Document:

Exhibit 4.03

 

REPLACEMENT CAPITAL COVENANT

 

Replacement Capital Covenant, dated as of January 16,
2008 (this “Replacement Capital Covenant”),
by Xcel Energy Inc., a Minnesota corporation (together with its successors and
assigns, the “Corporation”), in
favor of and for the benefit of each Covered Debtholder (as defined below).

Recitals

 

A.            On the date hereof, the Corporation
is issuing $400,000,000 aggregate principal amount of its 7.60% Junior
Subordinated Notes due 2068 (including any such junior subordinated notes
issued after the date hereof that may be consolidated and form a single series
with such junior subordinated notes issued on the date hereof, the “Subordinated Notes”).

B.            This Replacement Capital Covenant is
the “Replacement Capital Covenant”
referred to in the Prospectus Supplement, dated January 11, 2008, relating
to the Subordinated Notes which supplements the Corporation’s Prospectus, dated
January 8, 2008.

C.            The Corporation, in entering into
and disclosing the content of this Replacement Capital Covenant in the manner
provided below, is doing so with the intent that the covenants provided for in
this Replacement Capital Covenant be enforceable by each Covered Debtholder and
that the Corporation be estopped from disregarding the covenants in this
Replacement Capital Covenant, in each case to the fullest extent permitted by
applicable law.

D.            The Corporation acknowledges that
reliance by each Covered Debtholder upon the covenants in this Replacement
Capital Covenant is reasonable and foreseeable by the Corporation and that,
were the Corporation to disregard its covenants in this Replacement Capital
Covenant, each Covered Debtholder would have sustained an injury as a result of
its reliance on such covenants.

NOW, THEREFORE,
the Corporation hereby covenants and agrees as follows in favor of and for the
benefit of each Covered Debtholder.

Section 1.               Definitions.  Capitalized terms used in this Replacement
Capital Covenant (including the Recitals) have the meanings set forth in
Schedule I hereto.

Section 2.               Limitations on Redemption, Defeasance or Purchase of
Subordinated Notes.  The
Corporation hereby promises and covenants to and for the benefit of each
Covered Debtholder that the Corporation shall not redeem or purchase or
satisfy, discharge or defease any portion of the principal amount of the
Subordinated Notes through the deposit of money and/or U.S. Government
Obligations as contemplated by Article IV of the Indenture (such
satisfaction, discharge or defeasance herein referred to as “defeasance”), and shall cause its
majority-owned Subsidiaries not to purchase, all or any part of the
Subordinated Notes on or before the Termination Date except to the extent that
either:

(a)           the
principal amount defeased or the applicable redemption or purchase price does
not exceed the sum of the following amounts raised through the issuance of
Replacement Capital Securities: (i) the Applicable Percentage of (A) the
aggregate amount of the net cash proceeds the Corporation and its Subsidiaries
have received from the sale of Common Stock and Rights to acquire Common Stock,
and (B) the Market Value of any Common Stock that has been issued in
connection with the conversion into or exchange for Common Stock of any
convertible or exchangeable securities, other than, in the case of (B),
securities for which the Corporation or any of its Subsidiaries has received
equity credit from any NRSRO; plus (ii) 100% of the aggregate
amount of net cash proceeds received by the Corporation and its Subsidiaries
from the sale of Replacement Capital Securities (other than the securities set
forth in clause (i) above); in each case, to Persons other than the
Corporation and its Subsidiaries within the applicable Measurement Period
(without double counting proceeds received in any prior Measurement Period); provided that the limitations in this Section 2
shall not restrict the repayment, redemption or other acquisition of any
Subordinated Notes that have been previously defeased or purchased in
accordance with this Replacement Capital Covenant; or

 

 

(b)           the
Subordinated Notes are exchanged for consideration that includes an aggregate
principal amount or liquidation preference (or, in the case of Common Stock,
Market Value) of Replacement Capital Securities equal to 100%  (or, in the case of Common Stock, 50%) of the
aggregate principal amount of Subordinated Notes that are exchanged.

 

Section 3.               Covered Debt.  (a)  The Corporation represents and
warrants that the Initial Covered Debt is Eligible Debt.

 

(b)           On,
or during the 30-day period immediately preceding, any Redesignation Date with
respect to the Covered Debt then in effect, the Corporation shall identify the
series of Eligible Debt that will become the Covered Debt on the related
Redesignation Date in accordance with the following procedures:

(i)            the Corporation shall identify each
series of its then outstanding long-term indebtedness for money borrowed that
is Eligible Debt;

(ii)           if only one series of the Corporation’s
then outstanding long-term indebtedness for money borrowed is Eligible Debt,
such series shall become the Covered Debt commencing on the related
Redesignation Date;

(iii)          if the Corporation has more than one
outstanding series of long-term indebtedness for money borrowed that is
Eligible Debt, then the Corporation shall identify a specific series that has
the latest stated final maturity date as of the date the Corporation is
applying the procedures in this Section 3(b) and such series shall
become the Covered Debt commencing on the related Redesignation Date;

(iv)          the series of outstanding long-term
indebtedness for money borrowed that is determined to be Covered Debt pursuant
to clause (ii) or (iii) above shall be the Covered Debt for purposes
of this Replacement Capital Covenant for the period commencing on the related
Redesignation Date and continuing to but not including the Redesignation Date
as of which a new series of outstanding long-term indebtedness is next
determined to be the Covered Debt pursuant to the procedures set forth in this Section 3(b);
and

(v)           in connection with such
identification of a new series of the Covered Debt, notice shall be given as
provided for in Section 3(d) within the time frame provided for in
such section.

(c)           Notwithstanding
any other provisions of this Replacement Capital Covenant, if a series of
Eligible Senior Debt of the Corporation has become the Covered Debt in
accordance with Section 3(b), on the date on which the Corporation issues
a new series of Eligible Subordinated Debt, then immediately upon such issuance
such series shall become the Covered Debt and the applicable series of Eligible
Senior Debt shall cease to be the Covered Debt.

(d)           Notice. 
In order to give effect to the intent of the Corporation described in
Recital C, the Corporation covenants that (i) simultaneously with the
execution of this Replacement Capital Covenant, or as soon as practicable after
the date hereof, (A) notice shall be given to the Holders of the Initial
Covered Debt, in the manner provided in the indenture or other instrument under
which such Initial Covered Debt was issued, of this Replacement Capital
Covenant and the rights granted to such Holders hereunder and (B) the
Corporation shall file a copy of this Replacement Capital Covenant with the
Commission as an exhibit to a Form 8-K under the Securities Exchange Act; (ii) so
long as the Corporation is a reporting company under the Securities Exchange
Act, the Corporation shall include in each Form 10-K filed with the
Commission under the Securities Exchange Act a description of the covenant set
forth in Section 2 and identify the series of long-term indebtedness for
borrowed money that is Covered Debt as of the date such Form 10-K is filed
with the Commission; (iii) if a series of the Corporation’s long-term
indebtedness for money borrowed (A) becomes Covered Debt or (B) ceases
to be Covered Debt, notice of such occurrence shall be given within
30 days to the holders of such long-term indebtedness for money borrowed
in the manner provided for in the indenture or other instrument under which
such long-term indebtedness for money borrowed was issued, and the Corporation
shall report such change in a Form 8-K, which must include or incorporate
by reference this Replacement Capital Covenant, and in the Corporation’s next Form 10-Q
or Form 10-K, as applicable; (iv) upon succession of any new entity
as the Corporation hereunder as a result of 

 

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a
merger, consolidation, statutory share exchange, sale, lease or transfer of all
or substantially all of the assets or other business combination of the
Corporation as it existed prior thereto, notice of such occurrence shall be
given within 30 days to the holders of the Covered Debt in the manner
provided for in the indenture or other instrument under which such long-term
indebtedness for money borrowed was issued and the Corporation shall report
such change in a Form 8-K, which must include or incorporate by reference
this Replacement Capital Covenant, and in the Corporation’s next Form 10-Q
or Form 10-K, as applicable; (v) if, and only if, the Corporation
ceases to be a reporting company under the Securities Exchange Act, the
Corporation will (A) post on its website (or any other similar electronic
platform generally available to the public) the information otherwise required
to be included in Securities Exchange Act filings pursuant to clauses (ii), (iii) and
(iv) above; and (B) cause a notice of this Replacement Capital
Covenant to be posted on the Bloomberg screen for the Initial Covered Debt or
any successor Bloomberg screen or, if none, a similar third-party vendor’s
screen the Corporation reasonably believes is appropriate (each an “Investor Screen”) and cause a hyperlink
of this Replacement Capital Covenant to be included on the Investor Screen for
each series of Covered Debt, in each case to the extent permitted by Bloomberg
or such similar third-party vendor, as the case may be; and (vi) promptly
upon the request of any Holder of Covered Debt, such Holder will be provided
with a conformed copy of this Replacement Capital Covenant.

Section 4.               Termination and Amendment. 
(a)  The obligations of the Corporation pursuant to this
Replacement Capital Covenant shall remain in full force and effect until the
earliest date (the “Termination Date”)
to occur of (i) January 1, 2038 or if earlier, the date on which the
Subordinated Notes are otherwise paid, redeemed, defeased or purchased in full
(in compliance with the terms of Section 2 of this Replacement Capital
Covenant), (ii) the date, if any, on which the Holders of at least a
majority of the outstanding principal amount of the then-effective Covered Debt
consent or agree in writing to the termination of the obligations of the
Corporation hereunder, (iii) the date on which the Corporation has no
outstanding Eligible Senior Debt or Eligible Subordinated Debt (in each case
without giving effect to the rating requirement in clause (b) of the
definition of each such term) and (iv) the date on which the Subordinated
Notes are accelerated as a result of an event of default with respect to such
Subordinated Notes under the Indenture and the Supplemental Indenture.  From and after the Termination Date, the
obligations of the Corporation pursuant to this Replacement Capital Covenant
shall be of no further force and effect with respect to the Holders or
otherwise.

