Document:

EXHIBIT
10.06

 

LEHMAN BROTHERS HOLDINGS INC.

1996 MANAGEMENT OWNERSHIP PLAN

As amended through November 19, 2002

 

SECTION 1 — PURPOSE

 

The purpose of the Lehman
Brothers Holdings Inc. 1996 Management Ownership Plan (the “Plan”) is to
strengthen Lehman Brothers Holdings Inc. (the “Company”) by providing selected
employees of the Company with the opportunity to acquire a proprietary and
vested interest in the growth and performance of the Company, thus generating
an increased incentive to contribute to the Company’s future success and
prosperity, enhancing the value of the Company for the benefit of stockholders,
and enhancing the Company’s ability to attract and retain individuals of
exceptional talent.

 

The purposes of the Plan
are to be achieved through the grant of various types of stock-based awards.

 

SECTION 2 — DEFINITIONS

 

For purposes of the Plan,
the capitalized terms shall have the meanings ascribed to them in Exhibit A
hereof.

 

SECTION 3 — SHARES SUBJECT TO THE PLAN

 

(a)               Shares of Common
Stock which may be issued under the Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held in
the Company’s treasury, or any combination thereof. Subject to adjustment as
provided in Section 14, the number of shares of Common Stock with respect
to which Awards (whether distributable in shares of Common Stock or in cash)
may be granted under the Plan shall be 42
million shares. The maximum number of shares of Common Stock available
for stock options, stock appreciation rights or Other Stock-based Awards that
may be granted to a Participant during a calendar year shall not exceed two million.

 

(b)              Notwithstanding the
last sentence of Section 3(a), to the extent that the number of shares of
Common Stock with respect to which Awards may be granted under the Plan to an
individual in any calendar year exceeds the number of shares of Common Stock
with respect to which Awards were granted under the Plan during that calendar
year, such excess shall be available for grant under the Plan in succeeding
calendar years.

 

(c)               In the event that
any other Award subject to repurchase or forfeiture rights is reacquired by the
Company or if any Award is canceled, terminates or expires unexercised (except
with respect to a stock option which terminates on the exercise of a stock
appreciation right) for any reason under the Plan, any Common Stock allocated
in connection with such Award shall thereafter again be available for grant
pursuant to the Plan.

 

SECTION 4 — ELIGIBILITY

 

Members of the Corporate
Management Committee and the Operating Committee (and successor entities of
such committees), all Senior Vice Presidents, all Managing Directors and
officers holding a title senior to Managing Director are eligible to be
Participants in the Plan.

 

SECTION 5 — ADMINISTRATION

 

The Plan shall be
administered by the Committee, which shall have the power to select those
Participants who shall receive Awards and to determine the terms of such
Awards. As to the selection of, and the terms of Awards granted to,
Participants who are not Executive Officers, the Committee may delegate any or
all of its responsibilities to officers or employees of the Company. With
respect to any “Covered Employee” (as such term is defined in
Section 162(m) of the Code), the Committee shall administer the Plan in
such a manner as to comply with the requirements for deductibility under
Section 162(m) of the Code.

 

 

The Committee’s authority
hereunder shall include, without limitation, the establishment of vesting
schedules or exercisability in installments with respect to Awards. The
Committee may, in its sole discretion, accelerate or waive vesting or exercise
periods or the lapse of restrictions on all or any portion of any Award, or
extend the exercisability (including to extend or provide for post-termination
exercisability) of stock options or stock appreciation rights; provided that
such exercisability shall not extend past ten years from the date of grant of
any incentive stock options.

 

Subject to the provisions
of the Plan, the Committee shall be authorized to interpret the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan, to
determine the terms and provisions of any agreements entered into hereunder,
and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent it shall deem desirable to carry the Plan or any such
Award into effect. The determinations of the Committee in the administration of
the Plan, as described herein, shall be final and conclusive.

 

The validity,
construction and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the laws of the State of
Delaware and applicable Federal law.

 

SECTION 6 — STOCK OPTIONS

 

(a)               Any stock options
granted under the Plan shall be in such form as the Committee may from time to
time approve and shall be subject to the terms and conditions provided herein
and such additional terms and conditions not inconsistent with the terms of the
Plan as the Committee shall deem desirable.

