Document:

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                                                                    Exhibit 10.1

                              FLORSHEIM GROUP INC.
                             1994 STOCK OPTION PLAN
                 (As Amended and Restated as of January 9, 2001)

1. Objectives of the Plan.

                  Florsheim Group Inc. 1994 Stock Option Plan (the "Plan") of
Florsheim Group Inc. (the "Corporation") is intended to encourage and provide
opportunities for ownership of the Corporation's Common Stock by (i) key
employees (including officers) of the Corporation and any subsidiaries of the
Corporation; (ii) certain consultants and advisors who perform services for the
Corporation and any subsidiaries of the Corporation; and (iii) non-employee
members of the Board of Directors of the Corporation (the "Board"). The Plan is
also intended to provide incentives for such individuals to put forth maximum
efforts for the successful operation of the Corporation and its subsidiaries. By
extending to such individuals the opportunity to acquire proprietary interests
in the Corporation and to participate in its success, the Plan may be expected
to benefit the Corporation and its shareholders by making it possible for the
Corporation and its subsidiaries to attract and retain the best available talent
and by providing such individuals with added incentives to increase the value of
the Corporation's stock.

2. Stock Subject to the Plan.

                  There are reserved for issue under the Plan 2,000,000 shares
of the Common Stock, without nominal or par value, of the Corporation (the
"Shares"). Such Shares may be, in whole or in part, as the Board shall from time
to time determine, authorized but unissued Shares, or issued Shares which shall
have been reacquired by the Corporation. The maximum number of Shares with
respect to which options may be granted to any individual during any calendar
year is 300,000 and the maximum number of Shares with respect to which options
may be granted to any individual during the term of the Plan is 500,000.

3. Administration.

                  Subject to the express provisions of the Plan, the Plan shall
be administered by the Executive Compensation and Stock Option Committee of the
Board (the "Committee"), and the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, options, if any, shall be granted, the type of option to be granted
(e.g., incentive or nonqualified) and the number of Shares to be subject to an
option. Subject to the express provisions of the Plan, the Committee shall also
have plenary authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations regarding it, and to take whatever action is necessary to
carry out the purposes of the Plan. The Committee's determinations on matters
referred to in this Section 3 shall be conclusive.

4. The Committee.

                  The Committee shall consist of two or more members of the
Board. The Committee shall be appointed by the Board, which may from time to
time designate the number to serve on the Committee, appoint members of the
Committee in substitution for members previously appointed and fill vacancies,
however caused, in the Committee. No member of the Board while a member of the
Committee shall be eligible to receive an option under the Plan.

                  The Committee shall elect one of its members as its Chairman
and shall hold its meetings at such times and places as it may determine. A
majority of the members shall constitute a quorum. Any determination reduced to
writing and signed by all the members of the Committee shall be fully as
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary, shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.

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5. Eligibility.

                  Options may be granted to key employees (which term as used
herein includes officers) of the Corporation and of its subsidiary corporations
(the "subsidiaries") as the term "subsidiary corporation" is defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, (the "Code") and
non-employee members of the Board. Consultants and advisors who perform services
for the Corporation or any of its subsidiaries shall be eligible to participate
in the Plan provided such individuals render bona fide services to the
Corporation or its subsidiaries, the services are not in connection with the
offer and sale of securities in a capital-raising transaction, and such
individuals do not directly or indirectly promote or maintain a market for the
Corporation's securities.

                  For the purposes of the Plan the term "employee" shall be an
individual with an "employment relationship" as defined in Section 421 (Treasury
Regulation Section 1.421-7(h)) of the Code. Nothing contained in the Plan shall
be construed to limit the right of the Corporation to grant options otherwise
than under the Plan in connection with (i) the employment of any person, (ii)
the acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of another corporation, firm or association, including grants
to employees thereof who become employees of the Corporation or a subsidiary, or
(iii) other proper corporate purposes.

6. Nonqualified Stock Options.

                  Unless it is designated an incentive stock option by the
Committee, any option granted under the Plan shall be nonqualified and shall be
in such form as the Committee may from time to time approve. Any such
nonqualified stock option shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall deem desirable:

         (a) Option Price. The option price of Shares purchasable under an
option shall be determined by the Committee in accordance with procedures
established by the Committee.

         (b) Option Period. The term of an option shall be fixed by the
Committee, but no option shall be exercisable after the expiration of ten years
from the date the option is granted.

         (c) Exercisability. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant; provided, however,
that except as provided in Subsections (f), (g) and (h) of this Section 6, no
option may be exercised at any time unless the holder is employed by, or
providing service to the Corporation or a subsidiary as an employee, a
consultant, an advisor, or a non-employee member of the Board and has
continuously been employed by, or provided service to the Corporation or a
subsidiary at all times since the date of granting of the option. If any option
granted under the Plan shall expire or terminate for any reason without ever
having been exercised in full, the unissued shares subject thereto shall again
be available for the purposes of the Plan. The proceeds of the sale of Shares
subject to options are to be added to the general funds of the Corporation.

