Document:

Exhibit
4.01

 

[FACE OF NOTE]

 

Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) to the issuer 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.

 

	
  REGISTERED

  	
   

  	
  CUSIP: 225434 AH 2

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PRINCIPAL AMOUNT:
  $582,000

  
	
  NO. 1

  	
   

  	
   

  

 

CREDIT SUISSE
(USA), INC.

Reverse Convertible Securities Linked to the Performance of Arch Coal, Inc.

due March 30, 2007

 

CREDIT SUISSE (USA), INC., a Delaware corporation (the
“Company”, which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co., or registered assigns, at the office or agency of the Company in New York,
New York, the Redemption Amount (as defined on the reverse hereof) on the
Maturity Date (as defined on the reverse hereof), in the coin or currency of
the United States and to pay a coupon of 13.0% per annum on the
principal amount from March 31, 2006. 
The coupon payment will be payable quarterly in arrears on June 30,
2006, September 29, 2006, December 29, 2006, and March 30, 2007.

 

Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof, which 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
manually signed by the Trustee under the Indenture referred to on the reverse
hereof.

 

F-1

 

IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed under its
corporate seal.

 

	
   

  	
  CREDIT SUISSE (USA), INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [SEAL]

  	
  By:

  	
  /s/ Peter Feeney

  	
   

  
	
   

  	
   

  	
  Name: Peter Feeney

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CREDIT SUISSE (USA), INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Simon Yates

  	
   

  
	
   

  	
   

  	
  Name: Simon Yates

  
	
   

  	
   

  	
  Title: Authorized Signatory

  

 

 

CERTIFICATE OF AUTHENTICATION

 

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

 

Dated:  March 31, 2006

 

	
   

  	
  JPMORGAN CHASE, N.A.,

  
	
   

  	
  as Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ignazio Tamburello

  	
   

  
	
   

  	
   

  	
   Authorized Signatory

  

 

F-2

 

[REVERSE OF NOTE]

 

CREDIT SUISSE
(USA), INC.

Reverse Convertible Securities Linked to the Arch Coal, Inc.

due March 30, 2007

 

This Note is one of a
duly authorized issue of debentures, notes, bonds or other evidences of
indebtedness of the Company (the “Securities”) of the series hereinafter
specified, all issued or to be issued under and pursuant to a senior indenture,
dated as of June 1, 2001 (the “Indenture”), between the Company and JPMorgan
Chase Bank, as trustee (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 Securities may be issued in one or more
series, which different series 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 (if any), may be
subject to different sinking, purchase or analogous funds (if any) and may
otherwise vary as provided in the Indenture. 
This Note is one of a series designated as the Reverse Convertible
Securities Linked to the Performance of Arch Coal, Inc., due March 30, 2007
(the “Note”).

 

A coupon will be payable on this Note of
13.0% per annum on the principal amount from March 31, 2006.  The coupon payment will be payable quarterly
in arrears on June 30, 2006, September 29, 2006, December 29, 2006, and March
30, 2007.

 

This Note is payable in the manner, with the effect
and subject to the conditions provided in the Indenture.

 

If a payment date is not a business day as defined in
the Indenture at a place of payment, payment may be made at that place on the
next succeeding day that is a business day, and no interest shall accrue for
the intervening period.

 

The Indenture provides that, without prior notice to
any Holders, the Company and the Trustee may amend the Indenture and the
Securities of any series with the written consent of the Holders of a majority
in principal amount of the outstanding Securities of all series affected by
such amendment (all such series voting as one class), and the Holders of a
majority in principal amount of the outstanding Securities of all series
affected thereby (all such series voting as one class) may waive future
compliance by the Company with any provision of the Indenture or the Securities
of such series by written notice to the Trustee; provided that, without the
consent of each Holder of the Securities of each series affected thereby, an
amendment or waiver, including a waiver of past defaults, may not: (i) extend
the stated maturity of the Principal of, or any sinking fund obligation or any
installment of interest on, such Holder’s Security, or reduce the principal
amount thereof or the rate of interest thereon (including any amount in respect
of original issue discount), or any premium payable with respect thereto, or
adversely affect the rights of such Holder under any mandatory redemption or
repurchase provision or any right of redemption or repurchase at the option of
such Holder, or reduce the amount of the Principal of an Original Issue
Discount Security that would be due and payable upon an acceleration of the
maturity thereof or the amount thereof provable in bankruptcy, or

 

R-1

 

change any place of payment where, or the currency in
which, any Security of such series or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the due date therefor; (ii) reduce the percentage in
principal amount of outstanding Securities of the relevant series the consent
of whose Holders is required for any such supplemental indenture, for any
waiver of compliance with certain provisions of the Indenture or certain
Defaults and their consequences provided for in the Indenture; (iii) waive a
Default in the payment of Principal of or interest on any Security of such
Holder; or (iv) modify any of the provisions of the Indenture governing
supplemental indentures with the consent of Securityholders except to increase
any such percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Security affected thereby.