 

(b)              Stock options may be
granted to any Participant. Each grant of stock options shall specify whether
the underlying options are intended to be incentive stock options or
non-incentive stock options. In the case of incentive stock options, the terms
and conditions of such grants shall be subject to and comply with such requirements
as may be prescribed by Section 422(b) of the Code, as from time to time
amended, and any implementing regulations, including, but not limited to, the
requirement that such stock options are exercisable during the Participant’s
lifetime only by such Participant. The Committee shall establish the option
price at the time each stock option is granted, which price shall not be less
than 100 percent of the Fair Market Value of the Common Stock on the date of
grant.

 

(c)               No stock options
may be exercisable later than ten years after their date of grant. The option
price of each share of Common Stock as to which a stock option is exercised
shall be paid in full at the time of such exercise or as otherwise permitted by
the Committee. Such payment may be made at the sole discretion of the
Committee, pursuant to and in accordance with criteria and guidelines
established by the Committee (which criteria and guidelines may be different
for Executive Officers and for other Participants), as the same may be modified
from time to time, (i) in cash (in any form of currency acceptable to the
Committee), (ii) by tender of shares of Common Stock already owned by the
Participant, valued at Fair Market Value as of the date of exercise, (iii) if
authorized by the Committee, by withholding pursuant to the election of the
Participant, which election is subject to the disapproval of the Committee,
from those shares that would otherwise be obtained upon exercise of the option
a number of shares having a Fair Market Value equal to the option price, (iv)
if authorized by the Committee, and in combination with services rendered by
the exercising Participant, by delivery of a properly executed exercise notice
together with irrevocable instructions to a securities broker (or, in the case
of pledges, lender) approved by the Company to, (a) sell shares of Common Stock
subject to the option and to deliver promptly to the Company a portion of the
proceeds of such sale transaction on behalf of the exercising Participant to
pay the option price, or (b) pledge shares of Common Stock subject to the
option to a margin account maintained with such broker or lender, as security
for a loan, and such broker or lender, pursuant to irrevocable instructions,
delivers to the Company the loan proceeds, at the time of exercise to pay the
option price, (v) by any combination of (i), (ii), (iii) or (iv) above or (vi)
by other means that the Committee deems appropriate.

 

(d)              A stock option
holder may, in the discretion of the Committee, have the right to surrender a
stock option or any portion thereof to the Company within 30 days following a
Change in Control and to receive from the Company in exchange therefor a cash
payment in an amount equal to (a) the number of unexercised shares of Common
Stock under the option which are being surrendered multiplied by (b) the excess
of (i) the greater of (A) the highest price per share of Common Stock paid in
connection with the Change in Control or (B) the highest Fair Market Value per

 

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share of Common Stock in the 90-day period preceding such Change in
Control, over (ii) the purchase price of the option as set forth in the
underlying option agreement (the foregoing, a “Limited SAR”).

 

SECTION 7 — STOCK APPRECIATION RIGHTS

 

(a)               Stock appreciation
rights may be granted independent of any stock option or in conjunction with
all or any part of any stock option granted under the Plan, either at the same
time as the stock option is granted or at any later time during the term of the
option. Stock appreciation rights shall be subject to such terms and conditions
as determined by the Committee, not inconsistent with the provisions of the
Plan.

 

(b)              Upon exercise, a
stock appreciation right shall entitle the Participant to receive from the
Company an amount equal to the excess of the Fair Market Value of a share of
Common Stock on the date of exercise of the stock appreciation right over the
per share grant or option price, as applicable (or such lesser amount as the
Committee may determine at the time of grant), multiplied by the number of
shares of Common Stock with respect to which the stock appreciation right is
exercised. Upon the exercise of a stock appreciation right granted in
connection with a stock option, the stock option shall be canceled to the
extent of the number of shares as to which the stock appreciation right is
exercised, and upon the exercise of a stock option granted in connection with a
stock appreciation right or the surrender of such stock option, the stock
appreciation right shall be canceled to the extent of the number of shares as
to which the stock option is exercised or surrendered. The Committee shall
determine whether the stock appreciation right shall be settled in cash, Common
Stock or a combination of cash and Common Stock.