         (d) Method of Exercise. Options which are exercisable may be exercised
in whole or in part at any time during the option period, by completing and
delivering to the Corporation an option exercise form provided by the
Corporation specifying the number of Shares to be purchased. Such form shall be
accompanied by payment in full of the option price (w) in cash, (x) with
approval of the Committee, by delivering Shares owned by the optionee (including
Shares acquired in connection with the exercise of an option, subject to such
restrictions as the Committee deems appropriate) and having a fair market value
on the date of exercise equal to the option price or by attestation (on a form
prescribed by the Committee) to ownership of Shares having a fair market value
on the date of exercise equal to the option price, (y) payment through a broker
in accordance with procedures permitted by Regulation T of the Federal Reserve
Board, or (z) by such other method as the Committee may approve. Shares used to
exercise an option shall have been held by the optionee for the requisite period
of time to avoid adverse accounting consequences to the Corporation with respect
to the option. No Shares shall be issued until full payment therefor has been
made.

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         (e) Nontransferability of Options. No option shall be transferable by
the optionee otherwise than by will or by the laws of descent and distribution,
and such options shall be exercisable, during the optionee's lifetime, only by
the optionee. Notwithstanding the foregoing, the Committee may provide, in a
grant instrument, that an optionee may transfer nonqualified stock options to
family members, or one or more trusts or other entities for the benefit of or
owned by family members, consistent with applicable securities laws, according
to such terms as the Committee may determine; provided that the optionee
receives no consideration for the transfer of an option and the transferred
option shall continue to be subject to the same terms and conditions as were
applicable to the option immediately before the transfer.

         (f) Termination by Reason of Death. If an optionee dies while employed
by or providing service for the Corporation or any subsidiary, as to those
Shares with respect to which the option had become exercisable (under the
provisions of the particular option) on the date of death, the stock option may
thereafter be exercised by the legal representative of the estate or by the
legatee of the optionee under the will of the optionee, during a period of six
months from the date of such death or until the expiration of the stated period
of the option, whichever period is shorter.

         (g) Termination by Reason of Retirement or Permanent Disability. If an
optionee ceases to be employed by, or provide service to the Corporation or any
subsidiary because the optionee retires or is permanently disabled, as to those
Shares with respect to which the option had become exercisable (under the
provisions of the particular option) on the date of termination, any stock
option held by such optionee may thereafter be exercised during a period of
three months from the date of such termination or the expiration of the stated
period of the option, whichever period is shorter; provided, however, that if
the optionee dies within such three-month period, any unexercised stock option
held by such optionee shall thereafter be exercisable, to the extent to which it
was exercisable at the time of death, for a period of six months from the date
of such death or for the stated period of the option, whichever period is
shorter.

         (h) Termination for Cause. If an optionee ceases to be employed by, or
provide services to the Corporation or any such subsidiary on account of a
termination for Cause by the Corporation or any such subsidiary, any option held
by the optionee shall terminate as of the date the optionee ceases to be
employed by, or provide services to the Corporation or any such subsidiary. In
addition, notwithstanding any other provisions of this Section 6, if the
Committee determines that the optionee has engaged in conduct that constitutes
Cause at any time while the optionee is employed by, or providing services to
the Corporation or any such subsidiary or after the optionee ceases to be
employed by, or provide services to the Corporation or a subsidiary, any option
held by the optionee shall immediately terminate, and the optionee shall
automatically forfeit all Shares underlying any exercised portion of an option
for which the Corporation has not yet delivered the share certificates, upon
refund by the Corporation of the option price paid by the optionee for such
shares. Upon any exercise of an option, the Corporation may withhold delivery of
share certificates pending resolution of an inquiry that could lead to a finding
resulting in a forfeiture. For purposes of the Plan, "Cause" shall mean, except
to the extent specified otherwise by the Committee, a finding by the Committee
that the optionee (i) has breached his or her employment or service contract
with the Corporation or subsidiary, (ii) has engaged in disloyalty to the
Corporation or any subsidiary, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty, (iii) has
disclosed trade secrets or confidential information of the Corporation or any
subsidiary to persons not entitled to receive such information, (iv) has
breached any written noncompetition or nonsolicitation agreement between the
optionee and the Corporation or any subsidiary or (v) has engaged in such other
behavior detrimental to the interests of the Corporation or any subsidiary as
the Committee determines. This Section 6(h) shall only apply to options granted
on or after January 9, 2001.

         (i) Other Termination. If an optionee ceases to be employed by, or
provide service to the Corporation or a subsidiary for any reason other than
death, permanent disability, retirement, or Cause, as to those Shares with
respect to which the option had become exercisable (under the provisions of the
particular option) on the date of termination, any option held by such optionee
may thereafter be exercised during a period of one month from the date of such
termination or the expiration of the stated period of the option, whichever
period is shorter; provided, however, that if the optionee dies within such
one-month period, any unexercised option held by such optionee shall thereafter
be exercisable, to the extent to which it was exercisable at the time of death,
for a period of six months from the date of such death or for the stated period
of the option, whichever period is shorter.
<PAGE>

         (j) Option Buyout. The Committee may at any time offer to repurchase an
option, other than an option which has been held for less than six months by an
optionee who is subject to Section 16(b) of the Securities Exchange Act of 1934
(the "1934 Act"), based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer is made.