 

The Indenture provides that, subject to certain
conditions, the Holders of at least a majority in principal amount (or, if any
Securities are Original Issue Discount Securities, such portion of the
Principal as is then accelerable) of the outstanding Securities of all series
affected (voting as a single class), by notice to the Trustee, may waive an
existing Default or Event of Default with respect to the Securities of such
series and its consequences, except a Default in the payment of Principal of or
interest on any Security or in respect of a covenant or provision of the
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Security affected. 
Upon any such waiver, such Default shall cease to exist, and any Event
of Default with respect to the Securities of such series arising therefrom
shall be deemed to have been cured, for every purpose of the Indenture; but no
such waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereto.

 

The Indenture provides that a series of Securities may
include one or more tranches (each a “tranche”) of Securities, including
Securities issued in a Periodic Offering. 
The Securities of different tranches may have one or more different
terms, including authentication dates and public offering prices, but all the Securities
within each such tranche shall have identical terms, including authentication
date and public offering price. 
Notwithstanding any other provision of the Indenture, subject to certain
exceptions, with respect to sections of the Indenture concerning the execution,
authentication and terms of the Securities, redemption of the Securities,
Events of Default of the Securities, defeasance of the Securities and amendment
of the Indenture, if any series of Securities includes more than one tranche,
all provisions of such sections applicable to any series of Securities shall be
deemed equally applicable to each tranche of any series of Securities in the
same manner as though originally designated a series unless otherwise provided
with respect to such series or tranche pursuant to a board resolution or a
supplemental indenture establishing such series or tranche.

 

No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the Redemption Amount of
this Note in the manner, at the place, at the time and in the coin or currency
herein prescribed.

 

The Securities are issuable initially only in
registered form without coupons in denominations of $5,000 and any integral multiples
of $1,000 in excess of that amount at the office or agency of the Company in
the Borough of Manhattan, The City of New York, and in the manner and subject
to the limitations provided in the Indenture.

 

R-2

 

The Securities will not be redeemable at the option of
the Company prior to maturity.

 

The Company will not be required to pay any Additional
Amounts on the Securities.

 

Maturity Date

 

The Maturity Date of the Securities is March 30, 2007 (the “Maturity Date”);
however, if a market disruption event exists on the Valuation Date, as
determined by the Calculation Agent, the Maturity Date will be the later of
March 30, 2007, and the third business day following the date on which the
closing price for the reference shares is calculated.

 

Redemption Amount

 

The Company will redeem the Securities at maturity for
a redemption amount in cash that will be based on the performance of the
reference shares during the term of the Securities (the “redemption amount”):

 

(1)          If the closing price of
the reference shares on the New York Stock Exchange (the “relevant exchange”)
is not less than the knock-in level, which is 80% of the Initial Share Price,
on any day from but not including March 28, 2006, which is the initial setting
date, to and including March 26, 2007 (the “Valuation Date”), the redemption
amount will equal a cash payment equal to 100% of the principal amount of the
Securities.

 

(2)          If (i) the closing price
of the reference shares on the relevant exchange is less than the knock-in
level on any day from but not including March 28, 2006, which is the initial
setting date, to and including the Valuation Date and (ii) the closing price of
the reference shares on the relevant exchange on the Valuation Date, which we
refer to as the final share price, is greater than or equal to the Initial
Share Price, the redemption amount will equal a cash payment equal to 100% of
the principal amount of the Securities.

 

(3)          Otherwise, the
redemption amount will be the physical delivery amount.  The physical delivery amount will be the
number of reference shares per $1,000 principal amount of Securities equal to
$1,000 divided by the Initial Share Price. 
The market value of the physical delivery amount will be less than the
principal amount of the Securities and may be zero.

 

The “Initial Share Price” is $75.18.

 

A “business day” means a day, other than a Saturday,
Sunday or a day on which banking institutions in New York, New York are
generally authorized or obligated by law, regulation or executive order to
close and that is also a Trading Day.

 

A “trading day” means any day, as determined by the
Calculation Agent, on which trading is generally conducted for reference shares
(or, but for the occurrence of a market disruption event, would have been
generally conducted) on the relevant exchange and for options

 

R-3

 

and other derivative instruments on the reference
shares on the Chicago Mercantile Exchange and the Chicago Board Options
Exchange, which we refer to collectively as the related exchanges, other than a
day on which the relevant exchange or the related exchanges are scheduled to
close prior to their regular weekday closing time.

 

Market Disruption Events

 

If no final share price is available on the Valuation
Date because of a market disruption event, as determined by the Calculation
Agent in its sole discretion, the Calculation Agent may postpone the
calculation of the final share price until the earlier of the date such market
disruption event has ceased or three trading days after the Valuation Date, as
the case may be.  On such third trading
day, in the event there still exists a market disruption event, the Calculation
Agent will determine the final share price using its good faith estimate of the
value for the reference shares as of the closing time on the relevant exchange
on such date.  If a market disruption
event exists on the Valuation Date, the Maturity Date of the Securities will be
the later of the original Maturity Date and the third business day following
the day on which the final share price is calculated.  No interest will accrue or other payment be
payable because of any postponement of the Maturity Date.

