Document:

Exhibit 10.4 - Restricted Stock Award

    INCENTIVE
      PLAN

     

    OF

     

    CARRIZO
      OIL & GAS, INC.

     

    INDEPENDENT
      CONTRACTOR RESTRICTED STOCK AWARD AGREEMENT

     

    THIS
      AGREEMENT (this “Agreement”) is made as of the ____ day of _________, 2006 (the
“Grant Date”), by and between Carrizo Oil & Gas, Inc., a Texas corporation
      (the “Company”), and ______________ (the “Grantee”), a consultant of the
      Company.

     

    The
      Company has adopted the Incentive Plan of Carrizo Oil & Gas, Inc. (the
“Plan”), a copy of which is appended to this Agreement as Exhibit A and by
      this reference made a part hereof, for the benefit of eligible employees,
      directors and independent contractors of the Company and its Subsidiaries.
      Capitalized terms used and not otherwise defined herein shall have the meaning
      ascribed thereto in the Plan.

     

    Pursuant
      to the Plan, the Committee, which has generally been assigned responsibility
      for
      administering the Plan, has determined that it would be in the interest of
      the
      Company and its stockholders to grant the restricted stock provided herein
      in
      order to provide Grantee with additional remuneration for services rendered,
      to
      encourage Grantee to remain in the service of the Company or its Subsidiaries
      and to increase Grantee’s personal interest in the continued success and
      progress of the Company.

     

    The
      Company and Grantee therefore agree as follows:

     

    1.  Grant
      of Restricted Stock.
      Subject
      to the terms and conditions herein, effective as of the Grant Date, the Company
      grants to the Grantee ______ shares of Common Stock of the Company, par value
      $.01 per share (the “Restricted Stock”). The Company will issue to the Grantee
      stock certificates evidencing the shares of Restricted Stock, which certificates
      will be registered in the name of the Grantee and will bear an appropriate
      legend referring to the terms, conditions, and restrictions applicable to the
      Restricted Stock, substantially in the following form:

     

    The
      transferability of this certificate and the shares of Common Stock represented
      hereby are subject to the terms, conditions and restrictions (including
      forfeiture) contained in the Restricted Stock Award Agreement, effective as
      of
________,
      2006,
      between Carrizo Oil & Gas, Inc. and the registered owner hereof. Copies of
      such Agreement are on file in the offices of Carrizo Oil & Gas, Inc., 1000
      Louisiana Street, Suite 1500, Houston, Texas 77002.

     

    The
      certificates evidencing the shares of Restricted Stock shall be held in custody
      by the Company or, if specified by
      the
      Committee, by a third party custodian or trustee, until the restrictions on
      such
      shares shall have lapsed, and, as a condition of this award of Restricted Stock,
      the Company may require that the Grantee deliver a stock power, duly endorsed
      in
      blank, relating to the shares of Restricted Stock.

     

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    

      2.  Transfer
        Restrictions.
        Except
        as expressly provided herein, the shares of Restricted Stock are not
        transferable (voluntarily or involuntarily) other than by will or the laws
        of
        descent and distribution, and may not otherwise
        be assigned, pledged, hypothecated or otherwise disposed of and shall not
        be
        subject to execution, attachment or similar process. Upon any attempt to
        effect
        any such disposition, or upon the levy of any such process, the award provided
        for herein shall immediately become null and void, and the shares of Restricted
        Stock shall be immediately forfeited to the Company.

       

      3.  Restrictions.
        Subject
        to the provisions of paragraph 4 hereof, the restrictions on the shares of
        Restricted Stock shall lapse and such shares shall vest in the Grantee
        in three installments at the rate of thirty-three and
        one-third percent (33-1/3%) of the shares of Restricted Stock awarded
        hereunder (rounded up to the nearest whole number) on each of the first,
        second
        and third anniversary dates of the Grant Date; provided that the Grantee
        has
        been in the continuous service of the Company and its Subsidiaries through
        the
        applicable date (subject to the provisions of any applicable written consulting
        agreement between the Grantee and the Company or any Subsidiary).

