Document:

EXHIBIT 10.1

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”)
between ZENITH NATIONAL INSURANCE CORP., a Delaware corporation (hereinafter
referred to as “Zenith”), and STANLEY R. ZAX (hereinafter referred to as “Employee”)
is hereby amended and restated in its entirety effective on the last date of
execution set forth below (the “Effective Date”).

 

RECITALS

 

WHEREAS, Employee is presently employed as Chairman
of the Board of Zenith Insurance Company, a subsidiary of Zenith, pursuant to a
written Employment Agreement originally dated as of December 9, 1981,
which agreement has been extended and modified from time to time, and is also
employed as Chairman of the Board and President of Zenith and is an officer of
certain of its other subsidiaries (Zenith and all of its subsidiaries
collectively referred to hereinafter as “Employer”); and

 

WHEREAS, Zenith and Employee deem it in their
respective best interests to extend the term of said Employment Agreement at the
present time and modify certain other provisions thereof;

 

NOW, THEREFORE, it is agreed as follows:

 

1.                                      Amended and Restated Employment Agreement.  The Agreement is hereby amended and
restated in its entirety and the term thereof is hereby extended as hereinafter
provided.

 

2.                                      Engagement and Duties.  During the Term of Employment as defined
in Paragraph 3 of this Agreement:

 

2.1   Employer hereby employs
Employee and Employee does hereby agree to be employed by Employer as Chairman
of the Board, President and Chief Executive Officer of Zenith and in such other
capacities at Zenith and at each of the corporations which comprise Employer as
shall hereafter be agreed upon by Employee, the Board of Directors of Zenith (“Board”)
and the boards of directors of such other corporations.

 

2.2   Employee shall perform the
normal duties of such offices and such other executive duties as may from time
to time be assigned to him by and in accordance with instructions and
directions of the Board.  Both Employee and
Employer hereby expressly recognize that the services described herein shall be
performed to the reasonable satisfaction of the Board.

 

2.3   Employee shall perform the
duties contemplated hereunder at his principal office located in Los Angeles
County, California; provided, however, Employee 

 

 

shall travel outside Los Angeles County to the extent he reasonably
deems it necessary or appropriate in the performance of his duties hereunder.

 

2.4   Employee, during the Term of
Employment, shall devote his time, attention, energies, skill and best efforts
to the performance of his duties for and on behalf of Employer.

 

3.                                      Term of Employment.  The term of employment hereunder shall be
a period commencing on the Effective Date and terminating December 31,
2012 (“Expiration Date”), unless sooner terminated as elsewhere provided herein
(“Term of Employment”).

 

4.                                      Compensation.  As full and complete consideration for
the performance of his duties and the rendition of any and all services under
this Agreement, Employee shall be compensated as follows:

 

4.1   Employee shall be paid Two
Million Five Hundred Thousand Dollars ($2,500,000) per year, subject to such
increases as the Compensation Committee of the Board (“Compensation Committee”)
may from time to time determine (“Base Compensation”).

 

4.2   In addition to the Base
Compensation, Employee shall be eligible for such bonuses under Zenith’s
Executive Officer Bonus Plan as may be awarded by the Compensation Committee
pursuant to the plan, and may also be awarded discretionary bonuses by the
Compensation Committee.

 

4.3   All compensation hereunder
shall be paid by Employer, as may be allocated by Employer from time to time
among the different corporations which comprise Employer, and shall comply with
all relevant governmental directives, rules and regulations which may be
in effect from time to time.  All Base
Compensation shall be payable ratably twice each month, or more or less often
in accordance with the normal payroll practices of Employer.

 

5.                                      Business Expenses.  Employee shall be reimbursed for
reasonable and necessary expenses duly incurred in connection with the duties
to be performed and the services to be rendered by Employee to Employer under
and pursuant to this Agreement, upon submission of itemized expense statements
in the manner and at times specified by Employer for officers of Employer.  In addition, Employee shall be entitled to
the exclusive full time use of one deluxe automobile of his choice, to be
replaced from time to time at Employee’s discretion.

 

6.                                      Employee
Benefits.

 

6.1   Employee shall be entitled to
participate in all employee insurance, retirement and other benefit plans for
which he qualifies and which may be in effect from time to time.  Notwithstanding the foregoing, nothing contained
in this Agreement shall prohibit or limit the right of Employer to discontinue,
modify or amend any plan or benefit in its absolute discretion at any time,
provided, however, that any such discontinuance, modification or amendment
shall apply to employees of Employer 

 

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generally, or to a defined group of such
employees, and shall not apply solely to Employee.

 

6.2   Employee shall be entitled
each year to vacation in accordance with standard employment practices, during
which time his compensation shall be paid in full.  Each vacation shall be taken during a period
mutually satisfactory to both Employer and Employee.

 

6.3   During the Term of Employment,
Employer shall provide Employee with life insurance coverage with an aggregate
face amount equal to at least $6,125,000, except for such lower amounts that
may be consented to by Employee from time to time.  Employer shall also pay any taxes imposed on
Employee by reason of receiving such life insurance coverage over the amount
otherwise provided to Employee under the Employer’s standard group life
insurance program.

 

6.4   The Board has adopted a policy
that, for security reasons, Employee is to use the aircraft owned by Employer
(the “Company Aircraft”) for all of his business and personal travel whenever
possible.  Consistent with this policy,
Employee shall be entitled to use the Company Aircraft for both business and
personal travel provided that (i) Employee may only use the Company
Aircraft for personal travel for up to 125 hours of flight time per calendar
year unless otherwise determined by the Board and (ii) Employer shall
impute income to Employee for such personal use based on the Standard Industry
Fare Level (“SIFL”) rates in accordance with Internal Revenue Regulations
section 1.61-21(g).

 

7.                                      Death
During Employment.  If Employee
should die during the Term of Employment, Employer shall pay (a) to
Employee’s spouse, if living or (b) if his spouse is not then living, to
his then living issue by right of representation or (c) if none of the
above are then living, to his estate a cash lump sum payment equal to:  (1) one year’s Base Compensation at the
rate in effect at his death and (2) one year’s bonus.  (For these purposes, “bonus” shall mean the
highest annual bonus paid or payable to Employee for the three calendar years
immediately preceding the year of Employee’s death.)  In addition, for a period of two years from
Employee’s death, Employer shall continue to provide Employee’s family with the
same level of medical, dental and vision insurance benefits that they were
receiving through Employer immediately prior to Employee’s death.

 

8.                                      Termination
by Employer.

 

8.1   Termination
by Employer due to Disability. 
Should Employer terminate the Term of Employment prior to the Expiration
Date due to “Disability” (as defined below) Employer shall pay to Employee
a cash lump sum payment equal to:  (1) one
year’s Base Compensation at the rate in effect at termination (reduced by any
amounts payable to Employee pursuant to any long-term disability plan in effect
at the time of such termination) and (2) one year’s bonus.  (For these purposes, “bonus” shall mean the
highest annual bonus paid or payable to Employee for the three calendar years
immediately preceding the year of termination.)  In
addition, for a period of two years 

 

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from Employee’s termination of employment, Employer shall
continue to provide Employee and his family with the same level of life, medical,
dental and vision insurance benefits that they were receiving through
Employer immediately prior to Employee’s termination of employment.

 

Definition
of Disability. 
For the purposes of this Agreement, “Disability” shall
mean Employee’s absence from employment with the Employer which: (i) was
due to his inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous period of not
less than twelve (12) months; or (ii) resulted from a medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than
twelve (12) months, and caused Employee to receive income replacement
benefits for a period of not less than three (3) months under an accident
and health plan covering the Employer’s employees or (iii) qualifies
as a disability under the Employer’s Long Term Disability Plan.

 

8.2   Termination
by Employer  For Cause.  Should Employer
terminate the Term of Employment prior to the Expiration Date “For Cause” (as
defined below), Employer shall pay to Employee in complete satisfaction of
Employer’s obligations under this Agreement and without waiving any rights
which it or its subsidiaries may have against Employee, the compensation which
would otherwise be payable to him pursuant to Paragraph 4.1 of this Agreement
up to the end of the month in which such termination occurs and Employer shall
not be obligated to make any payments to Employee pursuant to Paragraph 4.2 of
this Agreement.

 

Definition of For Cause.  For the
purposes of this Agreement, “For Cause” shall mean (1) Employee’s willful
failure to substantially perform his duties or any other willful and material
breach of this Agreement by Employee (other than a failure or breach resulting
from his incapacity due to physical or mental illness, injury or similar
incapacity), which failure or breach is not cured after the passage of a
reasonable period of time to cure contained in a written demand from the Board
that specifically describes such failure or breach; (2) Employee’s
participation in activities that are competitive with Employer’s business,
which participation is not cured after the passage of a reasonable period of
time to cure contained in a written demand from the Board that specifically
describes such conduct; (3) Employee’s conviction of a felony; or (4) Employee’s
violation of his duty to maintain confidentiality as required by Paragraph 15.

 

8.3   Termination
by Employer other than due to Disability or For Cause.  Should Employer terminate the Term of
Employment prior to the Expiration Date for any reason other than due to
Disability pursuant to Paragraph 8.1 or For Cause pursuant to Paragraph
8.2, Employer shall pay to Employee a cash lump sum payment equal to:  (1) two years’ Base Compensation at the
rate in effect at termination and (2) two years’ bonus.  (For these purposes, “bonus” shall mean the
highest annual bonus paid or payable to Employee for the three calendar years
immediately preceding the year of termination.)   In addition, for a period of two years from
Employee’s termination of employment, Employer shall continue to provide
Employee and his family with the same 

 

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level of life, medical, dental and vision
insurance benefits that they were receiving through Employer immediately prior
to Employee’s termination of employment.

 

9.                                      Termination
by Employee.

 

9.1   Termination
by Employee for Good Reason. 
Should Employee terminate the Term of Employment prior to the Expiration
Date for “Good Reason” (as defined below), Employer shall pay to Employee a
cash lump sum payment equal to:  (1) two
years’ Base Compensation at the rate in effect at termination and (2) two
years’ bonus.  (For these purposes, “bonus”
shall mean the highest annual bonus paid or payable to Employee for the three
calendar years immediately preceding the year of termination.)  In addition, for a period of two years from
Employee’s termination of employment, Employer shall continue to provide
Employee and his family with the same level of life, medical, dental and vision
insurance benefits that they were receiving through Employer immediately prior
to Employee’s termination of employment.

 

Definition of Good Reason. 
For the purposes of this Agreement, “Good Reason” shall mean (a) material
diminution in Employee Base Compensation; (b) material diminution in
authority, duties, responsibilities or reporting relationship; (c) material
diminution in the budget over which Employee has authority; (d) material
change in geographic work location; or (e) any other material breach of
this Agreement by Employer.

 

9.2   Other
Termination by Employee.  Should
Employee terminate the Term of Employment prior to the Expiration Date for any
reason other than set forth above, Employee will not be entitled to the
additional payments set forth above. 
However, if Employee indicates in terminating the Term of Employment
that he is retiring, Employer and Employee shall enter into the post-retirement
consulting agreement set forth in Paragraph 11.

 

10.                               Prorated
and Prior Year Bonus Payments.

 

10.1   If a termination under
Sections 7, 8 or 9, other than under Section 8.2 (Termination by Employer
For Cause) or under Section 9.2 (Other Termination by Employee) occurs in
a given year on a date on or after July 1 of such year, Employee shall be
entitled to receive a prorated bonus payment for such year .  The prorated bonus payment will be an amount
that is (1) equal to the highest annual bonus paid to Employee for the
three calendar years immediately preceding the year of termination and (2) prorated
from the beginning of the year of termination to the date of termination.

 

10.2   If a termination under
Sections 7, 8 or 9, other than under Section 8.2 (Termination by Employer
For Cause) or under Section 9.2 (Other Termination by Employee) occurs
after the end of a given year but before the annual bonus for such year has
been paid, Employee shall be entitled to receive such annual bonus.  In the event the amount of the annual bonus
has already been determined in good faith by the Compensation Committee prior
to Employee’s termination, then the annual bonus paid to Employee shall be
equal to the amount so determined.  If,
however, the annual bonus for 

 

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such year has not yet been so determined, then
the amount of annual bonus shall be equal to the highest annual bonus paid to
Employee for the three calendar years immediately preceding such given year.

 

10.3   It is agreed that the bonus
amounts referred to in Section 10.1 and 10.2 above shall be in addition to
the other bonus payments that may become payable pursuant to other sections of
this Agreement.

 

11.                               Post-Retirement
Consulting Agreement. 
Notwithstanding anything in this Agreement to the contrary, upon (a) the
retirement of Employee at any time prior to the Expiration Date or (b) upon
the expiration of the Term of Employment at the Expiration Date, Employee and
Employer shall enter into a consulting agreement substantially in the form
attached hereto effective as of the date of such retirement or the Expiration
Date, as applicable.

 

12.                               Change in Control.  In the event of a Change in Control (as
defined below) at any time during the Term of Employment, all stock option
rights, stock appreciation rights, restricted stock and any and all other
similar rights theretofore granted to Employee shall vest and, if applicable, become
exercisable in full.

 

For purposes of
this Agreement, a Change in Control shall mean either (i) a merger or
consolidation of Zenith with or into another company or corporation, other than
(a) a merger or consolidation which would result in the voting securities
of Zenith outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of Zenith or such surviving entity outstanding immediately after
such merger or consolidation or (b) a merger or consolidation effected to
implement a recapitalization of Zenith (or similar transaction) in which no “person”
(as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) acquires more than 50% of the combined voting
power of Zenith’s then outstanding securities; or (ii) an assignment of
this Agreement by Zenith under the provisions of Paragraph 19.2 hereof; or (iii) the
sale of all or substantially all of Zenith’s assets; or (iv) a change in
the identities of a majority of the members of the Board within a one-year
period or less; or (v) any other transaction which would require any party
or affiliated group of parties to obtain approval from, or require such
transactions to be presented for approval by, the California Insurance
Commissioner (assuming there is no preemption of California insurance laws by
Federal Law).

 

13.                               Excise Tax.  Notwithstanding anything to the contrary in
this Agreement, in the event that Employee becomes entitled to severance
payments, if any of the severance payments will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), Zenith shall pay to Employee an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Employee, after deduction of any
Excise Tax on the Total Payments (as hereinafter defined) and any federal,
state and local income and other tax and Excise Tax upon the payment provided
for herein, shall be equal to the Total Payments.  For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the 

 

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amount of such
Excise Tax, (i) any other payments or benefits received or to be received
by Employee in connection with a Change in Control or Employee’s termination of
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with Employer, any person whose actions result in a
Change in Control or any person affiliated with Employer or such person (which,
together with severance payments, shall constitute “Total Payments”)), shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2) of
the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by Zenith’s independent auditors and acceptable to Employee, such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)
of the Code in excess of the base amount, within the meaning of Section 280G(b)(3)
of the Code, or are otherwise not subject to the Excise Tax, (ii) the
amount of the Total Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total Payments
or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by Zenith’s independent
auditors in accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.  For purposes of determining
the amount of the Gross-Up Payment, Employee shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and locality
of Employee’s residence on the date of termination of employment, net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. 
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of
Employee’s employment, Employee shall repay to Zenith, at the time that the
amount of such reduction in Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by the Employee to the
extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.  In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the time of
the termination of Employee’s employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), Zenith shall make an additional Gross-Up Payment in respect
of such excess (plus any interest, penalties or additions payable by the
Employee with respect to such excess) at the time that the amount of such
excess is finally determined.

 

The
Gross-Up Payment shall be made not later than the fifth day following the date
of termination of employment, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, Zenith shall pay
to Employee on such day an estimate, as determined in good faith by Zenith, of
the minimum amount of such payments to which Employee is clearly entitled and
shall pay the remainder of such 

 

7

 

payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in no event later
than the thirtieth (30th) day after the date of termination of employment.  In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by Zenith to Employee, payable on the fifth
(5th) business day after demand by Zenith (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).  At the time that payments are made under this
Paragraph, Zenith shall provide Employee with a written statement setting forth
the manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other advice Zenith
has received from outside counsel, auditors or consultants (and any such
opinions or advice which are in writing shall be attached to the statement).

 

14.                               Acknowledgment
of Peculiar Value of Services.

 

14.1   Employee acknowledges that the
services which he has agreed to render during the Term of Employment under this
Agreement are special, unique, unusual, extraordinary and of an intellectual
character, and therefore are of peculiar value to Employer.

 

14.2   Employee further acknowledges
that because of the character of said services the remedy at law for any breach
by him of this Agreement may be enforced by an injunction in a suit in equity,
without the necessity of proving actual damage, and that a temporary injunction
may be granted immediately upon the commencement of any such suit.  Nothing herein contained shall be construed
as prohibiting Employer from pursuing any other remedies available to Employer
from such breach or threatened breach, including the recovery of damages from
Employee.

 

15.                               Disclosure
of Information.

 

15.1   Employee
acknowledges that the list of Employer’s customers, as they may exist from time
to time, and Employer’s trade secrets and other confidential information are
valuable, special and unique assets of Employer’s business.  Employee will not, during or after the Term
of Employment, disclose to any person, firm, corporation, association or any
other entity or use for his own benefit, any list of Employer’s customers, or
any part thereof, or any of Employer’s trade secrets or other confidential
information, for any reason or purpose whatsoever.

 

15.2   Employee agrees that upon
leaving the employ of Employer he will deliver to Employer and not keep or
deliver to anyone else, any and all memoranda, specifications, documents and in
general any and all material relating to Employer’s business that he may have
under his possession or control.

 

15.3   Employee recognizes that he
will possess confidential information about other employees of Employer
relating to their education, experience, skills, abilities, compensation and
benefits, and interpersonal relationships with customers of Employer.  The Employee recognizes that the information
he will possess about these 

 

8

 

other employees is not generally known, is of
substantial value to Employer in developing its products and in securing and
retaining customers, and will be acquired by him because of his business
position with Employer.  Employee agrees
that, during the period ending on the last day of the one-year period following
his termination of employment, he will not, directly or indirectly, solicit or
recruit any employee of Employer for the purpose of being employed by him, or
any business, individual, partner, firm, corporation or other entity that is
then in competition with Employer (“Competitor”) on whose behalf he is acting
as an agent, representative or employee. 
The Employee further agrees that he will not convey any such
confidential information or trade secrets about other employees of Employer to
anyone affiliated with him or to any Competitor.