 

A “market disruption event” means the occurrence or existence
of any suspension of or limitation imposed on trading (by reason of movements
in price exceeding limits permitted by any relevant exchange or market or
otherwise) of, or the unavailability, through a recognized system of public
dissemination of transaction information, of accurate price, volume or related
information in respect of (a) the reference shares or (b) any options or
futures contracts, or any options on such futures contracts, relating to the
reference shares if, in each case, in the determination of the Calculation
Agent, in its sole discretion, any such suspension, limitation or
unavailability is material.

 

For purposes of determining whether a market
disruption event has occurred:  (1) a
limitation on the hours or number of days of trading will not constitute a
market disruption event if it results from an announced change in the regular
business hours of the relevant exchange; (2) a decision permanently to
discontinue trading in the relevant options or futures contract will not constitute
a market disruption event; (3) limitations pursuant to New York Stock Exchange
Rule 80A—Index Arbitrage Trading Restrictions (or any applicable rule or
regulation enacted or promulgated by the New York Stock Exchange, any other
self-regulatory organization or the SEC of similar scope as determined by the
Calculation Agent) on trading during significant market fluctuations will
constitute a market disruption event; (4) a suspension of trading in an options
contract on the reference shares by the primary securities market trading in
such options, if available, by reason of (x) a price change exceeding limits
set by such securities exchange or market, (y) an imbalance of orders relating
to such contracts or (z) a disparity in bid and ask quotes relating to such
contracts will constitute a suspension or material limitation of trading in
options contracts related to the reference shares notwithstanding that such
suspension or material limitation is less than two hours; (5) a suspension,
absence or material limitation of trading on the primary securities market on
which options contracts related to the reference shares are traded will not
include any time when such securities market is itself closed for trading under
ordinary circumstances; and (6) a “suspension or material limitation” on an
exchange or in a market will include a suspension or material limitation of
trading by one class

 

R-4

 

of investors provided that such suspension continues
for more than two hours of trading or during the last one-half hour period
preceding the close of trading on the relevant exchange or market (but will not
include limitations imposed on certain types of trading under New York Stock
Exchange Rule 80A or any applicable rule or regulation enacted or promulgated
by the New York Stock Exchange, NASDAQ, any other self-regulatory organization
or the SEC of a similar scope or as a replacement for Rule 80A, as determined
by the Calculation Agent) and will not include any time when such exchange or
market is closed for trading as part of such exchange’s or market’s regularly
scheduled business hours.

 

Based on the information currently available to us, on
October 27, 1997, the New York Stock Exchange suspended all trading during the
one-half hour period preceding the close of trading pursuant to New York Stock
Exchange Rule 80B and, on each of September 11, 12, 13 and 14, 2001, the New
York Stock Exchange suspended all trading for the entire day due to certain
terrorist activity.  If any such
suspension of trading occurred during the term of the Securities, it would
constitute a market disruption event. 
The existence or non-existence of these circumstances, however, is not
necessarily indicative of the likelihood of these circumstances arising or not
arising in the future.

 

Antidilution Adjustments

 

General

 

The Calculation Agent will adjust the Initial Share Price
and the physical delivery amount if certain corporate actions and other events
described below (each of which, an “adjustment event”), occur, and the
Calculation Agent determines that such adjustment event has a diluting or
concentrative effect on the theoretical value of the reference shares.  Set forth below are examples of how
adjustment events may lead to adjustments to the Initial Share Price and the
physical delivery amount.

 

Upon the occurrence of an adjustment event that the
Calculation Agent determines has a diluting or concentrative effect on the
theoretical value of the reference shares, for purposes only of determining whether
(i) the price of the reference shares is less than or equal to the knock-in
level and (ii) the final share price is less than or equal to the Initial Share
Price, the Calculation Agent will typically adjust the Initial Share Price
according to the following formula:

 

 

The physical delivery amount will be adjusted by the
Calculation Agent as set forth in the specific examples below.

 

The adjustments described below do not cover all events
that could affect the value of the Securities.

 

R-5

 

Adjustments

 

If an
adjustment event occurs and the Calculation Agent determines that the event has
a diluting or concentrative effect on the theoretical value of the reference
shares, the Calculation Agent will calculate a corresponding adjustment to the
Initial Share Price and the physical delivery amount as the Calculation Agent
determines appropriate to account for that diluting or concentrative
effect.  The Calculation Agent will also
determine the effective date of that adjustment, and the replacement of the
reference shares, if applicable, in the event of consolidation or merger.  Upon making any such adjustment, the
Calculation Agent will give notice as soon as practicable to the Trustee,
stating the adjustment of the Initial Share Price and physical delivery amount.

 

If more
than one adjustment event occurs, the Calculation Agent will make an adjustment
for each such adjustment event in the order in which they occur, and on a
cumulative basis.  Accordingly, having
adjusted the Initial Share Price and the physical delivery amount for the first
such adjustment event, the Calculation Agent will adjust the Initial Share
Price and the physical delivery amount for the second adjustment event,
applying the required adjustment to the Initial Share Price and the physical
delivery amount as already adjusted for the first adjustment event, and so on
for each subsequent adjustment event.