(b)           This Replacement Capital Covenant may
be amended or supplemented from time to time by a written instrument signed by
the Corporation with the consent of the Holders of at least a majority of
outstanding principal amount of the then-effective Covered Debt, provided that this Replacement Capital
Covenant may be amended or supplemented from time to time by a written
instrument signed only by the Corporation (and without the consent of the
Holders of the then-effective series of Covered Debt) if any of the following
apply (it being understood that any such amendment or supplement may fall into
one or more of the following): (i) such amendment or supplement eliminates
Common Stock, Rights to acquire Common Stock, Common Equity Units and/or
Mandatorily Convertible Preferred Stock as Replacement Capital Securities, if,
in the case of this clause, after the date of this Replacement Capital
Covenant, an accounting standard or interpretive guidance of an existing
accounting standard issued by an organization or regulator that has
responsibility for establishing or interpreting accounting standards in the
United States becomes effective such that there is more than an insubstantial
risk that the failure to eliminate Common Stock, Rights to acquire Common
Stock, Common Equity Units and/or Mandatorily Convertible Preferred Stock as
Replacement Capital Securities would result in a reduction in the Corporation’s
earnings per share as calculated in accordance with generally accepted accounting
principles in the United States (“EPS”),
or the Corporation otherwise has been advised in writing by a nationally
recognized independent accounting firm that there is more than an insubstantial
risk that the failure to eliminate such securities as Replacement Capital
Securities would result in a reduction of the Corporation’s EPS, (ii) the
effect of such amendment or supplement is solely to impose additional
restrictions on the ability of the Corporation or its Subsidiaries to redeem,
defease or purchase the Subordinated Notes or to impose additional restrictions
on, or to eliminate certain of, the types of securities qualifying as
Replacement Capital Securities (other than securities which are covered by
clause (i) above) and an officer of the Corporation has delivered to the
Holders of the then-effective Covered Debt in the manner provided for in the
indenture or other instrument under which such long-term indebtedness for
borrowed money was issued a written certificate to that effect, (iii) such
amendment or supplement extends the date specified in Section 4(a)(i) or
(iv) such amendment or supplement is not adverse to the rights of the
Holders of the then-effective Covered Debt hereunder and an officer of the
Corporation has delivered to the Holders of the then-effective Covered Debt in
the manner provided for in the indenture or other instrument under which such
long-term indebtedness for money borrowed was issued a written certificate
stating that, in his or her determination, 

 

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such
amendment or supplement is not adverse to the Holders of the then-effective
Covered Debt.  For the avoidance of
doubt, an amendment or supplement that adds new types of Replacement Capital
Securities or modifies the requirements of the Replacement Capital Securities
described herein would not be adverse to the rights of the Holders of Covered
Debt if, following such amendment or supplement, this Replacement Capital
Covenant would satisfy the definition of Explicit Replacement Covenant.

(c)           For
purposes of Sections 4(a) and 4(b), the Holders whose consent or agreement
is required to terminate, amend or supplement this Replacement Capital Covenant
or the obligations of the Corporation hereunder shall be the Holders of the
then-effective Covered Debt as of a record date established by the Corporation
that is not more than 30 days prior to the date on which the Corporation
proposes that such termination, amendment or supplement becomes effective.

Section 5.               Miscellaneous.  (a)  This Replacement Capital Covenant
shall be governed by and construed in accordance with the laws of the State of
New York.

(b)           This
Replacement Capital Covenant shall be binding upon the Corporation and its
successors and assigns and shall inure to the benefit of the Covered
Debtholders as they exist from time-to-time (it being understood and agreed by
the Corporation that any Person who is a Covered Debtholder shall retain its
status as a Covered Debtholder for so long as the series of long-term indebtedness
for borrowed money owned by such Person is Covered Debt and, if such Person
initiates a claim or proceeding to enforce its rights under this Replacement
Capital Covenant after the Corporation has violated its covenants in Section 2
and before the series of long-term indebtedness for money borrowed held by such
Person is no longer Covered Debt, such Person’s rights under this Replacement
Capital Covenant shall not terminate by reason of such series of long-term
indebtedness for money borrowed no longer being Covered Debt).  The Corporation agrees that, if at any time
the Covered Debt is held by a trust (for example, where the Covered Debt is
part of an issuance of trust preferred securities), a holder of the securities
issued by such trust may enforce (including by instituting legal proceedings)
this Replacement Capital Covenant directly against the Corporation as though
such holder owned the Covered Debt directly, and the holders of such trust
securities shall be deemed Holders of Covered Debt for purposes of this
Replacement Capital Covenant for so long as the indebtedness held by such trust
remains Covered Debt hereunder.  Other
than the Covered Debtholders as provided in the two previous sentences, no
other Person shall have any rights under this Replacement Capital Covenant or
be deemed a third party beneficiary of this Replacement Capital Covenant.  In particular, no holder of the Subordinated
Notes is a third party beneficiary of this Replacement Capital Covenant, it
being understood that such holders may have rights under the Indenture.

(c)           All
demands, notices, requests and other communications to the Corporation under
this Replacement Capital Covenant shall be deemed to have been duly given and
made if in writing and (i) if served by personal delivery upon the
Corporation, on the day so delivered (or, if such day is not a Business Day,
the next succeeding Business Day) or (ii) if delivered by registered post
or certified mail, return receipt requested, or sent to the Corporation by a
national or international courier service, on the date of receipt by the
Corporation (or, if such date of receipt is not a Business Day, the next
succeeding Business Day), and in each case to the Corporation at the address
set forth below, or at such other address as may thereafter be listed as the
principal executive offices of the Corporation in the then most recently filed Form 10-K
or Form 10-Q of the Corporation, or as may thereafter be posted on the
Corporation’s website as the address for notices under this Replacement Capital
Covenant:

Xcel Energy Inc.

414 Nicollet Mall 

Minneapolis, MN  55401

Attention: Treasurer

Telephone: (612) 215-4627

Telecopy: (612) 215-5311

 

 

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IN
WITNESS WHEREOF, the Corporation has caused this Replacement Capital Covenant
to be executed by a duly authorized officer, as of the day and year first above
written.

 

	
   

  	
  XCEL ENERGY INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George E. Tyson II

  
	
   

  	
   

  	
  Name: George E. Tyson
  II

  
	
   

  	
   

  	
  Title:Vice President
  and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  

 

 

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Definitions

 

 “Alternative
Payment Mechanism” means, with respect to any Qualifying Capital
Securities, provisions in the related transaction documents that require the
issuer thereof to issue (or use Commercially Reasonable Efforts to issue), in
its sole discretion, one or more types of APM Qualifying Securities raising “eligible proceeds” (as defined in (a) below)
at least equal to the deferred Distributions on such Qualifying Capital
Securities and apply the proceeds to pay unpaid Distributions on such
Qualifying Capital Securities, commencing on the earlier of (x) the first
Distribution Date after commencement of a deferral period on which the
Corporation pays current Distributions on such Qualifying Capital Securities
and (y) the fifth anniversary of the commencement of such deferral period,
and that:

(a)           define “eligible proceeds” to mean,
for purposes of such Alternative Payment Mechanism, the net proceeds (after
underwriters’ or placement agents’ fees, commissions or discounts and other
expenses relating to the issuance or sale) that the Corporation has received
during the 180 days prior to the related Distribution Date from the
issuance of APM Qualifying Securities to Persons other than the Corporation and
its Subsidiaries, up to the Preferred Cap (as defined in (e) below) in the
case of APM Qualifying Securities that are Qualifying Preferred Stock or
Mandatorily Convertible Preferred Stock;

(b)           permit the Corporation to pay current
Distributions on any Distribution Date out of any source of funds but (x) require
the Corporation to pay deferred Distributions only out of eligible proceeds and
(y) prohibit the Corporation from paying deferred Distributions out of any
source of funds other than eligible proceeds;

(c)           if deferral of Distributions
continues for more than one year (or such shorter period as may be provided for
in the terms of such securities), require the Corporation or any of its
Subsidiaries not to redeem or purchase any securities that rank pari passu with or junior to any APM
Qualifying Securities that the Corporation has issued to settle deferred
Distributions in respect to that deferral period until at least one year after
all deferred Distributions have been paid (a “Purchase
Restriction”), other than the following (none of which shall be
restricted or prohibited by a Purchase Restriction):

(i)            purchases,
redemptions or other acquisitions by the Corporation or its Subsidiaries of
shares of Common Stock in connection with any employment or compensatory
contract, compensation or benefit plan or other similar arrangement with or for
the benefit of employees, officers, directors or consultants; or

(ii)           purchases
by the Corporation or its Subsidiaries of shares of Common Stock pursuant to a
contractually binding requirement to buy shares of Common Stock entered into
prior to the beginning of the related deferral period, including under a
contractually binding stock repurchase plan;

