Document:

Exhibit
10.2

 

CHANGE
IN CONTROL SEVERANCE AGREEMENT

Marie D. Hlavaty

CHANGE IN CONTROL SEVERANCE
AGREEMENT (the “Agreement”) dated May 10, 2007 by and among Visant
Holding Corp., a Delaware corporation (the “Company”), Visant
Corporation, a Delaware corporation (the “Employer”) and Marie D.
Hlavaty (“Executive”).

The Company and Employer desire
to induce Executive to remain in employment by providing Executive protection
in the event of a termination of Executive’s employment in certain
circumstances, and Executive desires to continue to be employed by the Employer
and to accept such protection.

In consideration of the
promises and mutual covenants contained herein and for other good and valuable
consideration, the parties agree as follows:

1.             Term.  This
Agreement shall be effective for a period commencing on the date of this
Agreement and ending at 11:59 p.m. on December 31, 2009  (the “Initial Term”); provided,
however, that commencing with January 1, 2010 and on each anniversary thereof (each, an “Extension
Date”), the Initial Term shall automatically be extended for an additional
twelve (12) month period, unless the Company or Executive provides the other
party hereto prior written notice 90 days  before the
next Extension Date that the term of this Agreement shall not be so extended
(the Initial Term and any annual extensions of the term of this Agreement,
together, the “Term”). 
Notwithstanding the foregoing, this Agreement shall, if in effect on the
date of a Change in Control (as defined in Section 3 below), remain in effect
for two years following a Change in Control.

2.             Termination of Employment.

a.            Subject to (A) Executive’s execution, delivery and
non-revocation of a severance agreement, including a general waiver and release
of claims against the Company and its Affiliates in a form reasonably acceptable
to the Employer and (B) continued compliance with the restrictive covenants to
which Executive is otherwise bound, if, during the Term, Executive’s employment with the Employer is
terminated at any time upon the effectiveness of, or within two years following,
a Change of Control by (x) the Company or the Employer without Cause or (y) Executive
for Good Reason (as each such term is defined in Section 3 below),  Executive
shall be entitled to receive from  the
Employer:

(i)                  a cash severance payment equal
to one (1) times the sum of: (x) Executive’s annual rate of base salary, as in
effect immediately prior to the date on which such termination occurs (without
giving effect to any reduction giving rise to Good Reason) and (y) an amount
equal to the higher of (A) Executive’s annual cash bonus for the fiscal year of
termination assuming payment of the bonus at the rate at which Executive would
be entitled if the target threshold under the bonus plan had been achieved
(without giving effect to any reduction giving rise to Good Reason) or (B) an
amount equal to the average percentage bonus rate actually earned by Executive
in respect of the two fiscal years prior to the fiscal year of termination
applied to Executive’s annual rate of base salary, as in effect immediately
prior to the date on

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which such termination occurs (without giving effect to any reduction
giving rise to Good Reason), payable in equal installments in accordance with
the normal payroll practices of the Employer over the twelve (12) month period
following the last day Executive was actively employed by the Employer (such
twelve (12) month period, the “Severance Period”); provided, however,
that such payment shall be in lieu of notice or any other severance benefits to
which Executive might otherwise be entitled, except as may be required by
applicable law;

(ii)                 an amount equal to the annual
cash bonus that Executive would have received in accordance with the terms of
the applicable bonus plan assuming the target threshold under such plan had
been achieved (without giving effect to any reduction giving rise to Good
Reason), if Executive had remained employed by the Employer through the end of
the fiscal year of the Employer in which such termination occurs, paid at such
time as the bonus would otherwise have been paid to Executive under the terms
of such plan; provided, however, that, if Executive’s employment
terminates prior to September 30 of a given year, such amount shall be multiplied
by the Pro-Rate Factor (as defined in Section 3 below) (as applicable to
Executive’s employment with the Employer);

(iii)                all earned and unpaid and/or
vested, nonforfeitable amounts owing or accrued at the date of Executive’s termination
of employment (including any earned but unpaid base salary, vacation, and any
annual cash bonus that is earned by Executive but unpaid as of the date of
termination for any previously completed fiscal year) under any compensation
and benefit plans, programs, and arrangements of the Company and its Affiliates
in which Executive theretofor participated, including, without limitation, as a
result of a “change in control” (as may be defined under the respective plan or
program), payable in accordance with the terms and conditions of the plans,
programs, and arrangements (and agreements and documents thereunder) pursuant
to which such compensation and benefits were granted or accrued; and

(iv)                reimbursement for any unreimbursed
business expenses properly incurred by Executive in accordance with the Employer’s
policy prior to the termination date.