7. Incentive Stock Options.

                  Any option granted to an employee under the Plan shall, at the
discretion of the Committee, qualify as an incentive stock option as defined in
Section 422(b) of the Code and shall be in such form as the Committee may from
time to time approve. Any such incentive stock option shall be subject to the
following terms and conditions in addition to those set forth in Section 6 and
shall contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable.

         (a) Eligibility. Incentive stock options may be granted only to
employees of the Corporation or a subsidiary. Incentive stock options shall not
be granted to any individual who, at the time the option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or its parent corporation (as the term
"parent corporation" is defined in Section 424(e) of the Code) or its
subsidiaries (a "Ten Percent Shareholder") unless: 1) the option price is at
least 110% of the fair market value of the Shares subject to the option, and 2)
the option states that it is not exercisable after the expiration of five years
from the date the option is granted. Incentive stock options shall not be
granted to a person who is not a Ten Percent Shareholder unless the option price
is at least 100% of the fair market value of the Shares subject to the option on
the date the option is granted.

         (b) Limitation on Exercise of Options. The maximum aggregate fair
market value (determined at the time an option is granted) of the Shares with
respect to which incentive stock options are exercisable for the first time by
any optionee during any calendar year (under all plans of the Corporation and
its parent corporation and subsidiaries) shall not exceed $100,000. If the
foregoing $100,000 limit is exceeded with respect to an incentive stock option
on account of the acceleration of the exercise of the option pursuant to Section
8 of the Plan, the portion of the incentive stock option in excess of the
$100,000 limit shall be treated as a nonqualified stock option. If the
provisions of this Section limit the exercisability of certain incentive stock
options which would otherwise become exercisable on account of termination of
employment, the Committee, in its sole discretion, shall determine the times at
which such incentive stock options become exercisable so that the provisions of
this Section 7(b) are not violated; provided, that in no event shall any
incentive stock option be exercisable more than ten years from the date it is
granted (five years in the case of incentive stock options granted to Ten
Percent Shareholders (described in Section 7(a)).

8. Grants to Non-Exempt Employees.

                  Notwithstanding the foregoing, options granted to persons who
are non-exempt employees under the Fair Labor Standards Act of 1938, as amended,
shall have an option price not less than 85% of the fair market value of the
Shares subject to the option on the date of grant, and may not be exercisable
for at least six months after the date of grant (except that such options may
become exercisable, as determined by the Committee, upon the grantee's death,
disability, or retirement, or upon a Change of Control, as defined below, or
other circumstances permitted by the applicable regulations).

9. Adjustment Upon Changes in Capitalization, Etc.

                  The aggregate number and class of shares reserved under the
Plan and with respect to which options may be granted to any individual, the
number and class of shares subject to each option granted pursuant to the Plan
and the option price per Share payable under each such option shall be

<PAGE>

appropriately and equitably adjusted in the event of: any reclassification or
increase or decrease in the number of the issued Shares of the Corporation by
reason of a split-up or consolidation of Shares; the payment of a stock
dividend; a recapitalization; a combination or exchange of Shares; a spin-off;
or any like capital adjustment.

                  Subject to the next paragraph, if the Corporation shall be
reorganized or shall be merged with or into or consolidated with any other
corporation, or shall sell all or substantially all of its assets or effect a
complete liquidation, each option, if any, then outstanding under the Plan,
shall thereafter apply to such number and kind of securities, cash or other
property as would have been issuable by reason of such reorganization, merger,
consolidation, sale or liquidation to a holder of the number of Shares which
were subject to the option, if any, immediately prior to such transaction.

                  In the event of a proposed transaction of the type set forth
in the preceding paragraph, the Committee may determine that each option then
outstanding under the Plan, shall terminate as of a date to be fixed by the
Committee and approved by the Board upon not less than thirty days' written
notice to the optionee; and may further determine when and to the extent that,
any option granted at least six months prior to such event to any optionee who
has been an employee, a consultant, an advisor, or a non-employee member of the
Board for one year or more prior to the date of such notice, shall be
accelerated and such optionee shall be entitled to exercise such option without
regard to any installment provision of the option prior to the termination date
fixed in said notice; provided, however, that in no event shall the Committee
have the right to make any determination provided for in this paragraph, if
doing so would make any transaction ineligible for pooling of interest
accounting treatment under APB No. 16 or any successor provision that but for
such determination would be eligible for such treatment.

                  All adjustments under this Section 9 shall be made by the
Committee, subject to the approval of the Board, which action shall be final and
conclusive.

                  Anything to the contrary notwithstanding, upon a Change of
Control (as hereinafter defined) and, in the case of options granted on or after
March 15, 1996, subsequent termination of an optionee's employment by the
Corporation or by the optionee as a result of a material breach by the
Corporation of any employment agreement between the optionee and the
Corporation, each option granted prior to such Change of Control shall become
immediately exercisable in full. As used herein, "Change of Control" shall mean
any of the following events:

         (a) The acquisition (other than (i) from the Corporation or (ii) by
Apollo (as herein defined) or Artemis (as hereinafter defined)) by any person,
entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the
1934 Act, excluding, for this purpose, the Corporation or its subsidiaries, or
any employee benefit plan of the Corporation or its subsidiaries, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
20% or more of either the then outstanding Shares or the combined voting power
of the Corporation's then outstanding voting securities entitled to vote
generally in the election of directors if the beneficial ownership of such
person, entity or "group" exceeds the beneficial ownership of Shares and the
combined voting power of the Corporation's then outstanding securities entitled
to vote generally in the election of directors held by any person or entity that
acquired such Shares or securities having such voting power from the Corporation
and by both Apollo and Artemis; or

