Exhibit 10.1

 

TRANSACTION AGREEMENT

 

BY AND BETWEEN

 

CITIGROUP INC.

 

AND

 

LEGG MASON, INC.

 

DATED AS OF JUNE 23, 2005

 

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TABLE OF CONTENTS

 

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ARTICLE I SALE AND PURCHASE

Section 1.1

  

Sale and Purchase

   1

Section 1.2

  

Purchase Price

   2

Section 1.3

  

PC/CM Balance Sheet Adjustment

   3

Section 1.4

  

Adjustments to Legg Mason Common Stock

   6 ARTICLE II THE CLOSING

Section 2.1

  

Closing

   6

Section 2.2

  

Preliminary Information

   6

Section 2.3

  

Citigroup Deliveries at Closing

   8

Section 2.4

  

Legg Mason Deliveries at Closing

   9

Section 2.5

  

Proceedings at Closing

   10

Section 2.6

  

Withholding Rights

   10

Section 2.7

  

Delayed Closing

   10 ARTICLE III POST-CLOSING ADJUSTMENTS

Section 3.1

  

CAM Final Closing Date Balance Sheet

   12

Section 3.2

  

PC/CM Final Closing Date Balance Sheets

   13

Section 3.3

  

Post-Closing Balance Sheet Adjustment Payment

   15

Section 3.4

  

Post-Closing True-Up

   15

Section 3.5

  

Allocation of Purchase Price

   16 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CITIGROUP

Section 4.1

  

Organization and Good Standing

   17

Section 4.2

  

CAM Subsidiaries; Other Interests

   17

Section 4.3

  

Authorization; Binding Obligations

   18

Section 4.4

  

No Conflicts

   18

Section 4.5

  

Approvals

   18

Section 4.6

  

Litigation

   19

Section 4.7

  

Compliance with Requirements of Law; Regulatory Matters

   19

Section 4.8

  

CAM Registered Investment Companies

   23

Section 4.9

  

CAM Non-Registered Funds

   25

Section 4.10

  

ERISA Fiduciary Matters

   26

Section 4.11

  

Other Investment Advisory Activities

   26

Section 4.12

  

Financial Statements

   27

Section 4.13

  

Title; Sufficiency of Assets

   27

Section 4.14

  

Employee Benefit Plans; Employee Matters

   28

Section 4.15

  

Undisclosed Liabilities

   30

Section 4.16

  

Absence of Certain Changes

   31

Section 4.17

  

CAM Real Property

   32

 

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Section 4.18

  

Certain Contracts

   33

Section 4.19

  

Intellectual Property

   35

Section 4.20

  

Taxes

   36

Section 4.21

  

Assets Under Management

   37

Section 4.22

  

Acquisition of Shares for Investment

   37

Section 4.23

  

Environmental Matters

   37

Section 4.24

  

Affiliate Transactions

   38

Section 4.25

  

No Citigroup Stockholder Vote Required

   38

Section 4.26

  

Brokers

   38 ARTICLE V REPRESENTATIONS AND WARRANTIES OF LEGG MASON

Section 5.1

  

Organization and Good Standing

   38

Section 5.2

  

PC/CM Subsidiaries; Other Interests

   39

Section 5.3

  

Authorization; Binding Obligations

   39

Section 5.4

  

No Conflicts

   40

Section 5.5

  

Approvals

   40

Section 5.6

  

Litigation

   40

Section 5.7

  

Compliance with Requirements of Law; Regulatory Matters

   41

Section 5.8

  

Margin Loans

   44

Section 5.9

  

Registered Investment Companies; Non-Registered Funds

   45

Section 5.10

  

Financial Statements

   45

Section 5.11

  

Title; Sufficiency of Assets

   45

Section 5.12

  

Employee Benefit Plans; Employee Matters

   46

Section 5.13

  

Undisclosed Liabilities

   49

Section 5.14

  

Absence of Certain Changes

   49

Section 5.15

  

PC/CM Real Property

   51

Section 5.16

  

Certain Contracts

   51

Section 5.17

  

Intellectual Property

   54

Section 5.18

  

Taxes

   54

Section 5.19

  

Environmental Matters

   55

Section 5.20

  

Legg Mason Capitalization

   56

Section 5.21

  

Legg Mason SEC Filings

   57

Section 5.22

  

Affiliate Transactions

   57

Section 5.23

  

Absence of Certain Legg Mason Changes

   58

Section 5.24

  

No Legg Mason Stockholder Vote Required

   58

Section 5.25

  

Brokers

   58 ARTICLE VI COVENANTS

Section 6.1

  

Conduct of CAM Business

   58

Section 6.2

  

Conduct of PC/CM Business

   61

Section 6.3

  

Access and Confidentiality

   64

Section 6.4

  

Notice of Certain Matters

   66

Section 6.5

  

Efforts; Filings

   67

Section 6.6

  

Client and Customer Consents

   68

Section 6.7

  

Section 15(f) of the Investment Company Act

   71

 

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Section 6.8

  

Further Assurances

   72

Section 6.9

  

Delivery of Certain Information

   74

Section 6.10

  

Guaranties; Letters of Credit; Intercompany Agreements

   75

Section 6.11

  

Names of Acquired Subsidiaries

   76

Section 6.12

  

Related Agreements

   76

Section 6.13

  

Restructurings

   77

Section 6.14

  

CAM Employee Matters

   77

Section 6.15

  

PC/CM Employee Matters

   82

Section 6.16

  

Stock Exchange Listing

   88

Section 6.17

  

Citigroup Non-Competition

   88

Section 6.18

  

Legg Mason Non-Competition

   90

Section 6.19

  

Separation and Segregation

   91

Section 6.20

  

Restrictions on Legg Mason Purchases of its Stock

   92

Section 6.21

  

CAM Financial Information

   92

Section 6.22

  

Commitment Letter

   92

Section 6.23

  

Short-Term Financings

   93 ARTICLE VII CONDITIONS PRECEDENT

Section 7.1

  

Conditions of Both Parties to Closing

   93

Section 7.2

  

Conditions to Obligations of Legg Mason to Close

   94

Section 7.3

  

Conditions to Obligations of Citigroup to Close

   95 ARTICLE VIII TAX MATTERS

Section 8.1

  

Allocation of Taxes and Indemnification

   95

Section 8.2

  

Tax Returns and Refunds

   100

Section 8.3

  

Conveyance Taxes

   103

Section 8.4

  

Section 338 Elections

   103

Section 8.5

  

Resolution of All Tax Related Disputes

   107

Section 8.6

  

Survival of Tax Provisions

   107

Section 8.7

  

Exclusivity

   107

Section 8.8

  

Tax Sharing Agreements

   107

Section 8.9

  

Characterization of Indemnification Payments

   107

Section 8.10

  

Cooperation, Exchange of Information and Record Retention

   108

Section 8.11

  

Tax Benefits

   109

Section 8.12

  

Indemnification for Taxes Related to the CAM Registered Investment Companies

   109

Section 8.13

  

Certain Deductions

   110 ARTICLE IX TERMINATION

Section 9.1

  

Termination

   113

Section 9.2

  

Effect of Termination

   114 ARTICLE X INDEMNIFICATION

Section 10.1

  

Survival of Representations and Warranties and Covenants

   114

 

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Section 10.2

  

Indemnification of Legg Mason

   115

Section 10.3

  

Indemnification of Citigroup

   115

Section 10.4

  

Claims

   116

Section 10.5

  

Limitations; Payments

   117

Section 10.6

  

Insurance; Tax Benefits

   118

Section 10.7

  

Remedies Exclusive

   119

Section 10.8

  

Mitigation

   119

Section 10.9

  

Tax Indemnification

   119 ARTICLE XI MISCELLANEOUS

Section 11.1

  

Construction; Absence of Presumption

   119

Section 11.2

  

Headings

   120

Section 11.3

  

Notices

   120

Section 11.4

  

Governing Law

   121

Section 11.5

  

Jurisdiction; Venue; Consent to Service of Process

   121

Section 11.6

  

Entire Agreement

   121

Section 11.7

  

Amendment and Waiver

   122

Section 11.8

  

Severability

   122

Section 11.9

  

Successors and Assigns; No Third-Party Beneficiaries

   122

Section 11.10

  

Publicity

   122

Section 11.11

  

WAIVER OF JURY TRIAL

   123

Section 11.12

  

Expenses

   123

Section 11.13

  

Specific Performance and Other Equitable Relief

   123

Section 11.14

  

Counterparts

   123

Section 11.15

  

No Other Representations or Warranties

   123

 

ANNEXES

 

Annex A

  

Defined Terms

Annex B-1

  

Specified Advisory Fee Rates

Annex B-2

  

Revenue Run-Rate Schedule

Annex C

  

Knowledge of Citigroup

Annex D

  

Knowledge of Legg Mason

Annex E

  

Certain Materiality References

Annex F

  

Certain Separate Accounts

 

EXHIBITS

 

Exhibit A

  

CAM Transferred Subsidiaries

Exhibit B

  

PC/CM Transferred Subsidiaries

Exhibit C

  

[Intentionally Omitted]

Exhibit D

  

Form of Legg Mason Preferred Stock

Exhibit E

  

Form of Distribution and Product Access Agreement

Exhibit F-1

  

Terms of CAM TSA

Exhibit F-2

  

Terms of PC/CM TSAs

Exhibit F-3

  

Terms of Services Agreement

 

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Exhibit G

  

Form of Registration and Investor Rights Agreement

Exhibit H

  

Terms of CAM Restructuring Transactions

Exhibit I

  

Terms of PC/CM Restructuring Transactions

 

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TRANSACTION AGREEMENT

 

This TRANSACTION AGREEMENT is entered into as of June 23, 2005, by and between
Citigroup Inc., a Delaware corporation (“Citigroup”), and Legg Mason, Inc., a
Maryland corporation (“Legg Mason”, and together with Citigroup, the “Parties”).
Capitalized terms herein have their respective meanings set forth in Annex A
hereto.

 

RECITALS

 

WHEREAS, the CAM Subsidiaries conduct the CAM Business and the PC/CM
Subsidiaries conduct the PC/CM Business;

 

WHEREAS, upon the terms and subject to the conditions set forth herein,
Citigroup desires to sell to Legg Mason, and Legg Mason desires to purchase from
Citigroup, the CAM Business;

 

WHEREAS, in furtherance of the foregoing and upon the terms and subject to the
conditions set forth herein, Citigroup shall sell or cause to be sold to Legg
Mason, and Legg Mason shall purchase or cause to be purchased from Citigroup,
the CAM Transferred Shares in exchange for the consideration provided for
herein, including the PC/CM Transferred Shares; and

 

WHEREAS, Citigroup and Legg Mason (or one or more of their respective
wholly-owned Subsidiaries) shall enter into the Related Agreements as of the
Closing.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, the Parties
hereby agree as follows:

 

ARTICLE I

SALE AND PURCHASE

 

Section 1.1 Sale and Purchase. Subject to Section 2.7, upon the terms and
subject to the conditions of this Agreement, at the Closing,

 

(a) Citigroup shall, or shall cause the Citigroup Sellers to, sell, assign,
transfer and convey to Legg Mason (or one of its wholly-owned Subsidiaries), and
Legg Mason (or one of its wholly-owned Subsidiaries) shall purchase, acquire and
accept from the Citigroup Sellers, all of the CAM Transferred Shares owned by
such Citigroup Sellers, free and clear of all Liens (other than restrictions on
transfer in respect of the CAM Transferred Shares which arise under applicable
securities laws); and

 

(b) Legg Mason shall, or shall cause the Legg Mason Sellers to, sell, assign,
transfer and convey to Citigroup (or one of its wholly-owned Subsidiaries), and
Citigroup (or one of its wholly-owned Subsidiaries) shall purchase, acquire and
accept from the Legg Mason Sellers, all of the PC/CM Transferred Shares owned by
such Legg Mason Sellers, free and clear

 

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of all Liens (other than restrictions on transfer in respect of the PC/CM
Transferred Shares which arise under applicable securities laws).

 

Section 1.2 Purchase Price. Subject to adjustment pursuant to Sections 1.4, 3.3,
3.4 and 6.8(b), in consideration for the sale of the CAM Transferred Shares, the
aggregate purchase price payable by Legg Mason to the Citigroup Sellers shall
consist of the following:

 

(a) 5,069,846 shares of Legg Mason Common Stock and 13.489808 shares of Legg
Mason Preferred Stock (as such number of shares may be increased pursuant to the
proviso in this Section 1.2(a), collectively, the “Legg Mason Shares”); provided
that (i) if any additional shares of Legg Mason Common Stock are issued between
the date hereof and the Business Day ending on the second Business Day prior to
the Closing Date (and remain outstanding as of the end of such measurement
date), the number of shares of Legg Mason Common Stock and Legg Mason Preferred
Stock to be issued and delivered to Citigroup and its Affiliates (in accordance
with the instructions provided pursuant to Section 2.2(c)) shall be increased
such that (A) the number of shares of Legg Mason Common Stock issued and
delivered to Citigroup and its Affiliates at Closing equals 4.39% (such number
of shares rounded to the nearest whole number) of the number of shares of Legg
Mason Common Stock issued and outstanding as of the end of the second Business
Day prior to the Closing Date (determined on a basis consistent with the
determination of the number of shares above and adjusted to give effect to (I)
the issuance and delivery of the shares of Legg Mason Common Stock to be issued
and delivered to Citigroup and its Affiliates at Closing and (II) the exchange
of the issued and outstanding Canadian Exchangeable Shares) and (B) the number
of shares of Legg Mason Preferred Stock issued and delivered to Citigroup and
its Affiliates at Closing equals (I) 14.39% minus (II) the quotient (expressed
as a percentage) equal to (x) the number of shares of Legg Mason Common Stock to
be issued and delivered to Citigroup and its Affiliates at Closing divided by
(y) the total number of shares of Legg Mason Common Stock issued and outstanding
as of the Business Day ending on the second Business Day prior to the Closing
Date (determined on a basis consistent with the determination of the number of
shares above and adjusted to give effect to (1) the issuance and delivery of the
shares of Legg Mason Common Stock and Legg Mason Preferred Stock (on an
as-converted basis) to be issued and delivered to Citigroup and its Affiliates
at Closing and (2) the exchange of the issued and outstanding Canadian
Exchangeable Shares), of the total number of shares of Legg Mason Common Stock
deemed issued and outstanding pursuant to clause (y) above as of such
measurement date divided by one million and (ii) notwithstanding the foregoing,
in no event shall the number of shares of Legg Mason Common Stock underlying the
Legg Mason Preferred Stock plus the number of shares of Legg Mason Common Stock
exceed 18,740,177, with any necessary adjustment made in a manner that preserves
the foregoing 4.39% ratio;

 

(b) the PC/CM Transferred Shares;

 

(c) the Legg Mason Note in the principal amount (the principal amount of the
Legg Mason Note as determined in accordance with this Section 1.2(c), the “Note
Principal Amount”) equal to (i) (A) $2,050,000,000 minus (B) (I) $82.71 times
(II) (x) the number of shares of Legg Mason Common Stock plus (y) the number of
shares of Legg Mason Common Stock underlying the Legg Mason Preferred Stock,
plus (ii) the PC/CM Balance Sheet Adjustment (as

 

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defined in Section 1.3(a)(i)), if any, minus (iii) the CAM Adjustment Amount (as
defined in Section 1.3(b)(i)), if any (the amount equal to the sum of the
amounts referred to in clauses (i) and (ii), less the amount referred to in
clause (iii), the “Net Amount”); and

 

(d) a senior note of Legg Mason to be issued to Citigroup (or one of its
Affiliates) with such terms as the Legg Mason Note in the principal amount equal
to the Legg Mason Continuing Deferred Compensation Amount.

 

Section 1.3 PC/CM Balance Sheet Adjustment.

 

(a) (i) As used in Section 1.2(c), “PC/CM Balance Sheet Adjustment” means the
excess, if any, of the PC/CM Tangible Book Value Target over the PC/CM Tangible
Book Value.

 

(ii) Certain defined terms used in the definition of “PC/CM Balance Sheet
Adjustment” shall have the following meanings:

 

“PC/CM Tangible Book Value” means the total tangible assets less total
liabilities of the PC/CM Business, in each case as reflected on the PC/CM
Estimated Closing Date Balance Sheet or the PC/CM Final Closing Date Balance
Sheet, as the case may be.

 

“PC/CM Tangible Book Value Target” means the sum of $400,000,000 and the Legg
Mason Continuing Deferred Compensation Amount.

 

(iii) Notwithstanding any other provision of this Agreement, in the event that
the capital ratio (that is, net regulatory capital divided by aggregate debit
balances, as calculated in a manner consistent with the FOCUS reports of the
PC/CM Business (in accordance with SEC Rule 15c3-3), and on a pro forma basis
without giving effect to any capital contributions made by Legg Mason or one of
its Affiliates to the PC/CM Business to fund the Legg Mason Continuing Deferred
Compensation Amount) of the PC/CM Business is less than 15% as of immediately
prior to the Closing, Legg Mason shall, or shall cause its Affiliates to, take
(or omit from taking) such actions as may be necessary so that such capital
ratio is at least equal to 15% at the Closing.

 

(b) (i) As used in Section 1.2(c), “CAM Adjustment Amount” means the sum of (A)
the CAM Balance Sheet Adjustment, if any, and (B) the CAM Revenue Adjustment, if
any.

 

(ii) Certain defined terms used in the definition of “CAM Adjustment Amount”
shall have the following meanings:

 

“Advisory Fee Rate” means (a) with respect to a CAM Advisory Contract identified
on Annex B-1 hereto, the lower of the fee rate specified thereon for the
applicable date and the actual fee rate for the applicable date with respect to
such CAM Advisory Contract, (b) with respect to each CAM Advisory Contract that
is comprised of SMA Contracts, the average fee rate for such CAM Advisory
Contract in the applicable Revenue Run-Rate Schedule and (c) with respect to any
other CAM Advisory Contract, without duplication, the rate expressed as a
percentage of the applicable investment advisory and subadvisory fees
(including, to the extent not unbundled, administrative fees) based on the
amount of assets under management (excluding any performance-based fees)
pursuant to such CAM Advisory Contract as of the applicable date, after
reduction to

 

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reflect any fee waivers, reimbursement obligations or similar offsets or
arrangements in effect at such date, but, for the avoidance of doubt, without
duplication of any fee reduction reflected in Annex B-1 hereto.

 

“Aggregate Base Revenue Run-Rate” means the sum of the Base Revenue Run-Rates
for all CAM Advisory Contracts.

 

“Aggregate Closing Revenue Run-Rate” means the sum of the Closing Revenue
Run-Rates for all Consenting CAM Advisory Contracts.

 

“Base Assets Under Management” means, with respect to a CAM Advisory Contract,
the amount of assets under management by the CAM Business under such CAM
Advisory Contract as of the Base Date.

 

“Base Date” means May 31, 2005.

 

“Base Revenue Run-Rate” means, with respect to a CAM Advisory Contract, the
product of (a) the Base Assets Under Management pursuant to such CAM Advisory
Contract multiplied by (b) the Advisory Fee Rate under (or deemed to be
applicable under) such CAM Advisory Contract as of the Base Date.

 

“CAM Advisory Client” means any Person to which any CAM Subsidiary provides
investment advisory or subadvisory services for which fees are paid to or earned
by a CAM Subsidiary and are based on the amount of assets under management
pursuant to a CAM Advisory Contract, including in the case of separately managed
wrap accounts and any other similar relationships with fiduciaries similarly
acting on behalf of underlying clients, Persons that constitute such underlying
clients to the extent required by Contract or Requirement of Law.

 

“CAM Advisory Contract” means each Contract pursuant to which any CAM Subsidiary
provides investment advisory or subadvisory services to any Person for which
fees are paid to or earned by a CAM Subsidiary based on the amount of assets
under management other than, for purposes of calculating the Aggregate Base
Revenue Run-Rate and the Aggregate Closing Revenue Run-Rate, an Excluded
Advisory Contract; provided that the SMA Contracts comprising individual
programs identified in the applicable Revenue Run-Rate Schedule shall be treated
as a single CAM Advisory Contract for purposes of each such program. For the
avoidance of doubt, the Parties agree that the Excluded Advisory Contracts shall
not be included in any calculation of the Aggregate Base Revenue Run-Rate or the
Aggregate Closing Revenue Run-Rate, including for purposes of Article I, Section
2.2(a)(i)(B), Section 3.4 and Section 7.2(d).

 

“CAM Balance Sheet Adjustment” means the excess, if any, of the CAM Tangible
Book Value Target over the CAM Tangible Book Value.

 

“CAM Revenue Adjustment” means the product of (y) $3,700,000,000 multiplied by
(z) the CAM Shortfall Percentage.

 

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“CAM Shortfall Percentage” shall be equal to the excess, if any, of (a) 90% over
(b) a fraction (expressed as a percentage) the numerator of which is the
Aggregate Closing Revenue Run-Rate and the denominator of which is the Aggregate
Base Revenue Run-Rate; provided that the CAM Shortfall Percentage shall not
exceed 15%.

 

“CAM Tangible Book Value” means the total tangible assets less total liabilities
of the CAM Business as reflected on the CAM Estimated Closing Date Balance Sheet
or the CAM Final Closing Date Balance Sheet, as the case may be.

 

“CAM Tangible Book Value Target” means the sum of $20,000,000 and the Citigroup
Continuing Deferred Compensation Amount.

 

“Closing Adjusted Assets Under Management” means, with respect to a CAM Advisory
Contract, the amount of assets under management by the CAM Business under such
CAM Advisory Contract as of the Base Date (or, in the case of a CAM Advisory
Contract entered into following the Base Date, as of the date of such CAM
Advisory Contract), as adjusted to reflect net cash flows (additions and
withdrawals), from and after the Base Date (or, in the case of a CAM Advisory
Contract entered into following the Base Date, the date of such CAM Advisory
Contract) through and including the Closing Revenue Run-Rate Date, provided
that, for the purposes of Articles I, II, and III but not Section 7.1(d), any
such net cash flows shall be multiplied for purposes of such adjustment by (a)
in the case of a U.S. Retail Long-Term Contract, 1.50, (b) in the case of an
Institutional Contract, 1.00 and (c) in the case of an Other Contract, 0.65. For
the avoidance of doubt, (i) the calculation of Closing Adjusted Assets Under
Management pursuant to the immediately preceding sentence is intended to exclude
any increase or decrease in assets under management resulting from market
appreciation or depreciation or currency fluctuations from and after the Base
Date (or such later date of such CAM Advisory Contract, in the case of a CAM
Advisory Contract entered into following the Base Date) and (ii) for purposes of
the calculation of Closing Adjusted Assets Under Management, only the net cash
flows (and not the amount of assets under management by the CAM Business under
such CAM Advisory Contract as of a measurement date) during the relevant period
shall be multiplied by the relevant factor for the purposes of Articles I, II,
and III but not Section 7.1(d).

 

“Closing Revenue Run-Rate” means, with respect to a CAM Advisory Contract, the
product of (a) the Closing Adjusted Assets Under Management pursuant to such CAM
Advisory Contract multiplied by (b) the Advisory Fee Rate under (or deemed to be
applicable under) such CAM Advisory Contract as of the Closing Revenue Run-Rate
Date; provided that the calculation of the Closing Revenue Run-Rate shall be
made using the same methodology as the calculation of the Base Revenue Run-Rate.

 

“Closing Revenue Run-Rate Date” means (a) with respect to a CAM Advisory
Contract with a CAM Registered Investment Company, the date that is five
Business Days prior to the Closing Date and (b) with respect to each other CAM
Advisory Contract, the date that is the month end prior to the Closing Date or,
in either case, such other date as the Parties may mutually agree upon in
writing.

 

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“Consenting CAM Advisory Contract” means a CAM Advisory Contract other than any
CAM Advisory Contract for which the applicable CAM Advisory Client (a) has not
consented, or deemed to have consented, in accordance with Section 6.6, to the
assignment or deemed assignment of such CAM Advisory Contract resulting from the
consummation of the Transactions or (b) has withdrawn its Consent and has not
thereafter rescinded such withdrawal or otherwise superseded such withdrawal by
providing its Consent.

 

Section 1.4 Adjustments to Legg Mason Common Stock. For purposes of Section 1.2,
if, after the date hereof and prior to the Closing, the number of outstanding
shares of Legg Mason Common Stock has been changed into a different number of
shares or a different class, by reason of any stock split, dividend,
distribution, reclassification, recapitalization, reorganization, combination or
exchange of shares (other than the exchange of Canadian Exchangeable Shares), or
Legg Mason has declared to do any of the foregoing, the Legg Mason Shares shall
be correspondingly adjusted to reflect such stock split, dividend, distribution,
reclassification, recapitalization, reorganization, combination or exchange of
shares.

 

ARTICLE II

THE CLOSING

 

Section 2.1 Closing. The closing of the transactions provided for in this
Agreement (the “Closing”) shall take place (a) at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, Four Times Square, New York New York, 10036-6522 at
9:00 a.m., New York City time, on the first calendar month-end following the
date on which the last of the conditions required to be satisfied or waived
pursuant to Article VII is either satisfied or waived (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to satisfaction or waiver thereof), or (b) at such other place, time or date as
the Parties shall agree upon in writing. The date on which the Closing is to
occur is referred to herein as the “Closing Date.”

 

Section 2.2 Preliminary Information.

 

(a) (i) Citigroup shall prepare, or cause to be prepared, and deliver, or cause
to be delivered, to Legg Mason (A) at least five Business Days prior to the
Closing Date, the CAM Estimated Closing Date Balance Sheet prepared in
accordance with Section 2.2(a)(ii) and calculations in reasonable detail based
upon such CAM Estimated Closing Date Balance Sheet setting forth the estimated
amounts of CAM Tangible Book Value, together with a certificate duly executed by
an appropriate officer of a Citigroup Seller certifying that the CAM Estimated
Closing Date Balance Sheet and such calculations were prepared in accordance
with Section 2.2(a)(ii) and (B) at least two Business Days prior to the Closing
Date, an updated Revenue Run-Rate Schedule prepared as of the Closing Revenue
Run-Rate Date.

 

(ii) Citigroup shall, in good faith and at Citigroup’s expense, prepare, or
cause to be prepared, the CAM Estimated Closing Date Balance Sheet using the
accounting principles, procedures, policies and methods used in preparing the
CAM Base Balance Sheet, including the types of adjustments used in preparing
such CAM Base Balance Sheet as set forth in the notes thereto. Citigroup shall
give, and shall use its reasonable best efforts to cause its advisers to give,

 

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Legg Mason and its respective advisers reasonable access to such books, records
and personnel of Citigroup (including the work papers of Citigroup and its
accountants relating to the preparation of the CAM Estimated Closing Date
Balance Sheet and such calculations based thereon) as may be necessary to enable
Legg Mason and its advisers to review the CAM Estimated Closing Date Balance
Sheet and such calculations based thereon prior to the Closing. For the
avoidance of doubt, in the event of any disagreement between Citigroup and Legg
Mason as to the preparation of the CAM Estimated Closing Date Balance Sheet (or
any amount thereon) or the calculation of CAM Tangible Book Value, the amounts
set forth in such CAM Estimated Closing Date Balance Sheet or such calculations
shall control (without regard to any adjustment requested by Legg Mason that is
not agreed to by Citigroup) for all purposes of this Agreement at the Closing,
subject to the rights of Legg Mason as set forth in Section 3.1.

 

(b) (i) Legg Mason shall prepare, or cause to be prepared, and deliver, or cause
to be delivered, to Citigroup (A) at least five Business Days prior to the
Closing Date, the PC/CM Estimated Closing Date Balance Sheet prepared in
accordance with Section 2.2(b)(ii) and calculations in reasonable detail based
upon such PC/CM Estimated Closing Date Balance Sheets setting forth the
estimated amounts of PC/CM Tangible Book Value and the capital ratio, together
with a certificate duly executed by an appropriate officer of a Legg Mason
Seller certifying that the PC/CM Estimated Closing Date Balance Sheet and such
calculations were prepared in accordance with Section 2.2(b)(ii) and (B) at
least two Business Days prior to the Closing Date, a certificate signed by the
Chief Financial Officer of Legg Mason certifying as to the number of shares of
Legg Mason Common Stock issued and outstanding as of the date of such
certificate for purposes of the calculations to be made pursuant to Section
1.2(a).

 

(ii) Legg Mason shall, in good faith and at Legg Mason’s expense, prepare, or
cause to be prepared, the PC/CM Estimated Closing Date Balance Sheet using the
accounting principles, procedures, policies and methods used in preparing the
PC/CM Base Balance Sheet, including the types of adjustments used in preparing
such PC/CM Base Balance Sheet as set forth in the notes thereto. Legg Mason
shall give, and shall use its reasonable best efforts to cause its advisers to
give, Citigroup and its respective advisers reasonable access to such books,
records and personnel of Legg Mason (including the work papers of Legg Mason and
its accountants relating to the preparation of the PC/CM Estimated Closing Date
Balance Sheet and such calculations based thereon) as may be necessary to enable
Citigroup and its advisers to review the PC/CM Estimated Closing Date Balance
Sheet and such calculations based thereon prior to the Closing. For the
avoidance of doubt, in the event of any disagreement between Citigroup and Legg
Mason as to the preparation of the PC/CM Estimated Closing Date Balance Sheet
(or any amount thereon) or the calculation of PC/CM Tangible Book Value or the
capital ratio, the amounts set forth in such PC/CM Estimated Closing Date
Balance Sheet or such calculations shall control (without regard to any
adjustment requested by Citigroup that is not agreed to by Legg Mason) for all
purposes of this Agreement at the Closing, subject to the rights of Citigroup as
set forth in Section 3.2.

 

(c) Citigroup shall deliver or cause to be delivered to Legg Mason, not later
than five Business Days prior to the Closing Date, a notice specifying (i) the
name(s) of one or more Citigroup Sellers or Affiliates thereof to whom the Legg
Mason Shares shall be issued and in whose name(s) the issuance of the Legg Mason
Shares shall be registered on Legg Mason’s transfer books by Legg Mason’s
transfer agent, (ii) the amount(s) and form of shares comprising

 

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the Legg Mason Shares to be issued to each such Citigroup Seller or wholly-owned
Subsidiary thereof and (iii) the name(s) of one or more Citigroup Sellers or
wholly-owned Subsidiaries thereof to whom the Legg Mason Note shall be issued;
provided, however, that, to the extent reasonably practicable, Citigroup shall
cause the Legg Mason Shares and the Legg Mason Note to be held by one or more
Citigroup Affiliates so as to facilitate compliance by the Parties hereto and
their respective Affiliates with ERISA.

 

Section 2.3 Citigroup Deliveries at Closing. At the Closing, Citigroup shall
deliver or cause to be delivered to Legg Mason:

 

(a) stock certificates (or similar evidence) representing the CAM Transferred
Shares, duly endorsed in blank or with stock powers executed in proper form for
transfer, and with any required stock transfer stamps affixed thereto;

 

(b) [intentionally omitted];

 

(c) the Transition Services Agreements, duly executed;

 

(d) the Services Agreement, duly executed;

 

(e) the Registration and Investor Rights Agreement, duly executed;

 

(f) the resignations of the officers and directors of the CAM Subsidiaries
designated by Legg Mason in writing at least five Business Days prior to the
Closing Date;

 

(g) the officer’s certificate required pursuant to Section 7.2(c);

 

(h) a duly executed certificate of non-foreign status (a “FIRPTA Certificate”)
from each Citigroup Seller in the form and manner that complies with Section
1445 of the Code and the Treasury Regulations promulgated thereunder; provided,
however, that if a FIRPTA Certificate is unable to be furnished by a Citigroup
Seller, then such Citigroup Seller may instead provide a certificate (an
“Alternate Certificate”) pursuant to which such Citigroup Seller certifies under
penalties of perjury that such Citigroup Seller is not disposing of any United
States real property interest (as defined in Section 897(c) of the Code and the
Treasury Regulations promulgated thereunder);

 

(i) copies (or other evidence) of all valid approvals or authorizations of,
filings or registrations with, or notifications to, all Governmental Authorities
required to be obtained, filed or made by Citigroup in satisfaction of Section
7.1(b);

 

(j) cash in an amount equal to the Legg Mason Continuing Deferred Compensation
Amount in respect of the senior note to be issued pursuant to Section 1.2(d);
and

 

(k) all such additional instruments, documents and certificates provided for by
this Agreement or as may reasonably be requested by Legg Mason in order to
consummate the Transactions.

 

8

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Section 2.4 Legg Mason Deliveries at Closing. At the Closing, Legg Mason shall
deliver or cause to be delivered to Citigroup:

 

(a) stock certificates (or similar evidence) representing the PC/CM Transferred
Shares, duly endorsed in blank or with stock powers executed in proper form for
transfer, and with any required stock transfer stamps affixed thereto;

 

(b) one or more stock certificates representing the Legg Mason Shares,
registered in accordance with the instructions provided pursuant to Section
2.2(c);

 

(c) the Legg Mason Note, duly executed;

 

(d) the senior note to be issued in accordance with Section 1.2(d), duly
executed;

 

(e) the Transition Services Agreements, duly executed;

 

(f) the Services Agreement, duly executed;

 

(g) the Registration and Investor Rights Agreement, duly executed;

 

(h) the resignations of the officers and directors of the PC/CM Subsidiaries
designated by Citigroup in writing at least five Business Days prior to the
Closing Date;

 

(i) the officer’s certificate required pursuant to Section 7.3(c);

 

(j) a duly executed FIRPTA Certificate from each Legg Mason Seller in the form
and manner that complies with Section 1445 of the Code and the Treasury
Regulations promulgated thereunder; provided, however, that if a FIRPTA
Certificate is unable to be furnished by a Legg Mason Seller, then such Legg
Mason Seller may instead provide an Alternate Certificate pursuant to which such
Legg Mason Seller certifies under penalties of perjury that such Legg Mason
Seller is not disposing of any United States real property interest (as defined
in Section 897(c) of the Code and the Treasury Regulations promulgated
thereunder);

 

(k) copies (or other evidence) of all valid approvals or authorizations of,
filings or registrations with, or notifications to, all Governmental Authorities
required to be obtained, filed or made by Legg Mason in satisfaction of Section
7.1(b); and

 

(l) all such additional instruments, documents and certificates provided for by
this Agreement or as may reasonably be requested by Citigroup in order to
consummate the Transactions.

 

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Section 2.5 Proceedings at Closing. All proceedings to be taken, and all
documents to be executed and delivered by the Parties, at the Closing shall be
deemed to have been taken and executed simultaneously, and, except as permitted
hereunder, no proceedings shall be deemed taken nor any documents executed or
delivered until all have been taken, executed and delivered.

 

Section 2.6 Withholding Rights. Each of Legg Mason and Citigroup (and their
respective Affiliates) shall be entitled to deduct and withhold from any
consideration (whether in cash or in kind) payable or transferable to the other
Party (or its Affiliates) such amounts as it is required to deduct and withhold
with respect to the making of such payment or transfer under the Code and the
rules and regulations promulgated thereunder, or any other Requirement of Law.
To the extent that amounts are so withheld by Legg Mason or Citigroup, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the other (or its Affiliates) in respect of
which such deduction and withholding was made. Any amounts so withheld shall be
remitted to the appropriate Governmental Authority on a timely basis. For the
avoidance of doubt, this Section 2.6 shall not apply to Conveyance Taxes.

 

Section 2.7 Delayed Closing.

 

(a) Notwithstanding anything to the contrary contained in this Agreement, in the
event that the Parties have determined that the conditions set forth in Article
VII have been satisfied (other than conditions which by their terms are intended
to be satisfied as of the Closing Date, with respect to which, upon the request
of a Party, the Parties shall certify as to the satisfaction of such conditions
to each other Party in connection with such determination), except that the
transfer of any of the CAM Transferred Shares in respect of any CAM Transferred
Subsidiary that is created or organized outside the United States and is
immaterial to the CAM Business or any of the PC/CM Transferred Shares in respect
of any PC/CM Subsidiary that is created or organized outside the United States
and is immaterial to the PC/CM Business requires any material approval or permit
of any Governmental Authority that has not then been received or obtained or the
expiration of any applicable waiting period that has not expired (such
transferred shares and the assets relating to the CAM Business or the PC/CM
Business, as the case may be, conducted by such Subsidiary, collectively, the
“Delayed Closing Assets”), either party shall have the right to require the
Closing other than with respect to such Delayed Closing Assets, which Closing
shall be effected as contemplated hereby, subject to subsections (b) and (f)
below.

 

(b) In the event that there shall be a Delayed Closing, the Delayed Closing
Assets shall not be transferred to Citigroup or Legg Mason, as applicable, at
the Closing.

 

(c) One or more subsequent closings (the “Delayed Closing”) with respect to
Delayed Closing Assets shall occur on the later of the second Business Day (the
“Delayed Closing Date”) following receipt of the applicable approvals of any
Governmental Authority and the expiration of any applicable waiting period with
respect to such Delayed Closing Assets, the transfer of which require such
approvals, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four
Times Square, New York, New York 10036-6522 at 10:00 a.m., New York City time,
or at such other place, time or date as the Parties shall agree upon in writing.
At a Delayed

 

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Closing, the Parties shall make such deliveries as may be reasonably necessary
to assign the Delayed Closing Assets, as contemplated by Section 2.3 and 2.4 of
this Agreement.

 

(d) From the Closing Date to the applicable Delayed Closing, Citigroup shall,
with any necessary cooperation from Legg Mason, (i) take such actions with
respect to Delayed Closing Assets intended to be acquired by Legg Mason
hereunder as may be reasonably requested by Legg Mason to the extent permitted
by any Requirement of Law, and (ii) (A) preserve each Delayed Closing Asset, (B)
hold and operate each such Delayed Closing Asset in trust for the account of
Legg Mason and (C) provide Legg Mason the economic benefit thereof, and transfer
to Legg Mason the economic burden thereof, including discharging any liabilities
or obligations relating to such Delayed Closing Assets, and Legg Mason shall be
liable for such liabilities and obligations. To the extent that any Citigroup
Seller is not lawfully able to hold and operate any such Delayed Closing Asset
in trust for the account of Legg Mason as contemplated by the preceding
sentence, such Citigroup Seller shall use its commercially reasonable efforts to
enter into an arrangement that passes on to Legg Mason the economic costs,
economic burdens and benefits of ownership of such Delayed Closing Assets. The
foregoing shall be undertaken pursuant to documentation to be mutually agreed
upon by Citigroup and Legg Mason.

 

(e) From the Closing Date to the applicable Delayed Closing, Legg Mason shall,
with any necessary cooperation from Citigroup, (i) take such actions with
respect to Delayed Closing Assets intended to be acquired by Citigroup hereunder
as may be reasonably requested by Citigroup to the extent permitted by any
Requirement of Law, and (ii) (A) preserve each Delayed Closing Asset, (B) hold
and operate each such Delayed Closing Asset in trust for the account of
Citigroup and (C) provide Citigroup the economic benefit thereof, and transfer
to Citigroup the economic burden thereof, including discharging any liabilities
or obligations relating to such Delayed Closing Assets, and Citigroup shall be
liable for such liabilities and obligations. To the extent that any Legg Mason
Seller is not lawfully able to hold and operate any such Delayed Closing Asset
in trust for the account of Citigroup as contemplated by the preceding sentence,
such Legg Mason Seller shall use its commercially reasonable efforts to enter
into an arrangement that passes on to Citigroup the economic costs, economic
burdens and benefits of ownership of such Delayed Closing Assets. The foregoing
shall be undertaken pursuant to documentation to be mutually agreed upon by Legg
Mason and Citigroup.

 

(f) Notwithstanding anything contained herein to the contrary, Section 7.1(b)
shall be the only condition required to be satisfied or waived by any Party
prior to a Delayed Closing in order to consummate the transactions contemplated
by this Section 2.7 with respect to any Delayed Closing Assets. In respect of
the Delayed Closing Assets, from the Closing Date to the Delayed Closing,
Citigroup and Legg Mason shall continue to comply with all covenants and
agreements contained in this Agreement that are required by their terms to be
performed prior to the Closing solely in respect of the Delayed Closing Assets
and, unless the context clearly requires otherwise and except for purposes of
Article VIII hereof, all references in this Agreement to the “Closing” or the
“Closing Date” shall, with respect to the Delayed Closing Assets, be deemed to
refer to the Delayed Closing or the Delayed Closing Date, respectively.

 

(g) In the event any Delayed Closing does not occur, the Parties shall, to the
extent lawful and practicable, use their reasonable best efforts to enter into
arrangements to

 

11

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reinstate the intended benefits, net of the intended burdens, associated with
the transfer of the relevant Delayed Closing Assets.

 

ARTICLE III

POST-CLOSING ADJUSTMENTS

 

Section 3.1 CAM Final Closing Date Balance Sheet.

 

(a) (i) Not later than 90 days after the Closing Date or such other time as is
mutually agreed by the Parties, Citigroup shall prepare, or cause to be
prepared, and deliver, or cause to be delivered, to Legg Mason a balance sheet
of the CAM Business (the “CAM Final Closing Date Balance Sheet”), as of
immediately prior to the Closing, and calculations in reasonable detail based
upon such CAM Final Closing Date Balance Sheet setting forth the amounts of CAM
Tangible Book Value, together with a certificate duly executed by an appropriate
officer of a Citigroup Seller certifying that the CAM Final Closing Date Balance
Sheet and such calculation were prepared in accordance with the accounting
principles, procedures, policies and methods used by Citigroup in preparing the
CAM Base Balance Sheet, including the types of adjustments used in preparing the
CAM Base Balance Sheet as set forth in the notes thereto.

 

(ii) From and after the Closing, in connection with the preparation and delivery
of the CAM Final Closing Date Balance Sheet and calculations of the CAM Tangible
Book Value as set forth therein and during the period of any dispute
contemplated by this Section 3.1, Legg Mason shall, and shall cause the Legg
Mason Sellers and CAM Subsidiaries to, and Citigroup shall, and shall cause the
Citigroup Sellers and the PC/CM Subsidiaries to, (A) provide the other Party and
the other Party’s authorized representatives with reasonable access to the
relevant books and records, facilities and employees and (B) cooperate in good
faith with the other Party and its authorized representatives, including by
providing on a timely basis all information reasonably necessary in or
reasonably related to the preparation of the CAM Final Closing Date Balance
Sheet and calculations of CAM Tangible Book Value as set forth therein.

 

(b) Within 30 days following its receipt of the CAM Final Closing Date Balance
Sheet, Legg Mason shall deliver to Citigroup either (i) its agreement as to the
calculation of CAM Tangible Book Value as set forth therein or (ii) a written
dispute notice, specifying in reasonable detail the nature of its dispute of the
calculation of CAM Tangible Book Value as set forth therein; provided that Legg
Mason may dispute the calculation of CAM Tangible Book Value as set forth in the
CAM Final Closing Date Balance Sheet only on the basis that such calculation was
not made in accordance with the accounting principles, procedures, policies and
methods employed by Citigroup in preparing the CAM Base Balance Sheet, or on the
basis of arithmetic error. During the 30 days after the delivery of a dispute
notice to Citigroup, Legg Mason and Citigroup shall attempt in good faith to
resolve any such dispute and finally determine the amounts, as applicable, of
CAM Tangible Book Value as set forth in the CAM Final Closing Date Balance
Sheet. If at the end of such 30-day period, Legg Mason and Citigroup have failed
to reach agreement with respect to such dispute, the matter shall be submitted
to a nationally recognized accounting firm that is not the principal independent
auditor for either Citigroup or Legg Mason and is otherwise neutral and
impartial; provided, however,

 

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that if Citigroup and Legg Mason are unable to select such other accounting firm
within 45 days after delivery of a dispute notice to Citigroup, either party may
request the American Arbitration Association to appoint, within 20 Business Days
from the date of such request, an independent accounting firm meeting the
requirements set forth above or a neutral and impartial certified public
accountant with significant relevant experience. The accounting firm or
accountant so selected shall be referred to herein as the “Accountant.” The
Accountant shall resolve the disputed portions of the calculation of CAM
Tangible Book Value as set forth in the CAM Final Closing Date Balance Sheet in
accordance with the terms and conditions of this Agreement. In making such
determination, the Accountant may only consider those items and amounts as to
which Legg Mason and Citigroup have disagreed within the time periods and on the
terms specified above and must resolve the matter in accordance with the terms
and provisions of this Agreement; provided that the determination of the
Accountant will neither be more favorable to the Citigroup Sellers than
reflected in the CAM Closing Date Balance Sheet nor more favorable to Legg Mason
than reflected in Legg Mason’s dispute notice. The Accountant shall deliver to
Citigroup and Legg Mason, as promptly as practicable after its appointment, a
written report setting forth the resolution of each disputed matter and its
determination of the amounts of CAM Tangible Book Value as set forth in the CAM
Final Closing Date Balance Sheet as determined in accordance with the terms of
this Agreement. Such report shall be final and binding upon the Parties to the
fullest extent permitted under Requirements of Law and may be enforced in any
court having jurisdiction. Each of Legg Mason and Citigroup shall bear all the
fees and costs incurred by it in connection with this arbitration, except that
all fees and expenses relating to the foregoing work by the Accountant shall be
borne by Legg Mason and Citigroup in inverse proportion as they may prevail on
the matters resolved by the Accountant, which proportionate allocation will also
be determined by the Accountant and be included in the Accountant’s written
report.

 

(c) Each Party shall make available to the other Party its (and shall use its
reasonable best efforts to cause its accountants’) work papers, schedules and
other supporting data as may reasonably be requested by such Party to enable
such Party to verify the calculations of CAM Tangible Book Value as set forth in
the CAM Final Closing Date Balance Sheet, subject to customary confidentiality
and indemnity agreements.

 

Section 3.2 PC/CM Final Closing Date Balance Sheets.

 

(a) (i) Not later than 90 days after the Closing Date or such other time as is
mutually agreed by the Parties, Legg Mason shall prepare, or cause to be
prepared, and deliver, or cause to be delivered, to Citigroup a balance sheet of
the PC/CM Business (the “PC/CM Final Closing Date Balance Sheet”), as of
immediately prior to the Closing, and calculations in reasonable detail based
upon such PC/CM Final Closing Date Balance Sheet setting forth the amount of
PC/CM Tangible Book Value and the capital ratio, together with a certificate
duly executed by an appropriate officer of a Legg Mason Seller certifying that
the PC/CM Final Closing Date Balance Sheet and such calculations were prepared
in accordance with the accounting principles, procedures, policies and methods
used by Legg Mason in preparing the PC/CM Base Balance Sheet, including the
types of adjustments set forth in the notes thereto.

 

(ii) From and after the Closing, in connection with the preparation and delivery
of the PC/CM Final Closing Date Balance Sheet and calculations of PC/CM Tangible

 

13

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Book Value and the capital ratio as set forth therein and during the period of
any dispute contemplated by this Section 3.2, Citigroup shall, and shall cause
the Citigroup Sellers and the PC/CM Subsidiaries to, and Legg Mason shall, and
shall cause the Legg Mason Sellers and the CAM Subsidiaries to, (A) provide the
other Party and the other Party’s authorized representatives with reasonable
access to the relevant books and records, facilities and employees and (B)
cooperate in good faith with the other Party and its authorized representatives,
including by providing on a timely basis all information reasonably necessary in
or reasonably related to the preparation of the PC/CM Final Closing Date Balance
Sheet and calculations of PC/CM Tangible Book Value and the capital ratio as set
forth therein.