 

The
Calculation Agent will not have to adjust the Initial Share Price and the
physical delivery amount for any adjustment event unless the adjustment would result in a change to the
Initial Share Price or the physical delivery amount of at least 0.1% in the
Initial Share Price or the physical delivery amount that would apply without
the adjustment.  The Initial Share Price
and the physical delivery amount resulting from any adjustment would be rounded
up or down, as appropriate, to, in the case of the Initial Share Price, the
nearest cent, and, in the case of the physical delivery amount, the nearest
thousandth, with one-half cent and five ten-thousandths, respectively, being
rounded upwards.

 

If an
adjustment event requiring antidilution adjustment occurs, the Calculation
Agent will make any adjustments with a view to offsetting, to the extent
practical, any change in the Holders’ economic position relative to the
Securities that results solely from that event. 
The Calculation Agent may, in its sole discretion, modify any
antidilution adjustments as necessary to ensure an equitable result.

 

The
Calculation Agent has sole discretion in making all determinations with respect
to antidilution adjustments, including any determination as to whether an
adjustment event requiring an antidilution adjustment has occurred, as to the
nature of the adjustment required and how it will be made.  In the absence of manifest error, those
determinations will be conclusive for all purposes and will be binding on the
Holders and the Company, without any liability on the part of the Calculation
Agent.  Upon written request, the
Calculation Agent will provide information about any adjustments it makes.

 

R-6

 

Events requiring an antidilution adjustment

 

The
following is a list of adjustment events that may require an antidilution
adjustment:

 

(a)                                  a subdivision, consolidation
or reclassification of the reference shares or a free distribution or dividend
of any reference shares to existing holders of reference shares by way of
bonus, capitalization or similar issue;

 

(b)                                 a dividend or other
distribution to existing holders of reference shares of (i) the reference
shares, (ii) other share capital or securities granting the right to payment of
dividends equally or proportionately with such payments to holders of the
reference shares or (iii) any other type of securities, rights or warrants in
any case for payment (in cash or otherwise) at less than the prevailing market
price as determined by the Calculation Agent;

 

(c)                                  the declaration by the
issuer of the reference shares of an extraordinary or special dividend or other
distribution whether in cash or reference shares or other assets;

 

(d)                                 a repurchase of its common
stock by the issuer of the reference shares whether out of profits or capital
and whether the consideration for such repurchase is cash, securities or
otherwise;

 

(e)                                  a consolidation of the
issuer of the reference shares with another company or merger of the issuer of
the reference shares with another company; and

 

(f)                                    any other similar event that
may have a diluting or concentrative effect on the theoretical value of the
reference shares.

 

Certain
adjustment events are discussed in greater detail below.

 

Stock splits

 

A stock split is an increase in the number of a corporation’s
outstanding shares of stock without any change in its stockholders’
equity.  As a result of a stock split,
each outstanding share will be worth less.

 

If the
reference shares are subject to a stock split, the Calculation Agent will
adjust the physical delivery amount to equal the sum of the prior physical
delivery amount—i.e., the physical delivery amount before that adjustment—and
the product of (i) the number of additional shares issued in the stock split
with respect to each of the reference shares times (ii) the prior physical
delivery amount.

 

Reverse stock splits

 

A reverse
stock split is a decrease in the number of a corporation’s outstanding shares
of stock without any change in its stockholders’ equity.  As a result of a reverse stock split, each
outstanding share will be worth more.

 

If the
reference shares are subject to a reverse stock split, the Calculation Agent
will adjust the physical delivery amount to equal the product of the prior
physical delivery amount and the quotient of (i) the number of reference shares
outstanding immediately after the reverse

 

R-7

 

stock split
becomes effective divided by (ii) the number of reference shares outstanding
immediately before the reverse stock split becomes effective.

 

Stock dividends

 

In a stock
dividend, a corporation issues additional shares of its stock to all holders of
its outstanding stock in proportion to the shares they own.  As a result of a stock dividend, each
outstanding share will be worth less.

 

If the
reference shares are subject to a stock dividend payable in the reference
shares, then the Calculation Agent will adjust the physical delivery amount to
equal the sum of the prior physical delivery amount and the product of (i) the
number of additional shares issued in the stock dividend with respect to each
of the reference shares times (ii) the prior physical delivery amount.

 

Other dividends and distributions

 

If the
issuer of the reference shares declares a dividend to be distributed to holders
of record of the reference shares as of a date falling in the period that
begins on the day immediately following the Valuation Date and ends on the day
immediately prior to the Maturity Date, any such dividend will not be paid to
Holders.

 

The
physical delivery amount will not be adjusted to reflect any dividends or
distributions paid with respect to the reference shares, other than (i) stock
dividends described above; (ii) issuances of transferable rights and warrants
as described in “—Transferable rights and warrants” below; and (iii) extraordinary
dividends as described below.

