Exhibit 4.07


 




 





GUARANTEE AGREEMENT


 


LEHMAN BROTHERS HOLDINGS CAPITAL TRUST VII


 


Dated as of May 17, 2007


 




 




















 


CROSS REFERENCE TABLE*


 


	
  Section of Trust

  	
   

  	
  Section of

  
	
  Indenture Act of

  	
   

  	
  Guarantee

  
	
  1939, as amended

  	
   

  	
  Agreement

  
	
  310(a)

  	
   

  	
  4.1(a)

  
	
  310(b)

  	
   

  	
  2.8; 4.1(c)

  
	
  310(c)

  	
   

  	
  Inapplicable

  
	
  311(a)

  	
   

  	
  2.2(b)

  
	
  311(b)

  	
   

  	
  2.2(b)

  
	
  311(c)

  	
   

  	
  Inapplicable

  
	
  312(a)

  	
   

  	
  2.2(a); 2.9

  
	
  312(b)

  	
   

  	
  2.2(b); 2.9

  
	
  312(c)

  	
   

  	
  2.9

  
	
  313(a)

  	
   

  	
  2.3

  
	
  313(b)

  	
   

  	
  2.3

  
	
  313(c)

  	
   

  	
  2.3

  
	
  313(d)

  	
   

  	
  2.3

  
	
  314(a)

  	
   

  	
  2.4

  
	
  314(b)

  	
   

  	
  Inapplicable

  
	
  314(c)

  	
   

  	
  2.5

  
	
  314(d)

  	
   

  	
  Inapplicable

  
	
  314(e)

  	
   

  	
  2.5

  
	
  314(f)

  	
   

  	
  Inapplicable

  
	
  315(a)

  	
   

  	
  3.1(d); 3.2(a)

  
	
  315(b)

  	
   

  	
  2.7(a)

  
	
  315(c)

  	
   

  	
  3.1(c)

  
	
  315(d)

  	
   

  	
  3.1(d)

  
	
  316(a)

  	
   

  	
  2.6; 5.4(a)

  
	
  316(b)

  	
   

  	
  5.3

  
	
  316(c)

  	
   

  	
  Inapplicable

  
	
  317(a)

  	
   

  	
  2.10

  
	
  317(b)

  	
   

  	
  Inapplicable

  
	
  318(a)

  	
   

  	
  2.1(b)

  



 






*                                         This
Cross-Reference Table does not constitute part of the Agreement and shall not
have any bearing upon the interpretation of any of its terms or provisions.


 


i

















 


Table of Contents


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  
	
  INTERPRETATION AND DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
  Interpretation and Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
  TRUST INDENTURE ACT

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
  Trust Indenture Act; Application

  	
  4

  
	
  SECTION 2.2.

  	
  Lists of Holders of Securities

  	
  5

  
	
  SECTION 2.3.

  	
  Reports by the Trust Guarantee Trustee

  	
  5

  
	
  SECTION 2.4.

  	
  Periodic Reports to Trust Guarantee Trustee

  	
  5

  
	
  SECTION 2.5.

  	
  Evidence of Compliance with Conditions Precedent

  	
  5

  
	
  SECTION 2.6.

  	
  Events of Default; Waiver

  	
  6

  
	
  SECTION 2.7.

  	
  Event of Default; Notice

  	
  6

  
	
  SECTION 2.8.

  	
  Conflicting Interests

  	
  6

  
	
  SECTION 2.9.

  	
  Disclosure of Information

  	
  6

  
	
  SECTION
  2.10.

  	
  Trust Guarantee Trustee May File Proofs of Claim

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
  POWERS, DUTIES AND RIGHTS OF

  	
   

  
	
  TRUST GUARANTEE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
  Powers and Duties of the Trust Guarantee Trustee

  	
  7

  
	
  SECTION 3.2.

  	
  Certain Rights of Trust Guarantee Trustee

  	
  8

  
	
  SECTION 3.3.

  	
  Not Responsible for Recitals or Issuance of Trust Guarantee

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
  GUARANTEE TRUSTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
  Guarantee Trustee; Eligibility

  	
  10

  
	
  SECTION 4.2.

  	
  Appointment, Removal and Resignation of Trust Guarantee Trustee

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  
	
  GUARANTEE

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
  Guarantee

  	
  12

  
	
  SECTION 5.2.

  	
  Waiver of Notice and Demand

  	
  12

  
	
  SECTION 5.3.