 

(b) Within 30 days following its receipt of the PC/CM Final Closing Date Balance
Sheet, Citigroup shall deliver to Legg Mason either (i) its agreement as to the
calculations of PC/CM Tangible Book Value and the capital ratio as set forth
therein or (ii) a written dispute notice, specifying in reasonable detail the
nature of its dispute of the calculations of PC/CM Tangible Book Value and the
capital ratio as set forth therein; provided that Citigroup may dispute the
calculations of PC/CM Tangible Book Value set forth in the PC/CM Final Closing
Date Balance Sheet only on the basis that such calculations were not made in
accordance with the accounting principles, procedures, policies and methods
employed by Legg Mason in preparing the PC/CM Base Balance Sheet, or on the
basis of arithmetic error. During the 30 days after the delivery of a dispute
notice to Legg Mason, Citigroup and Legg Mason shall attempt in good faith to
resolve any such dispute and finally determine the amount of PC/CM Tangible Book
Value and the capital ratio set forth in the PC/CM Final Closing Date Balance
Sheet. If at the end of such 30-day period, Citigroup and Legg Mason have failed
to reach agreement with respect to such dispute, the matter shall be submitted
to the Accountant (as selected pursuant to Section 3.1(b)), which shall act as
arbitrator. The Accountant shall resolve the disputed portions of the
calculations of PC/CM Tangible Book Value and the capital ratio set forth in the
PC/CM Final Closing Date Balance Sheet in accordance with the terms and
conditions of this Agreement. In making such determination, the Accountant may
only consider those items and amounts as to which Citigroup and Legg Mason have
disagreed within the time periods and on the terms specified above and must
resolve the matter in accordance with the terms and provisions of this
Agreement; provided that the determination of the Accountant will neither be
more favorable to Legg Mason Sellers than reflected in the PC/CM Final Closing
Date Balance Sheet nor more favorable to Citigroup than reflected in Citigroup’s
dispute notice. The Accountant shall deliver to Legg Mason and Citigroup, as
promptly as practicable after its appointment, a written report setting forth
the resolution of each disputed matter and its determination of the amount of
PC/CM Tangible Book Value and the capital ratio set forth in the PC/CM Final
Closing Date Balance Sheet as determined in accordance with the terms of this
Agreement. Such report shall be final and binding upon the Parties to the
fullest extent permitted under Requirements of Law and may be enforced in any
court having jurisdiction. Each of Citigroup and Legg Mason shall bear all the
fees and costs incurred by it in connection with this arbitration, except that
all fees and expenses relating to the foregoing work by the Accountant shall be
borne by Citigroup and Legg Mason in inverse proportion as they may prevail on
the matters resolved by the Accountant, which proportionate allocation will also
be determined by the Accountant and be included in the Accountant’s written
report.

 

(c) Each Party shall make available to the other Party its and its accountants’
work papers, schedules and other supporting data as may be reasonably requested
by such Party to

 

14

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enable such Party to verify the calculations of PC/CM Tangible Book Value and
the capital ratio set forth in the PC/CM Final Closing Date Balance Sheet,
subject to customary confidentiality and indemnity agreements.

 

Section 3.3 Post-Closing Balance Sheet Adjustment Payment. On the second
Business Day after the later of (x) the date Legg Mason and Citigroup agree to
the calculations of CAM Tangible Book Value as set forth in the CAM Final
Closing Date Balance Sheet and PC/CM Tangible Book Value as set forth in the
PC/CM Final Closing Date Balance Sheet and (y) if Legg Mason and Citigroup are
unable to agree on such calculations of CAM Tangible Book Value and PC/CM
Tangible Book Value, the date that Legg Mason and Citigroup receive notice from
the Accountant of the final determination of the amount(s) being so disputed,

 

(a) (i) in the event that the Net Adjustment Amount as calculated using the CAM
Final Closing Date Balance Sheet and the PC/CM Final Closing Date Balance Sheet
(and amounts calculated therefrom) is greater than the Net Adjustment Amount as
calculated using the CAM Estimated Closing Date Balance Sheet and the PC/CM
Estimated Closing Date Balance Sheet (and amounts calculated therefrom), the
Note Principal Amount shall be increased by an amount equal to such excess
(effective as of the Closing Date); and

 

(ii) in the event that the Net Adjustment Amount as calculated using the CAM
Final Closing Date Balance Sheet and the PC/CM Final Closing Date Balance Sheet
(and amounts calculated therefrom) is less than the Net Adjustment Amount as
calculated using the CAM Estimated Closing Date Balance Sheet and the PC/CM
Estimated Closing Date Balance Sheet (and amounts calculated therefrom), the
Note Principal Amount shall be reduced (effective as of the Closing Date) by an
amount equal to such difference.

 

(b) In the event that the capital ratio of the PC/CM Business is less than 15%
as calculated using the PC/CM Final Closing Balance Sheet and in accordance with
Section 1.3(a)(iii), Legg Mason shall make a payment in cash to the Affiliate of
Citigroup as designated by Citigroup in an amount equal to the amount that would
have been required to be contributed to the PC/CM Business at the Closing to
have the capital ratio equal to 15%, without giving effect to any capital
contributions made by Legg Mason or one of its Affiliates to the PC/CM Business
to fund the Legg Mason Continuing Deferred Compensation Amount.

 

Section 3.4 Post-Closing True-Up. Notwithstanding any other provisions of this
Agreement, in the event that any CAM Advisory Client has not, on or prior to the
Closing Date, (a) provided its written Consent to the assignment or deemed
assignment of its CAM Advisory Contract(s) (each such Person, a “True-Up CAM
Advisory Client”) to the extent required under Section 6.6(a) or (b) terminated
or informed any CAM Subsidiary in writing or orally of its intention to
terminate its CAM Advisory Contract(s) and, in either case, has not, on or prior
to the first Business Day that is six months after the Closing Date, terminated
or informed any CAM Subsidiary in writing or orally of its intention to
terminate its CAM Advisory Contract(s), then the Note Principal Amount shall be
increased (effective as of the Closing Date) by an amount equal to the excess,
if any, of (i) the Net Amount calculated using an amount equal to the sum of (x)
Aggregate Closing Revenue Run Rate plus (y) the increase in such Aggregate
Closing Revenue Run Rate that would have resulted if all of the CAM Advisory
Clients referred to in this Section 3.4(a) and (b) had provided their written
Consent in respect of

 

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the applicable CAM Advisory Contracts on or prior to the Closing over (ii) the
Net Amount as calculated pursuant to Section 1.2(c) at the Closing; provided
that in no event shall the increase in the Note Principal Amount pursuant to
this Section 3.4 exceed the CAM Revenue Adjustment.

 

Section 3.5 Allocation of Purchase Price.

 

(a) Legg Mason and Citigroup shall endeavor in good faith to agree, within 120
days after the Closing Date, on the allocation of the total consideration paid
to the Citigroup Sellers by Legg Mason and its Affiliates pursuant to this
Agreement for the CAM Transferred Shares and any CAM Purchased Assets (the “CAM
Allocation”) and the allocation of the total consideration paid to the Legg
Mason Sellers by Citigroup and its Affiliates pursuant to this Agreement for the
PC/CM Transferred Shares (the “PC/CM Allocation”). Each of the CAM Allocation
and the PC/CM Allocation shall be made in accordance with Section 1060 of the
Code and the rules and regulations promulgated thereunder. Any amount allocated
to any CAM Transferred Shares or any PC/CM Transferred Shares that, in each
case, are shares of an entity that is disregarded as separate and apart from its
owner for United States federal income tax purposes (a “Disregarded Entity”),
shall be allocated among the assets of such Disregarded Entity in accordance
with Section 1060 of the Code and the rules and regulations promulgated
thereunder.

 

(b) In the event that Citigroup and Legg Mason agree on the CAM Allocation and
the PC/CM Allocation, except as may be required by a Determination, Citigroup
and Legg Mason agree to act in accordance with the CAM Allocation and the PC/CM
Allocation in the preparation and filing of all Tax Returns (including filing
Form 8594 with their respective federal income tax returns for the taxable year
that includes the Closing Date and any other forms or statements required by the
Code, Treasury Regulations, the Internal Revenue Service (“IRS”) or any
applicable state or local or foreign Governmental Authority) and in the course
of any Tax Proceeding.

 

(c) In the event that Citigroup and Legg Mason do not agree on the CAM
Allocation or the PC/CM Allocation, Citigroup and Legg Mason (and their
respective Affiliates) shall independently determine the manner in which such
allocations should be made, and, for all Tax purposes, neither Citigroup (and
any of its Affiliates) nor Legg Mason (and any of its Affiliates) shall be bound
by the other party’s allocations; provided that Citigroup shall not allocate
less than 85% of the total consideration to the domestic CAM Subsidiaries, in
the aggregate.

 

(d) Any subsequent adjustments to the total consideration shall be reflected in
the CAM Allocation or the PC/CM Allocation, as the case may be, and made in
accordance with Section 1060 of the Code and the rules and regulations
promulgated thereunder and consistent with the methodology provided above.

 

(e) Citigroup and Legg Mason shall promptly inform one another in writing of any
challenge by any Governmental Authority to any allocation made pursuant to this
Section 3.5 and shall consult and keep one another informed with respect to the
status of such challenge.

 

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(f) Section 8.4(d) shall govern all allocations resulting from any CAM Election
or PC/CM Election.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF CITIGROUP

 

Except as set forth in the Citigroup Disclosure Letter, Citigroup hereby
represents and warrants to Legg Mason as set forth below in this Article IV.

 

Section 4.1 Organization and Good Standing. Each of Citigroup and any Subsidiary
thereof that is party to any Related Agreement and each CAM Subsidiary is a
legal entity duly organized, validly existing and (where applicable) in good
standing under the Requirements of Law of its jurisdiction of organization and
has all requisite power and authority to own, operate and lease its assets and
to carry on its business as currently conducted. Each of Citigroup and any CAM
Subsidiary is duly qualified to do business and is in good standing (where
applicable) as a foreign corporation in each jurisdiction where the ownership,
operation or leasing of its assets or the conduct of its business as currently
conducted requires such qualification, except for those jurisdictions where the
failure to be so qualified or to be in good standing, individually or in the
aggregate, would not reasonably be expected to have a CAM Material Adverse
Effect. Citigroup has made available to Legg Mason true and complete copies of
the certificate of incorporation and bylaws (or comparable organizational
documents) for each CAM Subsidiary.

 

Section 4.2 CAM Subsidiaries; Other Interests.

 

(a) Section 4.2(a) of the Citigroup Disclosure Letter sets forth the name,
jurisdiction of organization or incorporation and the current ownership of
outstanding shares or other equity or ownership interests of each CAM Subsidiary
as of the date hereof and will be updated to set forth such information as of
the Closing Date.

 

(b) All of the CAM Transferred Shares (i) are owned of record and beneficially,
directly or indirectly, by the Citigroup Sellers, free and clear of all Liens,
and (ii) have been duly authorized, validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights. There
are no outstanding options, warrants, convertible securities or other rights,
agreements, arrangements or commitments relating to the CAM Transferred Shares
or obligating the Citigroup Sellers or any of their Affiliates, at any time or
upon the occurrence of certain events, to offer, issue, sell, transfer, vote or
otherwise dispose of or sell any CAM Transferred Shares. None of the Citigroup
Sellers or any of their Affiliates has (A) outstanding Indebtedness that could
entitle or convey to any Person the right to vote, or that is convertible into
or exercisable for, CAM Transferred Shares or (B) outstanding options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
that entitle or convey to any Person the right to vote with the Citigroup
Sellers on any matter in respect of the CAM Transferred Shares. There are no
voting trusts or other agreements or understandings outstanding with respect to
the CAM Transferred Shares.

 

(c) Section 4.2(c) of the Citigroup Disclosure Letter sets forth a true and
complete list of any material interest or investment in (whether equity or debt)
any corporation, partnership,

 

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limited liability company, joint venture, business, trust or other Person owned,
directly or indirectly, by any CAM Subsidiary, other than interests or
investments held by the CAM Subsidiaries for the account of clients as of the
date hereof and will be updated to set forth such information as of the Closing
Date.

 

Section 4.3 Authorization; Binding Obligations. Citigroup and each of its
Subsidiaries that is party to any Related Agreement has all necessary power and
authority to make, execute and deliver this Agreement and the Related Agreements
to which it is a party and to perform all of the obligations to be performed by
it hereunder and thereunder. The making, execution, delivery and performance by
Citigroup and each of its applicable Subsidiaries of this Agreement and the
Related Agreements and the consummation by them of the Transactions have been
duly and validly authorized by all necessary corporate action on the part of
Citigroup and each such Subsidiary. This Agreement has been, and, as of the
Closing Date, the Related Agreements will be, duly and validly executed and
delivered by Citigroup and each such Subsidiary, as the case may be, and
assuming the due authorization, execution and delivery by Legg Mason and each of
its applicable Subsidiaries, each of this Agreement and the Related Agreements
will constitute the valid, legal and binding obligation of Citigroup and each of
its applicable Subsidiaries that is a party thereto, enforceable against it in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium or other similar Requirements of Law, now or
hereafter in effect, relating to or affecting the rights of creditors generally
and the availability of specific remedies may be limited by legal and equitable
principles of general applicability.

 

Section 4.4 No Conflicts. Assuming the Consents set forth in Section 4.5 of the
Citigroup Disclosure Letter and the Consents described in Section 6.6 are duly
obtained and any applicable waiting periods under the HSR Act and any applicable
foreign antitrust Requirements of Law have expired or terminated, neither the
execution and delivery of this Agreement or the Related Agreements by Citigroup
or any of its Subsidiaries that is party to any Related Agreement, nor the
consummation by Citigroup or any such Subsidiary of the Transactions will
conflict with, result in a termination of, contravene or constitute a default
under, or be an event that with the giving of notice or passage of time or both
will become a default under, or give to any other Person any right of
termination, payment, acceleration, vesting or cancellation of or under, or
accelerate the performance required by or maturity of, or result in the creation
of any Lien or loss of any rights of any CAM Subsidiary pursuant to any of the
terms, conditions or provisions of or under (a) any Requirement of Law, (b) the
certificate of incorporation or bylaws (or comparable organizational documents)
of Citigroup or any Subsidiary of Citigroup or (c) any Contract binding upon any
CAM Subsidiary or to which the property of any CAM Subsidiary or any portion of
the CAM Business is subject, except for, in the case of this clause (c), any
conflict, termination, contravention, default, payment, acceleration, vesting,
cancellation, Liens or loss of rights that, individually or in the aggregate,
would not reasonably be expected to have a CAM Material Adverse Effect.

 

Section 4.5 Approvals. There are no notices, reports or other filings required
to be made by Citigroup or any of its Affiliates with, or Consents required to
be obtained by Citigroup or any of its Affiliates from, any Governmental
Authority or other third party in order for Citigroup and its applicable
Subsidiaries to execute, deliver or perform this Agreement or the Related
Agreements or to consummate the Transactions, except (a) as set forth in Section
4.5 of

 

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the Citigroup Disclosure Letter and as contemplated by Section 6.6, (b) filings,
permits, authorizations, consents and approvals as may be required under the HSR
Act and any applicable foreign antitrust Requirements of Law, or (c) where the
failure to make such notices, reports or other filings or the failure to obtain
such Consents, individually or in the aggregate, would not reasonably be
expected to (i) prevent, impair or delay the consummation of the Transactions or
(ii) have an adverse impact on the CAM Business in any material respect.

 

Section 4.6 Litigation. There is no investigation, action, suit, proceeding,
claim, arbitration or other litigation pending or, to the Knowledge of
Citigroup, threatened, against Citigroup or any of its Affiliates or the CAM
Business (including any claim involving a CAM Advisory Contract or a CAM
Advisory Client or any CAM Real Property) that, individually or in the
aggregate, (a) involves a claim against, or is reasonably likely to result in a
liability of, the CAM Business in excess of $500,000; (b) would reasonably be
expected to have an adverse impact on the CAM Business in any material respect;
or (c) would affect the legality, validity or enforceability of this Agreement
or any Related Agreement or prevent or materially impair or delay the
consummation of the Transactions. There are no judgments, injunctions, writs,
orders or decrees of any Governmental Authority binding or, to the Knowledge of
Citigroup, threatened, to be imposed upon (i) any CAM Subsidiary, (ii) any other
Affiliate of Citigroup with respect to the CAM Business or (iii) the CAM
Business that would (A) be binding upon Legg Mason or its Affiliates following
consummation of such Transactions or (B) individually or in the aggregate,
reasonably be expected to have an adverse impact on the CAM Business in any
material respect.

 

Section 4.7 Compliance with Requirements of Law; Regulatory Matters.

 

(a) The CAM Business is, and since January 1, 2002 has been, in compliance in
all material respects with all Requirements of Law. Since January 1, 2002, none
of Citigroup or any of its Affiliates has received any written, or, to the
Knowledge of Citigroup, oral notice from (and otherwise does not have any
Knowledge of) any Governmental Authority that alleges any noncompliance (or that
the CAM Business is under any investigation, pending, or, to the Knowledge of
Citigroup, threatened, by any such Governmental Authority for such alleged
noncompliance) with any Requirement of Law applicable to the CAM Business (or
any portion thereof) that, individually or in the aggregate, would reasonably be
expected to have an adverse impact on the CAM Business in any material respect.

 

(b) (i) The CAM Subsidiaries and, if applicable, each of their respective
investment adviser representatives (as such term is defined in Rule 203A-3 under
the Advisers Act) hold all Permits that are required in order to permit the CAM
Subsidiaries to own or lease their properties and assets and to conduct the CAM
Business under and pursuant to all Requirements of Law in all material respects;
(ii) each of the CAM Registered Investment Companies and CAM Non-Registered
Funds holds all Permits that are required in order to permit such CAM Registered
Investment Company and CAM Non-Registered Fund, respectively, to own or lease
its properties and assets and to conduct its business under and pursuant to all
Requirements of Law in all material respects; (iii) all Permits referenced in
clauses (i) and (ii) above are in full force and effect and are not subject to
any suspension, cancellation, modification, revocation or any proceedings or
investigations related thereto, and, to the Knowledge of Citigroup, no such
suspension, cancellation, modification, revocation,

 

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proceeding or investigation is threatened, nor do facts exist which would
reasonably form the basis for any such suspension, cancellation, modification,
revocation, proceeding or investigation that, individually or in the aggregate,
would reasonably be expected to have an adverse impact on the CAM Business in
any material respect; and (iv) no CAM Subsidiary or CAM Registered Investment
Company is in default, and no condition exists that with notice or lapse of time
or otherwise would constitute a default, under any such Permit that,
individually or in the aggregate, would reasonably be expected to have an
adverse impact on the CAM Business in any material respect.

 

(c) Each CAM Subsidiary identified in Section 4.7(c) of the Citigroup Disclosure
Letter (as may be updated to give effect to the CAM Restructuring) is, and at
all times required by the Advisers Act during its existence has been, duly
registered as an investment adviser under the Advisers Act. Each CAM Subsidiary
that is required to be is, and at all times required pursuant to the
Requirements of Law (other than the Advisers Act) has been, duly registered,
licensed or qualified as an investment adviser in each state or any other
jurisdiction where the conduct of its business required such registration,
licensing or qualification, except where the failure to be so registered,
licensed or qualified, individually or in the aggregate, would not reasonably be
expected to have an adverse impact on the CAM Business in any material respect.
To the extent that any CAM Subsidiary relies on any statutory or regulatory
exemption to avoid registration as an investment adviser with any Governmental
Authority (other than with respect to the Advisers Act), such CAM Subsidiary has
taken all actions required pursuant to the Requirements of Law to claim and
maintain such exemption, except where the failure to claim or maintain such
exemption, individually or in the aggregate, would not reasonably be expected to
have an adverse impact on the CAM Business in any material respect. A correct
and complete list of each such current registration, license or qualification is
set forth in Section 4.7(c) of the Citigroup Disclosure Letter (as may be
updated to give effect to the CAM Restructuring). No CAM Subsidiary not
identified in Section 4.7(c) of the Citigroup Disclosure Letter (as may be
updated to give effect to the CAM Restructuring) (i) is or has been an
“investment adviser” within the meaning of the Advisers Act or any other
Requirements of Law or (ii) to the Knowledge of Citigroup, is subject to any
material liability or disability by reason of any failure to be so registered,
licensed or qualified.

 

(d) Each CAM Subsidiary identified in Section 4.7(d) of the Citigroup Disclosure
Letter (as may be updated to give effect to the CAM Restructuring) is, and at
all times required by the Exchange Act during its existence has been, duly
registered as a broker-dealer under the Exchange Act, except where the failure
to be so registered, individually or in the aggregate, would not reasonably be
expected to have an adverse impact on the CAM Business in any material respect.
Each such CAM Subsidiary that is required to be is, and at all times required
pursuant to the Requirements of Law (other than the Exchange Act) has been, duly
registered, licensed or qualified as a broker-dealer in each state or any other
jurisdiction where the conduct of its business required such registration,
licensing or qualification, except where the failure to be so registered,
licensed or qualified, individually or in the aggregate, would not reasonably be
expected to have a CAM Material Adverse Effect. To the extent that any CAM
Subsidiary relies on any statutory or regulatory exemption to avoid registration
as a broker-dealer with any Governmental Authority, such CAM Subsidiary has
taken all actions required pursuant to the Requirements of Law to claim and
maintain such exemption, except where the failure to claim or maintain such
exemption, individually or in the aggregate, would not

 

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reasonably be expected to have an adverse impact on the CAM Business in any
material respect. A correct and complete list of each such current registration,
license or qualification is set forth in Section 4.7(d) of the Citigroup
Disclosure Letter (as may be updated to give effect to the CAM Restructuring).
No CAM Subsidiary not identified in Section 4.7(d) of the Citigroup Disclosure
Letter (as may be updated to give effect to the CAM Restructuring) (i) is or has
been a “broker” or “dealer”, or is or has been required to be registered as a
“broker” or “dealer”, within the meaning of the Exchange Act or any other
Requirements of Law or (ii) to the Knowledge of Citigroup, is subject to any
material liability or disability by reason of any failure to be so registered,
licensed or qualified.

 

(e) Except where the failure to be registered, licensed or qualified,
individually or in the aggregate, would not reasonably be expected to have an
adverse impact on the CAM Business in any material respect, none of the CAM
Subsidiaries is or has been (i) a commodity pool operator, futures commission
merchant, commodity trading advisor, trust company, real estate broker,
introducing broker, insurance company, insurance broker, insurance agent or
transfer agent within the meaning of any Requirement of Law, (ii) required to be
registered, licensed or qualified as a commodity pool operator, futures
commission merchant, commodity trading advisor, trust company, real estate
broker, introducing broker, insurance company, insurance broker, insurance
agent, transfer agent or in any other capacity under any Requirement of Law or
(iii) subject to any liability or disability by reason of any failure to be so
registered, licensed or qualified. If any CAM Subsidiary relies on any statutory
or regulatory exemption to avoid registration as a commodity pool operator or
commodity trading advisor (or in a similar capacity) with any Governmental
Authority, such CAM Subsidiary has taken all actions required pursuant to the
Requirements of Law to claim and maintain such exemption, except where the
failure to claim or maintain such exemption, individually or in the aggregate,
would not reasonably be expected to have an adverse impact on the CAM Business
in any material respect.

 

(f) None of the CAM Subsidiaries or any “affiliated person” (as defined in the
Investment Company Act) of any of them is ineligible or disqualified pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as an investment
adviser (or in any other capacity contemplated in the Investment Company Act) to
a Registered Investment Company, nor is there any proceeding or investigation
pending or, to the Knowledge of Citigroup, threatened, by, any Governmental
Authority, which would reasonably be expected to become the basis for any such
ineligibility or disqualification. None of the CAM Subsidiaries or any person
“associated” (as defined in the Advisers Act) with any of them is ineligible or
disqualified pursuant to Section 203 of the Advisers Act to serve as a
registered investment adviser or person “associated” (as defined in the Advisers
Act) with a registered investment adviser, nor is there any proceeding or
investigation pending or, to the Knowledge of Citigroup, threatened, by, any
Governmental Authority, which would reasonably be expected to become the basis
for any such ineligibility or disqualification. None of the CAM Subsidiaries or
any of their “associated persons of a broker or dealer” (as defined in the
Exchange Act) are ineligible or disqualified pursuant to Section 15, Section 15B
or Section 15C of the Exchange Act to serve as a broker-dealer or as an
“associated person of a broker or dealer” (as defined in the Exchange Act), nor
is there any proceeding or investigation pending or, to the Knowledge of
Citigroup, threatened, by, any Governmental Authority, which would reasonably be
expected to become the basis for any such ineligibility or disqualification.

 

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(g) The CAM Subsidiaries and the officers and employees of the CAM Subsidiaries
who are required to be licensed or registered for the activities conducted by
them in respect of the CAM Business are and at all times since January 1, 2002
have been duly licensed or registered in each state or jurisdiction in which and
with each Governmental Authority with whom such licensing or registration is so
required. Each such registration or license is in full force and effect, except
where the failure to be so licensed or registered, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on the CAM
Business in any material respect. To the Knowledge of Citigroup, none of the CAM
Subsidiaries or these individuals is or, since January 1, 2002, has been subject
to any material disciplinary or other material regulatory compliance action or
material complaint by a Governmental Authority, a CAM Subsidiary or client or
customer.

 

(h) All material registrations (including Form ADV), reports, prospectuses,
proxy statements, statements of additional information, financial statements,
sales literature, statements, notices and other filings required to be filed
with any Governmental Authority (other than Tax Returns), including all
amendments or supplements to any of the above (the “Filings“) required to be
filed by each CAM Subsidiary since January 1, 2002 related to the CAM Business,
have been filed in compliance in all material respects with all Requirements of
Law. Such Filings did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were or are made, not misleading.
Citigroup has made available to Legg Mason complete and correct copies of (i)
all such material Filings, (ii) all audit or inspection reports provided by any
Governmental Authority in respect of the CAM Business and all written responses
thereto made by the Citigroup Sellers or the CAM Subsidiaries since January 1,
2002 and (iii) all non-routine correspondence relating to any investigation of
the CAM Business with any Governmental Authority since January 1, 2002.

 

(i) (A) The CAM Business as conducted through the CAM Subsidiaries identified on
Schedule 4.7(c) of the Citigroup Disclosure Letter that is registered as an
investment adviser with the SEC has adopted (i) a written policy regarding
insider trading, (ii) a written code of ethics, as required by Rule 204A-1 under
the Advisers Act and, to the extent required, Rule 17j-1 under the Investment
Company Act, (iii) a privacy policy, (iv) a proxy voting policy and (v) all such
other policies and procedures required by Rule 206(4)-7 under the Advisers Act,
and has designated and approved an appropriate chief compliance officer in
accordance with Rule 206(4)-7 and (B) the CAM Business as conducted through the
CAM Subsidiaries identified on Schedule 4.7(c) of the Citigroup Disclosure
Letter that are not registered as an investment adviser with the SEC has
adopted, in all material respects, all policies and procedures required by any
other Governmental Authority or Requirement of Law. All such policies and
procedures comply in all material respects with the Requirements of Law,
including in the cases of clause (i) Sections 204A and 206 of the Advisers Act
and Section 17(j) of the Investment Company Act and there have been no material
violations or allegations of material violations of such policies or procedures.
The policies of such CAM Subsidiaries with respect to avoiding conflicts of
interest, to the extent they are required to be disclosed pursuant to the
Requirements of Law, are as set forth in its most recent Form ADV.

 

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(j) The use of “soft dollars” by the CAM Business as conducted through the CAM
Subsidiaries identified on Schedule 4.7(c) of the Citigroup Disclosure Letter
complies in all material respects with the Requirements of Law.

 

Section 4.8 CAM Registered Investment Companies.

 

(a) Section 4.8(a) of the Citigroup Disclosure Letter sets forth a correct and
complete list of each CAM Registered Investment Company. Each CAM Registered
Investment Company is, and at all times required pursuant to the Requirements of
Law has been, duly registered with the SEC as an investment company under the
Investment Company Act.

 

(b) Each CAM Registered Investment Company is, and since January 1, 2002 has
been, in compliance in all material respects with its respective investment
objectives and policies and all Requirements of Law. Since January 1, 2002, no
CAM Registered Investment Company has received any written or, to the Knowledge
of Citigroup, oral notice from (and otherwise does not have any Knowledge of)
any Governmental Authority that alleges any noncompliance in any material
respect (or that any CAM Registered Investment Company is under any
investigation pending or, to the Knowledge of Citigroup, threatened, by any such
Governmental Authority for such alleged noncompliance) with any Requirement of
Law applicable to such CAM Registered Investment Company that, individually or
in the aggregate, would reasonably be expected to have an adverse impact on the
CAM Business in any material respect. Without limiting the generality of the
foregoing, since January 1, 2002, no CAM Registered Investment Company has been
indicted, convicted, enjoined or made the subject of disciplinary proceedings,
consent decrees or administrative orders on account of any material violation of
any Requirement of Law.

 

(c) Each CAM Registered Investment Company that is a juridical entity is duly
organized, validly existing and, with respect to jurisdictions that recognize
the concept of “good standing,” in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate, trust, company
or partnership power and authority to own its properties and to carry on its
business as currently conducted, and is qualified to do business in each
jurisdiction where it is required to be so qualified pursuant to the
Requirements of Law, except where failure to do so, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on the CAM
Business in any material respect.

 

(d) The shares or units of each CAM Registered Investment Company outstanding at
any time (i) have been issued and sold in compliance with Requirements of Law in
all material respects, (ii) are qualified for public offering and sale in each
jurisdiction where offers are made to the extent required pursuant to the
Requirements of Law and (iii) have been duly authorized and validly issued and
are fully paid and, to the extent applicable, non-assessable.

 

(e) Since January 1, 2002, each CAM Registered Investment Company has filed all
Filings in compliance in all material respects with the Requirements of Law.
Such Filings did not at the time they were filed, and did not during the period
of its authorized use, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were or are made, not misleading. Citigroup has made available to Legg Mason
complete and correct copies of (i) all such Filings made by the CAM Registered
Investment Companies,

 

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(ii) all audit or inspection reports received by any CAM Registered Investment
Company from any Governmental Authority and all written responses thereto made
by any CAM Registered Investment Company since January 1, 2002, and (iii) all
non-routine correspondence relating to any investigation or examination provided
to or by any CAM Registered Investment Company by any Governmental Authority
since January 1, 2002.

 

(f) For all taxable years since its inception, each CAM Registered Investment
Company has elected to be treated as, and has qualified to be classified as, a
regulated investment company taxable under Subchapter M of Chapter 1 of the Code
and under any similar provisions of state or local Requirements of Law in any
jurisdiction in which such CAM Registered Investment Company filed, or is
required to file, a Tax Return. Each CAM Registered Investment Company has
timely filed all material Tax Returns required to be filed by it with any Tax
authority and has paid, or withheld and paid over, all Taxes required to be
shown on such Tax Returns. All such Tax Returns, and the information set forth
therein, are true, correct and complete in all material respects. No CAM
Registered Investment Company has received a written notice from a Governmental
Authority proposing an audit of such Tax Return, no assessment of Taxes has been
asserted with respect to such Tax Returns, and no requests for waivers of the
time to make any such assessment are pending. None of the CAM Registered
Investment Companies is delinquent in the payment of any material Taxes,
assessments or governmental charges.

 

(g) Each CAM Registered Investment Company’s board of directors or trustees, as
applicable, has been established and operated in conformity with the
requirements and restrictions of Sections 10 and 16 of the Investment Company
Act and satisfies the fund governance standards as defined in Rule 0-1 under the
Investment Company Act, except where the failure to be so established or
operated or in conformity or satisfaction, individually or in the aggregate,
would not reasonably be expected to have an adverse impact on the CAM Business
in any material respect.

 

(h) Each CAM Registered Investment Company has in full force and effect such
insurance as is required by the Investment Company Act and has directors’ and
officers’ and errors and omissions insurance policies. All premiums that are due
and payable under such policies have been paid.

 

(i) Each CAM Registered Investment Company (i) has duly adopted written policies
and procedures required by Rule 38a-1 under the Investment Company Act and (ii)
designated and approved an appropriate chief compliance officer in accordance
with such Rule. All such policies and procedures comply in all material respects
with the Requirements of Law and there have been no material violations or
allegations of material violations of such policies and procedures.

 

(j) A copy of each distribution plan adopted by the board of directors or
trustees of each CAM Registered Investment Company under Rule 12b-1 under the
Investment Company Act (“Rule 12b-1 Plan”) has been made available to Legg
Mason, and all payments due since January 1, 2002 and prior to the most recently
ended payment period under each distribution plan or principal underwriting
agreement to which such CAM Registered Investment Company is a party have been
made in compliance with the related Rule 12b-1 Plan in all material respects.

 

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(k) Citigroup has made available to Legg Mason copies of (i) the audited
financial statements for each of the CAM Registered Investment Companies for its
most recent fiscal year ended on or prior to March 31, 2005 (the “Fund Annual
Financial Statements”) and (ii) the unaudited semi-annual financial statements
for each of the CAM Registered Investment Companies for its semi-annual period,
if any, ended after the date of the Fund Annual Financial Statements for such
CAM Registered Investment Companies and prior to the date hereof (the “Fund
Interim Financial Statements” and, together with the Fund Annual Financial
Statements, the “Fund Financial Statements”). Each Fund Financial Statement
fairly presents in all material respects (subject, in the case of the Fund
Interim Financial Statements, to normal year-end adjustments) the financial
position and statement of net assets of such CAM Registered Investment Company
as of the date thereof and its results of operations for the period then ended
in accordance with GAAP applied on a consistent basis (except, in the case of
the Fund Interim Financial Statements, for footnote presentation and except that
such statements are unaudited).

 

Section 4.9 CAM Non-Registered Funds.

 

(a) Section 4.9(a) of the Citigroup Disclosure Letter sets forth a correct and
complete list of each CAM Non-Registered Fund. No CAM Non-Registered Fund is, or
at any time since its inception was, required to register as an investment
company under the Investment Company Act without having been so registered.

 

(b) Each CAM Non-Registered Fund is, and since January 1, 2002 has been, in
compliance in all material respects with its respective investment objectives
and policies and all Requirements of Law. Since January 1, 2002, no CAM
Non-Registered Fund has received any written or, to the Knowledge of Citigroup,
oral notice from (and otherwise does not have any Knowledge of) any Governmental
Authority that alleges any noncompliance in any material respect (or that any
CAM Non-Registered Fund is under any investigation pending or, to the Knowledge
of Citigroup, threatened by any such Governmental Authority for such alleged
noncompliance) with any Requirement of Law applicable to such CAM Non-Registered
Fund that, individually or in the aggregate, would reasonably be expected to
have an adverse impact on the CAM Business in any material respect. Without
limiting the generality of the foregoing, since January 1, 2002, no CAM
Non-Registered Investment Company has been indicted, convicted, enjoined or made
the subject of disciplinary proceedings, consent decrees or administrative
orders on account of any material violation of Requirements of Law.

 

(c) Each CAM Non-Registered Fund that is a juridical entity has been duly
organized and is validly existing and, with respect to jurisdictions that
recognize the concept of “good standing,” in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate, partnership,
limited liability company, or similar power and authority to own its properties
and carry on its business as currently conducted, and is qualified to do
business in each jurisdiction where it is required to be so qualified pursuant
to the Requirements of Law except where failure to do so, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on such
CAM Non-Registered Fund or the CAM Business in any material respect.

 

(d) All outstanding shares or units of each CAM Non-Registered Fund have been
issued and sold in compliance with the Requirements of Law in all material
respects and have

 

25

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been duly authorized and validly issued and are fully paid and non-assessable.
None of the offering memoranda used in connection with such offering of the
shares or units of (i) each CAM Non-Registered Fund, and none of the
supplemental advertising and marketing materials related thereto, if any sold to
U.S. resident purchasers, as of the respective dates of their use, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of their
circumstances under which they were made, not misleading and (ii) each CAM
Non-Registered Fund not sold to U.S. resident purchasers, as of the respective
dates of use, complied in all material respects with all Requirements of Law
applicable to such offering memoranda.

 

(e) Each Non-Registered Fund Financial Statement fairly presents in all material
respects (subject, in the case of the Non-Registered Fund Interim Financial
Statements, to normal year-end adjustments) the financial position and statement
of net assets of such CAM Non-Registered Fund as of the date thereof and its
results of operations for the period then ended in accordance with GAAP applied
on a consistent basis (except, in the case of the Non-Registered Fund Interim
Financial Statements, for footnote presentation and except that such statements
are unaudited).

 

Section 4.10 ERISA Fiduciary Matters. Each CAM Non-Registered Fund and
separately managed account that constitutes “plan assets” within the meaning of
the U.S. Department of Labor Regulation 2510.3-101 (the “Plan Assets
Regulation”), is and has been operated in all material respects in accordance
with the Requirement of Law, including ERISA and Section 4975 of the Code.
Except as set forth in Section 4.10 of the Citigroup Disclosure Letter, none of
the underlying assets of any CAM Non-Registered Fund constitutes “plan assets”
within the meaning of the Plan Assets Regulation.

 

Section 4.11 Other Investment Advisory Activities.

 

(a) Other than the CAM Advisory Clients, none of the CAM Subsidiaries acts as
investment adviser or subadviser of, or is a general partner, manager or
managing member of, any investment company as defined in the Investment Company
Act, or any entity that would be an investment company as defined in the
Investment Company Act but for the exclusions under Section 3(c)(1), 3(c)(3)
(the commingled fund provisions thereof), 3(c)(7) or 3(c)(11) of the Investment
Company Act.

 

(b) None of the Subsidiaries of Citigroup or, to the Knowledge of Citigroup, any
Affiliate or any other party is currently in material default under any of the
terms of any material CAM Advisory Contract.

 

(c) Except as disclosed in the prospectus or disclosure document of any CAM
Registered Investment Company or CAM Non-Registered Fund, there are no Contracts
pursuant to which Citigroup or any of its Affiliates has undertaken or agreed to
cap, waive, offset, reimburse or otherwise reduce any material amount of fees or
charges payable to any such CAM Subsidiary by any of its CAM Advisory Clients or
pursuant to any of the CAM Advisory Contracts.

 

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(d) No exemptive orders, “no-action” letters or similar exemptions or regulatory
relief have been obtained that are still used or relied upon by, nor are any
requests pending therefor with respect to, the CAM Business (including the
provision of services to a CAM Advisory Client by a CAM Subsidiary) or any
officer, director or employee thereof, the absence of which, individually or in
the aggregate, would reasonably be expected to have an adverse impact on the CAM
Business in any material respect.

 

(e) Neither Citigroup nor any of its Affiliates has any express or implied
understanding or arrangement that would reasonably be expected to impose an
“unfair burden” (as defined in the Investment Company Act) on any of the CAM
Registered Investment Companies for purposes of Section 15(f) of the Investment
Company Act as a result of the Transactions.

 

Section 4.12 Financial Statements.

 

(a) Legg Mason has previously been provided with true and complete copies of (i)
an unaudited combined income statement for the CAM Business for the 12 months
ended December 31, 2004 and an unaudited combined income statement for the CAM
Business for the three months ended March 31, 2005 (together, the “CAM Income
Statements”) and (ii) an unaudited combined balance sheet for the CAM Business
as of December 31, 2004 and the CAM Base Balance Sheet (together, the “CAM
Balance Sheets”, and together with the CAM Income Statements, the “CAM Financial
Information”).

 

(b) The CAM Financial Information has been derived from the accounting books and
records of the CAM Business and has been prepared in accordance with GAAP
consistently applied, subject only to normal recurring year-end adjustments and
the absence of notes and except as expressly provided in the CAM Financial
Information. Each CAM Balance Sheet presents fairly in all material respects the
financial position of the CAM Business as of the date thereof, and each CAM
Income Statement presents fairly in all material respects the results of
operations of the CAM Business for the period indicated therein.

 

Section 4.13 Title; Sufficiency of Assets.

 

(a) Assuming that the Consents set forth in Section 4.5 of the Citigroup
Disclosure Letter are duly obtained and any applicable waiting periods have
expired or terminated, upon consummation of the Transactions (including the
execution and delivery of the documents to be delivered at the Closing), at the
Closing, Legg Mason (or one or more of its wholly-owned Subsidiaries) shall be
vested with good and marketable title in and to the CAM Transferred Shares (and,
to the extent transferred to Legg Mason as contemplated by Section 2(b)(ii) of
the CAM Restructuring attached hereto as Exhibit H, the CAM Assets), free and
clear of all Liens, except Permitted Liens.

 

(b) Except for services to be provided pursuant to the CAM TSA or the Services
Agreement, upon consummation of the Transactions, Legg Mason (or one or more of
its Subsidiaries) and the CAM Transferred Subsidiaries, taken together, will
own, possess, have a valid license to, have a valid lease in or otherwise have
the right to use all of the rights,

 

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properties and assets necessary to conduct the CAM Business in all material
respects as currently conducted and as the same will be conducted on the Closing
Date.

 

Section 4.14 Employee Benefit Plans; Employee Matters.

 

(a) Section 4.14(a)(i) of the Citigroup Disclosure Letter lists each material
CAM Benefit Plan other than a CAM Foreign Benefit Plan. Section 4.14(a)(ii) of
the Citigroup Disclosure Letter lists each material CAM Benefit Plan that is
sponsored, maintained or contributed to or required to be contributed to by the
CAM Subsidiaries (the “CAM Subsidiaries Benefit Plans”), other than Non-U.S. CAM
Benefit Plans. Each CAM Subsidiaries Benefit Plan is in writing and Citigroup
has made available to Legg Mason a true and complete copy of each CAM
Subsidiaries Benefit Plan that is not a Non-U.S. CAM Benefit Plan and a true and
complete copy of the following items (in each case, only if applicable) (i) each
trust or other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the most recently filed annual reports
on the IRS Form 5500 for each such CAM Subsidiaries Benefit Plan, and (iv) the
most recently received IRS determination letter for each such CAM Subsidiaries
Benefit Plan. Except as disclosed in Section 4.14(a)(iii) of the Citigroup
Disclosure Letter, neither the Citigroup Sellers nor any CAM Subsidiary has any
express or implied commitment with respect to the CAM Business, (A) to create,
incur any material liability with respect to or cause to exist any other
employee benefit plan, program or arrangement, (B) enter into any Contract or
agreement to provide compensation or benefits to any individual, or (C) to
modify, change or terminate any CAM Subsidiaries Benefit Plan, other than with
respect to a modification, change or termination required by this Agreement, the
Transactions or ERISA, the Code or to otherwise comply with Requirement of Law.

 

(b) Each of the CAM Subsidiaries Benefit Plans (i) is, and has always been,
operated in all material respects in accordance with all provisions of ERISA,
the Code, and all other Requirement of Law and (ii) has always been
administered, operated and managed in accordance with its governing documents in
all material respects.

 

(c) Neither the Citigroup Sellers nor the Citigroup ERISA Affiliates (including
any entity that during the past six years was a Subsidiary of the Citigroup
Sellers) has now or at any time contributed to, sponsored, or maintained (i) a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a “Multiemployer Plan”) or (ii) a single employer pension plan (within the
meaning of Section 4001(a)(15) of ERISA) for which Citigroup or any Citigroup
Seller could incur liability under Section 4063 or 4064 of ERISA (a “Multiple
Employer Plan”).

 

(d) No liability under Title IV or Section 302 of ERISA has been incurred by the
Citigroup Sellers, the CAM Subsidiaries or any Citigroup ERISA Affiliate that
has not been satisfied in full and nor do any circumstances exist that would
reasonably be expected to result in any liabilities under (i) Title IV of ERISA,
(ii) Section 302 of ERISA or (iii) Sections 412 or 4971 of Code, in each case,
that would reasonably be expected to be a liability of any of the CAM
Subsidiaries following the Closing Date.

 

(e) The IRS has issued a favorable determination letter with respect to each of
the CAM Benefit Plans that is intended to be qualified under Section 401(a) of
the Code (a “CAM

 

28

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Qualified Plan”) to the effect that such plan is qualified under Section 401(a)
of the Code and that each trust established in connection with such CAM Benefit
Plan is exempt from United States federal income taxation under Section 501(a)
of the Code. To the Knowledge of Citigroup, no existing circumstances and no
fact or event exists that would adversely affect the qualified status of any CAM
Qualified Plan or that could reasonably be expected to result in the revocation
of the trust’s exemption from United States federal income taxation.

 

(f) There are no pending or, to the Knowledge of Citigroup, threatened material
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the CAM Subsidiaries
Benefit Plans, any fiduciaries thereof with respect to their duties to the CAM
Subsidiaries Benefit Plans or the assets of any of the trusts under any of the
CAM Subsidiaries Benefit Plans.

 

(g) To the Knowledge of Citigroup, no labor union, labor organization or group
of employees of any CAM Subsidiary has made a pending demand for recognition or
certification with respect to the CAM Business Employees, there are no
representation or certification proceedings or petitions seeking a
representation proceeding with respect to the CAM Business Employees presently
pending or, to the Knowledge of Citigroup, threatened to be brought or filed,
with the National Labor Relations Board or any other labor relations tribunal or
authority and there have been no such actions, events or disputes since January
1, 2002. There are no strikes, organized work stoppages, organized slowdowns,
lockouts or other material labor disputes pending or, to the Knowledge of
Citigroup, threatened against or involving the CAM Business Employees. No CAM
Subsidiary is a party to, bound by, or in the process of negotiating a
collective bargaining agreement or other agreement with a labor union or labor
organization covering any of the CAM Business Employees.

 

(h) The consummation of the transactions contemplated by this Agreement will
not, except as expressly provided in this Agreement (i) entitle any CAM Business
Employee to separation, termination or severance pay, unemployment compensation
or any other similar-type benefit payment, (ii) result in the payment to any
present or former employee, officer, director or consultant of the CAM
Subsidiaries of any money or other property, (iii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, or (iv) cause any amounts payable under the CAM Benefit Plans to fail
to be deductible for United States federal income tax purposes by virtue of
Section 280G of the Code.

 

(i) Except to the extent required under ERISA Section 601 et. seq. and Code
Section 4980B, none of the CAM Benefit Plans provides for or promises retiree
medical, retiree disability or retiree life insurance benefits to any current or
former employee, officer, director or consultant of the CAM Subsidiaries.