 

A dividend
or other distribution with respect to the reference shares will be deemed to be
an “extraordinary dividend” if its per share value exceeds that of the
immediately preceding non-extraordinary dividend, if any, for the reference
shares by an amount equal to at least 10.00% of the market price of the
reference shares on the business day before the extraordinary dividend
date.  The ex dividend date for any
dividend or other distribution is the first day on which the reference shares
trade without the right to receive that dividend or distribution.  If an extraordinary dividend occurs, the
Calculation Agent will adjust the physical delivery amount to equal the product
of (1) the prior physical delivery amount times (2) a fraction, the numerator
of which is the market price of the reference shares on the business day before
the ex dividend date and the denominator of which is the amount by which that
market price exceeds the extraordinary dividend adjustment amount.  The “extraordinary dividend adjustment amount”
with respect to an extraordinary dividend for the reference shares equals:  (i) for an extraordinary dividend that is
paid in lieu of a regular quarterly dividend, the amount of the extraordinary
dividend per share of the reference shares minus the amount per share of the
immediately preceding dividend, if any, that was not an extraordinary dividend
for the reference shares, or (ii) for an extraordinary dividend that is not
paid in lieu of a regular quarterly dividend, the amount per share of the
extraordinary dividend.

 

To the
extent an extraordinary dividend is not paid in cash, the value of the non-cash
component will be determined by the Calculation Agent.  A distribution on the reference shares that
is a dividend payable in the reference shares, an issuance of rights or
warrants or a spin-off

 

R-8

 

event and
that is also an extraordinary dividend will result in an adjustment to the
physical delivery amount only as described in “Stock dividends” above, “Transferable
rights and warrants” below or “Reorganization events” below, as the case may
be, and not as described here.

 

Transferable rights and warrants

 

If the
issuer of the reference shares issues transferable rights or warrants to all
holders of the reference shares to subscribe for or purchase the reference
shares at an exercise price per share that is less than the market price of the
reference shares on the business day before the extraordinary dividend date for
the issuance, then the physical delivery amount will be adjusted by multiplying
the prior physical delivery amount by the following fraction:  (i) the numerator will be the sum of the
number of reference shares outstanding at the close of business on the day
before that ex dividend date and the total number of additional reference
shares offered for subscription or purchase under those transferable rights or
warrants, and (ii) the denominator will be the sum of the number of reference
shares outstanding at the close of business on the day before that ex dividend
date and the product of (1) the total number of additional reference shares
offered for subscription or purchase under the transferable rights or warrants
times (2) the exercise price of those transferable rights or warrants divided
by the market price on the business day before that extraordinary dividend
date.

 

Reorganization events

 

Each of the
following may be a reorganization event: 
(i) the reference shares are reclassified or changed; (ii) the issuer of
the reference shares has been subject to a merger, consolidation or other
combination and either is not the surviving entity or is the surviving entity
but all outstanding reference shares are exchanged for or converted into other
property; (iii) a statutory share exchange involving outstanding reference
shares and the securities of another entity occurs, other than as part of an
event described above; (iv) the issuer of the reference shares effects a
spin-off (i.e., issues to all holders of reference shares common stock equity
securities of another issuer) other than as part of an event described above;
(v) the issuer of the reference shares sells or otherwise transfers its
property and assets as an entirety or substantially as an entirety to another
entity (each of the events in clauses (i) through (v) above, a “merger event”);
(vi) a takeover offer, tender offer, exchange offer, solicitation, proposal or
other event by any entity or person that results in such entity or person
purchasing, or otherwise obtaining or having the right to obtain, by conversion
or other means, not less than a majority of the outstanding voting reference
shares as determined by the Calculation Agent, based upon the making of filings
with governmental or self-regulatory agencies or such other information as the
Calculation Agent deems relevant, which we refer to as a tender offer; (vii)
the exchange on which the reference shares trade announces that pursuant to the
rules of such exchange, the reference shares cease (or will cease) to be
listed, traded or publicly quoted on it for any reason (other than a merger
event or tender offer) and are not immediately re-listed, re-traded or
re-quoted on another major U.S. exchange or quotation system (a “delisting
event”); and (viii) the issuer of the reference shares is liquidated, dissolved
or wound up or is subject to a proceeding under any applicable bankruptcy,
insolvency or other similar law (each, an “insolvency event”).

 

R-9

 

Adjustments for reorganization events

 

If a merger
event occurs and a holder of the reference shares that makes no election, vote
or decision in connection with such merger event would receive as full or
partial consideration ordinary or common shares of any person (other than the
issuer of the reference shares) that are publicly quoted, traded or listed on
any major U.S. exchange or quotation system (the “new shares”), then the Calculation Agent will adjust the
physical delivery amount so as to consist of the amount and type of property
distributed in the reorganization event in respect of the prior physical
delivery amount.  In this instance, if
more than one type of property is distributed, the physical delivery amount
will be adjusted so as to consist of each type of property distributed, in a
proportionate amount, so that the value of each type of property comprising the
new physical delivery amount as a percentage of the total value of the new
physical delivery amount equals the value of that type of property as a
percentage of the total value of all of the property distributed in the
reorganization event.

 

If a tender
offer occurs, and the holder of the reference shares can elect to receive new
shares as full or partial consideration in respect of such tender offer, then
the Calculation Agent will adjust the physical delivery amount in accordance
with the preceding paragraph.