       

      Shares
        as
        to which restrictions shall have lapsed shall no longer be deemed Restricted
        Stock, and the Company shall deliver to the Grantee certificates representing
        such shares as described in paragraph 5 below.

       

      4.  Termination
        of Service.
        

       

      (a)  Upon
        termination
        of the
        Grantee’s service with the Company or any subsidiary of the Company (or the
        successor of any such company) as a result of (i) the death of the Grantee
        or
        (ii) the disability of the Grantee, the restrictions on all shares of Restricted
        Stock shall immediately lapse and such shares shall vest in the Grantee or,
        as
        applicable, the Grantee’s legal representative, beneficiary or heir. Whether the
        Grantee’s service terminates due to “disability” for purposes of this Agreement
        will be determined by the Committee in its discretion.

       

      (b)  Upon
        termination of the Grantee’s service with the Company or any subsidiary of the
        Company (or the successor of any such company) by the Company or any such
        subsidiary without Cause (as defined below), the restrictions on all shares
        of
        Restricted Stock shall immediately lapse and such shares shall vest in the
        Grantee.

       

      (c)  Upon
        termination of the Grantee’s service with the Company or any subsidiary of the
        Company (or the successor of any such company) for any reason other than
        as
        described in subsections (a) and (b) above, all shares of Restricted Stock
        as to
        which the restrictions thereon have not previously lapsed shall be immediately
        forfeited to the Company.

       

      “Cause”
        for purposes of the Agreement shall mean a breach by the Grantee of any written
        consulting agreement between the Grantee and the Company or a Subsidiary
        in
        effect at the time of the Grantee’s termination of service or, in the absence of
        any such consulting agreement, any of the following: (a) conviction of the
        Grantee by a court of competent jurisdiction of any felony or a crime involving
        moral turpitude; (b) the Grantee’s knowing failure or refusal to follow
        reasonable instructions of the Board or reasonable policies, standards and
        regulations of the Company or its Subsidiaries; (c) the Grantee continuously
        conducting himself 

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

      

        in
          an
          unprofessional, unethical, immoral or fraudulent manner; or (d) the Grantee’s
          conduct discredits the Company or a Subsidiary or is detrimental to the
          reputation, character and standing of the Company or a Subsidiary.

         

        5.  Distribution
          Following Termination of Restrictions.
          Upon
          the vesting and expiration of the restrictions as to any portion of the
          Restricted Stock, the Company will cause a new certificate evidencing such
          number of shares of Common Stock to be delivered to the Grantee, or in
          the case
          of his death to his legal representative, beneficiary or heir, free of
          the
          legend regarding transferability; provided that the Company shall not be
          obligated to issue any fractional shares of Common Stock.

         

        6.  Designation
          of Beneficiary.
          The
          Grantee may designate a beneficiary or beneficiaries to whom the shares
          of
          Restricted Stock shall pass upon Grantee’s death and may change such designation
          from time to time by filing a written designation of beneficiary or
          beneficiaries with the Committee on the form annexed hereto as Exhibit
          A or such
          other form as may be prescribed by the Committee, provided that no such
          designation shall be effective unless so filed prior to the death of Grantee.
          If
          no such designation is made or if the designated beneficiary does not survive
          the Grantee’s death, the shares of Restricted Stock shall pass by will or the
          laws of descent and distribution. Following Grantee’s death, the person to the
          Restricted Stock passes according to the foregoing shall be deemed the
          Grantee
          for purposes of any applicable provisions of this Agreement.