  	
  Obligations Not Affected

  	
  12

  
	
  SECTION 5.4.

  	
  Rights of Holders

  	
  13

  
	
  SECTION 5.5.

  	
  Guarantee of Payment

  	
  14

  
	
  SECTION 5.6.

  	
  Subrogation

  	
  14

  
	
  SECTION 5.7.

  	
  Independent Obligations

  	
  14

  



 


ii

















 


	
  ARTICLE VI

  	
   

  
	
  SUBORDINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.1.

  	
  Ranking

  	
  14

  
	
  SECTION 6.2.

  	
  Subordination of Common Securities

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  
	
  TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 7.1.

  	
  Termination

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.1.

  	
  Exculpation

  	
  15

  
	
  SECTION 8.2.

  	
  Indemnification

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  
	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9.1.

  	
  Successors and Assigns

  	
  16

  
	
  SECTION 9.2.

  	
  Amendments

  	
  16

  
	
  SECTION 9.3.

  	
  Notices

  	
  16

  
	
  SECTION 9.4.

  	
  Benefit

  	
  17

  
	
  SECTION 9.5.

  	
  Governing Law

  	
  17

  



 


iii

















 


GUARANTEE AGREEMENT


 


This GUARANTEE AGREEMENT (the “Guarantee”), dated as of May 17,
2007, is executed and delivered by Lehman Brothers Holdings Inc., a Delaware
corporation (the “Guarantor”), and U.S. Bank National Association, as
trustee (the “Guarantee Trustee”), for the benefit of the Holders (as
defined herein) from time to time of the Trust Securities (as defined herein)
of Lehman Brothers Holdings Capital Trust VII, a Delaware statutory trust (the “Trust”).


 


WHEREAS, pursuant to the Declaration of Trust (as defined herein), the
Trust is issuing preferred securities having a liquidation amount of $1,000 per
security (the “Trust Preferred Securities”) and common securities,
having a liquidation amount of $1,000 per security and designated the Trust
Common Securities (the “Trust Common Securities” and, together with the
Trust Preferred Securities, the “Trust Securities”);


 


WHEREAS, as incentive for the Holders to purchase the Trust Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Guarantee, to pay to the Holders of the Trust Securities the
Guarantee Payments (as defined herein) and to make certain other payments on
the terms and conditions set forth herein.


 


NOW, THEREFORE, in consideration of the purchase by each Holder of
Trust Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit
of the Holders.


 


ARTICLE I

INTERPRETATION AND DEFINITIONS


 


SECTION 1.1.                                          Interpretation
and Definitions


 


In this Guarantee, unless the context otherwise requires:


 


(a)           capitalized
terms used in this Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;


 


(b)           capitalized
terms used in this Guarantee but not otherwise defined herein shall have the
meanings assigned to them in the Declaration of Trust or the Subordinated
Indenture, as the case may be;


 


(c)           a
term defined anywhere in this Guarantee has the same meaning throughout;


 


(d)           all
references to “the Guarantee” or “this Guarantee” are to this Guarantee as
modified, supplemented or amended from time to time;


 


(e)           all
references in this Guarantee to Articles and Sections are to Articles and
Sections of this Guarantee, unless otherwise specified;


 

















 


(f)            unless
otherwise defined in this Guarantee, a term defined in the Trust Indenture Act
has the same meaning when used in this Guarantee;


 


(g)           a
reference to the singular includes the plural and vice versa and a reference to
any masculine form of a term shall include the feminine form of such term, as
applicable; and


 


(h)           the
following terms have the following meanings:


 


“Affiliate” means, with respect to any specified Person, any
other Person that directly or indirectly controls or is controlled by, or is
under common control with such specified Person. For the purposes of this
definition, “control” when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.


 


“Business Day” means any day other than a Saturday or Sunday or
a day on which banking institutions in the City of New York are authorized or
required by law, regulation or executive order to close.


 


“Covered Person” means any Holder or beneficial owner of Trust
Securities.


 


“Debentures” means the $1,000,001,000 initial aggregate
principal amount of the Guarantor’s Remarketable Junior Subordinated Debentures
due 2043 issued pursuant to the Indenture.


 


“Declaration of Trust” means the Amended and Restated
Declaration of Trust by and among Lehman Brothers Holdings Inc., as Sponsor,
U.S. Bank National Association, as Property Trustee and Delaware Trustee, and
the Regular Trustees named therein, dated as of May 17, 2007, as it may be
amended, modified or supplemented from time to time.