 

(j) In addition to the foregoing, with respect to each CAM Subsidiaries Benefit
Plan that is not subject to United States Requirement of Law (a “Non-U.S. CAM
Benefit Plan”):

 

(i) all employer and employee contributions to each Non-U.S. CAM Benefit Plan
required pursuant to the Requirement of Law or by the terms of such Non-U.S. CAM
Benefit Plan have been made;

 

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(ii) the fair market value of the assets of each funded Non-U.S. CAM Benefit
Plan, the liability of each insurer for any Non-U.S. CAM Benefit Plan funded
through insurance or the book reserve established for any Non-U.S. CAM Benefit
Plan, together with any accrued contributions, is sufficient to procure or
provide for the benefits determined as if such plan is maintained on any ongoing
basis (actual or contingent) accrued to the date of this Agreement with respect
to all current and former participants under such Non-U.S. CAM Benefit Plan
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to such Non-U.S. CAM Benefit Plan, and no
Transaction shall cause such assets or insurance obligations to be less than
such benefit obligations; and

 

(iii) each Non-U.S. CAM Benefit Plan is now and always has been operated in
material compliance with all Requirement of Law.

 

(k) To the Knowledge of Citigroup, the CAM Subsidiaries are in compliance in all
material respects with all Requirement of Law relating to the employment of
labor, including, without limitation, those related to wages, hours, immigration
and naturalization, collective bargaining and the payment and withholding of
taxes and other sums as required by the appropriate Governmental Authority.
Citigroup and the CAM Subsidiaries have paid in full to all CAM Business
Employees or adequately accrued for all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such CAM Business
Employees and there is no claim with respect to payment of wages, salary or
overtime pay that has been asserted or is now pending or, to the Knowledge of
Citigroup, threatened before any Governmental Authority with respect to any
persons currently or formerly employed by the CAM Subsidiaries. Neither the
Citigroup Sellers nor any CAM Subsidiary is a party to, or otherwise bound by,
any consent decree with, or citation by, any Governmental Authority relating to
employees or employment practices with respect to the CAM Business Employees.
Except as disclosed in Section 4.14(k) of the Citigroup Disclosure Letter, there
is no charge of discrimination in employment or employment practices, for any
reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or, to the
Knowledge of Citigroup, threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Authority in any jurisdiction
in which any CAM Subsidiary has employed or employs any person.

 

(l) All individuals who are performing or have performed consulting or other
services for any CAM Subsidiary, whether as consultant, independent contractors,
agents or otherwise, are or were correctly classified by the CAM Subsidiaries as
either “independent contractors” or “employees,” as the case may be, and, at the
Closing, will qualify for such classification under all Requirement of Law;
there are no pending or, to the Knowledge of Citigroup, threatened claims
against any CAM Subsidiary by or on behalf of any such individual relating to
the classification of such individual, or investigation, audit or other
proceeding relating to such an individual or individuals, by any Governmental
Authority with respect to the classification of such individuals.

 

Section 4.15 Undisclosed Liabilities. Except for liabilities or obligations (a)
arising under this Agreement, (b) reflected, accrued or reserved against in the
CAM Base Balance Sheet or (c) incurred in the ordinary course of business
consistent with past practice since March 31, 2005, there are no undisclosed
liabilities or obligations of the CAM Business of

 

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a nature that, individually or in the aggregate, would reasonably be expected to
have a CAM Material Adverse Effect.

 

Section 4.16 Absence of Certain Changes. Except for the matters contemplated by
this Agreement, since March 31, 2005, (a) the CAM Business has been conducted
only in the ordinary course and consistent with past practice, (b) there has not
occurred any change or event that, individually or in the aggregate, has had a
CAM Material Adverse Effect and (c) other than in the ordinary course and
consistent with past practice, no CAM Subsidiary has:

 

(i) amended, restated or otherwise changed its articles or certificate of
incorporation or bylaws or equivalent organizational documents;

 

(ii) made any distribution or declared, paid or set aside any dividend (in cash
or property) with respect to, or split, combined, redeemed, reclassified,
purchased or otherwise acquired, directly or indirectly, any equity interests or
shares of capital stock of, or other equity or voting interest in, any CAM
Subsidiary, or made any other changes in the capital structure of any CAM
Subsidiary, except for dividends or distributions which, after giving effect
thereto, would not result in a CAM Tangible Book Value that is less than the CAM
Tangible Book Value Target;

 

(iii) authorized for issuance, issued, sold, delivered or agreed or committed to
issue, sell or deliver (A) any equity interests or capital stock of or other
equity or voting interest in, any CAM Subsidiary or (B) any equity rights in
respect of, security convertible into, exchangeable for or evidencing the right
to subscribe for or acquire either (x) any equity interests or shares of capital
stock of, or other equity or voting interest in, any CAM Subsidiary or (y) any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire any shares of the capital stock of, or other equity or
voting interest in, any CAM Subsidiary;

 

(iv) changed any financial accounting principle, method or practice, other than
changes required by GAAP or Requirements of Law, which are set forth in Section
4.15(iv) of the Citigroup Disclosure Letter.

 

(v) terminated the employment of any CAM Business Employee who was a key officer
or key investment professional;

 

(vi) except as required pursuant to the Requirement of Law or an existing CAM
Benefit Plan or Contract, (A) other than wage or salary increases in the
ordinary course of business consistent in nature and amount with the past
practice of the CAM Business, made or agreed to make any increase in wages,
salaries, compensation, pension or other fringe benefits or perquisites payable
to any CAM Business Employee who is an officer or investment professional, (B)
granted or agreed to grant any severance or termination pay or entered into any
Contract to make or grant any severance or termination pay or, other than in the
ordinary course of business consistent in nature and amount with the past
practice of the CAM Business, paid or agreed to pay any bonus or other incentive
compensation to any CAM Business Employee who is an officer or investment
professional, (C) granted or agreed to grant or accelerated the time of vesting
or payment of any benefits or awards under a CAM Benefit Plan or other equity
interests

 

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of any CAM Subsidiary, (D) loaned (other than margin loans within a brokerage
account in the ordinary course of business consistent in nature and amount with
the past practices of the CAM Business), amended any loan, or advanced money or
other property to any CAM Business Employee or (E) established, adopted,
amended, modified or terminated any CAM Benefit Plan in any material respect,
other than any such actions that apply to all of the participants in such CAM
Benefit Plan on a substantially similar basis;

 

(vii) acquired or disposed of, whether by purchase, merger, consolidation or
sale, lease, pledge or other encumbrance of stock or assets or otherwise, any
material interest in any (A) corporation, partnership or other Person or (B)
material assets comprising a business or any other material property or assets,
in a single transaction or in a series of transactions;

 

(viii) incurred any Indebtedness or, other than in the ordinary course of
business consistent in nature and amount with past practice, made any loans or
advances of borrowed money or material capital contributions to, or investments
in, any other Person;

 

(ix) entered into any Contract pursuant to which any CAM Subsidiary will
receive, or is reasonably expected to receive, payments, or will make, or is
reasonably expected to make, payments of more than $5,000,000 in the aggregate
per annum or $25,000,000 over the life of such Contract;

 

(x) entered into, become subject to, amended, terminated or modified in any
material respect any Contract of the type described in Section 4.18(a)(i) or
(ii);

 

(xi) made or incurred any capital expenditure or other financial commitment
requiring payments in excess of $2,000,000 individually or $10,000,000 in the
aggregate;

 

(xii) paid, discharged, settled or satisfied any material claim, action,
proceeding, liability or other obligation or waived any material rights or
material claims in respect of the CAM Business; or

 

(xiii) committed or agreed, whether or not in writing, to do, or to authorize,
any of the foregoing.

 

Section 4.17 CAM Real Property.

 

(a) Section 4.17(a) of the Citigroup Disclosure Letter sets forth a true and
complete list of each parcel of CAM Owned Real Property, identifying the owner
and address of each such parcel. Section 4.17(a) of the Citigroup Disclosure
Letter sets forth a true and complete list of all CAM Leased Real Property,
identifying each CAM Lease and the identity of the lessee and lessor thereunder.
Each CAM Subsidiary that is a party to a CAM Lease has, or at the Closing will
have, a good and valid leasehold interest under each such CAM Lease, free and
clear of all Liens except Permitted Liens, and no CAM Subsidiary has
collaterally assigned or granted any security interest in any CAM Lease or in
any interest therein other than in connection with any Lien to be released at
Closing. Each CAM Lease is in full force and effect. No CAM Subsidiary that is a
party to a CAM Lease is in material default of any of its

 

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obligations under such CAM Lease (and no event exists which upon the passage of
time or the giving of notice would constitute a material default by such CAM
Subsidiary thereunder). To the Knowledge of Citigroup, no counterparty to any
CAM Lease is in material default of any of its obligations under the applicable
CAM Lease (and no event exists which upon the passage of time or the giving of
notice would constitute a material default by such counterparty thereunder).

 

(b) One or more CAM Subsidiaries holds, or at the Closing will hold, good, valid
and marketable title to each parcel of CAM Owned Real Property in fee simple
absolute, free and clear of all Liens, except for Permitted Liens, and is in
exclusive possession thereof.

 

(c) There are no condemnation proceedings or eminent domain proceedings or sales
or other disposition in lieu of condemnation of any kind pending or, to the
Knowledge of Citigroup, threatened with respect to any portion of the CAM Owned
Real Property. To the Knowledge of Citigroup, there are no condemnation
proceedings or eminent domain proceedings or sales or other dispositions in lieu
of condemnation of any kind pending or threatened with respect to any portion of
the CAM Leased Real Property. Citigroup has not leased or licensed any portion
of the CAM Owned Real Property pursuant to a lease or license agreement that
will remain in effect after the Closing.

 

(d) No CAM Subsidiary has subleased any of the CAM Leased Real Property to any
third party or given any third party any license or other right to occupy any
portion of the CAM Leased Real Property leased by such CAM Subsidiary.

 

Section 4.18 Certain Contracts.

 

(a) As of the date hereof, Citigroup has made available, or has caused its
Affiliates to make available, true and complete copies (or, with respect to any
oral Contracts, true and complete written descriptions) of each of the following
types of Contracts to which any CAM Subsidiary is a party and has set forth such
Contracts in Section 4.18(a) of the Citigroup Disclosure Letter:

 

(i) any Contract prohibiting, limiting or restricting (A) the conduct of any
portion of the CAM Business anywhere in the world or the provision of any
products or services of the CAM Business to any Person anywhere in the world,
(B) the competition by the CAM Business with any Person or (C) the soliciting or
hiring of employees or consultants or the entry into a business relationship
with any prospective client, customer or other Person anywhere in the world;

 

(ii) any Contract requiring (A) any CAM Subsidiary to deal exclusively with any
Person or (B) any Person to deal exclusively with any CAM Subsidiary;

 

(iii) any CAM Lease and all subleases and licenses relating to any CAM Lease;

 

(iv) any material CAM License Agreement;

 

(v) except as otherwise provided in clause (x) below, any material finders or
referral Contract;

 

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(vi) any Contract involving the acquisition or disposition (by merger,
consolidation, acquisition or sale of stock or assets or otherwise) of any
material interest in, or any material amount of property or assets of, any
Person or business during the past five years;

 

(vii) other than any Contract set forth in Section 4.14 of the Citigroup
Disclosure Letter, any Contract providing for future payments or the
acceleration or vesting of payments in excess of $5,000,000 that are
conditioned, in whole or in part, on a change in control of any CAM Subsidiary;

 

(viii) any Contract, other than (A) Contracts entered into in the ordinary
course of business consistent in nature and amount with past practice and (B)
other Contracts not terminable on notice of 60 days or less without the payment
of any premium, penalty or fee pursuant to which any CAM Subsidiary will
receive, or is reasonably expected to receive, payments, or will make, or is
reasonably expected to make, payments of more than $5,000,000 in the aggregate
per annum or $25,000,000 over the life of such Contract;

 

(ix) any CAM Advisory Contract with a CAM Registered Investment Company;

 

(x) any RIC Distribution Contract (other than any related selling or similar
Contract with any third party) or RIC Services Contract;

 

(xi) any Contract between a CAM Subsidiary, on the one hand, and any officer,
director or employee of Citigroup (other than compensation or benefit agreements
or arrangements), on the other hand; and

 

(xii) any material management Contract or Contract with independent contractors
or consultants (or similar arrangements) pursuant to which any CAM Subsidiary
will make, or is reasonably expected to make, payments of more than $5,000,000
in the aggregate per annum and which Contract cannot be cancelled by the CAM
Subsidiary that is party thereto without penalty or further payment and without
more than 60 days’ notice.

 

Such Contracts are referred to as “Scheduled CAM Contracts.”

 

(b) Each Applicable CAM Contract has been performed by the CAM Subsidiary that
is a party thereto in accordance with applicable Requirements of Law in all
material respects. Each Applicable CAM Contract is the legal, valid and binding
obligation of the CAM Subsidiary that is a party thereto and, to the Knowledge
of Citigroup, of each other party thereto, enforceable in accordance with its
terms subject to bankruptcy, receivership, insolvency, reorganization,
moratorium, fraudulent transfer and other Requirements of Law relating to or
affecting the rights of creditors in general and by legal and equitable
limitations on the enforceability of specific remedies. No CAM Subsidiary that
is a party to any Applicable CAM Contract nor, to the Knowledge of Citigroup,
any other party, is in violation or default of any material term of any such
Applicable CAM Contract. No condition or event exists which with the giving of
notice or the passage of time, or both would constitute a violation or default
of any material term of an Applicable CAM Contract by any CAM Subsidiary or, to
the Knowledge of Citigroup, any other party thereto or permit the termination,
modification, cancellation or

 

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acceleration of performance of any material obligation of any CAM Subsidiary or,
to the Knowledge of Citigroup, any other party to the Applicable CAM Contract.

 

(c) No CAM Subsidiary is bound by or a party to any of the following:

 

(i) any Contract relating to (A) any Indebtedness of the CAM Business, other
than agreements with Affiliates which are to be terminated pursuant to Section
6.10(b) or (B) the advance, loan or extension of credit to any Person, including
any guarantee or other undertaking (by way of an agreement to “keep well” or
otherwise) in respect of the obligations of any Person;

 

(ii) any Contract under which any CAM Subsidiary is obligated, directly or
indirectly, to make any capital contribution or financial commitment to, or
other investment in, any Person, including any seed capital or similar
investment;

 

(iii) any Contract that provides for earn-outs or other similar contingent
obligations;

 

(iv) any Contract which contains a (A) “clawback” or similar undertaking by any
CAM Subsidiary requiring the reimbursement or refund of any fees (whether
performance based or otherwise) or (B) a “most favored nation” or similar
provision; or

 

(v) any Contract under which the fees payable to a CAM Subsidiary are based on
the performance of the account of any CAM Advisory Client.

 

Section 4.19 Intellectual Property.

 

(a) Section 4.19(a) of the Citigroup Disclosure Letter sets forth, as of the
date hereof, a complete list of all CAM Owned Intellectual Property that is the
subject of an application or registration. A CAM Transferred Subsidiary at the
Closing will own all CAM Owned Intellectual Property, and at the Closing will
have a valid right to use all CAM Owned Intellectual Property and, subject to
the CAM TSA, CAM Licensed Intellectual Property, free and clear of all Liens,
other than Permitted Liens, and no CAM Subsidiary is in material breach of any
agreement for the provision or use of material CAM Licensed Intellectual
Property.

 

(b) There is no material litigation pending or, to the Knowledge of Citigroup,
threatened against the CAM Business that involves a claim (i) alleging that the
operation of the CAM Business infringes, misappropriates, dilutes or otherwise
violates a third party’s Intellectual Property rights or (ii) challenging the
ownership, use, validity, enforceability or registrability of any CAM
Intellectual Property. To the Knowledge of Citigroup, the CAM Business as
currently conducted does not infringe, misappropriate, dilute or otherwise
violate any third party’s Intellectual Property rights. No CAM Subsidiary has
brought or, to the Knowledge of Citigroup, threatened a claim against any third
party (A) alleging infringement, misappropriation, dilution or other violation
of any material CAM Owned Intellectual Property or (B) challenging any such
third party’s ownership or use of, or the validity, enforceability or
registrability of, such third party’s Intellectual Property, and, to the
Knowledge of Citigroup, there is no basis for a claim regarding any of the
foregoing.

 

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Section 4.20 Taxes. The Parties acknowledge and agree that no representation or
warranty contained in this Article IV (other than in this Section 4.20) shall
apply to any Tax matter specifically addressed in the representations and
warranties contained in this Section 4.20. Except as disclosed in Section 4.20
of the Citigroup Disclosure Letter:

 

(a) All material Tax Returns required to have been filed by, or with respect to,
the CAM Subsidiaries have been filed on a timely basis and Taxes required to be
shown on such Tax Returns have been paid. All such Tax Returns were correct and
complete in all material respects, and with respect to any taxable period for
which such Tax Returns have not yet been filed, or for which Taxes are not yet
due or owing, the CAM Subsidiaries have made due and sufficient current accruals
for any such material Taxes on the CAM Base Balance Sheet in accordance with the
generally accepted accounting principles which are used in the applicable
jurisdiction of each such applicable CAM Subsidiary.

 

(b) (i) No written notice has been received of any deficiencies for Taxes
claimed, proposed or assessed by any Governmental Authority with respect to the
CAM Subsidiaries for which Citigroup Sellers or any of their Affiliates may have
any material liability; (ii) there are no pending, current or, to the Knowledge
of Citigroup, proposed in writing audits, suits, proceedings, investigations,
claims or administrative proceedings by any Governmental Authority for or
relating to any material liability in respect of any such Taxes; (iii) there are
no outstanding written agreements or waivers extending the statutory period of
limitations applicable to any Tax Returns required to be filed with respect to
the CAM Subsidiaries, nor is any written request for any such agreement or
waiver pending; (iv) no Closing Agreement pursuant to Section 7121 of the Code
(or any similar provision under Requirements of Law) has been entered into by or
with respect to any of the CAM Subsidiaries; and (v) no claim has been made by a
Governmental Authority in writing in a jurisdiction where Tax Returns with
respect to any CAM Subsidiary are not filed that Citigroup or the CAM Subsidiary
is or may be subject to taxation by such jurisdiction.

 

(c) The CAM Subsidiaries have complied in all material respects with all
Requirements of Law relating to the payment and withholding of Taxes and each of
them has withheld and paid all material Taxes required to have been withheld and
paid in connection with amounts paid or owing to any CAM Business Employee,
independent contractor, creditor, stockholder, foreign person or other third
party.

 

(d) There are no material Liens for Taxes upon the assets or properties of the
CAM Business except for statutory Liens for Taxes not yet due. There are no
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns of the CAM
Subsidiaries. None of the CAM Subsidiaries has requested an extension of time
within which to file any Tax Return in respect of any taxable period for which
such Tax Return has not since been filed.

 

(e) None of the CAM Subsidiaries nor Citigroup with respect to any of the CAM
Subsidiaries has participated, within the meaning of Treasury Regulation Section
1.6011-4(c), or has been a “material advisor” or “promoter” (as those terms are
defined in Sections 6111 and 6112 of the Code and the Treasury Regulations
promulgated thereunder) in (i) any “reportable transaction” within the meaning
of Section 6011 of the Code and the Treasury Regulations

 

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promulgated thereunder, (ii) any “confidential corporate tax shelter” within the
meaning of Section 6111 of the Code and the Treasury Regulations promulgated
thereunder, (iii) any “potentially abusive tax shelter” within the meaning of
Section 6112 of the Code and the Treasury Regulations promulgated thereunder or
(iv) any transactions subject to the list maintenance requirements under Section
6112 of the Code and the Treasury Regulations promulgated thereunder.

 

(f) No CAM Subsidiary is a party to any tax indemnification, allocation or
sharing agreement with another Person for which any CAM Subsidiary will have
obligations or liabilities after the Closing Date (except for (i) customary
agreements to indemnify lenders or security holders in respect of Taxes, and
(ii) provisions in agreements for the acquisition or divestiture of
subsidiaries, assets or business lines that require such CAM Subsidiary to
indemnify a purchaser for Taxes). Citigroup (or its Affiliates) is eligible to
make a Code Section 338(h)(10) election with respect to each CAM Domestic
Subsidiary in connection with the sale of the CAM Transferred Shares pursuant to
this Agreement.

 

(g) Since March 31, 2005, other than in the ordinary course and consistent with
past practice, no CAM Subsidiary has changed any material Tax principle, method
or practice, other than changes required by Requirements of Law, or made or
revoked any material Tax election. Section 4.20(g) of the Citigroup Disclosure
Letter lists any material change in a Tax principle, method or practice or any
material Tax election made or revoked by a CAM Subsidiary from January 1, 2002
until March 31, 2005.

 

Section 4.21 Assets Under Management. Annex B-3 hereto sets forth a true and
complete schedule of the Aggregate Base Revenue Run-Rate, including a schedule
of the Base Revenue Run-Rate, and the updated Revenue Run-Rate Schedule prepared
and delivered pursuant to Section 2.2(a) shall set forth a true and complete
schedule of the Aggregate Closing Revenue Run-Rate, including a schedule of the
Closing Revenue Run-Rate, in each case for the U.S. Retail Long-Term Contracts,
the Institutional Contracts and the Other Contracts (including, where required
to calculate any purchase price adjustment or determine the satisfaction of the
closing condition in Section 7.2(d), a list of the underlying CAM Advisory
Contracts included therein) and the Excluded Advisors Contracts (the “Revenue
Run-Rate Schedule”).

 

Section 4.22 Acquisition of Shares for Investment. Citigroup Sellers are
acquiring the shares comprising the Legg Mason Shares for investment and not
with a view toward sale in connection with any distribution thereof in violation
of the Securities Act. Citigroup hereby acknowledges and agrees that the shares
comprising the Legg Mason Shares may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act, except pursuant to an exemption from such registration available
under such Act, and without compliance with state and foreign securities
Requirements of Law, in each case to the extent applicable, and that such shares
shall include a legend to such effect.

 

Section 4.23 Environmental Matters. Since January 1, 2002, the CAM Business has
been operated in compliance in all material respects with all applicable
Environmental Laws and Permits required thereunder. There are no present events,
conditions or circumstances associated with the CAM Business that would
reasonably be expected to result in any action or

 

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claim against the CAM Subsidiaries under applicable Environmental Laws that,
individually or in the aggregate, would reasonably be expected to result in any
material liability, nor has any CAM Subsidiary or any Citigroup Seller received
any notice that any CAM Owned Real Property or CAM Leased Real Property is in
violation of any Environmental Laws or that such CAM Subsidiary is responsible
(or potentially responsible) for the investigation, cleanup, monitoring or other
remediation of any Hazardous Materials on, at or under any CAM Owned Real
Property or CAM Leased Real Property that, individually or in the aggregate,
would reasonably be expected to result in any material liability. There is no
pending or, to the Knowledge of Citigroup, threatened claim, litigation or
proceeding imposed upon or asserted against Citigroup or any CAM Subsidiary or
any of their respective Subsidiaries arising directly or indirectly from or out
of the presence, alleged presence, release, threatened release, disposal or
removal of, or exposure to, Mold in, on, under or around any CAM Owned Real
Property or CAM Leased Real Property. Neither Citigroup nor any CAM Subsidiary
nor any of their respective Subsidiaries has received any complaint from any of
their respective employees, customers, agents or any other individuals relating
to the presence, alleged presence, release, threatened release, disposal or
removal of, or exposure to, Mold in, on, under or around any CAM Owned Real
Property or CAM Leased Real Property. No Mold is present at any CAM Owned Real
Property or CAM Leased Real Property which would reasonably be expected to
result in a material liability.

 

Section 4.24 Affiliate Transactions. Except for Contracts and arrangements (a)
which are on customary arms-length terms, (b) in respect of services and
products that are to be continued or provided pursuant to the Related Agreements
or (c) to be terminated pursuant to Section 6.10(b) on or prior to the Closing
Date, no CAM Subsidiary is a party to any Contract or arrangement with Citigroup
or its Affiliates other than the CAM Subsidiaries.

 

Section 4.25 No Citigroup Stockholder Vote Required. No vote or other action of
the stockholders of Citigroup is required pursuant to any Requirement of Law,
the organizational documents of Citigroup or otherwise in order for Citigroup to
consummate the Transactions.

 

Section 4.26 Brokers. No broker, investment banker, financial advisor or other
Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of Citigroup Sellers or the CAM Subsidiaries, except those for
which Citigroup Sellers will be solely responsible.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF LEGG MASON

 

Except as set forth in the Legg Mason Disclosure Letter, Legg Mason hereby
represents and warrants to Citigroup as set forth below in this Article V.

 

Section 5.1 Organization and Good Standing. Each of Legg Mason and any
Subsidiary thereof that is party to any Related Agreement and each PC/CM
Subsidiary is a legal entity duly organized, validly existing and (where
applicable) in good standing under the

 

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Requirements of Law of its jurisdiction of organization and has all requisite
power and authority to own, operate and lease its assets and to carry on its
business as currently conducted. Each of Legg Mason and any PC/CM Subsidiary is
duly qualified to do business and is in good standing (where applicable) as a
foreign corporation in each jurisdiction where the ownership, operation or
leasing of its assets or the conduct of its business as currently conducted
requires such qualification, except for those jurisdictions where the failure to
be so qualified or to be in good standing, individually or in the aggregate,
would not reasonably be expected to have a Legg Mason Material Adverse Effect or
a PC/CM Material Adverse Effect, as applicable. Legg Mason has made available to
Citigroup true and complete copies of the certificate of incorporation and
bylaws (or comparable organizational documents) for Legg Mason and each PC/CM
Subsidiary.

 

Section 5.2 PC/CM Subsidiaries; Other Interests.

 

(a) Section 5.2(a) of the Legg Mason Disclosure Letter sets forth the name,
jurisdiction of organization or incorporation and the current ownership of
outstanding shares or other equity or ownership interests of each PC/CM
Subsidiary as of the date hereof and will be updated to set forth such
information as of the Closing Date.

 

(b) All of the PC/CM Transferred Shares (i) are owned of record and
beneficially, directly or indirectly, by the Legg Mason Sellers, free and clear
of all Liens, and (ii) have been duly authorized, validly issued and are fully
paid and non-assessable and were not issued in violation of any preemptive
rights. There are no outstanding options, warrants, convertible securities or
other rights, agreements, arrangements or commitments relating to the PC/CM
Transferred Shares or obligating Legg Mason Sellers or any of their Affiliates,
at any time or upon the occurrence of certain events, to offer, issue, sell,
transfer, vote or otherwise dispose of or sell any PC/CM Transferred Shares.
None of the Legg Mason Sellers or any of their Affiliates has (A) outstanding
Indebtedness that could entitle or convey to any Person the right to vote, or
that is convertible into or exercisable for, PC/CM Transferred Shares or (B)
outstanding options, warrants, convertible securities or other rights,
agreements, arrangements or commitments that entitle or convey to any Person the
right to vote with the Legg Mason Sellers on any matter in respect of the PC/CM
Transferred Shares. There are no voting trusts or other agreements or
understandings outstanding with respect to the PC/CM Transferred Shares.

 

(c) Section 5.2(c) of the Legg Mason Disclosure Letter sets forth a true and
complete list of any material interest or investment in (whether equity or debt)
any corporation, partnership, limited liability company, joint venture,
business, trust or other Person owned, directly or indirectly, by any PC/CM
Subsidiary, other than interests or investments held by the PC/CM Subsidiaries
for the account of clients as of the date hereof and Liens on interests or
investments securing Indebtedness of such clients and, in each case, will be
updated to set forth such information as of the Closing Date.

 

Section 5.3 Authorization; Binding Obligations. Legg Mason and each of its
Subsidiaries that is party to any Related Agreement has all necessary power and
authority to make, execute and deliver this Agreement and the Related Agreements
to which it is a party and to perform all of the obligations to be performed by
it hereunder and thereunder. The making, execution, delivery and performance by
Legg Mason and each of its applicable Subsidiaries of

 

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this Agreement and the Related Agreements and the consummation by them of the
Transactions have been duly and validly authorized by all necessary corporate
action on the part of Legg Mason and each such Subsidiary. This Agreement has
been and, as of the Closing Date, the Related Agreements will be, duly and
validly executed and delivered by Legg Mason and each such Subsidiary, as the
case may be, and assuming the due authorization, execution and delivery by
Citigroup and each of its applicable Subsidiaries, each of this Agreement and
the Related Agreements will constitute the valid, legal and binding obligation
of Legg Mason and each of its applicable Subsidiaries that is a party thereto,
enforceable against it in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar Requirements of Law, now or hereafter in effect, relating to or
affecting the rights of creditors generally and the availability of specific
remedies may be limited by legal and equitable principles of general
applicability.

 

Section 5.4 No Conflicts. Assuming the Consents set forth in Section 5.5 of the
Legg Mason Disclosure Letter are duly obtained and any applicable waiting
periods under the HSR Act and any applicable foreign antitrust Requirements of
Law have expired or terminated, neither the execution and delivery of this
Agreement or the Related Agreements by Legg Mason or any of its Subsidiaries
that is party to any Related Agreement, nor the consummation by Legg Mason or
any such Subsidiary of the Transactions will conflict with, result in a
termination of, contravene or constitute a default under, or be an event that
with the giving of notice or passage of time or both will become a default
under, or give to any other Person any right of termination, payment,
acceleration, vesting or cancellation of or under, or accelerate the performance
required by or maturity of, or result in the creation of any Lien or loss of any
rights of any PC/CM Subsidiary pursuant to any of the terms, conditions or
provisions of or under (a) any Requirement of Law, (b) the certificate of
incorporation or bylaws (or comparable organizational documents) of Legg Mason
or any Subsidiary of Legg Mason or (c) any Contract binding upon any PC/CM
Subsidiary or to which the property of any PC/CM Subsidiary or any portion of
the PC/CM Business is subject, except for, in the case of this clause (c), any
conflict, termination, contravention, default, payment, acceleration, vesting,
cancellation, Liens or loss of rights that, individually or in the aggregate,
would not reasonably be expected to have a PC/CM Material Adverse Effect.

 

Section 5.5 Approvals. There are no notices, reports or other filings required
to be made by Legg Mason or any of its Affiliates with, or Consents required to
be obtained by Legg Mason or any of its Affiliates from, any Governmental
Authority or other third party in order for Legg Mason and its applicable
Subsidiaries to execute, deliver or perform this Agreement or the Related
Agreements or to consummate the Transactions, except (a) as set forth in Section
5.5 of the Legg Mason Disclosure Letter (b) filings, permits, authorizations,
consents and approvals as may be required under the HSR Act and any applicable
foreign antitrust Requirements of Law, or (c) where the failure to make such
notices, reports or other filings or the failure to obtain such Consents,
individually or in the aggregate, would not reasonably be expected to (i)
prevent, impair or delay the consummation of the Transactions or (ii) have an
adverse impact on the PC/CM Business in any material respect (and, solely with
respect to Legg Mason, have a Legg Mason Material Adverse Effect).

 

Section 5.6 Litigation. There is no investigation, action, suit, proceeding,
claim, arbitration or other litigation pending or, to the Knowledge of Legg
Mason, threatened,

 

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against Legg Mason or any of its Affiliates or the PC/CM Business (including any
claim involving a PC/CM Customer Contract or a PC/CM Customer or any PC/CM
Leased Real Property) that, individually or in the aggregate, (a) involves a
claim against, or is reasonably likely to result in a liability of, the PC/CM
Business in excess of $250,000; (b) would reasonably be expected to have an
adverse impact on the PC/CM Business in any material respect; or (c) would
affect the legality, validity or enforceability of this Agreement or any Related
Agreement or prevent or materially impair or delay the consummation of the
Transactions. There are no judgments, injunctions, writs, orders or decrees of
any Governmental Authority binding or, to the Knowledge of Legg Mason,
threatened to be imposed upon (i) any PC/CM Subsidiary, (ii) any other Affiliate
of Legg Mason with respect to the PC/CM Business or (iii) the CAM Business that
would (A) be binding upon Citigroup or its Affiliates following consummation of
such Transactions or (B) individually or in the aggregate, reasonably be
expected to have an adverse impact on the PC/CM Business in any material
respect. Except as disclosed in the Legg Mason SEC Documents, there is no
action, suit, proceeding, claim, arbitration or other litigation pending or, to
the Knowledge of Legg Mason, threatened, against or affecting Legg Mason or its
Subsidiaries or any of their properties, assets or rights that, individually or
in the aggregate, has had or would reasonably be expected to have a Legg Mason
Material Adverse Effect.

 

Section 5.7 Compliance with Requirements of Law; Regulatory Matters.

 

(a) Legg Mason is, and since January 1, 2002 has been, in compliance in all
material respects with all material Requirements of Law. Except as would not,
individually or in the aggregate, reasonably be expected to have a Legg Mason
Material Adverse Effect, since January 1, 2002, Legg Mason has not received any
written, or, to the Knowledge of Legg Mason, oral notice from (and otherwise
does not have any Knowledge of) any Governmental Authority that alleges any
noncompliance (or that Legg Mason is under any investigation by any such
Governmental Authority for such alleged noncompliance) with any Requirement of
Law relating to the business of Legg Mason and its Subsidiaries. Since January
1, 2002 Legg Mason has not been examined by the United States Federal Reserve.

 

(b) The PC/CM Business is, and since January 1, 2002 has been, in compliance in
all material respects with all Requirements of Law. Since January 1, 2002, none
of Legg Mason or any of its Affiliates has received any written, or, to the
Knowledge of Legg Mason, oral notice from (and otherwise does not have any
Knowledge of) any Governmental Authority that alleges any noncompliance in any
material respect (or that the PC/CM Business is under any investigation,
pending, or, to the Knowledge of Legg Mason, threatened, by any such
Governmental Authority for such alleged noncompliance) with any Requirement of
Law applicable to the PC/CM Business (or any portion thereof) that, individually
or in the aggregate, would reasonably be expected to have an adverse impact on
the PC/CM Business in any material respect.

 

(c) (i) The PC/CM Subsidiaries hold all Permits that are required in order to
permit the PC/CM Subsidiaries to own or lease their properties and assets and to
conduct the PC/CM Business under and pursuant to all Requirements of Law in all
material respects; (ii) all such Permits are in full force and effect and are
not subject to any suspension, cancellation, modification, revocation or any
proceedings or investigations related thereto, and, to the Knowledge of Legg
Mason, no such suspension, cancellation, modification, revocation,

 

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proceeding or investigation is threatened, nor do facts exist which would
reasonably form the basis for any such suspension, cancellation, modification,
revocation, proceeding or investigation that, individually or in the aggregate,
would reasonably be expected to have an adverse impact on the PC/CM Business in
any material respect; and (iii) no PC/CM Subsidiary is in default, and no
condition exists that with notice or lapse of time or otherwise would constitute
a default, under any such Permit that, individually or in the aggregate, would
reasonably be expected to have an adverse impact on the PC/CM Business in any
material respect.

 

(d) The PC/CM Business is not subject to or bound by any Requirement of Law
(other than Requirements of Law imposed on similarly situated broker-dealers)
that restricts the PC/CM Business or relates to its capital adequacy, credit
policies or its management of the PC/CM Business. Each PC/CM Subsidiary
currently engages solely in activities (i) that would be authorized for a
financial holding company pursuant to Section 4(k)(4)(A)-(I) of the Bank Holding
Company Act of 1956, as amended (the “BHC Act”) or Section 225.86 of Title 12 of
the Code of Federal Regulations or (ii) the acquisition of which would be
authorized, in the aggregate of all PC/CM Subsidiaries, for a financial holding
company pursuant to Section 225.85(a) of Title 12 of the Code of Federal
Regulations. Except with respect to Legg Mason Trust, fsb, Legg Mason does not
own or control a “bank,” “thrift institution” or “savings association,” as those
terms are defined in Sections 2(c), 2(i) and 2(j) of the BHC Act.

 

(e) Each PC/CM Subsidiary identified in Section 5.7(e) of the Legg Mason
Disclosure Letter (as may be updated to give effect to the PC/CM Restructuring)
is, and at all times required by the Advisers Act during its existence has been,
duly registered as an investment adviser under the Advisers Act. Each PC/CM
Subsidiary that is required to be is, and at all times required pursuant to the
Requirements of Law (other than the Advisers Act) has been, duly registered,
licensed or qualified as an investment adviser in each state or any other
jurisdiction where the conduct of its business required such registration,
licensing or qualification, except where the failure to be so registered,
licensed or qualified, individually or in the aggregate, would not reasonably be
expected to have an adverse impact on the PC/CM Business in any material
respect. To the extent that any PC/CM Subsidiary relies on any statutory or
regulatory exemption to avoid registration as an investment adviser with any
Governmental Authority, such PC/CM Subsidiary has taken all actions required
pursuant to the Requirements of Law to claim and maintain such exemption, except
where the failure to claim or maintain such exemption, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on the
PC/CM Business in any material respect. A correct and complete list of each such
current registration, license or qualification is set forth in Section 5.7(e) of
the Legg Mason Disclosure Letter (as may be updated to give effect to the PC/CM
Restructuring). No PC/CM Subsidiary not identified in Section 5.7(e) of the Legg
Mason Disclosure Letter (as may be updated to give effect to the PC/CM
Restructuring) (i) is or has been an “investment adviser” within the meaning of
the Advisers Act or any other Requirements of Law or (ii) to the Knowledge of
Legg Mason, is subject to any material liability or disability by reason of any
failure to be so registered, licensed or qualified.

 

(f) Each PC/CM Subsidiary identified in Section 5.7(f) of the PC/CM Disclosure
Letter (as may be updated to give effect to the PC/CM Restructuring) is, and at
all times required by the Exchange Act during its existence has been, duly
registered as a broker-dealer under the Exchange Act, except where the failure
to be so registered, individually or in the aggregate,

 

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would not reasonably be expected to have an adverse impact on the PC/CM Business
in any material respect. Each such PC/CM Subsidiary that is required to be is,
and at all times required pursuant to the Requirements of Law (other than the
Exchange Act) has been, duly registered, licensed or qualified as a
broker-dealer in each state or any other jurisdiction where the conduct of its
business required such registration, licensing or qualification, except where
the failure to be so registered, licensed or qualified, individually or in the
aggregate, would not reasonably be expected to have a PC/CM Material Adverse
Effect. To the extent that any PC/CM Subsidiary relies on any statutory or
regulatory exemption to avoid registration as a broker-dealer with any
Governmental Authority, such PC/CM Subsidiary has taken all actions required
pursuant to the Requirements of Law to claim and maintain such exemption, except
where the failure to claim or maintain such exemption, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on the
PC/CM Business in any material respect. A correct and complete list of each such
current registration, license or qualification is set forth in Section 5.7(f) of
the Legg Mason Disclosure Letter (as may be updated to give effect to the PC/CM
Restructuring). No PC/CM Subsidiary not identified in Section 5.7(f) of the Legg
Mason Disclosure Letter (as may be updated to give effect to the PC/CM
Restructuring) (i) is or has been a “broker” or “dealer”, or is or has been
required to be registered as a “broker” or “dealer”, within the meaning of the
Exchange Act or any other Requirements of Law or (ii) to the Knowledge of Legg
Mason, is subject to any material liability or disability by reason of any
failure to be so registered, licensed or qualified.

 

(g) Except where the failure to be registered, licensed or qualified,
individually or in the aggregate, would not reasonably be expected to have an
adverse impact on the PC/CM Business in any material respect, none of the PC/CM
Subsidiaries is or has been (i) a commodity pool operator, futures commission
merchant, commodity trading advisor, trust company, real estate broker,
introducing broker, insurance company, insurance broker, insurance agent or
transfer agent within the meaning of any Requirement of Law, (ii) required to be
registered, licensed or qualified as a commodity pool operator, futures
commission merchant, commodity trading advisor, trust company, real estate
broker, introducing broker, insurance company, insurance broker, insurance
agent, transfer agent or in any other capacity under any Requirement of Law or
(iii) subject to any liability or disability by reason of any failure to be so
registered, licensed or qualified. If any PC/CM Subsidiary relies on any
statutory or regulatory exemption to avoid registration as a commodity pool
operator or commodity trading advisor (or in a similar capacity) with any
Governmental Authority, such PC/CM Subsidiary has taken all actions required
pursuant to the Requirements of Law to claim and maintain such exemption, except
where the failure to claim or maintain such exemption, individually or in the
aggregate, would not reasonably be expected to have an adverse impact on the
PC/CM Business in any material respect.

 

(h) None of the PC/CM Subsidiaries or any “affiliated person” (as defined in the
Investment Company Act) of any of them is ineligible or disqualified pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as an investment
adviser (or in any other capacity contemplated in the Investment Company Act) to
a CAM Registered Investment Company, nor is there any proceeding or
investigation pending or, to the Knowledge of Legg Mason, threatened, by, any
Governmental Authority, which would reasonably be expected to result in any such
ineligibility or disqualification. None of the PC/CM Subsidiaries or any person
“associated” (as defined in the Advisers Act) with any of them is ineligible or
disqualified pursuant to Section

 

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203 of the Advisers Act to serve as a registered investment adviser or person
“associated” (as defined in the Advisers Act) with a registered investment
adviser, nor is there any proceeding or investigation pending or, to the
Knowledge of Legg Mason, threatened, by, any Governmental Authority, which would
reasonably be expected to result in any such ineligibility or disqualification.
None of the PC/CM Subsidiaries or any of their “associated persons of a broker
or dealer” are ineligible or disqualified pursuant to Section 15, Section 15B or
Section 15C of the Exchange Act to serve as a broker-dealer or as an “associated
person of a broker or dealer” (as defined in the Exchange Act), nor is there any
proceeding or investigation pending or, to the Knowledge of Legg Mason,
threatened, by, any Governmental Authority, which would reasonably be expected
to result in any such ineligibility or disqualification.

 

(i) The officers and employees of the PC/CM Subsidiaries who are required to be
licensed or registered for the activities conducted by them in respect of the
PC/CM Business are and at all times since January 1, 2002 have been duly
licensed or registered in each state or jurisdiction in which and with each
Governmental Authority with whom such licensing or registration is so required.
Each such registration or license is in full force and effect, except where the
failure to be so licensed or registered, individually or in the aggregate, would
not reasonably be expected to have an adverse impact on the PC/CM Business in
any material respect. To the Knowledge of Legg Mason, none of these individuals
is or, since January 1, 2002, has been subject to any material disciplinary or
other material regulatory compliance action or material complaint by a
Governmental Authority, a PC/CM Subsidiary or client or customer.

 

(j) All Filings (including Form BD) required to be filed by each PC/CM
Subsidiary since January 1, 2002 related to the PC/CM Business have been filed
in compliance in all material respects with all Requirements of Law. Such
Filings did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading. Legg Mason has
made available to Citigroup complete and correct copies of (i) all such material
Filings, (ii) all audit or inspection reports provided by any Governmental
Authority in respect of the PC/CM Business and all written responses thereto
made by the Legg Mason Sellers or the PC/CM Subsidiaries since January 1, 2002
and (iii) all non-routine correspondence relating to any investigation of the
PC/CM Business with any Governmental Authority since January 1, 2002.

 

(k) Section 5.7(k) of the Legg Mason Disclosure Letter sets forth a complete
list of all securities exchanges, commodities exchanges, clearing corporations
and similar organizations in which any PC/CM Subsidiary holds memberships or has
been granted trading privileges.

 

Section 5.8 Margin Loans.

 

(a) The value of the collateral securing each loan to each PC/CM Customer
(collectively, the “Margin Loans”) as of the close of business of the
immediately preceding Business Day prior to the Closing Date, (i) is not less
than the amount reflected on the books of the PC/CM Business as the value of
such collateral as of such date as (A) provided by third party pricing vendors
identified in Section 5.8(a) of the Legg Mason Disclosure Letter, (B) provided

 

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by other sources as will be disclosed three Business Days prior to the Closing
Date, which are engaged by the PC/CM Business to value such collateral in the
ordinary course of business consistent with customary industry practice and
reasonably acceptable to Citigroup (provided, however, that if any such pricing
source is not reasonably acceptable to Citigroup, a third party independent
source will be used and provided, further, however, that if no third party
independent source is available, the relevant price will be mutually agreed upon
by Citigroup and Legg Mason), or (C) in the case of any security for which there
is no closing sale price as of such date, reasonably estimated by the Parties,
and (ii) satisfies the requirements set forth in Regulation T of the Board of
Governors of the Federal Reserve System and NYSE Rule 431.

 

(b) Except for the amount reflected on the books of the PC/CM Business as an
offset against unsecured and partially secured accounts receivable, including
collateral carried in the proprietary account of certain introducing firms, no
other reserves (determined in accordance with GAAP) are required to be
established with respect to the Margin Loans. The applicable PC/CM Subsidiary
has a valid and perfected security interest with respect to each Margin Loan to
the extent required by Requirements of Law.

 

Section 5.9 Registered Investment Companies; Non-Registered Funds. None of the
PC/CM Subsidiaries serves, or at any time has served, as an investment adviser
or sponsor to any Registered Investment Company or Non-Registered Fund.

 

Section 5.10 Financial Statements.

 

(a) Citigroup has previously been provided with true and complete copies of (i)
an unaudited combined income statement for the PC/CM Business for the 12 months
ended March 31, 2005 (the “PC/CM Income Statement”) and (ii) the PC/CM Base
Balance Sheet (together with the PC/CM Income Statement, the “PC/CM Financial
Information”).

 

(b) The PC/CM Financial Information has been derived from the accounting books
and records of the PC/CM Business and has been prepared in accordance with GAAP
consistently applied, subject only to normal recurring year-end adjustments and
the absence of notes and except as expressly provided in the PC/CM Financial
Information. The PC/CM Base Balance Sheet presents fairly in all material
respects the financial position of the PC/CM Business as of the date thereof,
and the PC/CM Income Statement presents fairly in all material respects the
results of operations of the PC/CM Business for the period indicated therein.

 

Section 5.11 Title; Sufficiency of Assets.

 

(a) Assuming that the Consents set forth in Section 5.5 of the Legg Mason
Disclosure Letter are duly obtained and any applicable waiting periods have
expired or terminated, upon consummation of the Transactions (including the
execution and delivery of the documents to be delivered at the Closing), at the
Closing, Citigroup (or one or more of its wholly-owned Subsidiaries) shall be
vested with good and marketable title in and to the PC/CM Transferred Shares,
free and clear of all Liens, except Permitted Liens. When the Legg Mason Shares
(including any shares of Legg Mason Preferred Stock) are issued to Citigroup (or
one or more of its Subsidiaries) pursuant to the terms of this Agreement, such
shares will be duly

 

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authorized and validly issued, fully paid and non-assessable and free of any
pre-emptive rights or Liens other than Liens created by this Agreement.

 

(b) Except for services to be provided pursuant to the PC/CM TSAs or the
Services Agreement, upon consummation of the Transactions, Citigroup (or one or
more of its Subsidiaries) and the PC/CM Transferred Subsidiaries, taken
together, will own, possess, have a valid license to, have a valid lease in or
otherwise have the right to use all of the rights, properties and assets
necessary to conduct the PC/CM Business in all material respects as currently
conducted and as the same will be conducted on the Closing Date.

 

Section 5.12 Employee Benefit Plans; Employee Matters.