         

        7.  Voting
          and Dividend Rights.
          During
          the period in which the restrictions provided herein are applicable to
          the
          Restricted Stock, the Grantee shall have the right to vote the shares of
          Restricted Stock and to receive any cash dividends paid with respect thereto
          unless and until forfeiture thereof. Any dividend or distribution payable
          with
          respect to shares of Restricted Stock that shall be paid or distributed
          in
          shares of Common Stock shall be subject to the same restrictions provided
          for
          herein, and the shares so paid or distributed shall be deemed Restricted
          Stock
          subject to all terms and conditions herein. Any dividend or distribution
          (other
          than cash or Common Stock) payable or distributable on shares of Restricted
          Stock, unless otherwise determined by the Committee, shall be subject to
          the
          terms and conditions of this Agreement to the same extent and in the same
          manner
          as the Restricted Stock is subject; provided that the Committee may make
          such
          modifications and additions to the terms and conditions (including restrictions
          on transfer and the conditions to the timing and degree of lapse of such
          restrictions) that shall become applicable to such dividend or distribution
          as
          the Committee may provide in its absolute discretion.

         

        8.  Adjustments.
          As
          provided in Section 15 of the Plan, certain adjustments may be made to
          the
          Restricted Stock upon the occurrence of events or circumstances described
          in
          Section 15 of the Plan. Without limiting the generality of the foregoing,
          and
except
          as
          otherwise provided in the Plan or this Agreement, in the event of any merger,
          consolidation, reorganization, recapitalization, reclassification or other
          capital or corporate structure change of the Company, the securities or
          other
          consideration receivable for or in conversion of or exchange for shares
          of
          Restricted Stock shall be subject to the terms and conditions of this Agreement
          to the same extent and in the same manner as the Restricted Stock is subject;
          provided that the Committee may make such modifications and additions to
          the
          terms and conditions (including restrictions on transfer and the conditions
          to
          the timing and degree of lapse of such restrictions) that shall become
          applicable to the securities or other consideration so receivable as the
          Committee may provide in its absolute discretion.

         

        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

        

      

    

    

      9  Mandatory
        Withholding of Taxes. Grantee
        acknowledges and agrees that the Company may, if required by applicable law,
        deduct from the shares of Common Stock otherwise payable or deliverable an
        amount of cash and/or number of shares of Common Stock (valued at their Fair
        Market Value on the applicable date) that is equal to the amount of all federal,
        state and local taxes required to be withheld by the Company upon such exercise,
        as determined by the Committee.

       

      10.  Restrictions
        Imposed by Law.
        Without
        limiting the generality of Section 16 of the Plan, the Grantee agrees that
        the Company will not be obligated to deliver any shares of Common Stock,
        if
        counsel to the Company determines that such exercise, or delivery would violate
        any applicable law or any rule or regulation of any governmental authority
        or
        any rule or regulation of, or agreement of the Company with, any securities
        exchange or association upon which the Common Stock is listed or quoted.
        The
        Company shall in no event be obligated to take any affirmative action in
        order
        to cause the issuance or delivery of shares of Common Stock to comply with
        any
        such law, rule, regulation or agreement.

       

      11.  Notice.
        Unless
        the Company notifies the Grantee in writing of a different procedure, any
        notice
        or other communication to the Company with respect to this Agreement shall
        be in
        writing and shall be (a)
        delivered personally to the following address:

       

      Carrizo
        Oil & Gas, Inc.

      1000
        Louisiana Street , Suite 1500

      Houston,
        Texas 77002

       

      or
        (b)
        sent by
        first class mail, postage prepaid and addressed as follows:

       

      Carrizo
        Oil & Gas, Inc.

      1000
        Louisiana Street , Suite 1500

      Houston,
        Texas 77002

      Attention:
        Payroll/Benefits Manager

       

      Any
        notice or other communication to the Grantee with respect to this Agreement
        shall be in writing and shall be delivered personally, or shall be sent by
        first
        class mail, postage prepaid, to Grantee’s address as listed in the records of
        the Company on the Grant Date, unless the Company has received written
        notification from the Grantee of a change of address.