 

15.4   Employee further acknowledges
that the remedy at law for any breach by him of the covenants contained in
Paragraphs 15.1, 15.2 and 15.3 will be inadequate and that in the event of a
breach, or threatened breach, by Employee of the covenants contained therein,
Employer shall be entitled to an injunction restraining Employee from using,
for his own benefit, and/or from disclosing, in whole or in part, the list of
Employer’s customers, and/or Employer’s trade secrets or other confidential
information, and/or from rendering any services to any person, firm,
corporation, association or other entity to whom such a list and/or such trade
secrets or other confidential information, in whole or in part, have been disclosed,
or are threatened to be disclosed and such other declaratory relief as is
proper to cause Employee to return to Employer any and all memoranda,
specifications, documents and all other material relating to Employer’s
business that he may have under his possession or control.  Nothing herein shall be construed as
prohibiting Employer from pursuing any other remedies available to Employer
from such breach or threatened breach, including the recovery of damages from
Employee.  The provisions of this Paragraph
15 shall survive the expiration or termination, for any reason, of this
Agreement and of Employee’s employment.

 

16.                               Attorney’s
Fees.  In the event that any
action at law or in equity, for injunctive or declaratory relief, is brought to
enforce or interpret the provisions of this Agreement, if Employee is the
prevailing party, he shall be entitled to reasonable attorney’s fees in
addition to any other relief to which he may be entitled.

 

17.                               Applicable
Law.  This Agreement and the
rights and obligations of the parties hereunder shall be construed, interpreted
and enforced in accordance with, and governed by, the laws of the State of
California applicable to agreements executed and to be fully performed
thereunder.

 

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18.                               Notices.  Any notice required to be given hereunder
shall be in writing sent by registered or certified mail, return receipt
requested, to either Zenith or employee at the addresses listed below, or at
such other addresses as either Zenith or Employee may hereafter designate in
writing to the other:

 

	
  To Zenith:

  	
   

  	
  Zenith National Insurance Corp.

  
	
   

  	
   

  	
  21255 Califa Street

  
	
   

  	
   

  	
  Woodland Hills, California 91367

  
	
   

  	
   

  	
  Attention: Corporate Secretary

  
	
   

  	
   

  	
   

  
	
  To Employee:

  	
   

  	
  813 North Bedford Drive

  
	
   

  	
   

  	
  Beverly Hills, California 90210

  

 

19.                               Assignment.

 

19.1   This Agreement and the rights,
interests and benefits hereunder are personal to Employee and shall not be
assigned, transferred, pledged or hypothecated in any way by Employee, and
shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge,
or hypothecation, or the levy of any execution, attachment or similar process
thereon, shall be null and void and without effect.

 

19.2   Zenith shall have the right to
assign this Agreement and to delegate all of its rights, duties and obligation
hereunder, whether in whole or in part, to any parent, affiliate, successor, or
subsidiary organization or company of Zenith or corporation with which Zenith
may merge or consolidate or which acquires by purchase or otherwise all or
substantially all of Zenith’s consolidated assets, but such assignment shall
not release Employer from its obligations under this Agreement.

 

20.                               Entire
Agreement.  This Agreement
constitutes the entire understanding of the parties hereto related to the
subject matter hereof and supersedes any and all prior agreements and
understanding, whether oral or written between the parties.  This Agreement may only be modified by an
agreement in writing executed by the Employee and one of Zenith’s duly
authorized officers (other than Employee), with the approval of the
Compensation Committee.

 

21.                               Waiver
of Breach.  The waiver by
Employee of a breach of any provision of this Agreement by Employee shall not
operate or be construed as a waiver of any subsequent breach by Employee.

 

22.                               Miscellaneous.

 

22.1   The titles of the paragraphs
of this Agreement are for convenience of reference only, and are not to be
considered in construing this Agreement.

 

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22.2   The unenforceability or
invalidity of any paragraph or subparagraph of this Agreement shall not affect
the enforceability and validity of the balance of this Agreement.

 

22.3   Each party hereto shall make,
execute and deliver such other instruments or documents as may be reasonably
required in order to effectuate the purpose of this Agreement.

 

22.4   Employer shall also pay any
additional amount necessary to reimburse Employee and/or his family for any
taxes imposed solely by reason of receipt of life, medical, dental or vision
insurance benefits following the Employee’s termination of employment or death,
as applicable.

 

Notwithstanding
the foregoing, Employer shall not provide any medical, dental or vision benefit
otherwise receivable by Employee and/or his family pursuant to Paragraphs 7,
8.1, 8.3 and 9 if an equivalent benefit is actually received by the Employee
and/or his family at any time during the period of coverage, and any such
benefit actually received shall be reported to Zenith by the Employee and/or
his family.

 

22.5   It is the understanding and
intent of the parties hereto, and Employer represents and warrants, that no
payment or distribution that could be made pursuant to the provisions of this
Agreement constitutes an item of deferred compensation under Section 409A
of the Code (“Deferred Compensation”). 
Nevertheless, the following provision is included in this Agreement for
technical compliance with 409A of the Code:

 

Notwithstanding any provision to the contrary in this
Agreement, no payment or distribution under this Agreement which constitutes “409A
Deferred Compensation” and becomes payable by reason of the Employee’s
termination of employment with the Employer will be made to the Employee unless
Employee’s termination of employment constitutes a “separation from service”
(as such term is defined in Treasury Regulations issued under Section 409A
of the Code).  In addition, no such
payment or distribution of 409A Deferred Compensation will be made to Employee prior to
the earlier of (i) the expiration of the six (6)-month period measured
from the date of Employee’s “separation from service” (as such term is defined
in Treasury Regulations issued under Section 409A of the Code) or (ii) the
date of Employee’s death, if Employee is deemed at the time of such separation
from service to be a “key employee” within the meaning of that term under Section 416(i) of
the Code and such delayed commencement is otherwise required in order to avoid
a prohibited distribution under Section 409A(a)(2) of the Code.  Upon the expiration of the applicable Code Section 409A(a)(2) deferral
period, all payments and benefits deferred pursuant to this Paragraph 22.5
(whether they would have otherwise been payable in a single sum or in
installments in the absence of such deferral) shall be paid or reimbursed to
Employee in a lump sum, and any remaining payments due under this 

 

11

 

Agreement will be paid in accordance with the normal
payment dates specified for them herein. 
It is intended that this Agreement shall comply with the provisions of Section 409A
of the Code and the Treasury Regulations relating thereto so as not to subject
Employee to the payment of additional taxes and interest under Section 409A
of the Code.  In furtherance of this
intent, this Agreement shall be interpreted, operated and administered in a
manner consistent with these intentions.

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement in Woodland Hills, California, on the date indicated below.

 

 

	
   

  	
  ZENITH NATIONAL INSURANCE CORP.

  
	
   

  	
  (“Zenith”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
          /s/ Robert J. Mller

  
	
   

  	
   

  	
   

  	
  Robert J. Miller

  
	
   

  	
   

  	
   

  	
  Chairman

  
	
   

  	
   

  	
   

  	
  Compensation Committee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  9-18-08

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  STANLEY R. ZAX (“Employee”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
         /s/ Stanley R. Zax

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  9/22/08

  

 

12

 

[FORM OF]
POST-RETIREMENT CONSULTING AGREEMENT

 

This POST-RETIREMENT CONSULTING AGREEMENT (the “Agreement”) is entered
into as of the date set forth below by and between Zenith National Insurance
Corp., a Delaware corporation (“Company”), and Stanley R. Zax (“Consultant”).

 

WHEREAS, Company acknowledges that Consultant has unique talents,
knowledge and information that will be valuable to the Company in connection
with the management of the Company following Consultant’s retirement and
believes that it would be in the best interests of the stockholders of the
Company following such retirement to continue to secure the services of
Consultant during the period of this Agreement; and

 

WHEREAS, Company and Consultant acknowledge and understand the terms
and conditions of the retention of Consultant as set forth herein, including
the condition that Consultant agree to adhere to each of the various covenants
and agreements contained herein and in consideration of the Company’s
establishing a consulting relationship with Consultant, providing Consultant
with continuing compensation for the purposes and in the manner set forth
herein, Consultant has decided to enter into, and agree to be bound by, this
Agreement.

 

NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:

 

1.                                       ENGAGEMENT AS
CONSULTANT.  The Company hereby
engages Consultant, and Consultant hereby agrees to serve the Company, as an
independent contractor, on the terms and conditions set forth herein.

 

2.                                       CONSULTING
PERIOD.  The term (the “Term”) of this
Agreement shall commence on the date Consultant retires from the employment of
the Company (the “Effective Date”) and shall expire at the close of business on
the fifth (5th) anniversary thereof (such expiration date being hereinafter
referred to as the “Termination Date”), unless earlier terminated in accordance
with Section 6 hereof; provided, that the provisions set forth in Sections
7 through 9 hereof shall remain in full force and effect for the Term.

 

3.                                       DUTIES.  During the Term, Consultant will make himself
available to the Company and shall provide such consulting services to the
Company as the Board of Directors of the Company or the Chief Executive Officer
of the Company

 

13

 

may from time to time request. 
Except as the parties may otherwise agree, for each twelve-month period
during the Term commencing on the Effective Date, Consultant shall not be
required to provide consulting services in excess of the following:

 

	
  Year 1 —

  	
   

  	
  100 hours per quarter

  	
   

  
	
  Year 2 —

  	
   

  	
  75 hours per quarter

  	
   

  
	
  Year 3 —

  	
   

  	
  50 hours per quarter

  	
   

  
	
  Year 4 —

  	
   

  	
  25 hours per quarter

  	
   

  
	
  Year 5 —

  	
   

  	
  10 hours per quarter

  	
   

  

 

4.                                       PLACE OF
PERFORMANCE.  Consultant may provide
his consulting services hereunder by telephone consultation, written communication
and/or fax as appropriate or at such locations as are acceptable to the
Company; provided, however, Consultant shall not, without his prior consent, be
required to render such services at any location more distant than thirty (30)
miles from his residence or his principal place of business.

 

5.                                       COMPENSATION
AND RELATED MATTERS.  As compensation
for the services to be rendered by the Consultant hereunder, the Company shall
make the following payments and provide the following benefits to the Consultant:

 

(a)                                  Consulting
Fee.  As compensation for the
services to be rendered by Consultant herein, the Company shall pay Consultant
an annual fee in the following amounts, which amount shall be paid in
accordance with the Company’s normal payroll policy (the “Consulting Fee”):

 

	
  Year 1 —

  	
   

  	
  $750,000

  	
   

  
	
  Year 2 —

  	
   

  	
  $600,000

  	
   

  
	
  Year 3 —

  	
   

  	
  $500,000

  	
   

  
	
  Year 4 —

  	
   

  	
  $400,000

  	
   

  
	
  Year 5 —

  	
   

  	
  $300,000

  	
   

  

 

(b)                                 Reimbursement
Of Expenses.  During the Term, the
Company shall provide Consultant with (i) an office located in Los Angeles
and commensurate in size and stature with the office provided to him pursuant
to his employment with the Company as the Chairman of the Board, President and
Chief Executive Officer, which office shall be subject to the approval of
Consultant, (ii) a secretary, (iii) a car allowance in accordance
with the Company’s policy with respect to senior executive officers of the
Company, and (iv) continued coverage under the Company’s health insurance
in accordance with the Company’s policy with respect to senior executive
officers of the Company.  The Company
shall reimburse Consultant for reasonable and necessary business expenses of
Consultant incurred in connection with the performance of  Consultant’s duties, and which are consistent
with such guidelines as the Company may from time to time establish with
respect to senior executive officers of the Company.  All payments for reimbursement of such
expenses shall be made to 

 

14

 

Consultant upon the
presentation to the Company of appropriate receipts or other documentation in
accordance with the Company’s normal reimbursement procedures.

 

6.                                       TERMINATION.  Upon termination of Consultant’s engagement
on the Termination Date (unless earlier terminated pursuant to this Section 6),
this Agreement shall terminate, and the Company shall have no further
obligation to Consultant except as set forth herein.

 

(a)                                  Termination
By the Company Other than for Cause, Death or Disability.  The Company shall not be entitled to terminate
this Agreement or terminate the services of Consultant at any time other than
for Cause (defined below) or due to Consultant’s death or Disability (as
defined below).  In the event the Company
terminates this Agreement for any reason other than for Cause or due to
Consultant’s death or Disability, the Company shall continue to provide
Consultant with all the benefits set forth in the Agreement through the Term of
the Agreement.

 

(b)                                 Termination
for Cause, Death, Disability, or by Consultant for any Reason.  The Company shall be entitled to terminate
this Agreement at any time for Cause or due to Consultant’s death or
Disability.  The Consultant may terminate
this Agreement only upon 90 days notice. 
In the event of termination of this Agreement by the Company for Cause
or due to Consultant’s death or by Consultant, Consultant (or his estate) shall
be entitled to payment of any earned but unpaid Consulting Fee accrued through
such termination; provided, however, in the event that Consultant fails or
refuses to perform services under this Agreement (or, in the event of a
Consultant’s breach of any or all of the covenants and agreements contained
herein), the Company’s obligations pursuant to this Agreement shall
terminate.  Following any such
termination, Consultant shall not be entitled to receive any Consulting Fee or
other payment provided for hereunder other than earned but unpaid Consulting
Fees through the date of such termination. 
Notwithstanding anything herein to the contrary, in the event of
termination of this Agreement by the Company due to Consultant’s death or
Disability, the Company shall continue to provide Consultant or his
family/estate (as applicable) with all the benefits set forth in the Agreement
through the Term of the Agreement.

 

(c)                                  Definitions.

 

(1)                                  “Cause”
shall mean Consultant’s breach of any of his material obligations under this
Agreement.

 

(2)                                  “Disability”
shall mean Consultant is determined by the Board of Directors to be physically
or mentally incapacitated such that he is unable to perform the services
required to be performed under this Agreement.

 

7.                                       SEVERABILITY.  If any provision of this Agreement is
determined to be invalid or unenforceable, such provision shall be construed to
be enforceable to the full extent permitted by law.  In any event, the validity and enforceability
of the other provisions of this Agreement shall not be affected.

 

15

 

8.                                       NOTICES.  All notices and other communications under
this Agreement shall be in writing and shall be given by fax or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of a fax to the respective persons
named below:

 

	
  If to Company:

  	
   

  	
  Zenith National Insurance Corp.

  
	
   

  	
   

  	
  21255 Califa Street

  
	
   

  	
   

  	
  Woodland Hills, California 91367

  
	
   

  	
   

  	
  Attention: Corporate Secretary

  
	
   

  	
   

  	
   

  
	
  If to Consultant:

  	
   

  	
  813 North Bedford Drive

  
	
   

  	
   

  	
  Beverly Hills, California 90210

  

 

Either party may change such party’s address for notices by notice duly
given pursuant hereto.

 

9.                                       ATTORNEY’S
FEES.  In the event that any action
at law or in equity, for injunctive or declaratory relief, is brought to
enforce or interpret the provisions of this Agreement, if Consultant is the
prevailing party, he shall be entitled to reasonable attorney’s fees in
addition to any other relief to which he may be entitled.

 

10.                                 GOVERNING LAW.  This Agreement and the rights and obligations
of the parties hereunder shall be construed, interpreted and enforced in
accordance with, and governed by, the laws of the state of California
applicable to agreements executed and fully to be performed thereunder.

 

11.                                 ENTIRE AGREEMENT;
MODIFICATION; WAIVER.  This Agreement
(along with the employment agreement of which it is a part) constitutes the
entire understanding between the parties hereto regarding the subject matter
hereof, and may not be modified without the express written consent of the
parties.  This Agreement supersedes all prior
written and/or oral and all contemporaneous oral agreements, understandings and
negotiations regarding the subject matter hereof.  This Agreement and Consultant’s rights and
obligations hereunder may not be modified, released, terminated or waived, in
whole or in part, except by an instrument in writing signed by an executive
officer of the Company.  The Company’s
failure to assert, delay in asserting, or waiver of any right or remedy under
this Agreement shall not impair, waive, or otherwise affect such right or
remedy, or any other right or remedy.

 

12.                                 ASSIGNMENT.  This Agreement shall be binding upon each
party and its heirs, executors, personal representatives, and successors and
assigns.  Consultant’s duties and
obligations under this Agreement shall not be assigned without the Company’s
prior written approval of such assignment. 
The Company shall have the right freely to assign this Agreement in its
sole discretion and without Consultant’s prior approval of such assignment.

 

16

 

13.                                 VOLUNTARY AGREEMENT.  Consultant acknowledges and agrees that,
prior to signing this Agreement, Consultant (i) received a copy of this
Agreement, read such Agreement, and understood each of the terms and conditions
of such Agreement; and (ii) had sufficient opportunity to consult with
legal counsel of Consultant’s choice prior to signing this Agreement.  Consultant represents and warrants that
Consultant does not rely and have not relied on any fact, representation, statement
or assumption other than as specifically set forth in this Agreement, and
Consultant enters into this Agreement freely, voluntarily, and without
coercion.

 

14.                                 INDEPENDENT
CONTRACTOR.  During the Consulting
Period, Consultant shall be an independent contractor and not an employee of
the Company and except as set forth herein, is not entitled to the benefits
provided by the Company or its affiliates to its employees as an employee,
including but not limited to coverage under any tax-qualified retirement plan.
Accordingly, Consultant shall be responsible for payment of all taxes,
including Federal and State income tax, Social Security tax, Unemployment
Insurance tax and any other taxes or business license fees as required by
virtue of Consultant’s activities hereunder.

 

15.                                 COUNTERPARTS.  This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement in Woodland Hills, California, on the date indicated below.

 

 

	
   

  	
  ZENITH NATIONAL INSURANCE CORP.

  
	
   

  	
  (“Company”)

  
	
   

  	
   

  
	
   

  	
   

  	
  FORM ONLY

  
	
   

  	
  By:

  	
   

  
	
   

  	
  As agent for and on behalf of the Company

  
	
   

  	
  and each and all of its Subsidiaries

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  FORM ONLY

  
	
   

  	
  By:

  	
   

  
	
   

  	
  STANLEY R. ZAX (“Consultant”)

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  

 

17Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

 

AMONG

 

LEHMAN BROTHERS HOLDINGS INC.

 

LEHMAN BROTHERS INC.

 

LB 745 LLC

 

AND

 

BARCLAYS CAPITAL INC.