         (b) Individuals who, as of the first anniversary of the Effective Date
(as defined in Section 13), constitute the Board (as of such date, the
"Incumbent Board"), cease for any reason to constitute at least a majority of
the Board; provided, that any person becoming a director subsequent to the first
anniversary of the Effective Date whose election, or nomination for election by
the Corporation's stockholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Corporation, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) shall be considered as though
such person were a member of the Incumbent Board; or

<PAGE>

         (c) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the stockholders of the Corporation immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own,
directly or indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Corporation or the sale of all or substantially all of the
assets of the Corporation, in each case, unless the transaction was approved by
a majority of the directors then comprising the Incumbent Board.

                  For purposes of the definition of "Change of Control", the
term "Apollo" shall mean Apollo Advisors, L.P. and any entity that controls, is
controlled by or is under common control with Apollo Advisors, L.P., including
accounts under common management. For purposes of the definition of "Change of
Control", the term "Artemis" shall mean Artemis America Partnership and any
entity that controls, is controlled by or is under common control with Artemis
America Partnership including accounts under common management.

10. Amendments and Termination.

                  The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which would impair the
rights of an optionee under an option without the optionee's consent, or which
without the approval of the stockholders would, except as is provided in Section
9, increase the total number of Shares reserved for the purpose of the Plan,
change the employees or class of employees eligible to participate in the Plan,
or extend the maximum option period under Section 6(b).

                  The Committee may amend the terms of any option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any optionee without the consent of the optionee. The Committee may
also substitute new options for previously granted options, including
substitution for previously granted options having higher option prices.

11. General Provisions.

         (a) The Committee may require each person purchasing Shares pursuant to
an option under the Plan to represent to and agree with the Corporation in
writing that the optionee is acquiring the Shares without a view to distribution
thereof. The certificates for such Shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.

         (b) All certificates for Shares delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares are
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.

         (c) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.

12. Taxes.

                  Following exercise of an option, the optionee shall, no later
than the date as of which an amount related to the option exercise first becomes
includable in the gross income of the optionee for federal, state or local tax
purposes, pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding payment of, any federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount and the Corporation
and its subsidiaries shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
optionee.
<PAGE>

13. Effective Date of Plan.

                  The Plan became effective on October 19, 1994 the date it was
adopted by the Board and by the Corporation's then sole stockholder (the
"Effective Date"). The Plan as amended and restated shall be effective as of
January 9, 2001, the date as of which it is adopted by the Board, subject to
stockholder approval.

14. Term of Plan.

                  No option shall be granted pursuant to the Plan more than 10
years after the Effective Date, but options theretofore granted may extend
beyond and be exercised after that date.<PAGE>   1
                                                                    EXHIBIT 4.01

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
TO SALOMON SMITH BARNEY HOLDINGS INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

No. R-1                                                 INITIAL PRINCIPAL AMOUNT
CUSIP [     ]                                           REPRESENTED $[         ]
                                                        representing [    ] ELKS
                                                        ($10 per ELKS)

                       SALOMON SMITH BARNEY HOLDINGS INC.
                 Equity Linked Securities (ELKS(SM)) based upon
         the Common Stock of Sun Microsystems, Inc. due [       ], 2002

         Salomon Smith Barney Holdings Inc., a New York corporation (hereinafter
referred to as the "Company", which term includes any successor corporation
under the Indenture herein referred to), for value received and on condition
that this Note is not redeemed by the Company prior to [ ], 2002 (the "Stated
Maturity Date"), hereby promises to pay to CEDE & CO., or its registered
assigns, the Maturity Payment (as defined below), on the Stated Maturity Date.
This Note will bear semi-annual payments of interest, is not subject to any
sinking fund, is not subject to redemption at the option of the Holder thereof
prior to the Stated Maturity Date, and is not subject to the defeasance
provisions of the Indenture.

         Payment of the Maturity Payment with respect to this Note shall be made
upon presentation and surrender of this Note at the corporate trust office of
the Trustee in the Borough of Manhattan, The City and State of New York, in such
coin or currency of the United States as at the time of payment is legal tender
for payment of public and private debts or, if applicable, in the common stock
of Sun Microsystems, Inc. ("Sun Microsystems").

         This Note is one of the series of Equity Linked Securities based upon
the common stock of Sun Microsystems, Inc. due [ ], 2002 (the "ELKS").
<PAGE>   2
COUPON

         A coupon of $[      ] per ELKS will be paid in cash on April 2, 2002
and a coupon of $[      ] per ELKS will be paid in cash on October 2, 2002. The
April 2, 2002 coupon will be composed of $[      ] of interest and a partial
payment of an option premium in the amount of $[      ]. The [      ], 2002
coupon will be composed of $[      ] of interest and a partial payment of an
option premium in the amount of $[      ]. Coupon payments will be payable to
the persons in whose names the ELKS are registered at the close of business on
the Business Day preceding each Interest Payment Date. If an Interest Payment
Date falls on a day that is not a Business Day, the coupon payment to be made on
such Interest Payment Date will be made on the next succeeding Business Day with
the same force and effect as if made on such Interest Payment Date, and no
additional interest will accrue as a result of such delayed payment.

