   

  	
   

  
	
   

  	
  the within Note of LEHMAN

  
	
  BROTHERS HOLDINGS INC. and all rights thereunder and
  does hereby irrevocably constitute and appoint

  	
   

  
	
   

  	
   

  
	
   

  	
  Attorney to transfer the said Note on the

  
	
  books of the within-named Company, with full power
  of substitution in the premises.

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
				

 

	
  SIGNATURE GUARANTEED

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NOTICE: The signature to this

  
	
   

  	
  assignment must correspond with the

  
	
   

  	
  name as it appears upon the face of

  
	
   

  	
  the within Note in every particular,

  
	
   

  	
  without alteration or enlargement or

  
	
   

  	
  any change whatsoever.

  
				

 

 

EXHIBIT A

RESET NOTICE

LEHMAN BROTHERS HOLDINGS INC.

Medium-Term Notes, Series I

(Floating Rate)

CUSIP No.              

Registered Nos.       -      

LEHMAN BROTHERS HOLDINGS INC., a corporation duly
organized and existing under the laws of the State of Delaware (the “Company”),
is the issuer of the above-referenced Notes (the “Notes”).  Capitalized terms used herein and not defined
are used as defined in the Notes.

The Company hereby elects to reset the [Spread]
[Spread Multiplier] set forth on the face of the Notes.  On and after                                     (1),
the [Spread] [Spread Multiplier] shall be                                   .

Each Holder of a Note has the option to elect
repayment by the Company of such Note, or any portion thereof, on any Optional
Reset Date pursuant to the terms of such Note. 
The Notes may be repaid on the dates and at the prices set forth below:

	
  Date

  	
   

  	
  Redemption Price

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

IN WITNESS WHEREOF, Lehman Brothers Holdings Inc. has
caused this Reset Notice 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 and to be attested by its Secretary or one of its
Assistant Secretaries.

	
  Dated:

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
  Title:

  
				

(1)             Insert
applicable Optional Reset Date.

 

LEHMAN BROTHERS HOLDINGS
INC.

RIDER TO

MEDIUM-TERM NOTE, SERIES
I

(FLOATING RATE)

This RIDER forms a part
of and is incorporated into the Medium-Term Note, Series I (Floating Rate)
dated August 24, 2006 (together with this RIDER, herein referred to as this “Note”),
of Lehman Brothers Holdings Inc. (the “Company”) registered in the name of Cede
& Co., or its registered assigns, evidencing the Company’s Floating Rate
Extendible Notes (the “Notes”).

Section I.  Extension of Maturity.  The provisions set forth in Section 11 of
this Note shall not apply, but the following provisions shall apply to the Notes:

FINAL MATURITY DATE: August 22, 2016, provided that if
such date is not a Business Day, the following Business Day.

ELECTION
DATES:  The Election Dates and the
corresponding Extended Maturity Dates are:

	
  Election Date

  	
   

  	
  Extended Maturity Date

  
	
   

  	
   

  	
   

  
	
  November 2006 Election Date

  	
   

  	
  November 2008 Extended Maturity Date

  
	
  February 2007 Election Date

  	
   

  	
  February 2009 Extended Maturity Date

  
	
  May 2007 Election Date

  	
   

  	
  May 2009 Extended Maturity Date

  
	
  August 2007 Election Date

  	
   

  	
  August 2009 Extended Maturity Date

  
	
  November 2007 Election Date

  	
   

  	
  November 2009 Extended Maturity Date

  
	
  February 2008 Election Date

  	
   

  	
  February 2010 Extended Maturity Date

  
	
  May 2008 Election Date

  	
   

  	
  May 2010 Extended Maturity Date

  
	
  August 2008 Election Date

  	
   

  	
  August 2010 Extended Maturity Date

  
	
  November 2008 Election Date

  	
   

  	
  November 2010 Extended Maturity Date

  
	
  February 2009 Election Date

  	
   

  	
  February 2011 Extended Maturity Date

  
	
  May 2009 Election Date

  	
   

  	
  May 2011 Extended Maturity Date

  
	
  August 2009 Election Date

  	
   

  	
  August 2011 Extended Maturity Date

  
	
  November 2009 Election Date

  	
   

  	
  November 2011 Extended Maturity Date

  
	
  February 2010 Election Date

  	
   

  	
  February 2012 Extended Maturity Date

  
	
  May 2010 Election Date

  	
   

  	
  May 2012 Extended Maturity Date

  
	
  August 2010 Election Date

  	
   

  	
  August 2012 Extended Maturity Date

  
	
  November 2010 Election Date

  	
   

  	
  November 2012 Extended Maturity Date

  
	
  February 2011 Election Date

  	
   

  	
  February 2013 Extended Maturity Date

  
	