 


“Event of Default” means a default by the Guarantor on any of
its payment or other obligations under this Guarantee.


 


“Global Security” means a fully registered, global Trust
Preferred Security.


 


“Guarantee Payments” means the following payments or
distributions, without duplication, with respect to the Trust Securities, to
the extent not paid by or on behalf of the Trust: (i) any accumulated and
unpaid distributions on such Trust Securities to the extent the Trust has
sufficient funds available therefor at the time, (ii) the Redemption Price with
respect to any Trust Securities called for redemption by the Trust to the
extent the Trust has sufficient funds available therefor at the time and (iii)
upon a voluntary or involuntary dissolution, winding up or termination of the
Trust (other than in connection with the redemption of all of the Trust
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accumulated and unpaid Distributions (as defined in the
Declaration of Trust) on the Trust Securities to the date of payment, to the
extent the Trust has sufficient funds available therefor at the time and (b)
the amount of assets of the Trust, after satisfaction of all liabilities,
remaining 


 


2

















 


available for distribution to Holders upon dissolution of the Trust
(the “Liquidation Distribution”).


 


“Holder” means any holder of Trust Securities, as registered on
the books and records of the Trust; provided, however, that, in
determining whether the Holders of the requisite percentage of Trust Preferred
Securities have given any request, notice, consent or waiver hereunder, “Holder”
shall not include the Guarantor or any Affiliate of the Guarantor or any other
obligor on the Trust Securities.


 


“Indemnified Person” means the Guarantee Trustee, any Affiliate
of the Guarantee Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Guarantee Trustee.


 


“Underwriters” means Lehman Brothers Inc. and the other
underwriters listed in Schedule II to the Underwriting Agreement, dated May 8,
2007 among the Guarantor, the Trust and the underwriters named therein.


 


“Majority in Liquidation Amount of the Trust Preferred Securities”
means, except as provided in the terms of the Trust Preferred Securities or by
the Trust Indenture Act, Holder(s) of outstanding Trust Preferred Securities,
voting together as a single class, who are the record owners of more than 50%
of the aggregate liquidation amount of all outstanding Trust Preferred
Securities. In determining whether the Holders of the requisite amount of Trust
Preferred Securities have voted, Trust Preferred Securities that are owned by
the Guarantor or any Affiliate of the Guarantor or any other obligor on the
Trust Securities shall be disregarded for the purpose of any such
determination.


 


“Officers’ Certificate” means, with respect to any Person, a
certificate signed on behalf of such Person by two Authorized Officers of such
Person. Any Officers’ Certificate delivered with respect to compliance with a
condition or covenant provided for in this Guarantee shall include:


 


(a)           a statement that
each officer signing the Officers’ Certificate has read the covenant or
condition and the definitions relating thereto;


 


(b)           a brief statement of
the nature and scope of the examination or investigation undertaken by each
officer on behalf of such Person in rendering the Officers’ Certificate;


 


(c)           a statement that
each such officer has made such examination or investigation as, in such
officer’s opinion, is necessary to enable such officer on behalf of such Person
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and


 


(d)           a statement as to
whether, in the opinion of each such officer on behalf of such Person, such
condition or covenant has been complied with.


 


“Person” means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, 


 


3

















 


unincorporated association, or government or any agency or political
subdivision thereof, or any other entity of whatever nature.


 


“Property Trustee” means the Trustee meeting the eligibility
requirements set forth in Section 6.3 of the Declaration of Trust until a
Successor Property Trustee has been appointed and has accepted such appointment
pursuant to the terms of the Declaration of Trust and thereafter means each
such Successor Property Trustee. The Property Trustee shall initially be U.S.
Bank National Association.


 


“Underwriting Agreement” means the Underwriting Agreement dated
as of May 17, 2007 by and among the Guarantor, the Trust and the Underwriters.


 


“Responsible Officer” means, with respect to the Guarantee
Trustee, any officer with direct responsibility for the administration of this
Guarantee and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer’s
knowledge of and familiarity with the particular subject.


 


“Subordinated Indenture” means the Indenture governing the
Debentures.


 


“Successor Guarantee Trustee” means a successor Guarantee
Trustee possessing the qualifications to act as Guarantee Trustee under Section
4.1.


 


“Trust Indenture Act” means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.


 


ARTICLE II

TRUST INDENTURE ACT


 


SECTION 2.1.                                          Trust
Indenture Act; Application


 


(a)           This Guarantee is
subject to the provisions of the Trust Indenture Act that are required to be
part of this Guarantee and shall, to the extent applicable, be governed by such
provisions.