 

(c)               A holder of a stock
appreciation right may, in the discretion of the Committee, have the right to
surrender the stock appreciation right or any portion thereof to the Company
within 30 days following a Change in Control and to receive from the Company in
exchange therefor a cash payment in an amount equal to (a) the number of shares
of Common Stock under the stock appreciation right which are being exercised,
multiplied by (b) the excess of (i) the greater of (A) the highest price per
share of Common Stock paid in connection with the Change in Control or (B) the
highest Fair Market Value per share of Common Stock in the 90 day period
preceding such Change in Control, over (ii) the per share grant price of the
stock appreciation right as set forth in the underlying agreement.

 

SECTION 8 — OTHER STOCK-BASED AWARDS

 

(a)               Other Awards of
Common Stock and Awards that are valued in whole or in part by reference to, or
otherwise based on, the Fair Market Value of Common Stock (all such Awards
being referred to herein as “Other Stock-based Awards”), may be granted under
the Plan in the discretion of the Committee. Other Stock-based Awards shall be
in such form as the Committee shall determine, including without limitation,
(i) the right to purchase shares of Common Stock, (ii) shares of Common Stock
subject to restrictions on transfer until the completion of a specified period
of service, the occurrence of an event or the attainment of performance
objectives, each as specified by the Committee, and (iii) shares of Common
Stock issuable upon the completion of a specified period of service, the
occurrence of an event or the attainment of performance objectives, each as
specified by the Committee. Other Stock-based Awards may be granted alone or in
addition to any other Awards made under the Plan. All references in the
preceding sentence to “specified period of service,” in the case of Other
Stock-based Awards which (i) are not in lieu of cash compensation to employees
generally, (ii) are not paid to recruit a new employee in an amount of less
than 5% of the total awards available for grant under the Plan or (iii) are not
subject to the attainment of performance objectives, shall provide that
vesting, restrictions on transfer or some other comparable restriction which
incents continued performance of the recipient, will be for a period of not
less than three years (although vesting or lapsing may occur in tranches over
the three years), unless there is a Change in Control or the recipient retires,
becomes disabled or dies. Subject to the provisions of the Plan, the Committee
shall have sole and absolute discretion to determine to whom and when such
Other Stock-based Awards will be made, the number of shares of Common Stock to
be awarded under (or otherwise related to) such Other Stock-based Awards and
all other terms and conditions of such Awards. The Committee shall determine
whether Other Stock-based Awards shall be settled in cash, Common Stock or a
combination of cash and Common Stock.

 

(b)              With respect to any
restricted stock units granted under the Plan, the obligations of the Company
or any Subsidiary are limited solely to the delivery of shares of Common Stock
on the date when such shares of Common Stock are due to be delivered under each
Agreement, and in no event shall the Company or any Subsidiary become

 

3

 

obligated to pay cash in respect of such obligation (except that the
Company or any Subsidiary may pay to Participants amounts in cash in respect of
a restricted stock unit equal to cash dividends paid to a holder of shares of
Common Stock, for fractional shares or for any amounts payable in cash upon the
occurrence of a Change in Control).

 

(c)               The Committee shall
establish the performance objective that must be attained in order for the
Company to grant other Other Stock-based Awards. Accordingly, unless the
Committee determines at the time of grant not to qualify the award as
performance based compensation under Section 162(m) of the Code, the
performance objectives for awards made under the Plan will be based upon one or
more of the following criteria: (i) before or after tax net income; (ii)
earnings per share; (iii) book value per share; (iv) stock price; (v) return on
stockholders’ equity; (vi) the relative performance of peer group companies;
(vii) expense management; (viii) return on investment; (ix) improvements in
capital structure; (x) profitability of an identifiable business unit or
product; (xi) profit margins; (xii) budget comparison; and (xiii) total return
to stockholders. Participants who have primary responsibility for a business
unit of the Company may be measured on business unit operating profit, business
unit operating profit as a percent of revenue, and/or measures related to
business unit profitability above its cost of capital, in place of some or all
of the corporate performance measures. The Committee must certify as to the
attainment of the applicable performance goals prior to payment of any Other
Stock-based Awards and may reduce the amount of any Other Stock-based Award.