  May 2011 Election Date

  	
   

  	
  May 2013 Extended Maturity Date

  
	
  August 2011 Election Date

  	
   

  	
  August 2013 Extended Maturity Date

  
	
  November 2011 Election Date

  	
   

  	
  November 2013 Extended Maturity Date

  
	
  February 2012 Election Date

  	
   

  	
  February 2014 Extended Maturity Date

  
	
  May 2012 Election Date

  	
   

  	
  May 2014 Extended Maturity Date

  
	
  August 2012 Election Date

  	
   

  	
  August 2014 Extended Maturity Date

  
	
  November 2012 Election Date

  	
   

  	
  November 2014 Extended Maturity Date

  
	
  February 2013 Election Date

  	
   

  	
  February 2015 Extended Maturity Date

  
	
  May 2013 Election Date

  	
   

  	
  May 2015 Extended Maturity Date

  
	
  August 2013 Election Date

  	
   

  	
  August 2015 Extended Maturity Date

  
	
  November 2013 Election Date

  	
   

  	
  November 2015 Extended Maturity Date

  

 

 

 

 

	
  February 2014 Election Date

  	
   

  	
  February 2016 Extended Maturity Date

  
	
  May 2014 Election Date

  	
   

  	
  May 2016 Extended Maturity Date

  
	
  August 2014 Election Date

  	
   

  	
  August 2016 Extended Maturity Date (the Final Maturity Date)

  

 

EXTENSION OF
MATURITY: The “Election Dates” shall be quarterly on each February 22, May 22,
August 22 and November 22, commencing on November 22, 2006 to and including
August 22, 2014, provided that if any such day is not a Business Day, then such
Election Date will be the following Business Day.

EXTENSION NOTICE
PERIOD: The notice period for each Election Date will begin on the tenth
Business Day prior to the election date and end at 12:00 noon (New York City
time) two Business Days immediately preceding the election date; provided that if the election date is not
a Business Day, the notice period will be extended to 12:00 noon (New York City
time) on the following Business Day.

EXTENDED MATURITY
DATES:  Quarterly on February 22, May 22,
August 22 and November 22, commencing with the Extended Maturity Date falling
on November 22, 2008, provided that if any such day is not a Business Day, then
such Extended Maturity Date will be the following Business Day.

The Notes shall mature on
the Initial Maturity Date, unless the Maturity Date of all or any portion of
the principal amount of the Notes is extended on any Election Date by a Holder
in accordance with the procedures described below. In no event shall the
Maturity Date of the Note be extended beyond the Final Maturity Date specified
above.

During the Extension
Notice Period relating to each Election Date, each Holder may elect to extend
the Maturity Date of all or any portion of the principal amount of its Notes so
that the Maturity Date of its Notes shall be extended to the Extended Maturity
Date that corresponds to that Election Date. However, if that day is not a
Business Day, the Maturity Date of the Notes shall be the following Business
Day.

Each Holder may elect to
extend the Maturity Date of all or any portion of the principal amount of its
Notes having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof on any Election Date by delivering to the Trustee (or any duly appointed
Paying Agent) at the Corporate Trust Office during the Extension Notice Period
for such Election Date (i) the form entitled “Option to Extend Maturity Date”
attached hereto duly completed and, in the event of an election to extend the
maturity of only a portion of the principal amount of this Note, this Note, or
(ii) a telegram, telex, facsimile transmission or a letter from a member of a
national securities exchange or NASD, Inc. or a commercial bank or a trust
company in the United States of America setting forth the name of the Holder of
this Note, the principal amount hereof, the certificate number of this Note or
a description of this Note’s tenor or terms, a statement that the option to
elect extension of Maturity Date is being exercised thereby, the principal
amount hereof with respect to which such option is being exercised and a
guarantee that the form entitled “Option to Extend Maturity Date” attached
hereto duly completed and, in the event of an election to extend the Maturity
Date of only a portion of the principal amount of this Note, this Note will

 

be received by the
Trustee (or duly appointed Paying Agent) no later than five New York Business
Days after the date of such telegram, telex, facsimile transmission or letter;
provided that such telegram, telex, facsimile transmission or letter shall not
be effective unless this Note (if required to be surrendered as aforesaid) and
such form duly completed are received by the Trustee (or duly appointed Paying
Agent) by such fifth New York Business Day.

An election to extend the
Maturity Date of all or any portion of the principal amount of a Holder’s Notes
during any Extension Notice Period shall be revocable during such Extension
Notice Period, by delivering a notice of revocation to the Trustee (or any duly
appointed Paying Agent) at the Corporate Trust Office during the Extension
Notice Period for such Election Date, at the end of which Extension Notice
Period such notice shall become irrevocable.