       

      12.  Amendment.
        Notwithstanding any other provisions hereof, this Agreement may be supplemented
        or amended from time to time as approved by the Committee as contemplated
        by
        Section 6 of the Plan. Without limiting the generality of the foregoing,
        without
        the consent of the Grantee,

       

      (a)  this
        Agreement may be amended or supplemented (i) to cure any ambiguity or to
        correct
        or supplement any provision herein which may be defective or inconsistent
        with
        any other provision herein, or (ii) to add to the covenants and agreements
        of
        the Company for the benefit of Grantee or surrender any right or power reserved
        to or conferred upon the Company in this Agreement, subject,
        however,
        to any
        required approval of the Company’s stockholders and, provided,
        in each
        case, that such changes or corrections shall not adversely affect the rights
        of
        Grantee with respect to the Award evidenced hereby without the Grantee’s
        consent, or (iii) to make such other 

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      

        changes
          as the Company, upon advice of counsel, determines are necessary or advisable
          because of the adoption or promulgation of, or change in or of the
          interpretation of, any law or governmental rule or regulation, including
          any
          applicable federal or state securities laws; and

         

        (b)  subject
          to Section 6 of the Plan and any required approval of the Company’s
          stockholders, the Award evidenced by this Agreement may be canceled by
          the
          Committee and a new Award made in substitution therefor, provided
          that the
          Award so substituted shall satisfy all of the requirements of the Plan
          as of the
          date such new Award is made and no such action shall adversely affect the
          Restricted Stock to the extent then vested without the Grantee’s
          consent.

         

        13.  Grantee
          Engagement.
          Nothing
          contained in this Agreement, and no action of the Company or the Committee
          with
          respect hereto, shall confer or be construed to confer on the Grantee any
          right
          to continue in the service of the Company or any of its Subsidiaries or
          interfere in any way with the right of the Company or any contracting Subsidiary
          to terminate the Grantee’s service at any time for any reason; subject,
          however,
          to the
          provisions of any written consulting agreement between the Grantee and
          the
          Company or any Subsidiary.

         

        14.  Governing
          Law.
          This
          Agreement shall be governed by, and construed in accordance with, the internal
          laws of the State of Texas.

         

        15.  Construction.
          References in this Agreement to “this Agreement” and the words “herein,”
“hereof,” “hereunder” and similar terms include all Exhibits and Schedules
          appended hereto, including the Plan. This Agreement is entered into, and
          the
          Award evidenced hereby is granted, pursuant to the Plan and shall be governed
          by
          and construed in accordance with the Plan and the administrative interpretations
          adopted by the Committee thereunder. All decisions of the Committee upon
          questions regarding the Plan or this Agreement shall be conclusive. Unless
          otherwise expressly stated herein, in the event of any inconsistency between
          the
          terms of the Plan and this Agreement, the terms of the Plan shall control.
          The
          headings of the paragraphs of this Agreement have been included for convenience
          of reference only, are not to be considered a part hereof and shall in
          no way
          modify or restrict any of the terms or provisions hereof.

         

        16.  Duplicate
          Originals.
          The
          Company and the Grantee may sign any number of copies of this Agreement.
          Each
          signed copy shall be an original, but all of them together represent the
          same
          agreement.

         

        17.  Rules
          by Committee.
          The
          rights of the Grantee and obligations of the Company hereunder shall be
          subject
          to such reasonable rules and regulations as the Committee may adopt from
          time to
          time hereafter.

         

        18.  Entire
          Agreement.
          Subject
          to the provisions of any applicable written consulting agreement between
          the
          Grantee and the Company or any Subsidiary, Grantee and the Company hereby
          declare and represent that no promise or agreement not herein expressed
          has been
          made and that this Agreement contains the entire agreement between the
          parties
          hereto with respect to the Restricted Stock and replaces and makes null
          and void
          any prior agreements, oral or written, between Grantee and the Company
          regarding
          the Restricted Stock.

         

        
          
            
            

          

          
            -5-

            
              

            

          

          
            
            

          

        

      

    

    19.  Grantee
      Acceptance.
      Grantee
      shall signify acceptance of the terms and conditions of this Agreement by
      signing in the space provided at the end hereof and returning a signed copy
      to
      the Company.

     

     

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    

      Carrizo
        Oil & Gas, Inc.