(d)           limit the obligation of the
Corporation to issue (or use Commercially Reasonable Efforts to issue) APM
Qualifying Securities that are Common Stock or Qualifying Warrants, either (i) during
the first five years of any deferral period or (ii) with respect to
deferred Distributions attributable to the first five years of any deferral
period (provided that such limitation shall not apply after a date not later
than the ninth anniversary of the commencement of any deferral period), to a
number of shares of Common Stock and Rights to acquire Common Stock which does
not, in the aggregate, exceed 2% of the outstanding number of shares of Common
Stock, in each case as of the date of the Corporation’s most recent publicly
available consolidated financial statements at the time of such issuance (the “Common Cap”);

(e)           limit the right of the Corporation to
issue APM Qualifying Securities that are Qualifying Preferred Stock or
Mandatorily Convertible Preferred Stock, to an amount from the issuance of such
Qualifying Preferred Stock and then-still outstanding Mandatorily Convertible Preferred
Stock pursuant to the related Alternative Payment Mechanism (including, in the
case of Qualifying Preferred Stock, at any point in time from all prior
issuances thereof pursuant to such Alternative Payment Mechanism) equal to 25%
of the initial liquidation or principal amount of the Qualifying Capital
Securities that are the subject of the related Alternative Payment Mechanism
(the “Preferred Cap”);

 

6

 

(f)            in the case of Qualifying Capital
Securities, include a Bankruptcy Claim Limitation Provision; and

(g)           permit the Corporation, at its
option, to provide that if the Corporation is involved in a merger,
consolidation, amalgamation, statutory share exchange or conveyance, transfer
or lease of assets substantially as an entirety to any other person or a
similar transaction (a “business combination”)
where immediately after the consummation of the business combination more than
50% of the voting stock of the surviving entity of the business combination, or
the entity to whom all or substantially all of the Corporation’s assets are
conveyed, transferred or leased, is owned by the shareholders of the other
party to the business combination, then clauses (a), (b) and (c) above
will not apply to any deferral period that is terminated on the next
Distribution Date following the date of consummation of the business
combination;

provided
(and it being understood) that:

(a)           the Alternative Payment Mechanism may
at the discretion of the Corporation include a share cap limiting the issuance
of APM Qualifying Securities consisting of Common Stock, Qualifying Warrants
and Mandatorily Convertible Preferred Stock, in each case to a maximum issuance
cap to be set at the discretion of the Corporation (a “Share Cap”); provided that such Share Cap will be subject to the
Corporation’s agreement to use Commercially Reasonable Efforts to increase the
Share Cap when reached and (i) only to the extent it can do so and
simultaneously satisfy its future fixed or contingent obligations under other
securities and derivative instruments that provide for settlement or payment in
shares of Common Stock or (ii) if the Corporation cannot increase the
Share Cap as contemplated in the preceding clause, by requesting its Board of
Directors to adopt a resolution for shareholder vote at the next occurring
annual shareholders meeting to increase the number of shares of the Corporation’s
authorized Common Stock for purposes of satisfying its obligations to pay
deferred Distributions;

(b)           the Corporation shall not be
obligated to issue (or use Commercially Reasonable Efforts to issue) APM
Qualifying Securities for so long as a Market Disruption Event has occurred and
is continuing;

(c)           if, due to a Market Disruption Event
or otherwise, the Corporation is able to raise and apply some, but not all, of
the eligible proceeds necessary to pay all deferred Distributions on any
Distribution Date, the Corporation will apply any available eligible proceeds
to pay accrued and unpaid Distributions on the applicable Distribution Date in
chronological order subject to the Common Cap, the Preferred Cap, and the Share
Cap (if any), as applicable; and

(d)           if the Corporation has outstanding
more than one class or series of securities under which it is obligated to sell
a type of APM Qualifying Securities and apply some part of the proceeds to the
payment of deferred Distributions, then on any date and for any period the
amount of net proceeds received by the Corporation from those sales and
available for payment of deferred Distributions on such securities shall be
applied to such securities on a pro rata basis up to the Common Cap, the
Preferred Cap and the Share Cap (if any), as applicable, in proportion to the
total amounts that are due on such securities.

“APM Qualifying Securities” means, with
respect to an Alternative Payment Mechanism, any Debt Exchangeable for
Preferred Equity or any Mandatory Trigger Provision, one or more of the
following (as designated in the transaction documents for any Qualifying
Capital Securities that include an Alternative Payment Mechanism or a Mandatory
Trigger Provision or for any Debt Exchangeable for Preferred Equity):

(a)           Common Stock;

(b)           Qualifying Warrants;

(c)           Qualifying Preferred Stock; and

(d)           Mandatorily Convertible Preferred Stock

provided that if
the APM Qualifying Securities for any Alternative Payment Mechanism, any Debt
Exchangeable for Preferred Equity or any Mandatory Trigger Provision include
both Common Stock and Qualifying Warrants, such 

 

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Alternative
Payment Mechanism, Debt Exchangeable for Preferred Equity or Mandatory Trigger
Provision may permit, but need not require, the Corporation to issue Qualifying
Warrants.

“Applicable Percentage”  means 200% with respect to any
redemption, purchase or defeasance of Subordinated Notes prior to the
Termination Date.

“Bankruptcy Claim Limitation Provision”
means, with respect to any Qualifying Capital Securities that have an
Alternative Payment Mechanism or a Mandatory Trigger Provision, provisions
that, upon any liquidation, dissolution, winding up or reorganization or in
connection with any insolvency, receivership or proceeding under any bankruptcy
law with respect to the issuer, limit the claim of the holders of such Qualifying
Capital Securities to Distributions that accumulate during (a) any
deferral period, in the case of Qualifying Capital Securities that have an
Alternative Payment Mechanism or (b) any period in which the issuer fails
to satisfy one or more financial tests set forth in the terms of such
securities or related transaction agreements, in the case of Qualifying Capital
Securities having a Mandatory Trigger Provision, to:

(i)            in the case of Qualifying Capital
Securities having an Alternative Payment Mechanism or Mandatory Trigger
Provision with respect to which the APM Qualifying Securities do not include
Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock, 25% of
the stated or principal amount of such Qualifying Capital Securities then
outstanding; and

(ii)           in the case of any other Qualifying
Capital Securities, an amount not in excess of the sum of (x) the amount
of accumulated and unpaid Distributions (including compounded amounts) that
relate to the earliest two years of the portion of the deferral period for
which Distributions have not been paid and (y) an amount equal to the
excess, if any, of the Preferred Cap over the aggregate amount of net proceeds
from the sale of Qualifying Preferred Stock or Mandatorily Convertible
Preferred Stock that the issuer has applied to pay such Distributions pursuant
to the Alternative Payment Mechanism or the Mandatory Trigger Provision, provided that the holders of such
Qualifying Capital Securities are deemed to agree that, to the extent the
remaining claim exceeds the amount set forth in subclause (x), the amount they
receive in respect of such excess shall not exceed the amount they would have
received had the claim for such excess ranked pari
passu with the interests of the holders, if any, of Qualifying Preferred
Stock or Mandatorily Convertible Preferred Stock.

“Board of Directors” means the Board of
Directors of the Corporation or a duly constituted committee thereof.

“Business Day” means each day other than (a) a
Saturday or Sunday or (b) a day on which banking institutions in The City
of New York are authorized or required by law to remain closed.

“Commercially Reasonable Efforts” means,
for purposes of selling APM Qualifying Securities, commercially reasonable
efforts to complete the offer and sale of APM Qualifying Securities to third
parties that are not the Corporation or any of its Subsidiaries in public
offerings or private placements.  The
issuer of APM Qualifying Securities shall not be considered to have made
Commercially Reasonable Efforts to effect a sale of APM Qualifying Securities
if it determines not to pursue or complete such sale due to pricing, coupon,
dividend rate or dilution considerations.

“Commission” means the United States
Securities and Exchange Commission.

“Common Cap” has the meaning specified in
the definition of Alternative Payment Mechanism.

“Common Equity Units” means a security or
combination of securities that:

(i)            gives the holders (a) a
beneficial interest in a fixed income security of the Corporation (including a
debt security, a trust preferred security of a subsidiary trust or preferred
stock) that has a maturity no greater than six years and (b) a beneficial
interest in a stock purchase contract;

 

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(ii)           includes
a remarketing feature pursuant to which the fixed income security is required
to be remarketed to new investors within four years from the date of issuance
of the security; and

(iii)          provides
for the proceeds raised in the remarketing to be used to purchase Common Stock
pursuant to the stock purchase contract for a determinable number of shares or
within a range established at the time of issuance of the Common Equity Units,
in each case subject to customary anti-dilution adjustments.

“Common Stock” means any equity securities
of the Corporation (including equity securities held as treasury shares and
equity securities sold pursuant to any dividend reinvestment plan, direct stock
purchase plan or director or employee benefit plan) that have no preference in
the payment of dividends or amounts payable upon the liquidation, dissolution
or winding up of the Corporation (including any security that tracks the
performance of, or relates to the results of, a business, unit or division of
the Corporation), and any securities that have no preference in the payment of
dividends or amounts payable upon the liquidation, dissolution or winding up of
the Corporation and are issued in exchange therefor in connection with a
merger, consolidation, statutory share exchange, business combination,
recapitalization or other similar event.

“Corporation” has the meaning specified in
the introduction to this instrument.

“Covered Debt” means (a) at the date
of this Replacement Capital Covenant and continuing to but not including the
first Redesignation Date, the Initial Covered Debt and (b) thereafter,
commencing with each Redesignation Date and continuing to but not including the
next succeeding Redesignation Date, the Eligible Debt identified pursuant to Section 3(b) as
the Covered Debt for such period.