 

SECTION 9 — DIVIDENDS, EQUIVALENTS AND VOTING RIGHTS

 

Awards other than stock
options and stock appreciation rights may, at the discretion of the Committee,
provide the Participant with dividends or dividend equivalents and voting
rights prior to either vesting or earnout.

 

SECTION 10 — AWARD AGREEMENTS

 

Each Award under the Plan
shall be evidenced by an agreement setting forth the terms and conditions, not
inconsistent with the provisions of the Plan, as determined by the Committee,
which shall apply to such Award.

 

SECTION 11 — WITHHOLDING

 

The Company shall have
the right to deduct from all amounts paid to any Participant in cash (whether
under this Plan or otherwise) any taxes required by law to be withheld
therefrom. In the case of payments of Awards in the form of Common Stock, at
the Committee’s discretion, the Participant may be required to pay to the
Company the amount of any taxes required to be withheld with respect to such
Common Stock, or, in lieu thereof, the Company shall have the right to retain
the number of shares of Common Stock the Fair Market Value of which equals the
amount required to be withheld. Without limiting the foregoing, the Committee
may, in its discretion and subject to such conditions as it shall impose,
permit share withholding to be done at the Participant’s election.

 

SECTION 12 — NON-TRANSFERABILITY

 

No Award shall be
assignable or transferable, and no right or interest of any Participant in any
Award shall be subject to any lien, obligation or liability of the Participant,
except by will, the laws of descent and distribution, or as otherwise set forth
in the Award agreement.

 

SECTION 13 — NO RIGHT TO EMPLOYMENT OR CONTINUED
PARTICIPATION IN PLAN/NO RIGHTS AS STOCKHOLDERS

 

(a)               No person shall
have any claim or right to the grant of an Award, and the grant of an Award
shall not be construed as giving a Participant the right to be retained in the
employ of the Company or to be eligible for any subsequent Awards. Further, the
Company expressly reserves the right at any time to dismiss a Participant free
from any liability or any claim under the Plan, except as provided herein or in
any agreement entered into hereunder.

 

(b)              The grant of an
Award shall not be construed as giving a Participant the rights of a
stockholder of Common Stock unless and until shares of Common Stock have been
issued to Participants pursuant to Awards hereunder.

 

4

 

SECTION 14 — ADJUSTMENT OF AND CHANGES IN COMMON STOCK

 

In the event of any
change in the outstanding shares of Common Stock by reason of any Common Stock
dividend or split, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate exchange, or any
distribution to stockholders of Common Stock other than regular cash dividends,
the Committee shall make a substitution or adjustment to the number or kind of
shares of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan, and to outstanding Awards, as well as the option price or
other affected terms of such Awards as in its judgment shall be necessary to
preserve the Participant’s rights substantially proportionate to the rights
existing prior to such event.

 

Unless otherwise provided
in an award agreement, after a merger of one or more corporations into the
Company or after a consolidation of the Company and one or more corporations (a
“Merger Event”) in which the Company shall be the surviving or resulting corporation,
an Award holder shall, where applicable, at the same cost, be entitled upon the
exercise of an Award, to receive (subject to any action required by
stockholders) such securities of the surviving or resulting corporation as
shall be equivalent to the shares underlying such Award as nearly as
practicable to the nearest whole number and class of shares of stock or other
securities.

 

Unless otherwise provided
in an award agreement, if the Company enters into any agreement with respect to
any transaction which would, if consummated, result in a Merger Event in which
the Company will not be the surviving corporation, the Committee in its sole
discretion and without liability to any person shall determine what actions
shall be taken with respect to outstanding Awards, if any, including, without
limitation, the payment of a cash amount in exchange for the cancellation of an
Award or the requiring of the issuance of substitute Awards that will
substantially preserve the value, rights and benefits of any affected Awards
previously granted hereunder as of the date of the consummation of the Merger
Event.

 

SECTION 15 — AMENDMENT

 

The Committee or the
Board may amend, suspend or terminate the Plan or any portion hereof at any
time, provided that no amendment shall be made without approval of the
stockholders of the Company which shall (i) increase (except as provided in
Section 14 hereof) the total number of shares or the percentage of shares
reserved for issuance pursuant to the Plan; (ii) change the class of Employees
eligible to be Participants; (iii) extend the date after which Awards cannot be
granted under the Plan; or (iv) materially increase the benefits to any
participant or group of participants covered by the Plan without approval by
the stockholders of the Company.