      

      

      

      By:/ 
        s/S.P. Johnson IV      

      Name:
        S.P. Johnson IV

      Title:
        President

      

      

      ACCEPTED:

      

      

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

      

        Exhibit
          A
          to Independent Contractor 

        Restricted
          Stock Award Agreement dated as 

        of
          ______, 2005

        

        

        Incentive
          Plan of Carrizo Oil & Gas, Inc.

        

        Designation
          of Beneficiary

        

        

        

           

          
            I,
              ___________________________________________ (the “Grantee”), hereby declare that
              upon my death _______________________________

            
              	 	
                       Name

                    

            

            
(the
              “Beneficiary”) of _____________________________________________________________________________,
              who is my ___________________

            Street
              Address    City
                 State
                Zip
              Code

            

            _________________________________________________,
              shall be entitled to the Restricted
              Stock and all other rights accorded the Grantee by the above-

            Relationship
              to Grantee 

             

            
              referenced
                agreement (the “Agreement”).

               

            

          

        

        It
          is
          understood that this Designation of Beneficiary is made pursuant to the
          Agreement and is subject to the conditions stated herein, including the
          Beneficiary's survival of the Grantee’s death. If any such condition is not
          satisfied, such rights shall devolve according to the Grantee’s will or the laws
          of descent and distribution.

        

        It
          is
          further understood that all prior designations of beneficiary under the
          Agreement are hereby revoked and that this Designation of Beneficiary may
          only
          be revoked in writing, signed by the Grantee, and filed with the Company
          prior
          to the Grantee’s death.

         

        
          	 	 	 
	
                   Date

                	 	
                   Grantee

                

        

      

    

     

    
 

    
      
        
        

      

      
        -8-Exhibit 4.13

 

CUSIP NO.           

 

	
  REGISTERED

  	
  FACE AMOUNT:

  	
   

  
	
  No.   

  	
   

  	
   

  

 

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

(FIXED 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:
  $

  
	
   

  
	
  ISSUE DATE:

  
	
   

  
	
  MATURITY
  DATE:

  
	
   

  
	
  INTEREST
  RATE:

  
	
   

  
	
  SPREAD:

  
	
   

  
	
  SPREAD
  MULTIPLIER:

  
	
   

  
	
  MAXIMUM
  INTEREST

  
	
  RATE:

  
	
   

  
	
  MINIMUM
  INTEREST RATE:

  
	
   

  
	
  INTEREST
  PAYMENT

  
	
  DATES:

  
	
   

  
	
  REGULAR
  RECORD DATES:

  
	
   

  
	
  EXCHANGE
  RATE AGENT:

  
	
   

  
	
  DEPOSITORY:

  
	
   

  
	
  DUAL
  CURRENCY NOTE:

  
	
  o  YES  o  NO

  
	
   

  
	
  OPTION
  ELECTION DATES:

  
	
   

  
	
  OPTIONAL
  PAYMENT

  
	
  CURRENCY:

  
	
   

  
	
  DESIGNATED
  EXCHANGE 

  
	
  RATE:

  
	
   

  
	
  OPTION VALUE
  

  
	
  CALCULATION
  AGENT:

  
	
   

  
	
  OTHER
  PROVISIONS:

  
	
   

  
	
  OPTION TO
  RECEIVE

  
	
  PAYMENTS IN
  THE

  
	
  SPECIFIED
  CURRENCY:

  
	
  o YES  o NO

  
	
   

  
	
  SPECIFIED
  CURRENCY:

  
	
   

  
	
  BUSINESS
  DAY:

  
	
   

  
	
  AMORTIZING
  NOTE:

  
	
  o YES  o NO

  
	
   

  
	
  SINKING
  FUND:

  
	
   

  
	
  OID NOTE:

  
	
  o YES  o NO

  
	
   

  
	
  AUTHORIZED 

  
	
  DENOMINATIONS:

  
	
   

  
	
  EXTENSION OF
  MATURITY 

  
	
  NOTE:

  
	
  o YES  o NO

  
	
   

  
	
  EXTENSION
  PERIOD:

  
	
   

  
	