In
addition, the Employer shall permit Executive (and those of Executive’s dependents
enrolled at the time of Executive’s termination of employment, if any) to
continue the coverage of Executive’s group health benefits in accordance with
the terms and conditions of the applicable group health benefit plan(s), as
they may be replaced or changed from time to time, through the earlier of (i)
the end of the Severance Period and (ii) the date on which Executive receives
comparable group health benefits from any subsequent employer (such period, the
“Benefits Continuation Period”). 
Effective as of the first day of the month following the month of
Executive’s termination of employment, Executive (and those of Executive’s dependents
enrolled at the time of such termination of employment, if any) will have the
right to continue group health benefit coverage subject to and in accordance
with the terms and conditions of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”) by exercising the COBRA continuation
privileges, if any, as provided by law.

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During the
Benefits Continuation Period,  the Employer  agrees to pay the premium for such coverage over and above
the then-active employee contribution for group health benefits coverage (as
such premiums may change from time to time) for Executive and Executive’s enrolled
dependents (the “COBRA Subsidy”) and Executive shall be responsible for
paying the balance of the premium above the COBRA Subsidy (i.e.,
the active employee premium amount).  The
continued coverage will be subject to the terms and conditions of the group
health benefit plan(s) that apply to active employees generally, including  the Employer’s  right to amend
and terminate such plan(s).  Following
the Benefits Continuation Period, Executive and Executive’s dependents, to the
extent they are enrolled in the group health benefit plan(s) at the conclusion
of the Benefits Continuation Period, will have the right to continue their
coverage pursuant to and in accordance with the terms and conditions of COBRA
for the remainder of the applicable COBRA period, subject to, among other
things, payment of the full  COBRA premium
for Executive and/or Executive’s covered dependents.  Notwithstanding the foregoing, in the event that
(x) such continued coverage is not permissible under the terms of such plan(s)
or (y) such plan(s) are terminated, the Employer shall, in lieu of providing
such coverage, pay Executive (on an after-tax basis) an amount equal to the
COBRA Subsidy the Employer would have otherwise paid on Executive’s behalf for
such coverage during the Benefits Continuation Period.

b.             Following Executive’s termination
or resignation (as the case may be), except as set forth in this Section 2 and
Section 5 below, Executive shall have no further rights to any other
compensation or benefits under this Agreement or any other severance plan or
arrangement maintained by the Company or any of its Affiliates, except as
otherwise provided under any stock option or management stockholder’s agreement
entered into by and between Executive and the Company or any of its Affiliates.

3.             Definitions.
For purposes of this Agreement:

a.             “Affiliate” shall mean with
respect to any Person, any entity directly or indirectly controlling,
controlled by or under common control with such Person.

b.             “Board” shall mean the Board
of Directors of the Company.

c.             “Cause” shall mean “Cause”
as such term may be defined in any employment agreement between Executive and
the Employer or any of its Affiliates (the “Employment Agreement”) or,
if there is no such Employment Agreement, “Cause” shall mean, as determined in
the reasonable good faith judgment of the Employer or any of its Affiliates, as
applicable:

(i)            Executive’s
willful and continued failure to perform Executive’s material duties with
respect to the Company or any of its subsidiaries which continues beyond ten
(10) days after a written demand for substantial performance is delivered to
Executive by the Company or any of its subsidiaries (the “Cure Period”);

(ii)           the
willful or intentional engaging by Executive in conduct that causes material
and demonstrable injury, monetarily or otherwise, to the Company, the Investors
or their respective Affiliates;

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(iii)          the
commission by Executive of a crime constituting (A) a felony under the
laws of the United States or any state thereof or (B) a misdemeanor
involving moral turpitude; or