 

 

Dated as of September 16, 2008

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Article I

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Certain Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.2

  	
  Other Definitional and
  Interpretive Matters

  	
  10

  
	
   

  	
   

  	
   

  
	
  Article II

  	
  PURCHASE AND SALE OF
  ASSETS; ASSUMPTION OF LIABILITIES

  	
  11

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Purchase and Sale of
  Assets

  	
  11

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Excluded Assets

  	
  11

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Assumption of
  Liabilities

  	
  11

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Excluded Liabilities

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Cure Amounts

  	
  13

  
	
   

  	
   

  	
   

  
	
  2.6

  	
  Further Conveyances and
  Assumptions

  	
  13

  
	
   

  	
   

  	
   

  
	
  2.7

  	
  Bulk Sales Laws

  	
  14

  
	
   

  	
   

  	
   

  
	
  Article III

  	
  CONSIDERATION

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Consideration

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Payment of Cash Amount

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Adjustment to Cash
  Amount

  	
  14

  
	
   

  	
   

  	
   

  
	
  Article IV

  	
  CLOSING AND TERMINATION

  	
  15

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Closing Date

  	
  15

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Deliveries by Seller

  	
  15

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Deliveries by Purchaser

  	
  16

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Termination of
  Agreement

  	
  16

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  Procedure Upon
  Termination

  	
  16

  
	
   

  	
   

  	
   

  
	
  4.6

  	
  Effect of Termination

  	
  16

  
	
   

  	
   

  	
   

  
	
  Article V

  	
  REPRESENTATIONS AND
  WARRANTIES OF SELLER

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Organization and Good
  Standing

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Authorization of
  Agreement

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Conflicts; Consents of
  Third Parties

  	
  18

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  Title to Purchased
  Assets

  	
  19

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Compliance with Laws;
  Permits

  	
  19

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  No Other
  Representations or Warranties; Schedules

  	
  20

  

 

i

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Article VI

  	
  REPRESENTATIONS AND
  WARRANTIES OF PURCHASER

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Organization and Good
  Standing

  	
  20

  
	
   

  	
   

  	
   

  
	
  6.2

  	
  Authorization of
  Agreement

  	
  21

  
	
   

  	
   

  	
   

  
	
  6.3

  	
  Conflicts; Consents of
  Third Parties

  	
  21

  
	
   

  	
   

  	
   

  
	
  6.4

  	
  Financial Capability

  	
  21

  
	
   

  	
   

  	
   

  
	
  6.5

  	
  Condition of the
  Business

  	
  22

  
	
   

  	
   

  	
   

  
	
  Article VII

  	
  BANKRUPTCY COURT
  MATTERS

  	
  22

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  [Reserved]

  	
  22

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  Bankruptcy Court
  Filings

  	
  22

  
	
   

  	
   

  	
   

  
	
  Article VIII

  	
  COVENANTS

  	
  23

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Access to Information

  	
  23

  
	
   

  	
   

  	
   

  
	
  8.2

  	
  Conduct of the Business
  Pending the Closing

  	
  23

  
	
   

  	
   

  	
   

  
	
  8.3

  	
  Consents

  	
  26

  
	
   

  	
   

  	
   

  
	
  8.4

  	
  Regulatory Approvals

  	
  26

  
	
   

  	
   

  	
   

  
	
  8.5

  	
  Further Assurances

  	
  27

  
	
   

  	
   

  	
   

  
	
  8.6

  	
  Confidentiality

  	
  28

  
	
   

  	
   

  	
   

  
	
  8.7

  	
  Preservation of Records

  	
  28

  
	
   

  	
   

  	
   

  
	
  8.8

  	
  Publicity

  	
  29

  
	
   

  	
   

  	
   

  
	
  8.9

  	
  Trademark License

  	
  29

  
	
   

  	
   

  	
   

  
	
  8.10

  	
  Use of Purchased
  Intellectual Property

  	
  30

  
	
   

  	
   

  	
   

  
	
  8.11

  	
  Deferred Transfers

  	
  31

  
	
   

  	
   

  	
   

  
	
  8.12

  	
  Release of Guarantees

  	
  32

  
	
   

  	
   

  	
   

  
	
  8.13

  	
  Transition Services

  	
  33

  
	
   

  	
   

  	
   

  
	
  8.14

  	
  Subleases

  	
  33

  
	
   

  	
   

  	
   

  
	
  8.15

  	
  Landlord Notice

  	
  33

  
	
   

  	
   

  	
   

  
	
  8.16

  	
  Artwork

  	
  33

  
	
   

  	
   

  	
   

  
	
  Article IX

  	
  EMPLOYEES AND EMPLOYEE
  BENEFITS

  	
  34

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Employee Benefits

  	
  34

  
	
   

  	
   

  	
   

  
	
  Article X

  	
  CONDITIONS TO CLOSING

  	
  35

  

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Conditions Precedent to
  Obligations of Purchaser

  	
  35

  
	
   

  	
   

  	
   

  
	
  10.2

  	
  Conditions Precedent to
  Obligations of Seller

  	
  36

  
	
   

  	
   

  	
   

  
	
  10.3

  	
  Conditions Precedent to
  Obligations of Purchaser and Seller

  	
  37

  
	
   

  	
   

  	
   

  
	
  10.4

  	
  Frustration of Closing
  Conditions

  	
  37

  
	
   

  	
   

  	
   

  
	
  Article XI

  	
  [RESERVED]

  	
  37

  
	
   

  	
   

  	
   

  
	
  Article XII

  	
  TAXES

  	
  37

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  Transfer Taxes

  	
  37

  
	
   

  	
   

  	
   

  
	
  12.2

  	
  Prorations

  	
  38

  
	
   

  	
   

  	
   

  
	
  12.3

  	
  Purchase Price
  Allocation

  	
  38

  
	
   

  	
   

  	
   

  
	
  12.4

  	
  Adjustment to Purchase
  Price

  	
  38

  
	
   

  	
   

  	
   

  
	
  Article XIII

  	
  MISCELLANEOUS

  	
  38

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Expenses

  	
  38

  
	
   

  	
   

  	
   

  
	
  13.2

  	
  Injunctive Relief

  	
  38

  
	
   

  	
   

  	
   

  
	
  13.3

  	
  Submission to
  Jurisdiction; Consent to Service of Process

  	
  39

  
	
   

  	
   

  	
   

  
	
  13.4

  	
  Waiver of Right to
  Trial by Jury

  	
  39

  
	
   

  	
   

  	
   

  
	
  13.5

  	
  Entire Agreement;
  Amendments and Waivers

  	
  39

  
	
   

  	
   

  	
   

  
	
  13.6

  	
  Governing Law

  	
  40

  
	
   

  	
   

  	
   

  
	
  13.7

  	
  Notices

  	
  40

  
	
   

  	
   

  	
   

  
	
  13.8

  	
  Severability

  	
  42

  
	
   

  	
   

  	
   

  
	
  13.9

  	
  Binding Effect;
  Assignment

  	
  42

  
	
   

  	
   

  	
   

  
	
  13.10

  	
  Non-Recourse

  	
  42

  
	
   

  	
   

  	
   

  
	
  13.11

  	
  Counterparts

  	
  42

  
	
   

  	
   

  	
   

  
	
  13.12

  	
  Scope of Purchased
  Assets

  	
  42

  

 

iii

 

ASSET PURCHASE
AGREEMENT

 

ASSET
PURCHASE AGREEMENT, dated as of September 16, 2008 (this “Agreement”),
among LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation (“LBHI”), LEHMAN
BROTHERS INC., a Delaware corporation (“LBI” and, together
with LBHI, the “Seller”), LB 745 LLC,
a Delaware limited liability company (“745”), and BARCLAYS CAPITAL INC., a Connecticut corporation (“Purchaser”).

 

W I T N E S S E T H:

 

WHEREAS,
LBHI is a debtor-in-possession under title 11 of the United States Code, 11
U.S.C. § 101 et seq. (the “Bankruptcy Code”), and filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code on September 15,
2008 in the United States Bankruptcy Court for the Southern District of New
York (Manhattan) (the “Bankruptcy Court”) (Case No. [08-13555])
(the “Bankruptcy Case”);

 

WHEREAS,
the Seller and its Subsidiaries presently conduct the Business;

 

WHEREAS,
Seller and 745 desire to sell, transfer and assign to Purchaser, and Purchaser
desires to purchase, acquire and assume from Seller and 745, pursuant to
Sections 363 and 365 of the Bankruptcy Code, all of the Purchased Assets
and Assumed Liabilities, all as more specifically provided herein; and

 

WHEREAS,
an Affiliate of Purchaser has agreed to provide to LBHI a debtor-in-possession
facility (the “DIP Facility”) and has agreed to provide to LBI certain
other financing;

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as follows:

 

ARTICLE
I

 

DEFINITIONS

 

1.1                                 Certain
Definitions.

 

For
purposes of this Agreement, the following terms shall have the meanings
specified in this Section 1.1:

 

“Affiliate”
means, with respect to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person, and the term “control” (including
the terms

 

1

 

“controlled
by” and “under common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through ownership of voting securities, by
contract or otherwise.

 

“Breakup
Fee and Competing Bid Order” means an order of the Bankruptcy Court in the
form attached as Exhibit A hereto.

 

“Business”
means the U.S. and Canadian investment banking and capital markets businesses
of Seller including the fixed income and equities cash trading, brokerage,
dealing, trading and advisory businesses, investment banking operations and LBI’s
business as a futures commission merchant.

 

“Business
Day” means any day of the year on which national banking institutions in
New York are open to the public for conducting business and are not required or
authorized to close.

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Contract”
means any contract, indenture, note, bond, lease or other agreement.

 

“Documents”
means all files, documents, instruments, papers, books, reports, records,
tapes, microfilms, photographs, letters, budgets, forecasts, ledgers, journals,
title policies, customer lists, regulatory filings, operating data and plans,
technical documentation (design specifications, functional requirements,
operating instructions, logic manuals, flow charts, etc.), user documentation
(installation guides, user manuals, training materials, release notes, working
papers, etc.), marketing documentation (sales brochures, flyers, pamphlets, web
pages, etc.), and other similar materials related to or necessary for the
conduct of the Business and the Purchased Assets in each case whether or not in
electronic form.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

“Excluded
Assets” shall mean the following assets, properties, interests and rights
of Seller and its Subsidiaries:

 

(a)                                  the
shares of capital stock, limited liability company membership, general and
limited partnership, and other equity interests, of Seller and its Subsidiaries
(other than (i) the capital stock of Townsend Analytics and (ii) the
capital stock or other equity interests of any other Subsidiary that Seller and
Purchaser may agree prior to the entry of the Sale Order shall be a Purchased
Asset);

 

(b)                                 all
cash, cash equivalents, bank deposits or similar cash items of LBI and its
Subsidiaries (the “Retained Cash”) other than $1.3 billion in cash, cash
equivalents, bank deposits or similar cash items;

 

2

 

(c)                                  all
intercompany receivables;

 

(d)                                 the
Excluded Contracts, including any accounts receivable to the extent arising out
of any Excluded Contract;

 

(e)                                  any
Intellectual Property Rights that do not constitute Purchased Intellectual
Property;

 

(f)                                    any
(i) confidential personnel and medical records pertaining to any Excluded
Employee; (ii) other books and records that LBI is required by Law to
retain, including, but not limited to, books and records required to be
retained by Rules 17a-3 and 17a-4 of the Exchange Act with respect to the
Purchased Assets or that LBHI reasonably determines are necessary to retain
including, without limitation, Tax Returns, financial statements, and corporate
or other entity filings; provided, however, that Purchaser shall
have the right to make copies of any portions of such retained books and
records that relate to the Business or any of the Purchased Assets; and (iv) minute
books, stock ledgers and stock certificates of Subsidiaries..

 

 

(g)                                 any
claim, right or interest of LBHI or any of its Subsidiaries in or to any
refund, rebate, abatement or other recovery for Taxes, together with any
interest due thereon or penalty rebate arising therefrom, for any Tax period
(or portion thereof) ending on or before the Closing Date;

 

(h)                                 all
insurance policies or rights to proceeds thereof relating to the assets,
properties, business or operations of Seller or any of its Subsidiaries other
than customer account insurance supplemental to SIPC coverage included in the
Business;

 

(i)                                     any
rights, claims or causes of action of Seller or any of its Subsidiaries against
third parties relating to assets, properties, business or operations of Seller
or any of its Subsidiaries (other than those primarily related to Purchased
Assets) arising out of events occurring on or prior to the Closing Date;

 

(j)                                     commercial
real estate investments (including commercial loans, equity investments in such
commercial real estate and other commercial real estate assets and all
Archstone debt and equity positions), private equity investments and hedge fund
investments;

 

(k)                                  50%
of each position in residential real estate mortgage securities;

 

(l)                                     assets
related to the soliciting, placing, clearing and executing of buy and sell
orders for derivatives contracts by Lehman Brothers Derivative Products Inc.
and all activities related or ancillary thereto;

 

(m)                               all
artwork owned by Seller and its Subsidiaries;

 

3

 

(n)                                 all
assets primarily related to the IMD Business and derivatives contracts;

 

(o)                                 any
assets set aside, segregated, or otherwise specifically identified as being
held for the purpose of satisfying Excluded Liabilities referred to in Section 2.4(e);

 

(p)                                 all
real property leases of Seller and its Subsidiaries, and all rights and
obligations appurtenant thereto, as set forth on Schedule 1.1(a), other than
the Transferred Real Property Leases; and

 

(q)                                 Lehman
Commercial Paper, Inc. and any assets thereof.

 

“Excluded
Contracts” means all of the Contracts of Seller and its Subsidiaries, other
than the Purchased Contracts.

 

“Furniture
and Equipment” means all furniture, fixtures, furnishings, equipment,
vehicles, leasehold improvements, and other tangible personal property owned or
used by Seller and its Subsidiaries in the conduct of the Business, including
all desks, chairs, tables, Hardware, copiers, telephone lines and numbers,
telecopy machines and other telecommunication equipment, cubicles and miscellaneous
office furnishings and supplies.

 

“GAAP”
means generally accepted accounting principles in the United States as of the
date hereof.

 

“Governmental
Body” means any government or governmental or regulatory, judicial or
administrative, body thereof, or political subdivision thereof, whether
foreign, federal, state, national, supranational or local, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private) or any self-regulatory organization, including, but not limited to,
the Financial Industry Regulatory Authority.

 

“Hardware”
means any and all computer and computer-related hardware, networks and
peripherals, including, but not limited to, information and communication
systems, computers, file servers, facsimile servers, scanners, color printers,
laser printers and networks.

 

“HSR
Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

 

“IMD
Business” means the investment management business of Seller and its
Subsidiaries.

 

“Intellectual
Property Rights”  means,
collectively, all intellectual property and other similar proprietary rights in
any jurisdiction, whether owned or held for use 

 

4

 

under
license, whether registered or unregistered, including without limitation such
rights in and to:  (i) patents and
applications therefor, including continuations, divisionals,
continuations-in-part, reissues, continuing patent applications,
reexaminations, and extensions thereof, any counterparts claiming priority
therefrom and patents issuing thereon (collectively, “Patents”) and
inventions, invention disclosures, discoveries and improvements, whether or not
patentable, (ii) all trademarks, service marks, trade names, service
names, brand names, all trade dress rights, logos, slogans, Internet domain
names and corporate names and general intangibles of a like nature, together
with the goodwill associated with any of the foregoing, and all applications,
registrations and renewals thereof and all common law rights thereto
(collectively, “Marks”), (iii) copyrights and registrations and
applications therefor and renewals and extensions thereof, and works of
authorship, databases and mask work rights, and all moral rights (collectively,
“Copyrights”), (iv) all Software, Technology, trade secrets and
market and other data, and rights to limit the use or disclosure of any of the
foregoing by any Person, and (v) all claims, causes of action and defenses
relating to the enforcement of any of the foregoing.

 

“Intellectual
Property Licenses” means (i) any grant to a third Person of any
license, immunity, a covenant not to sue or otherwise any right to use or
exploit, any of the Purchased Intellectual Property owned by Seller or any of
its Subsidiaries, and (ii) any grant to Seller or its Subsidiaries of a
license, immunity, a covenant not to sue or otherwise any right to use or
exploit any Purchased Intellectual Property which is not owned by Seller or any
of the Subsidiaries.

 

“Knowledge
of Seller” means the knowledge after due inquiry, as of the date of this
Agreement, of the senior officers and directors of Seller and its Subsidiaries.

 

“Law”
means any federal, state, local or foreign law, statute, code, ordinance, rule or
regulation (including rules of any self-regulatory organization).

 

“Legal
Proceeding” means any judicial, administrative or arbitral actions, suits,
proceedings (public or private) or claims or any proceedings or investigations
by or before a Governmental Body.

 

“Liability”
means any debt, liability or obligation (whether direct or indirect, known or
unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due), and including all costs and expenses
relating thereto.

 

“Lien”
means any lien, encumbrance, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under any
shareholder or similar agreement or encumbrance.

 

 “Order” means any order, injunction,
judgment, decree, ruling, writ, assessment or arbitration award of a
Governmental Body.

 

5

 

“Ordinary
Course of Business” means the ordinary and usual course of normal day-to-day
operations of the Business through September 14, 2008 consistent with past
practice.

 

“Permits”
means any approvals, authorizations, consents, licenses, permits, registrations
or certificates of a Governmental Body.

 

“Permitted
Exceptions” means all (i) defects, exceptions, restrictions,
easements, rights of way and encumbrances of record, (ii) statutory liens
for current Taxes, assessments or other governmental charges not yet delinquent
or the amount or validity of which is being contested in good faith by
appropriate proceedings provided an appropriate reserve is established
therefor; (iii) mechanics’, carriers’, workers’, repairers’ and similar
Liens arising or incurred in the Ordinary Course of Business; (iv) zoning,
entitlement and other land use and environmental regulations by any
Governmental Body provided that such regulations have not been violated; (v) title
of a lessor under a capital or operating lease; (vi) Liens arising under
the DIP Facility; and (vii) the terms and provisions of the ground lease
and related documents affecting the property located at 745 Seventh Avenue, New
York, NY (the “745 Seventh Ground Lease”).

 

“Person”
means any individual, corporation, limited liability company, partnership,
firm, joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.