 

If a merger
event occurs, and the consideration in respect of such event does not consist
in full or in part of new shares (or in the case of a tender offer, a holder of
the reference shares would not be able to elect to receive in full or in part
any new shares as consideration in respect of such tender offer), then the
Calculation Agent will accelerate the Maturity Date to the day which is four
business days after the approval date (as defined below).  The amount payable at maturity will be
determined as described below under “Events of default and acceleration.”  The approval date is the closing date of a
merger event or, in the case of a tender offer, the date on which the person or
entity making the tender offer acquires or acquires the right to obtain the
relevant percentage of reference shares.

 

If a
delisting event or an insolvency event occurs, the Calculation Agent will
accelerate the Maturity Date to the day which is four business days after the
announcement date (as defined below).  On
the Maturity Date, the Company will pay to each Holder the physical delivery
amount and for the purposes of such calculation, the final share price will be
deemed to be the closing price of the reference shares on the business day
immediately prior to the announcement date. 
The announcement date means, in the case of a delisting event, the day of
the first public announcement by the relevant exchange that the reference
shares will cease to trade or be publicly quoted on such exchange, or, in the
case of an insolvency event, the day of the first public announcement of the
institution of a proceeding or presentation of a petition or passing of a
resolution (or other analogous procedure in any jurisdiction) that leads to an
insolvency event with respect to the issuer of the reference shares.

 

If a merger
event or tender offer occurs, coupon payment amounts will accrue on the
Securities through the approval date and be paid on the accelerated Maturity
Date.  Such coupon payments will be
calculated using a 360-day year comprised of twelve 30-day months.  If a delisting event or an insolvency event
occurs, the Company will pay all remaining scheduled unpaid coupon payments due
to a Holder through the scheduled Maturity Date on the accelerated Maturity
Date.

 

R-10

 

For the
purposes of making an adjustment required by a reorganization event, the Calculation
Agent will determine the value of each type of property distributed in the
distribution, in its sole discretion. 
For any property distributed consisting of new shares, the Calculation
Agent will use the closing price of the new shares on the approval date.  The Calculation Agent may value other types
of property in any manner it determines, in its sole discretion, to be
appropriate.  If a holder of the common
stock of the issuer of the reference shares elects to receive different types
or combinations of types of property in the reorganization event, such property
will consist of the types and amounts of each type distributed to a holder that
makes no election, as determined by the Calculation Agent.

 

If a
reorganization event occurs and the Calculation Agent adjusts the physical
delivery amount to consist of the property distributed in the reorganization
event as described above, the Calculation Agent will make further antidilution
adjustments for later events that affect such property, or any component of
such property, comprising the new physical delivery amount.  The Calculation Agent will do so to the same
extent that it would make adjustments if the common stock of the issuer of the
reference shares was outstanding and was affected by the same kinds of
events.  If a subsequent reorganization
event affects only a particular component of the physical delivery amount, the
required adjustment will be made with respect to that component, as if it alone
were the physical delivery amount.  For
example, if the issuer of the reference shares merges into another company and
each share of its common stock is converted into the right to receive two new
shares of the surviving company and a specified amount of cash, the physical
delivery amount will be adjusted to consist of two new shares and the specified
amount of cash per reference share.  The
Calculation Agent will adjust the common share component of the new physical
delivery amount to reflect any later stock split or other event, including any
later reorganization event, that affects the new shares, to the extent
described in this section entitled “Antidilution adjustments” as if the new
shares were the common stock of the issuer of the reference shares.  In that event, the cash component will not be
adjusted but will continue to be a component of the physical delivery
amount.  Consequently, Holders who
receive reference shares at maturity will be entitled to receive, for each
$1,000 of the outstanding principal amount of the Securities being exchanged, all
components of the physical delivery amount in effect on the exchange date, with
each component having been adjusted on a sequential and cumulative basis for
all relevant events requiring adjustment on or before the exchange date.

 

If a reorganization event occurs, the property distributed
in the event will be substituted for the common stock of the issuer of the
reference shares as described above. 
Consequently, references to the common stock of the issuer of the reference
shares mean any property that is distributed in a reorganization event and
comprises the adjusted physical delivery amount.  Similarly, references to the issuer of the
reference shares mean any successor entity in a reorganization event.

 

Events of Default and Acceleration

 

In case an Event of Default (as defined in the
Indenture) with respect to the Securities shall have occurred and be
continuing, the amount declared due and payable upon any acceleration of the
Securities (in accordance with the acceleration provisions set forth in the

 

R-11

 

prospectus) will be determined by the Calculation
Agent and will equal, for each security, the arithmetic average, as determined
by the Calculation Agent, of the fair market value of the Securities as
determined by at least three but not more than five broker-dealers (which may
include Credit Suisse Securities (USA) LLC or any of the Company’s other
subsidiaries or affiliates) as will make such fair market value determinations
available to the Calculation Agent.