If this note is a Global
Security, the Holder of this Note, the nominee of the Depository, will be the
only entity that can exercise a right to extend the Maturity Date of this Note
or revoke any such election.  In order to
ensure that the nominee of the Depository will timely exercise a right to
extend the Maturity Date of this Note, or to revoke such an election, the
beneficial owner of this Note must instruct the broker or other direct or
indirect participant through which it holds an interest in this Note to notify
the Depository of its desire to exercise a right to extend the Maturity Date
with respect to all or a portion (in the denominations specified above) its
beneficial ownership in this Note, or to revoke any such election, in
accordance with the then applicable operating procedures of the Depository.

If, with respect to any
Election Date, a Holder does not make an election to extend the Maturity Date
of all or any portion of the principal amount of its Notes, the principal
amount of the Notes for which such Holder has failed to make such an election
shall become due and payable on the Initial Maturity Date, or any later date to
which the Maturity Date of the Notes has previously been extended, and the
Trustee (or any duly appointed Paying Agent) shall, subject to delivery of this
Note to the Trustee (or duly appointed Paying Agent), issue on such Election
Date in accordance with the terms of the Indenture in exchange therefor a new
Note (a “Short-Term Note”) in the name of such Holder, which Short-Term Note
shall be in the same form as, and have the same terms as, this Note, except
that it shall have separate CUSIP, ISIN and Common Code numbers, its “Maturity
Date” shall be the date that is the Extended Maturity Date that corresponds to
that Election Date, or if such day is not a Business Day, the next following
Business Day and such Maturity Date shall not be extendible and the provisions
of this Section I of this Rider shall not apply to such Note and the Trustee
(or duly appointed Paying Agent) shall annotate Schedule I hereto as of such
Election Date to reflect the corresponding decrease in the Principal Amount of
this Note. The failure to elect to extend the Maturity Date of all or any
portion of the principal amount of the Notes shall be irrevocable and shall be
binding upon any subsequent Holder thereof. 
The Holder of a Short-Term Note received as a consequence of the failure
to make such election may not elect to exchange such Short-Term Note for an
interest in this Note. The Company and the Trustee shall deem this Note
cancelled as to any portion of the Principal Amount hereof for which a duly
completed form entitled “Option to Extend Maturity Date” and, if applicable,
this Note are not delivered to the Trustee (or duly authorized Paying Agent)
within the applicable Extension Notice Period in accordance with the terms of
this Note.

 

 

OPTION TO EXTEND MATURITY DATE

The undersigned hereby
elects to extend the Maturity Date of the Medium-Term Note, Series I (Floating
Rate), Floating Rate Extendible Notes, dated August 24, 2006 of Lehman Brothers
Holdings Inc. (CUSIP                   ),
certificate No.              
(or the portion thereof specified below) with the effect provided in said
Note.   In the event of an election to
extend the Maturity Date of only a portion of the principal amount of said
Note, the undersigned will in addition surrender said Note to the Trustee,
Citibank, N.A., 111 Wall Street, Fifteenth Floor, New York, New York 10005,
Attention: Agency & Trust, or such other address of which the Company shall
from time to time notify the Holders of the Notes (or the duly authorized
Paying Agent at such address of which the Company shall from time to time
notify the Holders of the Notes),

If the option to extend
the Maturity Date of less than the entire Principal Amount of said Note is
elected, specify the portion of said Note (which shall be U.S.$1,000 or a
multiple of U.S.$1,000 in excess thereof) as to which the Holder elects to
extend the maturity: $                 ;
and specify the denomination or denominations (which shall be U.S.$1,000 or a
multiple of U.S.$1,000 in excess thereof) of the Notes to be issued to the
Holder for the portion of said Note as to which the option to extend the
Maturity Date is not being elected (in the absence of any such specification
one such Note will be issued for the portion as to which the option to extend
Maturity Date is not being made): $                         .

	
  Dated:

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Notice: The signature on this Option to Extend
  Maturity Date must correspond with the name as written upon the face of the
  Note in every particular, without alteration or enlargement or any change
  whatever.

  
	
   

  	
   

  	
  SIGNATURE GUARANTEED — (required only if Notes are
  to be issued and delivered to other than the registered Holder)

  

 

IF REQUIRED, THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION
SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

 

SCHEDULE I

SCHEDULE OF EXCHANGES

The initial principal amount
of this Note is U.S.$            .
The following exchanges of a portion of this Note for an interest in a
Short-Term Note have been made:

	
  Date of Exchange

  	
   

  	
  Principal
  Amount Exchanged for Short-Term Note

  	
   

  	
  Reduced
  Principal Amount Outstanding Following such Exchange

  	
   

  	
  Notation Made
  by or on Behalf of Trustee

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