 

“Purchased
Assets” means all of the assets of Seller and its Subsidiaries used in
connection with the Business (excluding the Excluded Assets), including;

 

(a)                                  the
Retained Cash;

 

(b)                                 all
deposits (including customer deposits, security deposits for rent, electricity,
telephone or otherwise and required capital deposits) and prepaid charges and
expenses of Seller and its Subsidiaries associated with the Business, other
than any deposits or prepaid charges and expenses paid in connection with or
relating to any Excluded Assets;

 

(c)                                  the
Transferred Real Property Leases, together with all improvements, fixtures and
other appurtenances thereto and rights in respect thereof;

 

(d)                                 government
securities, commercial paper, corporate debt, corporate equity, exchange traded
derivatives and collateralized short-term agreements with a book value as of
the date hereof of approximately $70 billion (collectively, “Long Positions”);

 

(e)                                  50%
of each position in the residential real estate mortgage securities;

 

(f)                                    the
Furniture and Equipment;

 

6

 

 

(g)                                 the Purchased Intellectual Property and all
income, royalties, damages and payments due or payable at the Closing or
thereafter relating to the Purchased Intellectual Property (including damages
and payments for past or future infringements or misappropriations thereof),
the right to sue and recover damages for past or future infringements or
misappropriations thereof and the right to fully and entirely stand in the
place of Seller in all matters related thereto;

 

(h)                                 the Purchased Contracts;

 

(i)                                     all Documents that are used in, held for use
in or intended to be used in, or that arise in connection with, or are
necessary to carry on or are related to the operation of the Business,
including Documents relating to products, services, marketing, advertising,
promotional materials, Purchased Intellectual Property, personnel files for
Transferred Employees and all files, customer files and documents (including
credit information), account agreements, books and records required to be
maintained in connection with the Business under applicable Law, compliance
manuals, supervisory policies and procedures, customer lists, supplier lists,
records, literature and correspondence, whether or not physically located on
any of the premises referred to in clause (d) above, but excluding
(i) personnel files for Excluded Employees of Seller or its Subsidiaries
who are not Transferred Employees, (ii) such files as may be required
under applicable Law regarding privacy, (iii) Documents which Seller is
not permitted to transfer pursuant to any contractual confidentiality
obligation owed to any third party, and (iv) any Documents primarily
related toany Excluded Assets;

 

(j)                                     all Permits used by Seller in the Business to
the extent assignable under applicable Law;

 

(k)                                  all supplies owned by Seller and used in
connection with the Business;

 

(l)                                     all rights of Seller under non-disclosure or
confidentiality, non-compete, or non-solicitation agreements with employees,
contractors and agents of Seller or its Subsidiaries or with third parties to
the extent relating to the Business or the Purchased Assets (or any portion
thereof);

 

(m)                               rights to “Lehman” indices and analytics that
support the indices and all other indices and analytics used in the Business;

 

(n)                                 general trading tools supporting the
Business;

 

(o)                                 the stock of 
Townsend Analytics and the stock, equity interests or assets of any
other Subsidiary of LBI that the Seller and Purchaser may mutually agree on
prior of the entry of the Sale Order and of which a notice has been provided to
any statutory committee;

 

7

 

(p)                                 the equity interests or assets (at the
election of Purchaser in its sole discretion prior to the entry of the Sale
Order) of Eagle Energy Management LLC;

 

(q)                                 all past and present goodwill and other
intangible assets associated with or symbolized by the Business, including
customer and supplier lists and the goodwill associated with the Purchased
Intellectual Property;

 

(r)                                    Mercantile Exchange license agreements with respect
to 335 South LaSalle Street, Chicago, IL and 400 South LaSalle Street, Chicago,
IL; and

 

(s)                                  any insurance proceeds from the occurrence
after the date hereof and prior to Closing, of any casualty or event loss with
respect to any Transferred Real Property Leases or any properties subject
thereto.

 

“Purchased Contracts”
means all Contracts designated as Purchased Contracts pursuant to Section 2.5.

 

“Purchased Intellectual
Property” means the Purchased Marks and all other Intellectual Property
Rights, Software and Technology throughout the world that are used in, related
to, or otherwise necessary for the Business, including all Intellectual
Property Rights embodied in or arising from the Purchased Assets.

 

“Purchased Marks”
means the Mark “LEHMAN” and “LEHMAN BROTHERS” throughout the world, all other
Marks throughout the world containing or incorporating the name “LEHMAN,” the
Internet domain name www.lehman.com, all other Internet domain names containing
or incorporating any Purchased Marks, and any other Mark throughout the world
that is used in, related to, or otherwise necessary for the Business; in each
case, together with all of the goodwill associated therewith and all
registrations and applications for the foregoing and all common law rights thereto.

 

“Sale Motion” means
the motion or motions of Seller, in form and substance reasonably acceptable to
Purchaser and Seller, seeking approval and entry of the Breakup Fee and
Competing Bid Order and Sale Order.

 

“Sale Order” shall be
an order or orders of the Bankruptcy Court in form and substance reasonably
acceptable to Purchaser and Seller approving this Agreement and all of the
terms and conditions hereof, and approving and authorizing Seller to consummate
the transactions contemplated hereby. 
Without limiting the generality of the foregoing, such order shall find
and provide, among other things, that (i) the Purchased Assets sold to
Purchaser pursuant to this Agreement shall be transferred to Purchaser free and
clear of all Liens (other than Liens created by Purchaser and Permitted
Exceptions) and claims, such Liens and claims to attach to the Purchase Price;
(ii) Purchaser has acted in “good faith” within the meaning of
Section 363(m) of the Bankruptcy Code; (iii) this Agreement was
negotiated, proposed and entered into by the parties without collusion, in good
faith and from arm’s length bargaining positions; (iv) the Bankruptcy
Court shall 

 

8

 

retain jurisdiction to
resolve any controversy or claim arising out of or relating to this Agreement,
or the breach hereof as provided in Section 13.3 hereof; and
(v) this Agreement and the transactions contemplated hereby may be
specifically enforced against and binding upon, and not subject to rejection or
avoidance by, Seller or any chapter 7 or chapter 11 trustee of Seller.

 

“Software” means any
and all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies and application
programming interfaces, whether in source code or object code,
(ii) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise,
(iii) descriptions, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing, screens, user interfaces,
report formats, firmware, development tools, templates, menus, buttons and
icons, and (iv) all software-related specifications documentation
including user manuals and other training documentation related to any of the
foregoing.

 

“Subsidiary” means
any Person of which a majority of the outstanding voting securities or other
voting equity interests are owned, directly or indirectly, by Seller.

 

“Tax Authority” means
any state or local government, or agency, instrumentality or employee thereof,
charged with the administration of any law or regulation relating to Taxes.

 

“Taxes” means
(i) all federal, state, local or foreign taxes, charges or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, and (ii) all interest, penalties, fines, additions to tax
or additional amounts imposed by any taxing authority in connection with any
item described in clause (i).

 

“Tax Return” means
all returns, declarations, reports, estimates, information returns and statements
required to be filed in respect of any Taxes.

 

“Technology” means,
collectively, all designs, formulae, algorithms, procedures, methods,
techniques, ideas, know-how, business and marketing information, research and
development, technical data, programs, subroutines, tools, materials,
specifications, processes, inventions (whether patentable or unpatentable and
whether or not reduced to practice), apparatus, creations, improvements, works
of authorship and other similar materials, non-public or confidential
information, and all recordings, graphs, drawings, reports, analyses, and other
writings, and other tangible embodiments of the foregoing, in any form whether
or not specifically listed herein, and all related technology.

 

9

 

“Transferred Real
Property Leases” means the leases listed on Schedule 1.1(b)  attached
hereto and any rights and obligations appurtenant thereto.

 

1.2                                 Other Definitional and Interpretive Matters

 

(a)                                  Unless otherwise expressly provided, for
purposes of this Agreement, the following rules of interpretation shall
apply:

 

Calculation of Time Period.  When
calculating the period of time before which, within which or following which
any act is to be done or step taken pursuant to this Agreement, the date that
is the reference date in calculating such period shall be excluded.  If the last day of such period is a
non-Business Day, the period in question shall end on the next succeeding
Business Day.

 

Dollars.  Any
reference in this Agreement to $ shall mean U.S. dollars.

 

Exhibits/Schedules.  All
Exhibits and Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein.  Any matter or item disclosed on
one schedule shall be deemed to have been disclosed on each other
schedule.  Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein shall be defined
as set forth in this Agreement.

 

Gender and Number.  Any
reference in this Agreement to gender shall include all genders, and words
imparting the singular number only shall include the plural and vice versa.

 

Headings.  The
provision of a Table of Contents, the division of this Agreement into Articles,
Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement.  All
references in this Agreement to any “Section” are to the corresponding
Section of this Agreement unless otherwise specified.

 

Herein.  The
words such as “herein,” “hereinafter,” “hereof,” and “hereunder”
refer to this Agreement as a whole and not merely to a subdivision in which
such words appear unless the context otherwise requires.

 

Including.  The
word “including” or any variation thereof means “including, without
limitation” and shall not be construed to limit any general statement that
it follows to the specific or similar items or matters immediately following
it.

 

(b)                                 The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as jointly drafted by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.

 

10

 

ARTICLE
II

PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES

 

2.1                                 Purchase and Sale of Assets.  On
the terms and subject to the conditions set forth in this Agreement, at the
Closing (as defined below), Purchaser shall purchase, acquire and accept from
the Seller and 745, and Seller and 745 shall sell, transfer, assign, convey and
deliver (or cause to be sold, transferred, assigned, conveyed and delivered) to
Purchaser, all of Seller’s and its applicable Subsidiaries’ right, title and
interest in, to and under the Purchased Assets free and clear of all Liens
pursuant to Section 363(f) of the Bankruptcy Code.

 

2.2                                 Excluded Assets. 
Nothing herein contained shall be deemed to sell, transfer, assign or
convey the Excluded Assets to Purchaser, and Seller (directly and indirectly)
shall retain all right, title and interest to, in and under the Excluded
Assets.

 

2.3                                 Assumption of Liabilities.  On
the terms and subject to the conditions set forth in this Agreement, at the
Closing, Purchaser shall assume, effective as of the Closing, and shall timely
perform and discharge in accordance with their respective terms, the
following  Liabilities of Seller and its
Subsidiaries (collectively, the “Assumed Liabilities”):

 

(a)                                  all Liabilities of Seller incurred, after the
Closing, in connection with the Business;

 

(b)                                 all Liabilities of Seller under the Purchased
Contracts arising after, with respect to each entity comprising Seller, the
date on which such entity commenced a voluntary case or cases under Chapter 11
or Chapter 7, as the case may be, of the Bankruptcy Code;

 

(c)                                  all Liabilities assumed under Article IX;

 

(d)                                 accounts payable incurred in the Ordinary
Course of Business of Seller after, with respect to each entity comprising
Seller, the date on which such entity commenced a voluntary case or cases under
Chapter 11 or Chapter 7, as the case may be, of the Bankruptcy Code, associated
with the Business other than any accounts payable arising out of one in
connection with any Excluded Contract (including, for the avoidance of doubt,
(i) invoiced accounts payable and (ii) accrued but uninvoiced accounts
payable);

 

(e)                                  all Transfer Taxes applicable to the transfer
of the Purchased Assets pursuant to this Agreement;

 

(f)                                    all other Liabilities to the extent related
to the Business, the Purchased Assets or the Transferred Employees arising
after the Closing;

 

11

 

(g)                                 all Liabilities under Transferred Real
Property Leases from the date of Closing forward;

 

(h)                                 all Liabilities relating to amounts required
to be paid by Purchaser hereunder; and

 

(i)                                     all short positions and “repos” relating to
any securities or interests of the types included in the definition of “Long
Positions” with a book value as of the date hereof of approximately $69 billion
(collectively, “Short Positions” and, together with the Long Positions,
“Positions”).

 

2.4                                 Excluded Liabilities. 
Notwithstanding anything herein to the contrary, Purchaser will not
assume or be liable for any Excluded Liabilities.  “Excluded Liabilities” shall mean all
Liabilities of Seller and its Subsidiaries to the extent they do not arise out
of the Business and the following Liabilities:

 

(a)                                  all Liabilities arising out of Excluded
Assets, including Contracts that are not Purchased Contracts;

 

(b)                                 except as otherwise provided in Article XII,
all Liabilities for Taxes of Seller for any Tax periods (or portions thereof)
ending on or before the Closing Date;

 

(c)                                  except as otherwise provided in this
Agreement and other than any cure amounts that Purchaser is required to pay
pursuant to Section 2.5, Liabilities incurred in the Ordinary
Course of Business existing prior to the filing of the Bankruptcy Case that are
subject to compromise under the Bankruptcy Case (the “Compromised
Liabilities”);

 

(d)                                 except as expressly assumed pursuant to Article IX
hereof, any Liabilities relating to the employment, potential employment or
termination of employment of any Person relating to or arising out of any
period prior to the Closing, including without limitation any Liability under
or relating to any employee benefit plan, program, agreement or arrangement,
including in respect of equity compensation plans and tax-qualified or not
tax-qualified pension or saving plans as to which the parties agree there shall
be no transfer to or assumption of Liabilities by the Purchaser;

 

(e)                                  all Liabilities relating to amounts required
to be paid by Seller, hereunder, including upon any breach;

 

(f)                                    all Liabilities under Excluded Real Property
Leases and Transferred Real Property Leases other than Liabilities under
Transferred Real Property Leases from the date of Closing forward; and

 

(g)                                 all intercompany payables.

 

12

 

2.5                                 Cure Amounts. For a period of 60 days after the Closing,
the Purchaser shall have the right upon notice to Seller to designate any
contract related to the assets purchased from the Seller by Purchaser or its
Affiliates (the “Related Contracts”) as either (1) a Purchased
Contract or (2) a Contract not designated as a Purchase Contract (a “Rejected
Contract”).  Until a Related Contract
is so designated, Buyer shall be obligated to pay or cause to be paid ordinary
course amounts due under such contracts in accordance with the terms
thereof.  If a Related Contract is
designated as a Purchased Contract, such Purchased Contract shall be assigned
to the Purchaser and upon such assignment Purchaser shall be obligated to pay
or cause to be paid the cure amount in respect of such Purchased Contract.  If a Related Contract is designated as a
Rejected Contract, Purchaser shall have no further obligations in respect
thereof.  In the event of any dispute
relating to such cure amount, Purchaser shall escrow such funds in a manner
satisfactory to the court. This Section will not apply to real property
leases.

 

2.6                                 Further Conveyances and Assumptions.

 

(a)                                  From time to time following the Closing,
Seller shall, or shall cause its Affiliates to, make available to Purchaser
such data in personnel records of Transferred Employees as is reasonably
necessary for Purchaser to transition such employees into Purchaser’s records.

 

(b)                                 From time to time following the Closing,
without further consideration, Seller and Purchaser shall, and shall cause
their respective Affiliates to, do, execute, acknowledge and deliver, or cause
to be done, executed, acknowledged or delivered, all such further conveyances,
deeds, assignments, notices, assumptions, releases, acquaintances, powers of
attorney and assurances (including any notarization, authentication,
legalization and consularization of the signatures of Seller’s and its Subsidiaries’
representatives), and such other instruments, and shall take such further
actions, as may be reasonably necessary or appropriate to assure fully to
Purchaser and its respective successors or assigns, all of the properties,
rights, titles, interests, estates, remedies, powers and privileges intended to
be conveyed to Purchaser under this Agreement and the Seller Documents, and to
assure fully to Seller and its Affiliates and their successors and assigns, the
assumption of the liabilities and obligations intended to be assumed by
Purchaser under this Agreement and the Seller Documents, and to otherwise make
effective the transactions contemplated hereby and thereby.

 

(c)                                  If any third-party consent is required for
the assignment of any Intellectual Property Licenses to Purchaser and such
consent cannot be obtained, then, to the extent permitted by Applicable Law,
Seller shall sublicense whatever rights they are permitted to sublicense under
the respective Intellectual Property Licenses, provided such sublicense is at
no cost to Seller.  If, however, Seller
is permitted to sublicense only at a one time, fixed payment or an ongoing fee,
Seller shall notify Purchaser thereof and, only if Purchaser agreed in writing
to be responsible to such payment or fee, as applicable, Seller shall
sublicense whatever rights it is permitted to sublicense under the respective
Intellectual Property Licenses, subject to the payment or fee being paid by
Purchaser.

 

13

 

2.7                                 Bulk Sales Laws. 
Purchaser hereby waives compliance by Seller and its Subsidiaries with
the requirements and provisions of any “bulk-transfer” Laws of any jurisdiction
that may otherwise be applicable with respect to the sale and transfer of any
or all of the Purchased Assets to Purchaser.

 

ARTICLE
III

CONSIDERATION

 

3.1                                 Consideration.  The
aggregate consideration for the Purchased Assets shall be (a) the Cash
Amount and (b) the assumption of the Assumed Liabilities by
Purchaser.  The “Cash Amount”
shall equal an amount in cash equal to the sum of (i) $250 million,
(ii) the appraised value (as reasonably determined by an independent,
recognized appraiser) of the Lehman headquarters at 745 Seventh Avenue in New
York City less a reasonable market commission that would be paid assuming a
sale of such property as of the Closing, (iii) the appraised value (as
reasonably determined by an independent, recognized appraiser) of the Cranford
New Jersey Data Center less a reasonable market commission that would be paid assuming
a sale of such property as of the Closing, and (iv) the appraised value
(as reasonably determined by an independent, recognized appraiser) of the
Piscataway New Jersey Data Center less a reasonable market commission that
would be paid assuming a sale of such property as of the Closing.  For illustrative purposes only, the parties
note that as of the date hereof they expect that the Cash Amount will be
approximately $1.7 billion (less the aforementioned assumed commissions).

 

3.2                                 Payment of 
Cash Amount.  On the Closing Date, Purchaser shall pay the
Cash Amount to Seller, which shall be paid by wire transfer of immediately
available funds into an account designated by Seller.

 

3.3                                 Adjustment to Cash Amount. 
Promptly following the first anniversary of the Closing Date, Purchaser
shall determine with respect to each Position (long or short, including repos),
that was part of the Purchased Assets and was sold on or prior to such first
anniversary, the profit or loss realized from such sale (such profit or loss
determined by reference to LBI’s mark (book value) for such Position as of the
date hereof).  Purchaser shall provide
reasonable supporting information to Seller with respect to such calculation of
profit or loss.  If the aggregate amount
of all such profits exceeds the aggregate amount of all such losses (a) by
up to $500 million, Purchaser shall promptly pay Seller such net amount, or
(b) by more than $500 million, Purchaser shall promptly pay Seller the sum
of $500 million plus one-half of the excess of such net amount over $500
million (but in no event shall Purchaser pay Seller more than $750 million
pursuant to this Section 3.3). 
For purposes of this Section 3.3, the time value of money
shall be disregarded and no interest shall be deemed earned.

 

14

 

ARTICLE
IV

 

CLOSING
AND TERMINATION

 

4.1                                 Closing Date. 
Subject to the satisfaction of the conditions set forth in Sections
10.1, 10.2 and 10.3 hereof (or the waiver thereof by the
party entitled to waive that condition), the closing of the purchase and sale
of the Purchased Assets and the assumption of the Assumed Liabilities provided
for in Article II hereof (the “Closing”) shall take place at
the offices of Weil, Gotshal & Manges LLP located at 767 Fifth Avenue,
New York, New York 10153 (or at such other place as the parties may designate
in writing) at 10 a.m (New York time) on the day of, or at Purchaser’s election
the Business Day following, the satisfaction or waiver of the conditions set
forth in Article X (other than conditions that by their nature are
to be satisfied at the Closing, but subject to the satisfaction or waiver of
such conditions), unless another time or date, or both, are agreed to in
writing by the parties hereto.  The date
on which the Closing shall be held is referred to in this Agreement as the “Closing
Date.”  Unless otherwise agreed by
the parties in writing, the Closing shall be deemed effective and all right,
title and interest of Seller to be acquired by Purchaser hereunder shall be
considered to have passed to Purchaser as of 12:01 a.m. (New York time) on
the Closing Date.