 

SECTION 16 — UNFUNDED STATUS OF PLAN

 

The Plan is intended to
constitute an “unfunded” plan for long-term incentive compensation. With
respect to any payments not yet made to a Participant, including any
Participant optionee, by the Company, nothing herein contained shall give any
Participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu thereof or with respect to options,
stock appreciation rights and other Awards under the Plan; provided, however,
that the existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.

 

SECTION 17 — EFFECTIVE DATE

 

Subject to approval of
the stockholders of the Company, in accordance with Rule 16b-3 under the
Securities Exchange Act of 1934, and Code Sections 162(m) and 422, this Plan
shall be effective on April 10, 1996. No Awards may be granted under the Plan
on or after January 10, 2006.

 

5

 

EXHIBIT A

 

(a)               “Award” shall mean
any type of stock-based award granted pursuant to the Plan.

 

(b)              “Board” shall mean the
Board of Directors of the Company; provided, however, that any action taken by
a duly authorized committee of the Board within the scope of authority
delegated to such committee by the Board shall be considered an action of the
Board for purposes of this Plan.

 

(c)               “Change in Control”
shall mean the occurrence during the term of the Plan of:

 

a)         The
commencement (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934 (the “Exchange Act”)) of a tender offer for more than 20%
of the Company’s outstanding shares of capital stock having ordinary voting
power in the election of directors (the “Voting Securities”);

 

b)        An
acquisition (other than directly from the Company) of any voting securities of
the Company by any “Person” (as the term person is used for purposes of
Section 13(d) or 14(d) of the Exchange Act) immediately after which such
Person has “Beneficial Ownership” (within, the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the combined voting power
of the Company’s then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A “Non-Control
Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof or a trustee thereof acting solely in its capacity
as trustee) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a “Subsidiary”), (ii) the Company or its Subsidiaries,
or (iii) any Person who files in connection with such acquisition a Schedule
13D which expressly disclaims any intention to seek control of the Company and
does not expressly reserve the right to seek such control; provided, however,
that any amendment to such statement of intent which either indicates an
intention or reserves the right to seek control shall be deemed an
“acquisition” of the securities of the Company reported in such filing as
beneficially owned by such Person for purposes of this paragraph (b);

 

c)         The
individuals who, as of the effective date of the 1994 initial public trading in
Company shares, are members of the Board (the “Incumbent Board”), ceasing for
any reason to constitute at least a majority of the members of the Board; provided,
however, that if the election, or nomination for election by the Company’s
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Plan, be considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened “Election Contest” (as described in Rule 14a-11 promulgated
under the Exchange Act or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a “Proxy Contest”)
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or

 

d)        Approval
by stockholders of the Company of:

 

(i)                  A merger,
consolidation or reorganization involving the Company, unless such merger,
consolidation or reorganization is a “Non-Control Transaction”; i.e., meets each
of the requirements described in (A), (B) and (C) below:

 

(A)                              the
stockholders of the Company, immediately before such merger, consolidation or
reorganization, own, directly or indirectly, immediately following such merger,
consolidation or reorganization, at least the Applicable Minimum Percentage (as defined below) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such merger or consolidation or reorganization (the “Surviving
Corporation”) in substantially the same proportion as their ownership of the
Voting Securities immediately before such merger, consolidation or
reorganization;

 

A-1

 

(B)                                the
individuals who were members of the Incumbent Board immediately prior to the
execution of the agreement providing for such merger, consolidation or
reorganization constitute at least the
Applicable Minimum Proportion (as defined below)  of the members of the
board of directors of the Surviving Corporation immediately following the
consummation of such merger, consolidation or reorganization; and

 

(C)                                no
Person other than the Company, any Subsidiary, any employee benefit plan (or
any trust forming a part thereof or a trustee thereof acting solely in its
capacity as trustee) maintained by the Company, the Surviving Corporation, or
any Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of 20% or more of the
then outstanding Voting Securities has Beneficial Ownership of 20% or more of
the combined voting power of the Surviving Corporation’s then outstanding
voting securities immediately following the consummation of such merger,
consolidation or reorganization;

 

(ii)               A complete
liquidation or dissolution of the Company; or

 

(iii)            An agreement for the
sale or other disposition of all or substantially all of the assets of the
Company to any Person (other than a transfer to a Subsidiary).