“Covered Debtholder” means each Person
(whether a Holder or a beneficial owner holding through a participant in a
clearing agency) that buys, holds or sells long-term indebtedness for money
borrowed of the Corporation during the period that such long-term indebtedness
for money borrowed is Covered Debt, provided that a Person who has sold all its
right, title and interest in Covered Debt shall cease to be a Covered
Debtholder at the time of such sale if, at such time, the Corporation has not
breached or repudiated, or threatened to breach or repudiate, its obligations
hereunder.

“Debt Exchangeable for Equity” means Common
Equity Units or Debt Exchangeable for Preferred Equity.

“Debt Exchangeable for Preferred Equity”
means a security or combination of securities (together in this definition, “such securities”) that:

(a)           gives the holder a beneficial
interest in (i) subordinated debt securities of the Corporation permitting
the Corporation to defer Distributions in whole or in part on such securities
for one or more Distribution Periods of up to at least seven years without any
remedies other than Permitted Remedies and that are the most junior
subordinated debt of the Corporation (or rank pari
passu with the most junior subordinated debt of the Corporation) (in
this definition, “subordinated debt”)
and (ii) a fractional interest in a stock purchase contract for a share or
shares of Qualifying Preferred Stock of the Corporation that ranks pari passu with or junior to all other
preferred stock of the Corporation (in this definition, “preferred stock”);

(b)           provides that the holders directly or
indirectly grant to the Corporation a security interest in such subordinated
debt and their proceeds (including any substitute collateral permitted under
the transaction documents) to secure the holders’ direct or indirect obligation
to purchase preferred stock of the Corporation pursuant to such stock purchase
contracts;

(c)           includes a remarketing feature
pursuant to which the subordinated debt of the Corporation is remarketed to new
investors commencing not later than the first Distribution Date that is at
least five years after the date of issuance of such securities or earlier in
the event of an early settlement event based on: (i) the dissolution of
the issuer of such securities or (ii) one or more financial tests set
forth in the terms of the instrument governing such securities;

 

9

 

 

 

(d)           provides for the proceeds raised in
the remarketing of the subordinated debt to be used to purchase preferred stock
of the Corporation under the stock purchase contracts and, if there has not
been a successful remarketing by the first Distribution Date that is six years
after the date of issuance of such securities, provides that the stock purchase
contracts will be settled by the Corporation exercising its remedies as a
secured party with respect to its subordinated debt or other collateral
directly or indirectly pledged by the holders of such securities;

 

(e)           is subject to an Explicit Replacement
Covenant that will apply to such securities and preferred stock of the
Corporation, and will not include Debt Exchangeable for Equity as a Replacement
Capital Security; and

 

(f)            if applicable, after the issuance of
such preferred stock of the Corporation, provides the holders of such
securities with a beneficial interest in such preferred stock of the
Corporation.

 

“Defeasance” has the meaning specified in Section 2.

 

“Distribution Date” means, as to any
security or combination of securities, the dates on which periodic
Distributions on such securities are scheduled to be made.

 

“Distribution Period” means, as to any
security or combination of securities, each period from and including a
Distribution Date for such securities to but not including the next succeeding
Distribution Date for such securities.

 

“Distributions” means, as to a security or
combination of securities, dividends, interest payments or other income
distributions to the holders thereof that are not Subsidiaries of the
Corporation.

 

“Eligible Debt” means, at any time,
Eligible Subordinated Debt or, if no Eligible Subordinated Debt is then
outstanding, Eligible Senior Debt.  The
Subordinated Notes shall not be considered “Eligible Debt” for purposes of this
Replacement Capital Covenant.

 

“Eligible Senior Debt” means, at any time
in respect of any issuer, each series of the issuer’s then-outstanding
unsecured long-term indebtedness for money borrowed that (a) upon a
bankruptcy, liquidation, dissolution or winding up of the issuer, ranks most
senior among the issuer’s then outstanding classes of unsecured indebtedness
for money borrowed, (b) is then assigned a rating by at least one NRSRO
(provided that this clause (b) shall apply on a Redesignation Date only if
on such date the issuer has outstanding senior long-term indebtedness for money
borrowed that satisfies the requirements of clauses (a), (c) and (d) that
is then assigned a rating by at least one NRSRO), (c) has an outstanding
principal amount of not less than $100,000,000, and (d) was issued through
or with the assistance of a commercial or investment banking firm or firms
acting as underwriters, initial purchasers or placement or distribution agents.  For purposes of this definition as applied to
securities with a CUSIP number, each issuance of long-term indebtedness for
money borrowed that has (or, if such indebtedness is held by a trust or other
intermediate entity established directly or indirectly by the issuer, the
securities of such intermediate entity that have) a separate CUSIP number shall
be deemed to be a series of the issuer’s long-term indebtedness for money
borrowed that is separate from each other series of such indebtedness.

 

“Eligible Subordinated Debt” means, at any
time in respect of any issuer, each series of the issuer’s then-outstanding
unsecured long-term indebtedness for money borrowed that (a) upon a
bankruptcy, liquidation, dissolution or winding up of the issuer, ranks senior
to the Subordinated Notes and subordinate to the issuer’s then outstanding
series of unsecured indebtedness for money borrowed that ranks most senior, (b) is
then assigned a rating by at least one NRSRO (provided that this clause (b) shall
apply on a Redesignation Date only if on such date the issuer has outstanding
subordinated long-term indebtedness for money borrowed that satisfies the
requirements in clauses (a), (c) and (d) that is then assigned a
rating by at least one NRSRO), (c) has an outstanding principal amount of
not less than $100,000,000, and (d) was issued through or with the
assistance of a commercial or investment banking firm or firms acting as
underwriters, initial purchasers or placement or distribution agents.  For purposes of this definition as applied to
securities with a CUSIP number, each issuance of long-term indebtedness for
money borrowed that has (or, if such indebtedness is held by a trust or other
intermediate entity established directly or indirectly by the issuer, the securities
of such intermediate entity have) a separate CUSIP number shall be 

 

10

 

deemed to be a series of the issuer’s long-term
indebtedness for money borrowed that is separate from each other series of such
indebtedness.

 

“Explicit Replacement Covenant” means, as
to any security or combination of securities, that the issuer has made a
covenant substantially similar to this Replacement Capital Covenant to the
effect that the issuer will redeem, defease or purchase, and any Subsidiaries
of the issuer will purchase, such securities only if and to the extent that the
applicable percentage of the amount raised through the issuance of specified
replacement capital securities that have terms and provisions at the time of
redemption, defeasance or purchase that are as much or more equity-like than
the securities then being redeemed, defeased or purchased, raised within 180
days prior to the applicable redemption, defeasance or purchase date, and that
the board of directors of the issuer has determined that such covenant is
binding on the issuer for the benefit of one or more series of the long-term
indebtedness for money borrowed of the issuer (or an affiliate of the issuer,
if the covenant so provides) to the same extent as this Replacement Capital
Covenant is binding on the Corporation for the benefit of the Holders of the
Initial Covered Debt; provided
that the term of such Explicit Replacement Covenant shall be determined at the
time of issuance of the related Replacement Capital Securities taking into
account the other characteristics of such securities but in no event shall such
term expire prior to January 1, 2038.

 

“Form 8-K” means a Current Report on Form 8-K
filed with the Commission under the Securities Exchange Act, and any successor
report.

 

“Form 10-K” means an Annual Report on Form 10-K
filed with the Commission under the Securities Exchange Act, and any successor
report.

 

“Form 10-Q” means a Quarterly Report
on Form 10-Q filed with the Commission under the Securities Exchange Act,
and any successor report.

 

“Holder” means, as to the Covered Debt then
in effect, each holder of such Covered Debt as reflected on the securities
register maintained by or on behalf of the Corporation with respect to such Covered
Debt.

 

“Indenture” means the Junior Subordinated
Indenture, dated as of January 1, 
2008, between the Corporation and Wells Fargo Bank, National
Association, as trustee.

 

“Initial Covered Debt” means the
Corporation’s 6.50% Senior Notes due July 1, 2036 (CUSIP 98389BAH3).

 

“Intent-Based Replacement Disclosure”
means, as to any security or combination of securities issued, directly or
indirectly, that the issuer has publicly stated its intention, either in the
prospectus or other offering document under which such security or combination
of securities were initially offered for sale or in filings with the Commission
made by the issuer or an affiliate under the Securities Exchange Act prior to
or contemporaneously with the issuance of such securities, that the issuer will
redeem, purchase or defease such securities only with amounts raised from
securities that would be considered Replacement Capital Securities,
substantially as that term is defined herein but as applied to such securities
instead of to the Subordinated Notes, issued within 180 days prior to the
applicable redemption or purchase date; provided
that if the issuer has the right to redeem such securities at a redemption
price equal to 100% of their principal or stated amount, plus any accrued and
unpaid interest or dividends, and the securities have a Distribution Rate
Step-Up at any time prior to January 1, 2038, any such securities that
would otherwise be subject only to Intent-Based Replacement Disclosure shall
also be subject to an Explicit Replacement Covenant.  “Distribution
Rate Step-Up” means any future increase (as specified in the
documentation applicable to such securities at the time of issuance) in the
fixed rate or floating rate calculation pursuant to which Distributions accrue
or are paid that is 0.25% or more over the fair market rate calculation made at
the time of issuance of such securities, including (a) in the case of any
fixed rate securities, any increase in the interest rate of 0.25% or more above
the initial interest rate for such securities, (b) in the case of any
floating rate securities, any increase in the interest rate of 0.25% or
more  in the spread over the applicable
index above the initial spread for such securities, and (c) in the case of
any fixed-to-floating rate securities, a spread over the applicable index
during the floating rate period that is 0.25% or more above the initial
swap-equivalent spread for the initial fixed rate on the securities (but not
including an increase in the rate of Distributions solely because (i) the
index used 

 

11

 

in calculating a floating rate increases, (ii) the
rate changes from a fixed rate to a floating rate or (iii) the duration of
an applicable floating rate period is altered).