 

4.2                                 Deliveries by Seller.  At
the Closing, Seller shall deliver to Purchaser:

 

(a)                                  a duly executed, reasonably customary bill of
sale in the form of Exhibit A hereto;

 

(b)                                 duly executed, reasonably customary
assignment and assumption agreements (including, with respect to the 745
Seventh ground lease, all assignments that were entered into in connection with
Seller’s acquisition of such lease) and duly executed assignments of the U.S.
and Canadian trademark registrations and applications included in the Purchased
Intellectual Property, in a form suitable for recording in the U.S. and
Canadian trademark office, and general assignments of all other Purchased Intellectual
Property;

 

(c)                                  a certificate, duly executed by Seller, that
Seller is not a “foreign person” within the meaning of Section 1445 of the
Code;

 

(d)                                 duly executed Seller Sublease and Purchaser
Subleases; and

 

(e)                                  all other instruments of conveyance and
transfer, in form and substance reasonably acceptable to Purchaser, as may be
necessary to convey the Purchased Assets to Purchaser or as Purchaser may
reasonably request, including such instruments of conveyance and transfer in
form and substance comparable to the instruments of conveyance and transfer
exchanged in connection with Seller’s acquisition of the 745 Seventh Ground
Lease.

 

15

 

4.3                                 Deliveries by Purchaser.  At
the Closing, Purchaser shall deliver to Seller:

 

(a)                                  the Purchase Price, in immediately available
funds, as set forth in Section 3.2 hereof;

 

(b)                                 a duly executed, reasonably customary
assignment and assumption agreement; and

 

(c)                                  duly executed Purchaser Subleases and Seller
Sublease.

 

4.4                                 Termination of Agreement.  This
Agreement may be terminated prior to the Closing as follows:

 

(a)                                  by Purchaser or Seller, if the Closing shall
not have occurred by the close of business on September 24, 2008 (the “Termination
Date”);

 

(b)                                 by mutual written consent of Seller and
Purchaser;

 

(c)                                  by Seller or Purchaser if there shall be in
effect a final nonappealable Order of a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated hereby; it being agreed that the parties
hereto shall promptly appeal any adverse determination which is not
nonappealable (and pursue such appeal with reasonable diligence);

 

(d)                                 by Purchaser upon the entry of an order by
the Bankruptcy Court authorizing a Competing Transaction; or

 

(e)                                  by Purchaser if the Breakup Fee and Competing
Bid Order is not approved by the Bankruptcy Court in the form attached hereto
as Exhibit A.

 

4.5                                 Procedure Upon Termination.  In
the event of termination and abandonment by Purchaser or Seller, or both,
pursuant to Section 4.4 hereof, written notice thereof shall
forthwith be given to the other party or parties, and this Agreement shall
terminate, and the purchase of the Purchased Assets hereunder shall be
abandoned, without further action by Purchaser or Seller.  If this Agreement is terminated as provided
herein each party shall redeliver all documents, work papers and other material
of any other party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the
same.

 

4.6                                 Effect of Termination.

 

(a)                                  In the event that this Agreement is validly
terminated as provided herein, then each of the parties shall be relieved of
its duties and obligations arising under this Agreement after the date of such
termination and such termination shall be without liability to Purchaser or
Seller; provided, however, that the obligations of the parties
set 

 

16

 

forth in Sections 4.6 and
8.6 and Article XIII hereof shall survive any such termination
and shall be enforceable hereunder.

 

(b)                                 Nothing in this Section 4.6 shall
relieve Purchaser or Seller of any liability for a material breach of this
Agreement prior to the date of termination, The damages recoverable by the
non-breaching party shall include all attorneys’ fees reasonably incurred by
such party in connection with the transactions contemplated hereby.

 

(c)                                  The Confidentiality Agreement shall survive
any termination of this Agreement and nothing in this Section 4.6
shall relieve Purchaser or Seller of their obligations under the
Confidentiality Agreement; provided, that upon the termination of this
Agreement, the non-solicitation obligations of Purchaser and its Affiliates
under the Confidentiality Agreement shall be of no further force and effect; provided
further that upon the Closing, the non-solicitation obligation of Purchaser and
its Affiliates under the Confidentiality Agreement with respect to non-U.S.
employees of the broker-dealer and investment banking business shall be of no
further force and effect.

 

(d)                                 In the event that Purchaser terminates this
Agreement pursuant to Section 4.4(d), Sellers shall pay to
Purchaser (i) the Break-Up Fee promptly upon such termination and
(ii) the Expense Reimbursement as provided in the Breakup Fee and
Competing Bid Order.

 

(e)                                  In the event that Purchaser or Seller
terminates this Agreement pursuant to Section 4.4(a) and at
any time after the date of this Agreement and prior to such termination a bona
fide proposal for a Competing Transaction shall have been publicly disclosed or
otherwise communicated to the Sellers and shall not have been irrevocably
withdrawn, then if a Qualified Bid shall be consummated within twelve months
after such termination Sellers shall pay to Purchaser (i) the Break-Up Fee
and (ii) the Expense Reimbursement as provided in the Breakup Fee and
Competing Bid Order on the date of such consummation.

 

(f)                                    The parties hereto acknowledge that the
agreements contained in this Section 4.6 are an integral part of
the transactions contemplated by this Agreement. The Sellers shall be jointly
and severally liable for any amount due to Purchaser pursuant to this Section 4.6.  In the event that the Sellers shall fail to
pay any amounts due pursuant to this Section 4.6, the Sellers shall
reimburse Purchaser for all reasonable costs and expenses actually incurred or
accrued by Purchaser (including reasonable fees and expenses of counsel) in
connection with the collection under and enforcement of this Section 4.6.

 

17

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to
Purchaser that:

 

5.1                                 Organization
and Good Standing.  Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now conducted.  Seller is duly
qualified or authorized to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which it owns or leases real
property and each other jurisdiction in which the conduct of its business or
the ownership of its properties requires such qualification or authorization,
except where the failure to be so qualified, authorized or in good standing
would not have a material adverse effect.

 

5.2                                 Authorization
of Agreement.  Except for such authorization as is required
by the Bankruptcy Court (as hereinafter provided for), Seller has all
requisite power, authority and legal capacity to execute and deliver this
Agreement and Seller has all requisite power, authority and legal capacity to
execute and deliver each other agreement, document, or instrument or
certificate contemplated by this Agreement or to be executed by Seller in
connection with the consummation of the transactions contemplated by this
Agreement (the “Seller Documents”), to perform their respective
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.  The
execution and delivery of this Agreement and the Seller Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action on the part of Seller.  This Agreement has been, and each of the
Seller Documents will be at or prior to the Closing, duly and validly executed
and delivered by Seller which is a party thereto and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
the entry of the Sale Order, and, with respect to Seller’s obligations under Section 4.4,
the entry of the Breakup Fee and Competing Bid Order) this Agreement
constitutes, and each of the Seller Documents when so executed and delivered
will constitute, legal, valid and binding obligations of Seller enforceable
against Seller or, as the case may be, its Subsidiary in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in equity).

 

5.3                                 Conflicts;
Consents of Third Parties.

 

(a)                                  None
of the execution and delivery by Seller of this Agreement or by Seller and its
Subsidiaries of the Seller Documents, the consummation of the transactions
contemplated hereby or thereby, or compliance by Seller and its Subsidiaries
with any of the provisions hereof or thereof will conflict with, or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination or cancellation under any
provision of (i) the certificate of incorporation and by-laws or
comparable organizational documents of Seller or any Subsidiary; (ii) subject

 

18

 

to entry of the Sale Order, any
Order of any Governmental Body applicable to Seller or any of the properties or
assets of Seller as of the date hereof; other than, in the case of clause (ii),
such conflicts, violations, defaults, terminations or cancellations that would
not have a material adverse effect.

 

(b)                                 No consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of
Seller or any Subsidiary in connection with the execution and delivery of this
Agreement or the Seller Documents, the compliance by Seller or any Subsidiary
with any of the provisions hereof or thereof, the consummation of the
transactions contemplated hereby or thereby or the taking by Seller or any
Subsidiary of any other action contemplated hereby or thereby, except for (i) compliance
with the applicable requirements of the HSR Act, (ii) the entry of the
Sale Order, (iii) the entry of the Breakup Fee and Competing Bid Order
with respect to Seller’s obligations under Section 4.6, (iv) filings
of applications and notices with, and receipt of consents, authorizations,
approvals, exemptions or non-objections from, the Securities and Exchange
Commission (the “SEC”), foreign and state securities authorities, the
Financial Industry Regulatory Authority (“FINRA”), the Commodity Futures
Trading Commission (“CFTC”), National Futures Association (“NFA”)
applicable securities, commodities and futures exchanges, the Financial
Services Authority (“FSA”) and other industry self-regulatory organizations
(“SRO”), (v) the filing of any other required applications, filings
or notices with the Board of Governors of the Federal Reserve System (the “Federal
Reserve”), any foreign, federal or state banking, other regulatory,
self-regulatory or enforcement authorities or any courts, administrative
agencies or commissions or other governmental authorities or instrumentalities,
and (vi) such other consents, waivers, approvals, Orders, Permits,
authorizations, declarations, filings and notifications, the failure of which
to obtain or make would not have a material adverse effect.

 

5.4                                 Title
to Purchased Assets.  Other than the
real property subject to the Transferred Real Property Leases, intellectual
property licensed to Seller and the personal property subject to personal
property leases, Seller owns (directly or indirectly) each of the Purchased
Assets, and Purchaser will be vested with good and exclusive title to such
Purchased Assets, free and clear of all Liens, other than Permitted Exceptions,
to the fullest extent permissible under Section 363(f) of the
Bankruptcy Code.  The Purchased Assets,
together with all of Seller’s agreements hereunder and under the Seller
Documents, constitute all of the necessary assets and services used by Seller
and its Affiliates to operate the Business as it is currently operated.

 

5.5                                 Compliance
with Laws; Permits.

 

(a)                                  Seller and its
Subsidiaries, and their respective personnel, are in compliance with all Laws
applicable to their respective operations or assets or the Business, except
where the failure to be in compliance would not have a material adverse
effect.  Neither Seller nor any of its
Subsidiaries has received any written notice of or been charged with the
violation of any Laws applicable to their respective operations or 

 

19

 

assets or the Business, except
where such violation would not  have a material adverse effect.

 

(b)                                 Seller and its
Subsidiaries currently have all Permits which are required for the operation of
the Business as presently conducted, except where the absence of which would
not have a material adverse effect. 
Neither Seller nor any of its Subsidiaries is in default or violation
(and no event has occurred which, with notice or the lapse of time or both,
would constitute a default or violation) of any term, condition or provision of
any Permit to which it is a party required for the operation of the Business as
presently conducted, except where such default or violation would not be
material.

 

5.6                                 No
Other Representations or Warranties; Schedules.  Except for the representations and warranties
contained in this Article V (as modified by the Schedules hereto),
neither Seller nor any other Person makes any other express or implied
representation or warranty with respect to Seller, its Subsidiaries, the
Business, the Purchased Assets, the Assumed Liabilities or the transactions
contemplated by this Agreement, and Seller disclaims any other representations
or warranties, whether made by Seller, any Affiliate of Seller or any of their
respective officers, directors, employees, agents or representatives.  Except
for the representations and warranties contained in Article V
hereof (as modified by the Schedules hereto), Seller (i) expressly disclaims and negates any representation or
warranty, expressed or implied, at common law, by statute, or otherwise,
relating to the condition of the Purchased Assets (including any implied or
expressed warranty of merchantability or fitness for a particular purpose, or
of conformity to models or samples of materials) and (ii) disclaims all
liability and responsibility for any representation, warranty, projection,
forecast, statement, or information made, communicated, or furnished (orally or
in writing) to Purchaser or its Affiliates or representatives (including any
opinion, information, projection, or advice that may have been or may be
provided to Purchaser by any director, officer, employee, agent, consultant, or
representative of Seller or any of its Affiliates).  Seller makes no representations or warranties
to Purchaser regarding the probable success or profitability of the
Business.  The disclosure of any
matter or item in any schedule hereto shall not be deemed to constitute an
acknowledgment that any such matter is required to be disclosed or is material
or that such matter would result in a material adverse effect.

 

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to
Seller that:

 

6.1                                 Organization
and Good Standing.  Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Connecticut and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now conducted.

 

20

 

6.2                                 Authorization
of Agreement.  Purchaser has full
corporate power and authority to execute and deliver this Agreement and each
other agreement, document, instrument or certificate contemplated by this
Agreement or to be executed by Purchaser in connection with the consummation of
the transactions contemplated hereby and thereby (the “Purchaser Documents”),
and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance by
Purchaser of this Agreement and each Purchaser Document have been duly
authorized by all necessary corporate action on behalf of Purchaser.  This Agreement has been, and each Purchaser
Document will be at or prior to the Closing, duly executed and delivered
by Purchaser and (assuming the due authorization, execution and delivery by the
other parties hereto and thereto) this Agreement constitutes, and each
Purchaser Document when so executed and delivered will constitute, the legal,
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).

 

6.3                                 Conflicts;
Consents of Third Parties.

 

(a)                                  None of the execution
and delivery by Purchaser of this Agreement or the Purchaser Documents, the
consummation of the transactions contemplated hereby or thereby, or the
compliance by Purchaser with any of the provisions hereof or thereof will
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination or
cancellation under any provision of (i) the certificate of incorporation
and by-laws of Purchaser, (ii)  any Contract or Permit to which Purchaser
is a party or by which Purchaser or its properties or assets are bound,  (iii) any Order of any Governmental Body
applicable to Purchaser or by which any of the properties or assets of
Purchaser are bound or (iv) any applicable Law.

 

(b)                                 No consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of
Purchaser in connection with the execution and delivery of this Agreement or
the Purchaser Documents, the compliance by Purchaser with any of the provisions
hereof or thereof, the consummation of the transactions contemplated hereby or
thereby or the taking by Purchaser of any other action contemplated hereby or
thereby, or for Purchaser to conduct the Business, except for compliance with
the regulatory regimes referred to in Section 5.3(b) or as
would not have a material adverse effect.

 

6.4                                 Financial
Capability.  Purchaser (i) has,
and at the Closing will have, sufficient internal funds) available to pay the
Cash Amount and any expenses incurred by Purchaser in connection with the
transactions contemplated by this Agreement, (ii) has, and at the Closing
will have, the resources and capabilities (financial or otherwise) to 

 

21

 

perform its obligations
hereunder, and (iii) has not incurred any obligation, commitment,
restriction or Liability of any kind, which would impair or adversely affect
such resources and capabilities.

 

6.5                                 Condition
of the Business.  Notwithstanding anything contained in this
Agreement to the contrary, Purchaser acknowledges and agrees that Seller is not
making any representations or warranties whatsoever, express or implied, beyond
those expressly given by Seller in Article V hereof (as
modified by the Schedules hereto as supplemented or amended), and Purchaser acknowledges and agrees that,
except for the representations and warranties contained therein, the
Purchased Assets and the Business are being transferred on a “where is” and, as
to condition, “as is” basis.  Any claims Purchaser may have for
breach of representation or warranty shall be based solely on the
representations and warranties of Seller set forth in Article V
hereof (as modified by the Schedules hereto as supplemented or amended).  Purchaser further represents that neither
Seller nor any of its Affiliates nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding Seller or any of its Subsidiaries,
the Business or the transactions contemplated by this Agreement not expressly
set forth in this Agreement, and none of Seller, any of its Affiliates or any
other Person will have or be subject to any liability to Purchaser or any other
Person resulting from the distribution to Purchaser or its representatives or
Purchaser’s use of, any such information, including any confidential memoranda
distributed on behalf of Seller relating to the Business or other publications
or data room information provided to Purchaser or its representatives, or any
other document or information in any form provided to Purchaser or its
representatives in connection with the sale of the Business and the
transactions contemplated hereby. 
Purchaser acknowledges that it has conducted to its satisfaction, its
own independent investigation of the Business and, in making the determination
to proceed with the transactions contemplated by this Agreement, Purchaser has
relied on the results of its own independent investigation.

 

ARTICLE VII

BANKRUPTCY COURT MATTERS

 

7.1                                 [Reserved]

 

7.2                                 Bankruptcy
Court Filings.  As promptly as
practicable following the execution of this Agreement, Seller shall file with
the Bankruptcy Court the Sale Motion seeking entry of the Sale Order and the
Breakup Fee and Competing Bid Order. 
Purchaser agrees that it will promptly take such actions as are
reasonably requested by Seller to assist in obtaining entry of the Sale Order
and the Breakup Fee and Competing Bid Order and a finding of adequate assurance
of future performance by Purchaser, including furnishing affidavits or other
documents or information for filing with the Bankruptcy Court for the purposes,
among others, of providing necessary assurances of performance by Purchaser
under this Agreement and demonstrating that Purchaser is a “good faith”
purchaser under Section 363(m) of the Bankruptcy Code.  Purchaser shall

 

22

 

 not, without the prior written consent of
Seller, file, join in, or otherwise support in any manner whatsoever any motion
or other pleading relating to the sale of the Purchased Assets hereunder.  In the event the entry of the Sale Order or
the Breakup Fee and Competing Bid Order shall be appealed, Seller and Purchaser
shall use their respective reasonable efforts to defend such appeal.

 

ARTICLE VIII

 

COVENANTS

 

8.1                                 Access
to Information.  Seller agrees that,
until the earlier of the Closing and termination of this Agreement, Purchaser
shall be entitled, through its officers, employees and representatives
(including, without limitation, its legal advisors and accountants), to make
such investigation of the properties, businesses and operations of the Business
and such examination of the books and records of the Business, the Purchased
Assets and the Assumed Liabilities as it reasonably requests and to make
extracts and copies of such books and records. 
Any such investigation and examination shall be conducted during regular
business hours upon reasonable advance notice and under reasonable
circumstances and shall be subject to restrictions under applicable Law.  Seller shall cause the officers, employees,
consultants, agents, accountants, attorneys and other representatives of Seller
and its Subsidiaries to cooperate with Purchaser and Purchaser’s
representatives in connection with such investigation and examination, and
Purchaser and its representatives shall cooperate with Seller and its
representatives and shall use their reasonable efforts to minimize any
disruption to the Business. 
Notwithstanding anything herein to the contrary, no such investigation
or examination shall be permitted to the extent that it would require Seller or
any of its Subsidiaries to disclose information subject to attorney-client
privilege or conflict with any confidentiality obligations to which Seller or
any of its Subsidiaries is bound.