 


(b)           If and to the extent
that any provision of this Guarantee limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.


 


SECTION 2.2.                                          Lists
of Holders of Securities


 


(a)           The Guarantor shall
provide the Guarantee Trustee (i) except while the Trust Preferred Securities
are represented by one or more Global Securities at least one Business Day
prior to the date for payment of distributions, a list, in such form as the
Guarantee Trustee may reasonably require, of the names and addresses of the
Holders of the Trust Preferred Securities (“List of Holders”) as of the
record date relating to the payment of such distributions and (ii) at any other
time, within 30 days of receipt by the Guarantor of a written request from the
Guarantee Trustee for a List of Holders as of a date no more than 15 days
before such List of Holders is given to the Guarantee Trustee; provided
that the Guarantor shall not be obligated to 


 


4

















 


provide such
List of Holders at any time the List of Holders does not differ from the most
recent List of Holders given to the Guarantee Trustee by the Guarantor. The
Guarantee Trustee shall preserve, in as current a form as is reasonably
practicable, all information contained in Lists of Holders given to it,
provided that the Guarantee Trustee may destroy any List of Holders previously
given to it on receipt of a new List of Holders.


 


(b)           The Guarantee
Trustee shall comply with its obligations under Sections 311(a), 311(b) and
312(b) of the Trust Indenture Act.


 


SECTION 2.3.                                          Reports
by the Guarantee Trustee


 


Within 60 days after May 15 of each year, the Guarantee Trustee shall
provide to the Holders of the Trust Securities such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.


 


SECTION 2.4.                                          Periodic
Reports to Guarantee Trustee


 


The Guarantor shall provide to the Guarantee Trustee such documents,
reports and information as required by Section 314(a) of the Trust Indenture
Act (if any) and the compliance certificate required by Section 314(a) of the
Trust Indenture Act in the form, in the manner and at the times required by
Section 314(a) of the Trust Indenture Act.


 


SECTION 2.5.                                          Evidence
of Compliance with Conditions Precedent


 


The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with any conditions precedent, if any, provided for in this
Guarantee that relate to any of the matters set forth in Section 314(c) of the
Trust Indenture Act. Any certificate or opinion required to be given by an
officer pursuant to Section 314(c)(1) may be given in the form of an Officers’
Certificate.


 


SECTION 2.6.                                          Events
of Default; Waiver


 


The Holders of a Majority in Liquidation Amount of Trust Preferred
Securities may, by vote or written consent, on behalf of the Holders of all of
the Trust Securities, waive any past Event of Default and its consequences. Upon
such waiver, any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.


 


SECTION 2.7.                                          Event
of Default; Notice


 


(a)           The Guarantee
Trustee shall, within 90 days after the occurrence of an Event of Default,
transmit by mail, first class postage prepaid, to the Holders of the Trust
Preferred Securities, notices of all Events of Default actually known to a
Responsible Officer of the Guarantee Trustee, unless such defaults have been
cured before the giving of such notice; provided that the Guarantee
Trustee shall be protected in withholding such notice if and so long 


 


5

















 


as a
Responsible Officer of the Guarantee Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of the Trust
Preferred Securities.


 


(b)           The Guarantee
Trustee shall not be deemed to have knowledge of any Event of Default unless
the Guarantee Trustee shall have received written notice, or of which a
Responsible Officer of the Guarantee Trustee charged with the administration of
the Declaration of Trust shall have obtained actual knowledge.


 


SECTION 2.8.                                          Conflicting
Interests


 


The Declaration of Trust shall be deemed to be specifically described
in this Guarantee for the purposes of clause (i) of the first proviso contained
in Section 310(b)(1) of the Trust Indenture Act. Nothing herein shall prevent
the Guarantee Trustee from filing with the Commission the application referred
to in the penultimate paragraph of Section 310(b) of the Trust Indenture Act. In
determining whether the Guarantee Trustee has a conflicting interest as defined
in Section 310(b) of the Trust Indenture Act with respect to the Trust
Securities or the Guarantee in respect of such Trust Securities, there shall be
excluded (i) all series of securities of any Investment Affiliate issued or
issuable under an Indenture, (ii) this Guarantee and (iii) the Declaration of
Trust.