  NUMBER OF
  EXTENSION 

  
	
  PERIODS:

  
	
   

  
	
  OPTION TO
  ELECT 

  
	
  REPAYMENT:

  
	
  o YES  o NO

  
	
   

  
	
  OPTIONAL
  REPAYMENT 

  
	
  DATES:

  
	
   

  
	
  OPTIONAL
  REPAYMENT 

  
	
  PRICES:

  
	
   

  
	
  OPTIONAL
  INTEREST RATE 

  
	
  RESET:

  
	
  o YES  o NO

  
	
   

  
	
  OPTIONAL
  RESET DATES:

  
	
   

  
	
  OPTIONAL
  REDEMPTION:

  
	
  o YES  o NO

  
	
   

  
	
  INITIAL
  REDEMPTION

  
	
  DATE:

  
	
   

  
	
  INITIAL
  REDEMPTION

  
	
  PERCENTAGE:   %

  
	
   

  
	
  APPLICABILITY
  OF

  
	
  ANNUAL
  REDEMPTION

  
	
  PERCENTAGE
  REDUCTION:

  
	
  o YES  o NO

  
	
  If yes,
  state Annual Percentage

  
	
  Reduction:   %

  
	
   

  
	
  EXTENDIBLE
  NOTE:

  
	
  o YES  o NO

  
	
   

  
	
  INITIAL
  MATURITY DATE:

  
	
   

  
	
  SPECIAL
  ELECTION

  
	
  INTERVAL:

  
	
   

  
	
  RENEWABLE IN
  PART:

  
	
  o YES  o NO

  
	
   

  
	
  AUTHORIZED
  RENEWABLE

  
	
  AMOUNTS:

  
	
   

  
	
  SPECIAL
  ELECTION

  
	
  PERIOD:

  

 

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            ,
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
Interest Rate 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 8 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

 

2

 

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 7 on the reverse hereof, (ii) if
this Note is an Amortizing Note, the Outstanding Face Amount at such time as
described in Section 4 on the reverse hereof, (iii) 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 semiannually
on February 15 and August 15 of each year (unless other Interest
Payment Dates are specified above) (each an “Interest Payment Date”),
commencing with the first Interest Payment Date 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 no additional interest shall accrue as a result of such delayed payment. 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 obligated or by law or executive order to be closed; for
notes denominated in pounds sterling 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 notes denominated in Euros, 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. Each payment
of interest hereon shall include interest accrued through the day before the
Interest Payment Date or date of Maturity, as the case may be. Unless
otherwise specified above, interest on this Note will be computed on the basis
of a 360-day year of twelve 30-day months. In no event shall the interest rate
of this Note be higher than the maximum rate permitted by applicable law, as
the same may be modified by United States law of general application.

 

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 (whether or not a Business Day) next
preceding such Interest Payment Date; provided
that, notwithstanding any provision of the Indenture to the contrary, interest

 

3

 

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.

 

Unless
otherwise indicated above, and except as provided below if this Note is a
Global Security, all payments of interest on this Note and all principal
payments hereon if this Note is an Amortizing Note (other than interest and, in
the case of Amortizing Notes, principal payable at Maturity) will be made by
check (unless otherwise provided above, from an account at a bank located
outside the United States if such amount is payable in a Foreign Currency); provided that, if the Holder hereof is the
Holder of U.S.$10,000,000 or more in aggregate Principal Amount of Notes of
this series of like tenor and term (or a Holder of the equivalent thereof
in a Foreign Currency determined as provided in Section 2 on the reverse
hereof), such Holder shall be entitled to receive interest payments (and
principal payments, if this Note is an Amortizing Note) in immediately
available funds, 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 the Borough of Manhattan, New York City
(the “Corporate Trust Office”), provided
that this Note is presented to the Trustee (or any such Paying Agent) in time
for the Trustee (or any such Paying Agent) to make such payments in such funds
in accordance with its normal procedures.

 

Unless
otherwise specified above, if this Note is a Global Security, payments of
interest hereon and principal hereon if this Note is an Amortizing Note (in
each case, 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.