 

8.2                                 Conduct
of the Business Pending the Closing. 
In order to attempt to preserve the going concern value of the Business,
Purchaser shall have the right to be on-site and shall coordinate and consult
with representatives of Seller regarding the business, operations and
management of the Business   In addition,
until the earlier of the Closing and termination of this Agreement, except (1) as
required by applicable Law, (2) as otherwise expressly contemplated by
this Agreement, or (3) with the prior written consent of Purchaser:

 

(a)                                  Seller shall, and
shall use its best efforts to cause its Subsidiaries whose equity or assets
constitute Purchased Assets to:

 

(i)                                     conduct
the Business only in the Ordinary Course of Business (recognizing its current
distressed state); and

 

(ii)                                  use
its commercially reasonable efforts to (A) preserve the present business
operations, organization and goodwill of the Business, and (B) 

 

23

 

preserve the
present relationships with customers and suppliers of the Business and Seller’s
Subsidiaries (recognizing that Seller reserves the right to cause any of its
Subsidiaries, other than a Subsidiary the equity or assets of which constitutes
a Purchased Asset, to commence a proceeding under the Bankruptcy Code or other
applicable state or foreign law); and

 

(b)                                 Seller shall not, and
shall not permit its Subsidiaries whose equity or assets constitute Purchased
Assets to, solely as it relates to the Business:

 

(i)                                     other
than in the Ordinary Course of Business, (A) materially increase the
annual level of compensation of any director or executive officer of Seller, (B) increase
the annual level of compensation payable or to become payable by Seller or any
of its Subsidiaries to any such director or executive officer, (C) grant
any unusual or extraordinary bonus, benefit or other direct or indirect
compensation to any such director or executive officer, or (D) enter into
any employment, deferred compensation, severance, consulting, non-competition
or similar agreement (or amend any such agreement) to which Seller or any of
its Subsidiaries is a party or involving any such director or executive
officer, except, in each case, as required by applicable Law from time to time
in effect or by any existing employee benefit plans;

 

(ii)                                  make
or rescind any material election relating to Taxes, settle or compromise any
claim, action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to Taxes, or except as may be required by applicable
Law or GAAP, make any material change to any of its methods of accounting or
methods of reporting income or deductions for Tax or accounting practice or
policy from those employed in the preparation of its most recent tax returns;

 

(iii)                               subject
any of the Purchased Assets to any Lien, except for Permitted Exceptions;

 

(iv)                              cancel
or compromise any material debt or claim or waive or release any material right
of Seller or any of its Subsidiaries that constitutes a Purchased Asset except
in the Ordinary Course of Business;

 

(v)                                 [Reserved];

 

(vi)                              enter
into, modify or terminate any labor or collective bargaining agreement or,
through negotiation or otherwise, make any commitment or incur any liability to
any labor organization;

 

(vii)                           other
than (A) in the Ordinary Course of Business or (B) secured borrowings
from the Federal Reserve Bank under the Primary Dealer Facility, incur any
indebtedness for borrowed money, issue any debt securities, 

 

24

 

assume,
guarantee, endorse or otherwise become responsible for the obligations of any
other individual, corporation or other entity, or make any loan or advance or
capital contribution to, or investment in, any person, in any case that would
be related to the Business or constitute an Assumed Liability;

 

(viii)                        set any
record date or payment date for the payment of any dividends on its capital
stock or make, declare or pay any dividend, or make any other distribution on,
or directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible (whether currently
convertible or convertible only after the passage of time or the occurrence of
certain events) into or exchangeable for any shares of its capital stock;

 

(ix)                                sell,
transfer, pledge, lease, license, mortgage, encumber or otherwise dispose of
any of Purchased Assets (including pursuant to securitizations) to any
individual, corporation or other entity or cancel, release or assign any
material amount of indebtedness related to the Business to any such person or
any claims held by any such person, other than any such transactions as are in
the Ordinary Course of Business;

 

(x)                                   transfer
ownership, or grant any license or other rights, to any person or entity of or
in respect of any Purchased Intellectual Property, other than grants of
non-exclusive licenses pursuant to license agreements entered into in the
Ordinary Course of Business;

 

(xi)                                in
connection with the Business, make any investment in, or any acquisition of,
any business entity or division, by merger, consolidation, asset purchase or
other business combination, or by contributions to capital; or make any
property transfers or purchases of any property or assets, in or from any other
individual, corporation, joint venture or other entity;

 

(xii)                             in
connection with the Business, conduct its operations or take actions related to
trading or credit extension in any manner other than in the Ordinary Course of
Business;

 

(xiii)                          change
in any material respect the policies, practices and procedures governing
operations of the Business;

 

(xiv)                         amend or
otherwise modify, except in the Ordinary Course of Business, or knowingly
violate in any material respect the terms of, any Purchased Contract, or (ii) except
as may be required by applicable Law, create or renew any agreement or contract
or other binding obligation related to the Business containing (A) any
material restriction on the ability of Purchaser to conduct the Business as it
is presently being conducted or (B) any material

 

25

 

restriction on the ability of Purchaser to
engage in any type of activity or business after the Closing;

 

(xv)                            abandon,
cancel, let lapse, fail to renew, fail to continue to prosecute, protect, or
defend, or dispose of, any Purchased Intellectual Property;

 

(xvi)                         commence
or settle any claim, action or proceeding related to the Business, other than
settlements resulting solely in the payment of monetary damages in amounts not
in excess of $500,000 in the aggregate; or

 

(xvii)                      agree to do
anything prohibited by this Section 8.2.

 

8.3                                 Consents.  Seller shall use (and shall cause each of its
Subsidiaries to use) its commercially reasonable efforts, and Purchaser shall
cooperate with Seller, to obtain at the earliest practicable date all consents
and approvals required to consummate the transactions contemplated by this
Agreement, including, without limitation, the consents and approvals referred
to in Section 5.3(b) hereof; provided, however, that
Seller shall not be obligated to pay any consideration therefor to any third
party from whom consent or approval is requested or to initiate any litigation
or legal proceedings to obtain any such consent or approval.

 

8.4                                 Regulatory
Approvals.

 

(a)                                  If necessary,
Purchaser and Seller shall (a) make or cause to be made all filings
required of each of them or any of their respective Subsidiaries or
subsidiaries, as applicable, or Affiliates under the HSR Act or other Antitrust
Laws with respect to the transactions contemplated hereby as promptly as
practicable and, in any event, within 1 Business Day after the date of this
Agreement, (b) comply at the earliest practicable date with any request
under such Laws for additional information, documents, or other materials
received by each of them or any of their respective Subsidiaries or
subsidiaries, as applicable, from any other Governmental Body in respect of
such filings or such transactions, and (c) cooperate with each other in
connection with any such filing  and in
connection with resolving any investigation or other inquiry of any
Governmental Body under any Antitrust Laws with respect to any such filing or
any such transaction.  Each such party
shall use best efforts to furnish to each other all information required for
any application or other filing to be made pursuant to any applicable law in
connection with the transactions contemplated by this Agreement.  Each such party shall promptly inform the
other parties hereto of any oral communication with, and provide copies of
written communications with, any Governmental Body regarding any such filings
or any such transaction.  No party hereto
shall independently participate in any formal meeting with any Governmental
Body (other than Purchaser solely with respect to a Governmental Body in the
United Kingdom) in respect of any such filings, investigation, or other inquiry
without giving the other parties hereto prior notice of the meeting and, to the
extent permitted by such Governmental Body, the opportunity to attend and/or
participate.  Subject to applicable law,
the parties hereto will consult and cooperate with 

 

26

 

one another in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any party hereto
relating to proceedings under the HSR Act or other Antitrust Laws.  Seller and Purchaser may, as each deems
advisable and necessary, reasonably designate any competitively sensitive
material provided to the other under this Section 8.4 as “outside
counsel only.”  Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to
employees, officers, or directors of the recipient, unless express written
permission is obtained in advance from the source of the materials (Seller or
Purchaser, as the case may be).

 

(b)                                 Each of Purchaser and
Seller shall use its best efforts to resolve such objections, if any, as may be
asserted by any Governmental Body with respect to the transactions contemplated
by this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton
Act, as amended, the Federal Trade Commission Act, as amended, and any other
United States federal or state or foreign statutes, rules, regulations, orders,
decrees, administrative or judicial doctrines or other laws that are designed
to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, the “Antitrust Laws”).  In connection therewith, if any Legal
Proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement is in violation of any Antitrust
Law, each of Purchaser and Seller shall cooperate and use its best efforts to
contest and resist any such Legal Proceeding, and to have vacated, lifted,
reversed, or overturned any decree, judgment, injunction or other order whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents, or restricts consummation of the transactions contemplated by this
Agreement, including by pursuing all available avenues of administrative and
judicial appeal and all available legislative action, unless, by mutual
agreement, Purchaser and Seller decide that litigation is not in their
respective best interests.

 

8.5                                 Further
Assurances.

 

(a)                                  Each of Seller and
Purchaser shall use its commercially reasonable efforts to (i) take all
actions necessary or appropriate to consummate the transactions contemplated by
this Agreement and (ii) cause the fulfillment at the earliest practicable
date of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement.

 

27

 

(b)                                 In
the event that, for any reason including a determination by a court of
competent jurisdiction that any sale, transfer, assignment, conveyance or
delivery  contemplated by this Agreement
is ineffective or invalid to vest or confirm such title,  any conveyance, assignment, assumption,
allocation or other action is necessary or appropriate to vest in or confirm to
Purchaser full title to any of the Purchased Assets vested in Purchaser
pursuant to Section 2.1,
or to cause Purchaser to assume any Liabilities allocated to Purchaser pursuant
to Section 2.3, then
Seller shall, and shall cause its Subsidiaries to, execute and deliver all such
instruments and take all such actions necessary in order to convey, assign or
allocate such Purchased Assets or Liabilities to Purchaser.

 

8.6                                 Confidentiality.

 

(a)                                  Purchaser
acknowledges that the Confidential Information provided to it in connection
with this Agreement, including under Section 8.1,  and the consummation of the transactions
contemplated hereby, is subject to the terms of the confidentiality agreement
between Purchaser and Seller dated September 11, 2008 (the “Confidentiality
Agreement”), the terms of which are incorporated herein by reference.  Effective upon, and only upon, the Closing
Date, the Confidentiality Agreement shall terminate with respect to information
relating solely to the Business or otherwise included in the Purchased Assets; provided,
however, that Purchaser acknowledges that any and all other Confidential
Information provided to it by Seller or its representatives concerning Seller
and its Subsidiaries shall, other than Purchased Assets, remain subject to the
terms and conditions of the Confidentiality Agreement after the Closing
Date.  For purposes of this Section 8.6,
“Confidential Information” shall mean any confidential information with
respect to, including, methods of operation, customers, customer lists,
products, prices, fees, costs, Technology, inventions, Trade Secrets, know-how,
Software, marketing methods, plans, personnel, suppliers, competitors, markets
or other specialized information or proprietary matters.

 

(b)                                 From
and after the Closing, Seller shall, and shall cause its Subsidiaries to, use
the same efforts to maintain the confidentiality of any proprietary or
confidential information regarding the Purchased Intellectual Property as
Seller and/or its Subsidiaries used to maintain the confidentiality of such
information prior to the Closing.

 

8.7                                 Preservation
of Records.  Seller and Purchaser
agree that each of them shall preserve and keep the records held by it or their
Affiliates relating to the Business for a period of seven (7) years from
the Closing Date (or such longer period as may be required by applicable Law)
and shall make such records and personnel available to the other as may be
reasonably required by such party in connection with, among other things, any
insurance claims by, Legal Proceedings or tax audits against or governmental
investigations of Seller or Purchaser or any of their Affiliates or in order to
enable Seller or Purchaser to comply with their respective obligations under
this Agreement and each other agreement, document or instrument contemplated
hereby or thereby.  In the event Seller
or Purchaser wishes to destroy such records before or after that time (and such

 

28

 

proposed destruction is not in violation of applicable
Law), such party shall first give ninety (90) days prior written notice to the
other and such other party shall have the right at its option and expense, upon
prior written notice given to such party within such ninety (90) day period, to
take possession of the records within one hundred and eighty (180) days after
the date of such notice.

 

8.8                                 Publicity.  Neither Seller nor Purchaser shall issue any
press release or public announcement concerning this Agreement or the
transactions contemplated hereby without obtaining the prior written approval
of the other party hereto, which approval will not be unreasonably withheld or
delayed, unless, in the sole judgment of Purchaser or Seller, disclosure is
otherwise required by applicable Law or by the Bankruptcy Court with respect to
filings to be made with the Bankruptcy Court in connection with this Agreement
or by the applicable rules of any stock exchange on which Purchaser or
Seller lists securities, provided that the party intending to make such
release shall use its best efforts consistent with such applicable Law or
Bankruptcy Court requirement to consult with the other party with respect to
the text thereof.

 

8.9                                 Trademark
License.

 

(a)                                  From
and after the closing Purchaser hereby grants Seller a perpetual, worldwide,
nonexclusive, full paid, royalty-free license under the trademarks “LEHMAN” and
“LEHMAN BROTHERS,” including any logos containing such names (collectively, the
“Licensed Marks”) for any of its existing uses or in connection with the IMD
Business and the unwinding of any of its other operations including use in
corporate or other entity names. The foregoing license as it relates to the IMD
Business shall be assignable by Seller without the need for further consent to
a purchaser of all or substantially all of the equity interests in or assets of
the IMD Business. Seller shall have the right to sublicense the foregoing license
to any of its Subsidiaries and an assignee in connection with a sale of all or
substantially all of the IMD Business shall have a right to sublicense such
right to any of its Affiliates in connection with the conduct of that business,
provided that any such sublicense shall terminate on the date when Seller’s or
its assignee’s license terminates. In the remainder of this provision, the
licensee or sublicense (Seller or Seller’s assignee or their sublicensees)
shall be referred to as “Licensee.” Each Licensee acknowledges Purchaser’s
ownership of the Licensed Marks and the validity of the Licensed Marks and
shall not register any confusingly similar mark in any jurisdiction. All
goodwill arising from use of the Licensed Marks shall inure to Purchaser’s benefit.
Each Licensee shall use each Licensed Mark in connection with any markings or
other notices as required by law. Purchaser shall have the right to supervise
and control  the use of the Licensed
Marks by each Licensee, including by
reviewing specimens of use of the Licensed Marks, with respect to the
nature and quality of the products and services designed, performed,
distributed, sold or otherwise commercialized by such Licensee and the
materials used to promote such products and services for the purpose of
protecting and maintaining the validity of the Licensed Marks and the goodwill
associated with the Licensed Marks.  Each
Licensee shall at all times use the Licensed Marks only in connection with
goods and services of quality at least as 

 

29

 

high
as that offered by Seller and its Affiliates under such marks immediately prior
to the Closing. Any use of the Licensed Marks in connection with the IMD
Business shall include a disclaimer in a form reasonably acceptable to
Purchaser indicating that the IMD Business is not affiliated with Seller.
Seller or its assignee shall be responsible for each Licensee’s compliance with
the terms of this Section 8.9 and shall be liable to Purchaser for
any non-compliance by any such Licensee with any such terms.

 

(b)                                 Purchaser hereby grants to Seller a
perpetual, irrevocable, worldwide, nonexclusive, fully-paid, royalty-free
license under all non-Mark Purchased Intellectual Property used in or covering
any business of the Seller andor its Affiliates other than the Business in the
fields of investment management, investment research, portfolio management and
other fields of the IMD Business as well as the unwinding of any of Seller’s
other operations, solely for use in connection with such business outside of
the Business. The foregoing license as it relates to the IMD Business shall be
assignable without the requirement of further consent by Seller in connection
with a sale of all or substantially all of the assets of the IMD Business and
may be sublicensed to any entity conducting the IMD Business and any successor
of the IMD Business and any contractor providing services to such business or
successor. The foregoing license shall be under Purchased Intellectual Property
acquired by Purchaser hereunder that was previously owned by Seller or its
Affiliates as well as Purchased Intellectual Property owned by third parties as
to which Purchaser shall have after Closing has the right to grant a sublicense
without requirement of additional consent or payment of additional
consideration.

 

8.10                           Use of Purchased
Intellectual Property.  Except as permitted
under subsection 8.9 above, after the Closing Date, neither the Seller nor any
of its Subsidiaries will, directly or indirectly, in any jurisdiction: (i) exploit
or make use of, or authorize any third party to exploit or make use of, any of
the Purchased Intellectual Property, or any Marks confusingly similar to the
Purchased Marks; (ii) attempt to register the Purchased Marks or any mark
confusingly similar thereto; or (iii) challenge or otherwise contest the
Purchaser’s efforts to register, or enforce its trademark registrations for and
trademark rights in, the Purchased Marks or its rights in other Purchased
Intellectual Property.

 

30

 

8.11                           Deferred
Transfers.

 

(a)                                  If
and to the extent that the allocation to and vesting in Purchaser of any
Purchased Assets pursuant to Section 2.1
or otherwise would be a violation of applicable Law or require any Consent or
the approval of any Governmental Body or the fulfillment of any condition that
cannot be fulfilled by the Purchaser prior to the Closing then, unless the
Parties shall otherwise agree, the allocation to and vesting in Purchaser of
such Purchased Asset shall, without any further action by any Party, be
automatically deferred and any allocation or vesting of such Purchased Asset
pursuant to Section 2.1 or otherwise shall be null and void until
such time as all violations of applicable Law are eliminated, such Consents or
approvals of Governmental Bodies are obtained, and such conditions are
fulfilled.  Any such Purchased Asset
shall be deemed a “Deferred Transfer Purchased Asset.”

 

(b)                                 If
and to the extent that the allocation to Purchaser of, and Purchaser’s becoming
responsible for, any Assumed Liabilities pursuant to Section 2.3 or otherwise would be a violation of
applicable Law or require any Consent or approval of any Governmental Body or
the fulfillment of any condition that cannot be fulfilled by Seller prior to
the Closing, then, unless the Parties shall otherwise agree, the allocation to
Purchaser of, and Purchaser’s becoming responsible for, such Assumed Liability
shall, without any further action by any Party, be automatically deferred and
any allocation or responsibility for such Assumed Liability pursuant to Section 2.3
or otherwise shall be null and void until such time as all violations of
applicable Law are eliminated, such Consents or approvals of Governmental
Bodies are obtained, and such conditions are fulfilled.  Any such Assumed Liability shall be deemed a
“Deferred Transfer Assumed Liability.”