 


SECTION 2.9.                                          Disclosure
of Information


 


The disclosure of information as to the names and addresses of the
Holders of the Securities in accordance with Section 312 of the Trust Indenture
Act, regardless of the source from which such information was derived, shall
not be deemed to be a violation of any existing law, or any law hereafter
enacted which does not specifically refer to Section 312 of the Trust Indenture
Act, nor shall the Guarantee Trustee be held accountable by reason of mailing
any material pursuant to a request made under Section 312(b) of the Trust
Indenture Act.


 


SECTION 2.10.                                    Guarantee
Trustee May File Proofs of Claim


 


Upon the occurrence of an Event of Default, the Guarantee Trustee is
hereby authorized to (a) recover judgment, in its own name and as trustee of an
express trust, against the Guarantor for the whole amount of any Guarantee
Payments remaining unpaid and (b) file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have its claims and
those of the Holders of the Trust Securities allowed in any judicial
proceedings relative to the Guarantor, its creditors or its property.


 


ARTICLE III

POWERS, DUTIES AND RIGHTS OF

GUARANTEE TRUSTEE


 


SECTION 3.1.                                          Powers
and Duties of the Guarantee Trustee


 


(a)           This Guarantee shall
be held by the Guarantee Trustee for the benefit of the Holders of the Trust
Securities, and the Guarantee Trustee shall not transfer this Guarantee to any
Person except a Holder of Trust Securities exercising his or her rights
pursuant to Section 5.4(b) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee 


 


6

















 


of its
appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee in and to this Guarantee shall automatically
vest in any Successor Guarantee Trustee, and such vesting and succession of
title shall be effective whether or not conveyance documents have been executed
and delivered pursuant to the appointment of such Successor Guarantee Trustee.


 


(b)           If an Event of
Default actually known to a Responsible Officer of the Guarantee Trustee has
occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee
for the benefit of the Holders of the Trust Securities.


 


(c)           The Guarantee
Trustee, before the occurrence of any Event of Default and after the curing or
waiver of all Events of Default that may have occurred, shall undertake to
perform only such duties as are specifically set forth in this Guarantee, and
no implied covenants shall be read into this Guarantee against the Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6) and is actually known to a Responsible Officer
of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee, and use the same degree of
care and skill in its exercise thereof, as a prudent Person would exercise or
use under the circumstances in the conduct of his or her own affairs.


 


(d)           No provision of this
Guarantee shall be construed to relieve the Guarantee Trustee from liability
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:


 


(i)            prior to the
occurrence of any Event of Default and after the curing or waiving of all such
Events of Default that may have occurred:


 


(A)          the
duties and obligations of the Guarantee Trustee shall be determined solely by
the express provisions of this Guarantee, and the Guarantee Trustee shall not
be liable except for the performance of such duties and obligations as are
specifically set forth in this Guarantee, and no implied covenants or
obligations shall be read into this Guarantee against the Guarantee Trustee;
and


 


(B)           in
the absence of bad faith on the part of the Guarantee Trustee, the Guarantee
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Guarantee Trustee and conforming to the requirements
of this Guarantee; but in the case of any such certificates or opinions that by
any provision hereof are specifically required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this Guarantee;


 


(ii)           the Guarantee
Trustee shall not be liable for any error of judgment made in good faith by a
Responsible Officer of the Guarantee Trustee, unless it shall be proved that
the Guarantee Trustee was negligent in ascertaining the pertinent facts upon
which such judgment was made;


 


7

















 


(iii)          the Guarantee
Trustee shall not be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with the direction of the Holders of a
Majority in Liquidation Amount of Trust Preferred Securities relating to the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee, or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee; and


 


(iv)          no provision of this
Guarantee shall require the Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers, if the Guarantee
Trustee shall have reasonable grounds for believing that (A) the repayment of
such funds or liability is not reasonably assured to it under the terms of this
Guarantee or (B) an indemnity, reasonably satisfactory to the Guarantee
Trustee, against such risk or liability is not reasonably assured to it.


 


SECTION 3.2.                                          Certain
Rights of Guarantee Trustee


 


(a)           Subject to the
provisions of Section 3.1 hereof:


 


(i)            The Guarantee
Trustee may conclusively rely, and shall be fully protected in acting or
refraining from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.


 


(ii)           Any direction or
act of the Guarantor contemplated by this Guarantee shall be sufficiently
evidenced by an Officers’ Certificate.


 


(iii)          Whenever, in the
administration of this Guarantee, the Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting any
action hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers’ Certificate which, upon receipt of such
request, shall be promptly delivered by the Guarantor.