 

“Investor Screen” has the meaning specified
in Section 3(d).

 

“Mandatorily Convertible Preferred Stock”
means cumulative preferred stock of the Corporation with (a) no prepayment
obligation on the part of the issuer thereof, whether at the election of the
holders or otherwise, and (b) a requirement that the preferred stock
convert into Common Stock within three years from the date of its issuance for
a determinable number of shares or within a range established at the time of
issuance of the preferred stock, subject to customary anti-dilution
adjustments.

 

“Mandatory Trigger Provision” means, as to
any security or combination of securities, provisions in the terms thereof or
in the related transaction agreements that (a) require, or at its option
in the case of perpetual Non-Cumulative Preferred Stock permit, the issuer of
such security or combination of securities to make payment of Distributions on
such securities only in connection with the issuance and sale of APM Qualifying
Securities, within two years of a failure to satisfy one or more financial
tests set forth in the terms of such securities or related transaction
agreements, in an amount such that the net proceeds of such sale at least equal
the amount of unpaid Distributions on such securities (including without
limitation all deferred and accumulated amounts) and in either case requires
the application of the net proceeds of such sale to pay such unpaid
Distributions; provided that (i) such Mandatory Trigger Provision shall
limit the issuance and sale of Common Stock and Qualifying Warrants the
proceeds of which may be applied to pay such Distributions pursuant to such
provision to the Common Cap, unless the Mandatory Trigger Provision requires
such issuance and sale within one year of such failure, and (ii) the
amount of Qualifying Preferred Stock or still outstanding Mandatorily
Convertible Preferred Stock the net proceeds of which the issuer may apply to
pay such Distributions pursuant to such provision may not exceed the Preferred
Cap, (b) in the case of securities other than perpetual Non-Cumulative
Preferred Stock, prohibit the issuer from purchasing any APM Qualifying
Securities, or any securities that rank pari
passu with or junior to APM Qualifying Securities, prior to the date
six months after the issuer applies the net proceeds of the sales described in
clause (a) to pay such unpaid Distributions in full, (c) in the case
of securities other than perpetual Non-Cumulative Preferred Stock, include a
Bankruptcy Claim Limitation Provision and (d) if deferral of Distributions
continues for more than one year (or such shorter period as may be provided for
in the terms of such securities), prohibit the issuer of such securities from
redeeming or purchasing any of its securities ranking upon the liquidation,
dissolution or winding up of the issuer junior to or pari passu with any APM Qualifying Securities the proceeds
of which were used to settle deferred Distributions during the relevant
deferral period until at least one year after all deferred Distributions have
been paid.  For purposes of this
definition of Mandatory Trigger Provision, (1) the issuer will not be
obligated to issue (or use Commercially Reasonable Efforts to issue) any such
APM Qualifying Securities for so long as a Market Disruption Event has occurred
and is continuing; (2) if, due to a Market Disruption Event or otherwise,
the issuer is able to raise and apply some, but not all, of the eligible
proceeds necessary to pay all deferred Distributions on any Distribution Date,
the issuer will apply any available eligible proceeds to pay accrued and unpaid
Distributions on the applicable Distribution Date in chronological order
subject to the Common Cap, the Preferred Cap and the Share Cap (if any), as
applicable; and (3) if the issuer has outstanding more than one class or
series of securities under which it is obligated to sell a type of any such APM
Qualifying Securities and applies some part of the proceeds to the payment of
deferred Distributions, then on any date and for any period the amount of net
proceeds received by the issuer from those sales and available for payment of
deferred Distributions on such securities shall be applied to such securities
on a pro rata basis up to the Common Cap, the Preferred Cap and the Share Cap
(if any), as applicable, in proportion to the total amounts that are due on
such securities.  No remedy other than
Permitted Remedies will arise by the terms of such securities or related
transaction agreements in favor of the holders of such securities as a result
of the issuer’s failure to pay Distributions because of the Mandatory Trigger
Provision or as a result of the issuer’s exercise of its right under an
Optional Deferral Provision until Distributions have been deferred for one or
more Distribution Periods that total together at least ten years.

 

“Market Disruption Event” means the
occurrence or existence of any of the following events or sets of
circumstances:

 

(a)           trading in securities generally, or
in the securities of the issuer (or any affiliate of the issuer that may issue
securities in settlement of an Alternative Payment Mechanism) specifically, on
The New York Stock Exchange or any other national securities exchange or
over-the-counter market on which such securities are then 

 

12

 

listed or traded shall have been suspended or the
settlement of such trading generally shall have been materially disrupted or
minimum prices shall have been established on any such exchange or market by
the Commission, by the relevant exchange or by any other regulatory body or
governmental body having jurisdiction, and the establishment of such minimum
prices materially disrupts or otherwise has a material adverse effect on
trading in, or the issuance and sale of, such securities;

 

(b)           the issuer (or an affiliate as
specified in clause (i)) would be required to obtain the consent or approval of
its shareholders (or the shareholders of an affiliate as specified in clause
(i)) or a regulatory body (including, without limitation, any securities
exchange) or governmental authority to issue APM Qualifying Securities and the
issuer (or an affiliate as specified in clause (i)) fails to obtain that
consent or approval notwithstanding the commercially reasonable efforts of the
issuer (or such affiliate) to obtain that consent or approval or a regulatory
authority instructs the issuer (or an affiliate as specified in clause (i)) not
to sell or offer for sale such securities;

 

(c)           a banking moratorium shall have been
declared by the federal or state authorities of the United States and such
moratorium materially disrupts or otherwise has a material adverse effect on
trading in, or the issuance and sale of, APM Qualifying Securities;

 

(d)           a disruption shall have occurred in
commercial banking or securities settlement or clearance services in the United
States and such disruption materially disrupts or otherwise has a material
adverse effect on trading in, or the issuance and sale of, APM Qualifying
Securities;

 

(e)           the United States shall have become
engaged in hostilities, there shall have been an escalation in hostilities
involving the United States, there shall have been a declaration of a national
emergency or war by the United States or there shall have occurred any other
national or international calamity or crisis and such event materially disrupts
or otherwise has a material adverse effect on trading in, or the issuance and
sale of, APM Qualifying Securities;

 

(f)            there shall have occurred such an
adverse change in general domestic or international economic, political or
financial conditions, including without limitation as a result of terrorist
activities, and such change materially disrupts or otherwise has a material
adverse effect on trading in, or the issuance and sale of, APM Qualifying
Securities;

 

(g)           an event occurs and is continuing as
a result of which the offering document for the offer and sale of the APM
Qualifying Securities would, in the reasonable judgment of the issuer (or an
affiliate as specified in clause (i)), contain an untrue statement of a
material fact or omit to state a material fact required to be stated in that
offering document or necessary to make the statements in that offering document
not misleading and either (A) the disclosure of that event at such time,
in the reasonable judgment of the issuer (or an affiliate as specified in
clause (i)), would have a material adverse effect on the business of the issuer
(or an affiliate as specified in clause (i)) or (B) the disclosure relates
to a previously undisclosed proposed or pending material business transaction,
the disclosure of which would impede the ability of the issuer or any affiliate
to consummate that transaction, provided that no single suspension period
contemplated by this paragraph (vii) shall exceed 90 consecutive days and
multiple suspension periods contemplated by this paragraph (vii) shall not
exceed an aggregate of 180 days in any 360-day period; or

 

(h)           the issuer (or an affiliate as
specified in clause (a)) reasonably believes, for reasons other than those
referred to in paragraph (g) above, that the offering document for such
offer and sale of APM Qualifying Securities would not be in compliance with a rule or
regulation of the Commission and the issuer (or an affiliate as specified in
clause (a)) is unable to comply with such rule or regulation or such
compliance is unduly burdensome, provided that no single suspension period
contemplated by this paragraph (h) shall exceed 90 consecutive days and
multiple suspension periods contemplated by this paragraph (h) shall not
exceed an aggregate of 180 days in any 360-day period.

 

“Market Value” means, on any date, the
closing sale price per share of Common Stock (or if no closing sale price is
reported, the average of the bid and ask prices or, if more than one in either
case, the average of the average bid and the average ask prices) on that date
as reported in composite transactions by The New York Stock Exchange 

 

13

 

or, if the Common Stock is not then listed on The New
York Stock Exchange, as reported by the principal U.S. securities exchange on
which the Common Stock is traded or quoted; if the Common Stock is not either
listed or quoted on any U.S. securities exchange on the relevant date, the Market
Value will be the average of the mid-point of the bid and ask prices for the
Common Stock on the relevant date submitted by at least three nationally
recognized independent investment banking firms selected by the Corporation for
this purpose.

 

“Measurement Period” with respect to any
redemption, purchase or defeasance of Subordinated Notes, means the period (i) beginning
on the date that is 180 days prior to the date of delivery of notice of
such redemption (such date of delivery, the “notice
date”) or the date of such purchase or defeasance and (ii) ending
on such notice date or the date of such purchase or defeasance.  Measurement Periods cannot run concurrently.