 

With respect to paragraph (d)(i) above, “Applicable
Minimum Percentage” means (1) eighty percent (80%) with respect to Awards made
prior to December 11, 2000, and (2) fifty percent (50%) with respect to Awards
made on or after December 11, 2000; and “Applicable Minimum Proportion” means
(1) two-thirds with respect to
Awards made prior to December 11, 2000, and (2) a majority with respect to
Awards made on or after December 11, 2000.

 

Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number
of Voting Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and thereafter such Beneficial
Owner acquires any additional Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.

 

(d)              “Code” shall mean
the Internal Revenue Code of 1986, as from time to time amended.

 

(e)               “Committee” shall
mean the Compensation and Benefits Committee of the Company.

 

(f)                 “Common Stock”
shall mean the common stock of the Company, $.10 par value.

 

(g)              “Company” shall mean
Lehman Brothers Holdings Inc. and, except as otherwise specified in this Plan
in a particular context, any successor thereto, whether by merger,
consolidation, purchase of substantially all its assets or otherwise.

 

(h)              “Executive Officer”
shall mean a Participant who is subject to the requirements of Sections 16(a)
and 16(b) of the Securities Exchange Act of 1934.

 

(i)                  “Fair Market
Value” on any date means the closing price of the shares on such date on the
principal national securities exchange on which such shares are listed or
admitted to trading (or, if such exchange is not open on such date, the
immediately preceding date on which such exchange is open), the arithmetic mean
of the per share closing bid price and per share closing asked price on such
date as quoted on the National Association of Securities Dealers Automated
Quotation System, or such other market in which such prices are regularly
quoted, or, if there have been no published bid or asked quotations with
respect to such shares on such date, the Fair Market Value shall be the value
established by the Committee in good faith and, in the case of an incentive
stock option, in accordance with Section 422 of the Code.

 

A-2

 

(j)                  “Other
Stock-based Award” shall mean any of those Awards described in Section 8
hereof.

 

(k)               “Participant” shall
mean a member of the Corporate Management Committee or the Operating Committee
(and successor entities of such committees), a Senior Vice President, a
Managing Director or an officer holding a title senior to Managing Director who
is selected by the Committee to receive an Award under the Plan.

 

(l)                  “Subsidiary”
shall mean any corporation which at the time qualifies as a subsidiary of the
Company under the definition of “subsidiary corporation” in Section 424(f)
of the Code, as amended from time to time.

 

A-3EXHIBIT 10.07

 

LEHMAN BROTHERS HOLDINGS INC.

SHORT-TERM EXECUTIVE COMPENSATION PLAN

As amended through February 19, 2003

 

1. PURPOSE. The
purpose of the Short-Term Executive Compensation Plan (the “Plan”) is to
advance the interests of Lehman Brothers Holdings Inc., a Delaware corporation
(the “Company”), and its stockholders by providing incentives in the form of
periodic bonus awards to certain employees of the Company and any of its
subsidiaries or other related business units or entities (“Affiliates”) including
those who contribute significantly to the strategic and long-term performance
objectives and growth of the Company and its Affiliates.

 

2. ADMINISTRATION.
The Plan shall be administered by the Compensation and Benefits
Committee of the Board of Directors (the “Committee”), as such committee is
from time to time constituted. The Committee may delegate its duties and powers
in whole or in part (i) to any subcommittee thereof consisting solely of at
least two “outside directors,” as defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the “Code”), or (ii) to the extent
consistent with Section 162(m) of the Code, to any other individual or
individuals.

 

The Committee
has all the powers vested in it by the terms of the Plan set forth herein, such
powers to include the exclusive authority to select the employees to be granted
bonus awards (“Bonuses”) under the Plan, to determine the size and terms of the
Bonus to be made to each individual selected (subject to the limitation imposed
on “Special Bonuses,” as defined below), to modify the terms of any Bonus that
has been granted (except with respect to any modification which would increase
the amount of compensation payable to a “Covered Employee,” as such term is
defined in Section 162(m) of the Code), to determine the time when Bonuses
will be awarded, to establish performance objectives in respect to Bonuses and
to certify that such performance objectives were attained. The Committee is
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations that it
deems necessary or desirable for the administration of the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No member of the Committee and no officer of
the Company shall be liable for anything done or omitted to be done by him or
her, by any other member of the Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his or her
own willful misconduct or as expressly provided by statute.