(iv)         a
material breach of by Executive of this Agreement or other agreements,
including, without limitation, engaging in any action in breach of restrictive
covenants, herein or therein, that continues beyond the Cure Period (to the
extent that, in the Board’s reasonable judgment, such breach can be cured).

d.             “Code” shall mean the
Internal Revenue Code of 1986, as amended.

e.             “Change in Control” shall
mean (i) the sale (in one transaction or a series of transactions) of all
or substantially all of the assets of the Company to an Unaffiliated Person (as
defined below); (ii) a sale (in one transaction or a series of
transactions) resulting in more than 50% of the voting stock of the Company
being held by an Unaffiliated Person; (iii) a merger, consolidation,
recapitalization or reorganization of the Company with or into an Unaffiliated
Person; if and only if any such
event listed in clauses (i) through (iii) above results in the inability
of the Investors, or any member or members of the Investors, to designate or
elect a majority of the Board (or the board of directors of the resulting
entity or its parent company).  For
purposes of this definition, the term “Unaffiliated Person” means any Person or
“group” (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended) who is not (x) an Investor or
any member of the Investors, (y) an Affiliate of any Investor or any
member of any Investor, or (z) an entity in which any Investor, or any
member of any Investor holds, directly or indirectly, a majority of the
economic interests in such entity.

f.              “Good
Reason” shall mean “Good Reason” as such term is defined in the Employment
Agreement, or if there is no such Employment Agreement, “Good Reason” shall
mean:

(i)            a
reduction in Executive’s base salary or annual incentive compensation (other than
a general reduction in base salary that affects all members of senior
management in substantially the same proportions, provided that Executive’s
base salary is not reduced by more than 10%);

(ii)           a
substantial reduction or adverse change in Executive’s duties and
responsibilities;

(iii)          a
transfer of Executive’s primary workplace by more than fifty miles from the
current workplace;

(iv)         failure
of the Company or the Employer to comply with and satisfy Section 7(d) of this
Agreement; or

(v)          failure
of the Company, the Employer or any successor to maintain the Agreement for a
two year period following a Change in Control.

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and provided,
further, that “Good Reason” shall cease to exist for any such event on
the 90th day following the later of its occurrence or Executive’s
knowledge thereof, unless Executive has given the Employer or any of its
Affiliates, as applicable, written notice of “Good Reason” prior to such date.

g.           “Investors” shall mean Fusion
Acquisition LLC, a Delaware limited liability company, and DLJ Merchant Banking
Partners III, L.P., DLJ Offshore Partners III-1, C.V., DLJ Offshore Partners
III-2, C.V., DLJ Offshore Partners III, C.V., DLJ MB Partners III GmbH &
Co. KG, Millennium Partners II, L.P. and MBP III Plan Investors, L.P.

h.           “Person” shall mean “person,”
as such term is used for purposes of Sections 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended.

i.             “Pro-Rate Factor” shall mean
a fraction, (i) the numerator of which is equal to the number of days that Executive
is employed by the Employer during the fiscal year in which Executive’s
employment terminates, and (ii) the denominator of which is the number of days
in such fiscal year.

4.             Notice of Termination.  Any purported termination of employment by
the Employer or any of its Affiliates, as applicable, or by Executive (other than due to Executive’s
death) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 7(f) hereof.  For purposes of this Agreement, a “Notice of
Termination” shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and the date of termination, and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of employment under the provision so indicated.

5.             Arbitration.  Any
dispute arising out of or asserting breach of this Agreement shall be
exclusively resolved by binding statutory arbitration in accordance with the
Employment Dispute Resolution Rules of the American Arbitration
Association.  Such arbitration process
shall take place in New York, New York. 
A court of competent jurisdiction may enter judgment upon the arbitrator’s
award.  Each party shall pay the costs
and expenses of arbitration (including fees and disbursements of counsel)
incurred by such party in connection with any dispute arising out of or
asserting breach of this Agreement.