 


(iv)          The Guarantee
Trustee shall have no duty to see to any recording, filing or registration of
any instrument (or any rerecording, refiling or registration thereof).


 


(v)           The Guarantee
Trustee may consult with counsel of its selection, and the advice or opinion of
such counsel with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice or
opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates
and may include any of its employees. The Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration of this
Guarantee from any court of competent jurisdiction.


 


(vi)          The Guarantee
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Guarantee at the request or direction of any Holder, 


 


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unless such Holder shall have provided to the Guarantee Trustee such
security and indemnity, reasonably satisfactory to the Guarantee Trustee,
against the costs, expenses (including attorneys’ fees and expenses and the
expenses of the Guarantee Trustee’s agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that nothing contained in this Section
3.2(a)(vi) shall be taken to relieve the Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee.


 


(vii)         The Guarantee
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Guarantee Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.


 


(viii)        The Guarantee
Trustee may execute any of the trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents, nominees, custodians or
attorneys, and the Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.


 


(ix)           Any action taken by
the Guarantee Trustee or its agents hereunder shall bind the Holders, and the
signature of the Guarantee Trustee or its agents alone shall be sufficient and
effective to perform any such action. No third party shall be required to
inquire as to the authority of the Guarantee Trustee to so act or as to its
compliance with any of the terms and provisions of this Guarantee, both of
which shall be conclusively evidenced by the Guarantee Trustee or its agent
taking such action.


 


(x)            Whenever in the
administration of this Guarantee the Guarantee Trustee shall deem it desirable
to receive instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee (i) may request instructions
from the Holders of a Majority in Liquidation Amount of the Trust Preferred
Securities, (ii) may refrain from enforcing such remedy or right or taking such
other until such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions.


 


(b)           No provision of this
Guarantee shall be deemed to impose any duty or obligation on the Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Guarantee Trustee shall be unqualified or incompetent
in accordance with applicable law, to perform any such act or acts or to
exercise any such right, power, duty or obligation. No permissive power or
authority available to the Guarantee Trustee shall be construed to be a duty.


 


SECTION 3.3.                                          Not
Responsible for Recitals or Issuance of Guarantee


 


The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. 


 


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The Guarantee Trustee makes no representations as to the validity or
sufficiency of this Guarantee.


 


ARTICLE IV

GUARANTEE TRUSTEE


 


SECTION 4.1.                                          Guarantee
Trustee; Eligibility


 


(a)           There shall be at
all times a Guarantee Trustee which shall:


 


(i)            not be an Affiliate
of the Guarantor; and


 


(ii)           be a corporation
organized and doing business under the laws of the United States of America or
any state or territory thereof or of the District of Columbia, or a corporation
or Person permitted by the Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least US$50,000,000, and subject to supervision or examination by federal,
state, territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred to above, then,
for the purposes of this Section 4.1(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.


 


(b)           If at any time the
Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a),
the Guarantee Trustee shall immediately resign in the manner and with the
effect set out in Section 4.2(c).


 


(c)           If the Guarantee
Trustee has or shall acquire any “conflicting interest” within the meaning of
Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act.


 


SECTION 4.2.                                          Appointment,
Removal and Resignation of Guarantee Trustee


 


(a)           Subject to Section
4.2(b), unless an Event of Default shall have occurred and be continuing, the
Guarantee Trustee may be appointed or removed with or without cause at any time
by the Guarantor.


 


(b)           The Guarantee
Trustee shall not be removed in accordance with Section 4.2(a) until a
Successor Guarantee Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor Guarantee Trustee
and delivered to the Guarantor.


 


(c)           The Guarantee
Trustee appointed to office shall hold office until a Successor Guarantee
Trustee shall have been appointed or until its removal or resignation. The
Guarantee Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing executed by the Guarantee Trustee and
delivered to the Guarantor, 


 


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which
resignation shall not take effect until a Successor Guarantee Trustee has been
appointed and has accepted such appointment by instrument in writing executed
by such Successor Guarantee Trustee and delivered to the Guarantor and the
resigning Guarantee Trustee.


 


(d)           If no Successor
Guarantee Trustee shall have been appointed and accepted appointment as
provided in this Section 4.2 within 60 days after delivery to the Guarantor of
an instrument of removal or resignation, the removed or resigning Guarantee
Trustee may petition any court of competent jurisdiction for appointment of a
Successor Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.