 

3.  PARTICIPATION.
The Committee shall have exclusive power (except as may be delegated
as permitted herein) to select the employees of the Company and its Affiliates
who may participate in the Plan and be granted Bonuses under the Plan
(“Participants”); provided, however, that Special Bonuses (as defined below)
may only be granted to members of the Company’s Executive Committee (or any
successor entity of such committee in accordance with subSection (c)
below) and other Managing Directors of the Company.

 

4.  BONUSES UNDER THE PLAN.

 

(a) In
General. The Committee shall determine the amount of a Bonus to be granted to
each Participant in accordance with subsections (b) and (c) below.

 

(b) Standard
Bonuses. The Committee may in its discretion grant to a Participant a cash
Bonus (a “Standard Bonus”) in the amount, and payable at the time, determined
by the Committee or its delegate in its discretion. The amount of a
Participant’s Standard Bonus may be based upon any criteria the Committee
wishes to consider, including but not limited to the objective or subjective
performance of the Participant, the Company or any subsidiary or division
thereof.

 

 

(c) Special
Bonuses. (i) The Committee may in its discretion award a Bonus to a Participant
who it reasonably believes may be a Covered Employee (a “Special Bonus”) for
the taxable year of the Company in which such Bonus would be deductible, under
the terms and conditions of this subsection (c). Subject to clause (iii) of
this Section 4(c), the amount of a Participant’s Special Bonus shall be an
amount determinable from written performance goals approved by the Committee
while the outcome is substantially uncertain and no more than 90 days after the
commencement of the period to which the performance goal relates or, if less,
the number of days which is equal to 25 percent of the relevant performance
period. The maximum amount of any Special Bonus that may be granted in any
given fiscal year shall be 2.0% of the consolidated income of the Company and
its subsidiaries before taxes and dividends paid or payable on the Company’s
trust preferred securities earned by the Company and its subsidiaries (as
stated in the Company’s audited financial statements) in the fiscal year in
respect of which the Special Bonus is to be paid.

 

(ii) The
amount of any Special Bonus will be based on objective performance goals
established by the Committee using one or more performance factors. The
performance criteria for Special Bonuses made under the Plan will be based upon
one or more of the following criteria: (A) before or after tax net income; (B)
earnings per share; (C) book value per share; (D) stock price; (E) return on
Stockholders’ equity; (F) expense management; (G) return on investment; (H)
improvements in capital structure; (I) profitability of an identifiable
business unit or product; (J) before or after tax profit margins; (K) budget
comparisons; (L) total return to Stockholders; and (M) the relative performance
of the Company against a peer group of companies on any of the measures above.
Participants who have primary responsibility for a business unit of the Company
may be measured on business unit operating profit, business unit operating
profit as a percent of revenue and/or measures related to business unit
profitability above its cost of capital, in place of some or all of the
corporate performance measures.

 

(iii) The
Committee shall determine whether the performance goals have been met with
respect to any affected Participant and, if they have, so certify and ascertain
the amount of the applicable Special Bonus. No Special Bonuses will be paid
until such certification is made by the Committee.

 

(iv) The
provisions of this Section 4(c) shall be administered and interpreted in
accordance with Section 162(m) of the Code to ensure the deductibility by
the Company or its affiliates of the payment of Special Bonuses.

 

5. DESIGNATION OF
BENEFICIARY BY PARTICIPANT. The Committee or its delegate shall
create a procedure whereby a Participant may file, on a form to be provided by
the Committee, a written election designating one or more beneficiaries with
respect to the amount, if any, payable in the event of the Participant’s death.
The Participant may amend such beneficiary designation in writing at any time
prior to the Participant’s death, without the consent of any previously
designated beneficiary. Such designation or amended designation, as the case
may be, shall not be effective unless and until received by the duly authorized
representatives of the Committee or its delegate prior to the Participant’s
death. In the absence of any such designation, the amount payable, if any,
shall be delivered to the legal representative of such Participant’s estate.