 

The Company, the Trustee and any agent of the Company
or the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon) for the
purpose of receiving payment of, or on account of, the redemption amount
hereof, and for all other purposes, and neither the Company nor the Trustee nor
any agent of the Company or the Trustee shall be affected by any notice to the
contrary.

 

No recourse under or upon any obligation, covenant or
agreement contained in the Indenture or any indenture supplemental thereto or
in any Note, or because of any indebtedness evidenced thereby, shall be had
against any incorporator as such, or against any past, present or future
stockholder, officer, director or employee, as such, of the Company or of any
successor, either directly or through the Company or any successor, under any
rule of law, statute or constitutional provision or by the enforcement of any
assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof.

 

The Calculation Agent for the Securities (the “Calculation
Agent”) is Credit Suisse International. 
The calculations and determinations of the Calculation Agent will be
final and binding upon all parties (except in the case of manifest error).  The Calculation Agent will have no responsibility
for good faith errors or omissions in its calculations and determinations,
whether caused by negligence or otherwise.

 

Terms used herein that are defined in the Indenture
and not otherwise defined herein shall have the respective meanings assigned
thereto in the Indenture.

 

The laws of the State of
New York (without regard to conflicts of laws principles thereof) shall govern
this Note.

 

R-12

 

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 and all
  rights thereunder, hereby irrevocably constituting and appointing

  
	
   

  
	
                                                                                                                                                                                                Attorney
  to transfer such Note on the books of the Issuer, with full power of
  substitution in the premises.

  

 

 

	
   

  	
   

  	
   

  	
  Signature:

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE: The signature
  to this assignment must correspond with the name as written upon the face of
  the within Note in every particular without alteration or enlargement or any
  change whatsoever.

  

 

R-13EXHIBIT 10.1

 

REXNORD CORPORATION EXECUTIVE BONUS PLAN

(as amended March 31, 2006)

 

General
Description

 

Rexnord Corporation (the “Company”)
provides an incentive compensation bonus plan for key officers and directors
(the “Executive Bonus Plan”).  The purpose
of the Executive Bonus Plan is to provide a variable component of pay that
provides an incentive for the leadership of the company to achieve key business
objectives.

 

Each bonus fiscal year will
begin on April 1 and end on March 31. 
The first bonus fiscal year will begin on April 1, 2003 and end on March
31, 2004.

 

The form of bonus to be
received by participating executives is called the Performance Bonus and is
based on (i) the performance of the Company during the bonus fiscal year (the “Company
Performance Bonus”) and (ii) the performance of the executive in meeting
individual goals (Annual Improvement Priorities or “CEO approved AIP’s”) as
determined by the Compensation Committee, not to exceed five personal
performance goals (the “Individual Performance Bonus”).

 

PERFORMANCE
MEASURES AND WEIGHTING

 

The Performance Bonus amount
will be based on the measures below and weighted as follows:

 

•                  40% based on
total EBITDA

•                  40% based on
total Debt Repayment

•                  20% based on CEO
approved AIP’s (Individual Performance Bonus)

 

MINIMUM PERFORMANCE ACHIEVEMENT

 

Company Performance Bonus

 

Minimum performance achievement must be met
to trigger eligibility to receive a Company Performance Bonus payment under the
plan. The [EXECUTIVE’S TITLE] of the Company will be eligible to receive a
Company Performance Bonus for each bonus fiscal year in which both EBITDA and
Debt Repayment equal or exceed 90% of both of their respective EBITDA and Debt
Repayment targets as described below in the Section entitled “Achievement Targets”
(“EBITDA Target” and “Debt Repayment Target”).  
If the Company meets these minimum performance triggers, then the amount
of the Company Performance Bonus that the executive is eligible to receive will
be determined based upon the level of achievement of the performance measures
as described below under “Calculation of Performance Bonus - Company
Performance Bonus.”

 

Individual Performance Bonus 

 

EBITDA and Debt Repayment must equal or
exceed 70% of their respective Targets in order for the [EXECUTIVE’S TITLE] to
be eligible to receive a Individual Performance Bonus.  If the Company meets these minimum
performance triggers, then the amount of the Individual Performance Bonus that

 

 

the executive is eligible to receive will be
determined based upon the level of achievement of the CEO approved AIP
performance measures as described below under “Calculation of Performance Bonus
- Individual Performance Bonus.”

 

CALCULATION OF PERFORMANCE BONUS 

 

Company Performance Bonus 

 

If the
executive is eligible to receive a Company Performance bonus, then the amount
of the bonus  that the executive will be
eligible to receive will be determined by the level of achievement of the
EBITDA and Debt Repayment performance measures, each computed
individually.  The bonus amount is based
on [Applicable Percentage]% of the [EXECUTIVE’S TITLE]’s base pay
times the respective performance measure weighting (the “Base Bonus”) and
adjusted for performance greater than or less than the Target amounts.  Accordingly, if the Company achieves 100% of
the EBITDA Target for a given bonus fiscal year, the [EXECUTIVE’S TITLE]’s
bonus amount will be [Applicable Percentage]% of the [EXECUTIVE’S TITLE]’s base
pay during the bonus fiscal year times 40%. Similarly, if the Company achieves
100% of the Debt Repayment Target for a given bonus fiscal year, the [EXECUTIVE’S
TITLE]’s bonus amount will be [Applicable Percentage]% of the [EXECUTIVE’S
TITLE]’s base pay during the bonus fiscal year times 40%.  If the Company achieves greater or less than
100% of the respective EBITDA and Debt Repayment Targets, the [EXECUTIVE’S
TITLE]’s bonus amounts will increase or decrease as a percentage of the Base
Bonus as set forth in the table below.