 

“Most Junior Subordinated Debt” means debt
securities of the Corporation that rank upon the Corporation’s liquidation,
dissolution or winding-up junior to all of the Corporation’s other long-term
indebtedness for money borrowed (other than the Corporation’s long-term
indebtedness for money borrowed from time to time outstanding that by its terms
ranks pari passu with such
securities) and pari passu with
the claims of the Corporation’s trade creditors.  As of the date hereof, the term “Most Junior
Subordinated Debt” shall include the Subordinated Notes.

 

“Non-Cumulative” means, with respect to any
securities, that the issuer thereof may elect not to make any number of
periodic Distributions without any remedy arising under the terms of the
securities or related agreements in favor of the holders, other than one or
more Permitted Remedies.  Securities that
include an Alternative Payment Mechanism shall also be deemed to be
Non-Cumulative for all purposes of this Replacement Capital Covenant except in
the definition of  “Non-Cumulative
Preferred Stock” and “Qualifying Preferred Stock.”

 

“Non-Cumulative Preferred Stock” means
preferred or preference stock having Distributions which may be skipped by the
issuer thereof for any number of Distribution Periods without any remedy
arising under the terms of such securities or related transaction agreements in
favor of the holders of such securities as a result of such issuer’s failure to
pay Distributions, other than Permitted Remedies.

 

“NRSRO” means a nationally recognized
statistical rating organization as such term is used under the Securities
Exchange Act.

 

“Optional Deferral Provision” means, as to
any security or combination of securities, a provision in the terms thereof or
of the related transaction agreements, to the effect that the issuer thereof
may, in its sole discretion, defer in whole or in part payment of Distributions
on such securities for one or more consecutive Distribution Periods of up to
ten years without any remedy other than Permitted Remedies as a result of such
issuer’s failure to pay Distributions.

 

“Permitted Remedies” means, as to any
security or combination of securities, any one or more of the following
remedies:

 

(a)           rights in favor of the holders of
such securities permitting such holders to elect one or more directors of the
issuer (including any such rights required by the listing requirements of any
stock or securities exchange on which such securities may be listed or traded);

 

(b)           complete or partial prohibitions on
the issuer paying Distributions on or repurchasing Common Stock or other
securities that rank pari passu with or junior as to Distributions to such
securities for so long as Distributions on such securities, including deferred
Distributions, have not been paid in full or to such lesser extent as may be
specified in the terms of such securities; and

 

(c)           provisions obliging the issuer to
cause such unpaid Distributions to be paid in full pursuant to an Alternative
Payment Mechanism.

 

“Person” means any individual, corporation,
partnership, joint venture, trust, limited liability company or corporation,
unincorporated organization or government or any agency or political
subdivision thereof.

 

14

 

“Preferred Cap” has the meaning specified
in the definition of Alternative Payment Mechanism.

 

“Purchase Restriction” has the meaning
specified in the definition of Alternative Payment Mechanism.

 

“Qualifying Capital Securities” means
securities (other than Common Stock, Rights to acquire Common Stock,
Mandatorily Convertible Preferred Stock and Debt Exchangeable for Equity) that
rank pari passu with or junior to
the Most Junior Subordinated Debt of the Corporation upon its liquidation,
dissolution or winding up and, in the determination of the Corporation’s Board
of Directors reasonably construing the definitions and other terms of this
Replacement Capital Covenant, meet one of the following criteria:

 

(a)           in
connection with any redemption, defeasance or purchase of Subordinated Notes
prior to January 16, 2018:

 

(i)            securities issued
by the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 60 years and (B) either (x) are subject to
an Explicit Replacement Covenant and are Non-Cumulative or (y) have a
Mandatory Trigger Provision and an Optional Deferral Provision and are subject
to Intent-Based Replacement Disclosure;

 

(ii)           securities issued
by the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 40 years, (B) are subject to an Explicit
Replacement Covenant, (C) have an Optional Deferral Provision and (D) have
a Mandatory Trigger Provision;

 

(iii)          securities issued
by the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 60 years, (B) are subject to an Explicit
Replacement Covenant and (C) have an Optional Deferral Provision;

 

(iv)          securities issued by
the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 60 years, (B) are subject to Intent-Based
Replacement Disclosure and (C) are Non-Cumulative;

 

(v)           securities issued by
the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 60 years, (B) have an Optional Deferral
Provision and (C) have a Mandatory Trigger Provision;

 

(vi)          securities issued by
the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 40 years, (B) are subject to an Explicit
Replacement Covenant and (C) are Non-Cumulative;

 

(vii)         securities issued by
the Corporation or its Subsidiaries that (A) either (x) have no
maturity or a maturity of at least 40 years and are subject to
Intent-Based Replacement Disclosure or (y) have no maturity or a maturity
of at least 25 years and are subject to an Explicit Replacement Covenant, (B) have
an Optional Deferral Provision and (C) have a Mandatory Trigger Provision;
or

 

(viii)        any other preferred
stock issued by the Corporation that (A) has no prepayment obligation on
the part of the issuer thereof, whether at the election of the holders or
otherwise, (B) has no maturity or a maturity of at least 60 years and
(C) is subject to an Explicit Replacement Covenant;

 

(b)           in
connection with any redemption, defeasance or purchase of the Subordinated
Notes on or after January 16, 2018:

 

(i)            all securities
described under clause (a) of this definition;

 

(ii)           securities issued
by the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 60 years, (B) are subject to Intent-Based
Replacement Disclosure and (C) have an Optional Deferral Provision;

 

15

 

(iii)          securities issued
by the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 40 years, (B) are subject to an Explicit
Replacement Covenant and (C) have an Optional Deferral Provision;

 

(iv)          securities issued by
the Corporation or its Subsidiaries that (A) either (x) have no
maturity or a maturity of at least 40 years and are subject to
Intent-Based Replacement Disclosure or (y) have no maturity or a maturity
of at least 25 years and are subject to an Explicit Replacement Covenant
and (B) are Non-Cumulative;

 

(v)           securities issued by
the Corporation or its Subsidiaries that (A) have no maturity or a
maturity of at least 25 years, (B) are subject to Intent-Based
Replacement Disclosure, (C) have an Optional Deferral Provision and (D) have
a Mandatory Trigger Provision; or

 

(vi)          any other preferred
stock issued by the Corporation that (A) has no prepayment obligation on
the part of the issuer thereof, whether at the election of the holders or
otherwise and (B) either (x) has no maturity or a maturity of at
least 60 years and is subject to Intent-Based Replacement Disclosure or (y) has
no maturity or a maturity of at least 40 years and is subject to an
Explicit Replacement Covenant.

 

“Qualifying Preferred Stock” means
preferred or preference stock of the Corporation that (a) ranks pari passu with or junior to other
preferred stock of the Corporation, (b) is perpetual with no prepayment
obligation on the part of the Corporation, whether at the election of the
holders or otherwise, and (c) either (i) is Non-Cumulative and has
Intent-Based Replacement Disclosure, or (ii) is cumulative preferred stock
and has an Explicit Replacement Covenant.

 

“Qualifying Warrants” means net share
settled warrants to purchase Common Stock that have an exercise price greater than
the current Market Value of the issuer’s Common Stock as of their date of
issuance, that do not entitle the issuer to redeem for cash and the holders of
such warrants are not entitled to require the issuer to repurchase for cash in
any circumstance.

 

“Redesignation Date” means, as to the
then-effective Covered Debt, the earliest of (a) the date that is two
years prior to the final maturity date of such Covered Debt, (b) if the
Corporation elects to redeem or defease, or the Corporation or a majority-owned
Subsidiary of the Corporation elects to purchase, such Covered Debt either in
whole or in part with the consequence that after giving effect to such
redemption, defeasance or purchase the outstanding principal amount of such
Covered Debt is less than $100,000,000, the applicable redemption, defeasance
or purchase date and (c) if the then-outstanding Covered Debt is not
Eligible Subordinated Debt, the date on which the Corporation issues long-term
indebtedness for money borrowed that is Eligible Subordinated Debt.

 

“Replacement Capital Covenant” has the
meaning specified in the introduction to this instrument.

 

“Replacement Capital Securities” means
securities that meet one or more of the following criteria in the determination
of the Board of Directors reasonably construing the definitions and other terms
of this Replacement Capital Covenant:

 

(a)           Common Stock or rights to acquire
Common Stock (including Common Stock or rights to acquire Common Stock issued
pursuant to the Corporation’s dividend reinvestment plan, direct share purchase
program or employee benefit plans);

 

(b)           Debt Exchangeable for Equity;

 

(c)           Mandatorily Convertible Preferred
Stock; and

 

(d)           Qualifying Capital Securities.

 

16

 

“Rights to acquire Common Stock” includes
any right to acquire Common Stock, including any right to acquire Common Stock
pursuant to a stock purchase plan or employee benefit plan.  Rights to acquire Common Stock shall include
Qualifying Warrants.

 

“Securities Exchange Act” means the
Securities Exchange Act of 1934, as amended.

 

 “Share Cap”
has the meaning specified in the definition of Alternative Payment Mechanism.

 

 “Subordinated
Notes” has the meaning specified in Recital A.

 

“Subsidiary” means, at any time, any Person
the shares of stock or other ownership interests of which having ordinary
voting power to elect a majority of the board of directors or other managers of
such Person are at the time owned, or the management or policies of which are
otherwise at the time controlled, directly or indirectly through one or more
intermediaries (including other Subsidiaries) or both, by another Person.

 

“Supplemental Indenture” means Supplemental
Indenture No. 1 dated January 16, 2008 to the Indenture.

 

 “Termination
Date” has the meaning specified in Section 4(a).