6.             Section 409A.  If any
provision of this Agreement (or of any award of compensation, including equity
compensation or benefits) would cause Executive to incur any additional tax or
interest under Section 409A of the Code or any regulations or Treasury
guidance promulgated thereunder, the Company shall, after consulting with
Executive, reform such provision to comply with Section 409A of the Code; provided
that the Company agrees to maintain, to the maximum extent practicable, the
original intent and economic benefit to Executive of the applicable provision
without violating the provisions of Section 409A of the Code.

Notwithstanding anything herein to the contrary, if at
the time of Executive’s termination of employment with the Employer or any of
its Affiliates Executive is a “specified employee” as defined in Section 409A
of the Code and the deferral of the commencement of any payments or

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benefits otherwise
payable hereunder as a result of such termination of employment is necessary in
order to prevent any accelerated or additional tax under Section 409A of the
Code, then the Employer  will defer the
commencement of the payment of any such payments or benefits hereunder (without
any reduction in such payments or benefits ultimately paid or provided to
Executive) until the date that is six months following Executive’s termination
of employment with the Employer or any of its Affiliates (or the earliest date
as is permitted under Section 409A of the Code).

7.             Miscellaneous.

a.             Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of New York for agreements fully performed
within the State.

b.             Entire Agreement/Amendments.  This Agreement contains the entire
understanding of the parties with respect to the subject matter contained
herein, and during the Term supersedes all prior agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein.  This Agreement
may not be altered, modified, or amended except by written instrument signed by
the parties hereto.

c.             No Waiver; Severability.  The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party’s rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.  In the event that any one or
more of the provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby and shall
remain in full force and effect.

d.             Successor; Binding Agreement.  This Agreement shall inure to and be binding
upon any successor or assign of the Company or the Employer (and such successor
or assign shall hereafter be deemed the “Company” or “Employer” as the case may
be).  The Company and the Employer shall
assign this Agreement and its respective obligations hereunder to any successor
or assign thereof, whether by merger, consolidation, sale of substantially all
of the Company’s assets or capital stock or otherwise, and the Company and the
Employer shall require any successor or assign to expressly assume and agree to
perform the respective obligations of the Company and the Employer hereunder in
the same manner and to the same extent that the Company and the Employer would
be required to perform it if no such transfer or assignment had taken
place.  Any assignment or transfer of
this Agreement not in compliance with the foregoing shall be void and of no
force and effect. This Agreement shall inure to the benefit of and be
enforceable by Executive and Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.  If Executive should die while
any amount would still be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Executive’s devisee,
legatee or other designee or, if there is no such designee, to Executive’s
estate.

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e.             Spendthrift Provision.  No right or interest of Executive under this
Agreement may be assigned, transferred or alienated, in whole or in part,
either directly or by operation of law, and no such right or interest shall be
liable for or subject to any debt, obligation or liability of Executive.

f.              Notice. 
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or overnight courier or three days after
it has been mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth below in this
Agreement, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.

If to the Company or the
Employer:

Visant Holding Corp.

357 Main Street

Armonk, New York 10504

Attention: General
Counsel

If to Executive:

To the most recent
address of Executive set forth in the personnel records of the Company and its
subsidiaries.

g.             Withholding Taxes.  The Employer may withhold from any amounts
payable under this Agreement such Federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.

h.             No Mitigation. 
Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Agreement be
reduced by any compensation earned by Executive as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Executive to the Company or any of its Affiliates or otherwise,
except to the extent expressly provided in Section 2(a) with respect to the
provision of group health benefits.

i.              Survival.  Any provision hereunder that requires
performance beyond the termination of this Agreement, and the Company’s, the
Employer’s and Executive’s obligations thereunder, shall survive any
termination of this Agreement.

j.              Employment At Will.  Notwithstanding anything to the contrary
contained herein, Executive’s employment with the Employer or any of its Affiliates
is not for any specified term and may be terminated by Executive or the
Employer or any of its Affiliates at any time, for any reason, without
liability except as provided herein or as required by law.

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i.           Counterparts. 
This Agreement may be signed in counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

[Signatures on next page]

 

 8

IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement as of the day and year first
above written.

 

	
  VISANT HOLDING CORP.