 

6. MISCELLANEOUS PROVISIONS.

 

(a) No
employee or other person shall have any claim or right to be paid a Bonus under
the Plan. Determinations made by the Committee under the Plan need not be
uniform and may be made selectively among eligible individuals under the Plan,
whether or not such eligible individuals are similarly situated. Neither the
Plan nor any action taken hereunder shall be construed as giving any employee
or other person any right to continue to be employed by or perform services for
the Company or any Affiliate, and the right to terminate the employment of or
performance of services by any Participant at any time and for any reason is
specifically reserved to the Company and its Affiliates.

 

(b) Except as
may be approved by the Committee, a Participant’s rights and interest under the
Plan may not be assigned or transferred, hypothecated or encumbered in whole or
in part either directly or by operation by law or otherwise (except in the
event of a Participant’s death) including, but not by way of

 

2

 

limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that, subject to applicable law, any amounts payable to any
Participant hereunder are subject to reduction to satisfy any liabilities owed
to the Company or any of its Affiliates by the Participant.

 

(c) The
Committee shall have the authority to determine in its sole discretion the
applicable performance period relating to any Bonus; provided, however, that
any such determination with respect to a Special Bonus shall be subject to any
applicable restrictions imposed by Section 162(m) of the Code.

 

(d) The
Company and its Affiliates shall have the right to deduct from any payment made
under the Plan any federal, state, local or foreign income or other taxes
required by law to be withheld with respect to such payment.

 

(e) The
Company is the sponsor and legal obligor under the Plan, and shall make all
payments hereunder, other than any payments to be made by any of the
Affiliates, which shall be made by such Affiliate, as appropriate. Nothing
herein is intended to restrict the Company from charging an Affiliate that
employs a Participant for all or a portion of the payments made by the Company
hereunder. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment
of any amounts under the Plan, and rights to the payment hereunder shall be no
greater than the rights of the Company’s unsecured, subordinated creditors, and
shall be subordinated to the claims of the customers and clients of the
Company. All expenses involved in administering the Plan shall be borne by the
Company.

 

(f) The
validity, construction, interpretation, administration and effect of the Plan
and rights relating to the Plan and to Bonuses granted under the Plan, shall be
governed by the substantive laws, but not the choice of law rules, of the State
of Delaware.

 

(g) Any
controversy or dispute arising in connection with the Plan shall be resolved by
arbitration pursuant to the Constitution and rules of the New York Stock
Exchange, Inc. or the National Association of Securities Dealers, Inc.

 

(h) The Plan
shall be effective as of April 8, 2003, subject to the affirmative vote of the
holders of a majority of all shares of Common Stock of the Company present in
person or by proxy at the Annual Meeting of the Company to be held on April 8,
2003.

 

7. PLAN AMENDMENT
OR SUSPENSION. The Plan may be amended or suspended in whole or in
part at any time and from time to time by the Committee.

 

8. PLAN TERMINATION. This
Plan shall terminate upon the adoption of a resolution of the Committee
terminating the Plan.

 

9.  ACTIONS AND
DECISION REGARDING THE BUSINESS OR OPERATIONS OF THE COMPANY AND/OR ITS
AFFILIATES. Notwithstanding anything in the Plan to the contrary,
neither the Company nor any of its Affiliates nor their respective officers,
directors, employees or agents shall have any liability to any Participant (or
his or her beneficiaries or heirs) under the Plan or otherwise on account of
any action taken, or not taken, in good faith by any of the foregoing persons
with respect to the business or operations of the Company or any Affiliates.

 

10. SUBORDINATED CAPITAL
STATUS. Notwithstanding any other provision of this Plan, any
amounts due to Participants hereunder may be treated, in the Committee’s sole
discretion, to the extent that the Company accrues a liability in respect
thereof, as subordinated capital of the Company in calculating the Company’s
net capital for regulatory purposes, and the terms of the Plan applicable to
such amounts shall include (and, may be amended to add) such provisions as the
Committee determines are necessary or appropriate in order to secure such
treatment, including without limitation, provisions for the suspension of any
payment obligation under the Plan under certain prescribed circumstances.

 

3

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