         "Business Day" means any day that is not a Saturday, a Sunday or a day
on which the AMEX or banking institutions or trust companies in the City of New
York are authorized or obligated by law or executive order to close.

         The interest portion of the coupon will represent interest accruing at
a rate of [      ]% per annum from [      ], 2001 or from the most recent
Interest Payment Date to which the interest portion of the coupon has been paid
or provided for until maturity. The interest portion of the coupon will be
computed on the basis of a 360-day year of twelve 30-day months.

PAYMENT AT MATURITY

         On the Stated Maturity Date, Holders of the ELKS will receive for each
ELKS the Maturity Payment described below.

DETERMINATION OF THE MATURITY PAYMENT

         The Maturity Payment for each ELKS equals either:

         -     a number of shares of Sun Microsystems common stock equal to the
               Exchange Rate, if the Trading Price of Sun Microsystems common
               stock on any Trading Day after [      ], 2001 up to and including
               the third Trading Day before the Stated Maturity Date is less
               than or equal to $[ ], or

         -     $10 in cash.

         In lieu of any fractional share of Sun Microsystems common stock
otherwise payable in respect of any ELKS, at the Stated Maturity Date, the
Holder of this Note will receive an amount in cash equal to the value of such
fractional share of Sun Microsystems common stock, based on the Closing Price of
Sun Microsystems common stock on the third Trading Day before the Stated
Maturity Date. The number of full shares of Sun Microsystems common stock, and
any cash in lieu of a fractional share, to be delivered at the Stated Maturity
Date to the Holder of this Note will be calculated based on the aggregate number
of ELKS held by such Holder.

                                       2
<PAGE>   3
         The "Closing Price" of Sun Microsystems common stock (or any other
security for which a Closing Price must be determined) on any date of
determination will be (1) if the common stock is listed on a national securities
exchange on that date of determination, the closing sale price or, if no closing
sale price is reported, the last reported sale price on that date on the
principal U.S. exchange on which the common stock is listed or admitted to
trading, (2) if the common stock is not listed on a national securities exchange
on that date of determination, or if the closing sale price or last reported
sale price is not obtainable (even if the common stock is listed or admitted to
trading on such exchange), and the common stock is quoted on the Nasdaq National
Market, the closing sale price or, if no closing sale price is reported, the
last reported sale price of one share of Sun Microsystems common stock on that
date as reported on the Nasdaq National Market, and (3) if Sun Microsystems
common stock is not quoted on the Nasdaq on that date of determination or, if
the closing sale price or last reported sale price is not obtainable (even if
the common stock is quoted on the Nasdaq), the last quoted bid price for Sun
Microsystems common stock in the over-the-counter market on that date as
reported by the OTC Bulletin Board, the National Quotation Bureau or a similar
organization. If no closing sale price or last reported sale price is available
pursuant to clauses (1), (2) or (3) of the preceding sentence because of a
Market Disruption Event or otherwise, the Closing Price on any date of
determination will be the arithmetic mean, as determined by the calculation
agent for the ELKS, of the bid prices of Sun Microsystems common stock obtained
from as many dealers in such stock (which may include Salomon Smith Barney Inc.
or any of the Company's other subsidiaries or affiliates), but not exceeding
three such dealers, as will make such bid prices available to the calculation
agent for the ELKS. A security "quoted on the Nasdaq National Market" will
include a security included for listing or quotation in any successor to such
system and the term "OTC Bulletin Board" will include any successor to such
service.

         The "Exchange Rate" will equal [      ].

         The "Initial Share Price" will equal $[     ], the price per share of
Sun Microsystems common stock at the market close on [       ], 2001.

         A "Trading Day" means a day, as determined by the calculation agent for
the ELKS, on which trading is generally conducted (or was scheduled to have been
generally conducted, but for the occurrence of a Market Disruption Event) on the
New York Stock Exchange, the AMEX, the Nasdaq National Market, the Chicago
Mercantile Exchange and the Chicago Board Options Exchange, and in the
over-the-counter market for equity securities in the United States.

         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 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, (1) the shares of Sun Microsystems common stock on any exchange or
market, or (2) any options contracts or futures contracts relating to the shares
of Sun Microsystems common stock, or any options on such futures contracts, on
any exchange or market if, in each case, in the determination of the calculation
agent for the ELKS, any such suspension, limitation or unavailability is
material.