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  Marc L. Reisch

  	
   

  
	
   

  	
  Title: President
  and Chief Executive Officer

  
	
   

  
	
   

  
	
  VISANT CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  Marc L. Reisch

  	
   

  
	
   

  	
  Title: President
  and Chief Executive Officer

  
	
   

  
	
    /s/ Marie
  D. Hlavaty

  	
   

  
	
  Marie D. HlavatyExhibit
4.01

CUSIP
NO. 52517PZ46

ISIN NO. US52517PZ468

	
  REGISTERED

  	
  PRINCIPAL AMOUNT: $4,000,000

  

No. R-1

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTE, SERIES I

FX DIGITAL NOTE
 DUE AUGUST 10, 2007

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

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

LEHMAN
BROTHERS HOLDINGS INC., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the “Company,” which term includes
any successor corporation under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to CEDE & Co., or
registered assigns, on the Maturity Date, an amount equal to the Redemption
Amount.

The “Maturity
Date” is August 10, 2007, or if such day is not a Business Day, on the next
following Business Day.

The “Redemption
Amount” is the amount equal to the sum of the principal amount of the Notes
plus the Additional Amount, if any.

The “Additional
Amount” is a single U.S. dollar amount calculated by the Calculation Agent
equal to the principal amount of the Notes multiplied by:

(A) 2.60%, if
the Settlement Rate is less than or equal to the Reference Level; or

(B) 0.00%, if
the Settlement Rate is greater than the Reference Level.

The “Trade
Date” is May 4, 2007.

The “Issue
Date” is May 10, 2007.

The “Valuation
Date” is August 6, 2007; provided that,
upon the occurrence of a Disruption Event, the Valuation Date may be postponed
(as described below).

The “Settlement
Rate” is the Reference Exchange Rate observed on the Valuation Date in
accordance with the Settlement Rate Option (subject to the occurrence of a
Disruption Event).

The “Reference
Exchange Rate” is the spot exchange rate for the Reference Currency quoted
against the U.S. dollar expressed as the number of units of the Reference
Currency per one U.S. dollar.

The “Reference
Currency” is the Brazilian Real (BRL).

The “Reference
Level” is 2.0159, equal to the Reference Initial Fixing minus 0.015.

The “Reference
Initial Fixing” is 2.0309, which is the Reference Exchange Rate observed on the
Trade Date in accordance with the Settlement Rate Option.

A “Valuation
Business Day” means any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which commercial banks are authorized or required by
law, regulation or executive order to close (including for dealings in foreign
exchange in accordance with the practice of the foreign exchange market) in Sao
Paulo, Brasilia or Rio de Janeiro.

The “Settlement
Rate Option” is the Brazilian Real/U.S. dollar offered rate for U.S. dollars,
expressed as the amount of Brazilian Reals per one U.S. dollar, for settlement
in two Business Days reported by the Banco Central do Brasil on SISBACEN Data
System under transaction code PTAX-800 (“Consulta de Cambio” or Exchange Rate
Inquiry), Option 5 

 2
 

(“Cotacoes para Contabilidade” or Rates for Accounting Purposes), which
appears on Reuters Screen BRFR Page under the caption “Dolar PTAX” at
approximately 6:30 pm Sao Paolo time on the Trade Date or Valuation Date, as
applicable.

If a
Disruption Event is in effect on the Valuation Date, the Valuation Date will be
postponed to, and the Calculation Agent will determine the Settlement Rate on,
the first scheduled Valuation Business Day succeeding the Valuation Date on
which no Disruption Event is occurring; provided however that if a Disruption
Event has occurred or is continuing on each of the three scheduled Valuation
Business Days following the scheduled Valuation Date, then (a) the third
scheduled Valuation Business Day shall be deemed the Valuation Date; and (b)
the Calculation Agent will determine the Settlement Rate on such day in
accordance with the Fallback Rate Observation Methodology.

A “Disruption
Event” means any of the
following events as determined in good faith by the Calculation Agent:

(A)  the occurrence and/or existence of an event on any
day that has the effect of preventing or making impossible the delivery of USD
from accounts inside Brazil to accounts outside Brazil;

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

(C)   the Settlement
Rate being unavailable, or the occurrence of an event (i) in Brazil that
materially disrupts the market for BRL or (ii) that generally makes it
impossible to obtain the Settlement Rate, on the Valuation Date.