 

(c)                                  With
respect to any Deferred Transfer Purchased Asset or any Deferred Transfer
Assumed Liability, insofar as it is reasonably possible, (i) Seller shall,
and shall cause any applicable Subsidiary to, following the Closing, hold such
Deferred Transfer Purchased Asset for the use and benefit of Purchaser and its
Subsidiaries (at the expense of Purchaser) and (ii) Purchaser shall, or shall
cause its applicable Subsidiary to, pay or reimburse Seller for all amounts
paid or incurred in connection with the retention of such Deferred Transfer
Assumed Liability.  In addition, Seller
shall, and shall cause any applicable Subsidiary to, insofar as reasonably
possible and to the extent permitted by applicable Law, hold and treat such
Deferred Transfer Purchased Asset in the Ordinary Course of Business in
accordance with past practice and take such other actions as may be reasonably
requested by Purchaser in order to place Purchaser, insofar as permissible
under applicable Law and reasonably possible, in the same position as if such
Deferred Transfer Purchased Asset had been transferred to and vested in
Purchaser or an applicable Subsidiary at the Closing and so that, to the extent
possible, all the benefits and burdens relating to such Deferred Transfer
Purchased Asset, including possession, use, risk of loss, potential for gain,
and dominion, control and command over such Deferred Transfer Purchased Asset,
are to inure from and after the Closing to Purchaser or its applicable
Subsidiary entitled to the receipt of such Deferred Transfer Purchased Asset.

 

31

 

(d)                                 If
and when the Consents, approvals of Governmental Bodies and/or conditions, the
absence or non-satisfaction of which caused the deferral or transfer of any
Deferred Transfer Purchased Asset or Deferred Transfer Assumed Liability
pursuant to Section 8.12(a), are obtained or satisfied, the transfer,
allocation or novation of the applicable Deferred Transfer Purchased Asset or
Deferred Transfer Assumed Liability shall be effected in accordance with and
subject to the terms of this Agreement.

 

(e)                                  Seller
shall not be obligated, in connection with the foregoing, to expend any money
unless the necessary funds are advanced, assumed or agreed in advance to be
reimbursed by Purchaser, other than reasonable attorney’s fees and recording or
similar fees, all of which shall be promptly reimbursed by Purchaser.

 

(f)                                    For
a period of nine months after the Closing Date, subject to reasonable security
procedures and giving due regard to regulatory considerations (e.g.,
segregation) including the right to relocate such employees within the
applicable premises, to the extent Excluded Employees occupied real property
subject to a Transferred Real Property Lease prior to Closing, such Excluded
Employees shall be permitted to continue to occupy and use such real property
to the same extent and for the same purposes as such real property was occupied
and used by such Excluded Employees prior to the Closing, without charge or
consideration.

 

(g)                                 For
a period of nine months after the Closing Date, subject to reasonable security
procedures and giving due regard to regulatory considerations (e.g.,
segregation) including the right to relocate such employees within the
applicable premises,  after the Closing,
to the extent Transferred Employees occupied real property is not subject to a
Transferred Real Property Lease prior to Closing, such Transferred Employees
shall be permitted to continue to occupy and use such real property to the same
extent and for the same purposes as such real property was occupied and used by
such Transferred Employees prior to the Closing, without charge or
consideration.

 

8.12                           Release
of Guarantees.  Purchaser shall
deliver to the respective beneficiaries of any and all guarantees relating to
or arising under any Purchased Contracts, Transferred Real Property Leases or
Assumed Liabilities (“Seller Guarantees”) such replacement guarantees
from Purchaser and its Affiliates, letters of credit, collateral, or other
credit support, as shall be required pursuant and in accordance with any
Purchased Contract, Transferred Real Property Leases or Assumed Liability.  In the event that the respective
beneficiaries under any of the Seller Guarantees do not agree to release (the “Guarantee
Release”) Seller and its Subsidiaries from any and all liability arising
thereunder after theClosing, prior to the Closing, then Purchaser shall cause
to be delivered to Seller, as beneficiary, at the Closing an indemnification
agreement and guarantee, dated and effective as of the Closing Date and in form
and substance reasonably satisfactory to Seller and from a creditworthy obligor
as shall be satisfactory to Seller (collectively, “Backstop Documents”),
pursuant to which Seller and its Affiliates shall, from and after the Closing,
be indemnified, reimbursed and held harmless from any and all liabilities,
losses, claims, costs and expenses under or arising out of the 

 

32

 

relevant Seller Guarantee.  From and after the Closing, Purchaser shall
not permit any Contract to which a Seller Guarantee relates to be renewed,
extended, amended or modified unless the Purchaser obtains and delivers to
Seller the related Guarantee Release duly executed by the beneficiaries of the
related Seller Guarantee.

 

8.13                           Transition
Services.  The Purchaser and Seller
shall use commercially reasonable efforts to enter into a Transition Services
Agreement in a form reasonably acceptable to Seller and Purchaser in order for
each of Seller and Purchaser to continue to receive the services provided
between LBI and LBHI on the Closing Date.

 

8.14                           Subleases.

 

(a)                                  For
the leased premises located in 555 California Street, San Francisco, CA, Seller
shall sublet to Purchaser pursuant to a sublease agreement (the “Seller
Sublease”), reasonably acceptable to both Purchaser and Seller and subject
to the terms of the applicable underlying lease, a portion of the demised
premises in such location subject to the terms of the applicable lease and
obtaining the landlord’s consent to the Sublease or Bankruptcy Court
approval.  Purchaser shall bear its
portion of the occupancy cost for such location based on the relative square
footage sublet.  Seller and Purchaser
shall enter into the Seller Sublease at Closing to memorialize the provisions
of this Section.

 

(b)                                 For
the leased premises located in 125 High Street, Boston, MA, 190 S. LaSalle
Street, Chicago, IL and 10250 Constellation Boulevard, Los Angeles, CA Seller
shall assume such leases in connection with Seller’s bankruptcy proceedings and
assign such leases to Purchaser. 
Purchaser shall then sublet to Seller or a designee of Seller, in either
event with credit reasonably acceptable to Purchaser, pursuant to three
separate subleases (each, a “Purchaser Sublease”, collectively the “Purchaser
Sublease”), reasonably acceptable to both Purchaser and Seller and subject
in all cases to the terms of the underlying lease, a portion of the demised
premises in such locations shall be subject to obtaining the landlord’s consent
to each Sublease or Bankruptcy Court approval. 
Seller shall bear its portion of the occupancy cost for each such
location based on the relative square footage sublet.  Seller and Purchaser shall enter into each
Sublease at Closing to memorialize the provisions of this Section.

 

8.15                           Landlord
Notice. Seller shall give notice, on the date hereof , to Rock-Forty-Ninth
LLC in accordance with the terms of the 745 Seventh Ground Lease, regarding the
transactions contemplated hereunder and shall provide Rock-Forty-Ninth LLC with
the appropriate bankruptcy filings in order to provide adequate notice thereof
under applicable Law.

 

8.16                           Artwork.
Purchaser shall have the right to possess, for a period of one-year after the
closing, all of the artwork at the Seller’s headquarters located at 745 Seventh
Avenue, New York, New York. At any time during such period, Purchaser shall
have the option to purchase any or all of the artwork for a price equal to its
appraised value (as

 

33

 

determined by an independent, recognized appraiser).
To the extent Purchaser does not exercise such option on any or all of the
artwork by the first anniversary of the Closing, the Purchaser shall return
such artwork to the Seller.

 

ARTICLE IX

EMPLOYEES AND EMPLOYEE BENEFITS

 

9.1                                 Employee
Benefits.

 

(a)                                  Effective
as of the Closing Date, Purchaser shall, or shall cause one of Purchaser’s
Subsidiaries to, continue to employ (where employment continues or is
transferred to Purchaser or a Subsidiary of Purchaser automatically by
operation of Law), or offer employment to (where employment does not continue
or transfer automatically by operation of Law), each Offeree.  For purposes of this Agreement, the term “Offeree”
means each active employee employed primarily in connection with the Business
at the Closing, other than such employees who are identified by Purchaser to
Seller prior to Closing, such identified persons shall not include any person
who is in the targeted population referred to in Section 10.1(b).  Each Offeree who accepts Purchaser’s or one
of its subsidiaries’ offer of employment, together with each person whose
employment transfers to Purchaser or a subsidiary of Purchaser automatically by
operation of law, shall be referred to herein as a “Transferred Employee.”  Each Person who is not a Transferred Employee
shall be referred to herein as an “Excluded Employee”.  An Offeree who performs work at his then
applicable place of employment on the first Business Day immediately following
the Closing shall be deemed for all purposes of this Agreement to have accepted
Purchaser’s or one of its subsidiaries’ offer of employment and shall be deemed
to be a Transferred Employee for all purposes of this Agreement.

 

(b)                                 Without
limiting any additional rights that each Transferred Employee may have,
Purchaser shall, or shall cause its Subsidiaries, for a period commencing at
the Closing and ending on December 31, 2008, to provide to each
Transferred Employee whose employment is terminated during such period by the
Purchaser by reason of a “reduction in force” or a “job elimination” (as those
terms are customarily applied in good faith, consistent with past practice)
severance payments and benefits at levels that are no less favorable than such
levels as the Transferred Employee would have been entitled to receive pursuant
to the provisions of the Seller’s severance plans or agreements covering such
Transferred Employee as in effect immediately prior to the Closing.  Nothing contained in this Section 9.1
or elsewhere in the Agreement shall be construed to prevent, from and after the
Closing, the termination of employment of any individual Transferred Employee
or any change in the employee benefits available to any Transferred Employee.

 

34

 

(c)                                  On
or after the Closing, Purchaser shall, or shall cause its Subsidiaries to, pay
each Transferred Employee an annual bonus (“08 Annual Bonuses”), in
respect of the 2008 Fiscal Year that, in the aggregate, are equal in amount to
100 percent of the bonus pool amounts accrued in respect of amounts payable for
incentive compensation (but not base salary) and reflected on the financial
schedule delivered to Purchaser on September 16, 2008 and initialed by an
officer of each of Holdings and Purchaser (the “Accrued 08 FY Liability”).  Such 08 Annual Bonuses shall be awarded on or
before March 15, 2009 in such forms and proportions as are consistent with
Purchaser’s customary practices, so that the aggregate amount awarded shall
equal the Accrued 08 FY Liability.  Any
amounts that would have been allocated in respect of any Transferred Employee
who voluntarily terminates employment before such award is made shall instead
be allocated among the remaining Transferred Employees (who include, for this
purpose, those Transferred Employees who are terminated without cause by
Purchaser or its affiliates prior to the time the awards are made)
(collectively, the “Remaining Transferred Employees”).  However, the Accrued 08 FY Liability shall be
reduced if, prior to the time such awards are made, both (x) 10% of the
Transferred Employees have voluntarily terminated their employment with the
Purchaser and (y) such terminated Transferred Employees would have been
expected to receive at least 10% of the 08 Annual Bonuses had no such
Transferred Employee’s employment in fact terminated.  In that case, Purchaser may adjust the
Accrued 08 FY Liability proportionately from its initial level, in the same
proportion as the reduction in Transferred Employees below 90% of the initial
number of Transferred Employees compared to 90% of the initial number of
Transferred Employees, in a good faith and reasonably equitable manner to
account for the Transferred Employees to whom 08 Annual Bonuses will not be
payable, and thereby to reduce the aggregate 08 Annual Bonuses.  Any such reduction shall take into account
the length of service, seniority within the Business and contribution of the
Remaining Transferred Employees, relative to the allocation of the Accrued 08
FY Liability, in accordance with the principles enumerated herein.

 

ARTICLE X

 

CONDITIONS TO CLOSING

 

10.1                           Conditions
Precedent to Obligations of Purchaser. 
The obligation of Purchaser to consummate the transactions contemplated
by this Agreement is subject to the fulfillment, on or prior to the Closing
Date, of each of the following conditions (any or all of which may be waived by
Purchaser in whole or in part to the extent permitted by applicable Law):

 

(a)                                  Seller
shall have performed and complied in all material respects with all obligations
and agreements required in this Agreement to be performed or complied with by
it prior to the Closing Date, and Purchaser shall have received a certificate
signed by an authorized officer of Seller, dated the Closing Date, to the
forgoing effect;

 

35

 

(b)                                 at
least 70% of the U.S. and Canadian Persons identified by Seller and reasonably
accepted by Purchaser, acting in good faith, not later than two Business Days
after the date hereof as the targeted population are actively employed in the
Business immediately prior to the Closing and as to whom management of Seller
has made a good faith assessment that they will continue in employment with the
Business as of the Closing Date;

 

(c)                                  the
Bankruptcy Court shall have entered a final order permitting Seller to sell the
premises at 745 Seventh Avenue, New York, New York to Purchaser;

 

(d)                                 the
mortgage in favor of the Seller’s Affiliate with respect to the premises at 745
Seventh Avenue, New York, New York shall have been fully repaid and
extinguished;

 

(e)                                  Seller
shall have delivered, or caused to be delivered, to Purchaser all of the items
set forth in Section 4.2;

 

(f)                                    Purchaser
shall have obtained confirmation from the SEC and CFTC that Purchaser will be
eligible, following the Closing, to compute its net capital under Appendix E to
SEC Rule 15c3-1 and adjusted net capital in accordance with the provisions
of CFTC Rule 1.17(c)(6);

 

(g)                                 Purchaser
shall have obtained from the SEC confirmation reasonably satisfactory to
Purchaser regarding (i) the transition period during which Purchaser will
be permitted to come into compliance with the consolidated holding company
supervisory framework applicable to ultimate holding companies that have a
principal regulator under SEC Rule 15c3-1e and g, and (ii) the scope
of the deference to be extended by the SEC to the Federal Reserve and/or the
home country consolidated supervisor of Purchaser’s ultimate parent company in
connection with the SEC’s administration of the framework described in clause (i) of
this subsection 10.1(g); and

 

(h)                                 the
Sellers headquarters building at 745 Seventh Avenue, New York, New York shall
be substantially habitable.

 

10.2                           Conditions
Precedent to Obligations of Seller. 
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, prior to or on the Closing Date,
of each of the following conditions (any or all of which may be waived by
Seller in whole or in part to the extent permitted by applicable Law):

 

(a)                                  Purchaser
shall have performed and complied in all material respects with all obligations
and agreements required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date, and Seller shall have received a
certificate signed by an authorized officer of Purchaser, dated the Closing
Date, to the foregoing effect; and

 

36

 

(b)                                 Purchaser
shall have delivered, or caused to be delivered, to Seller all of the items set
forth in Section 4.3.

 

10.3                           Conditions
Precedent to Obligations of Purchaser and Seller.  The respective obligations of Purchaser and
Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of each of the
following conditions (any or all of which may be waived by Purchaser and Seller
in whole or in part to the extent permitted by applicable Law):

 

(a)                                  there
shall not be in effect any Order by a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated hereby;

 

(b)                                 the
Bankruptcy Court shall have entered the Breakup Fee and Competing Bid Order, in
form and substance reasonably acceptable to Seller and Purchaser;

 

(c)                                  the
Bankruptcy Court shall have entered the Sale Order and any stay period
applicable to the Sale Order shall have expired or shall have been waived by
the Bankruptcy Court;

 

(d)                                 LBI
shall have commenced a case under Chapter 7 of the Bankruptcy Code in the
Bankruptcy Court; and

 

(e)                                  Purchaser
shall have obtained regulatory approval under the HSR Act and all other
material regulatory, self-regulatory, exchange, clearing organization and
governmental approvals, authorizations, waivers and/or licenses required to
conduct the transferred Business following the Closing substantially in the
manner as it was conducted immediately prior to the Closing and, after giving
effect to the Closing (subject to such exceptions as shall not, in the
aggregate, be material).

 

10.4                           Frustration
of Closing Conditions.  Neither
Seller nor Purchaser may rely on the failure of any condition set forth in Section 10.1,
10.2 or 10.3, as the case may be, if such failure was caused by
such party’s failure to comply with any provision of this Agreement.

 

ARTICLE XI

 

[RESERVED]

 

ARTICLE XII

 

TAXES

 

12.1                           Transfer
Taxes.  Purchaser shall be
responsible for (and shall indemnify and hold harmless Seller and its
directors, officers, employees, Affiliates, agents, 

 

37

 

successors and permitted
assigns against) any sales, use, stamp, documentary stamp, filing, recording,
transfer or similar fees or taxes or governmental charges (including any
interest and penalty thereon) payable in connection with the transactions contemplated
by this Agreement (“Transfer Taxes”). 
Seller shall, however, seek to include in the Sales Order a provision
that provides that the transfer of the Purchased Assets shall be free and clear
of any stamp or similar taxes under Bankruptcy Code Section 1146(c).  Seller and Purchaser shall cooperate and
otherwise take commercially reasonable efforts to obtain any available refunds
for Transfer Taxes.

 

12.2                           Prorations.  Seller and Purchaser shall enter into
customary prorations for the Purchased Assets as of the Closing.

 

12.3                           Purchase
Price Allocation.  Seller and
Purchaser shall allocate the purchase price (including the Assumed Liabilities)
among the Purchased Assets as specified in Schedule 12.3 and, in
accordance with such allocation, Purchaser shall prepare and deliver to Seller
copies of Form 8594 and any required exhibits thereto (the “Asset
Acquisition Statement”).  Purchaser
shall prepare and deliver to Seller from time to time revised copies of the
Asset Acquisition Statement (the “Revised Statements”) so as to report
any matters on the Asset Acquisition Statement that need updating (including
purchase price adjustments, if any) consistent with the agreed upon
allocation.  The purchase price for the
Purchased Assets shall be allocated in accordance with the Asset Acquisition
Statement or, if applicable, the last Revised Statements, provided by Purchaser
to Seller, and all income Tax Returns and reports filed by Purchaser and Seller
shall be prepared consistently with such allocation.

 

12.4                           Adjustment
to Purchase Price.  The parties agree
that any payment made under this Article XII shall be treated by
such parties as an adjustment to the Purchase Price.

 

ARTICLE XIII

 

MISCELLANEOUS

 

13.1                           Expenses.  Except as otherwise provided in this
Agreement, each of Seller and Purchaser shall bear its own expenses incurred in
connection with the negotiation and execution of this Agreement and each other
agreement, document and instrument contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby.

 

13.2                           Injunctive
Relief.  Damages at law may be an
inadequate remedy for the breach of any of the covenants, promises and
agreements contained in this Agreement, and, accordingly, any party hereto
shall be entitled to injunctive relief with respect to any such breach,
including without limitation specific performance of such covenants, promises
or agreements or an order enjoining a party from any threatened, or from the
continuation of any actual, breach of the covenants, promises or agreements
contained in 

 

38

 

this Agreement.  The rights set forth in this Section 13.2
shall be in addition to any other rights which a Party may have at law or in
equity pursuant to this Agreement.