                                       3
<PAGE>   4
         The "Trading Price" of Sun Microsystems common stock (or any other
common stock for which a Trading Price must be determined) on any date of
determination will be (1) if the common stock is listed on a national securities
exchange on that date of determination, any reported sale price, regular way, of
the principal trading session on that date on the principal U.S. exchange on
which the common stock is listed or admitted to trading, (2) if the common
stock is not listed on a national securities exchange on that date of
determination, or if the reported sale price on such exchange is not obtainable
(even if the common stock is listed or admitted to trading on such exchange),
and the common stock is quoted on the Nasdaq National Market, any reported sale
price of the principal trading session on that date as reported on the Nasdaq,
and (3) if the common stock is not quoted on the Nasdaq on that date of
determination, or if the reported sale price on the Nasdaq is not obtainable
(even if the common stock is quoted on the Nasdaq), any reported price of the
principal trading session on the over-the-counter market on that date as
reported on the OTC Bulletin Board, the national Quotation Bureau or a similar
organization. The  determination of the Trading Price by the calculation agent
for the ELKS in the event of a Market Disruption Event may be deferred by the
calculation agent for the ELKS for up to five consecutive Trading Days on which
a Market Disruption Event is occurring. If no reported sale price of the
principal trading session is available pursuant to clauses (1), (2) or (3) above
or if there is a Market Disruption Event, the Trading Price on any date of
determination, unless deferred by the calculation agent for the ELKS as
described in the preceding sentence,  will be the arithmetic mean, as determined
by the calculation agent for the ELKS, of the bid prices of the common stock
obtained from as many dealers in such stock (which may include Salomon Smith
Barney Inc. or any of the Company's other subsidiaries or affiliates), but not
exceeding three such dealers, as will make such bid prices available to the
calculation agent for the ELKS. A security "quoted on the Nasdaq National
Market" will include a security included for listing or quotation in any
successor to such system and the term "OTC Bulletin Board" will include any
successor to such service.

DILUTION ADJUSTMENTS

         If Sun Microsystems, after the closing date of the offering of the
ELKS,

         (1)   pays a stock dividend or makes a distribution with respect to its
               common stock in shares of the stock,

         (2)   subdivides or splits the outstanding shares of its common stock
               into a greater number of shares,

         (3)   combines the outstanding shares of the common stock into a
               smaller number of shares, or

         (4)   issues by reclassification of shares of its common stock any
               shares of other common stock of Sun Microsystems,

then, in each of these cases, the Exchange Rate will be multiplied by a dilution
adjustment equal to a fraction, the numerator of which will be the number of
shares of common stock outstanding immediately after the event, plus, in the
case of a reclassification referred to in (4) above, the

                                       4
<PAGE>   5
number of shares of other common stock of Sun Microsystems, and the denominator
of which will be the number of shares of common stock outstanding immediately
before the event.

         If Sun Microsystems, after the closing date, issues, or declares a
record date in respect of an issuance of, rights or warrants to all holders of
its common stock entitling them to subscribe for or purchase shares of its
common stock at a price per share less than the Then-Current Market Price of the
common stock, other than rights to purchase common stock pursuant to a plan for
the reinvestment of dividends or interest, then, in each of these cases, the
Exchange Rate will be multiplied by a dilution adjustment equal to a fraction,
the numerator of which will be the number of shares of common stock outstanding
immediately before the adjustment is effected, plus the number of additional
shares of common stock offered for subscription or purchase pursuant to the
rights or warrants, and the denominator of which will be the number of shares of
common stock outstanding immediately before the adjustment is effected by reason
of the issuance of the rights or warrants, plus the number of additional shares
of common stock which the aggregate offering price of the total number of shares
of common stock offered for subscription or purchase pursuant to the rights or
warrants would purchase at the Then-Current Market Price of the common stock,
which will be determined by multiplying the total number of shares so offered
for subscription or purchase by the exercise price of the rights or warrants and
dividing the product obtained by the Then-Current Market Price. To the extent
that, after the expiration of the rights or warrants, the shares of common stock
offered thereby have not been delivered, the Exchange Rate will be further
adjusted to equal the Exchange Rate which would have been in effect had the
adjustment for the issuance of the rights or warrants been made upon the basis
of delivery of only the number of shares of common stock actually delivered.

         If Sun Microsystems, after the closing date, declares or pays a
dividend or makes a distribution to all holders of the common stock of any class
of its capital stock, the capital stock of one or more of its subsidiaries,
evidences of its indebtedness or other non-cash assets, excluding any dividends
or distributions referred to in the above paragraph, or issues to all holders of
its common stock rights or warrants to subscribe for or purchase any of its or
one or more of its subsidiaries' securities, other than rights or warrants
referred to in the above paragraph, then, in each of these cases, the Exchange
Rate will be multiplied by a dilution adjustment equal to a fraction, the
numerator of which will be the Then-Current Market Price of one share of the
common stock, and the denominator of which will be the Then-Current Market Price
of one share of the common stock, less the fair market value (as determined by a
nationally recognized independent investment banking firm retained for this
purpose by the Company, whose determination will be final) as of the time the
adjustment is effected of the portion of the capital stock, assets, evidences of
indebtedness, rights or warrants so distributed or issued applicable to one
share of common stock.

         Notwithstanding the foregoing, in the event that, with respect to any
dividend or distribution to which the above paragraph would otherwise apply, the
denominator in the fraction referred to in the above formula is less than $1.00
or is a negative number, then the Company may, at its option, elect to have the
adjustment provided by this paragraph not be made and in lieu of this
adjustment, at maturity, each Holder of the ELKS will be entitled to receive an
additional amount of cash equal to the product of the number of ELKS held by the
holder multiplied by the fair market value of the capital stock, indebtedness,
assets, rights or warrants

                                       5
<PAGE>   6
(determined, as of the date this dividend or distribution is made, by a
nationally recognized independent investment banking firm retained for this
purpose by the Company, whose determination will be final) so distributed or
issued applicable to a number of shares of Sun Microsystems common stock equal
to the Exchange Rate.