 

(a) Section 5.12(a)(i) of the Legg Mason Disclosure Letter lists each material
PC/CM Benefit Plan. Section 5.12(a)(ii) of the Legg Mason Disclosure Letter
lists each material PC/CM Benefit Plan that is sponsored, maintained or
contributed to or required to be contributed to by the PC/CM Subsidiaries (the
“PC/CM Subsidiaries Benefit Plans”). Each PC/CM Subsidiaries Benefit Plan is in
writing and Legg Mason has made available to Citigroup a true and complete copy
of each PC/CM Subsidiaries Benefit Plan and a true and complete copy of the
following items (in each case, only if applicable) (i) each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed annual reports on the IRS Form 5500
for each such PC/CM Subsidiaries Benefit Plan, and (iv) the most recently
received IRS determination letter for each such PC/CM Subsidiaries Benefit Plan.
Except as disclosed in Section 5.12(a)(iii) of the Legg Mason Disclosure Letter,
neither the Legg Mason Sellers nor any PC/CM Subsidiary has any express or
implied commitment with respect to the PC/CM Business, (A) to create, incur any
material liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (B) enter into any Contract or agreement to
provide compensation or benefits to any individual, or (C) to modify, change or
terminate any PC/CM Subsidiaries Benefit Plan, other than with respect to a
modification, change or termination required by this Agreement, the Transactions
or ERISA, the Code or to otherwise comply with Requirement of Law.

 

(b) Each of the PC/CM Subsidiaries Benefit Plans (i) is, and has always been,
operated in all material respects in accordance with all provisions of ERISA,
the Code, and all other Requirement of Law and (ii) has always been
administered, operated and managed in accordance with its governing documents in
all material respects.

 

(c) Neither the Legg Mason Sellers nor the Legg Mason ERISA Affiliates
(including any entity that during the past six years was a Subsidiary of the
Legg Mason Sellers) has now or at any time contributed to, sponsored, or
maintained (i) a Multiemployer Plan or (ii) a Multiple Employer Plan for which
Legg Mason or any Legg Mason Seller could incur liability under Section 4063 or
4064 of ERISA.

 

(d) No liability under Title IV or Section 302 of ERISA has been incurred by the
Legg Mason Sellers, the PC/CM Subsidiaries or any Legg Mason ERISA Affiliate
that has not been satisfied in full and nor do any circumstances exist that
would reasonably be expected to result in any liabilities under (i) Title IV of
ERISA, (ii) Section 302 of ERISA or (iii) Sections

 

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412 or 4971 of Code, in each case, that would reasonably be expected to be a
liability of any of the PC/CM Subsidiaries following the Closing Date.

 

(e) The IRS has issued a favorable determination letter with respect to each of
the PC/CM Benefit Plans that is intended to be qualified under Section 401(a) of
the Code (a “PC/CM Qualified Plan”) to the effect that such plan is qualified
under Section 401(a) of the Code and that each trust established in connection
with such PC/CM Benefit Plan is exempt from United States federal income
taxation under Section 501(a) of the Code. To the Knowledge of Legg Mason, no
existing circumstances and no fact or event exist that would adversely affect
the qualified status of any PC/CM Qualified Plan or that could reasonably be
expected to result in the revocation of the trust’s exemption from United States
federal income taxation.

 

(f) There are no pending or, to the Knowledge of Legg Mason, threatened material
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the PC/CM
Subsidiaries Benefit Plans, any fiduciaries thereof with respect to their duties
to the PC/CM Subsidiaries Benefit Plans or the assets of any of the trusts under
any of the PC/CM Subsidiaries Benefit Plans.

 

(g) To the Knowledge of Legg Mason, no labor union, labor organization or group
of employees of any PC/CM Subsidiary has made a pending demand for recognition
or certification with respect to the PC/CM Business Employees, there are no
representation or certification proceedings or petitions seeking a
representation proceeding with respect to the PC/CM Business Employees presently
pending or, to the Knowledge of Legg Mason, threatened to be brought or filed
with the National Labor Relations Board or any other labor relations tribunal or
authority and there have been no such actions, events or disputes since January
1, 2002. There are no strikes, organized work stoppages, organized slowdowns,
lockouts or other material labor disputes pending or, to the Knowledge of Legg
Mason, threatened against or involving the PC/CM Business Employees. No PC/CM
Subsidiary is a party to, bound by, or in the process of negotiating a
collective bargaining agreement or other agreement with a labor union or labor
organization covering any of the PC/CM Business Employees.

 

(h) The consummation of the transactions contemplated by this Agreement will
not, except as expressly provided in this Agreement (i) entitle any PC/CM
Business Employee to separation, termination or severance pay, unemployment
compensation or any other similar-type benefit payment, (ii) result in the
payment to any present or former employee, officer, director or consultant of
the PC/CM Subsidiaries of any money or other property, (iii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee, or (iv) cause any amounts payable under the PC/CM Benefit Plans to
fail to be deductible for United States federal income tax purposes by virtue of
Section 280G of the Code.

 

(i) Except to the extent required under ERISA Section 601 et. seq. and Code
Section 4980B, none of the PC/CM Benefit Plans provides for or promises retiree
medical, retiree disability or retiree life insurance benefits to any current or
former employee, officer, director or consultant of the PC/CM Subsidiaries.

 

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(j) In addition to the foregoing, with respect to each PC/CM Subsidiaries
Benefit Plan listed in Section 5.12(a)(ii) of the Legg Mason Disclosure Letter
that is not subject to United States Requirement of Law (a “Non-U.S. PC/CM
Benefit Plan”):

 

(i) all employer and employee contributions to each Non-U.S. PC/CM Benefit Plan
required pursuant to the Requirement of Law or by the terms of such Non-U.S.
PC/CM Benefit Plan have been made;

 

(ii) the fair market value of the assets of each funded Non-U.S. PC/CM Benefit
Plan, the liability of each insurer for any Non-U.S. PC/CM Benefit Plan funded
through insurance or the book reserve established for any Non-U.S. PC/CM Benefit
Plan, together with any accrued contributions, is sufficient to procure or
provide for the benefits determined as if such plan is maintained on any ongoing
basis (actual or contingent) accrued to the date of this Agreement with respect
to all current and former participants under such Non-U.S. PC/CM Benefit Plan
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to such Non-U.S. PC/CM Benefit Plan, and no
Transaction shall cause such assets or insurance obligations to be less than
such benefit obligations; and

 

(iii) each Non-U.S. PC/CM Benefit Plan is now and always has been operated in
material compliance with all Requirement of Law.

 

(k) To the Knowledge of Legg Mason, the PC/CM Subsidiaries are in compliance in
all material respects with all Requirement of Law relating to the employment of
labor, including, without limitation, those related to wages, hours, immigration
and naturalization, collective bargaining and the payment and withholding of
taxes and other sums as required by the appropriate Governmental Authority. Legg
Mason and the PC/CM Subsidiaries have paid in full to all PC/CM Business
Employees or adequately accrued for all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such PC/CM Business
Employees and there is no claim with respect to payment of wages, salary or
overtime pay that has been asserted or is now pending or, to the Knowledge of
Legg Mason, threatened before any Governmental Authority with respect to any
persons currently or formerly employed by the PC/CM Subsidiaries. Neither Legg
Mason nor any PC/CM Subsidiary is a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Authority relating to employees or
employment practices with respect to the PC/CM Business Employees. Except as
disclosed in Section 5.12(k) of the Legg Mason Disclosure Letter, there is no
charge of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or, to the
Knowledge of Legg Mason, threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Authority in any jurisdiction
in which any PC/CM Subsidiary has employed or employs any person.

 

(l) All individuals who are performing or have performed consulting or other
services for any PC/CM Subsidiary, whether as consultant, independent
contractors, agents or otherwise, are or were correctly classified by the PC/CM
Subsidiaries as either “independent contractors” or “employees, as the case may
be, and, at the Closing, will qualify for such classification under all
Requirement of Law; there are no pending or, to the Knowledge of Legg

 

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Mason, threatened claims against any PC/CM Subsidiary by or on behalf of any
such individual relating to the classification of such individual, or
investigation, audit or other proceeding relating to such an individual or
individuals, by any Governmental Authority with respect to the classification of
such individuals.

 

Section 5.13 Undisclosed Liabilities. Except for liabilities or obligations (a)
arising under this Agreement, (b) reflected, accrued or reserved against in the
PC/CM Base Balance Sheet or (c) incurred in the ordinary course of business
consistent with past practice since March 31, 2005, there are no undisclosed
liabilities or obligations of the PC/CM Business of a nature that, individually
or in the aggregate, would reasonably be expected to have a PC/CM Material
Adverse Effect.

 

Section 5.14 Absence of Certain Changes. Except for the matters contemplated by
this Agreement, since March 31, 2005, (a) the PC/CM Business has been conducted
only in the ordinary course and consistent with past practice, (b) there has not
occurred any change or event that, individually or in the aggregate, has had a
PC/CM Material Adverse Effect and (c) other than in the ordinary course and
consistent with past practice, no PC/CM Subsidiary has:

 

(i) amended, restated or otherwise changed its articles or certificate of
incorporation or bylaws or equivalent organizational documents;

 

(ii) made any distribution or declared, paid or set aside any dividend (in cash
or property) with respect to, or split, combined, redeemed, reclassified,
purchased or otherwise acquired, directly or indirectly, any equity interests or
shares of capital stock of, or other equity or voting interest in, any PC/CM
Subsidiary, or made any other changes in the capital structure of any PC/CM
Subsidiary, except for dividends or distributions which, after giving effect
thereto, would not result in an PC/CM Tangible Book Value that is less than the
PC/CM Tangible Book Value Target or a capital ratio of less than 15% as required
by Section 1.2;

 

(iii) authorized for issuance, issued, sold, delivered or agreed or committed to
issue, sell or deliver (A) any equity interests or capital stock of or other
equity or voting interest in, any PC/CM Subsidiary or (B) any equity rights in
respect of, security convertible into, exchangeable for or evidencing the right
to subscribe for or acquire either (x) any equity interests or shares of capital
stock of, or other equity or voting interest in, any PC/CM Subsidiary or (y) any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire any shares of the capital stock of, or other equity or
voting interest in, any PC/CM Subsidiary;

 

(iv) changed any financial accounting principle, method or practice, other than
changes required by GAAP or Requirements of Law, which are set forth in Section
5.14(iv) of the Legg Mason Disclosure Letter.

 

(v) terminated the employment of any PC/CM Business Employee who was a key
officer or key investment professional;

 

(vi) except as required pursuant to the Requirement of Law or an existing PC/CM
Benefit Plan or Contract, (A) other than wage or salary increases in the
ordinary

 

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course of business consistent in nature and amount with the past practice of the
PC/CM Business, made or agreed to make any increase in wages, salaries,
compensation, pension or other fringe benefits or perquisites payable to any
PC/CM Business Employee who is an officer or investment professional, (B)
granted or agreed to grant any severance or termination pay or entered into any
Contract to make or grant any severance or termination pay or, other than in the
ordinary course of business consistent in nature and amount with the past
practice of the PC/CM Business, paid or agreed to pay any bonus or other
incentive compensation to any PC/CM Business Employee who is an officer or
investment professional, (C) granted or agreed to grant or accelerated the time
of vesting or payment of any benefits or awards under a PC/CM Benefit Plan or
other equity interests of any PC/CM Subsidiary, (D) loaned (other than margin
loans within a brokerage account in the ordinary course of business consistent
in nature and amount with the past practices of the PC/CM Business), amended any
loan, or advanced money or other property to any PC/CM Business Employee or (E)
established, adopted, amended, modified or terminated any PC/CM Benefit Plan in
any material respect, other than any such actions that apply to all of the
participants in such PC/CM Benefit Plan on a substantially similar basis;

 

(vii) acquired or disposed of, whether by purchase, merger, consolidation or
sale, lease, pledge or other encumbrance of stock or assets or otherwise, any
material interest in any (A) corporation, partnership or other Person or (B)
material assets comprising a business or any other material property or assets,
in a single transaction or in a series of transactions;

 

(viii) incurred any Indebtedness or, other than in the ordinary course of
business consistent in nature and amount with past practice, made any loans or
advances of borrowed money or material capital contributions to, or investments
in, any other Person;

 

(ix) entered into any Contract pursuant to which any PC/CM Subsidiary will
receive, or is reasonably expected to receive, payments, or will make, or is
reasonably expected to make, payments of more than $2,500,000 in the aggregate
per annum or $12,500,000 over the life of such Contract;

 

(x) entered into, become subject to, amended, terminated or modified in any
material respect any Contract of the type described in Section 5.16(a)(i) or
(ii);

 

(xi) made or incurred any capital expenditure or other financial commitment
requiring payments in excess of $1,000,000 individually or $5,000,000 in the
aggregate;

 

(xii) paid, discharged, settled or satisfied any material claim, action,
proceeding, liability or other obligation or waived any material rights or
material claims in respect of the PC/CM Business; or

 

(xiii) committed or agreed, whether or not in writing, to do, or to authorize,
any of the foregoing.

 

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Section 5.15 PC/CM Real Property.

 

(a) No PC/CM Subsidiary owns or ground leases any real property. Section 5.15(a)
of the Legg Mason Disclosure Letter sets forth a true and complete list of all
PC/CM Leased Real Property, identifying each PC/CM Lease and the identity of the
lessee and lessor thereunder. Each PC/CM Subsidiary that is a party to a PC/CM
Lease has, or at the Closing will have, a good and valid leasehold interest
under each such PC/CM Lease, free and clear of all Liens except Permitted Liens,
and no PC/CM Subsidiary has collaterally assigned or granted any security
interest in any PC/CM Lease or in any interest therein other than in connection
with any Lien to be released at Closing. Each PC/CM Lease is in full force and
effect. No PC/CM Subsidiary that is a party to a PC/CM Lease is in material
default of any of its obligations under such PC/CM Lease (and no event exists
which upon the passage of time or the giving of notice would constitute a
material default by such PC/CM Subsidiary thereunder). To the Knowledge of Legg
Mason, no counterparty to any PC/CM Lease is in material default of any of its
obligations under the applicable PC/CM Lease (and no event exists which upon the
passage of time or the giving of notice would constitute a material default by
such counterparty thereunder).

 

(b) To the Knowledge of Legg Mason, there are no condemnation proceedings or
eminent domain proceedings or sales or other dispositions in lieu of
condemnation of any kind pending or threatened with respect to any portion of
the PC/CM Leased Real Property.

 

(c) No PC/CM Subsidiary has subleased any of the PC/CM Leased Real Property to
any third party or given any third party any license or other right to occupy
any portion of the PC/CM Leased Real Property leased by such PC/CM Subsidiary.

 

Section 5.16 Certain Contracts.

 

(a) Legg Mason has made available, or has caused its Affiliates to make
available, true and complete copies (or, with respect to any oral Contracts,
true and complete written descriptions) of each of the following types of
Contracts to which any PC/CM Subsidiary is a party (subject to the transactions
contemplated by the PC/CM Restructuring and the PC/CM TSAs) and has set forth
such Contracts in Section 5.16(a) of the Legg Mason Disclosure Letter:

 

(i) any Contract prohibiting, limiting or restricting (A) the conduct of any
portion of the PC/CM Business anywhere in the world or the provision of any
products or services of the PC/CM Business to any Person anywhere in the world,
(B) the competition by the PC/CM Business with any Person or (C) the soliciting
or hiring of employees or consultants or the entry into a business relationship
with any prospective client, customer or other Person anywhere in the world;

 

(ii) any Contract requiring (A) any PC/CM Subsidiary to deal exclusively with
any Person or (B) any Person to deal exclusively with any PC/CM Subsidiary;

 

(iii) any PC/CM Lease and all subleases and licenses relating to any PC/CM
Lease;

 

(iv) any material PC/CM License Agreement;

 

(v) any material finders or referral Contract;

 

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(vi) any material securities lending or repurchase agreement or master
agreement;

 

(vii) any Contract involving the acquisition or disposition (by merger,
consolidation, acquisition or sale of stock or assets or otherwise) of any
material interest in, or any material amount of property or assets of, any
Person or business during the past five years;

 

(viii) other than any Contract set forth in Section 5.16(a)(i) and (ii) of the
Legg Mason Disclosure Letter, any Contract providing for future payments or the
acceleration or vesting of payments in excess of $2,500,000 that are
conditioned, in whole or in part, on a change in control of any PC/CM
Subsidiary;

 

(ix) any Contract, other than (A) Contracts entered into in the ordinary course
of business consistent in nature and amount with past practice and (B) other
Contracts not terminable on notice of 60 days or less without the payment of any
premium, penalty or fee pursuant to which any PC/CM Subsidiary will receive, or
is reasonably expected to receive, payments, or will make, or is reasonably
expected to make, payments of more than $2,500,000 in the aggregate per annum or
$12,500,000 over the life of such Contract;

 

(x) any distribution, selling, selected dealer or shareholder servicing Contract
relating to the distribution of shares of any Registered Investment Company
sponsored by Legg Mason or one of its Affiliates;

 

(xi) any clearing agreement;

 

(xii) any Contract with any securities exchanges, commodities exchanges, boards
of trade, clearing corporations and similar organizations in which any PC/CM
Subsidiary holds memberships or has been granted trading privileges;

 

(xiii) each form of PC/CM Customer Contract;

 

(xiv) each form of investment advisory Contract related to the PC/CM Business;

 

(xv) any material introducing broker, marketing or similar Contract for the
servicing of accounts;

 

(xvi) any material Contract related to the rendering of securities execution,
prime broker, clearance, settlement, safekeeping, record keeping or related
services to any PC/CM Customer;

 

(xvii) other than in the ordinary course of the PC/CM Business any engagement
letter, underwriting agreement, placement agency agreement or other Contract
with respect to investment banking, structured finance or other CM Business
services;

 

(xviii) any Contract between a PC/CM Subsidiary, on the one hand, and any
officer, director or employee of Legg Mason (other than compensation or benefit
agreements or arrangements), on the other hand; and

 

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(xix) any material management Contract or Contract with independent contractors
or consultants (or similar arrangements) pursuant to which any PC/CM Subsidiary
will make, or is reasonably expected to make, payments of more than $2,500,000
in the aggregate per annum and which Contract cannot be cancelled by the PC/CM
Subsidiary that is party thereto without penalty or further payment and without
more than 60 days’ notice.

 

Such Contracts, other than forms of Contracts referred to in clauses (xiv) and
(xv) above, are referred to as “Scheduled PC/CM Contracts.”

 

(b) Each Applicable PC/CM Contract has been performed by the PC/CM Subsidiary
that is a party thereto in accordance with applicable Requirements of Law in all
material respects. Each Applicable PC/CM Contract is the legal, valid and
binding obligation of the PC/CM Subsidiary that is a party thereto and, to the
Knowledge of Legg Mason, of each other party thereto, enforceable in accordance
with its terms subject to bankruptcy, receivership, insolvency, reorganization,
moratorium, fraudulent transfer and other Requirements of Law relating to or
affecting the rights of creditors in general and by legal and equitable
limitations on the enforceability of specific remedies. No PC/CM Subsidiary that
is a party to any Applicable PC/CM Contract nor, to the Knowledge of Legg Mason,
any other party, is in violation or default of any material term of any such
Applicable PC/CM Contract. No condition or event exists which with the giving of
notice or the passage of time, or both would constitute a violation or default
of any material term of an Applicable PC/CM Contract by any PC/CM Subsidiary or,
to the Knowledge of Legg Mason, any other party thereto or permit the
termination, modification, cancellation or acceleration of performance of any
material obligation of any PC/CM Subsidiary or, to the Knowledge of Legg Mason,
any other party to the Applicable PC/CM Contract.

 

(c) No PC/CM Subsidiary is bound by or a party to any of the following:

 

(i) any Contract relating to (A) any Indebtedness of the PC/CM Business, other
than agreements with Affiliates which are to be terminated pursuant to Section
6.10(b) or (B) the advance, loan or extension of credit to any Person, including
any guarantee or other undertaking (by way of an agreement to “keep well” or
otherwise) in respect of the obligations of any Person, other than Contracts
involving the extension of credit to customers in the ordinary course of
business and in accordance with Requirements of Law and the internal credit
policies of the PC/CM Business;

 

(ii) any Contract under which any PC/CM Subsidiary is obligated, directly or
indirectly, to make any capital contribution or financial commitment to, or
other investment in, any Person, including any seed capital or similar
investment;

 

(iii) any Contract that provides for earn-outs or other similar contingent
obligations; or

 

(iv) any Contract which contains a (A) “clawback” or similar undertaking by any
PC/CM Subsidiary requiring the reimbursement or refund of any fees (whether
performance based or otherwise) or (B) a “most favored nation” or similar
provision.

 

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Section 5.17 Intellectual Property.

 

(a) Section 5.17(a) of the Legg Mason Disclosure Letter sets forth, as of the
date hereof, a complete list of all PC/CM Owned Intellectual Property that is
the subject of an application or registration. A PC/CM Transferred Subsidiary at
the Closing will own all PC/CM Owned Intellectual Property, and at the Closing
will have a valid right to use all PC/CM Owned Intellectual Property and,
subject to the Legg Mason PC/CM TSA, PC/CM Licensed Intellectual Property, free
and clear of all Liens, other than Permitted Liens, and no PC/CM Subsidiary is
in material breach of any agreement for the provision or use of material PC/CM
Licensed Intellectual Property.

 

(b) There is no material litigation pending or, to the Knowledge of Legg Mason,
threatened against the PC/CM Business that involves a claim (i) alleging that
the operation of the PC/CM Business infringes, misappropriates, dilutes or
otherwise violates a third party’s Intellectual Property rights or (ii)
challenging the ownership, use, validity, enforceability or registrability of
any PC/CM Intellectual Property. To the Knowledge of Legg Mason, the PC/CM
Business as currently conducted does not infringe, misappropriate, dilute or
otherwise violate any third party’s Intellectual Property rights. No PC/CM
Subsidiary has brought or, to the Knowledge of Legg Mason, threatened a claim
against any third party (A) alleging infringement, misappropriation, dilution or
other violation of any material PC/CM Owned Intellectual Property or (B)
challenging any such third party’s ownership or use of, or the validity,
enforceability or registrability of, such third party’s Intellectual Property,
and, to the Knowledge of Legg Mason, there is no basis for a claim regarding any
of the foregoing.

 

Section 5.18 Taxes. The Parties acknowledge and agree that no representation or
warranty contained in this Article V (other than in this Section 5.18) shall
apply to any Tax matter specifically addressed in the representations and
warranties contained in this Section 5.18. Except as disclosed in Section 5.18
of the Legg Mason Disclosure Letter:

 

(a) All material Tax Returns required to have been filed by, or with respect to,
the PC/CM Subsidiaries have been filed on a timely basis and Taxes required to
be shown on such Tax Returns have been paid. All such Tax Returns were correct
and complete in all material respects, and with respect to any taxable period
for which such Tax Returns have not yet been filed, or for which Taxes are not
yet due or owing, the PC/CM Subsidiaries have made due and sufficient current
accruals for any such material Taxes on the PC/CM Base Balance Sheet in
accordance with the generally accepted accounting principles which are used in
the applicable jurisdiction of each such applicable PC/CM Subsidiary.

 

(b) (i) No written notice has been received of any deficiencies for Taxes
claimed, proposed or assessed by any Governmental Authority with respect to the
PC/CM Subsidiaries for which Legg Mason Sellers or any of their Affiliates may
have any material liability; (ii) there are no pending, current or, to the
Knowledge of Legg Mason, proposed in writing audits, suits, proceedings,
investigations, claims or administrative proceedings by any Governmental
Authority for or relating to any material liability in respect of any such
Taxes; (iii) there are no outstanding written agreements or waivers extending
the statutory period of limitations applicable to any Tax Returns required to be
filed with respect to the PC/CM Subsidiaries, nor is any written request for any
such agreement or waiver pending; (iv) no Closing Agreement pursuant to Section
7121 of the Code (or any similar provision under Requirements of Law) has been
entered into by or with respect to any of the PC/CM Subsidiaries; and (v) no
claim has been

 

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made by a Governmental Authority in writing in a jurisdiction where Tax Returns
with respect to any PC/CM Subsidiary are not filed that Legg Mason or the PC/CM
Subsidiary is or may be subject to taxation by such jurisdiction.

 

(c) The PC/CM Subsidiaries have complied in all material respects with all
Requirements of Law relating to the payment and withholding of Taxes and each of
them has withheld and paid all material Taxes required to have been withheld and
paid in connection with amounts paid or owing to any PC/CM Business Employee,
independent contractor, creditor, stockholder, foreign person or other third
party.

 

(d) There are no material Liens for Taxes upon the assets or properties of the
PC/CM Business except for statutory Liens for Taxes not yet due. There are no
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns of the PC/CM
Subsidiaries. None of the PC/CM Subsidiaries has requested an extension of time
within which to file any Tax Return in respect of any taxable period for which
such Tax Return has not since been filed.

 

(e) None of the PC/CM Subsidiaries nor Legg Mason with respect to any of the
PC/CM Subsidiaries has participated, within the meaning of Treasury Regulation
Section 1.6011-4(c), or has been a “material advisor” or “promoter” (as those
terms are defined in Sections 6111 and 6112 of the Code and the Treasury
Regulations promulgated thereunder) in (i) any “reportable transaction” within
the meaning of Section 6011 of the Code and the Treasury Regulations promulgated
thereunder, (ii) any “confidential corporate tax shelter” within the meaning of
Section 6111 of the Code and the Treasury Regulations promulgated thereunder,
(iii) any “potentially abusive tax shelter” within the meaning of Section 6112
of the Code and the Treasury Regulations promulgated thereunder or (iv) any
transactions subject to the list maintenance requirements under Section 6112 of
the Code and the Treasury Regulations promulgated thereunder.

 

(f) No PC/CM Subsidiary is a party to any tax indemnification, allocation or
sharing agreement with another Person for which any PC/CM Subsidiary will have
obligations or liabilities after the Closing Date (except for (i) customary
agreements to indemnify lenders or security holders in respect of Taxes, and
(ii) provisions in agreements for the acquisition or divestiture of
subsidiaries, assets or business lines that require such PC/CM Subsidiary to
indemnify a purchaser for Taxes). Legg Mason (or its Affiliates) is eligible to
make a Code Section 338(h)(10) election with respect to each PC/CM Domestic
Subsidiary in connection with the sale of the PC/CM Transferred Shares pursuant
to this Agreement.

 

(g) Since March 31, 2005, other than in the ordinary course and consistent with
past practice, no PC/CM Subsidiary has changed any material Tax principle,
method or practice, other than changes required by Requirements of Law, or made
or revoked any material Tax election. Section 5.18(g) of the Disclosure Letter
lists any material change in a Tax principle, method or practice or any material
Tax election made or revoked by an PC/CM Subsidiary from January 1, 2002 until
March 31, 2005.

 

Section 5.19 Environmental Matters. Since January 21, 2002, the PC/CM Business
has been operated in compliance in all material respects with all applicable

 

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Environmental Laws and Permits required thereunder. There are no present events,
conditions or circumstances associated with the PC/CM Business that would
reasonably be expected to result in any action or claim against the PC/CM
Subsidiaries under applicable Environmental Laws that, individually or in the
aggregate, would reasonably be expected to result in any material liability, nor
has any PC/CM Subsidiary or any Legg Mason Seller received any notice that any
PC/CM Leased Real Property is in violation of any Environmental Laws or that
such PC/CM Subsidiary is responsible (or potentially responsible) for the
investigation, cleanup, monitoring or other remediation of any Hazardous
Materials on, at or under any PC/CM Leased Real Property that, individually or
in the aggregate, would reasonably be expected to result in any material
liability. There is no pending or, to the Knowledge of Legg Mason, threatened
claim, litigation or proceeding imposed upon or asserted against Legg Mason or
any PC/CM Subsidiary or any of their respective Subsidiaries arising directly or
indirectly from or out of the presence, alleged presence, release, threatened
release, disposal or removal of, or exposure to, Mold in, on, under or around
any PC/CM Leased Real Property. Neither Legg Mason nor any PC/CM Subsidiary nor
any of their respective Subsidiaries has received any complaint from any of
their respective employees, customers, agents or any other individuals relating
to the presence, alleged presence, release, threatened release, disposal or
removal of, or exposure to, Mold in, on, under or around any PC/CM Leased Real
Property. No Mold is present at any PC/CM Leased Real Property which would
reasonably be expected to result in a material liability.

 

Section 5.20 Legg Mason Capitalization.

 

(a) As of May 31, 2005, the authorized capital stock of Legg Mason consists of
250,000,000 shares of Legg Mason Common Stock and 4,000,000 shares of preferred
stock, par value $10 per share (together with the Legg Mason Common Stock, the
“Legg Mason Capital Stock”). At the close of business on May 31, 2005, (i)
107,853,565 shares of Legg Mason Common Stock were issued and outstanding, (ii)
17,132,461 shares of Legg Mason Common Stock were reserved for issuance
(including shares underlying outstanding stock options and shares available for
future grant) pursuant to the incentive plans listed in Section 5.20(a) of the
Legg Mason Disclosure Letter, (iii) 2,562,831 shares of Legg Mason Common Stock
were reserved for issuance upon exchange of exchangeable shares (the “Canadian
Exchangeable Shares”) in connection with the acquisition of Legg Mason Canada
Inc., (iv) 5,657,902 shares of Legg Mason Common Stock were reserved for
issuance upon conversion of the zero-coupon contingent convertible senior notes
due June 6, 2031 and (v) one share of preferred stock was issued and outstanding
in connection with the Canadian Exchangeable Shares.

 

(b) Except as set forth above in this Section 5.20, there are no outstanding
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments relating to the Legg Mason Capital Stock obligating
Legg Mason or any of its Affiliates, at any time or upon the occurrence of
certain events, to offer, issue, sell, transfer, vote or otherwise dispose of or
sell any Legg Mason Capital Stock. Except as set forth above in this Section
5.20, none of Legg Mason or any of its Affiliates has (i) outstanding
Indebtedness that could entitle or convey to any Person the right to vote, or
that is convertible into or exercisable for, Legg Mason Capital Stock or (ii)
outstanding options, warrants, convertible securities or other rights,
agreements, arrangements or commitments that entitle or convey to any Person the
right to vote with the Legg Mason Sellers on any matter in respect of the Legg
Mason Capital Stock. Other than in connection with the Canadian Exchangeable
Shares, to the Knowledge of Legg Mason,

 

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there are no voting trusts or other agreements or understandings outstanding
with respect to the Legg Mason Capital Stock.

 

Section 5.21 Legg Mason SEC Filings.

 

(a) Legg Mason has filed with, or furnished to, the SEC all required Legg Mason
SEC Documents. As of their respective dates, the Legg Mason SEC Documents
complied in all material respects with Requirements of Law applicable to such
Legg Mason SEC Documents. None of the Legg Mason SEC Documents contained, at the
time when filed, or, if amended or supplemented prior to the date of this
Agreement, as of the date of such amendment or supplement, any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
that information contained in any Legg Mason SEC Document has been revised or
superseded by a Legg Mason SEC Document filed as of a later date (but before the
date of this Agreement). The financial statements of Legg Mason included in the
Legg Mason SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto). The financial statements of Legg Mason included in the Legg
Mason SEC Documents fairly present in all material respects the financial
position of Legg Mason and its Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to the absence of footnote
disclosure and to normal and recurring year-end audit adjustments).

 

(b) Except for filings with the SEC which are the subject of Section 5.21(a),
all reports, statements, documents, registrations, filings or submissions
required to be filed by Legg Mason or its Affiliates (other than the PC/CM
Subsidiaries, which are addressed in Section 5.7) with any Governmental
Authority (i) have been filed, except where the failure to make such filings
would not, individually or in the aggregate, reasonably be expected to have a
Legg Mason Material Adverse Effect; and (ii) were in compliance with
Requirements of Law when filed or as amended or supplemented and no deficiencies
have been asserted in writing by any such Governmental Authority with respect to
any such reports, statements, documents, registrations, filings or submissions
that have not been remedied, except for any non-compliance or deficiencies which
would not, individually or in the aggregate, reasonably be expected to have a
Legg Mason Material Adverse Effect.

 

(c) Except as (i) arising under this Agreement, (ii) set forth in the financial
statements included in Legg Mason’s annual report on Form 10-K filed prior to
the date hereof for the 12 months ended March 31, 2005, or (iii) incurred in the
ordinary course of business since March 31, 2005, neither Legg Mason nor any of
its Subsidiaries has any liabilities that, individually or in the aggregate,
have had or would reasonably be expected to have a Legg Mason Material Adverse
Effect.

 

Section 5.22 Affiliate Transactions. Except for Contracts and arrangements (a)
which are on customary arms-length terms, (b) in respect of services and
products that are to be

 

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continued or provided pursuant to the Related Agreements or (c) to be terminated
pursuant to Section 6.10(b) on or prior to the Closing Date, no PC/CM Subsidiary
is a party to any Contract or arrangement with Legg Mason or its Affiliates
other than the PC/CM Subsidiaries.

 

Section 5.23 Absence of Certain Legg Mason Changes. Since March 31, 2005, Legg
Mason has conducted its business only in the ordinary course and there has not
occurred any change or event that, individually or in the aggregate, has had a
Legg Mason Material Adverse Effect.

 

Section 5.24 No Legg Mason Stockholder Vote Required. No vote or other action of
the stockholders of Legg Mason is required pursuant to any Requirement of Law,
the organizational documents of Legg Mason or otherwise in order for Legg Mason
to consummate the Transactions.

 

Section 5.25 Brokers. No broker, investment banker, financial advisor or other
Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of Legg Mason Sellers or the PC/CM Subsidiaries, except those
for which Legg Mason Sellers will be solely responsible.

 

ARTICLE VI

COVENANTS

 

Section 6.1 Conduct of CAM Business.

 

(a) Except (i) as expressly contemplated by this Agreement (including Section
6.13), (ii) for matters set forth in Section 6.1(a) of the Citigroup Disclosure
Letter or (iii) with the prior written consent of Legg Mason, from and after the
date hereof and prior to the Closing Date, Citigroup hereby covenants and agrees
that it will, and will cause its Affiliates to, (A) carry on the CAM Business in
the ordinary course in all material respects consistent with past practice and
(B) use reasonable best efforts to keep the CAM Business and operations intact
(provided that, except as otherwise contemplated by this Agreement or the
Related Agreements, the foregoing shall not require Citigroup or its Affiliates
to expend any additional monies to retain the services of its present officers
and employees) and preserve its material Permits, rights, franchises, goodwill
and relations with its clients, customers, landlords, suppliers and others with
whom it does business so that they will be preserved after the Closing.

 

(b) Without limiting the provisions of Section 6.1(a), Citigroup hereby
covenants and agrees that, except (i) as expressly contemplated by this
Agreement (including Section 6.13), (ii) as set forth in Section 6.1(b) of the
Citigroup Disclosure Letter or (iii) with the prior written consent of Legg
Mason (which consent shall not be unreasonably withheld, delayed or
conditioned), from and after the date hereof and prior to the Closing Date, no
CAM Subsidiary will:

 

(i) amend, restate or otherwise change the articles or certificate of
incorporation or bylaws or equivalent organizational documents of any CAM
Subsidiary;

 

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(ii) split, combine, redeem, reclassify, purchase or otherwise acquire, directly
or indirectly, any equity interests or shares of capital stock of, or other
equity or voting interest in, any CAM Subsidiary, or make any other changes in
the capital structure of any CAM Subsidiary;

 

(iii) authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (A) any equity interests or capital stock of, or other equity or
voting interest in, any CAM Subsidiary or (B) any equity rights in respect of,
security convertible into, exchangeable for or evidencing the right to subscribe
for or acquire either (x) any equity interests or shares of capital stock of, or
other equity or voting interest in, any CAM Subsidiary or (y) any securities
convertible into, exchangeable for, or evidencing the right to subscribe for or
acquire any shares of the capital stock of, or other equity or voting interest
in, any CAM Subsidiary;

 

(iv) change any material Tax or financial accounting principle, method or
practice or increase the carrying value of any asset of the CAM Business for
financial accounting purposes, other than changes required by GAAP or
Requirements of Law, or make or revoke any material Tax election;

 

(v) terminate the employment of any CAM Business Employee who was a key officer
or investment professional other than for willful misconduct, malfeasance or any
conduct constituting “cause” as defined under any applicable CAM Benefit Plan or
Contract or for violation of any Requirement of Law or applicable corporate or
compliance policies;

 

(vi) terminate, discontinue, close or suspend any material business operation of
the CAM Business;

 

(vii) except as required pursuant to the Requirement of Law or an existing CAM
Benefit Plan or Contract, (A) other than wage or salary increases in the
ordinary course of business consistent in nature and amount with the past
practice of the CAM Business, make or agree to make any increase in wages,
salaries, compensation, pension or other fringe benefits or perquisites payable
to any CAM Business Employee who is an officer or investment professional, (B)
grant or agree to grant any severance or termination pay or enter into any
Contract to make or grant any severance or termination pay or, other than in the
ordinary course of business consistent in nature and amount with the past
practice of the CAM Business, pay or agree to pay any bonus or other incentive
compensation to any CAM Business Employee who is an officer or investment
professional, (C) grant or agree to grant or accelerated the time of vesting or
payment of any benefits or awards under a CAM Benefit Plan or other equity
interests of any CAM Subsidiary, (D) loan (other than margin loans within a
brokerage account in the ordinary course of business consistent in nature and
amount with the past practices of the CAM Business), amend any loan, or advance
money or other property to any CAM Business Employee, or (E) establish, adopt,
amend, modify or terminate any CAM Benefit Plan in any material respect, other
than any such actions that apply to all of the participants in such CAM Benefit
Plan on a substantially similar basis;

 

(viii) except on behalf of a CAM Advisory Client (other than an Affiliate of
Citigroup), acquire or dispose of, whether by purchase, merger, consolidation or
sale, lease, pledge or other encumbrance of stock or assets or otherwise, any
material interest (and in

 

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no event an interest of 5% or more) in any (A) corporation, partnership or other
Person or (B) material assets comprising a business or any other material
property or assets, in a single transaction or in a series of transactions;

 

(ix) incur any Indebtedness or make any (A) advances, loans or extensions of
credit to any Person, including any guarantee or other undertaking (by way of
“keep well” or otherwise) in respect of the obligations of any Person or (B)
material capital contributions to, or investments in, any other Person;

 

(x) change any policies or practices in respect of clearing and settlement of
securities transactions;

 

(xi) materially change any customary methods of operations of the CAM Business,
including marketing and pricing;

 

(xii) enter into any Contract, other than (A) Contracts entered into in the
ordinary course of business consistent in nature and amount with past practice,
(B) Contracts terminable on notice of 60 days or less without the payment of any
premium, penalty or fee and (C) Contracts pursuant to which any CAM Subsidiary
will receive, or is reasonably expected to receive, payments, or will make, or
is reasonably expected to make, payments of more than $5,000,000 in the
aggregate per annum and $25,000,000 over the life of such Contract;

 

(xiii) other than in the ordinary course of the PC/CM Business, enter into,
become subject to, amend, terminate or modify in any material respect any
Contract of the type described in Section 4.18(a)(i) or (ii);

 

(xiv) make or incur any capital expenditure or other financial commitment
requiring payments in excess of $2,000,000 individually or $10,000,000 in the
aggregate;

 

(xv) amend, terminate, cancel, compromise, pay, discharge, settle or satisfy any
material claim, action, proceeding, liability or other material obligation or
waive any material rights or material claims in respect of the CAM Business;

 

(xvi) except as required pursuant to the Requirements of Law or by any
Governmental Authority, (A) make any settlement or compromise of any audit or
any other controversy or proceeding with respect to Taxes or (B) consent to any
extension or waiver of any limitation period with respect to any material Taxes,
in each of clauses (A) and (B), to the extent such action, individually or in
the aggregate, would reasonably be expected to have an adverse impact on any CAM
Subsidiary in any material respect for any taxable period ending after the
Closing Date;

 

(xvii) take or fail to take any action constituting a breach or default under,
or materially impairing its rights in, any material Contract or its assets other
than in the ordinary course of business consistent with past practices or amend
any material Contract to increase the amount payable by the CAM Subsidiary
thereunder or otherwise cause such Contract to be materially more burdensome to
the CAM Business;

 

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(xviii) accelerate the billing or other realization of advisory fees or fees for
fee based brokerage accounts payable by any CAM Advisory Client or delay the
payment of liabilities beyond the ordinary course of business; or

 

(xix) commit or agree, whether or not in writing, to do, or to authorize, any of
the foregoing.

 

(c) Nothing contained in this Agreement shall give to Legg Mason, directly or
indirectly, rights to control or direct the operation of the CAM Business prior
to the Closing. Prior to the Closing, Citigroup Sellers and their Affiliates
shall be entitled to exercise, subject to the terms and conditions of this
Agreement, complete control and supervision of the operations of the CAM
Business.

 

Section 6.2 Conduct of PC/CM Business.

 

(a) Except (i) as expressly contemplated by this Agreement (including Section
6.13), (ii) for matters set forth in Section 6.2(a) of the Legg Mason Disclosure
Letter or (iii) with the prior written consent of Citigroup, from and after the
date hereof and prior to the Closing Date, Legg Mason hereby covenants and
agrees that it will, and will cause its Affiliates to, (A) carry on the PC/CM
Business in the ordinary course in all material respects consistent with past
practice and (B) use reasonable best efforts to keep the PC/CM Business and
operations intact (provided that, except as otherwise contemplated by this
Agreement or the Related Agreements, the foregoing shall not require Legg Mason
or its Affiliates to expend any additional monies to retain the services of its
present officers and employees) and preserve its material Permits, rights,
franchises, goodwill and relations with its clients, customers, landlords,
suppliers and others with whom it does business so that they will be preserved
after the Closing.

 

(b) Without limiting the provisions of Section 6.2(a), Legg Mason hereby
covenants and agrees that, except (i) as expressly contemplated by this
Agreement (including Section 6.13), (ii) as set forth in Section 6.2(b) of the
Legg Mason Disclosure Letter or (iii) with the prior written consent of
Citigroup (which consent shall not be unreasonably withheld, delayed or
conditioned), from and after the date hereof and prior to the Closing Date, no
PC/CM Subsidiary will:

 

(i) amend, restate or otherwise change the articles or certificate of
incorporation or bylaws or equivalent organizational documents of any PC/CM
Subsidiary;

 

(ii) split, combine, redeem, reclassify, purchase or otherwise acquire, directly
or indirectly, any equity interests or shares of capital stock of, or other
equity or voting interest in, any PC/CM Subsidiary, or make any other changes in
the capital structure of any PC/CM Subsidiary;

 

(iii) authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (A) any equity interests or capital stock of, or other equity or
voting interest in, any PC/CM Subsidiary or (B) any equity rights in respect of,
security convertible into, exchangeable for or evidencing the right to subscribe
for or acquire either (x) any equity interests or shares of capital stock of, or
other equity or voting interest in, any PC/CM Subsidiary or (y) any securities
convertible into, exchangeable for, or evidencing the right to subscribe for or

 

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acquire any shares of the capital stock of, or other equity or voting interest
in, any PC/CM Subsidiary;

 

(iv) change any material Tax or financial accounting principle, method or
practice or increase the carrying value of any asset of the PC/CM Business for
financial accounting purposes, other than changes required by GAAP or
Requirements of Law, or make or revoke any material Tax election;

 

(v) terminate the employment of any PC/CM Business Employee who was a key
officer or investment professional, including bankers, brokers, and traders,
other than for willful misconduct, malfeasance or any conduct constituting
“cause” as defined under any applicable PC/CM Benefit Plan or Contract or for
violation of any Requirement of Law or applicable corporate or compliance
policies;

 

(vi) terminate, discontinue, close or suspend any material business operation of
the PC/CM Business;

 

(vii) except as required pursuant to the Requirement of Law or an existing PC/CM
Benefit Plan or Contract, (A) other than wage or salary increases in the
ordinary course of business consistent in nature and amount with the past
practice of the PC/CM Business, make or agree to make any increase in wages,
salaries, compensation, pension or other fringe benefits or perquisites payable
to any PC/CM Business Employee who is an officer or investment professional, (B)
grant or agree to grant any severance or termination pay or enter into any
Contract to make or grant any severance or termination pay or, other than in the
ordinary course of business consistent in nature and amount with the past
practice of the PC/CM Business, pay or agree to pay any bonus or other incentive
compensation to any PC/CM Business Employee who is an officer or investment
professional, (C) grant or agree to grant or accelerated the time of vesting or
payment of any benefits or awards under a PC/CM Benefit Plan or other equity
interests of any PC/CM Subsidiary, (D) loan (other than margin loans within a
brokerage account in the ordinary course of business consistent in nature and
amount with the past practices of the PC/CM Business), amend any loan, or
advance money or other property to any PC/CM Business Employee, or (E)
establish, adopt, amend, modify or terminate any PC/CM Benefit Plan in any
material respect, other than any such actions that apply to all of the
participants in such PC/CM Benefit Plan on a substantially similar basis;

 

(viii) acquire or dispose of, whether by purchase, merger, consolidation or
sale, lease, pledge or other encumbrance of stock or assets or otherwise, any
material interest (and in no event an interest of 5% or more) in any (A)
corporation, partnership or other Person or (B) material assets comprising a
business or any other material property or assets, in a single transaction or in
a series of transactions;

 

(ix) incur any Indebtedness or make any (A) advances, loans or extensions of
credit to any Person, including any guarantee or other undertaking (by way of
“keep well” or otherwise) in respect of the obligations of any Person, other
than extensions of credit to customers in the ordinary course of business and in
accordance with Requirements of Law and the internal credit policies of the
PC/CM Business or (B) material capital contributions to, or investments in, any
other Person;

 

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(x) change any margin policies or practices for the PC/CM Business (including
interest on free credit balances) in any material respect, except as may be
required to comply with Requirements of Law;

 

(xi) change any policies or practices for the PC/CM Business generally in
respect of clearing and settlement of securities transactions in any material
respect, except as may be required to comply with Requirements of Law;

 

(xii) materially change any customary methods of operations of the PC/CM
Business, including marketing and pricing;

 

(xiii) enter into any Contract, other than (A) Contracts entered into in the
ordinary course of business consistent in nature and amount with past practice,
(B) Contracts terminable on notice of 60 days or less without the payment of any
premium, penalty or fee and (C) Contracts pursuant to which any PC/CM Subsidiary
will receive, or is reasonably expected to receive, payments, or will make, or
is reasonably expected to make, payments of more than $2,500,000 in the
aggregate per annum and $12,500,000 over the life of such Contract;

 

(xiv) enter into, become subject to, amend, terminate or modify in any material
respect any Contract of the type described in Section 5.16(a)(i) or (ii);

 

(xv) make or incur any capital expenditure or other financial commitment
requiring payments in excess of $1,000,000 individually or $5,000,000 in the
aggregate;

 

(xvi) amend, terminate, cancel, compromise, pay, discharge, settle or satisfy
any material claim, action, proceeding, liability or other material obligation
or waive any material rights or material claims in respect of the PC/CM
Business;

 

(xvii) except as required pursuant to the Requirements of Law or by any
Governmental Authority, (A) make any settlement or compromise of any current
audit or any other controversy or proceeding with respect to Taxes or (B)
consent to any extension or waiver of any limitation period with respect to any
material Taxes, in each of clauses (A) and (B), to the extent such action,
individually or in the aggregate, would reasonably be expected to have an
adverse impact on any PC/CM Subsidiary in any material respect for any taxable
period ending after the Closing Date;

 

(xviii) take or fail to take any action constituting a breach or default under,
or materially impairing its rights in, any material Contract or its assets other
than in the ordinary course of business consistent with past practices or amend
any material Contract to increase the amount payable by the PC/CM Subsidiary
thereunder or otherwise cause such Contract to be materially more burdensome to
the PC/CM Business;

 

(xix) enter into, become subject to, amend or terminate any Contract with
respect to underwriting or mergers and acquisitions advisory services other than
in the ordinary course of the PC/CM Business;

 

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(xx) accelerate the billing or other realization of advisory fees or fees for
fee based brokerage accounts payable by any PC/CM Customer or delay the payment
of liabilities beyond the ordinary course of business; or

 

(xxi) commit or agree, whether or not in writing, to do, or to authorize, any of
the foregoing.