The “Fallback
Rate Observation Methodology” means
that the Reference Exchange Rate, Settlement Rate or other rate, as specified
in the applicable pricing supplement, in respect of a reference currency will
equal the noon buying rate in New York for cable transfers in foreign
currencies as announced by the Federal Reserve Bank of New York for customs
purposes (the “Noon Buying Rate”) on the relevant Valuation Date or such other
date specified in the applicable pricing supplement. If the Noon Buying Rate is
not announced on that date, the Reference Exchange Rate, Settlement Rate or
other rate for such Reference Currency will be calculated on the basis of the
arithmetic mean of the applicable spot quotations received by the Calculation
Agent at approximately 10:00 a.m., New York City time, on the Valuation
Business Day next succeeding the Valuation Date or such other date specified in
the applicable pricing supplement, for the purchase or sale for deposits in the
Reference Currency by the New York offices of three leading banks engaged in
the interbank market (selected in the sole discretion of the Calculation Agent)
(the “Reference Banks”). If fewer than three Reference Banks provide spot
quotations, then the Reference Exchange Rate, Settlement Rate or other rate, as
applicable, will be calculated on the basis of the arithmetic mean of the
applicable spot quotations received by the Calculation Agent at approximately
10:00 a.m., New York City time, on the relevant date from two Reference
Banks (selected in the sole discretion of the Calculation Agent), for the
purchase or sale for deposits in the Reference Currency. If these spot
quotations are available from only one Reference Bank, then the Calculation
Agent, in its sole discretion, will determine whether that quotation is
reasonable to be used. If no spot quotation is available, then the Reference
Exchange Rate, Settlement Rate or other rate, as applicable, for such 

 3
 

Reference Currency will be determined by the Calculation
Agent in good faith and in a commercially reasonable manner.

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

The “Calculation Agent” means
Lehman Brothers Inc.

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

Payment of any Redemption Amount will be made in immediately available
funds in accordance with the normal procedures of the Trustee (or any duly
appointed Paying Agent).

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.$” or “$”
or “USD” 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.

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

	
  Dated: May 10, 2007

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [SEAL]

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Andrew M.W. Yeung

  
	
   

  	
   

  	
  Title:   Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
	
   

  	
  Name: Cindy Buckholz

  
	
   

  	
  Title:   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

FX DIGITAL NOTE
 DUE AUGUST 10, 2007

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

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

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

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

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

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

Section 6.  Authorized
Form and Denominations.  The Notes of
this series are issuable in registered form, without coupons.  Each Note will be issued initially as either
a Global Security or a Certificated Note, at the option of the Company, in
denominations of $1,000 or whole multiples of $1,000, either at the office or
agency to be designated and maintained by the Company for such purpose in the
Borough of Manhattan, New York City, pursuant to the provisions of the
Indenture or at any of such other offices or agencies as may be designated and
maintained by the Company for such purpose pursuant to the provisions of the
Indenture, and in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge, except for any tax or
other governmental charges imposed in connection therewith.  Notes of this series are exchangeable for a
like aggregate principal amount of Notes of this series of a different
authorized denomination, except that Global Securities will not be exchangeable
for Certificated Notes of this series.

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

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

 2
 

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

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

Section 8.  Events
of Default.  If an Event of Default
with respect to Notes of this series shall occur and be continuing, the amount
that may be declared due and payable upon any acceleration of the notes will be
determined by the Calculation Agent for the period from and including the Issue
Date to but excluding the date of early repayment and will equal, for each
note, the Redemption Amount, calculated as the date of early repayment were the
Maturity Date. If a bankruptcy proceeding is commenced in respect of Lehman Brothers
Holdings, the claim of the beneficial owner of a note for the period from and
including the Issue Date to but excluding the date of early repayment will be
capped at the Redemption Amount, calculated as though the date of the
commencement of the proceeding were the Maturity Date.

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

Section 10.  Defined
Terms.  All terms used but not
defined in this Note are used herein as defined in the Indenture.

Section 11.  GOVERNING LAW.  THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 3

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