         If Sun Microsystems, after the closing date, declares a record date in
respect of a distribution of cash, other than any Permitted Dividends described
below, any cash distributed in consideration of fractional shares of common
stock and any cash distributed in a Reorganization Event referred to below, by
dividend or otherwise, to all holders of its common stock, or makes an Excess
Purchase Payment, then the Exchange Rate will be multiplied by a dilution
adjustment equal to a fraction, the numerator of which will be the Then-Current
Market Price of the common stock, and the denominator of which will be the
Then-Current Market Price of the common stock on the record date less the amount
of the distribution applicable to one share of common stock which would not be a
Permitted Dividend, or, in the case of an Excess Purchase Payment, less the
aggregate amount of the Excess Purchase Payment for which adjustment is being
made at the time divided by the number of shares of Sun Microsystems common
stock outstanding on the record date.

         For the purposes of these adjustments:

         A "Permitted Dividend" is any quarterly cash dividend in respect of Sun
Microsystems common stock, other than a quarterly cash dividend that exceeds the
immediately preceding quarterly cash dividend, and then only to the extent that
the per share amount of this dividend results in an annualized dividend yield on
the common stock in excess of 10%.

         An "Excess Purchase Payment" is the excess, if any, of (x) the cash and
the value (as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company, whose determination will
be final) of all other consideration paid by Sun Microsystems with respect to
one share of common stock acquired in a tender offer or exchange offer by Sun
Microsystems, over (y) the Then-Current Market price of the common stock.

         Notwithstanding the foregoing, in the event that, with respect to any
dividend or distribution or Excess Purchase Payment to which the fifth paragraph
in this section would otherwise apply, the denominator in the fraction referred
to in the formula in that paragraph is less than $1.00 or is a negative number,
then the Company may, at its option, elect to have the adjustment provided by
the fifth paragraph in this section not be made and in lieu of this adjustment,
at maturity, each Holder of the ELKS will be entitled to receive an additional
amount of cash equal to the product of the number of ELKS held by the Holder
multiplied by the sum of the amount of cash plus the fair market value of other
consideration (determined, as of the date this dividend or distribution is made,
by a nationally recognized independent investment banking firm retained for this
purpose by the Company, whose determination will be final) so distributed or
applied to the acquisition of the common stock in the tender offer or exchange
offer applicable to a number of shares of Sun Microsystems common stock equal to
the Exchange Rate.

                                       6
<PAGE>   7
         Each dilution adjustment will be effected as follows:

         -     in the case of any dividend, distribution or issuance, at the
               opening of business on the Business Day next following the record
               date for determination of holders of Sun Microsystems common
               stock entitled to receive this dividend, distribution or issuance
               or, if the announcement of this dividend, distribution, or
               issuance is after this record date, at the time this dividend,
               distribution or issuance was announced by Sun Microsystems,

         -     in the case of any subdivision, split, combination or
               reclassification, on the effective date of the transaction,

         -     in the case of any Excess Purchase Payment for which Sun
               Microsystems announces, at or prior to the time it commences the
               relevant share repurchase, the repurchase price per share for
               shares proposed to be repurchased, on the date of the
               announcement, and

         -     in the case of any other Excess Purchase Payment, on the date
               that the holders of the repurchased shares become entitled to
               payment in respect thereof.

         All dilution adjustments will be rounded upward or downward to the
nearest 1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th. No adjustment in the Exchange Rate will be required unless the
adjustment would require an increase or decrease of at least one percent
therein, provided, however, that any adjustments which by reason of this
sentence are not required to be made will be carried forward (on a percentage
basis) and taken into account in any subsequent adjustment. If any announcement
or declaration of a record date in respect of a dividend, distribution, issuance
or repurchase requiring an adjustment as described herein is subsequently
canceled by Sun Microsystems, or this dividend, distribution, issuance or
repurchase fails to receive requisite approvals or fails to occur for any other
reason, then, upon the cancellation, failure of approval or failure to occur,
the Exchange Rate will be further adjusted to the Exchange Rate which would then
have been in effect had adjustment for the event not been made. If a
Reorganization Event described below occurs after the occurrence of one or more
events requiring an adjustment as described herein, the dilution adjustments
previously applied to the Exchange Rate will not be rescinded but will be
applied to the new Exchange Rate provided for below.

         The "Then-Current Market Price" of the common stock, for the purpose of
applying any dilution adjustment, means the average Closing Price per share of
common stock for the 10 Trading Days immediately before this adjustment is
effected or, in the case of an adjustment effected at the opening of business on
the Business Day next following a record date, immediately before the earlier of
the date the adjustment is effected and the related Ex-Date. For purposes of
determining the Then-Current Market Price, the determination of the Closing
Price by the calculation agent for the ELKS in the event of a Market Disruption
Event, as described in the definition of Closing Price, may be deferred by the
calculation agent for the ELKS for up to five consecutive Trading Days on which
a Market Disruption Event is occurring.