 

(c) Nothing contained in this Agreement shall give to Citigroup, directly or
indirectly, rights to control or direct the operation of the PC/CM Business
prior to the Closing. Prior to the Closing, Legg Mason Sellers and their
Affiliates shall be entitled to exercise, subject to the terms and conditions of
this Agreement, complete control and supervision of the operations of the PC/CM
Business.

 

Section 6.3 Access and Confidentiality.

 

(a) From the date hereof to the Closing, subject to any Requirement of Law and
Sections 6.3(b) and (c), each Party shall, and shall cause its Affiliates to,
permit the other Party and its representatives to have reasonable access, during
regular business hours and upon reasonable advance notice for purposes
reasonably related to the Transactions, to their respective properties,
premises, facilities, employees and representatives and books and records,
including all computer tapes and similarly stored data, but only to the extent
that such access does not unreasonably interfere with the business of Citigroup
or Legg Mason (and their respective Affiliates), as the case may be, and each
Party shall direct its employees, agents and representatives, and shall cause
its Affiliates and their employees, agents and representatives, to cooperate
fully with the other Party and its representatives; provided that the foregoing
shall not require (i) either Party or its Affiliates to (A) permit any
inspection, or to disclose any information, that would result in the disclosure
of any trade secrets of third parties, or any trade secrets of either Party or
any of its respective Affiliates unrelated to the Transactions or (B) violate
any obligations of either Party or its Affiliates to any third party with
respect to confidentiality (provided that the applicable Party shall have used
its reasonable best efforts to obtain the consent of such third party to such
inspection or disclosure) or (ii) any disclosure by a Party or any of its
Affiliates that would reasonably be expected, as a result of such disclosure,
and after consultation with counsel, to have the effect of causing the waiver of
any attorney-client privilege.

 

(b) From and after the Closing, except in connection with the activities
contemplated by the Related Agreements or as provided therein, neither Party
shall, and shall cause its respective Affiliates (including, in the case of Legg
Mason, the CAM Subsidiaries and, in the case of Citigroup, the PC/CM
Subsidiaries) and its Affiliates’ personnel (including each of their
accountants, legal advisers and other professional advisers) not to, disclose to
any other Person or otherwise use any Confidential Information of the other
Party; provided that a Party (or any of its Affiliates) may disclose
Confidential Information (i) to the extent required pursuant to the Requirements
of Law, in any report, statement, testimony or other submission to any
Governmental Authority or (ii) in order to comply with any Requirement of Law,
or in response to any summons, subpoena or other legal process or formal or
informal investigative demand issued to Citigroup or Legg Mason, as the case may
be, in the course of any litigation, investigation or administrative proceeding;
provided further that if either Party or its Affiliates is,

 

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in the opinion of counsel to such Party, required by Requirements of Law to
disclose any Confidential Information, such Party shall (A) to the extent such
action would not violate or conflict with Requirements of Law, promptly notify
the other Party of such Requirement of Law so that the non-disclosing Party may,
at its sole expense, seek an appropriate protective order and/or waive in
writing the disclosing Party’s compliance with the provisions of this Agreement
and (B) if, in the absence of a protective order or the receipt of a waiver
hereunder, such Party or any of its Affiliates is nonetheless, in the opinion of
counsel to such Party, compelled to disclose such Confidential Information, such
Party, after notice to the non-disclosing Party (unless such notice would
violate or conflict with Requirements of Law), may disclose such Confidential
Information to the extent so required, in the opinion of counsel, by
Requirements of Law. If requested by the other Party, the Party disclosing such
information shall (x) exercise reasonable best efforts, at the non-disclosing
Party’s sole expense, to obtain reliable assurances that the Confidential
Information so disclosed will be accorded confidential treatment or (y)
cooperate with any attempt by the non-disclosing Party to obtain reliable
assurances that the Confidential Information so disclosed will be accorded
confidential treatment. Each Party agrees, and shall cause its Affiliates, to
protect the Confidential Information by using the same degree of care, but no
less than a reasonable degree of care, to prevent the unauthorized disclosure of
such as each Party uses to protect its own confidential information of a like
nature. Neither Party, any of its Affiliates or their respective personnel
(including each of its respective Affiliates’ accountants, legal advisers and
other professional advisers) shall be liable for the disclosure of Confidential
Information as expressly permitted by this subsection (b). To the extent that a
Party (or any of its Affiliates) discovers that it possesses Confidential
Information of the other Party, it shall promptly return such Confidential
Information to the other Party.

 

(c) All Confidential Information provided or obtained in connection with the
Transactions (including pursuant to subsection (a) above) will be held in
accordance with the Confidentiality Agreement, dated May 20, 2005 (the
“Confidentiality Agreement”); provided that, in the event of a conflict or
inconsistency between the terms of this Agreement and the Confidentiality
Agreement, the terms of this Agreement will govern.

 

(d) Following the Closing, subject to any Requirement of Law, each Party will
allow the other Party and its representatives to have reasonable access, during
regular business hours and upon reasonable advance notice to examine and make
copies, at each Party’s own expense, of any books and records and personnel
records relating to the CAM Business or the PC/CM Business, as the case may be,
which were retained by the other Party or its Affiliates for any purpose
reasonably related to the CAM Business or the PC/CM Business, as the case may
be, including in connection with (i) the preparation of a Party’s accounting
records, or with any audits conducted by a Party, (ii) any suit, claim, action,
proceeding or investigation relating to the CAM Business or the PC/CM Business
or (iii) any regulatory filing or matter; provided that (A) Citigroup or Legg
Mason, as the case may be, shall reimburse the other Party promptly for all
reasonable and necessary out-of-pocket costs and expenses incurred by Legg Mason
or Citigroup, as the case may be, in connection with any such request and (B)
neither Party shall be required to permit the foregoing activities that would
(x) result in the disclosure of any trade secrets of third parties, or any trade
secrets of either Party or of any of their respective Affiliates unrelated to
the Transactions or (y) violate any obligations of either Party or their
respective Affiliates to any third party with respect to confidentiality or (z)
reasonably be expected to have the effect of causing the waiver of any
attorney-client privilege in the opinion of counsel.

 

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(e) In addition to the foregoing, following the Closing and subject to any
Requirement of Law, each Party shall reasonably cooperate with and assist the
other Party in the former’s defense of, or response to, any suit, claim, action,
proceeding or investigation (i) in the event that such Party requesting
cooperation would be required to indemnify the other Party pursuant to Article
VIII or Article X from and against any Losses suffered by such other Party in
connection with such suit, claim, action, proceeding or investigation and (ii)
that relates to a matter of which any employee of the other Party has knowledge
as a result of such employee’s prior employment with the Party requesting
cooperation. Such obligation to cooperate shall include causing such employees
to be available to the requesting Party during regular business hours and upon
reasonable advance notice, but only to the extent that such action does not
unduly interfere with the business of the cooperating Party; provided that (A)
the requesting Party shall reimburse the other Party promptly for all reasonable
and necessary out-of-pocket costs and expenses incurred by such other Party in
connection with any such request and (B) such other Party shall not be required
to permit any of the foregoing activities that would (x) result in the
disclosure of any trade secrets of third parties, or any trade secrets of either
Party or of any of their respective Affiliates unrelated to the Transactions,
(y) violate any obligations of either Party or their respective Affiliates to
any third party with respect to confidentiality or (z) reasonably be expected,
in the opinion of counsel, to have the effect of causing the waiver of any
attorney-client privilege.

 

(f) Legg Mason shall (i) preserve and keep all books and records relating to the
accounting, business and financial affairs related to the CAM Business in a
manner reasonably consistent with past practice, for a period of not less than
seven years following the Closing Date or for any longer period as may be (A)
required pursuant to the Requirements of Law or any Governmental Authority or
(B) reasonably necessary with respect to the prosecution or defense of any audit
or other legal action and (ii) upon reasonable notice, afford the officers,
employees, agents and representatives of Citigroup reasonable access (including
the right to make photocopies at Citigroup’s expense), during normal business
hours, to such books and records. Notwithstanding the foregoing provisions of
this Section 6.3(e), the provisions of Article VIII shall govern the
preservation, retention and sharing of Tax Returns and Tax work papers.

 

(g) Citigroup shall (i) preserve and keep all books and records relating to the
accounting, business and financial affairs related to the PC/CM Business in a
manner reasonably consistent with past practice, for a period of not less than
seven years following the Closing Date or for any longer period as may be (A)
required pursuant to the Requirements of Law or any Governmental Authority or
(B) reasonably necessary with respect to the prosecution or defense of any audit
or other legal action and (ii) upon reasonable notice, afford the officers,
employees, agents and representatives of Legg Mason reasonable access (including
the right to make photocopies at Legg Mason’s expense), during normal business
hours, to such books and records. Notwithstanding the foregoing provisions of
this Section 6.3(e), the provisions of Article VIII shall govern the
preservation, retention and sharing of Tax Returns and Tax work papers.

 

Section 6.4 Notice of Certain Matters. From the date hereof to the Closing Date,
each Party shall promptly advise the other Party in writing upon acquiring
Knowledge of any event, circumstance, occurrence or fact that would cause any of
the conditions set forth in Sections 7.1 and 7.2, in the case of Citigroup, and
Sections 7.1 and 7.3, in the case of Legg Mason, not to be satisfied on or prior
to the Termination Date. No such advice shall be deemed

 

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to amend or modify any representation or warranty of the Party disclosing such
information or affect any rights or remedies available to the Party receiving
such information in connection with any breach of any representation or
warranty; provided that a breach of this Section 6.4 shall not be considered for
purposes of determining the satisfaction of the closing conditions set forth in
Article VII or give rise to a right of termination under Article IX if the
underlying breach or breaches with respect to which the other Party failed to
give notice would not result in the failure of the closing conditions set forth
in Article VII nor result in the right of such non-breaching Party to terminate
this Agreement under Article IX, as the case may be.

 

Section 6.5 Efforts; Filings.

 

(a) Subject to Section 6.6, upon the terms and subject to the conditions of this
Agreement, each Party shall use its reasonable best efforts to take, agree to
take, or cause to be taken, any and all actions and to do, or cause to be done,
any and all things reasonably necessary, proper or advisable under any
Requirement of Law or otherwise, so as to, as promptly as practicable, (i)
permit consummation of the transactions set forth in Section 6.13, (ii) permit
consummation of the purchase of the CAM Transferred Shares and the PC/CM
Transferred Shares and (iii) otherwise enable consummation of the Transactions,
and each such Party shall, and shall cause its respective Affiliates to,
cooperate fully to that end.

 

(b) As promptly as practicable after the date hereof (but in no event later than
10 days after the date hereof), (i) if and to the extent required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the “HSR Act”), Citigroup and Legg Mason
shall prepare and file all documents and notifications with the FTC and the DOJ
as are required to comply with the HSR Act. Each of Citigroup and Legg Mason
shall cooperate with the other in good faith in the preparation of all such
filings and responses, and shall do, or cause to be done, all things and take,
or cause to be taken, all actions required to obtain the prompt termination of
the waiting period thereunder, including supplying, as promptly as practicable,
any additional information and documentary material that may be requested
pursuant to the HSR Act.

 

(c) Without limiting the foregoing and subject to Section 6.6, each of Citigroup
and Legg Mason hereby agrees to use its reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all Permits and Consents of
all Governmental Authorities and other Persons necessary to consummate the
Transactions as promptly as reasonably practicable. In connection with effecting
any such filing or obtaining any such Permit or Consent necessary to consummate
the Transactions, each of Citigroup and Legg Mason shall, subject to the
Requirements of Law (i) permit counsel for the other Party to review in advance,
and consider in good faith the views of the other Party in connection with, any
proposed written communication to any Governmental Authority and (ii) provide
counsel for the other Party with copies of all filings made by such Party and
all written correspondence between such Party (and its advisors) with any
Governmental Authority and any other written information supplied by such Party
and such Party’s Subsidiaries to, or received from, a Governmental Authority;
provided, however, that materials may be redacted or withheld (A) to the extent
that they concern the valuation of the CAM Business or the PC/CM Business, as
the case may be, or alternatives to the Transactions and (B) as necessary to
comply with contractual arrangements.

 

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Section 6.6 Client and Customer Consents.

 

(a) With respect to each CAM Advisory Contract (other than any SMA Contract) for
which the Consent of the applicable CAM Advisory Client (other than a CAM
Registered Investment Company or a CAM Non-Registered Fund) to the assignment or
deemed assignment of such CAM Advisory Contract as a result of the Transactions
is required pursuant to the Requirements of Law and/or by the terms of such CAM
Advisory Contract, as promptly as practicable following the date hereof,
Citigroup shall, or shall cause the Citigroup Sellers or one of their respective
Affiliates to, send a written notice (a “CAM Notice”) informing each such CAM
Advisory Client of the Transactions and requesting consent to the assignment or
deemed assignment of the applicable CAM Advisory Contract(s). The Parties agree
that Consent for any such CAM Advisory Contract shall be deemed given for all
purposes of this Agreement as follows: (i) for those such CAM Advisory Contracts
set forth on Annex F, upon receipt of written Consent prior to the Closing Date,
(ii) for all other such CAM Advisory Contracts other than SMA Contracts, (A) if
written Consent is required pursuant to the Requirements of Law or the
applicable CAM Advisory Contract, upon receipt of written Consent prior to the
Closing Date or (B) if Consent other than written Consent is sufficient under
Requirements of Law and the applicable CAM Advisory Contract, (x) upon receipt
of a written Consent prior to the Closing Date or (y) if no such written Consent
is received, if 45 days shall have passed since the sending of a CAM Negative
Consent Notice (which notice must be sent at least 30 days after the initial CAM
Notice was sent) and (iii) for those CAM Advisory Contracts that are SMA
Contracts, if 45 days shall have passed since the sending of a CAM Negative
Consent Notice; provided, however, that, any CAM Advisory Client who has
informed any CAM Subsidiary whether orally or in writing of its intention to
terminate its CAM Advisory Contract prior to the Closing shall be deemed not to
have provided its Consent for any purpose under this Agreement unless, as of the
Closing Date, such notice shall have been rescinded or withdrawn. In the event
that a CAM Advisory Contract has been destroyed or otherwise lost, such contract
shall be deemed to require Consent other than written Consent for purposes of
this Section 6.6(a). All CAM Notices and CAM Negative Consent Notices and
related materials distributed to such CAM Advisory Clients shall be in form and
substance reasonably acceptable to Legg Mason, and Legg Mason shall be provided
the opportunity to review and comment on all such CAM Notices and CAM Negative
Consent Notices within a reasonable period of time prior to distribution.
Notwithstanding any other provision of this Agreement, prior to the Closing,
neither Legg Mason or any of its Affiliates nor any of their respective
officers, employees and representatives may, directly or indirectly, contact, in
writing or otherwise, any CAM Advisory Client or any other Person who acts as an
adviser to or consultant for any CAM Advisory Client with respect to this
Agreement or the Transactions without the prior approval of Citigroup.

 

(b) (i) For each CAM Registered Investment Company, Citigroup shall, and shall
cause the Citigroup Sellers or their respective Affiliates to, use reasonable
best efforts to obtain in accordance with Section 15 of the Investment Company
Act, as promptly as practicable following the date hereof, the approval by the
board of directors or trustees of such CAM Registered Investment Company (“RIC
Board Approval”) of a new CAM Advisory Contract with such CAM Subsidiary
(effective as of the Closing) on terms, taken as a whole, that are no less
favorable to the applicable CAM Subsidiary than the terms of such existing CAM
Advisory Contract with such CAM Registered Investment Company. To the extent RIC
Board Approval has been obtained with respect to a new CAM Advisory Contract in
accordance with the

 

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immediately preceding sentence, except in the case of any CAM Registered
Investment Company for which no shareholder approval is required pursuant to the
Requirements of Law, Citigroup shall cause the Citigroup Sellers to use their
reasonable best efforts to obtain in accordance with Section 15 of the
Investment Company Act, as promptly as practicable following the date hereof,
the approval by the shareholders of such CAM Registered Investment Company
(except to the extent such shareholder approval is not required by Requirements
of Law for the effectiveness of such new CAM Advisory Contract) of such new CAM
Advisory Contract described in the immediately preceding sentence. All proxy and
related materials distributed in connection with the approvals described in this
paragraph shall be in form and substance reasonably acceptable to Legg Mason,
and Legg Mason shall be provided a reasonable opportunity to review and comment
on all such materials within a reasonable period of time prior to distribution
and filing with any Governmental Authority. The Parties agree that Consent for
any CAM Advisory Contract with a CAM Registered Investment Company shall be
deemed given for all purposes of this Agreement if the applicable CAM Subsidiary
shall have entered into a new CAM Advisory Contract with such CAM Registered
Investment Company in accordance with the provisions of this subsection (b) and
such CAM Advisory Contract has been approved by shareholders in accordance with
Section 15 of the Investment Company Act; provided, however, that any CAM
Registered Investment Company that has informed any CAM Subsidiary whether
orally or in writing of its intention to terminate its CAM Advisory Contract
prior to the Closing shall be deemed not to have provided its Consent for any
purpose under this Agreement unless, as of the Closing Date, such notice shall
have been rescinded or withdrawn. Legg Mason hereby acknowledges and agrees that
it shall not, and shall not permit any of its Affiliates to, directly or
indirectly, request or propose to any board of directors or trustees of any CAM
Registered Investment Company to take any action in furtherance of the merger
(whether effected by way of a merger or reorganization) of any CAM Registered
Investment Company with or into any other Person (including any Registered
Investment Company sponsored by Legg Mason or one of its Affiliates) on or prior
to the Closing without the prior written consent of Citigroup.

 

(ii) Citigroup shall not, and shall cause each of the CAM Subsidiaries and their
respective Affiliates to not, amend or revise any CAM Advisory Contract to
reduce or waive any fee or reimburse any expenses payable under such CAM
Advisory Contract or offer or promise to any CAM Advisory Client any reduced
fee, fee waiver or expense reimbursement in connection with obtaining such CAM
Advisory Clients’ Consent under Section 6.6(a) or (b) without the prior written
consent of Legg Mason.

 

(iii) Citigroup shall cause the Citigroup Sellers and their respective
Affiliates to, use reasonable best efforts to obtain in accordance with Section
15 of the Investment Company Act, as promptly as practicable following the date
hereof, RIC Board Approval of a new RIC Distribution Contract between the CAM
Registered Investment Company and such CAM Subsidiary or such other Subsidiary
of Legg Mason as Legg Mason may designate (effective as of the Closing) on
substantially the same terms as the terms of the existing RIC Distribution
Contract with such CAM Registered Investment Company.

 

(iv) For each CAM Registered Investment Company, Citigroup shall cause the
Citigroup Sellers and their respective Affiliates to, with respect to
Administration Contracts and other Contracts with Affiliates of the Citigroup
Sellers that would terminate

 

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automatically upon the consummation of the Transactions, use reasonable best
efforts to obtain, as promptly as practicable following the date hereof, to the
extent required, the approval of the board of directors or trustees of new
Administration Contracts and such other Contracts with such Affiliates.

 

(v) With respect to each CAM Advisory Contract with a CAM Non-Registered Fund
for which the Consent of such CAM Non-Registered Fund (or the investors therein)
to the assignment or deemed assignment of such CAM Advisory Contract as a result
of the Transactions is required pursuant to the Requirements of Law, by the
terms of such CAM Advisory Contract and/or by the terms of the constituent
documents of such CAM Non-Registered Fund, as promptly as practicable following
the date hereof, Citigroup shall cause the Citigroup Sellers and their
respective Affiliates to, use reasonable best efforts to obtain the Consent of
such CAM Non-Registered Fund (and, to the extent required, the investors
therein) in accordance with the terms of the constituent documents of such CAM
Advisory Client. The Parties agree that Consent for any CAM Advisory Contract
with a CAM Non-Registered Fund shall be deemed given for all purposes of this
Agreement in accordance with the provisions of this subsection (b); provided,
however, that any such CAM Advisory Client that has informed any CAM Subsidiary
whether orally or in writing of its intention to terminate its CAM Advisory
Contract prior to the Closing shall be deemed not to have provided its Consent
for any purpose under this Agreement.

 

(vi) The Parties agree that, with respect to any CAM Advisory Contract for which
no Consent of the applicable CAM Advisory Client to the assignment or deemed
assignment of such CAM Advisory Contract as a result of the Transactions is
required pursuant to the Requirements of Law, the terms of such CAM Advisory
Contract or, if applicable, the constituent documents of such CAM Advisory
Client, (i) Citigroup shall, or shall cause the Citigroup Sellers or one of
their respective Affiliates to, send a letter in form and substance reasonably
satisfactory to Legg Mason and Citigroup Seller informing each such CAM Advisory
Client of the Transactions and (ii) Consent to the assignment or deemed
assignment of such CAM Advisory Contract as a result of the Transactions shall
be deemed given for all purposes under the Agreement (unless such CAM Advisory
Client has informed any CAM Subsidiary in writing of its intention to terminate
such CAM Advisory Contract prior to the Closing).

 

(c) The Parties further agree that, notwithstanding any other provision of this
Agreement (including Section 6.5), the provision of this Section 6.6 shall
govern the rights and obligations of Citigroup and the CAM Subsidiaries, on one
hand, and Legg Mason, on the other hand, with respect to the subject matter
hereof and no other section of this Agreement shall be deemed to impose any
additional requirements on any Party or its Affiliates. Citigroup and the CAM
Subsidiaries, on one hand, and Legg Mason and its Affiliates, on the other hand,
covenant and agree that any information that is supplied, sent or given, or
included in any document supplied, sent or given, by any of them to any CAM
Advisory Client for the purposes of obtaining the requisite Consent for any CAM
Advisory Contract or, if applicable, informing any CAM Advisory Client of the
Transactions will be true, complete and accurate in all material respects and,
at the time such information is sent or given, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading.

 

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(d) With respect to each PC/CM Customer Contract pursuant to which the PC/CM
Business provides investment advisory services for which the Consent of the
applicable PC/CM Customer to the assignment or deemed assignment of such PC/CM
Customer Contract as a result of the Transactions is required pursuant to the
Requirements of Law and/or by the terms of such PC/CM Customer Contract, as
promptly as practicable following the date hereof, Legg Mason shall cause the
Legg Mason Sellers or one of their respective Affiliates to, take substantially
the same actions as may be required under Section 6.6(a) in respect of any SMA
Contract, as applicable, to obtain the Consent of such PC/CM Customer to the
assignment or deemed assignment of the applicable PC/CM Customer Contract as a
result of the Transactions.

 

Section 6.7 Section 15(f) of the Investment Company Act.

 

(a) Legg Mason acknowledges that Citigroup has entered into this Agreement in
reliance upon the benefits and protections provided by Section 15(f) of the
Investment Company Act. Legg Mason shall cause the Legg Mason Sellers to not
take, and shall cause each of them to use reasonable best efforts to cause their
respective Affiliates not to take, any action not contemplated by this Agreement
and the Related Agreements that would, to the Knowledge of Legg Mason, have the
effect, directly and indirectly, of causing the requirements of any of the
provisions of Section 15(f) of the Investment Company Act not to be met in
respect of this Agreement, the Related Agreements and the Transactions, and each
of them shall not fail to take, and, after the Closing, shall use reasonable
best efforts to cause each of their respective Affiliates to not fail to take,
any action if the failure to take such action would, to the Knowledge of Legg
Mason, have the effect, directly or indirectly, of causing the requirements of
any of the provisions of Section 15(f) of the Investment Company Act not to be
met in respect of this Agreement, the Related Agreements and the Transactions.
In that regard, Legg Mason shall conduct its business and shall, subject to
applicable fiduciary duties to the CAM Registered Investment Companies, use its
reasonable best efforts to cause each of its respective Affiliates to conduct
its business so as to assure that, insofar as within the control of Legg Mason
or its respective Affiliates:

 

(i) for a period of three years after the Closing, at least 75% of the members
of the boards of directors or trustees of each CAM Registered Investment Company
are not (A) “interested persons” of the investment adviser of such CAM
Registered Investment Company after the Closing or (B) “interested persons” of
the investment adviser of such CAM Registered Investment Company immediately
prior to the Closing; and

 

(ii) for a period of two years after the Closing, there shall not be imposed on
any CAM Registered Investment Company an “unfair burden” as a result of the
Transactions, or any terms, conditions or understandings applicable thereto;

 

provided, however, that if Legg Mason or any of its Affiliates obtain an order
from the SEC exempting it from the provisions of Section 15(f) while still
maintaining the “safe harbor” provided by Section 15(f), then this covenant
shall be deemed to be modified to the extent necessary to permit Legg Mason and
its Affiliates to act in a manner consistent with such SEC exemptive order.

 

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(b) For a period of three years from the Closing, neither Legg Mason nor any of
its Affiliates shall voluntarily engage in any transaction that would constitute
an “assignment” to a third party of any CAM Advisory Contract with any CAM
Registered Investment Company currently managed by any CAM Subsidiary to which
Legg Mason or any such Affiliate is a party, without first obtaining a covenant
in all material respects the same as that contained in this Section 6.7;
provided that the period of time that has elapsed from Closing to the time of
such assignment shall be reduced from the time periods referenced in (i) and
(ii) above. Notwithstanding anything to the contrary contained herein, the
covenants of the Parties contained in this Section 6.7 are intended only for the
benefit of the Parties and for no other Person. The terms used in quotations in
this Section 6.7 shall have the meanings set forth in the Investment Company
Act.

 

(c) Citigroup shall not take, and shall cause each of the Citigroup Sellers to
use reasonable best efforts to cause their respective Affiliates not to take,
any action not contemplated by this Agreement and the Related Agreements that,
to the Knowledge of Citigroup, would have the effect, directly and indirectly,
of causing the requirements of any of the provisions of Section 15(f) of the
Investment Company Act not to be met in respect of this Agreement, the Related
Agreements and the Transactions, and each of them shall not fail to take, and,
after the Closing, shall use reasonable best efforts to cause each of their
respective Affiliates to not fail to take, any action if the failure to take
such action would, to the Knowledge of Citigroup, have the effect, directly or
indirectly, of causing the requirements of any of the provisions of Section
15(f) of the Investment Company Act not to be met in respect of this Agreement,
the Related Agreements and the Transactions. In that regard, Citigroup and its
Affiliates shall use their respective reasonable best efforts to ensure the
satisfaction of the conditions set forth in Section 15(f) of the Investment
Company Act with respect to each of the CAM Registered Investment Companies,
including the requirement that no “unfair burden” (as defined in Section
15(f)(1)(B) of the Investment Company Act) be imposed on any of the CAM
Registered Investment Companies.

 

(d) Prior to the Closing, Citigroup shall, subject to applicable fiduciary
duties to the CAM Registered Investment Companies, use its reasonable best
efforts to cause its Affiliates to assure that, insofar as with the control of
Citigroup Sellers or their respective Affiliates, at least 75% of members of the
board of directors or trustees of each CAM Registered Investment Company are not
“interested persons” of the investment adviser of such CAM Registered Investment
Company after the Closing or “interested persons” of the investment adviser of
such CAM Registered Investment Company immediately prior to the Closing.

 

Section 6.8 Further Assurances.

 

(a) After the Closing Date, each of Citigroup and Legg Mason shall (a) execute
and deliver at the reasonable request of the other Party such additional
documents and instruments as may be reasonably required to give effect to this
Agreement and the Transactions and (b) provide whatever documents or other
evidence of ownership as may be reasonably requested by (i) Legg Mason to
confirm ownership of the CAM Transferred Shares and the assets transferred to it
pursuant to Section 6.13 or (ii) Citigroup to confirm its ownership of the PC/CM
Transferred Shares and the assets transferred to it pursuant to Section 6.13.
The Parties agree that each of them shall cause each of their respective
Affiliates to comply with any such

 

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Affiliate’s obligations under this Agreement. The Parties agree that Section
6.8(b) of the Citigroup Disclosure Letter is incorporated herein by reference
and shall be binding as if set forth herein, and the Parties agree to take the
actions set forth in Section 6.8(b) of the Citigroup Disclosure Letter.

 

(b) The Parties acknowledge the risk that certain CAM Advisory Contracts may be
terminated as a result of the Transactions and agree to an adjustment to the
consideration payable by Legg Mason for the CAM Transferred Shares which could
following the nine-month anniversary of the Closing result in the principal
amount of the Legg Mason Note being increased by up to $300,000,000, depending
on certain specified CAM Advisory Contracts not being terminated, all as more
fully set forth in Section 6.8(b) of the Citigroup Disclosure Letter.

 

(c) Subject to any Requirements of Law, Citigroup shall, and shall cause its
Affiliates to, use its reasonable best efforts to cause the trustee of any
existing unit investment trust which is sponsored by Citigroup or one of its
Affiliates or for whom Citigroup or one of its Affiliates acts as depositor to
appoint Legg Mason as successor depositor to Citigroup of each such unit
investment trust. From and after the date hereof, Legg Mason shall not, and
shall not permit any of its Affiliates to, breach or otherwise violate (or cause
Legg Mason Limited to breach or otherwise violate) any of the provision of any
Consultancy Services Agreement to which Legg Mason Limited is a party.

 

(d) (i) In the event the terms of any CAM Lease requires the consent of any
third-party landlord to the consummation of the Transactions and, after using
commercially reasonable efforts, CAM is unable to obtain the consent of such
third-party landlord prior to Closing, the Parties shall cooperate in good faith
to develop an appropriate arrangement designed to convey to Legg Mason, to the
extent permitted by applicable Requirements of Law, the economic benefits, other
rights and associated Liabilities arising from the leasehold interest that would
otherwise have been provided to Legg Mason had such consent been obtained. Legg
Mason shall reasonably cooperate with Citigroup’s efforts to obtain any such
consents.

 

(ii) In the event the terms of any PC/CM Lease requires the consent of any
third-party landlord to the consummation of the Transactions and, after using
commercially reasonable, Legg Mason is unable to obtain the consent of such
third-party landlord prior to Closing, the Parties shall cooperate in good faith
to develop an appropriate arrangement designed to convey to Citigroup, to the
extent permitted by applicable Requirements of Law, the economic benefits, other
rights and associated Liabilities arising from the leasehold interest that would
otherwise have been provided to Citigroup had such consent been obtained.
Citigroup shall reasonably cooperate with Legg Mason’s efforts to obtain any
such consents.

 

(iii) Citigroup will use commercially reasonable efforts to obtain, prior to
Closing, landlord estoppel certificates from third-party landlords under no more
than ten (10) CAM Leases (as such CAM Leases shall be designated by Legg Mason).
Such estoppel certificates shall be dated not earlier than 90 days prior to
Closing and shall be in such form as Legg Mason shall reasonably request,
provided that the form of such landlord estoppel certificates shall be subject
to the terms of the applicable CAM Lease. In no event shall the failure of a
third-party landlord to deliver a landlord estoppel certificate in accordance
with the

 

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terms of this clause constitute a failure of any condition to Legg Mason’s
obligation to close in accordance with the terms of Section 7.2.

 

(iv) Legg Mason will use commercially reasonable efforts to obtain, prior to
Closing, landlord estoppel certificates from third-party landlords under no more
than ten (10) PC/CM Leases (as such PC/CM Leases shall be designated by
Citigroup). Such estoppel certificates shall be dated not earlier than 90 days
prior to Closing and shall be in such form as Citigroup shall reasonably
request, provided that the form of such landlord estoppel certificates shall be
subject to the terms of the applicable PC/CM Lease. In no event shall the
failure of a third-party landlord to deliver a landlord estoppel certificate in
accordance with the terms of this clause constitute a failure of any condition
to Citigroup’s obligation to close in accordance with the terms of Section 7.3.

 

(v) If after Closing, the tenant under any CAM Lease receives any refund from
the applicable landlord or is required to pay to the applicable landlord any
amount under such CAM Lease, which such refund or obligation to make such
payment, as applicable, accrued prior to Closing, then, in such case, such
refund shall be paid to CAM or CAM shall reimburse PC/CM for the applicable
payment (as applicable).

 

(vi) If after Closing, the tenant under any PC/CM Lease receives any refund from
the applicable landlord or is required to pay to the applicable landlord any
amount under such PC/CM Lease, which such refund or obligation to make such
payment, as applicable, accrued prior to Closing, then, in such case, such
refund shall be paid to Legg Mason or Legg Mason shall reimburse Citigroup for
the applicable payment (as applicable).

 

Section 6.9 Delivery of Certain Information.

 

(a) Between the date hereof and the Closing Date, each Party shall provide, or
cause to be provided, to the other Party, promptly following the end of each
calendar-month after the date hereof (but in no event later than the date
available to such Party or one of its Affiliates), true and complete copies of
monthly unaudited financial statements of the CAM Business and PC/CM Business,
as the case may be, in each case prepared using the accounting principles,
procedures, policies and methods used in preparing the CAM Base Balance Sheet or
the PC/CM Base Balance Sheet, as the case may be, including the types of
adjustments used in preparing such CAM Base Balance Sheet or PC/CM Base Balance
Sheet as set forth in the notes thereto, on a basis consistent with the CAM
Financial Information or the PC/CM Financial Information.

 

(b) Between the date hereof and the Closing Date, (i) Citigroup shall provide,
or cause to be provided, to Legg Mason, promptly following the end of each
calendar-month after the date hereof (but in any event not later than the date
available to Citigroup or one of its Affiliates), true and complete copies of
monthly reports of assets under management by the CAM Business and (ii) Legg
Mason shall provide, or cause to be provided, to Citigroup, promptly following
the end of each of each calendar month after the date hereof (but in any event
not later than the date available to Legg Mason or one of its Affiliates), true
and complete copies of generally prepared financial reporting packages.

 

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(c) No later than two Business Days prior to the Closing, Citigroup shall update
Sections 4.2(a), 4.7(c) and 4.7(d) of the Citigroup Disclosure Letter and Legg
Mason shall update Sections 5.2(a), 5.7(e) and 5.7(f) of the Legg Mason
Disclosure Letter, in each case to reflect the actions taken to effectuate the
CAM Restructuring and PC/CM Restructuring, respectively.

 

Section 6.10 Guaranties; Letters of Credit; Intercompany Agreements.

 

(a) (i) Except as provided otherwise in this Agreement, Legg Mason shall use its
reasonable best efforts to cause one or more of its Affiliates to be substituted
in all respects for any Citigroup Seller or any of its Affiliates (other than
the CAM Subsidiaries), effective as of the Closing, in respect of all
obligations of each such Citigroup Seller or its Affiliates (other than the CAM
Subsidiaries) under each of the guaranties, bonding arrangements, “keep wells”,
net worth maintenance agreements, letters of credit and letters of comfort
furnished by any such Citigroup Seller or its Affiliates (other than the CAM
Subsidiaries) for the benefit of the CAM Business (the “Citigroup Guaranties”).
All such Citigroup Guaranties are set forth in Section 6.10(a)(i) of the
Citigroup Disclosure Letter. If Legg Mason is unable to effect such a
substitution with respect to any Citigroup Guaranty after using its reasonable
best efforts to do so, Legg Mason shall, reimburse and hold harmless the
relevant Citigroup Sellers and their Affiliates (other than the CAM
Subsidiaries) with respect to the obligations covered by each of the Citigroup
Guaranties for which Legg Mason does not effect such substitution and shall pay,
or cause to be paid, any amounts due thereunder on demand, such that no
Citigroup Seller or its Affiliates (other than the CAM Subsidiaries) shall from
and after the Closing incur any cost, liability or expense whatsoever arising
from or in connection with the Citigroup Guaranties.

 

(ii) Except as provided otherwise in this Agreement, Citigroup shall use its
reasonable best efforts to cause one or more of its Affiliates to be substituted
in all respects for any Legg Mason Seller or any of its Affiliates (other than
the PC/CM Subsidiaries), effective as of the Closing, in respect of all
obligations of each such Legg Mason Seller or its Affiliates (other than the
PC/CM Subsidiaries) under each of the guaranties, bonding arrangements, “keep
wells”, net worth maintenance agreements, letters of credit and letters of
comfort furnished by any such Legg Mason Seller or its Affiliates (other than
PC/CM Subsidiaries) for the benefit of the PC/CM Business (the “Legg Mason
Guaranties”). All such Legg Mason Guaranties are set forth in Section
6.10(a)(ii) of the Legg Mason Disclosure Letter. If Citigroup is unable to
effect such a substitution with respect to any Legg Mason Guaranty after using
its reasonable best efforts to do so, Citigroup shall reimburse and hold
harmless the relevant Legg Mason Sellers and their Affiliates (other than the
PC/CM Subsidiaries) with respect to the obligations covered by each of the Legg
Mason Guaranties for which Citigroup does not effect such substitution and shall
pay, or cause to be paid, any amounts due thereunder on demand, such that no
Legg Mason Seller or its Affiliates (other than the PC/CM Subsidiaries) shall
from and after the Closing incur any cost, liability or expense whatsoever
arising from or in connection with the Legg Mason Guaranties.

 

(b) (i) Except as set forth in Section 6.10(b)(i) of the Citigroup Disclosure
Letter or as otherwise contemplated by this Agreement including Section 6.23,
Citigroup shall, and shall use its reasonable best efforts to cause its
Affiliates to, immediately prior to the Closing, execute and deliver such
releases, termination agreements and discharges as are necessary to

 

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terminate all Contracts (including any “service level agreements”) among any
Citigroup Seller or any Affiliate (other than a CAM Subsidiary), on one hand,
and any CAM Subsidiary, on the other hand.

 

(ii) Except as set forth in Section 6.10(b)(ii) of the Legg Mason Disclosure
Letter or as otherwise contemplated by this Agreement, Legg Mason shall, and
shall cause its Affiliates to, immediately prior to the Closing, execute and
deliver such releases, termination agreements and discharges as are necessary to
terminate all Contracts (including any “service level agreements”) among any
Legg Mason Seller or any Affiliate (other than any PC/CM Subsidiary), on one
hand, and any PC/CM Subsidiary, on the other hand.

 

Section 6.11 Names of Acquired Subsidiaries.

 

(a) As soon as practicable after the Closing (but in no event later than 20
Business Days thereafter), Legg Mason shall use its reasonable best efforts to
cause the name of each CAM Registered Investment Company and CAM Non-Registered
Fund, as applicable, and shall cause the certificate of incorporation (or
equivalent organizational documents) of each CAM Transferred Subsidiary to be
amended to remove any reference to the Citigroup Principal Marks or any other
Trademarks owned by Citigroup or any of its Affiliates from the name of such
Person, and within 90 days from the Closing, Legg Mason shall use its reasonable
best efforts to file the applicable documents relating thereto with the
appropriate Governmental Authorities, if required pursuant to the Requirements
of Law.

 

(b) As soon as practicable after the Closing (but in no event later than 20
Business Days thereafter), Citigroup shall cause the certificate of
incorporation (or equivalent organizational documents) of each PC/CM Transferred
Subsidiary to be amended to remove any reference to the Legg Mason Principal
Marks or any other Trademarks owned by Legg Mason or any of its Affiliates from
the name of such PC/CM Transferred Subsidiary, and within 90 days from the
Closing, Citigroup shall file the applicable documents relating thereto with the
appropriate Governmental Authorities, if required pursuant to the Requirements
of Law.

 

Section 6.12 Related Agreements. The Parties will negotiate in good faith the
terms of each of the Related Agreements consistent with the term sheets attached
hereto (if a term sheet is attached for the applicable Related Agreement) and on
other customary terms. On the Closing Date, each of the Parties and their
respective Affiliates shall enter into each of the Related Agreements to which
it is intended to be a party.

 

(a) Services Agreement. Prior to the Closing, Citigroup and Legg Mason each
shall use its reasonable best efforts to (i) identify the Services to be
provided under the Services Agreement, and to schedule such Services accordingly
and (ii) work together to develop mutually agreeable service levels with respect
to such Services.

 

(b) Transition Services Agreement. Prior to the Closing, Citigroup and Legg
Mason each shall use its reasonable best efforts to identify the CAM Services
and Citigroup Services to be provided under the Transition Services Agreement,
and shall schedule such Services accordingly.

 

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Section 6.13 Restructurings.

 

(a) Prior to the Closing, Citigroup shall cause the consummation of the
transactions and actions contemplated by Exhibit H (such transactions and
actions, the “CAM Restructuring”). For the avoidance of doubt, no Trademark
which includes the terms “CITI,” “SMITH BARNEY,” “SALOMON,” “CSSB,” “SB,”
“Uncommon Values,” “Uncommon Value” or “TRAVELERS” or any variation thereof or
the Arc, Blue Wave or Umbrella design (the “Citigroup Principal Marks”) shall be
owned by any CAM Transferred Subsidiary following the CAM Restructuring.

 

(b) Prior to the Closing, Legg Mason shall cause the consummation of the
transactions and actions contemplated by Exhibit I (such transactions and
actions, the “PC/CM Restructuring”). For the avoidance of doubt, no Trademark
which includes the term “Legg Mason” or any variation thereof or the Legg Mason
or LM design (the “Legg Mason Principal Marks”) shall be owned by any PC/CM
Transferred Subsidiary following the PC/CM Restructuring.

 

(c) The Parties agree that Section 6.13(c) of the Citigroup Disclosure Letter is
incorporated herein by reference and shall be binding as if set forth herein,
and the Parties agree to take all actions set forth in Section 6.13(c) of the
Citigroup Disclosure Letter.

 

Section 6.14 CAM Employee Matters.

 

(a) Prior to the Closing, to the extent permitted under Requirement of Law and
regulatory authority, Citigroup shall take all reasonable actions necessary such
that all the CAM Business Employees and only the CAM Business Employees shall be
employed by a CAM Subsidiary; provided, however, that Citigroup may cause the
transfer of employment of any CAM Non-Continuing Business Employee to any
Subsidiary of Citigroup other than a CAM Subsidiary (any such employee who is so
transferred, a “CAM Transferred Non-Continuing Business Employee”). No later
than 30 days prior to the Closing Date, Legg Mason shall offer employment to be
effective as of the Closing Date to each CAM Business Employee employed in the
United States (a “U.S. CAM Business Employee”), other than any U.S. CAM Business
Employee employed by a CAM Subsidiary and any CAM Non-Continuing Business
Employee, on terms and conditions such that the termination by Citigroup or any
of its Affiliates of such employee’s employment will not entitle such employee
to severance under Appendix C of the plan attached hereto as Section 6.14(a) of
the Citigroup Disclosure Letter (the “CAM Severance Plan”). In addition, no
later than 30 days prior to the Closing Date, Legg Mason shall offer employment
to be effective as of the Closing Date to each CAM Business Employee employed
outside of the United States (a “Non-U.S. CAM Business Employee”), other than
any Non-U.S. CAM Business Employee employed by a CAM Subsidiary and any CAM
Non-Continuing Business Employee, on terms and conditions which replicate (to
the extent (i) required by applicable local Requirement of Law and (ii)
practicable if Citigroup shall not have supplied to Legg Mason the information
described in Section 6.14(m) hereof) the terms and conditions in effect with
respect to such employee immediately prior to the Closing Date. Notwithstanding
the foregoing, to the extent permitted by applicable Requirement of Law, Legg
Mason may make its offer of employment contingent on (i) the CAM Business
Employee consenting to, cooperating with, and satisfying Legg Mason’s standard
new-employee on-boarding process, including background checks, fingerprinting
and drug testing; (ii) if applicable, the CAM Business Employee providing
evidence that complies with the Immigration and Reform Control Act of

 

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1986 that he or she is eligible for employment; and (iii) the CAM Business
Employee executing Legg Mason’s standard employment application, receipt and
acknowledgement of Legg Mason’s employee handbook (which includes, among other
things, Legg Mason’s Code of Conduct and Insider Trading Policy) and FCRA
Release as required by Legg Mason. Any CAM Business Employee who fails to comply
with any of such requirements is hereinafter referred to as an “Excluded CAM
Business Employee.” Each CAM Business Employee who either accepts such offer of
employment (other than an Excluded CAM Business Employee) or who is employed by
the CAM Subsidiaries as of the Closing Date is referred to herein as a “CAM
Continuing Business Employee.” Subject to Section 6.14(b), nothing in this
Agreement shall in any way limit the ability of Legg Mason or its Affiliates to
terminate the employment of any CAM Continuing Business Employee.

 

(b) If any CAM Business Employee who does not become a CAM Continuing Business
Employee in connection with the transactions contemplated by this Agreement
(other than any Excluded CAM Business Employee or any CAM Transferred
Non-Continuing Business Employee) becomes entitled to severance, redundancy or
other similar types of payments or benefits as a result of or in connection with
the Transactions (including salary paid in lieu of notice required by the WARN
Act as a result of or in connection with the Transactions), Legg Mason shall be
responsible (or shall reimburse Citigroup) for any such payments or benefits;
provided, however, that Legg Mason shall not be responsible for any such
payments or benefits provided to any individual not employed by a CAM Subsidiary
who receives an offer of employment from Legg Mason or one of its Affiliates,
which offer satisfies the requirements of Section 6.14(a). For a period
commencing on the Closing Date and ending on the first anniversary of the
Closing Date, Legg Mason shall provide (to the extent practicable in a manner
that complies with Section 409A of the Code) to each CAM Continuing Business
Employee whose employment is terminated by Legg Mason following the Closing Date
in a manner that would entitle such CAM Continuing Business Employee to
severance payments and benefits under the CAM Severance Plan (a “CAM Qualifying
Termination”), severance payments and benefits not less favorable than the
greater of the severance payments and benefits that would have been provided to
such CAM Continuing Business Employee under the severance provisions described
in Schedule 6.15(a)(ii) of the Legg Mason Disclosure Letter and the CAM
Severance Plan, as in effect on the date hereof, taking into account all service
with Legg Mason and its Affiliates from and after the Closing Date plus all
service recognized by Citigroup or one of its Affiliates prior to the Closing
Date.