 

13.3                           Submission
to Jurisdiction; Consent to Service of Process.

 

(a)                                  Without
limiting any party’s right to appeal any order of the Bankruptcy Court, (i) the
Bankruptcy Court shall retain exclusive jurisdiction to enforce the terms of
this Agreement and to decide any claims or disputes which may arise or result
from, or be connected with, this Agreement, any breach or default hereunder, or
the transactions contemplated hereby, and (ii) any and all proceedings
related to the foregoing shall be filed and maintained only in the Bankruptcy
Court, and the parties hereby consent to and submit to the jurisdiction and
venue of the Bankruptcy Court and shall receive notices at such locations as
indicated in Section 13.7 hereof; provided, however,
that if the Bankruptcy Case has closed, the parties agree to unconditionally
and irrevocably submit to the exclusive jurisdiction of the United States
District Court for the Southern District of New York sitting in New York County
or the Commercial Division, Civil Branch of the Supreme Court of the State of
New York sitting in New York County and any appellate court from any thereof,
for the resolution of any such claim or dispute.  The parties hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection which they may now or
hereafter have to the laying of venue of any such dispute brought in such court
or any defense of inconvenient forum for the maintenance of such dispute.  Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.

 

(b)                                 Each
of the parties hereto hereby consents to process being served by any party to
this Agreement in any suit, action or proceeding by delivery of a copy thereof
in accordance with the provisions of Section 13.7.

 

13.4                           Waiver
of Right to Trial by Jury.  Each
party to this Agreement waives any right to trial by jury in any action, matter
or proceeding regarding this Agreement or any provision hereof.

 

13.5                           Entire
Agreement; Amendments and Waivers. 
This Agreement (including the schedules and exhibits hereto), the
transition services agreements, the Dip Facility, the Interim Support and
Cooperation Agreement, Master Repurchase Agreement and the Confidentiality
Agreement represent the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof.  This Agreement can be amended, supplemented
or changed, and any provision hereof can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is
sought.  No action taken pursuant to this
Agreement, including without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representation, warranty, covenant or agreement
contained herein.  The waiver by any
party hereto of a breach of any provision of this 

 

39

 

Agreement shall not
operate or be construed as a further or continuing waiver of such breach or as
a waiver of any other or subsequent breach. 
No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or
remedy by such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. 
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.

 

13.6                           Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed in such State.

 

13.7                           Notices.
All notices and other communications under this Agreement shall be in writing
and shall be deemed given (i) when delivered personally by hand (with
written confirmation of receipt), (ii) when sent by facsimile (with
written confirmation of transmission) or (iii) one business day following
the day sent by overnight courier (with written confirmation of receipt), in
each case at the following addresses and facsimile numbers (or to such other
address or facsimile number as a party may have specified by notice given to
the other party pursuant to this provision):

 

If to
Seller, to:

 

Lehman
Brothers Holdings Inc.

745
Seventh Avenue

New
York, NY 10019

Facsimile:
(646) 758-4226

Attention:
Steven Berkenfeld, Esq.

 

40

 

	
   

  	
  With a copy (which shall not constitute notice) to:

  
	
   

  	
   

  
	
   

  	
  Weil, Gotshal & Manges LLP

  
	
   

  	
  767 Fifth Avenue

  
	
   

  	
  New York, NY 10153

  
	
   

  	
  Facsimile: (212) 310-8007

  
	
   

  	
  Attention:

  	
  Thomas Roberts

  
	
   

  	
   

  	
  Michael Lubowitz

  
	
   

  	
   

  
	
   

  	
  and a copy (which shall not constitute notice) to:

  
	
   

  	
   

  
	
   

  	
  Simpson Thacher & Bartlett LLP

  
	
   

  	
  425 Lexington Avenue

  
	
   

  	
  New York, NY 10017

  
	
   

  	
  Facsimile: (212) 455-2502

  
	
   

  	
  Attention:

  	
  John Finley

  
	
   

  	
   

  	
  Andrew Keller

  
	
   

  	
   

  
	
   

  	
  If to Purchaser, to:

  
	
   

  	
   

  
	
   

  	
  Barclays Capital Inc.

  
	
   

  	
  200 Park Avenue

  
	
   

  	
  New York, NY 10166

  
	
   

  	
  Facsimile: (212) 412-7519

  
	
   

  	
  Attention:

  	
  Jonathan Hughes, Esq.

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Cleary Gottlieb Steen & Hamilton LLP

  
	
   

  	
  One Liberty Plaza

  
	
   

  	
  New York, NY 10006

  
	
   

  	
  Facsimile: (212) 225-3999

  
	
   

  	
  Attention:

  	
  Victor I. Lewkow

  
	
   

  	
   

  	
  David Leinwand

  
	
   

  	
   

  	
  Duane McLaughlin

  
	
   

  	
   

  
	
   

  	
  and

  
	
   

  	
   

  
	
   

  	
  Sullivan & Cromwell LLP

  
	
   

  	
  125 Broad St.

  
	
   

  	
  New York, NY 10004

  
	
   

  	
  Facsimile: (212) 558-3580

  
	
   

  	
  Attention:

  	
  Mitchell S. Eitel

  
	
   

  	
   

  	
  Jay Clayton

  

 

41

 

13.8                           Severability.  If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any law or
public policy, all other terms or provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.  Upon
such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible.

 

13.9                           Binding
Effect; Assignment.  This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns. 
Nothing in this Agreement shall create or be deemed to create any third
party beneficiary rights in any Person or entity not a party to this Agreement
except as provided below.  No assignment
of this Agreement or of any rights or obligations hereunder may be made by
either Seller or Purchaser (by operation of law or otherwise) without the prior
written consent of the other parties hereto and any attempted assignment
without the required consents shall be void, provided that Purchaser shall be
entitled to assign its rights and obligations in whole or in part to its
Affiliates or to designate its rights to acquire any assets hereunder to its
Affiliates.  No assignment of any
obligations hereunder shall relieve the parties hereto of any such obligations.  Upon any such permitted assignment, the
references in this Agreement to Purchaser shall also apply to any such assignee
unless the context otherwise requires.

 

13.10                     Non-Recourse.  No past, present or future director, officer,
employee, incorporator, member, partner or equityholder of Seller shall have
any liability for any obligations or liabilities of Seller under this Agreement
or the Seller Documents of or for any claim based on, in respect of, or by
reason of, the transactions contemplated hereby and thereby.

 

13.11                     Counterparts.  This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.

 

13.12                     Scope of Purchased Assets.  This Agreement is not intended to convey and
does not convey assets and liabilities from the non-U.S. and non-Canadian
operations of Seller.

 

[signature page follows]

 

42

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
written above.

 

	
   

  	
  LEHMAN
  BROTHERS HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steven Berkenfeld

  
	
   

  	
   

  	
  Name:

  	
  Steven
  Berkenfeld

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LEHMAN
  BROTHERS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steven Berkenfeld

  
	
   

  	
   

  	
  Name:

  	
  Steven
  Berkenfeld

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LB
  745 LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Paolo Tonucci

  
	
   

  	
   

  	
  Name:

  	
  Paolo
  Tonucci

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BARCLAYS
  CAPITAL INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gerard LaRocca

  
	
   

  	
   

  	
  Name:

  	
  Gerard
  LaRocca

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

 

43

 

Exhibit A

 

LEHMAN
BROTHERS HOLDINGS INC.

 

By order of
the Bankruptcy Court, set forth below are certain matters to be employed with
respect to the proposed sale (the “Sale”) of the Purchased Assets of the
Debtors as set forth in the Purchase Agreement (as defined below).  On September 16, 2008 the Debtors
executed that certain Asset Purchase Agreement (the “Purchase Agreement”)
with Barclays Capital, Inc. (the “Purchaser”).  The transaction contemplated by the Purchase
Agreement is subject to competitive bidding as set forth herein and approval by
the Bankruptcy Court (as defined below) pursuant to sections 105(a), 363 and
365 of title 11 of the United States Code, 11 U.S.C. §§ 101-1330, as amended
(the “Bankruptcy Code”), and certain other closing conditions.

 

On September 17,
2008, the Debtors filed the Sale Motion seeking entry of the Orders: ((I)(A) authorizing
a Break-Up Fee and Expense Reimbursement, (B) approving certain matters
relating to competing bids, if any, (C) the form and manner of sale notices
and (D) a date for the Sale Hearing, and (II) (A) authorizing
and approving the Sale of certain of the Debtors’ assets free and clear of all
liens, claims and encumbrances, (B) authorizing and approving the
assumption and assignment of certain prepetition executory contracts and
unexpired leases (the “Contracts”) to the Purchaser or the Successful
Bidder(s) and (C) granting related relief.  On September     ,
2008, the United States Bankruptcy Court for the Southern District of New York
(the “Bankruptcy Court”) entered an Order: (I) authorizing a
Break-Up Fee and Expense Reimbursement, (B) approving certain matters
relating to competing bids, if any, as set forth in the Purchase Agreement, (C) approving
the form and manner of sale notices and (D) fixing a date for the Sale
Hearing (such order, the “Break-Up Fee and Competing Bid Order”).  Terms used but not defined herein shall have
the meanings ascribed to them in the Break-Up Fee and Competing Bid Order.  The Break-Up Fee and Competing Bid Order set
[September     ], 2008 as the date when the Bankruptcy
Court will conduct a hearing (the “Sale Hearing”) to authorize the
Debtors to enter into the Purchase Agreement.

 

1.                                       No
Competing Bids to be Evaluated by the Debtors Other than Qualified Bids

 

The Debtors shall
not consider or evaluate putative competing bids for the Purchased Assets
except in accordance with the provisions set forth below (such bids meeting the
criteria set forth herein, “Qualified Bids”).  The manner in which bidders and bids become
Qualified Bidders (as defined below) and Qualified Bids, respectively, the
provision of confidential information to bidders, the receipt and negotiation
of bids received, the ultimate selection of the Successful Bidder(s), and the
Bankruptcy Court’s approval thereof (the “Bid Matters”) are discussed
below.  In the event that the Debtors and
any party disagree as to any Bid Matters, the Bankruptcy Court will have
jurisdiction to hear and resolve such dispute.

 

2.                                       Debtors
Shall Not Solicit or Engage In Discussions Regarding Proposals for Competing
Transactions

 

From the date
of execution of the Purchase Agreement until the earlier of (i) the
Closing and (ii) the termination of the Purchase Agreement in accordance
with its terms, none of Debtors, any of the Debtors’ direct or indirect
subsidiaries, or any agent or advisor to the Debtors

 

 

or any of the
Debtors’ direct or indirect subsidiaries shall, directly or indirectly, through
any officer, director, employee, agent, professional, advisor, other
representative (“Representatives”) or otherwise, (A) solicit,
initiate, encourage or facilitate any proposal or offer from any Person (other
than the Purchaser) relating to any financing, refinancing, acquisition,
divestiture, business combination or reorganization or similar transaction
involving a material portion the Business, the Purchased Assets or the
business, assets or operations of LBI or any of its subsidiaries or the equity
securities of LBI or any of its subsidiaries (a “Competing Transaction”),
(B) enter into discussions or negotiations regarding a Competing
Transaction, (C) furnish any information with respect to, enter into any
agreement or understanding with respect to, otherwise assist or participate in,
or facilitate in any other manner any Competing Transaction (including, without
limitation, executing any confidentiality agreement with any other Person with
respect to a Competing Transaction), (D) waive any rights under any
existing standstill or waiver agreements, or (E) seek or support
Bankruptcy Court approval of a motion regarding bid procedures or expense
reimbursement or break up fee for the benefit of any party with respect to a
Competing Transaction or take any action inconsistent in any way with the
Purchase Agreement or achieving the Closing by 5:00 p.m. (New York time)
on September 24, 2008 (any action described in clauses (A) through
(E), a “Prohibited Action”).

 

3.                                       Debtors
Permitted to Take Certain Prohibited Actions in Certain Circumstances

 

Notwithstanding
the foregoing provisions of Section 2, in the event Debtors receive an
unsolicited bona fide offer or proposal for a
Competing Transaction prior to the entry of the Sale Order and Debtors’ Boards
of Directors conclude in good faith (after consultation with its outside
financial and legal advisors) that such offer or proposal constitutes or is
reasonably likely to result in a Superior Proposal, then, prior to the entry of
the Sale Order, Debtors may, and may permit their subsidiaries and
Representatives to, take any Prohibited Action described in clause (B) or (C) (other
than enter into any agreement) of Section 2; provided that (x) prior
to providing any nonpublic information permitted to be provided pursuant to
this sentence, Debtors shall have entered into a confidentiality agreement with
such third party on customary terms and which in any event is no less favorable
to Debtors than the Confidentiality Agreement, and (y) concurrently with
providing such information, Debtors shall also furnish to Purchaser a copy of
any confidential data or information that it is furnishing to any third party
pursuant to the Section 3 to the extent not previously furnished to
Purchaser.  “Superior Proposal”
means any bona fide written proposal or offer with
respect to a Competing Transaction made by a Qualified Bidder (A) to
acquire, directly or indirectly, 100% of the Business for consideration
consisting of cash and/or securities (with a value of at least $1,875,000,000)
and the assumption of substantially all liabilities required to be assumed by
Purchaser under the Purchase Agreement, and (B) which is otherwise on
terms which the Boards of Directors of the Debtors determine in its reasonable
good faith judgment (after consultation with its financial advisor and outside
counsel), taking into account, among other things, all legal, financial,
regulatory and other aspects of the proposal or offer, (1) if consummated,
would result in a transaction that is more favorable, from a financial point of
view, to the Debtors’ stakeholders than the transactions contemplated by the
Purchase Agreement and (2) is reasonably capable of being promptly
consummated, including with respect to receipt of all required regulatory
approvals.  “Qualified Bidder”
means a third party that (i) enters into or arranges for one or more
credit or liquidity facilities with respect to the obligations of Debtors and
the Business that are at least equivalent to the financing facilities to be
provided to Debtors and their Affiliates by Purchaser and its Affiliates (which
credit or 

 

 

liquidity facilities
shall take effect simultaneously with the termination of, and shall supersede,
and the proceeds of which shall be used to repay in full, such facilities to be
provided by Purchaser and its Affiliates) and (ii) arranges for the
termination of any Master Repurchase Agreement, Master Securities Lending
Agreement, Master Open Market Agreement or any other financing between any of
the Debtors and FRBNY, no later than the opening of business, New York time, on
Monday, September 22, 2008 and provides adequate assurance of performance
of such obligations in a manner satisfactory to FRBNY.

 

4.                                       Bidder
Required to Provide Certain Information in Connection with Other Competing Bids

 

Debtors will
within 24 hours advise Purchaser orally and in writing following receipt of (1) any
offer or proposal for a Competing Transaction or indication by any person that
it is considering making an offer or proposal relating to a Competing
Transaction, (2) any request for nonpublic information relating to Debtors
or its subsidiaries or access to the properties, books or records of Debtors of
any of its subsidiaries, other than requests in the ordinary course of business
and unrelated to an offer or proposal relating to a Competing Transaction, or (3) any
inquiry or request for discussions or negotiations regarding an offer or
proposal relating to a Competing Transaction. 
Debtors will promptly (within 24 hours) provide Purchaser with a copy
(if in writing) and summary of the related material terms of any such offer or
proposal or request (including the identity of the person making or considering
such offer or proposal or making such request) and will keep Purchaser apprised
of any material developments, discussions and negotiations on a reasonably
current basis (and in any event within 24 hours).

 

5.                                       Debtors
Obligated to Negotiate

 

Notwithstanding
anything herein to the contrary, prior to entering into an agreement in
connection with any Competing Transaction, Debtors shall have provided prior
written notice to Purchaser, at least 48 hours in advance (the “Notice
Period”), of its intention to take such action with respect to such
Competing Transaction, specifying the material terms and conditions of any such
Competing Transaction (including the identity of the party proposing to effect
such Competing Transaction) and furnishing to Purchaser a copy of the relevant
proposed transaction agreements with the party proposing to effect such
Competing Transaction and other material documents) and (B) during the
Notice Period, and in any event prior to taking such action, Debtors have
negotiated, and have caused its financial and legal advisors to negotiate, with
Purchaser in good faith (to the extent Purchaser desires to negotiate) to make
such adjustments in the terms and conditions of the Purchase Agreement so that
such proposal or offer for a Competing Transaction ceases to constitute a
Superior Proposal.

 

6.                                       Break-Up
Fee and Expense Reimbursement

 

Recognizing
the Purchaser’s expenditure of time, energy, and resources, the Debtors have
agreed that if the Purchaser is not the Successful Bidder, the Debtors will, in
certain circumstances, pay to the Purchaser a fee in the amount of $100,000,000
(the “Break-Up Fee”) and reimbursement for the Purchaser’s expenses
(including the fees and expenses of Purchaser’s legal counsel and financial
advisors) incurred in connection with the Purchase Agreement, the Sale Motion,
Sale Order, and the Bid Matters or the Break-Up Fee and Competing Bid Order and

 

 

financings or
proposed financings (the “Expense Reimbursement”), subject to the
Expense Reimbursement Cap.  The payment
of the Break-Up Fee and Expense Reimbursement will be governed by the
provisions of the Purchase Agreement and the Break-Up Fee and Competing Bid
Order.  Under no circumstances will a break-up
fee, expense reimbursement or other similar bid protections be provided by the
Debtors to any potential bidder or bidder other than the Purchaser that submits
a Qualified Bid.

 

7.                                       Additional
Bids by Qualified Bidders With an Initial Qualified Bid and the Purchaser

 

With respect
to additional bids by the Purchaser and any Qualified Bidder which makes a
Qualified Bid, subsequent or otherwise higher or better offers shall be in
minimum incremental bids with a purchase price of at least an additional $100
million in cash consideration over the last highest offer, with any subsequent
bid increases of bids to be made in minimum increments of at least $100 million
in cash consideration.  The Debtors shall
notify the Purchaser of the bid and the value of such bid that their Boards of
Directors believe to be the highest offer.

 

8.                                       The
Sale Hearing

 

The Sale
Hearing will be held before the Honorable Judge James M. Peck on September 19,
2008 at 11:00 a.m. (New York time) in the United States Bankruptcy Court
for the Southern District of New York, One Bowling Green, New York, NY.  The Sale Hearing may be adjourned or
rescheduled with the consent of the Purchaser without further notice by an
announcement of the adjourned date at the Sale Hearing.  If the Debtors do not receive any Qualified
Bids (other than the Qualified Bid of the Purchaser), the Debtors will report
the same to the Bankruptcy Court at the Sale Hearing and will proceed with a
sale of the Purchased Assets to the Purchaser following entry of the Sale
Order.

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