 

	
  Percent of

  EBITDA and

  Debt Reduction Target Achievement

  	
   

  	
  < 90%

  of

  Target

  	
   

  	
  90%

  of

  Target

  	
   

  	
  95%

  of

  Target

  	
   

  	
  100%

  of

  Target

  	
   

  	
  105%

  of

  Target

  	
   

  	
  110%

  of

  Target

  	
   

  	
  115%

  of

  Target

  	
   

  	
  120%

  of

  Target

  	
   

  	
  125%

  of

  Target

  	
   

  	
  130%

  or > of

  Target

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Percent of Base Bonus

  	
   

  	
  0%

  	
   

  	
  50%

  	
   

  	
  75%

  	
   

  	
  100%

  	
   

  	
  125%

  	
   

  	
  150%

  	
   

  	
  200%

  	
   

  	
  250%

  	
   

  	
  300%

  	
   

  	
  350%

  and >*

  	
   

  

 

*For each
additional 5% increase in the percent of Bonus Plan achievement target after an
achievement of 115%, the executive will receive an increase of 50% of the
percentage of the Base Bonus.

 

Individual Performance Bonus 

 

The Individual
Performance Bonus to be received by the executive for each bonus fiscal year
will be based on the performance of the executive with respect to the CEO
approved AIP’s as determined by the Compensation Committee in its sole
discretion. The bonus amount is based on [Applicable Percentage]% of the
[EXECUTIVE’S TITLE]’s base pay, times a weighting of 20%. Although a weighting
of 20% is given to the Individual Performance Bonus in accordance with the
40/40/20 weighting specified above, the Compensation Committee may, at its
discretion, award a payment based on a weighting percentage ranging from 0 to
40% to this measure.

 

 

ACHIEVEMENT TARGETS

 

For the 2004
fiscal year, the EBITDA target shall be $137.6 million and the Debt Repayment
Target shall be $38 million.  The EBITDA
and Debt Repayment Targets for the 2005 through 2008 fiscal years shall be
determined in good faith by the Compensation Committee at its sole discretion.

 

“EBITDA” for a
given bonus fiscal year shall mean consolidated earnings before interest,
taxes, depreciation and amortization.   “Debt
Repayment” for a given bonus fiscal year shall mean the positive excess, if
any, of (a) debt outstanding at the beginning of the fiscal year, over (b) debt
outstanding  at the end of the fiscal
year. In both cases, EBITDA and Debt Repayment shall be computed in a manner
consistent with the Rexnord Management Incentive Plan including adjustments, if
any, as determined by the Compensation Committee, in its sole discretion.

 

The EBITDA and
Debt Repayment Targets are based upon certain revenue and expense assumptions
about the future business of the Company (the “Base Targets”).  Accordingly, in the event that the
Compensation Committee determines, in its sole discretion, that an adjustment
to target(s) is appropriate in order to maintain eligibility or prevent
dilution or enlargement of the Performance Bonus intended to be made available
under the Executive Bonus Plan, the Compensation Committee shall adjust the
financial targets in good faith and in any manner as it may deem equitable. In
the event of an acquisition or divestiture, the Base Targets would be adjusted
by the Compensation Committee for the purposes of bonus calculations.

 

	
  Base Targets

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Base Debt Repayment Target

  	
   

  	
  $

  	
  54

  	
   

  	
  $

  	
  67

  	
   

  	
  $

  	
  92

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Base EBITDA Target

  	
   

  	
  $

  	
  196.5

  	
   

  	
  $

  	
  222.7

  	
   

  	
  $

  	
  241.9

  	
   

  

 

The Base Targets above were
revised to reflect the Company’s acquisition of The Falk Corporation on May 16,
2005.

 

PAYMENT OF PERFORMANCE BONUS

 

The
Performance Bonus is calculated once the bonus fiscal year ends, the Company
receives its year-end financial audit, and performance reviews are
completed.  The Compensation Committee
shall then determine eligibility and the amount of Performance Bonus the
[EXECUTIVE’S TITLE] will receive under the terms of the Executive Bonus Plan.

 

If the
[EXECUTIVE’S TITLE] leaves the Company prior to the end of the bonus fiscal
year, he is not eligible for a bonus payment. 
The only exceptions are if the [EXECUTIVE’S TITLE] is terminated because
he formally retires under the pension plan (or retires meeting the requirements
of that plan), resigns with Good Reason or is terminated for other than Cause
(as such terms are defined in the [EXECUTIVE’S TITLE]’s employment
agreement).  Under these circumstances, a
pro-rated bonus will be paid at the time bonuses are paid to other executives.

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