 

(c) To the extent permitted by applicable Requirement of Law, prior to the first
anniversary of the Closing Date, Citigroup shall not, and shall not permit any
of its Affiliates to, directly or indirectly, solicit or offer employment to any
CAM Business Employee (including, but not limited to, Excluded CAM Business
Employees); provided that the foregoing provision shall not prohibit Citigroup
or any of its Affiliates from soliciting or offering employment to persons (i)
who respond to a general solicitation or advertisement that is not specifically
directed only to CAM Business Employees (and nothing shall prohibit the making
of any such solicitation or advertisement), (ii) who are referred to Citigroup
by search firms, employment agencies or other similar entities, provided that
such entities have been advised of the restrictions contained in this Agreement
and have not been specifically instructed by Citigroup to solicit the CAM
Business Employees, (iii) who incur a CAM Qualifying Termination, (iv) who are
CAM Non-Continuing Business Employees and (v) who are CAM Continuing Business
Employees who

 

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have been notified in writing by Legg Mason or one of its Affiliates that their
employment will be terminated prior to the first anniversary of the Closing Date
(“CAM Transitional Business Employees”). No offer of employment by Citigroup or
one its Affiliates to any CAM Transitional Business Employee shall be effective
prior to the employee’s last scheduled day of employment as specified in the
notice referred to in the previous sentence. Legg Mason shall, no later than 90
days following the date hereof, provide to Citigroup a list of those CAM
Business Employees whom Legg Mason has determined it does not intend to continue
to employ following the Closing Date (each, a “CAM Non-Continuing Business
Employee”).

 

(d) From the Closing Date through the first anniversary of the Closing Date,
Legg Mason shall provide, or shall cause to be provided, to the U.S. CAM
Business Employees who are also CAM Continuing Business Employees, as a group,
compensation and benefits that are no less favorable in the aggregate than those
provided to similarly situated employees of Legg Mason; provided, however, that
the determination of whether such compensation and benefits are no less
favorable shall not take into account (i) any defined benefit pension plan and
(ii) retiree medical benefits. From the Closing Date through the first
anniversary of the Closing Date, Legg Mason shall provide, or shall cause to be
provided, to each Non-U.S. CAM Business Employee who is also a CAM Continuing
Business Employee, base pay and benefits that are no less favorable than those
provided to such Non-U.S. CAM Business Employee immediately prior to the Closing
Date.

 

(e) Effective as of the Closing, Legg Mason shall (i) use reasonable efforts to
waive all limitations as to pre-existing conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
CAM Continuing Business Employees under any health and welfare plan of Legg
Mason or its Affiliates in which such CAM Continuing Business Employees may be
eligible to participate after the Closing, to the extent that such conditions,
exclusions and waiting periods would have been waived or satisfied under the
corresponding welfare plan in which any such CAM Continuing Business Employee
participated immediately prior to the Closing, (ii) use reasonable efforts to
cause to be provided to each CAM Continuing Business Employee credit for any
co-payments and deductibles paid prior to the Closing, in respect of the
calendar year in which the Closing Date occurs, in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans of Legg Mason
or its Affiliates in which such CAM Continuing Business Employees may be
eligible to participate after the Closing and (iii) cause to be provided to each
CAM Continuing Business Employee credit for all purposes (including eligibility,
vesting and amount of benefits), for all service recognized by Citigroup or its
Affiliates under the corresponding CAM Benefit Plan, under each employee benefit
plan, program or arrangement of Legg Mason or its Affiliates in which such CAM
Continuing Business Employees are eligible to participate after the Closing;
provided, however, that in no event shall the CAM Continuing Business Employees
be entitled to service credit to the extent that such service credit would
result in a duplication of benefits with respect to the same period of service.

 

(f) Without in any way limiting the provisions of Section 6.15(d), as of the
Closing Date, Legg Mason shall cause each CAM Continuing Business Employee to be
credited under the Health Care Flexible Spending Account Plan of Legg Mason or
any Affiliate of Legg Mason (the “Legg Mason FSA”) with amounts available for
reimbursement between the Closing Date and the end of the calendar year in which
the Closing Date occurs equal to such amounts as

 

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were credited under the Health Care Flexible Spending Account Plan of Citigroup
or any Affiliate of Citigroup (the “Citigroup FSA”) with respect to such CAM
Continuing Business Employee immediately prior to the Closing Date. Legg Mason
shall give effect under Legg Mason’s FSA to elections made by the CAM Continuing
Business Employees with respect to the Citigroup’s FSA in respect of the
calendar year in which the Closing Date occurs.

 

(g) Without in any way limiting the provisions of Section 6.15(d), as of the
Closing Date, Legg Mason shall cause each CAM Continuing Business Employee to be
credited under the Dependent Care Spending Account Plan of Legg Mason or any
Affiliate of Legg Mason (the “Legg Mason DCAP”) with amounts available for
reimbursement between the Closing Date and the last day of the year in which the
Closing Date occurs equal to such amounts as were credited under the Dependent
Care Spending Account Plan of Citigroup or any Affiliate of Citigroup (the
“Citigroup DCAP”) with respect to such CAM Continuing Business Employee
immediately prior to the Closing Date. Legg Mason shall give effect under the
Legg Mason DCAP to elections made by the CAM Continuing Business Employees with
respect to the Citigroup DCAP in respect of the calendar year in which the
Closing Date occurs.

 

(h) Effective as of the Closing Date, no CAM Continuing Business Employee shall
actively participate in the Citigroup 401(k) Plan. Effective as of the Closing
Date, CAM Continuing Business Employees who participate in the Citigroup 401(k)
Plan (the “CAM 401(k) Participants”) shall immediately be 100% vested in their
individual account balances under the Citigroup 401(k) Plan. Following the
Closing Date, such account balances may be transferred by the CAM 401(k)
Participants to the Legg Mason 401(k) and Profit Sharing Plan (the “Legg Mason
401(k) Plan”) in a rollover contribution. Prior to the Closing Date, Legg Mason
shall, to the extent necessary, amend the Legg Mason 401(k) Plan to the extent
necessary to enable CAM 401(k) Participants to make rollover contributions to
the Legg Mason 401(k) Plan, which, only in the case of a CAM 401(k) Participant
who rolls over his or her account balance within 90 days following the Closing
Date, may include any outstanding loans from the Citigroup 401(k) Plan.
Effective as of the Closing Date, Citigroup shall fully vest each CAM Continuing
Business Employee in his or her accrued benefit under the Citigroup Pension
Plan.

 

(i) Citigroup shall cause all CAM Continuing Business Employees who participate
in the Citigroup 401(k) Plan as of the Closing Date to receive a pro rata
matching contribution, at the rate specified in the Citigroup 401(k) Plan for
the plan year that includes the Closing Date, which matching contribution shall
otherwise be made in accordance with the terms of the Citigroup 401(k) Plan.

 

(j) Legg Mason shall be obligated to pay CAM Continuing Business Employees
entitled to annual bonuses under each of the CAM Benefit Plans that provide for
payment of annual bonuses (which CAM Benefit Plans are listed on Schedule
6.14(j) of the Citigroup Disclosure Letter) the annual bonuses for (i) the bonus
year of the CAM Subsidiaries that includes the Closing Date (the “Current CAM
Bonus Year”) and (ii) the bonus year of the CAM Subsidiaries completed prior to
Current CAM Bonus Year (the “Prior CAM Bonus Year”), if not previously paid. The
liability for the pro rata portion of the annual bonuses that Legg Mason is
obligated to pay for the Current CAM Bonus Year shall be included on the
Citigroup Estimated Closing Date Balance Sheet and the Citigroup Final Closing
Date Balance Sheet. The liability for the pro rata portion described in the
preceding sentence shall be the amount determined

 

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under the annual bonus plans and formulas of Citigroup in effect on the date of
this Agreement. A liability for annual bonuses Legg Mason may be obligated to
pay for the Prior CAM Bonus Year, if any, shall be included on the Citigroup
Estimated Closing Date Balance Sheet and the Citigroup Final Closing Date
Balance Sheet, and shall be the amount determined by Citigroup under the annual
bonus plans and formulas of Citigroup in effect during such year. The actual
amount of the annual bonuses to be paid (or vested, but payable in the future)
by Legg Mason to CAM Continuing Business Employees for the Current CAM Bonus
Year and, if applicable, the Prior CAM Bonus Year, shall be made in a manner, to
the extent practicable, that complies with Section 409A of the Code and in no
event be less than the amount of the liability calculated pursuant to this
Section 6.14(j). Citigroup agrees to consult in a reasonable and timely manner
with Legg Mason in respect of the amount of any prior bonuses and annual bonuses
payable to U.S. CAM Business Employees who are reasonably expected to become CAM
Continuing Business Employees for the bonus year, if any, of the CAM
Subsidiaries that ends after the date of this Agreement but prior to the Closing
Date.

 

(k) Effective immediately prior to the Closing, Citigroup shall in a manner, to
the extent practicable, that complies with Section 409A of the Code, cause each
unvested stock option to purchase shares of Citigroup common stock that was
granted to a CAM Business Employee pursuant to each of the CAM Benefit Plans
listed on Schedule 6.14(k) of the Citigroup Disclosure Letter (other than a CAM
Transferred Non-Continuing Business Employee) to become fully vested, and once
fully vested, such stock option shall remain exercisable in accordance with its
terms.

 

(l) In respect of each CAM Continuing Business Employee who, as a result of the
Closing, forfeits (i) Citigroup restricted shares, phantom shares, or deferred
stock units that were granted pursuant to any of the CAM Benefit Plans listed on
Schedule 6.14(l)(i) (each, a “CAM Forfeited Equity Award”) and/or (ii) any
portion of his or her account under the CAM Deferred Incentive Plan (such
portion, the “Forfeited DIP Account”), Legg Mason shall establish, in a manner,
to the extent practicable, that complies with Section 409A of the Code effective
as of the Closing Date, one or more replacement awards. Each replacement award
granted in respect of a CAM Forfeited Equity Award that it replaces shall be
made in or denominated in shares of Legg Mason common stock or another notional
investment alternative with a value equal to the value of the shares underlying
the CAM Forfeited Equity Award and shall otherwise contain terms and conditions
that are no less favorable to the CAM Continuing Business Employee than those
that would have applied if the CAM Forfeited Equity Award had continued to
remain outstanding. Similarly, each replacement award granted in respect of a
Forfeited DIP Account shall have a cash value (which may be denominated in stock
or notional alternative investments, as determined by Legg Mason in its
discretion) equal to the cash value of the Forfeited DIP Account on the first
business day immediately preceding the Closing Date if such account had vested
and been paid in accordance with the CAM Deferred Incentive Plan and shall
otherwise contain terms and conditions that are no less favorable to the CAM
Continuing Business Employee than those that would have applied if the employee
had continued in employment with Citigroup or one of its Affiliates. For the
purposes of each replacement award, to the extent applicable, service with
Citigroup and its Affiliates shall be considered to be service with Legg Mason
and its Affiliates for periods on and after the Closing Date. On the Closing
Date prior to the Closing, Citigroup shall contribute to the capital of the CAM
Subsidiaries an amount equal to the sum of the aggregate value on the Closing
Date of the replacement awards granted in respect

 

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of the CAM Forfeited Equity Awards and the Forfeited DIP Accounts (such sum, the
“Citigroup Continuing Deferred Compensation Amount”).

 

(m) No later than sixty (60) days after the date hereof, to the extent permitted
by Requirement of Law, the Citigroup shall deliver to Legg Mason the name,
social security (or similar foreign term), home address, home telephone number,
current annual salary rates, bonuses, deferred or contingent compensation,
accrued vacation, and other like benefits paid or payable (in cash or
otherwise), date of employment and job title of each CAM Continuing Business
Employee. Citigroup shall use reasonable efforts to update the information
provided pursuant the foregoing sentence as reasonably requested by Legg Mason.

 

As soon as reasonably practicable following the date hereof, and in any event
not later than sixty (60) days following the date hereof, Citigroup shall use
reasonable efforts to provide Legg Mason with a list of each of the CAM Foreign
Benefit Plans and (in each case, only if applicable) (i) each trust or other
funding arrangement related for each such plan, and (ii) each summary plan
description and summary of material modifications for each such plan.

 

Section 6.15 PC/CM Employee Matters.

 

(a) Prior to the Closing, to the extent permitted under Requirement of Law and
regulatory authority, Legg Mason shall take all reasonable actions necessary
such that all the PC/CM Business Employees and only the PC/CM Business Employees
shall be employed by a PC/CM Subsidiary; provided, however, that Legg Mason may
cause the transfer of employment of any PC/CM Non-Continuing Business Employee
to any Subsidiary of Legg Mason other than a PC/CM Subsidiary (any such employee
who is so transferred, a “PC/CM Transferred Non-Continuing Business Employee”).
No later than 30 days prior to the Closing Date, Citigroup shall offer
employment to be effective as of the Closing Date to each PC/CM Business
Employee employed in the United States (a “U.S. PC/CM Business Employee”), other
than any U.S. PC/CM Business Employee employed by a PC/CM Subsidiary and any
PC/CM Non-Continuing Business Employee, on terms and conditions such that the
termination by Legg Mason or any of its Affiliates of such employee’s employment
would not entitle such employee to severance under Appendix F of the CAM
Severance Plan (if such employee was an eligible salaried participant in such
plan). In addition, no later than 30 days prior to the Closing Date, Citigroup
shall offer employment to be effective as of the Closing Date to each PC/CM
Business Employee employed outside of the United States (a “Non-U.S. PC/CM
Business Employee”), other than any Non-U.S. PC/CM Business Employee employed by
a PC/CM Subsidiary and any PC/CM Non-Continuing Business Employee, on terms and
conditions which replicate (to the extent required by applicable local
Requirement of Law) the terms and conditions in effect with respect to such
employee immediately prior to the Closing Date. Notwithstanding the foregoing,
to the extent permitted by applicable Requirement of Law, Citigroup may make its
offer of employment contingent on (i) the PC/CM Business Employee consenting to,
cooperating with, and satisfying Citigroup’s standard new-employee on-boarding
process, including background checks, fingerprinting and drug testing; (ii) if
applicable, the PC/CM Business Employee providing evidence that complies with
the Immigration and Reform Control Act of 1986 that he or she is eligible for
employment; and (iii) the PC/CM Business Employee executing Citigroup’s standard
Principles of Employment, confidentiality, Code of Conduct, arbitration and
conflict of interest agreements as required by Citigroup. Any PC/CM Business
Employee who fails to

 

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comply with any of such requirements is hereinafter referred to as an “Excluded
PC/CM Business Employee.” Each PC/CM Business Employee who either accepts such
offer of employment (other than an Excluded PC/CM Business Employee) or who is
employed by the PC/CM Subsidiaries as of the Closing Date is referred to herein
as a “PC/CM Continuing Business Employee.” Subject to Section 6.15(b), nothing
in this Agreement shall in any way limit the ability of Citigroup or its
Affiliates to terminate the employment of any PC/CM Continuing Business
Employee.

 

(b) If any PC/CM Business Employee who does not become a PC/CM Continuing
Business Employee in connection with the transactions contemplated by this
Agreement (other than any Excluded PC/CM Business Employee or any PC/CM
Transferred Non-Continuing Business Employee) becomes entitled to severance,
redundancy or other similar types of payments or benefits as a result of or in
connection with the Transactions (including salary paid in lieu of notice
required by the WARN Act as a result of or in connection with the Transactions),
Citigroup shall be responsible (or shall reimburse Legg Mason) for any such
payments or benefits; provided, however, that Citigroup shall not be responsible
for any such payments or benefits provided to any individual not employed by a
PC/CM Subsidiary who receives an offer of employment from Citigroup or one of
its Affiliates, which offer satisfies the requirements of Section 6.15(a) (such
individual, a “PC/CM Non-Accepting Business Employee”). For a period commencing
on the Closing Date and ending on the first anniversary of the Closing Date,
Citigroup shall provide (to the extent practicable, in a manner that complies
with Section 409A of the Code) to each PC/CM Continuing Business Employee (other
than a PC/CM Continuing Business Employee who is employed on a part-time,
temporary or contractual basis) whose employment is terminated by Citigroup
following the Closing Date in a manner that would entitle such PC/CM Continuing
Business Employee to severance payments and benefits under the CAM Severance
Plan (a “PC/CM Qualifying Termination”), severance payments and benefits not
less favorable than the greater of the severance provisions described in
Schedule 6.15(a)(ii) of the Legg Mason Disclosure Schedule or the severance
payments and benefits for eligible salaried employees under Appendix F to the
CAM Severance Plan, as in effect on the date hereof, taking into account all
service with Citigroup and its Affiliates from and after the Closing Date plus
all service recognized by Legg Mason or one of its Affiliates prior to the
Closing Date; provided, however, that Citigroup shall indemnify Legg Mason to
the extent Legg Mason is required to make any payments or provide any benefits
to any PC/CM Business Employee, other than a PC/CM Non-Accepting Business
Employee, for any severance entitlements in excess of those contemplated by this
Section 6.15(b) in connection with any such termination of employment. Legg
Mason shall indemnify Citigroup to the extent Citigroup is required to make any
payments or provide any benefits pursuant to a severance plan or policy of Legg
Mason or any of its Affiliates in effect prior to the Closing on account of the
deemed termination of employment of a PC/CM Business Employee employed by a
PC/CM Subsidiary with Legg Mason and its Affiliates on the Closing Date.

 

(c) To the extent permitted by applicable Requirement of Law, prior to the first
anniversary of the Closing Date, Legg Mason shall not, and shall not permit any
of its Affiliates to, directly or indirectly, solicit or offer employment to any
PC/CM Business Employee (including, but not limited to, Excluded PC/CM Business
Employees); provided that the foregoing provision shall not prohibit Legg Mason
or any of its Affiliates from soliciting or offering employment to persons (i)
who respond to a general solicitation or advertisement that is

 

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not specifically directed only to PC/CM Business Employees (and nothing shall
prohibit the making of any such solicitation or advertisement), (ii) who are
referred to Legg Mason by search firms, employment agencies or other similar
entities, provided that such entities have been advised of the restrictions
contained in this Agreement and have not been specifically instructed by Legg
Mason to solicit the PC/CM Business Employees, (iii) who incur a PC/CM
Qualifying Termination, (iv) who are PC/CM Non-Continuing Business Employees and
(v) who are PC/CM Continuing Business Employees who have been notified in
writing by Citigroup or one of its Affiliates that their employment will be
terminated prior to the first anniversary of the Closing Date (the “PC/CM
Transitional Business Employees”). No offer of employment by Legg Mason or one
of its Affiliates to any PC/CM Transitional Business Employee shall be effective
prior to the employee’s last scheduled day of employment as specified in the
notice referred to in the previous sentence. Citigroup shall, no later than 90
days following the date hereof, provide to Legg Mason a list of those PC/CM
Business Employees whom Citigroup has determined it does not intend to continue
to employ following the Closing Date (a “PC/CM Non-Continuing Business
Employee”).

 

(d) From the Closing Date through the first anniversary of the Closing Date,
Citigroup shall provide, or shall cause to be provided, to the U.S. PC/CM
Business Employees who are also PC/CM Continuing Business Employees, as a group,
compensation and benefits that are no less favorable in the aggregate than those
provided to similarly situated employees of Citigroup; provided, however, that
the determination of whether such compensation and benefits are no less
favorable shall not take into account (i) any defined benefit pension plan which
does not admit new participants and (ii) retiree medical benefits. From the
Closing Date through the first anniversary of the Closing Date, Citigroup shall
provide, or shall cause to be provided, to each Non-U.S. PC/CM Business Employee
who is also a PC/CM Continuing Business Employee, base pay and benefits that are
no less favorable than those provided to such Non-U.S. PC/CM Business Employee
immediately prior to the Closing Date.

 

(e) Effective as of the Closing, Citigroup shall use (i) reasonable effort to
waive all limitations as to pre-existing conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
PC/CM Continuing Business Employees under any health and welfare plan of
Citigroup or its Affiliates in which such PC/CM Continuing Business Employees
may be eligible to participate after the Closing, to the extent that such
conditions, exclusions and waiting periods would have been waived or satisfied
under the corresponding welfare plan in which any such PC/CM Continuing Business
Employee participated immediately prior to the Closing, (ii) use reasonable
efforts to cause to be provided to each PC/CM Continuing Business Employee
credit for any co-payments and deductibles paid prior to the Closing, in respect
of the calendar year in which the Closing Date occurs, in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans of
Citigroup or its Affiliates in which such PC/CM Continuing Business Employees
may be eligible to participate after the Closing and (iii) cause to be provided
to each PC/CM Continuing Business Employee credit for all purposes (including
eligibility, vesting and amount of benefits), for all service recognized by Legg
Mason or its Affiliates under the corresponding PC/CM Benefit Plan, under each
employee benefit plan, program or arrangement of Citigroup or its Affiliates in
which such PC/CM Continuing Business Employees are eligible to participate after
the Closing; provided, however, that in no event shall the PC/CM Continuing
Business

 

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Employees be entitled to service credit to the extent that such service credit
would result in a duplication of benefits with respect to the same period of
service.

 

(f) Without in any way limiting the provisions of Section 6.15(d), as of the
Closing Date, Citigroup shall cause each PC/CM Continuing Business Employee to
be credited under the Citigroup FSA with amounts available for reimbursement
between the Closing Date and the end of the calendar year in which the Closing
Date occurs equal to such amounts as were credited under the Legg Mason FSA with
respect to such PC/CM Continuing Business Employee immediately prior to the
Closing Date. Citigroup shall give effect under Citigroup’s FSA to elections
made by the PC/CM Continuing Business Employees with respect to the Legg Mason’s
FSA in respect of the calendar year in which the Closing Date occurs.

 

(g) Without in any way limiting the provisions of Section 6.15(d), as of the
Closing Date, Citigroup shall cause each PC/CM Continuing Business Employee to
be credited under the Citigroup DCAP with amounts available for reimbursement
between the Closing Date and the last day of the year in which the Closing Date
occurs equal to such amounts as were credited under the Legg Mason DCAP with
respect to such PC/CM Continuing Business Employee immediately prior to the
Closing Date. Citigroup shall give effect under the Citigroup DCAP to elections
made by the PC/CM Continuing Business Employees with respect to the Legg Mason
DCAP in respect of the calendar year in which the Closing Date occurs.

 

(h) Prior to the Closing Date, Legg Mason Sellers shall take all actions
necessary to (i) terminate the status of Legg Mason Wood Walker as the
“sponsoring employer” under the Legg Mason Wood Walker 401(k) Plan and (ii)
cause the Legg Mason Wood Walker 401(k) Plan and related trust to be transferred
to, and assumed by (including all Liabilities relating thereto) Legg Mason or a
Subsidiary of Legg Mason (other than a PC/CM Subsidiary). Effective as of the
Closing Date, no PC/CM Continuing Business Employee shall actively participate
in the Legg Mason 401(k) Plan. Effective as of the Closing Date, PC/CM
Continuing Business Employees who participate in the Legg Mason 401(k) Plan (the
“PC/CM 401(k) Participants”) shall immediately be 100% vested in their
individual account balances under the Legg Mason 401(k) Plan. Following the
Closing Date, such account balances may be transferred by the PC/CM 401(k)
Participants to the Citigroup 401(k) Plan in a rollover contribution. Prior to
the Closing Date, Citigroup shall amend the Citigroup 401(k) Plan to the extent
necessary to enable the PC/CM 401(k) Participants to make rollover contributions
to the Citigroup 401(k) Plan, which, only in the case of a PC/CM 401(k)
Participant who rolls over his or her account balance within 90 days following
the Closing Date, may include any outstanding loans from the Legg Mason 401(k)
Plan.

 

(i) Legg Mason shall cause all PC/CM Continuing Employees who participate in the
Legg Mason 401(k) Plan as of the Closing Date to receive a pro rata matching and
profit sharing contribution, as applicable, at the rate specified in such Legg
Mason 401(k) Plan for the plan year that includes the Closing Date, which
matching and profit sharing contribution, as applicable, shall be made otherwise
in accordance with the terms of the Legg Mason 401(k) Plan.

 

(j) Citigroup shall be obligated to pay PC/CM Continuing Business Employees
entitled to annual bonuses under each of the PC/CM Benefit Plans that provide
for payment of annual bonuses (which PC/CM Benefit Plans are listed on Schedule
6.15(j) to the Legg Mason

 

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Disclosure Letter) the annual bonuses for (i) the bonus year of the PC/CM
Subsidiaries that includes the Closing Date (the “Current PC/CM Bonus Year”) and
(ii) the bonus year of the PC/CM Subsidiaries completed prior to the Current
PC/CM Bonus Year (the “Prior PC/CM Bonus Year”), if not previously paid. A
liability for the pro rata portion of the annual bonuses that Citigroup is
obligated to pay for the Current PC/CM Bonus Year shall be included on the Legg
Mason Estimated Closing Date Balance Sheet and the Legg Mason Final Closing Date
Balance Sheet. The liability for the pro rata portion described in the preceding
sentence shall be the aggregate amount of the annual bonus pool available for
payment to the PC/CM Continuing Employees based upon performance measured during
the Current PC/CM Bonus Year through the most practicable date prior to the
Closing Date. A liability for annual bonuses Citigroup may be obligated to pay
for the Prior PC/CM Bonus Year, if any, shall be included on the Legg Mason
Estimated Closing Date Balance Sheet, and the Legg Mason Final Closing Date
Balance Sheet, and shall be based on performance during the Prior PC/CM Bonus
Year. The actual amount of the annual bonuses to be paid (or vested, but payable
in the future) by Citigroup to PC/CM Continuing Business Employees for the
Current PC/CM Bonus Year and, if applicable, the Prior PC/CM Bonus Year, shall
be made in a manner, to the extent practicable, that complies with Section 409A
of the Code and in no event be less than the amount of the liability calculated
pursuant to this Section 6.15(j). Legg Mason agrees to consult in a reasonable
and timely manner with Citigroup in respect of the amount of any prior bonuses
and annual bonuses payable to U.S. PC/CM Business Employees who are reasonably
expected to become PC/CM Continuing Business Employees for the bonus year, if
any, of the PC/CM Subsidiaries that ends after the date of this Agreement but
prior to the Closing Date.

 

(k) Effective immediately prior to the Closing, Legg Mason shall in a manner, to
the extent practicable, that complies with Section 409A of the Code, (i) cause
each unvested stock option to purchase shares of Legg Mason common stock that
was granted to a PC/CM Business Employee (other than to a PC/CM Transferred
Non-Continuing Business Employee) pursuant to each of the Legg Mason Benefit
Plans and PC/CM Benefit Plans listed on Schedule 6.15(k)(i) of the Legg Mason
Disclosure Letter that is outstanding immediately prior to the Closing to become
fully vested, and once vested, such stock option shall remain exercisable in
accordance with its terms and (ii) cause each outstanding share of restricted
Legg Mason common stock and each phantom stock unit that was granted to a PC/CM
Business Employee (other than to a PC/CM Transferred Non-Continuing Business
Employee) pursuant to each of the PC/CM Benefit Plans listed on Schedule
6.15(k)(ii) of the Legg Mason Disclosure Letter the restrictions of which have
not lapsed or have vested, as the case may be, immediately prior to the Closing
to become fully vested and paid on the Closing Date. Prior to the Closing Date,
Legg Mason shall assume the LMWW Deferred Compensation/Phantom Stock Plan and
all Liabilities thereunder.

 

(l) Prior to the Closing Date, Legg Mason shall in a manner, to the extent
practicable, that complies with Section 409A of the Code, to the extent
necessary, amend each of the PC/CM Subsidiaries Benefit Plans listed on Schedule
6.15(l) of the Legg Mason Disclosure Letter (the “PC/CM Retention Plans”) to
provide for the accelerated vesting and payout on the Closing Date (to the
extent not previously paid) of the Accelerated Portion (as defined below) of the
account balances under the PC/CM Retention Plans of the PC/CM Continuing
Business Employees. It is the intent of the Parties that, on and after the
Closing Date, PC/CM Continuing Business Employees shall continue to vest in the
portion of their account balances under each of

 

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the PC/CM Retention Plans that does not constitute the Accelerated Portion (the
“Retention Portion”) in accordance with the terms and provisions of each such
plan and that the Retention Portion not be distributed to PC/CM Continuing
Business Employees on the Closing Date. The Accelerated Portion shall mean the
portion of the accounts for PC/CM Continuing Business Employees that are
scheduled to vest or have previously vested under the current terms of the PC/CM
Retention Plans on or prior to January 1, 2007. Effective as of the Closing
Date, Citigroup shall take such actions as shall be reasonably necessary to
establish, or cause to be established, one or more mirror plans to replace the
PC/CM Retention Plans (the “Citigroup Replacement Retention Plans”) and shall
take such actions as shall be reasonably necessary to cause each such Citigroup
Replacement Retention Plan to assume on the Closing Date all of the obligations
and liabilities for the Retention Portion with respect to PC/CM Continuing
Business Employees under the PC/CM Retention Plans such that such Citigroup
Replacement Retention Plans shall contain terms and conditions that are no less
favorable to a PC/CM Continuing Business Employee than those that applied under
the PC/CM Retention Plans, except that (i) service with Citigroup and its
Affiliates shall be substituted under the Citigroup Replacement Retention Plans
for service with Legg Mason and its Affiliates for periods on and after the
Closing Date and (ii) common stock of Citigroup or another notional investment
alternative, as determined by Citigroup in its sole discretion, may be
substituted on the Closing Date for common stock of Legg Mason under the
Citigroup Replacement Retention Plans. Prior to the Closing Date, Legg Mason
shall cause (i) each of the PC/CM Retention Plans to be amended, and shall take
such other action as shall be reasonably necessary, to provide for the transfer
on the Closing Date of the liabilities in respect of the Retention Portion for
PC/CM Continuing Employees under the PC/CM Retention Plans to the Citigroup
Replacement Retention Plans and, upon such transfer of liabilities, to cause the
PC/CM Retention Plans to terminate effective as of the Closing Date, and (ii)
the Legg Mason Wood Walker Deferred Compensation Trust established in connection
with PC/CM Retention Plans to be transferred to Legg Mason or a Subsidiary of
Legg Mason (other than a PC/CM Subsidiary). No assets of the Legg Mason Wood
Walker Deferred Compensation Trust shall be transferred to Citigroup or any
Subsidiary of Citigroup in connection with the assumption by the Citigroup
Replacement Retention Plans of the obligations and liabilities with respect to
PC/CM Continuing Business Employees under the PC/CM Retention Plans. It is the
intent of the parties that no assets of Legg Mason Wood Walker Deferred
Compensation Trust be applied to pay benefits to PC/CM Continuing Business
Employees under the Citigroup Replacement Retention Plans or the PC/CM Retention
Plans on and after the Closing Date and, to the extent any such assets are
transferred or applied to the payment of such benefit on or after the Closing
Date, Citigroup shall promptly make a cash payment to Legg Mason equal to the
value of the assets so applied. On the Closing Date prior to the Closing, Legg
Mason shall contribute to the capital of the PC/CM Subsidiary an amount equal to
the aggregate value on the Closing Date of the Retention Portion of the PC/CM
Continuing Business Employees (the “Legg Mason Continuing Deferred Compensation
Amount”).

 

(m) No later than sixty days after the date hereof, to the extent permitted by
Requirement of Law, the Legg Mason shall deliver to Citigroup the name, social
security (or similar foreign term), home address, home telephone number, current
annual salary rates, bonuses, deferred or contingent compensation, accrued
vacation, and other like benefits paid or payable (in cash or otherwise), date
of employment and job title of each PC/CM Continuing

 

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Business Employee. Legg Mason shall use reasonable efforts to update the
information provided pursuant the foregoing sentence as reasonably requested by
Citigroup.

 

Section 6.16 Stock Exchange Listing. Legg Mason shall use its reasonable best
efforts to cause the shares of Legg Mason Common Stock comprising the Legg Mason
Shares (including the shares of Legg Mason Common Stock issuable upon exercise
of the Legg Mason Preferred Stock to be issued and delivered to Citigroup in
accordance with Section 1.2) to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Closing Date.

 

Section 6.17 Citigroup Non-Competition.

 

(a) Citigroup agrees that, during the Citigroup Restricted Period, within the
Citigroup Territory, it shall not, and shall cause each of its controlled
Affiliates not to, engage in the Citigroup Restricted Activities except on the
terms and conditions set forth herein. Nothing in this Section 6.17 shall
restrict Citigroup or its controlled Affiliates (for purposes of this Section
6.17 and Section 6.18, collectively, “Citigroup”) from conducting or engaging in
the Citigroup Permitted Activities or any other business activities of any kind
or nature other than the Citigroup Restricted Activities.

 

(b) As used in this Section 6.17, the term:

 

(i) “Citigroup Permitted Activities” means engaging in (a) any business
activities of any kind or nature currently engaged in by Citigroup after giving
effect to the Closing and (b) any current or future business activities relating
to the offering, distribution or management (as adviser, subadviser or
otherwise) of funds of funds (including of hedge funds, private equity funds and
mutual funds), mutual funds if such mutual funds are ancillary or otherwise
incidental to any non-mutual fund business of Citigroup, the TRAK product and
products similar to the TRAK product, and any current or future activities of
Citigroup Alternative Investments;

 

(ii) “Citigroup Restricted Activities” means engaging in the business of (a)
acting as investment adviser or subadviser to a Citigroup sponsored U.S.
registered retail mutual fund or offshore fund in the Legg Mason Territory
having investment objectives and/or strategies of the same style as a mutual
fund or offshore fund, as the case may be, in the Legg Mason family of funds or
any of the Citigroup funds included in the CAM Business; and (b) acting as an
investment adviser or subadviser to institutional separate accounts or
institutional mutual funds to the extent they involve any of the following
strategies: (w) Institutional Liquidity, (x) Institutional Fixed Income and
Equity (including Emerging Markets) or (y) Institutional Systematic Equity;

 

(iii) “Citigroup Restricted Period” means the period beginning on the Closing
Date and ending on the fourth anniversary of the Closing Date with respect to
the Citigroup Restricted Activities referred to in clause (a) of the definition
thereof and the second anniversary of the Closing Date with respect to the
Citigroup Restricted Activities referred to in clause (b) of such definition;
provided that in no event shall any acquisition or conduct of a Citigroup Target
Business subsequent to the third anniversary of the Closing Date constitute a

 

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Citigroup Restricted Activity; provided, further, that the Citigroup Restricted
Period shall in no event exceed the maximum time period allowed under
Requirements of Law; and

 

(iv) “Citigroup Territory” means the United States and those jurisdictions
outside of the United States set forth in Section 6.17(b)(i) of the Citigroup
Disclosure Letter; provided, however, that Mexico, Korea or both, as the case
may be, shall be deemed to be included within the “Citigroup Territory” upon
consummation of the acquisition of the CAM Business (disregarding the otherwise
applicable exclusion in clause (a) or (b) of such definition) in Mexico, Korea
or both pursuant to the right of first offer set forth in Section 6.17(b)(ii) of
the Citigroup Disclosure Letter with respect to the applicable country.

 

(c) Notwithstanding anything in this Section 6.17 to the contrary, Citigroup
shall not be deemed to have breached its obligations under this Section 6.17
with respect to any Citigroup Restricted Activities covered by clause (b) of the
definition thereof unless Citigroup’s advisory fee revenues from the investment
product in question within the Citigroup Territory exceed 40% of the advisory
fee revenues of Legg Mason from the competing product of Legg Mason with respect
to any fiscal year and, in such case, Citigroup shall have failed to pay to Legg
Mason in respect of any such year during the Citigroup Restricted Period an
amount equal to 10% of the amount by which Citigroup’s revenues from such
product within the Citigroup Territory for the year in question exceed such 40%
threshold.

 

(d) Notwithstanding anything in this Section 6.17 to the contrary, Citigroup
may, during the Citigroup Restricted Period, (i) acquire control of a Person
(the “Citigroup Target Business”) that includes operations that generate
revenues from the business of advising or subadvising mutual funds, offshore
funds or institutional separate accounts that are no greater than 20% of the
consolidated annual revenues of such Citigroup Target Business, in the case of a
Citigroup Target Business based in the United States, or 35%, of such revenues,
in the case of a Citigroup Target Business based outside the United States, in
each case based on an average of its most recently completed three years
preceding such acquisition, or (ii) acquire control of any Citigroup Target
Business that includes operations that generate revenues of such kinds greater
than 20%, in the case of a Citigroup Target Business based in the United States,
or 35% in the case of a Citigroup Target Business based outside the United
States, as the case may be, but not more than 50% of the consolidated annual
revenues of the Citigroup Target Business, in each case based on an average of
the most recently completed three years preceding such acquisition (a “Citigroup
Competitive Business”); provided that in the event of such acquisition by
Citigroup of any such Citigroup Competitive Business pursuant to clause (ii) of
this Section 6.17(d), Citigroup shall comply with the procedures set forth in
Section 6.17(c) of the Citigroup Disclosure Letter.

 

(e) Citigroup acknowledges that its covenants set forth in this Section 6.17 are
an essential element of this Agreement and that, but for the agreement of
Citigroup to comply with these covenants, Legg Mason would not have entered into
this Agreement. In the event of a breach of this Section 6.17, Citigroup agrees
that damages at law will be an insufficient remedy to Legg Mason and its
Affiliates, and Legg Mason may, in addition to other rights and remedies
existing in its favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof, in each case without proof of actual
damages. If any part of Citigroup’s covenants in this

 

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Section 6.17 are found to be invalid, void or unenforceable in any situation in
any jurisdiction by a final determination of a court or any other Governmental
Authority of competent jurisdiction, Citigroup and Legg Mason agree that such
determination shall not affect the validity or enforceability of (i) the
offending term or provision in any other situation or in any other jurisdiction
and (ii) the remaining terms and provisions of this Section 6.17 in any
situation in any jurisdiction.

 

Section 6.18 Legg Mason Non-Competition.

 

(a) Legg Mason agrees that (i) during the Legg Mason Restricted Period, within
the Legg Mason Territory, it shall not, and shall cause each of its controlled
Affiliates not to, engage in the Legg Mason Restricted Activities, except on the
terms and conditions set forth herein and (ii) for so long as Legg Mason is
required under the Distribution and Product Access Agreement to distribute the
Legg Mason Exclusive Equity Products (as defined in such Agreement) exclusively
through the Citigroup Distributors to the extent provided therein, Legg Mason
shall not sell, distribute or otherwise offer any of such Legg Mason Exclusive
Equity Products to or through any Person other than except as expressly
permitted under the Distribution and Product Access Agreement or this Agreement.
Nothing in this Section 6.18 shall restrict Legg Mason or its controlled
Affiliates (for purposes of this Section 6.18 and Section 6.17, collectively,
“Legg Mason”) from conducting or engaging in the Legg Mason Permitted Activities
or any other business activities of any kind or nature other than the Legg Mason
Restricted Activities.

 

(b) As used in this Section 6.18, the term:

 

(i) “Legg Mason Permitted Activities” means (i) brokerage activities necessary
for the distribution of U.S. registered open-end or continuously offered
closed-end investment companies managed by Legg Mason within or outside the U.S.
or of other open-end or continuously offered closed-end collective investment
pools managed by Legg Mason, in each case subject to the exclusivity provisions
of the Distribution and Product Access Agreement (and the exception thereto
provided in such Agreement and below); (ii) the activities of Legg Mason’s Fund
Investors Services unit (“FIS”) engaged in the direct sale of interests in U.S.
registered open-end investment companies to customers who do not generally use
brokers for purchasing interests in U.S. registered open-end investment
companies; provided that Legg Mason will refer each such customer to an
appropriate Citigroup Distributor, will not advertise the Legg Mason Exclusive
Equity Products without making reference to an appropriate Citigroup Distributor
and will pay to an appropriate Citigroup Distributor revenue sharing equal to
10% of Legg Mason’s investment advisory revenues attributable to gross sales of
Legg Mason Exclusive Equity Products through FIS in excess of a percentage of
the gross sales of Legg Mason Exclusive Equity Products equal to 117.5% of the
average percentage of such gross sales attributable to FIS during the two year
period prior to the date hereof; and (iii) subject to clauses (i) and (ii)
above, any business activities of any kind or nature currently engaged in by
Legg Mason after giving effect to the Closing.

 

(ii) “Legg Mason Restricted Activities” means engaging in the retail brokerage
business through a retail sales force.

 

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(iii) “Legg Mason Restricted Period” means the period beginning on the Closing
Date and ending on the third anniversary of the Closing Date (as defined in the
Distribution and Product Access Agreement); provided, however, that the
Restricted Period shall in no event exceed the maximum time period allowed under
Requirements of Law; and provided further that the limitations on the exceptions
set forth in Section 6.18(c)(i) and (ii) shall terminate not later than the date
of termination of the Exclusivity Period (as defined in the Distribution and
Product Access Agreement); and

 

(iv) “Legg Mason Territory” means the United States, the United Kingdom, Spain,
Switzerland and Canada.

 

(c) Notwithstanding anything in this Section 6.18 to the contrary, Legg Mason
may, during the Legg Mason Restricted Period, (i) acquire control of a Person
(the “Legg Mason Target Business”) that includes operations that generate
revenues from a Legg Mason Restricted Activity that are no greater than 20% of
the consolidated annual revenues of such Legg Mason Target Business, in the case
of a Legg Mason Target Business based in the United States, or 35% of such
revenues, in the case of a Legg Mason Target Business based outside the United
States, in each case based on an average of its most recently completed three
years preceding such acquisition, or (ii) acquire control of any Legg Mason
Target Business that includes operations that generate revenues of such kinds
greater than 20%, in the case of a Legg Mason Target Business based in the
United States, or 35% in the case of a Legg Mason Target Business based outside
the United States, as the case may be, but not more than 50% of the consolidated
annual revenues of the Legg Mason Target Business, in each case based on an
average of the most recently completed three years preceding such acquisition (a
“Legg Mason Competitive Business”); provided that in the event of such an
acquisition by Legg Mason of a Legg Mason Competitive Business pursuant to this
clause (ii), Legg Mason shall comply with procedures set forth in Section
6.17(c) of the Citigroup Disclosure Letter.

 

(d) Legg Mason acknowledges that its covenants set forth in this Section 6.18
are an essential element of this Agreement and that, but for the agreement of
Legg Mason to comply with these covenants, Citigroup would not have entered into
this Agreement. In the event of a breach or threatened breach of this Section
6.18, Legg Mason agrees that damages at law will be an insufficient remedy to
Citigroup, and Citigroup may, in addition to other rights and remedies existing
in its favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof, in each case without proof of actual
damages. If any part of Legg Mason’s covenants in this Section 6.18 are found to
be invalid, void or unenforceable in any situation in any jurisdiction by a
final determination of a court or any other Governmental Authority of competent
jurisdiction, Legg Mason and Citigroup agree that such determination shall not
affect the validity or enforceability of (i) the offending term or provision in
any other situation or in any other jurisdiction and (ii) the remaining terms
and provisions of this Section 6.18 in any situation in any jurisdiction.

 

Section 6.19 Separation and Segregation.

 

(a) From the date hereof through the Closing, Citigroup shall, and shall cause
its Affiliates to, use their reasonable best efforts to separate sufficiently
all data and operations

 

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related to the CAM Business from any other data and operations of Citigroup or
its Affiliates (other than the CAM Subsidiaries), whether by physical or logical
separation of such data and operations and/or by the use of contractual,
administrative, technical and/or physical oversights, mechanisms and processes.

 

(b) From the date hereof through the Closing, Legg Mason shall, and shall cause
its Affiliates to, use their reasonable best efforts to separate sufficiently
all data and operations related to the PC/CM Transferred Subsidiaries from any
other data and operations of Legg Mason or its Affiliates (other than the PC/CM
Subsidiaries), whether by physical or logical separation of such data and
operations or by the use of contractual, administrative, technical and/or
physical oversights, mechanisms and processes.

 

Section 6.20 Restrictions on Legg Mason Purchases of its Stock. Legg Mason shall
not purchase, or take any other corporate action with respect to, the Legg Mason
Common Stock which would result in Citigroup owning in excess of 14.39% of the
then-outstanding shares of Legg Mason capital stock.

 

Section 6.21 CAM Financial Information. As promptly as practicable after the
date hereof and, in any event, prior to October 31, 2005, Citigroup (i) shall
deliver to Legg Mason (A) historical audited and unaudited financial statements
(including selected financial data) and cooperate with Legg Mason in connection
with the preparation of related pro forma financial statements, in each case
that comply with either (1) the requirements of Regulation S-X under the rules
and regulations of the SEC (as interpreted by the staff of the SEC) for
financial statements that would be required to be included in a registration
statement on Form S-1, S-3 or S-4 in connection with an offering of equity
securities by Legg Mason after giving effect to the Transactions or (2) such
requirements except as the staff of the SEC may permit Legg Mason by waiver of
such requirements (in either case (1) or (2), together with customary reports
and “comfort” letters of CAM’s independent public accountants) (collectively,
the “CAM Financial Information”) and (B) an unaudited balance sheet of the CAM
Business at June 30, 2005, and the related unaudited statement of income and
cash flows of the CAM Business for the six-month period then ended prepared in
conformity with Section 4.12 (the “Interim Financial Statements”) and (ii) shall
provide and make available, and shall cause the CAM Subsidiaries to provide and
make available, upon reasonable notice, the senior management employees of the
CAM Subsidiaries and, if appropriate, relevant employees of Citigroup for their
participation in the reasonable preparation of any registration statement on
Form S-1, S-3 or S-4 in connection with an offering of equity securities by Legg
Mason.

 

Section 6.22 Commitment Letter. Legg Mason shall, and Citigroup shall request
Citigroup Global Markets Inc. (“CGMI”) to, negotiate in good faith the terms of
the Term Loan Facility and the other loan documentation for the Term Loan
Facility contemplated by the Commitment Letter (the “Loan Documentation”)
consistent with the terms set forth in the Commitment Letter and on other terms
which are usual and customary for term loan financings of the type contemplated
by the Term Loan Facility. In the event that Legg Mason and CGMI fail to enter
into the Loan Documentation on or prior to the Closing Date, the Legg Mason Note
shall be delivered by Legg Mason to the Citigroup Sellers pursuant to Section
1.2(c) with such terms as are contemplated by the Term Loan Facility under the
Commitment Letter and

 

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otherwise on terms which are usual and customary for term loan financings of the
type contemplated by the Term Loan Facility.

 

Section 6.23 Short-Term Financings.

 

(a) Prior to the Closing, a CAM Subsidiary shall borrow from Citigroup (or an
Affiliate of Citigroup designated by Citigroup), pursuant to a promissory note
issued by such CAM Subsidiary, an amount equal to the estimated amount of the
excess of the CAM Tangible Book Value as of the Closing Date over the CAM
Tangible Book Value Target, as estimated by Citigroup in good faith.

 

(b) Prior to the Closing, Citigroup (or an Affiliate of Citigroup designated by
Citigroup) shall provide a credit facility to a CAM Subsidiary designated by
Legg Mason for a total amount, determined in good faith by Citigroup and Legg
Mason at least five Business Days prior to the Closing Date, sufficient to
provide the CAM Transferred Subsidiaries with working capital following the
Closing Date, provided that such total amount shall not exceed $70,000,000. Such
credit facility shall terminate, and all amounts borrowed thereunder and
interest due thereon shall be repaid in full, no more than 90 days following the
Closing Date.

 

(c) Following the Closing Date, Legg Mason shall unconditionally and irrevocably
guarantee the prompt payment and performance of each CAM Subsidiary referred to
in Section 6.23 of all amounts due under the foregoing promissory note and
credit facility, which shall have the same covenants as apply under the Legg
Mason Note and shall have such other customary terms as the parties shall in
good faith agree.