 

4

 

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:

 

	
  [SEAL]

  	
  LEHMAN
  BROTHERS HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
  Assistant Secretary

  	
   

  
						

 

 

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

  	
   

  

 

5

 

[REVERSE OF
NOTE]

 

LEHMAN
BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES I

(Fixed 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 (Fixed 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 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

 

6

 

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.  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 4.  Sinking Funds and Amortizing Notes. Unless
otherwise specified on the face hereof or unless this Note is an Amortizing
Note, this Note will not be subject to any sinking fund. If it is specified on
the face hereof that this Note is an Amortizing Note, the Company will make
payments combining principal and interest on the dates and in the amounts set
forth in the table appearing in Schedule I, attached to this Note. If this
Note is an Amortizing Note, payments made hereon will be applied first to
interest due and payable on each such payment date and then to the reduction of
the Outstanding Face Amount. The term “Outstanding Face Amount” means, at any
time, the amount of unpaid principal hereof at such time.

 

Section 5.  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 irrevocable, except as otherwise provided under Section 6
or Section 9. 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

 

7

 

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 6.  Optional Interest Reset. If so
specified on the face hereof, the Interest Rate on this Note 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 interest rate, (ii) such new interest
rate 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 interest rate 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 interest rate provided for in the Reset
Notice and establish an interest rate 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 interest rate 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 interest rate
is reset on an Optional Reset Date will bear such higher interest rate for the
Subsequent Interest Period.

 

If the Company
elects to reset the interest rate 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 5 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.

 

Section 7.  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 8.  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.

 

8

 

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 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 9.  Extension of Maturity Notes. 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
Extension of Maturity 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
Interest Rate 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

 

9

 

Business Days after receipt thereof. This Note will bear such higher
interest rate for the Extension Period, whether or not tendered for repayment.

 

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 10.  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.

 

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.

 

10

 

Section 11.  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 12.  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 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 13.  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 14.  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 15.  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 16.  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

 

11

 

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 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 17.  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 7 or Section 8,
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 18.  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 19.  Defined Terms. All terms used but not
defined in this Note are used herein as defined in the Indenture.

 

Section 20.  GOVERNING LAW. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

12

 

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 5 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 6
hereof or the Extension of Maturity Notes provision described in Section 9
hereof. Any such election is irrevocable except as provided in Section 6
or Section 9 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 repaid, if amount to be repaid is

  less than the Face Amount of this Note (Face Amount

  remaining must be an authorized denomination) 

  	
  Fill in for
  registration of Notes if to be issued otherwise than to the registered
  Holder: 

  
	
   

  	
  Name:

  	
   

  	
   

  
	
  $

  	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Please
  print name and address

  including zip code)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SOCIAL
  SECURITY OR OTHER TAXPAYER ID

  
	
   

  	
   

  	
   

  	
  NUMBER

  
	
   

  	
   

  	
   

  
												

 

13

 

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 terminated, if amount to be terminated

  is less than the Face Amount of this Note (such Face

  Amount must be an authorized denomination) 

  	
  Fill in for
  registration of Notes if to be issued otherwise than to the registered
  Holder: 

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
  $

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Please
  print name and address

  including zip code)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SOCIAL
  SECURITY OR OTHER TAXPAYER 

  
	
   

  	
   

  	
   

  	
  ID NUMBER

  
	
   

  	
   

  	
   

  
												

 

14

 

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

  	
   

  	
   

  	
   

  
	
   

  	
  MIN ACT

  	
  -

  	
   

  	
                 Custodian              

  
	
   

  	
   

  	
   

  	
   

  	
       (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.

  
				

 

15

 

SCHEDULE I

 

Amortization
Table

 

	
  Date

  	
   

  	
  Payment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT A

 

RESET NOTICE

 

LEHMAN
BROTHERS HOLDINGS INC.

Medium-Term Notes, Series I

(Fixed 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 Interest Rate set forth on the face of the Notes. On
and after                  (1),
the Interest Rate 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.

 

16

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