 


(e)           No Guarantee Trustee
shall be liable for the acts or omissions to act of any Successor Guarantee
Trustee.


 


(f)            Upon termination of
this Guarantee or removal or resignation of the Guarantee Trustee pursuant to
this Section 4.2, the Guarantor shall pay to the Guarantee Trustee all amounts
owing for fees and reimbursement of expenses that have accrued to the date of
such termination, removal or resignation.


 


ARTICLE V

GUARANTEE


 


SECTION 5.1.                                          Guarantee


 


The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), if, as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert. The Guarantor’s
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holders or by causing the Trust to
pay such amounts to the Holders.


 


SECTION 5.2.                                          Waiver
of Notice and Demand


 


The Guarantor hereby waives notice of acceptance of this Guarantee and
of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Trust or any other
Person before proceeding against the Guarantor, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.


 


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SECTION 5.3.                                          Obligations
Not Affected


 


The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall be absolute and unconditional and shall remain in
full force and effect until the entire liquidation amount of all outstanding
Trust Securities shall have been paid and such obligation shall in no way be
affected or impaired by reason of the happening from time to time of any event,
including without limitation the following, whether or not with notice to, or
the consent of, the Guarantor:


 


(a)           the release or
waiver, by operation of law or otherwise, of the performance or observance by
the Trust of any express or implied agreement, covenant, term or condition
relating to the Trust Securities to be performed or observed by the Trust;


 


(b)           the extension of
time for the payment by the Trust of all or any portion of the distributions,
Redemption Price, Liquidation Distributions or any other sums payable under the
terms of the Trust Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the Trust
Securities (other than an extension of time for payment of distributions,
Redemption Price, Liquidation Distributions or other sum payable that results
from the extension of any interest payment period on the Debentures or any
change to the maturity date of the Debentures, in each case, permitted by the
Indenture;


 


(c)           any failure,
omission, delay or lack of diligence on the part of the Property Trustee or the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Property Trustee or the Holders pursuant to the terms of the
Trust Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;


 


(d)           the voluntary or
involuntary liquidation, dissolution, sale of any collateral, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, the Trust or any of the assets of the Trust;


 


(e)           any invalidity of,
or defect or deficiency in, the Trust Securities;


 


(f)            the settlement or
compromise of any obligation guaranteed hereby or hereby incurred; or


 


(g)           any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge or defense of a guarantor, it being the intent of this Section 5.3
that the obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.


 


There shall be no obligation of the Guarantee Trustee or the Holders to
give notice to, or obtain consent of, the Guarantor or any other Person with
respect to the happening of any of the foregoing.


 


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No setoff, counterclaim, reduction or diminution of any obligation, or
any defense of any kind or nature that the Guarantor has or may have against
any Holder shall be available hereunder to the Guarantor against such Holder to
reduce the payments to it under this Guarantee.


 


SECTION 5.4.                                          Rights
of Holders


 


(a)           The Holders of a
Majority in Liquidation Amount of the Trust Preferred Securities have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of this Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under this Guarantee.


 


(b)           If the Guarantee
Trustee fails to enforce this Guarantee, then any Holder of Trust Preferred
Securities may, subject to the subordination provisions of Section 6.2,
institute a legal proceeding directly against the Guarantor to enforce the
Guarantee Trustee’s rights under this Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other Person
or entity. In addition, if the Guarantor has failed to make a Guarantee
Payment, a Holder of Trust Securities may, subject to the subordination
provisions of Section 6.2, directly institute a proceeding against the
Guarantor for enforcement of the Guarantee for such payment to such Holder. The
Guarantor hereby waives any right or remedy to require that any action on this
Guarantee be brought first against the Trust or any other Person or entity
before proceeding directly against the Guarantor.


 


SECTION 5.5.                                          Guarantee
of Payment


 


This Guarantee creates a guarantee of payment and not of collection.


 


SECTION 5.6.                                          Subrogation


 


The Guarantor shall be subrogated to all (if any) rights of the Holders
of Trust Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Guarantee; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any right that it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee, if, at the
time of any such payment, any amounts are due and unpaid under this Guarantee. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Guarantee Trustee for the benefit of the
Holders.


 


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SECTION 5.7.                                          Independent
Obligations


 


The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Trust
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
notwithstanding the occurrence of any event referred to in subsections 5.3(a)
through 5.3(g), inclusive, hereof.