 

(d) Each of the foregoing promissory note and credit facility shall be payable
in full 90 days following the Closing Date, shall bear interest at LIBOR less 25
basis points and shall have such other customary terms as the parties shall in
good faith agree, provided that they each shall provide for a default interest
rate equivalent to the default rate under the Legg Mason Note.

 

ARTICLE VII

CONDITIONS PRECEDENT

 

Section 7.1 Conditions of Both Parties to Closing. The respective obligations of
each Party to consummate the transactions contemplated hereby are subject to the
satisfaction or waiver, prior to or at the Closing, of each of the following
conditions:

 

(a) Any applicable waiting period under the HSR Act with respect to the
transactions contemplated hereby shall have expired or been terminated.

 

(b) Other than with respect to the HSR Act, all approvals or authorizations of,
filings and registrations with, and notifications to, all Governmental
Authorities with respect to the CAM Business and the PC/CM Business required to
effect the Transactions shall be in full force and effect and all waiting
periods required pursuant to the Requirements of Law shall have expired or been
terminated.

 

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(c) No Governmental Authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction, determination or other order that, in each case,
restrains, enjoins or otherwise prohibits consummation of the Transactions or
makes illegal the consummation of the Transactions.

 

(d) The shares of Legg Mason Common Stock comprising the Legg Mason Shares
issuable to Citigroup Sellers (including shares issuable upon conversion of any
Legg Mason Preferred Stock) shall have been approved for listing on the NYSE,
subject to official notice of issuance.

 

Section 7.2 Conditions to Obligations of Legg Mason to Close. Legg Mason’s
obligation to consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, prior to or at the Closing, of each of
the following conditions:

 

(a) Each of the representations and warranties of Citigroup contained in this
Agreement shall be true and correct as of the date hereof and as of the Closing
Date as though made on and as of the Closing Date (except that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such particular date), except where the
failure of such representations and warranties to be so true and correct
(without regard to any CAM Material Adverse Effect or materiality qualifications
set forth in any such representation or warranty) has not had and is not
reasonably likely to have a CAM Material Adverse Effect.

 

(b) Each of the material obligations and covenants of Citigroup to be performed
on or before the Closing Date pursuant to the terms of this Agreement and the
Distribution and Product Access Agreement shall have been duly and fully
performed in all material respects on or before the Closing Date.

 

(c) Legg Mason shall have received at the Closing a certificate dated the
Closing Date, which certificate shall be validly executed on behalf of Citigroup
by an appropriate executive officer of a Citigroup Seller, certifying that the
conditions specified in Section 7.2(a) and Section 7.2(b) have been satisfied.

 

(d) The Aggregate Closing Revenue Run-Rate shall be equal to or greater than 75%
of the Aggregate Base Revenue Run-Rate.

 

(e) Legg Mason shall have received at the Closing a certificate dated the
Closing Date, which certificate shall be validly executed on behalf of Citigroup
by an appropriate executive officer of a Citigroup Seller, certifying that the
Aggregate Closing Revenue Run-Rate is true and correct.

 

(f) Citigroup shall have delivered, or caused to be delivered, to Legg Mason
each of the deliverables specified in Section 2.3.

 

Section 7.3 Conditions to Obligations of Citigroup to Close. The obligations of
Citigroup to consummate the transactions contemplated by this Agreement are
subject to the satisfaction or waiver, prior to or at the Closing, of each of
the following conditions:

 

 

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(a) Each of the representations and warranties of Legg Mason contained in this
Agreement shall be true and correct as of the date hereof and as of the Closing
Date as though made on and as of the Closing Date (except that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such particular date), except where the
failure of such representations and warranties to be so true and correct
(without regard to any PC/CM Material Adverse Effect or materiality
qualifications set forth in any such representation or warranty) has not had and
is not reasonably likely to have a PC/CM Material Adverse Effect.

 

(b) Each of the material obligations and covenants of Legg Mason to be performed
on or before the Closing Date pursuant to the terms of this Agreement and the
Distribution and Product Access Agreement shall have been duly and fully
performed in all material respects on or before the Closing Date.

 

(c) Citigroup shall have received at the Closing a certificate dated the Closing
Date, which certificate shall be validly executed on behalf of Legg Mason by an
appropriate executive officer of a Legg Mason Seller, certifying that the
conditions specified in Section 7.3(a) and Section 7.3(b) have been satisfied.

 

(d) Legg Mason Trust, fsb shall have converted from a federal thrift charter to
a trust company chartered under state law or the National Bank Act that is not a
“bank”, “thrift institution” or “savings association” as those terms are defined
in Sections 2(c), 2(i) and 2(j) of the BHC Act.

 

(e) Legg Mason shall have delivered, or caused to be delivered, to Citigroup
each of the deliverables specified in Section 2.4.

 

ARTICLE VIII

TAX MATTERS

 

Section 8.1 Allocation of Taxes and Indemnification.

 

(a) From and after the Closing Date, Citigroup shall be responsible for, and
shall indemnify and hold Legg Mason and its Affiliates (which, for purposes of
this Article VIII, shall include the CAM Subsidiaries after the Closing Date)
and each of their respective officers, directors, employees, agents and
representatives (the “Legg Mason Tax Indemnitees”) harmless against (i) any
liability for Taxes imposed on any of the CAM Subsidiaries or for which they are
otherwise liable for as a transferee or successor or pursuant to any tax sharing
agreement, tax indemnification agreement or similar agreement, including Taxes
imposed on any CAM Subsidiary as a result of the CAM Restructuring, for any
taxable period ending on or before the Closing Date, and for the portion of any
Straddle Period ending on the Closing Date, (ii) any Taxes resulting from any
valid, timely and effective election described in Section 338(h)(10) of the Code
with respect to the CAM Domestic Subsidiaries (a “CAM Election”) and any
comparable elections under the provisions of state, local and foreign
Requirements of Law with respect to Taxes, (iii) any Taxes imposed pursuant to
U.S. Treasury Regulation Section 1.1502-6 (or any comparable provision under
state, local or foreign Requirements of Law or regulation imposing joint or
several liability upon members of a consolidated, combined, affiliated or

 

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unitary group) for which any CAM Subsidiary may be liable because of membership
in the affiliated group, within the meaning of Section 1504(a) of the Code, of
which Citigroup is the common parent (the “Citigroup Affiliated Group”) or any
consolidated group, combined, affiliated or unitary group (other than the
Citigroup Affiliated Group) at any time prior to Closing, and (iv) any Taxes
imposed on Legg Mason or its Affiliates under Section 951 of the Code with
respect to any CAM Foreign Subsidiary for the portion of the Straddle Period
ending on the Closing Date, such amount determined in the manner described in
Section 8.1(e)(i)(A). Citigroup shall indemnify the Legg Mason Tax Indemnitees
for any and all reasonable out-of-pocket costs and expenses (including
reasonable fees for attorneys and other outside consultants) incurred in
connection with any contest of any Tax liability for which Citigroup is liable
under this Article VIII. With respect to each time that Legg Mason brings an
indemnification claim pursuant to this Article VIII, Citigroup shall not be
liable, and Legg Mason shall not seek indemnification, under this Section 8.1(a)
(A) until the aggregate amount of Citigroup’s indemnification obligation under
this Section 8.1(a) is equal to or greater than $100,000, after taking into
account subclause (B) below, after which time Citigroup shall be liable for the
entire amount of the indemnification obligation under this Section 8.1(a) and
(B) for any current Taxes to the extent reserved for, clearly set forth and
verifiable on the CAM Final Closing Date Balance Sheet. For the avoidance of
doubt, the parties acknowledge and agree that Citigroup shall indemnify and hold
harmless Legg Mason and its Affiliates against any and all losses of Tax
Benefits resulting from Citigroup’s or its relevant Affiliate’s ineligibility or
failure to make an election under Section 338(h)(10) of the Code with respect to
any CAM Domestic Subsidiary.

 

(b) From and after the Closing Date, Legg Mason shall be responsible for, and
shall hold Citigroup and its Affiliates and each of their respective officers,
directors, employees, agents and representatives (the “Citigroup Tax
Indemnitees”) harmless against, any Taxes imposed on the CAM Subsidiaries, and
not indemnified against by Citigroup under Section 8.1(a), (i) for all taxable
periods ending after the Closing Date or portions of the Straddle Period
beginning after the Closing Date and (ii) that are attributable to any action of
Legg Mason or any of its Affiliates that occurs after the Closing on the Closing
Date (other than actions contemplated by this Agreement or taken at the request
of Citigroup, including, without limitation, the making of the CAM Elections and
any comparable elections under the provisions of state, local and foreign
Requirements of Law with respect to Taxes).

 

(c) From and after the Closing Date, Legg Mason shall be responsible for, and
shall indemnify and hold the Citigroup Tax Indemnitees (which, for purposes of
this Article VIII, shall include the PC/CM Subsidiaries after the Closing Date)
harmless against (i) any liability for Taxes imposed on any of the PC/CM
Subsidiaries or for which they are otherwise liable for as a transferee or
successor or pursuant to any tax sharing agreement, tax indemnification
agreement or similar agreement, including Taxes imposed on any PC/CM Subsidiary
as a result of the PC/CM Restructuring, for any taxable period ending on or
before the Closing Date, and for the portion of any Straddle Period ending on
the Closing Date, (ii) any Taxes resulting from any valid, timely and effective
election described in Section 338(h)(10) of the Code with respect to the PC/CM
Domestic Subsidiaries (a “PC/CM Election”) and any comparable elections under
the provisions of state, local or foreign Requirements of Law with respect to
Taxes, (iii) any Taxes imposed pursuant to U.S. Treasury Regulation Section
1.1502-6 (or any comparable provision under state, local or foreign Requirements
of Law or regulation imposing joint or several liability

 

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upon members of a consolidated, combined, affiliated or unitary group) for which
any PC/CM Subsidiary may be liable because of membership in the affiliated
group, within the meaning of Section 1504(a) of the Code, of which Legg Mason is
the common parent (the “Legg Mason Affiliated Group”) or any consolidated group,
combined, affiliated or unitary group (other than the Legg Mason Affiliated
Group) at any time prior to Closing, and (iv) any Taxes imposed on Citigroup or
its Affiliates under Section 951 of the Code with respect to any PC/CM Foreign
Subsidiary for the portion of the Straddle Period ending on the Closing Date,
such amount determined in the manner described in Section 8.1(e)(i)(A). Legg
Mason shall indemnify the Citigroup Tax Indemnitees for any and all reasonable
out-of-pocket costs and expenses (including reasonable fees for attorneys and
other outside consultants) incurred in connection with any contest of any Tax
liability for which Legg Mason is liable under this Article VIII. With respect
to each time that Citigroup brings an indemnification claim pursuant to this
Article VIII, Legg Mason shall not be liable, and Citigroup shall not seek
indemnification, under this Section 8.1(c) (A) until the aggregate amount of
Legg Mason’s indemnification obligation under this Section 8.1(c) is equal to or
greater than $100,000, after taking into account subclause (B) below, after
which time Legg Mason shall be liable for the entire amount of the
indemnification obligation under this Section 8.1(c) and (B) for any current
Taxes to the extent reserved for, clearly set forth and verifiable on the PC/CM
Final Closing Date Balance Sheet. For the avoidance of doubt, the parties
acknowledge and agree that Legg Mason shall indemnify and hold harmless
Citigroup and its Affiliates against any and all losses of Tax Benefits
resulting from Legg Mason’s or its relevant Affiliate’s ineligibility or failure
to make an election under Section 338(h)(10) of the Code with respect to any
PC/CM Domestic Subsidiary.

 

(d) From and after the Closing Date, Citigroup shall be responsible for, and
shall hold the Legg Mason Tax Indemnitees harmless against, any Taxes imposed on
the PC/CM Subsidiaries, and not indemnified against by Legg Mason under Section
8.1(c), (i) for all taxable periods beginning after the Closing Date or portions
of the Straddle Period beginning after the Closing Date, (ii) that are
attributable to any action of Citigroup or any of its Affiliates that occurs
after the Closing on the Closing Date (other than actions contemplated by this
Agreement or taken at the request of Legg Mason, including, without limitation,
the making of the PC/CM Elections and any comparable elections under the
provisions of state, local or foreign Requirements of Law with respect to
Taxes).

 

(e) Straddle Period.

 

(i) For purposes of this Article VIII, in the case of Taxes that are payable
with respect to a taxable period that begins before the Closing Date and ends
after the Closing Date (a “Straddle Period”), the portion of any such Tax that
is allocable to the portion of the period ending on and including the Closing
Date shall be:

 

(A) in the case of Taxes that are either (x) based upon or related to income, or
receipts, or (y) imposed in connection with any sale or other transfer or
assignment of property (real or personal, tangible or intangible), deemed equal
to the amount that would be payable if the taxable year ended with (and
included) the Closing Date; and

 

(B) in the case of Taxes imposed on a periodic basis with respect to the assets
of the CAM Subsidiaries or the PC/CM Subsidiaries, as the case may be, or

 

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otherwise measured by the level of any item, deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined on an
arrears basis, the amount of such Taxes for the immediately preceding period),
multiplied by a fraction the numerator of which is the number of calendar days
in the period ending on and including the Closing Date and the denominator of
which is the number of calendar days in the entire period.

 

(ii) To the extent permitted under Requirements of Law, Citigroup shall take all
actions reasonably necessary to terminate the taxable year of the CAM
Subsidiaries on the Closing Date and Legg Mason shall take all actions
reasonably necessary to terminate the taxable year of the PC/CM Subsidiaries on
the Closing Date. To the extent any such taxable year of the CAM Subsidiaries or
PC/CM Subsidiaries is terminated on the Closing Date, the parties hereto agree
to cause the such CAM Subsidiaries or PC/CM Subsidiaries, as the case may be, to
file all Tax Returns for the period including the Closing Date on the basis that
the relevant taxable period ended as of the close of business on the Closing
Date, unless the relevant Governmental Authority will not accept a Tax Return
filed on that basis.

 

(f) To the extent that an indemnification obligation of one Party pursuant to
this Section 8.1 may overlap with another indemnification obligation of such
Party pursuant to this Section 8.1, the Party entitled to such indemnification
shall be limited to only one of such indemnification payments to the extent of
such overlap.

 

(g) Whenever in accordance with this Article VIII Legg Mason shall be required
to pay Citigroup or its Affiliates an amount pursuant to Section 8.1(b) or
8.1(d), or Citigroup shall be required to pay Legg Mason or its Affiliates an
amount pursuant to Section 8.1(a) or 8.1(c), such payments shall be made the
later of 30 days after such payments are requested or 10 days before the
requesting party is required to pay the related Tax liability.

 

(h) Procedures Relating to Tax Indemnification.

 

(i) If a claim for Taxes, including notice of a pending audit, shall be made by
any Governmental Authority in writing (a “Tax Claim”), which, if successful,
might result in an indemnity payment pursuant to this Section 8.1, the party
seeking indemnification (the “Tax Indemnified Party”) shall notify the other
party (the “Tax Indemnifying Party”) promptly in writing of the Tax Claim.
Failure to give prompt notice of a Tax Claim (a “Tax Notice”) shall not relieve
the Tax Indemnifying Party of liability under this Agreement except to the
extent that the Tax Indemnifying Party demonstrates that the Tax Indemnifying
Party’s position is materially prejudiced as a result thereof.

 

(ii) The Tax Indemnifying Party may discharge, at any time, its indemnification
obligation under Section 8.1 by paying to the Tax Indemnified Party the amount
of the applicable Tax set forth in the Tax Claim calculated on the date of such
payment. Subject to clause (vi) below, the Tax Indemnified Party may, at its own
expense, participate in and, upon notice to the Tax Indemnifying Party, assume
the defense of any Tax Claim for which the Tax Indemnifying Party has sole
liability, in the event the Tax Indemnifying Party has not assumed the defense
of such claim by providing written notice of its intent to assume the defense of
such claim to the Tax Indemnified Party within 30 days of the receipt of the
notice required under Section 8.1(h)(i). If the Tax Indemnifying Party does not
assume the defense of any such Tax

 

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Claim, the Tax Indemnified Party may defend the same in such manner as it may
deem appropriate, including, but not limited to, settling, provided, however,
that the Tax Indemnified Party shall not settle such Tax Claim without the prior
written consent of the Tax Indemnifying Party, which shall not be unreasonably
withheld, delayed or conditioned.

 

(iii) Except as provided herein, in the event of a Tax Claim that involves
issues (A) relating to a potential adjustment for which the Tax Indemnifying
Party has liability and (B) that are required to be dealt with in a proceeding
that also involves separate issues that could affect the Taxes of the Tax
Indemnified Party, to the extent permitted under Requirements of Law, (x) the
Tax Indemnifying Party shall have the right at its expense to control the Tax
Claim but only with respect to the former issues and (y) the Tax Indemnified
Party shall have the right at its expense to control the Tax Claim but only with
respect to the latter issues.

 

(iv) With respect to any Tax Claim for a Straddle Period, (A) each of Legg Mason
and Citigroup may participate in the Tax Claim, (B) such Tax Claim shall be
contested and defended by the party which would bear the burden of the greater
portion of the sum of any adjustment and any corresponding adjustments that
reasonably may be anticipated (as determined under Section 8.1(e)); provided
that such Tax Claim shall not be settled without the prior written consent of
the other party, which shall not be unreasonably withheld, delayed or
conditioned.

 

(v) Except as provided in clause (vi) below, the party that is controlling the
Tax Claim pursuant to Section 8.1(h)(ii), (iii) or (iv) (the “Controlling
Party”) shall provide the non-Controlling Party with notice reasonably in
advance of, and the non-Controlling Party shall have the right, at its expense,
to participate in such Tax Claim to the extent allowed pursuant to the
Requirements of Law including the right to attend any meetings with a
Governmental Authority (including meetings with examiners) or hearings or
proceedings before any Governmental Authority to the extent they relate to such
Tax Claim.

 

(vi) Notwithstanding any other provision of this Agreement to the contrary, (A)
neither Legg Mason nor any of its Affiliates shall be entitled to participate in
any Tax Claim relating to any consolidated, combined, affiliated or unitary Tax
Return which includes Citigroup or any of its Affiliates and (B) neither
Citigroup nor any of its Affiliates shall be entitled to participate in any Tax
Claim relating to any consolidated, combined, affiliated or unitary Tax Return
which includes Legg Mason or any of its Affiliates.

 

(vii) Notwithstanding any provision in this Agreement to the contrary, no
provision in this Article VIII shall be interpreted in any manner which will
require Citigroup or Legg Mason to pay any amount more than once whether as
purchase price, as an indemnity or as a set-off or credit against any amounts
required to be paid pursuant to this Agreement (including any set-offs required
under Section 8.1(a) and 8.1(c) with respect to reserves established for current
Taxes that are clearly set forth and verifiable on the CAM Final Closing Date
Balance Sheet or PC/CM Final Closing Date Balance Sheet, as the case may be).

 

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Section 8.2 Tax Returns and Refunds.

 

(a) (i) Citigroup shall prepare or cause to be prepared and timely file or cause
to be filed all required Tax Returns (and, subject to the right to seek
indemnification from Legg Mason as provided herein, pay any Taxes shown to be
due thereon) relating to the CAM Subsidiaries for any taxable period which ends
on or before the Closing Date. Legg Mason shall prepare or cause to be prepared
and timely file or cause to be filed all required Tax Returns (and, subject to
the right to seek indemnification from Citigroup as provided herein, pay any
Taxes shown to be due thereon) relating to the CAM Subsidiaries for taxable
periods ending after the Closing Date and all required Tax Returns for
subsequent taxable periods. All such Tax Returns that relate to Straddle Periods
shall be prepared and all elections with respect to such Tax Returns that relate
to Straddle Periods shall be made, to the extent permitted under Requirements of
Law, in a manner consistent with past practice. Before filing any Tax Return
with respect to any Straddle Period, Legg Mason shall provide Citigroup with a
copy of such Tax Return at least 30 days prior to the last date for timely
filing such Tax Return (giving effect to any valid extensions thereof)
accompanied by a statement calculating in reasonable detail Citigroup’s
indemnification obligation, if any, pursuant to Section 8.1(a). To the extent
that Citigroup, its Affiliates or any CAM Subsidiary has paid prior to the
Closing Date to a Governmental Authority an amount in excess of Citigroup’s
share of Taxes for a Straddle Period pursuant to Section 8.1(a), Legg Mason
shall pay to Citigroup the amount of such excess within 10 days of filing such
Straddle Period Tax Return. Notwithstanding anything in this Agreement to the
contrary, Citigroup shall have no indemnification obligation pursuant to Section
8.1(a) with respect to any Taxes covered by such Tax Return until Citigroup has
received such Tax Return and such statement. If for any reason Citigroup does
not agree with Legg Mason’s calculation of its indemnification obligation,
Citigroup and Legg Mason shall consult and cooperate to resolve in good faith
any such disagreements. In the event the parties are unable to resolve any
dispute within 10 days following the delivery of such Tax Return to Citigroup,
the parties shall consult and cooperate to resolve their dispute by submitting
such dispute to the Accountant, which shall resolve any issue before the due
date of such Tax Return, in order that such Tax Return may be timely filed. The
scope of the Accountant’s review shall be limited to disputed items. Each of
Legg Mason and Citigroup shall bear the fees and expenses of the Accountant in
inverse proportion as they may prevail on the matters resolved by the
Accountant, which proportionate allocation will also be determined by the
Accountant and included in the Accountant’s report. If Citigroup agrees with
Legg Mason’s calculation of its indemnification obligation, Citigroup shall pay
to Legg Mason the amount of Citigroup’s indemnification at the time specified in
Section 8.1(g).

 

(ii) Legg Mason shall prepare or cause to be prepared and timely file or cause
to be filed all required Tax Returns (and, subject to the right to seek
indemnification from Citigroup as provided herein, pay any Taxes required to be
due thereon) relating to the PC/CM Subsidiaries for any taxable period which
ends on or before the Closing Date. Citigroup shall prepare or cause to be
prepared and timely file or cause to be filed all required Tax Returns (and,
subject to the right to seek indemnification from Legg Mason as provided herein,
pay any Taxes required to be due thereon) relating to the PC/CM Subsidiaries for
taxable periods ending after the Closing Date and all required Tax Returns for
subsequent taxable periods. All such Tax Returns that relate to Straddle Periods
shall be prepared and all elections with respect to such Tax Returns that relate
to Straddle Periods shall be made, to the extent permitted by Law, in a

 

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manner consistent with past practice. Before filing any Tax Return with respect
to any Straddle Period, Citigroup shall provide Legg Mason with a copy of such
Tax Return at least 30 days prior to the last date for timely filing such Tax
Return (giving effect to any valid extensions thereof) accompanied by a
statement calculating in reasonable detail Legg Mason’s indemnification
obligation, if any, pursuant to Section 8.1(c). To the extent that Legg Mason,
its Affiliates or any PC/CM Subsidiary has paid prior to the Closing Date to a
Governmental Authority an amount in excess of Legg Mason’s share of Taxes for a
Straddle Period pursuant to Section 8.1(c), Citigroup shall pay to Legg Mason
the amount of such excess within 10 days of filing such Straddle Period Tax
Return. Notwithstanding anything in this Agreement to the contrary, Legg Mason
shall have no indemnification obligation pursuant to Section 8.1(c) with respect
to any Taxes covered by such Tax Return until Legg Mason has received such Tax
Return and such statement. If for any reason Legg Mason does not agree with
Citigroup’s calculation of its indemnification obligation, Legg Mason and
Citigroup shall consult and cooperate to resolve in good faith any such
disagreements. In the event the parties are unable to resolve any dispute within
10 days following the delivery of such Tax Return to Legg Mason, the parties
shall consult and cooperate to resolve their dispute by submitting such dispute
to the Accountant, which shall resolve any issue before the due date of such Tax
Return, in order that such Tax Return may be timely filed. The scope of the
Accountant’s review shall be limited to disputed items. Each of Legg Mason and
Citigroup shall bear the fees and expenses of the Accountant in inverse
proportion as they may prevail on the matters resolved by the Accountant, which
proportionate allocation will also be determined by the Accountant and included
in the Accountant’s report. If Legg Mason agrees with Citigroup’s calculation of
its indemnification obligation, Legg Mason shall pay to Citigroup the amount of
Citigroup’s indemnification at the time specified in Section 8.1(g).

 

(b) (i) Any refunds or credits of Taxes of the CAM Subsidiaries plus any
interest received with respect thereto from the applicable Governmental
Authority for any taxable period ending on or before the Closing Date (including
refunds or credits arising by reason of amended Tax Returns filed after the
Closing Date but excluding any refund or credit included on the CAM Final
Closing Date Balance Sheet, which shall be the property of Legg Mason) shall be
for the account of Citigroup and shall be paid by Legg Mason or any of its
Affiliates to Citigroup within 10 Business Days after Legg Mason or any of its
Affiliates receives such refund or after the relevant Tax Return is filed in
which the credit is applied against Legg Mason’s or any of its Affiliates’
liability for Taxes; provided, however, that any such amounts payable to
Citigroup shall be reduced by any Tax cost (net of any Tax Benefit) to Legg
Mason or any of its Affiliates, including any CAM Subsidiary, as the case may
be, attributable to the receipt of such refund (including interest) and/or the
payments of such amounts to Citigroup. Notwithstanding the foregoing, any
refunds or credits of Taxes of the CAM Subsidiaries for any taxable period
ending on or before the Closing Date that are attributable to carrybacks of
losses or credits from a taxable period beginning after the Closing Date shall
be for the account of Legg Mason. In the event a refund of or credit for Taxes
paid by Legg Mason to Citigroup is subsequently denied by a Governmental
Authority, Citigroup shall promptly repay such refund or an amount equal to such
credit (including interest) to Legg Mason. Any refunds or credits of Taxes of
the CAM Subsidiaries plus any interest received with respect thereto from the
applicable Governmental Authority for any taxable period beginning after the
Closing Date shall be for the account of Legg Mason. Any refunds or credits of
Taxes of the CAM Subsidiaries for any Straddle Period

 

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shall be apportioned between Citigroup and Legg Mason in the same manner as the
liability for such Taxes is apportioned pursuant to Section 8.1.

 

(ii) Any refunds or credits of Taxes of the PC/CM Subsidiaries plus any interest
received with respect thereto from the applicable Governmental Authority for any
taxable period ending on or before the Closing Date (including refunds or
credits arising by reason of amended Tax Returns filed after the Closing Date
but excluding any refund or credit included on the PC/CM Final Closing Date
Balance Sheet, which shall be the property of Citigroup) shall be for the
account of Legg Mason and shall be paid by Citigroup or any of its Affiliates to
Legg Mason within 10 Business Days after Citigroup or any of its Affiliates
receives such refund or after the relevant Tax Return is filed in which the
credit is applied against Citigroup’s or any of its Affiliates’ liability for
Taxes; provided, however, that any such amounts payable to Legg Mason shall be
reduced by any Tax cost (net of any Tax Benefit) to Citigroup or any of its
Affiliates, including any PC/CM Subsidiary, as the case may be, attributable to
the receipt of such refund (including interest) and/or the payments of such
amounts to Legg Mason. Notwithstanding the foregoing, any refunds or credits of
Taxes of the PC/CM Subsidiaries for any taxable period ending on or before the
Closing Date that are attributable to carrybacks of losses or credits from a
taxable period beginning after the Closing Date shall be for the account of
Citigroup. In the event a refund of or credit for Taxes paid by Citigroup to
Legg Mason is subsequently denied by a Governmental Authority, Legg Mason shall
promptly repay such refund or an amount equal to such credit (including
interest) to Citigroup. Any refunds or credits of Taxes of the PC/CM
Subsidiaries plus any interest received with respect thereto from the applicable
Governmental Authority for any taxable period beginning after the Closing Date
shall be for the account of Citigroup. Any refunds or credits of Taxes of the
PC/CM Subsidiaries for any Straddle Period shall be apportioned between
Citigroup and Legg Mason in the same manner as the liability for such Taxes is
apportioned pursuant to Section 8.1.

 

(c) (i) At Citigroup’s request and expense and subject to Legg Mason’s written
consent, which shall not be unreasonably withheld, delayed or conditioned, Legg
Mason shall, or shall cause its relevant Affiliates to, file for and obtain any
refunds or credits to which Citigroup is entitled under this Article VIII. In
connection therewith, (A) Legg Mason shall permit Citigroup to control the
prosecution of any such refund claim that relates to refunds or credits to which
Citigroup or any of its Affiliates is entitled under this Article VIII and,
where deemed appropriate by Citigroup, shall, or shall cause its relevant
Affiliates to, authorize by appropriate powers of attorney such Persons as
Citigroup shall designate to represent such Affiliates with respect to such
refund claim and (B) Legg Mason shall, or shall cause its relevant Affiliates
to, forward to Citigroup any such refund within 10 days after the refund is
received (or reimburse Citigroup and any of its Affiliates for any such credit
within 10 Business Days after the relevant Tax Return is filed in which the
credit is applied against any of such relevant Affiliates’ liability for Taxes);
provided, however, that any such amounts payable to Citigroup shall be reduced
by any Tax cost (net of any Tax Benefit) to Legg Mason or any of its Affiliates,
including any CAM Subsidiary, as the case may be, attributable to the receipt of
such refund (including interest) and/or the payments of such amounts to
Citigroup. In the event such refund of or credit for Taxes is subsequently
denied by a Governmental Authority, Citigroup shall promptly repay such refund
or an amount equal to such credit (including interest) to Legg Mason.

 

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(ii) At Legg Mason’s request and expense and subject to Citigroup’s written
consent, which shall not be unreasonably withheld, delayed or conditioned,
Citigroup shall, or shall cause its relevant Affiliates to, file for and obtain
any refunds or credits to which Legg Mason is entitled under this Article VIII.
In connection therewith, (A) Citigroup shall permit Legg Mason to control the
prosecution of any such refund claim that relates to refunds or credits to which
Legg Mason or any of its Affiliates is entitled under this Article VIII and,
where deemed appropriate by Legg Mason, shall, or shall cause its relevant
Affiliates to, authorize by appropriate powers of attorney such Persons as Legg
Mason shall designate to represent such Affiliates with respect to such refund
claim and (B) Citigroup shall, or shall cause its relevant Affiliates to,
forward to Legg Mason any such refund within 10 days after the refund is
received (or reimburse Legg Mason and any of its Affiliates for any such credit
within 10 Business Days after the relevant Tax Return is filed in which the
credit is applied against any of such relevant Affiliates’ liability for Taxes);
provided, however, that any such amounts payable to Legg Mason shall be reduced
by any Tax cost (net of any Tax Benefit) to Citigroup or any of its Affiliates,
including any PC/CM Subsidiary, as the case may be, attributable to the receipt
of such refund (including interest) and/or the payments of such amounts to Legg
Mason. In the event such refund of or credit for Taxes is subsequently denied by
a Governmental Authority, Legg Mason shall promptly repay such refund or an
amount equal to such credit (including interest) to Citigroup.

 

Section 8.3 Conveyance Taxes. Each of Legg Mason and Citigroup shall be
responsible for and each shall pay 100% of all documentary, sales, use,
registration, value added, transfer, stamp, registration and similar Taxes, fees
and costs incurred by such Party and its Affiliates in connection with the
transactions contemplated by this Agreement, including, in the case of
Citigroup, the CAM Restructuring and, in the case of Legg Mason, the PC/CM
Restructuring (collectively, “Conveyance Taxes”). For the avoidance of doubt,
Citigroup shall be responsible for any Conveyance Taxes imposed with respect to
the transactions contemplated by Section 6.13(a) and Legg Mason shall be
responsible for any Conveyance Taxes imposed with respect to the transactions
contemplated by Section 6.13(b). Each of Legg Mason and Citigroup shall be
responsible for preparing and timely filing any Tax Returns required to be filed
by such Party or its Affiliates with respect to any such Conveyance Taxes.
Citigroup and Legg Mason will provide to one another a true copy of each such
Tax Return as filed and evidence of the timely filing thereof. Prior to the
filing of such Tax Returns, Citigroup and Legg Mason shall agree upon the
portion of the total consideration to be allocated to the assets that are the
subject of such Tax Returns, which allocation shall be binding for purposes of
Section 8.4. Citigroup and Legg Mason shall reasonably cooperate in reducing the
amount of any Conveyance Taxes or obtaining exemptions therefrom.

 

Section 8.4 Section 338 Elections.

 

(a) Section 338(h)(10) Elections.

 

(i) With respect to the sale and acquisition of each of the CAM Domestic
Subsidiaries pursuant to this Agreement, Citigroup or one or more of its
Affiliates and Legg Mason or one or more of its Affiliates shall jointly make a
CAM Election with respect to each of the CAM Domestic Subsidiaries. Section
8.4(a) of the

 

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Citigroup Disclosure Letter shall set forth each CAM Domestic Subsidiary.
Citigroup warrants that Section 8.4(a) of the Citigroup Disclosure Letter is
true, accurate and complete. At least 10 days prior to the Closing Date,
Citigroup and Legg Mason shall agree on the form and content of the IRS Forms
8023 (the “Forms 8023”) on which any such CAM Election shall be made and at or
prior to the Closing, Citigroup shall deliver to Legg Mason and Legg Mason shall
deliver to Citigroup properly executed and mutually agreed upon Forms 8023 with
respect to the relevant CAM Domestic Subsidiary containing information then
available, which Legg Mason shall file or cause to be filed with the IRS not
later than 30 days following the Closing Date. Citigroup, Legg Mason and their
respective relevant Affiliates shall jointly and timely make CAM Elections and
elections under any applicable state, local or foreign Requirements of Law with
respect to Taxes comparable to the CAM Elections with respect to each CAM
Domestic Subsidiary. With respect to all CAM Elections, Citigroup, Legg Mason
and their respective Affiliates shall, as promptly as practicable following the
Closing Date, cooperate with each other to take all other actions necessary and
appropriate (including filing such forms, returns, elections, schedules and
other documents as may be required) otherwise to effect, perfect and preserve
timely CAM Elections in accordance with the provisions of Section 338 of the
Code (including Treasury Regulation Section 1.338(h)(10)-l (and any comparable
provisions of state, local or foreign Requirements of Law with respect to
Taxes)) or any successor provisions. Citigroup and its Affiliates and Legg Mason
and its Affiliates shall report the sale and acquisition, respectively, of the
stock of each of the CAM Domestic Subsidiaries pursuant to this Agreement for
which a CAM Election was made consistent with such CAM Election (and any
comparable elections under state, local or foreign Requirements of Law with
respect to Taxes) and shall take no position to the contrary thereto in any Tax
Return, or in any proceeding before any Governmental Authority or otherwise.

 

(ii) With respect to the sale and acquisition of each of the PC/CM Domestic
Subsidiaries pursuant to this Agreement, Legg Mason or one or more of its
Affiliates and Citigroup or one or more of its Affiliates shall jointly make a
PC/CM Election with respect to each of the PC/CM Domestic Subsidiaries. Section
8.4(a) of the Legg Mason Disclosure Letter shall set forth each PC/CM Domestic
Subsidiary. Legg Mason warrants that Section 8.4(a) of the Legg Mason Disclosure
Letter is true, accurate and complete. At least 10 days prior to the Closing
Date, Citigroup and Legg Mason shall agree on the form and content of the Forms
8023 on which any such PC/CM Election shall be made and at or prior to the
Closing, Legg Mason shall deliver to Citigroup and Citigroup shall deliver to
Legg Mason properly executed and mutually agreed upon Forms 8023 with respect to
the relevant PC/CM Domestic Subsidiary containing information then available,
which Citigroup shall file or cause to be filed with the IRS not later than 30
days following the Closing Date. Citigroup, Legg Mason and their respective
relevant Affiliates shall jointly and timely make PC/CM Elections and elections
under any applicable state, local or foreign Requirements of Law with respect to
Taxes comparable to the PC/CM Elections with respect to each PC/CM Domestic
Subsidiary. With respect to all PC/CM Elections, Citigroup, Legg Mason and their
respective Affiliates shall, as promptly as practicable following the Closing
Date, cooperate with each other to take all other actions necessary and
appropriate (including filing such forms, returns, elections, schedules and
other documents as may be required) otherwise to effect, perfect and preserve
timely PC/CM Elections in accordance with the provisions of Section 338 of the
Code (including Treasury Regulation Section 1.338(h)(10)-l (and any comparable
provisions of state, local or foreign Requirements of Law with respect to
Taxes)) or any successor provisions. Citigroup and its Affiliates and Legg Mason
and its Affiliates shall report the sale and acquisition, respectively, of the
stock of each of the PC/CM Domestic Subsidiaries pursuant to this Agreement for
which a PC/CM Election was

 

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made consistent with such PC/CM Election (and any comparable elections under
state, local or foreign Requirements of Law with respect to Taxes) and shall
take no position to the contrary thereto in any Tax Return, or in any proceeding
before any Governmental Authority or otherwise.

 

(b) To the extent permissible pursuant to the Requirements of Law, Citigroup,
Legg Mason and their respective Affiliates shall cooperate in the preparation
and timely filing of any (i) corrections, amendments or supplements to the Forms
8023 (including Form 8883) and (ii) state, local or foreign forms or reports
that are necessary or appropriate for purposes of complying with the
requirements for making any state, local or foreign election that is comparable
to the CAM Election or the PC/CM Election.

 

(c) Neither Citigroup, Legg Mason nor any of their respective Affiliates shall
take any action to modify any of the forms or reports (including any
corrections, amendments or supplements thereto) that are required for the making
of a CAM Election or a PC/CM Election and any comparable elections under state,
local or foreign Requirements of Law with respect to Taxes after their execution
or to modify or revoke any CAM Election or the PC/CM Election following the
filing of the Forms 8023 by Citigroup without the written consent of Citigroup
and Legg Mason, as the case may be.

 

(d) Allocations.

 

(i) In connection with any CAM Election as described in Section 8.4(a)(i) and
consistent with Section 3.5, within 120 days after the Closing Date, Legg Mason
shall provide (or shall cause its Affiliates to provide) to Citigroup (A) a
proposed allocation of the “Modified Aggregate Deemed Sales Price” and the
“Adjusted Grossed Up Basis” (each, as defined under applicable Treasury
Regulations) among the assets of the relevant CAM Domestic Subsidiary, which
allocations shall be made in accordance with Section 338(b) of the Code and any
applicable Treasury Regulations, and (B) a complete set of IRS Forms 8883 (and
any comparable forms required to be filed under state, local or foreign
Requirements of Law with respect to Taxes) and any additional data or materials
required to be attached to Form 8883 pursuant to the Treasury Regulations
promulgated under Section 338 of the Code (collectively, the “CAM Proposed
Allocation”). In the event Citigroup objects to the CAM Proposed Allocation,
Citigroup will notify Legg Mason within 20 days of receipt of the CAM Proposed
Allocation of such objection, and the parties will endeavor within the next 15
days to resolve such dispute in good faith.

 

(ii) In connection with any PC/CM Election as described in Section 8.4(a)(ii)
and consistent with Section 3.5, within 120 days after the Closing Date,
Citigroup shall provide (or shall cause its Affiliates to provide) to Legg Mason
(A) a proposed allocation of the “Modified Aggregate Deemed Sales Price” and the
“Adjusted Grossed Up Basis” (each, as defined under applicable Treasury
Regulations) among the assets of the relevant PC/CM Domestic Subsidiary, which
allocations shall be made in accordance with Section 338(b) of the Code and any
applicable Treasury Regulations, and (B) a complete set of IRS Forms 8883 (and
any comparable forms required to be filed under state, local or foreign
Requirements of Law with respect to Taxes) and any additional data or materials
required to be attached to Form 8883 pursuant to the Treasury Regulations
promulgated under Section 338 of the Code (collectively, the “PC/CM Proposed
Allocation”). In the event Legg Mason objects to the PC/CM Proposed

 

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Allocation, Legg Mason will notify Citigroup within 20 days of receipt of the
PC/CM Proposed Allocation of such objection, and the parties will endeavor
within the next 15 days to resolve such dispute in good faith.

 

(iii) In the event that Citigroup and Legg Mason resolve any such dispute and
agree on the manner in which such allocations should be made, Citigroup and Legg
Mason (and their respective Affiliates) shall (A) be bound by the allocations
determined pursuant to this paragraph for all Tax purposes, (B) prepare and file
all Tax Returns to be filed with any Governmental Authority (including Form 8883
and Form 8594 filed with the Parties’ respective United States federal income
Tax Returns for the taxable year that includes the Closing Date and any other
forms or statements required by the Code, Treasury Regulations, the IRS or any
applicable state, local or foreign Governmental Authority) in a manner
consistent with such allocations and (C) take no position inconsistent with such
allocations in any Tax Return, any proceeding before any Governmental Authority
or otherwise. In the event that any such allocation is disputed by any
Governmental Authority, the party receiving notice of such dispute shall
promptly notify and consult with the other Party concerning resolution of such
dispute.

 

(iv) In the event that Citigroup and Legg Mason disagree on the manner in which
any such allocations should be made, Citigroup and Legg Mason (and their
respective Affiliates) shall independently determine the manner in which such
allocations should be made, and, for all Tax purposes, neither Citigroup (and
any of its Affiliates) nor Legg Mason (and any of its Affiliates) shall be bound
by the other party’s allocations.

 

(e) Any subsequent adjustments to the total consideration shall be reflected in
the CAM Proposed Allocation or the PC/CM Proposed Allocation, as the case may
be, and made in accordance with Section 338(b) of the Code and any applicable
Treasury Regulation and consistent with the methodology provided above.

 

(f) To the extent allowed pursuant to the Requirements of Law, Citigroup and
Legg Mason shall, and shall cause their respective Affiliates to, treat any
assets or shares of stock that are distributed by any of the CAM Domestic
Subsidiaries to Citigroup or any of its Affiliates or by any of the PC/CM
Domestic Subsidiaries to Legg Mason or any of its Affiliates pursuant to Section
6.13 as having been distributed in the deemed liquidation resulting from any CAM
Election or any PC/CM Election, as the case may be.

 

(g) Legg Mason shall be entitled to make an election pursuant to Section 338(g)
of the Code (or any comparable provisions of state, local or foreign
Requirements of Law with respect to Taxes) (a “Section 338(g) Election”) with
respect to any of the CAM Foreign Subsidiaries. If Legg Mason or any of its
Affiliates makes a Section 338(g) Election, Citigroup and Legg Mason shall
follow the principles of Treasury Regulation Section 1.338-9(d) and shall
provide to each other all documents reasonably necessary to comply with such
regulation. Except as required as a result of a Section 338(g) Election, neither
Legg Mason nor any of its Affiliates shall change the taxable year of any CAM
Foreign Subsidiary which includes but does not end on the Closing Date without
the prior written consent of Citigroup, which consent shall not be unreasonably
withheld, delayed or conditioned.

 

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(h) Citigroup shall be entitled to make a Section 338(g) Election with respect
to any of the PC/CM Foreign Subsidiaries. If Citigroup or any of its Affiliates
makes a Section 338(g) Election, Citigroup and Legg Mason shall follow the
principles of Treasury Regulation Section 1.338-9(d) and shall provide to each
other all documents reasonably necessary to comply with such regulation. Except
as required as a result of a Section 338(g) Election, neither Citigroup nor any
of its Affiliates shall change the taxable year of any PC/CM Foreign Subsidiary
which includes but does not end on the Closing Date without the prior written
consent of Legg Mason, which consent shall not be unreasonably withheld, delayed
or conditioned.

 

Section 8.5 Resolution of All Tax Related Disputes. Except as otherwise provided
in this Article VIII, with respect to any dispute or disagreement between the
Parties relating to Taxes, the Parties shall cooperate in good faith to resolve
such dispute between them; but if the Parties are unable to resolve such
dispute, the Parties shall submit the dispute to the Accountant for resolution,
which resolution shall be final, conclusive and binding on the Parties.
Notwithstanding anything in this Agreement to the contrary, the fees and
expenses relating to any dispute as to the amount of Taxes owed by either of the
Parties shall be paid by Legg Mason, on the one hand, and Citigroup, on the
other hand, in proportion to each party’s respective liability for the portion
of the Taxes in dispute, as determined by the Accountant.

 

Section 8.6 Survival of Tax Provisions. Any claim to be made pursuant to Article
VIII must be made before 60 days after the expiration (giving effect to any
valid extensions, waivers and tolling periods) of the applicable statutes of
limitations relating to the Taxes at issue or, solely with respect to a claim
for a refund or credit of Taxes (or an adjustment with respect thereto), the
later of (i) 60 days after the expiration (giving effect to any valid
extensions, waivers and tolling periods) of the applicable statute of
limitations relating to the Taxes at issue or (ii) one year after the Party
making the claim becomes aware of sufficient facts relating to such refund or
credit or adjustment to seek indemnification or reimbursement under this Article
VIII.

 

Section 8.7 Exclusivity. Article VIII shall govern (a) the retention of records
with respect to each of the CAM Subsidiaries and the PC/CM Subsidiaries and (b)
the procedures for all indemnification claims, in each case with respect to
Taxes.

 

Section 8.8 Tax Sharing Agreements. Any and all existing agreements relating to
the allocation or sharing of Taxes (the “Tax Sharing Agreements”) between (a)
any of the CAM Subsidiaries and either any Citigroup Seller or any member of the
Citigroup Affiliated Group and (b) any of the PC/CM Subsidiaries and either any
Legg Mason Seller or any member of the Legg Mason Affiliated Group shall be
terminated as of the Closing Date solely with respect to the departing CAM
Subsidiary or PC/CM Subsidiary, as the case may be. After the Closing Date, none
of the CAM Subsidiaries, on the one hand, or any Citigroup Seller or any member
of the Citigroup Affiliated Group, on the other hand, nor the PC/CM
Subsidiaries, on the one hand, or any Legg Mason Seller or any member of the
Legg Mason Affiliated Group, on the other hand, shall have any further rights or
obligations under any such Tax Sharing Agreement.

 

Section 8.9 Characterization of Indemnification Payments. To the extent
permitted pursuant to the Requirements of Law, any payments made pursuant to
Section 3.3,

 

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Section 3.4, Article VIII or Article X shall be treated for all Tax purposes as
adjustments to the aggregate purchase price.

 

Section 8.10 Cooperation, Exchange of Information and Record Retention.

 

(a) Legg Mason and Citigroup shall provide each other, and shall cause their
respective Affiliates, officers, employees, agents, auditors and representatives
reasonably to provide each other, with such cooperation and information relating
to the CAM Subsidiaries and the PC/CM Subsidiaries, as the case may be,
(including cooperation with respect to any Audit) as any of them reasonably may
request of another, including in (i) preparing and filing any Tax Return,
amended Tax Return or claim for refund, including maintaining and making
available to each other all records necessary in connection with Taxes; (ii)
resolving all disputes and audits with respect to all taxable periods relating
to Taxes; (iii) contesting or compromising any Tax Claim; (iv) determining a Tax
liability or a right to a refund of Taxes; (v) participating in or conducting
any audit or other proceeding in respect of Taxes; and (vi) connection with all
other matters covered in this Article VIII. Each such party shall make its
employees available on a mutually convenient basis to provide explanations of
any documents or information provided hereunder. To the extent reasonably
requested by Citigroup, Legg Mason shall cause the relevant CAM Subsidiary to
authorize by appropriate powers of attorney such Persons as Citigroup shall
designate to represent such CAM Subsidiary with respect to subclauses (i)-(vi)
of this Section 8.10(a). To the extent reasonably requested by Legg Mason,
Citigroup shall cause the relevant PC/CM Subsidiary to authorize by appropriate
powers of attorney such Persons as Legg Mason shall designate to represent such
PC/CM Subsidiary with respect to subclauses (i)-(vi) of this Section 8.10(a).