 

17Exhibit 4.01

 

CUSIP
NO. 5252M0BF3

ISIN NO. US5252M0BF38

 

REGISTERED                                                                                                                        PRINCIPAL
AMOUNT: $813,000

No. R-1

 

 

LEHMAN BROTHERS
HOLDINGS INC.

 

MEDIUM-TERM NOTE,
SERIES I

 

NOTES LINKED TO A LATIN AMERICAN CURRENCY BASKET
 DUE JANUARY 11, 2010

 

 

THIS
NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY OR A NOMINEE OF THE
DEPOSITORY.  UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55
WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY (AS DEFINED BELOW) OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

UNLESS
AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM (A “CERTIFICATED NOTE”), THIS GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY
OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.

 

 

LEHMAN BROTHERS HOLDINGS
INC., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the “Company,” which term includes any successor
corporation under the Indenture referred to on the reverse hereof), for value
received, hereby promises to pay to CEDE & Co., or registered assigns,
on the Maturity Date, an amount equal to the Redemption Amount.

The
“Maturity Date” is January 11, 2010, or if such day is not a Business Day,
on the next following Business Day.

The “Valuation Date” is January 5, 2010;
provided that, upon the occurrence of a Disruption Event with respect to a
Basket Currency, the Valuation Date for the affected Basket Currency may be
postponed (as described in “Disruption Events” below).

The “Redemption Amount” is the amount equal
to the sum of the principal amount of the Notes of $1,000, plus the Additional
Amount, if any.

The “Additional Amount” is an amount per Note
equal to the greater of (a) zero and (b) $1,000 multiplied by the
product of the Basket Return times the Participation Rate.

The “Participation Rate” is 335%.

The “Basket” is the Brazilian Real (BRL), the
Argentine Peso (ARS), the Mexican Peso (MXN) and the Chilean Peso (CLP), each a
“Basket Currency” and collectively the “Basket Currencies”.

The “Basket Return” is a
quotient, the numerator of which is the difference of the Basket Ending Level
minus the Basket Starting Level and the denominator of which is the Basket
Starting Level.

The “Basket Starting
Level” is set equal to 100 on the Trade Date.

The “Basket Ending Level”
is the Basket closing level on the Valuation Date, equal to the product of 100
times the sum of 1 plus the sum of the Weighted Currency Returns.

The “Weighted Currency
Return” for each Basket Currency is the product of the Currency Return for such
Basket Currency times the Basket Currency Weighting for such Basket Currency.

The “Currency Return” for
each Basket Currency is a quotient, the numerator of which is the difference of
the Initial Spot Rate for such Basket Currency minus the Final Spot Rate for
such Basket Currency and the denominator of which is the Final Spot Rate for
such Basket Currency.

The “Final Spot Rate” for
each Basket Currency is the Reference Exchange Rate for that Basket Currency on
the Valuation Date, determined by the Calculation Agent in accordance with the
Spot Rate Source (subject to the occurrence of a Disruption Event).

The “Weighting” and
“Initial Spot Rate” for each Basket Currency are as follows:

2

 

	
  Basket Currency

  	
   

  	
  Weighting

  	
   

  	
  Initial Spot Rate

  
	
  BRL

  	
   

  	
  25%

  	
   

  	
  1.7647

  
	
  ARS

  	
   

  	
  25%

  	
   

  	
  3.1375

  
	
  MXN

  	
   

  	
  25%

  	
   

  	
  10.9265

  
	
  CLP

  	
   

  	
  25%

  	
   

  	
  496.60

  

 

The
“Reference Exchange Rates” are, for each Basket Currency, the spot exchange
rates for that Basket Currency quoted against the U.S. dollar, expressed as the
number of units of the Basket Currency per one USD.

The “Issue Date” is January 11, 2008.

If a
Disruption Event relating to one or more of the Basket Currencies is in effect
on the scheduled Valuation Date, the Calculation Agent will calculate the
Basket Return using:

·                                          for each Basket Currency that did  not suffer a Disruption Event on the scheduled
Valuation Date, the Final Spot Rate on the scheduled Valuation Date, and

·                                          for each Basket Currency that did suffer a Disruption Event on the scheduled Valuation Date, the Final
Spot Rate on the immediately succeeding scheduled Valuation Business Day for
such Basket Currency on which no Disruption Event occurs or is continuing with
respect to such Basket Currency;

provided, however, that if a Disruption Event has occurred or is continuing
with respect to a Basket Currency on each of the three scheduled Valuation
Business Days following the scheduled Valuation Date, then (a) such third
scheduled Valuation Business Day shall be deemed the Valuation Date for the
affected Basket Currency; and (b) the Calculation Agent will determine the
Final Spot Rate for the affected Basket Currency on such day in accordance with
Fallback Rate Observation Methodology.

For
purposes of the above, “scheduled Valuation Business Day” means a day that is
or, in the judgment of the Calculation Agent, should have been, a Valuation
Business Day for the affected Basket Currency.

A
“Disruption Event” means any of the following events with respect to a Basket
Currency, as determined in good faith by the Calculation Agent:

(A)                              the occurrence and/or existence of
an event on any day that has the effect of preventing or making impossible (x) the
delivery of USD from accounts inside the Basket Currency Jurisdiction for that
Basket Currency to accounts outside that Basket Currency Jurisdiction, or (y) for
MXN only, the conversion of the Basket Currency into USD through customary
legal channels;

(B)                                the
occurrence of any event causing the Reference Exchange Rate for the Basket
Currency to be split into dual or multiple currency exchange rates; or

 

3

 

(C)                                the Final Spot Rate
being unavailable for the Basket Currency, or the occurrence of an event (i) in
the Basket Currency Jurisdiction for that Basket Currency that materially
disrupts the market for the Basket Currency or (ii) that generally makes
it impossible to obtain the Final Spot Rate for the Basket Currency, on the
Valuation Date.

A “Valuation Business Day” means, with respect to each
Basket Currency, any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which commercial banks are authorized or required by
law, regulation or executive order to close (including for dealings in foreign
exchange in accordance with the practice of the foreign exchange market) in the
city or jurisdiction indicated in the table below:

 

	
  Basket Currency

  	
   

  	
  Screen Reference

  	
   

  	
  Valuation Business Day

  
	
  BRL

  	
   

  	
  BRFR

  	
   

  	
  Brazilia,
  Rio de Janiero or

  São Paulo; and New York

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARS

  	
   

  	
  ARS=

  	
   

  	
  Buenos Aires and New York

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MXN

  	
   

  	
  USDMXNFIX

  	
   

  	
  Mexico City and New York

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CLP

  	
   

  	
  CLOPB

  	
   

  	
  Santiago and New York

  

 

The “Spot Rate Source” for the
BRL is the Brazilian Real/U.S. Dollar offered rate for U.S. Dollars, expressed
as the amount of Brazilian Reals per one U.S. Dollar, for settlement in two
Business Days reported by the Banco Central do Brasil on SISBACEN Data System
under transaction code PTAX-800 (“Consulta de Cambio” or Exchange Rate Inquiry), Option 5 (“Cotacoes para Contabilidade” or Rates for Accounting
Purposes), which appears on Reuters Screen BRFR Page under the caption
“Dolar PTAX” at approximately 6:30 pm Sao Paolo time on the Trade Date or
Valuation Date, as applicable.  The Spot
Rate Source for the ARS is the Argentine Peso/U.S. dollar official fixing rate,
expressed as the amount of Argentine Pesos per one U.S. dollar for settlement
on the same day (or, if that day is not a business day in Buenos Aires and New
York, for settlement on the first succeeding day that is a business day in both
Buenos Aires and New York) which appears on the Reuters Screen ARS=
page at the close of business in Buenos Aires on that Valuation Date.  The Spot Source Rate for the MXN is the
Mexican Peso/U.S. Dollar official fixing rate, expressed as the amount of
Mexican Pesos per one U.S. Dollar, for settlement in two business days reported
by Banco de Mexico which appears on Reuters Screen MEX01 Page under the
heading “USDMXNFIX=“ at the close of business in Mexico City on the Start Date or such other relevant date. 
The Spot Source Rate for the CLP is the Chilean Peso/U.S. Dollar
observado rate, expressed as the amount of Chilean Pesos per one U.S. Dollar,
for settlement on the same day reported by the Banco Central de Chile which
appears on the Reuters Screen CLPOB=Page below the caption “Value” at
approximately 10:00 a.m., Santiago time, on the first Business Day
following the relevant Valuation Date. 
The term “business day” solely as used in any Spot Rate Source described
above shall mean any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which commercial banks are authorized or required by
law, regulation or executive order to close (including for dealings in foreign
exchange in accordance with the practice of the foreign exchange market) in the
Principal Financial Center for both (a) the Basket Currency and
(b) the currency against which the Basket Currency is quoted (the “base
currency”) in accordance with the Reference Exchange 

 

4

 

Rate specified in the
applicable pricing supplement, in each case as specified for the applicable
Basket Currency or base currency in the table above.

 

The screen or time of observation indicated in
relation to any Final Spot Rate above shall be deemed to refer to such screen or time of
observation as modified or amended from time to time, or to any substitute
screen thereto.

