As has been widely reported, on September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman") filed for protection under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Except for LB 745 LLC which is the Lehman entity that was formed to own Lehman's headquarters in New York, the other subsidiaries (the "Lehman Subsidiaries") of Lehman have not filed for bankruptcy protection as of the time of publication of this Alert. This is significant because substantially all of Lehman's actual operations are conducted through its subsidiaries which are not debtor entities. Based on reports from New York, the Lehman Subsidiaries have continued to operate generally unaffected by Lehman's bankruptcy filing.

On September 16, 2008, Lehman filed a motion (the "Sale Motion") for Bankruptcy Court approval of a sale of its assets, 745 LLC's assets and certain assets of Lehman Brothers, Inc., a non-debtor subsidiary of Lehman (collectively, the "Lehman Sellers"), to Barclays Capital, Inc. free and clear of all liens claims, encumbrances and other interests. Barclays has agreed to pay $1.7 billion plus the assumption of certain obligations and expenses. Lehman has proposed that the purchased assets of Lehman Brothers, Inc. will be transferred to Barclays under a separate Securities Investor Protection Act ("SIPA") proceeding to which Lehman Brothers Inc. will consent.

Although it has been reported that Barclays is buying the Lehman Sellers' U.S. investment banking and capital-markets businesses, it is unclear from the Asset Purchase Agreement exactly what assets and liabilities are being transferred to Barclays due to the vague provisions of the Asset Purchase Agreement regarding the definition of purchased assets. This uncertainty is compounded by the fact that Barclays has requested the authority under the Asset Purchase Agreement to have a period of 60 days after the closing of the sale to determine which of the Lehman Sellers contracts it will assume. So you can see, even though Barclays is purchasing the investment banking and capital-markets businesses of Lehman, counterparties to contracts with the Lehman Sellers may not know for up to 60 days after the closing of the sale whether or not Barclays has accepted liability for and agreed to perform under a contract. If a counterparty's contract or claim is not assumed by Barclays, the counterparty will have no recourse against Barclays and will be left with a claim against Lehman's bankruptcy estate or Lehman Brothers, Inc. in its SIPA proceeding.

A hearing has been scheduled by the Bankruptcy Court on September 19, 2008 to consider approval of the Sale Motion, and, therefore, approval of the Asset Purchase Agreement with Barclays. The closing must occur by September 24. Given the scope of the proposed sale, its effect on the global market and the unprecedented pace at which the sale has proceeded, it is imperative that parties with contractual relations with Lehman and its subsidiaries stay on top of the proceedings to protect their rights.