                                       7
<PAGE>   8
         The "Ex-Date" with respect to any dividend, distribution or issuance is
the first date on which the shares of the common stock trade in the regular way
on their principal market without the right to receive this dividend,
distribution or issuance.

         In the event of any of the following "Reorganization Events":

         -     any consolidation or merger of Sun Microsystems, or any surviving
               entity or subsequent surviving entity of Sun Microsystems, with
               or into another entity, other than a merger or consolidation in
               which Sun Microsystems is the continuing corporation and in which
               the common stock outstanding immediately before the merger or
               consolidation is not exchanged for cash, securities or other
               property of Sun Microsystems or another issuer,

         -     any sale, transfer, lease or conveyance to another corporation of
               the property of Sun Microsystems or any successor as an entirety
               or substantially as an entirety,

         -     any statutory exchange of securities of Sun Microsystems or any
               successor of Sun Microsystems with another issuer, other than in
               connection with a merger or acquisition, or

         -     any liquidation, dissolution or winding up of Sun Microsystems or
               any successor of Sun Microsystems,

each Holder of the ELKS will have the right to receive cash in an amount per $10
principal amount of ELKS equal to the Exchange Rate multiplied by the
Transaction Value (as defined below).

         The "Transaction Value" will be the sum of:

         (1)   for any cash received in a Reorganization Event, the amount of
               cash received per share of common stock,

         (2)   for any property other than cash or Marketable Securities
               received in a Reorganization Event, an amount equal to the market
               value on the date the Reorganization Event is consummated of that
               property received per share of common stock, as determined by a
               nationally recognized independent investment banking firm
               retained for this purpose by the Company, whose determination
               will be final, and

         (3)   for any Marketable Securities received in a Reorganization Event,
               an amount equal to the Closing Price per share of these
               Marketable Securities on the Trading Day immediately prior to the
               maturity date or Exchange Date multiplied by the number of these
               Marketable Securities received for each share of common stock.

         "Marketable Securities" are any perpetual equity securities or debt
securities with a stated maturity after the maturity date, in each case that are
listed on a U.S. national securities exchange or reported by the Nasdaq Stock
Market. The number of shares of any equity securities

                                       8
<PAGE>   9
constituting Marketable Securities included in the calculation of Transaction
Value pursuant to clause (3) above will be adjusted if any event occurs with
respect to the Marketable Securities or the issuer of the Marketable Securities
between the time of the Reorganization Event and maturity that would have
required an adjustment as described above, had it occurred with respect to the
Sun Microsystems common stock or Sun Microsystems. Adjustment for these
subsequent events will be as nearly equivalent as practicable to the adjustments
described above.

GENERAL

         This Note is one of a duly authorized issue of Debt Securities of the
Company, issued and to be issued in one or more series under a Senior Debt
Indenture, dated as of October 27, 1993, as supplemented by a First Supplemental
Indenture, dated as of November 28, 1997, a Second Supplemental Indenture, dated
as of July 1, 1999, and as further supplemented from time to time (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the ELKS, and the terms upon which the ELKS are,
and are to be, authenticated and delivered.

         If an Event of Default with respect to the ELKS shall have occurred and
be continuing, the principal of the ELKS may be declared due and payable in the
manner and with the effect provided in the Indenture. In such case, the amount
declared due and payable upon any acceleration permitted by the Indenture will
be determined by the calculation agent for the ELKS and will be equal to, with
respect to this Note, the Maturity Payment calculated as though the Stated
Maturity Date of this Note were the date of early repayment. In case of default
at Maturity of this Note, this Note shall bear interest, payable upon demand of
the beneficial owners of this Note in accordance with the terms of the ELKS,
from and after Maturity through the date when payment of such amount has been
made or duly provided for, at the rate of [ ]% per annum on the unpaid amount
(or the cash equivalent of such unpaid amount) due.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debt Securities of each series to
be affected under the Indenture at any time by the Company and a majority in
aggregate principal amount of the Debt Securities at the time Outstanding of
each series affected thereby. The Indenture also contains provisions permitting
the Holders of specified percentages in aggregate principal amount of the Debt
Securities of any series at the time Outstanding, on behalf of the Holders of
all Debt Securities of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.

         The Holder of this Note may not enforce such Holder's rights pursuant
to the Indenture or the Notes except as provided in the Indenture. 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 to

                                       9
<PAGE>   10
pay the Maturity Payment with respect to this Note, and to pay any interest on
any overdue amount thereof at the time, place and rate, and in the coin or
currency, herein prescribed.

         All terms used in this Note which are defined in the Indenture but not
in this Note shall have the meanings assigned to them in the Indenture.

         Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purposes.

                                       10
<PAGE>   11
         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

                                         SALOMON SMITH BARNEY HOLDINGS INC.

                                         By:
                                            -----------------------------------
                                            Name:
                                            Title:

Corporate Seal
Attest:

By:
   ---------------------------------
   Name:
   Title:

Dated: [       ], 2001

CERTIFICATE OF AUTHENTICATION
   This is one of the Notes
   referred to in the within-
   mentioned Indenture.

The Bank of New York,
as Trustee

By:
   ---------------------------------
   Authorized Signatory

                                       11

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