The “Fallback Rate
Observation Methodology” means that the Reference Exchange Rate, Final Spot
Rate or other rate, as specified in the applicable pricing supplement, in
respect of a basket currency will equal the noon buying rate in New York for
cable transfers in foreign currencies as announced by the Federal Reserve Bank
of New York for
customs purposes (the “Noon Buying Rate”) on the relevant Valuation Date or
such other date specified in the applicable pricing supplement. If the Noon Buying
Rate is not announced on that date, the Reference Exchange Rate, Final Spot
Rate or other rate for such Basket Currency will be calculated on the basis of
the arithmetic mean of the applicable spot quotations received by the
Calculation Agent at approximately 10:00 a.m., New York City time, on the
Valuation Business Day next succeeding the Valuation Date or such other date
specified in the applicable pricing supplement, for the purchase or sale for
deposits in the basket currency by the New York offices of three leading banks
engaged in the interbank market (selected in the sole discretion of the
Calculation Agent) (the “Reference Banks”). If fewer than three Reference Banks
provide spot quotations, then the Reference Exchange Rate, Final Spot Rate or
other rate, as applicable, will be calculated on the basis of the arithmetic
mean of the applicable spot quotations received by the Calculation Agent at
approximately 10:00 a.m., New York City time, on the relevant date from
two Reference Banks (selected in the sole discretion of the Calculation Agent),
for the purchase or sale for deposits in the Basket Currency. If these spot
quotations are available from only one Reference Bank, then the Calculation
Agent, in its sole discretion, will determine whether that quotation is
reasonable to be used. If no spot quotation is available, then the Reference
Exchange Rate, Final Spot Rate or other rate, as applicable, for such Basket
Currency will be determined by the Calculation Agent in good faith and in a
commercially reasonable manner.

A “Business Day”, notwithstanding any provision in the
Indenture, is any day that is not is not a Saturday or Sunday and that is not a
day on which banking institutions in New York City generally are authorized or
obligated by law or executive order to be closed.

The “Calculation Agent” means Lehman Brothers Inc.

Except as provided below, the Redemption Amount may,
at the option of the Company, be made by check mailed to the person entitled
thereto at such person’s address as it appears on the registry books of the
Company.

Payment of the Redemption Amount will be made in
immediately available funds in accordance with the normal procedures of the
Trustee (or any duly appointed Paying Agent).

The Company will pay any administrative costs imposed
by banks in making payments in immediately available funds, but any tax,
assessment or governmental charge imposed upon payments hereunder, including,
without limitation, any withholding tax, will be borne by the Holder hereof.

 

5

 

References herein to “U.S. dollars” or “U.S.$” or “$”
or “USD” are to the coin or currency of the United States as at the time of
payment is legal tender for the payment of public and private debts.

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF
THIS NOTE SET FORTH ON THE REVERSE HEREOF. 
SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS
IF SET FORTH AT THIS PLACE.

This Note shall not be valid or become obligatory for
any purpose until the certificate of authentication hereon shall have been
signed by the Trustee under the Indenture.

 

6

 

 

IN WITNESS WHEREOF, Lehman Brothers Holdings Inc. has
caused this instrument to be signed by its Chairman of the Board, its
President, its Vice Chairman, its Chief Financial Officer, one of its Vice
Presidents or its Treasurer, by manual or facsimile signature under its
corporate seal, attested by its Secretary or one of its Assistant Secretaries
by manual or facsimile signature.

Dated:  January 11, 2008

 

	
  [SEAL]

  	
  LEHMAN BROTHERS
  HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Andrew Yeung

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Cindy Buckholz

  
	
   

  	
   

  	
  Title:

  	
  Assistant
  Secretary

  
	
   

  	
   

  	
   

  	
   

  

 

TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

 

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

 

	
  CITIBANK, N.A.

  	
   

  
	
  as
  Trustee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Officer

  	
   

  

 

 

7

 

 

[REVERSE
OF NOTE]

 

LEHMAN BROTHERS
HOLDINGS INC.

MEDIUM-TERM NOTES,
SERIES I

NOTES LINKED TO A LATIN AMERICAN CURRENCY BASKET
 DUE JANUARY 11, 2010

 

 

                                Section 1. 
General. 
This Note is one of a duly authorized series of Notes of the Company
designated as the Medium-Term Notes, Series I, FX Basket-Linked Note (herein called
the “Notes”).  The
Notes are one of an indefinite number of series of debt securities of the
Company (collectively, the “Securities”) issued or issuable under and pursuant
to an indenture dated as of September 1, 1987, as amended and supplemented
(the “Indenture”), duly executed and delivered by the Company and Citibank,
N.A., as Trustee (herein called the “Trustee”), to which Indenture and all
indentures supplemental thereto reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the holders of the Securities.  The separate series of Securities may be
issued in various aggregate principal amounts, may mature at different times,
may bear interest (if any) at different rates, may be subject to different
redemption provisions or repurchase rights (if any), may be subject to
different sinking, purchase or analogous funds (if any), may be subject to
different covenants and Events of Default and may otherwise vary as in the
Indenture provided.

 

                                Section 2.  Principal Amount for
Indenture Purposes.  For the
purpose of determining whether Holders of the requisite amount of Notes of this
series outstanding under the Indenture have made a demand, given a notice or
waiver or taken any other action, the principal amount of this Note will be
deemed to be the principal amount of this Note then outstanding.

 

                                Section 3.  Modification and Waivers.  The Indenture contains provisions permitting
the Company and the Trustee, with the consent of the Holders of not less than
66-2/3% in aggregate principal amount of each series of the Securities at the
time Outstanding to be affected, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the holders of
the Securities of all such series; provided, however, that no such supplemental
indenture shall, among other things, (i) change the fixed maturity of any
Security, or reduce the Additional Amount or the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon or reduce any
premium or other amount payable on redemption, or make the Additional Amount or
the principal amount thereof, premium or other amount payable, if any, or
interest thereon payable in any coin or currency other than that herein above
provided, without the consent of the Holder of each Security so affected, or (ii) change
the place of payment on any Security, or impair the right to institute suit for
payment on any Security, or reduce the aforesaid percentage of Securities, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of each Security so affected.  It is also provided in the Indenture that,
prior to any declaration accelerating the maturity of any series of Securities,
the holders of a majority in aggregate principal amount of the Securities of
such series 

 

 

 

 

Outstanding may on behalf
of the holders of all the Securities of such series waive any past default or
Event of Default under the Indenture with respect to such series and its
consequences, except a default in the payment of interest, if any, on the
Additional Amount or the principal amount, or premium, if any, on any of the
Securities of such series, or in the payment of any sinking fund installment or
analogous obligation with respect to Securities of such series.  Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
holders and owners of this Note and any Notes of this series which may be
issued in exchange or substitution herefor, irrespective of whether or not any
notation thereof is made upon this Note or such other Notes of this series.

 

                                Section 4.  Obligations
Unconditional.  No reference
herein to the Indenture and no provisions of this Note or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the Additional Amount or the principal amount on this
Note at the place, at the respective times, at the rate, and in the coin or
currency herein prescribed.

 

                                Section 5.  Defeasance.  The Indenture contains provisions for the
discharge of the Indenture and defeasance at any time of the indebtedness on
this Note upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.

 

                                Section 6.  Authorized Form and
Denominations.  The Notes of
this series are issuable in registered form, without coupons.  Each Note will be issued initially as either
a Global Security or a Certificated Note, at the option of the Company, in
denominations of $1,000 or whole multiples of $1,000, either at the office or
agency to be designated and maintained by the Company for such purpose in the
Borough of Manhattan, New York City, pursuant to the provisions of the
Indenture or at any of such other offices or agencies as may be designated and
maintained by the Company for such purpose pursuant to the provisions of the
Indenture, and in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge, except for any tax or
other governmental charges imposed in connection therewith.  Notes of this series are exchangeable for a
like aggregate principal amount of Notes of this series of a different authorized
denomination, except that Global Securities will not be exchangeable for
Certificated Notes of this series.

 

                                Section 7.  Registration of Transfer.  As provided in the Indenture and subject to
certain limitations as therein set forth, the transfer of this Note is
registrable in the Security Register, upon surrender of this Note for
registration of transfer, at the Corporate Trust Office or agency in a Place of
Payment for this Note, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar
requiring such written instrument of transfer duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more
new Notes of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

 

                                If at any time the Depository
notifies the Company that it is unwilling or unable to continue as Depository
or if at any time the Depository shall no longer be eligible under the
Indenture, the Company shall appoint a successor Depository.  If a successor Depository for the Notes of
this series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such ineligibility, the Company will
issue, and the Trustee will 

 

 

 

 

authenticate and deliver, Notes of this series in
definitive form in an aggregate principal amount equal to the principal amount
of this Note.

 

                                No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.

 

                                Prior to due presentment of this Note
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, and neither the Company nor
the Trustee nor any agent of the Company or of the Trustee shall be affected by
any notice to the contrary.

 

                                Section 8.  Events of Default.  If an Event of Default with respect to Notes
of this series shall occur and be continuing, the amount that may be declared
due and payable upon any acceleration of the notes will be determined by the
Calculation Agent for the period from and including the Issue Date to but
excluding the date of early repayment and will equal, for each note, the
Redemption Amount, calculated as the date of early repayment were the Maturity
Date. If a bankruptcy proceeding is commenced in respect of Lehman Brothers
Holdings, the claim of the beneficial owner of a note for the period from and
including the Issue Date to but excluding the date of early repayment will be
capped at the Redemption Amount, calculated as though the date of the
commencement of the proceeding were the Maturity Date.

 

                                Section 9.  No Recourse Against
Certain Persons.  No recourse for the
payment of the Additional Amount or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any Indenture supplemental thereto
or in any Note, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law
or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.

 

                                Section 10. 
Defined Terms.  All terms used but not defined in this Note
are used herein as defined in the Indenture.

 

                                Section 11.  GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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