 


ARTICLE VI

SUBORDINATION


 


SECTION 6.1.                                          Ranking


 


This Guarantee will constitute an unsecured obligation of the Guarantor
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Guarantor, (ii) on a parity with the most senior preferred
securities or preference stock now or hereafter issued by the Guarantor and
with any guarantee now or hereafter entered into by the Guarantor in respect of
such senior preferred securities or preference stock of any Affiliate of the
Guarantor and (iii) senior to the Guarantor’s common stock.


 


SECTION 6.2.                                          Subordination
of Common Securities


 


If a Trust Enforcement Event has occurred and is continuing under the
Declaration of Trust, the rights of the holders of the Trust Common Securities
to receive Guarantee Payments hereunder shall be subordinated to the rights of
the Holders of the Trust Preferred Securities to receive Guarantee Payments
under this Guarantee.


 


ARTICLE VII

TERMINATION


 


SECTION 7.1.                                          Termination


 


This Guarantee shall terminate upon (i) full payment of the Redemption
Price of all Trust Securities or (ii) full payment of the amounts payable in
accordance with the Declaration of Trust upon liquidation of the Trust. Notwithstanding
the foregoing, this Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of Trust Securities
must restore payment of any sums paid under the Trust Securities or under this
Guarantee.


 


ARTICLE VIII

INDEMNIFICATION


 


SECTION 8.1.                                          Exculpation


 


(a)           No Indemnified
Person shall be liable, responsible or accountable in damages or otherwise to
the Guarantor or any Covered Person for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Indemnified Person
in good faith in accordance with this Guarantee and in a manner that such
Indemnified Person 


 


14

















 


reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Guarantee or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such
Indemnified Person’s negligence or willful misconduct with respect to such acts
or omissions.


 


(b)           An Indemnified
Person shall be fully protected in relying in good faith upon the records of
the Guarantor and upon such information, opinions, reports or statements
presented to the Guarantor by any Person as to matters the Indemnified Person
reasonably believes are within such other Person’s professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Guarantor, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits, losses, or any other
facts pertinent to the existence and amount of assets from which Distributions
to Holders of Trust Securities might properly be paid.


 


SECTION 8.2.                                          Indemnification


 


The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
8.2 shall survive the termination of this Guarantee.


 


ARTICLE IX

MISCELLANEOUS


 


SECTION 9.1.                                          Successors
and Assigns


 


All guarantees and agreements contained in this Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Trust Securities
then outstanding.


 


SECTION 9.2.                                          Amendments


 


Except with respect to any changes that do not materially adversely
affect the rights of the Holders (in which case no consent of the Holders will
be required), this Guarantee may not be amended without the prior approval of
the Holders of a Majority in Liquidation Amount of the Trust Preferred
Securities voting together as a single class (excluding any Trust Securities
held by the Sponsor or any of its Affiliates). The provisions of Article 11.2
of the Declaration of Trust with respect to meetings of Holders of Trust
Securities apply to the giving of such approval.


 


SECTION 9.3.                                          Notices


 


All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:


 


15

















 


(a)           If given to the
Guarantee Trustee, at the Guarantee Trustee’s mailing address set forth below (or
such other address as the Guarantee Trustee may give notice of to the Guarantor
and the Holders of the Trust Securities):


 


U.S. Bank National Association


300 Delaware Avenue


9th Floor, EX-AE-WDAW


Wilmington, Delaware 19801


Attention:  Corporate Trust Services


Facsimile:  (302) 576-3717


 


(b)           If given to the
Guarantor, at the Guarantor’s mailing address set forth below (or such other
address as the Guarantor may give notice of to the Holders of the Trust
Securities):


 


Lehman Brothers Holdings Inc.


1301 Avenue of the Americas

New York, New York 10019

Attention: Corporate Counsel


Facsimile:  (212) 526-0339


 


(c)           If given to any
Holder of Trust Securities, at the address set forth on the books and records
of the Trust.


 


All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the
date of such refusal or inability to deliver.


 


SECTION 9.4.                                          Benefit


 


This Guarantee is solely for the benefit of the Holders of the Trust
Securities and, subject to Section 3.1(a), is not separately transferable from
the Trust Securities.


 


SECTION 9.5.                                          Governing
Law


 


THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


 


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THIS GUARANTEE is executed as of the day and year first above written.


 


	
   

  	
  LEHMAN BROTHERS HOLDINGS INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ BARRETT S. DIPAOLO

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   Barrett S. DiPaolo

  
	
   

  	
   

  	
  Title:

  	
   Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as Guarantee Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ EARL DENNISON

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					



 


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