 

(b) Legg Mason and Citigroup recognize that (i) Citigroup and its Affiliates
will need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the CAM Subsidiaries to the
extent such records and information pertain to events occurring on or prior to
the Closing Date and (ii) Legg Mason and its Affiliates will need access, from
time to time, after the Closing Date, to certain accounting and Tax records and
information held by the PC/CM Subsidiaries to the extent such records and
information pertain to events occurring on or prior to the Closing Date;
therefore, Legg Mason and Citigroup agree that from and after the Closing Date,
Citigroup, Legg Mason and their respective Affiliates shall (A) retain and
maintain all such records including all Tax Returns, schedules and work papers,
records and other documents in their possession relating to Tax matters of the
CAM Subsidiaries and the PC/CM Subsidiaries, as the case may be, for taxable
periods ending on or prior to the Closing Date and for the Straddle Period for
the longer of (x) the seven-year period beginning on the Closing Date or (y) the
full period of the applicable statute of limitations, including any extension
thereof and (B) allow the agents and representatives of each other, upon
reasonable notice and at mutually convenient times to inspect, review and make
copies of such records (at the expense of the party requesting the records) as
Citigroup and Legg Mason may deem reasonably necessary or appropriate from time
to time. Citigroup and Legg Mason agree that the holder of any records, books,
work papers, reports, correspondence and other similar materials shall provide
the other party with written notice 30 calendar days prior to transferring,
destroying or discarding the last copy of any such materials and such other
party shall have the right, at its expense, to copy or take any such materials;
provided that such other party provide written notice stating its intent to copy
or take such materials no later than 20 days after having received notice

 

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that such materials are being transferred, destroyed or discarded. Any
information obtained under this Section 8.10(b) shall be kept confidential
except as may be otherwise necessary in connection with the filing of Tax
Returns or claims for refund or in conducting an audit or other proceeding.

 

(c) Notwithstanding any other provision of this Agreement or the Related
Agreements, (i) neither Citigroup nor any of its Affiliates shall be entitled to
any information relating to, or a copy of, any consolidated, combined,
affiliated or unitary Tax Return which includes Legg Mason and (ii) neither Legg
Mason nor any of its Affiliates shall be entitled to any information relating
to, or a copy of, any consolidated, combined, affiliated or unitary Tax Return
which includes Citigroup; provided, however, that Legg Mason shall be entitled
to a copy of a pro forma Tax Return for the CAM Subsidiaries and Citigroup shall
be entitled to a copy of a pro forma Tax Return for the PC/CM Subsidiaries.

 

Section 8.11 Tax Benefits. Any indemnity payments made pursuant to Article VIII
shall be increased to account for any Tax cost incurred by the Tax Indemnified
Party upon the receipt of such payment (grossed up for such increase) and shall
be made net of any Tax Benefit realized or utilized by the Tax Indemnified Party
that results from the payments of the amounts indemnified against giving rise to
such indemnity payments. For purposes of determining the amount of any Tax
Benefit or Tax cost incurred by the Tax Indemnified Party shall be deemed to pay
Tax at the highest United States federal income tax corporate marginal rate in
effect in the year such indemnifiable Loss is incurred and the recipient of the
Tax Benefit shall be deemed to realize or utilize any Tax Benefit in the first
taxable year that such Tax Benefit may be realized or utilized under
Requirements of Law after taking into account all other Tax Attributes of such
indemnified party and the projected utilization of such Tax Attributes as
computed by the recipient of such Tax Benefit. If a Tax Benefit resulting from
an indemnifiable loss is available in multiple Tax years, the amount of such Tax
Benefit for purposes of this Section 8.11(a) shall be the net present value of
all of such available Tax Benefits, calculated by using a discount rate equal to
the long-term applicable federal rate for the month in which such indemnifiable
loss is incurred. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the execution
of Form 870-AD or successor form) with respect to the Tax Indemnified Party’s
liability for Taxes, and any payments, if necessary, by the Tax Indemnified
Party or the Tax Indemnifying Party to reflect such adjustment shall be made if
necessary within 10 days of such determination.

 

Section 8.12 Indemnification for Taxes Related to the CAM Registered Investment
Companies. To the extent Legg Mason pays or causes its Affiliates (which shall
include the CAM Subsidiaries after the Closing Date) to pay any Taxes, or any
amount paid in reimbursement of Taxes, of any CAM Registered Investment Company
(or if such CAM Registered Investment Company has been liquidated, its
shareholders, in their capacities as successors or transferees to such CAM
Registered Investment Company) relating to any taxable period of such CAM
Registered Investment Company ending on or before December 31, 2007, resulting
from the potential failure of such CAM Registered Investment Company to qualify
to be classified as a regulated investment company under Subchapter M of Chapter
1 of the Code, Citigroup shall indemnify and hold Legg Mason and such Affiliates
harmless against all of such Taxes and/or amounts; provided, however, that
neither Legg Mason nor any of its Affiliates shall be entitled to
indemnification under this Section 8.12 unless either (i) the IRS has asserted
in

 

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writing that such CAM Registered Investment Company is liable for such Taxes and
either (x) Legg Mason or such Affiliate receives a written opinion of a tax
advisor of national reputation who is reasonably acceptable to Citigroup (a
“Qualified Opinion”) to the effect that it is more likely than not that such CAM
Registered Investment Company is liable for such Taxes or (y) a final
determination (as defined in Section 1313(a) of the Code) has been made that
such Taxes are due, or (ii) with respect to Tax Returns of the CAM Registered
Investment Companies that have not yet been filed as of the Closing Date, Legg
Mason or such Affiliate receives a Qualified Opinion to the effect that no
reasonable basis exists for the CAM Registered Investment Company to file a Tax
Return without reporting such Taxes as due and payable by such CAM Registered
Investment Company on such Tax Return. Notwithstanding the foregoing, Citigroup
shall not be required to indemnify Legg Mason and its Affiliates for Taxes or
any amount paid in reimbursement of Taxes to the extent such Taxes would not
have been owed (or asserted by the IRS as being owed) by the relevant CAM
Registered Investment Company but for actions taken by Legg Mason, its
Affiliates or the CAM Registered Investment Companies at the direction or
request of Legg Mason or its Affiliates. Citigroup shall indemnify Legg Mason
for any reasonable out-of-pocket costs and expenses (including reasonable fees
for attorneys and other outside consultants) incurred by Legg Mason in
connection with the payment of such Taxes or other amounts as described in this
Section 8.12. If the Internal Revenue Service asserts in writing that a CAM
Registered Investment Company is liable for Taxes, which might result in an
indemnity payment pursuant to this Section 8.12, Legg Mason or one its
Affiliates shall notify Citigroup promptly in writing of such assertion. Failure
to give prompt notice of such an assertion shall not relieve Citigroup of
liability under this Section 8.12.

 

Section 8.13 Certain Deductions.

 

(a) (i) In the event a Citigroup Compensation Item is included in a Tax Return
of Legg Mason or its Affiliates, Citigroup shall provide Legg Mason on a timely
basis with such information, documentation and assistance as is necessary or
otherwise reasonably requested by Legg Mason in order to compute the Citigroup
Compensation Item, and to satisfy any and all reporting, withholding and payroll
Tax obligations under the Code and applicable state, local or foreign
Requirements of Law. Citigroup shall indemnify and hold the Legg Mason
Indemnitees harmless against (A) the employer’s portion of any payroll or
similar Taxes relating to the Citigroup Compensation Items that are actually
imposed and paid; (B) Taxes imposed as a result of the failure of Citigroup to
provide information as required by this Section 8.13(a)(i); and (C) all
reasonable out-of-pocket costs incurred in claiming deductions in respect of any
Citigroup Compensation Item and in processing or administering the information
related to any Citigroup Compensation Item.

 

(ii) Legg Mason shall calculate for each taxable period beginning after the
Closing Date, and the portion of any Straddle Period beginning after the Closing
Date, (A) the aggregate amount of income and franchise Taxes actually payable by
Legg Mason and its Affiliates, including the CAM Subsidiaries (collectively, the
“Legg Mason Group”), for such taxable period (“Legg Mason’s Actual Tax
Liability”) and (B) the amount of income and franchise Taxes that would have
been payable by the Legg Mason Group if determined without regard to any
Citigroup Tax Items (“Legg Mason’s Hypothetical Tax Liability”). Legg Mason
shall provide Citigroup copies of its calculations of Legg Mason’s Actual Tax
Liability and Legg Mason’s Hypothetical Tax Liability, together with any
documentation or supporting information

 

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(consistent with Legg Mason’s internal confidentiality policies) reasonably
requested by Citigroup to enable it to verify the accuracy of such calculations,
within 30 days following the filing of all income and franchise Tax Returns of
the Legg Mason Group with respect to such taxable period. If Citigroup does not
agree with any of Legg Mason’s calculations, Citigroup and Legg Mason shall
resolve such dispute pursuant to Section 8.5.

 

(iii) Legg Mason shall report each of the Citigroup Tax Items to the fullest
extent, and in the earliest taxable period beginning after the Closing Date,
allowable under applicable income and franchise Tax law after taking into
account the various limitations under the Code to which those items may be
subject in taxable periods beginning after the Closing Date and the portion of
any Straddle Period beginning after the Closing Date; provided, however, that
nothing in this section shall require Legg Mason to forgo or otherwise
jeopardize any other available Tax items, to take positions inconsistent with
Legg Mason’s overall Tax Return positions, or to change its overall business
plans or operations. Notwithstanding anything herein to the contrary, Legg Mason
shall have no obligation to carryback any Tax attribute or item.

 

(iv) If, for any taxable period beginning after the Closing Date, and the
portion of any Straddle Period beginning after the Closing Date, Legg Mason’s
Hypothetical Liability is greater than Legg Mason’s Actual Tax Liability, Legg
Mason shall pay Citigroup an amount equal to such difference. Payments under
this Section 8.13(a)(iv) shall be made by the later of (A) 45 days following the
filing of all income and franchise Tax Returns of the Legg Mason Group for the
applicable taxable period beginning after the Closing Date, and the portion of
any Straddle Period beginning after the Closing Date, and (B) 10 days after the
date that a final agreement is reached between Legg Mason and Citigroup as to
the calculation of Legg Mason’s Actual Tax Liability and Legg Mason’s
Hypothetical Tax Liability for such taxable period in accordance with Section
8.13(a)(iv).

 

(v) If Legg Mason’s Actual Tax Liability or Legg Mason’s Hypothetical Tax
Liability for any taxable period that begins after the Closing Date, and the
portion of any Straddle Period beginning after the Closing Date, changes (by
reason of the filing of amended Tax Returns, audit adjustments agreed to with a
Governmental Authority, final dispositions of administrative or judicial
proceedings, carrybacks from later taxable periods to earlier taxable periods or
otherwise), Legg Mason shall recalculate Legg Mason’s Actual Tax Liability and
Legg Mason’s Hypothetical Tax Liability for such taxable period. Legg Mason and
Citigroup shall promptly notify each other of any change or event that might
give rise to such a change. Legg Mason shall provide Citigroup with copies of
its recalculations, together with any documentation or supporting information
(consistent with Legg Mason’s internal confidentiality policies) reasonably
requested by Citigroup to enable it to verify the accuracy of such
recalculations, within 30 days following any such change. If Citigroup does not
agree with any of Legg Mason’s recalculations, Citigroup and Legg Mason shall
resolve such dispute pursuant to Section 8.5. Within 10 days following a final
agreement between Legg Mason and Citigroup as to the recalculations of Legg
Mason’s Actual Tax Liability and Legg Mason’s Hypothetical Tax Liability,
appropriate adjustment payments (including any interest and penalties actually
payable, or receivable from, as the case may be, the relevant Governmental
Authority that are attributable to changes in Legg Mason’s Actual Tax Liability
and Legg Mason’s Hypothetical Tax Liability for such taxable period) shall be
made by Citigroup or Legg Mason, as the case may be, to the other party in a
manner consistent with Section 8.13(a)(iv).

 

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(vi) In applying the provisions of this Section 8.13(a), it is the intention of
the parties that the Tax Attributes of the Legg Mason Group (exclusive of
Citigroup Tax Items) have priority over the Tax Attributes comprised within the
Citigroup Tax Items, whether in the taxable year when generated or in another
taxable year to which such items are carried back or carried forward.

 

(b) (i) In the event a Legg Mason Compensation Item is included in a Tax Return
of Citigroup or its Affiliates, Legg Mason shall provide Citigroup on a timely
basis with such information, documentation and assistance as is necessary or
otherwise reasonably requested by Citigroup in order to compute the Legg Mason
Compensation Item, and to satisfy any and all reporting, withholding and payroll
Tax obligations under the Code and applicable state, local or foreign
Requirements of Law. Legg Mason shall indemnify and hold the Citigroup
Indemnitees harmless against (A) the employer’s portion of any payroll or
similar Taxes relating to the Legg Mason Compensation Items that are actually
imposed and paid; (B) Taxes imposed as a result of the failure of Legg Mason to
provide information as required by this Section 8.13(b)(i); and (C) all
reasonable out-of-pocket costs incurred in claiming deductions in respect of any
Legg Mason Compensation Item and in processing or administering the information
related to any Legg Mason Compensation Item.

 

(ii) Citigroup shall calculate for each taxable period beginning after the
Closing Date, and the portion of any Straddle Period beginning after the Closing
Date, (A) the aggregate amount of income and franchise Taxes actually payable by
Citigroup and its Affiliates, including the CAM Subsidiaries (collectively, the
“Citigroup Group”), for such taxable period (“Citigroup’s Actual Tax Liability”)
and (B) the amount of income and franchise Taxes that would have been payable by
the Citigroup Group if determined without regard to any Legg Mason Tax Items
(“Citigroup’s Hypothetical Tax Liability”). Citigroup shall provide Legg Mason
copies of its calculations of Citigroup’s Actual Tax Liability and Citigroup’s
Hypothetical Tax Liability, together with any documentation or supporting
information (consistent with Citigroup’s internal confidentiality policies)
reasonably requested by Legg Mason to enable it to verify the accuracy of such
calculations, within 30 days following the filing of all income and franchise
Tax Returns of the Citigroup Group with respect to such taxable period. If Legg
Mason does not agree with any of Citigroup’s calculations, Legg Mason and
Citigroup shall resolve such dispute pursuant to Section 8.5.

 

(iii) Citigroup shall report each of the Legg Mason Tax Items to the fullest
extent, and in the earliest taxable period beginning after the Closing Date,
allowable under applicable income and franchise Tax law after taking into
account the various limitations under the Code to which those items may be
subject in taxable periods beginning after the Closing Date and the portion of
any Straddle Period beginning after the Closing Date; provided, however, that
nothing in this section shall require Citigroup to forgo or otherwise jeopardize
any other available Tax items, to take positions inconsistent with Citigroup’s
overall Tax Return positions, or to change its overall business plans or
operations. Notwithstanding anything herein to the contrary, Citigroup shall
have no obligation to carryback any Tax attribute or item.

 

(iv) If, for any taxable period beginning after the Closing Date, and the
portion of any Straddle Period beginning after the Closing Date, Citigroup’s
Hypothetical Liability is greater than Citigroup’s Actual Tax Liability,
Citigroup shall pay Legg Mason an

 

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amount equal to such difference. Payments under this Section 8.13(b)(iv) shall
be made by the later of (A) 45 days following the filing of all income and
franchise Tax Returns of the Citigroup Group for the applicable taxable period
beginning after the Closing Date, and the portion of any Straddle Period
beginning after the Closing Date, and (B) 10 days after the date that a final
agreement is reached between Citigroup and Legg Mason as to the calculation of
Citigroup’s Actual Tax Liability and Citigroup’s Hypothetical Tax Liability for
such taxable period in accordance with Section 8.13(b)(iv).

 

(v) If Citigroup’s Actual Tax Liability or Citigroup’s Hypothetical Tax
Liability for any taxable period that begins after the Closing Date, and the
portion of any Straddle Period beginning after the Closing Date, changes (by
reason of the filing of amended Tax Returns, audit adjustments agreed to with a
Governmental Authority, final dispositions of administrative or judicial
proceedings, carrybacks from later taxable periods to earlier taxable periods or
otherwise), Citigroup shall recalculate Citigroup’s Actual Tax Liability and
Citigroup’s Hypothetical Tax Liability for such taxable period. Citigroup and
Legg Mason shall promptly notify each other of any change or event that might
give rise to such a change. Citigroup shall provide Legg Mason with copies of
its recalculations, together with any documentation or supporting information
(consistent with Citigroup’s internal confidentiality policies) reasonably
requested by Legg Mason to enable it to verify the accuracy of such
recalculations, within 30 days following any such change. If Legg Mason does not
agree with any of Citigroup’s recalculations, Legg Mason and Citigroup shall
resolve such dispute pursuant to Section 8.5. Within 10 days following a final
agreement between Citigroup and Legg Mason as to the recalculations of
Citigroup’s Actual Tax Liability and Citigroup’s Hypothetical Tax Liability,
appropriate adjustment payments (including any interest and penalties actually
payable, or receivable from, as the case may be, the relevant Governmental
Authority that are attributable to changes in Citigroup’s Actual Tax Liability
and Citigroup’s Hypothetical Tax Liability for such taxable period) shall be
made by Legg Mason or Citigroup, as the case may be, to the other party in a
manner consistent with Section 8.13(b)(iv).

 

(vi) In applying the provisions of this Section 8.13(b), it is the intention of
the parties that the Tax Attributes of the Citigroup Group (exclusive of Legg
Mason Tax Items) have priority over the Tax Attributes comprised within the Legg
Mason Tax Items, whether in the taxable year when generated or in another
taxable year to which such items are carried back or carried forward.

 

ARTICLE IX

TERMINATION

 

Section 9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:

 

(a) by the mutual written consent of Legg Mason and Citigroup; or

 

(b) by either Legg Mason or Citigroup, if the transactions contemplated by this
Agreement are not consummated by March 31, 2006 (the “Termination Date”), except
to the extent that such failure arises out of, or results from, a material
breach by the Party seeking to

 

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terminate this Agreement of any representation, warranty, covenant or obligation
of such Party contained herein; or

 

(c) by either Legg Mason or Citigroup, as the case may be, if there shall have
been a breach by the other of any of its representations, warranties, covenants
or obligations contained herein, which breach would result in the failure to
satisfy any condition set forth in Sections 7.1 or 7.2 (in the case of a breach
by Citigroup), or Sections 7.1 or 7.3 (in the case of a breach by Legg Mason),
and in any such case such breach shall be incapable of being cured or, if
capable of being cured, shall not have been cured within 30 calendar days after
written notice thereof shall have been received by the Party alleged to be in
breach; provided that the right to terminate this Agreement under this Section
9.1(c) shall not be available to any Party if the nonfulfillment of the
conditions to such Party’s obligation to close set forth in Sections 7.1 or 7.2
(in the case of Citigroup) or Sections 7.1 or 7.3 (in the case of Legg Mason)
results from the breach by such Party of any of its representations, warranties,
covenants or obligations contained herein.

 

Section 9.2 Effect of Termination. If this Agreement is terminated, no Party (or
any of its Affiliates or their respective directors, officers, employees,
representatives or agents) will have any liability or further obligation to any
other Party to this Agreement, absent fraud or willful breach of this Agreement
prior to such termination and except for the obligations set forth in Sections
6.3(b), (c) and (d) and 11.12, which shall survive termination.

 

ARTICLE X

INDEMNIFICATION

 

Section 10.1 Survival of Representations and Warranties and Covenants.

 

(a) The representations and warranties set forth in this Agreement and the right
to commence any claim with respect thereto (other than the representations and
warranties in Section 4.8(f), Section 4.20 and Section 5.18, which shall not
survive the Closing), shall survive until the date that is 18 months following
the Closing Date; provided that the representations and warranties contained in
Sections 4.1, 4.2(a) and (b), 4.3, 4.13(a), 5.1, 5.2(a) and (b), 5.3, 5.11(a)
and 5.20 shall survive indefinitely; provided, further, however, that in the
event written notice of any claim for indemnification under Section 10.2(a) or
10.3(a) shall have been given in accordance herewith within the applicable
survival period setting forth in reasonable detail the nature of such claim
(including a reasonable specification of the legal and factual basis for such
claim), the representations and warranties that are the subject of such
indemnification claim shall survive with respect to such claim until such time
as such claim is fully and finally resolved.

 

(b) This Section 10.1 shall not limit any covenant or agreement of the Parties
contained in this Agreement which by its terms contemplates performance after
the Closing, and shall not extend the applicability of any covenant or agreement
of the Parties contained in this Agreement which by its terms relates only to a
period between the date hereof and the Closing, provided that nothing herein
shall restrict a Party’s right to commence any claim with respect to such
covenant or agreement following the Closing.

 

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Section 10.2 Indemnification of Legg Mason. Subject to the terms of this Article
X, from and after the Closing Date, Citigroup shall indemnify, defend, save and
hold harmless Legg Mason and its Affiliates and each of their respective
officers, directors, employees, agents, representatives, successors and assigns
(collectively, the “Legg Mason Indemnified Parties”), from and against any and
all:

 

(a) Losses resulting from or arising out of any breach by Citigroup of any
representation or warranty in this Agreement (without regard to any CAM Material
Adverse Effect or materiality qualifications, except for reference to the word
“material” in the Sections set forth in Annex E hereto) other than the
representations and warranties in Section 4.20;

 

(b) Losses resulting from or arising out of the failure by Citigroup to perform
any of its covenants or agreements contained in this Agreement; and

 

(c) Losses resulting from or arising out of any investigation by a Governmental
Authority of which Citigroup or any of its Affiliates or agents or
representatives has notice, or any action, suit, proceeding, claim, demand or
assessment made or brought by any Person, on or prior to the date of this
Agreement, including any of the CAM Scheduled Matters;

 

(d) Losses resulting from or arising out of the failure of Citigroup or any of
the CAM Subsidiaries to comply with AM Requirements of Law prior to the Closing
in respect of the CAM Business;

 

(e) Losses resulting from or arising out of any of the Retained CAM Liabilities;
and

 

(f) Losses resulting from or arising out of the breach or alleged breach of any
CAM Advisory Contract with any True-Up CAM Advisory Client, by reason of the
fact that the express terms of such Contract require written consent to
assignment for which no such consent has been received.

 

Section 10.3 Indemnification of Citigroup. Subject to the terms of this Article
X, from and after the Closing Date, Legg Mason shall indemnify, defend, save and
hold harmless Citigroup and its Affiliates and each of their respective
officers, directors, employees, agents, representatives, successors and assigns
(collectively, the “Citigroup Indemnified Parties” and together with the Legg
Mason Indemnified Parties, the “Indemnified Parties,” and each, an “Indemnified
Party”) from and against any and all:

 

(a) Losses resulting from or arising out of any breach by Legg Mason of any
representation or warranty in this Agreement (without regard to any PC/CM
Material Adverse Effect or materiality qualifications, except for reference to
the word “material” in the Sections set forth in Annex E hereto) other than the
representations and warranties in Section 5.18;

 

(b) Losses resulting from or arising out of the failure by Legg Mason to perform
any of its covenants or agreements contained in this Agreement;

 

(c) Losses resulting from or arising out of any investigation by a Governmental
Authority of which Legg Mason or any of its Affiliates or agents or
representatives has notice, or

 

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any action, suit, proceeding, claim, demand or assessment made or brought by any
Person, on or prior to the date of this Agreement, including any of the PC/CM
Scheduled Matters;

 

(d) Losses resulting from or arising out of any of the Retained PC/CM
Liabilities; and

 

(e) Losses resulting from or arising out of the failure of Legg Mason or any of
the Subsidiaries of Legg Mason to comply with PC/CM Requirements of Law prior to
the Closing in respect of the PC/CM Business.

 

Section 10.4 Claims. Upon receipt by an Indemnified Party of notice of any
action, suit, proceedings, claim, demand or assessment made or brought by an
unaffiliated third party (a “Third Party Claim”) with respect to a matter for
which such Indemnified Party is indemnified under this Article X which has or is
reasonably expected to give rise to a claim for Losses, the Indemnified Party
shall as soon as practicable, in the case of a Legg Mason Indemnified Party,
notify Citigroup and in the case of a Citigroup Indemnified Party, notify Legg
Mason (Citigroup or Legg Mason, as the case may be, the “Indemnifying Party”),
in writing, indicating the nature of such Third Party Claim and the basis
therefor; provided, however, that any delay or failure by the Indemnified Party
to give notice to the Indemnifying Party shall relieve the Indemnifying Party of
its obligations hereunder only to the extent, if at all, that it is prejudiced
by reason of such delay or failure. Such written notice shall (a) describe such
Third Party Claim in reasonable detail including the sections of this Agreement
which form the basis for such claim; provided that the failure to identify a
particular section in such notice shall not preclude the Indemnified Party from
subsequently identifying such section as a basis for such claim, (b) attach
copies of all substantive written evidence thereof and (c) if possible, set
forth an estimate of the amount of Losses that have been or may be sustained by
an Indemnified Party; provided that such estimate shall not be binding or used
in place of the actual amount of Losses subject to this Article X. The
Indemnifying Party shall have 30 days after receipt of notice to elect, at its
option, to assume and control the defense of, at its own expense and by its own
counsel, any such Third Party Claim and shall be entitled to assert any and all
defenses available to the Indemnified Party to the fullest extent permitted
under Requirements of Law. If the Indemnifying Party shall undertake to
compromise or defend any such Third Party Claim, it shall promptly, but in any
event within 10 Business Days of the receipt of notice from the Indemnified
Party of such Third Party Claim, notify the Indemnified Party of its intention
to do so, and the Indemnified Party agrees to cooperate fully with the
Indemnifying Party and its counsel in the compromise of, or defense against, any
such Third Party Claim; provided, however, that the Indemnifying Party shall not
settle, compromise or discharge, or admit any liability with respect to, any
such Third Party Claim without the prior written consent of the Indemnified
Party (which consent will not be unreasonably withheld or delayed), unless the
relief consists solely of money Losses to be paid by the Indemnifying Party and
includes a provision whereby the plaintiff or claimant in the matter releases
the Legg Mason Indemnified Parties or the Citigroup Indemnified Parties, as
applicable, from all liability with respect thereto. Notwithstanding an election
to assume the defense of such action or proceeding, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense of
such action or proceeding, and the Indemnifying Party shall bear the reasonable
fees, costs and expenses of such separate counsel if the (i) Indemnified Party
shall have determined in good faith that an actual or potential conflict of
interest makes representation by the same counsel or the counsel selected by the
Indemnifying

 

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Party inappropriate or (ii) Indemnifying Party shall have authorized the
Indemnified Party to employ separate counsel at the Indemnifying Party’s
expense. In any event, the Indemnified Party and Indemnifying Party and their
counsel shall cooperate in the defense of any Third Party Claim subject to this
Article X, keep such Persons informed of all developments relating to any such
Third Party Claims and provide copies of all relevant correspondence and
documentation relating thereto. All costs and expenses incurred in connection
with the Indemnified Party’s cooperation shall be borne by the Indemnifying
Party. In any event, the Indemnified Party shall have the right at its own
expense to participate in the defense of such asserted liability. If the
Indemnifying Party receiving such notice of a Third Party Claim does not elect
to defend such Third Party Claim or does not defend such Third Party Claim in
good faith, the Indemnified Party shall have the right, in addition to any other
right or remedy it may have hereunder, at the Indemnifying Party’s expense, to
defend such Third Party Claim; provided, however, that the Indemnified Party
shall not settle, compromise or discharge, or admit any liability with respect
to, any such Third Party Claim without the written consent of the Indemnifying
Party (which consent will not be unreasonably withheld or delayed).

 

Section 10.5 Limitations; Payments.

 

(a) Notwithstanding anything contained in this Agreement to the contrary,
Citigroup shall not be (i) liable for any amounts for which the Legg Mason
Indemnified Parties are otherwise entitled to indemnification pursuant to
Section 10.2(a) unless (A) a claim is timely asserted during the survival period
specified in Section 10.1(a), (B) the amount of Losses with respect to the
particular act, circumstance, development, event, fact, occurrence or omission
giving rise to such Losses exceeds $50,000 (aggregating all such Losses arising
from substantially identical facts) and (C) the aggregate amount of all Losses
for which the Legg Mason Indemnified Parties are entitled to indemnification
pursuant to Section 10.2(a) exceeds, on a cumulative basis, $40,000,000 (the
“Citigroup Threshold”), and then only to the extent of such excess, and (ii)
required to make indemnification payments pursuant to Section 10.2(a) to the
extent indemnification payments thereunder would exceed in the aggregate
$1,100,000,000 (the “Citigroup Indemnification Cap”). Notwithstanding anything
contained in this Agreement to the contrary, in no event shall a Legg Mason
Indemnified Party be entitled to indemnification under Section 10.2(a) in
respect of the Losses subject to Section 10.2(c), and any amounts for which the
Legg Mason Indemnified Parties are otherwise entitled to indemnification
pursuant to Section 10.2(c), 10.2(d), 10.2(e) or 10.2(f) shall not count towards
the Citigroup Threshold or the Citigroup Indemnification Cap.

 

(b) Notwithstanding anything contained in this Agreement to the contrary, Legg
Mason shall not be (i) liable for any amounts for which the Citigroup
Indemnified Parties are otherwise entitled to indemnification pursuant to
Section 10.3(a), unless (A) a claim is timely asserted during the survival
period specified in Section 10.1(a), (B) the amount of Losses with respect to
the particular act, circumstance, development, event, fact, occurrence or
omission giving rise to such Losses exceeds $25,000 (aggregating all such Losses
arising from substantially identical facts) and (C) the aggregate amount of all
Losses for which the Citigroup Indemnified Parties are entitled to
indemnification pursuant to Section 10.3(a) exceeds, on a cumulative basis,
$20,000,000 (the “Legg Mason Threshold”), and then only the extent of such
excess, and (ii) required to make indemnification payments pursuant to Section
10.3(a) to the extent indemnification payments thereunder would exceed in the
aggregate $550,000,000 (the

 

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“Legg Mason Indemnification Cap”). Notwithstanding anything contained in this
Agreement to the contrary, in no event shall a Citigroup Indemnified Party be
entitled to indemnification under Section 10.3(a) in respect of the Losses
subject to Section 10.3(c), and any amounts for which the Citigroup Indemnified
Parties are otherwise entitled to indemnification pursuant to Section 10.3(c),
10.3(d) or 10.3(e) shall not count towards the Legg Mason Threshold or the Legg
Mason Indemnification Cap.

 

(c) Notwithstanding anything contained in this Agreement to the contrary, in the
event that any fact, event or circumstance which results in an adjustment to the
purchase price pursuant to Articles I or III hereof would also constitute a
breach or inaccuracy of any of a Party’s representations, warranties, covenants
or agreements under this Agreement or otherwise result in a Loss to the other
Party, such Party shall have no obligation to indemnify any Legg Mason
Indemnified Party or Citigroup Indemnified Party, as applicable, with respect to
such breach or inaccuracy to the extent that (i) recovery for any such Loss
would constitute a duplicative payment of amounts recovered as a purchase price
adjustment pursuant to Articles I or III, (ii) such Loss was reflected as a
liability on the CAM Final Closing Date Balance Sheet or PC/CM Final Closing
Date Balance Sheet, as applicable, or (iii) such Loss was the subject of a
dispute resolved as contemplated by Sections 3.1 and 3.2.

 

Section 10.6 Insurance; Tax Benefits.

 

(a) Notwithstanding anything contained in this Agreement to the contrary, Losses
shall be net of any insurance or other prior or subsequent recoveries actually
received by the Indemnified Party or its Affiliates in connection with the facts
giving rise to the claim for indemnification. If an Indemnified Party shall have
used its reasonable best efforts to recover any amounts recoverable under
insurance policies and shall not have recovered the applicable Losses, the
Indemnifying Party shall be liable for the amount by which such Losses exceeds
the amounts actually recovered.

 

(b) Any indemnity payments made pursuant to Article X by any Indemnifying Party
to an Indemnified Party and any Losses applied to the Citigroup Threshold or
Legg Mason Threshold, as applicable, shall be increased to account for any Tax
cost incurred by the Indemnified Party upon the receipt of such payment (grossed
up for such payment) and shall be made net of any Tax Benefit realized or
utilized by the Indemnified Party or any of its Affiliates resulting from the
payments of the amounts indemnified against giving rise to such indemnity
payments. For purposes of determining the amount of any Tax Benefit or Tax cost
incurred, the Indemnified Party shall be deemed to pay Tax at the highest United
States federal income tax corporate marginal rate in effect in the year such
indemnifiable Loss is incurred and the recipient of the Tax Benefit shall be
deemed to realize or utilize any Tax Benefit in the first taxable year that such
Tax Benefit may be realized or utilized under Requirements of Law after taking
into account all other Tax Attributes of such indemnified party and the
projected utilization of such Tax Attributes as computed by the recipient of
such Tax Benefit. If a Tax Benefit resulting from the incurrence or payment of
Losses is available to any Indemnified Party or its Affiliates in multiple Tax
years, the amount of such Tax Benefit for purposes of this Section 10.6(b) shall
be the net present value of all of such available Tax Benefits, calculated by
using a discount rate equal to the long-term applicable federal rate for the
month in which such Losses are incurred. The amount of any increase or reduction
hereunder shall be adjusted to reflect any final

 

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determination (which shall include the execution of Form 870-AD or successor
form) with respect to the Indemnified Party’s liability for Taxes, and any
payments, if necessary, by the Indemnified Party or the Indemnifying Party to
reflect such adjustment shall be made if necessary within 10 days of such
determination.

 

Section 10.7 Remedies Exclusive. Except as otherwise specifically provided
herein (including Sections 6.17, 6.18, 6.19 and 10.9), the remedies provided in
Article VIII and this Article X shall be the exclusive monetary remedies
(including equitable remedies that involve monetary payment, such as restitution
or disgorgement, other than specific performance to enforce any payment or
performance due hereunder) of the Parties from and after the Closing in
connection with any breach of a representation or warranty, or non-performance,
partial or total, of any covenant or agreement contained herein.

 

Section 10.8 Mitigation. Each Indemnified Party or Tax Indemnified Party shall
use its reasonable best efforts to mitigate any claim or liability that an
Indemnified Party or Tax Indemnified Party asserts or may assert under this
Article X or Article VIII, respectively. In the event that an Indemnified Party
or Tax Indemnified Party shall fail to make such reasonable best efforts to
mitigate any such claim or liability, then notwithstanding anything contained in
this Agreement to the contrary, neither Citigroup nor Legg Mason, as the case
may be, shall be required to indemnify any Indemnified Party or Tax Indemnified
Party for that portion of any Losses or Taxes that would reasonably be expected
to have been avoided if the Indemnified Party or Tax Indemnified Party had made
such efforts.

 

Section 10.9 Tax Indemnification. Except as expressly provided in Article VIII
or this Article X, this Article X shall not apply to indemnification with
respect to Taxes.

 

ARTICLE XI

MISCELLANEOUS

 

Section 11.1 Construction; Absence of Presumption.

 

(a) For the purposes of this Agreement: (i) words (including capitalized terms
defined herein) in the singular shall be held to include the plural and vice
versa and words (including capitalized terms defined herein) of one gender shall
be held to include the other gender as the context requires; (ii) the terms
“hereof,” “herein” and “herewith” and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole (including
all of the Exhibits) and not to any particular provision of this Agreement, and
Article, Section, paragraph and Exhibit references are to the Articles,
Sections, paragraphs and Exhibits to this Agreement, unless otherwise specified;
(iii) the word “including” and words of similar import when used in this
Agreement means “including without limitation”; (iv) “commercially reasonable
efforts,” “reasonable best efforts” and “reasonable efforts” shall not require a
waiver by any Party of any material rights or any action or omission that would
be a breach of this Agreement; (v) all references to any period of days shall be
deemed to be to the relevant number of calendar days unless otherwise specified;
and (vi) all references herein to “$” or dollars shall refer to United States
dollars, unless otherwise specified.

 

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(b) The Parties hereby acknowledge that each Party and its counsel have reviewed
and revised this Agreement and that no rule of construction to the effect that
any ambiguities are to be resolved against the drafting Party shall be employed
in the interpretation of this Agreement (including all of the Exhibits) or any
amendments hereto or thereto.

 

(c) The Parties hereby acknowledge and agree that to the extent that there is a
conflict between any (i) general provision of this Agreement and (ii) provision
specifically relating to Tax matters, the terms of the specific Tax provision
shall control.

 

Section 11.2 Headings. The Article and Section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.

 

Section 11.3 Notices. All notices, demands and other communications required or
permitted to be given to any Party under this Agreement shall be in writing and
any such notice, demand or other communication shall be deemed to have been duly
given when delivered by hand, courier or overnight delivery service or, if
mailed, two Business Days after deposit in the mail, certified or registered
mail, return receipt requested and with first-class postage prepaid, or in the
case of facsimile (or, in the case of any notice pursuant to Section 6.1 or 6.2,
e-mail) notice, when sent and transmission is confirmed, and, regardless of
method, addressed to the Party at its address or facsimile number or, if
applicable, e-mail address set forth below (or at such other address or
facsimile number or, if applicable, e-mail address as the Party shall furnish
the other Parties in accordance with this Section 11.3):

 

  (a) If to Citigroup:

Citigroup Inc.

399 Park Avenue

New York, New York 10043

Attn: Andrew Felner

Facsimile: (212) 559-7057

 

With a copy to:

 

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036-6522

Attn: Ralph Arditi

Facsimile: (212) 735-2000

 

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  (b) If to Legg Mason:

 

Legg Mason, Inc.

100 Light Street

Baltimore, Maryland 21202

Attn: Thomas P. Lemke

Senior Vice President and General Counsel

Facsimile: (410) 454-4607

 

With a copy to:

 

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022-6069

Attn: John A. Marzulli, Jr.

Facsimile: (646) 848-8590

 

Section 11.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the Requirements of Law of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws principles of such State.

 

Section 11.5 Jurisdiction; Venue; Consent to Service of Process.

 

(a) Each of the Parties irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the United States District Court for the Southern
District of New York or, if such court will not accept jurisdiction, the Supreme
Court of the State of New York or any court of competent civil jurisdiction
sitting in New York County, New York. In any action, suit or other proceeding,
each of the Parties irrevocably and unconditionally waives and agrees not to
assert by way of motion, as a defense or otherwise any claims that it is not
subject to the jurisdiction of the above courts, that such action or suit is
brought in an inconvenient forum or that the venue of such action, suit or other
proceeding is improper. Each of the Parties also hereby agrees that any final
and unappealable judgment against a Party in connection with any action, suit or
other proceeding shall be conclusive and binding on such Party and that such
award or judgment may be enforced in any court of competent jurisdiction, either
within or outside of the United States. A certified or exemplified copy of such
award or judgment shall be conclusive evidence of the fact and amount of such
award or judgment.

 

(b) Each Party irrevocably consents to service of process in the manner provided
for the giving of notices pursuant to Section 11.3 of this Agreement. Nothing in
this Section 11.5 shall affect the right of any Party to serve process in any
other manner permitted under Requirements of Law.

 

Section 11.6 Entire Agreement. This Agreement, together with the Related
Agreements and the Confidentiality Agreement and all annexes and exhibits hereto
and thereto, embody the entire agreement of the Parties with respect to the
subject matter hereof and supersede all prior agreements with respect thereto.
The Parties intend that this Agreement shall

 

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constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial proceeding
involving this Agreement.

 

Section 11.7 Amendment and Waiver. No amendment to this Agreement shall be
effective unless it shall be in writing and signed by each Party. Any failure of
a Party to comply with any obligation, covenant, agreement or condition
contained in this Agreement may be waived by the Party entitled to the benefits
thereof only by a written instrument duly executed and delivered by the Party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure of compliance.

 

Section 11.8 Severability. If any provision of this Agreement or the application
of any such provision is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted under Requirements of Law,
the Parties waive any provision under Requirements of Law that renders any
provision of this Agreement invalid, illegal or unenforceable in any respect.
The Parties shall, to the extent lawful and practicable, use their reasonable
best efforts to enter into arrangements to reinstate the intended benefits, net
of the intended burdens, of any such provision held invalid, illegal or
unenforceable.

 

Section 11.9 Successors and Assigns; No Third-Party Beneficiaries. Subject to
the terms of this Section 11.9, this Agreement and all its provisions shall be
binding upon and inure to the benefit of the Parties and their respective
permitted successors and assigns. Nothing in this Agreement, whether expressed
or implied, will confer on any Person, other than the Parties or their
respective permitted successors and assigns, any rights, remedies or
liabilities; provided that the provisions of Article X will inure to the benefit
of the Indemnified Parties. No Party may assign its rights or obligations under
this Agreement without the prior written consent of the other Party (which
consent may not be unreasonably withheld) and any purported assignment without
such consent shall be void; provided that Legg Mason may, without the consent of
Citigroup, assign any or all of its rights (including its ownership interest in
any Legg Mason Subsidiary) and its related obligations hereunder, to any of its
wholly-owned Subsidiaries (although no such assignment shall relieve Legg Mason
of its obligations to Citigroup or any Legg Mason Indemnified Party hereunder);
provided further that Citigroup may, without the consent of Legg Mason, assign
any or all of its rights (including its ownership interest in any CAM
Subsidiary), and its respective related obligations hereunder, to any of its
wholly-owned Subsidiaries (although no such assignment shall relieve Citigroup
of its obligations to Legg Mason or any Citigroup Indemnified Party hereunder).

 

Section 11.10 Publicity. Except for any notice which is required pursuant to the
Requirements of Law or obligations pursuant to any listing agreement with any
national securities exchange, each of Citigroup and Legg Mason hereby agrees
that neither it nor any of its Affiliates will issue (a) an initial press
release announcing the Transactions without the prior written consent of the
other Party, which consent will not be unreasonably withheld or delayed, or (b)
any subsequent press release or any other public presentation with respect to
the Transactions without using its reasonable best efforts to consult with the
other Party as to the contents and timing of such press release or public
statement prior to its issuance. Each of Legg

 

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Mason and Citigroup hereby further agrees, to the extent possible and legally
permissible, to notify and consult with the other Party at least 24 hours in
advance of filing any notice so required.

 

Section 11.11 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH
OF THE PARTIES IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

Section 11.12 Expenses. Except as provided in Section 8.3, whether or not the
Transactions are consummated, all expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except Citigroup and Legg Mason shall each bear and pay
(a) one half of the expenses incurred by it or its Affiliates in connection with
the filing, printing and mailing of the notices and proxy solicitation materials
required by Section 6.6(b)) and (b) one half of the fees and expenses of CAM’s
independent auditors incurred in connection with the preparation of the CAM
Financial Information and the Interim Financial Statements in accordance with
Section 6.21.

 

Section 11.13 Specific Performance and Other Equitable Relief. The Parties
hereby expressly recognize and acknowledge that immediate, extensive and
irreparable damage would result, no adequate remedy at law would exist and
damages would be difficult to determine in the event that any provision of this
Agreement is not performed in accordance with its specific terms or otherwise
breached. Therefore, in addition to, and not in limitation of, any other remedy
available to any Party, an aggrieved Party under this Agreement would be
entitled to specific performance of the terms hereof and immediate injunctive
relief, without the necessity of proving the inadequacy of money damages as a
remedy. Such remedies, and any and all other remedies provided for in this
Agreement, shall, however, be cumulative in nature and not exclusive and shall
be in addition to any other remedies whatsoever which any Party may otherwise
have.

 

Section 11.14 Counterparts. This Agreement may be executed by the Parties in
multiple counterparts which may be delivered by facsimile transmission. Each
counterpart when so executed and delivered shall be deemed an original, and all
such counterparts taken together shall constitute one and the same instrument.

 

Section 11.15 No Other Representations or Warranties.

 

(a) Except for the representations and warranties contained in this Agreement,
neither Citigroup nor any of its Affiliates or their respective officers,
directors, employees or representatives, nor any other Person, makes, or shall
be deemed to make, any representation or warranty to Legg Mason, express or
implied, at law or in equity, on behalf of Citigroup, and Citigroup hereby
excludes and disclaims any such representation or warranty, notwithstanding the
delivery or disclosure to Legg Mason or any of its Affiliates or their
respective officers, directors, employees or representatives or any other Person
of any documentation or other information.

 

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(b) Except for the representations and warranties contained in this Agreement,
neither Legg Mason nor any of its Affiliates or their respective officers,
directors, employees or representatives, nor any other Person, makes, or shall
be deemed to make, any representation or warranty to Citigroup, express or
implied, at law or in equity, on behalf of Legg Mason, and Legg Mason hereby
excludes and disclaims any such representation or warranty, notwithstanding the
delivery or disclosure to Citigroup or any of its Affiliates or their respective
officers, directors, employees or representatives or any other Person of any
documentation or other information.

 

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed on
its behalf by an authorized officer as of the date first above written.

 

CITIGROUP INC.

By:

 

/s/ Robert B. Willumstad

   

Name: Robert B. Willumstad

   

Title: President and Chief Operating Officer

LEGG MASON, INC.

By:

 

/s/ Raymond A. Mason

   

Name: Raymond A. Mason

   

Title: President and Chief Executive Officer

 

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Annex A

 

Defined Terms

 

For purposes of this Agreement, unless the context requires otherwise, the
following terms has the following meanings:

 

“Accountant” has the meaning set forth in Section 3.1(b).

 

“Advisers Act” means the United States Investment Advisers Act of 1940, as
amended, and the rules and regulations promulgated thereunder by the SEC.

 

“Advisory Fee Rate” has the meaning set forth in Section 1.3(b)(ii).

 

“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with such first Person; provided that (a) no CAM Registered
Investment Company or CAM Non-Registered Fund shall be deemed to be an Affiliate
of Citigroup or any of its Affiliates and (b) any Person that provides
investment advisory services in respect of a Legg Mason product in which Legg
Mason, directly or indirectly, has an ownership or similar economic interest
(including any Person owned, in whole or in part, by any Legg Mason portfolio
manager) shall be an Affiliate of Legg Mason. The term “control” (including its
correlative meanings “controlled by” and “under common control with”) means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by Contract or otherwise).

 

“Aggregate Base Revenue Run-Rate” has the meaning set forth in Section
1.3(b)(ii).

 

“Aggregate Closing Revenue Run-Rate” has the meaning set forth in Section
1.3(b)(ii).

 

“Agreement” means this Transaction Agreement and the Citigroup Disclosure
Letter, the Legg Mason Disclosure Letter and all Annexes and Exhibits hereto, as
any of them may be amended, restated or updated from time to time.

 

“Alternate Certificate” has the meaning set forth in Section 2.3(h).

 

“AM Requirements of Law” means any Requirement of Law related to or applicable
to the asset management business conducted by the CAM Business, including the
CAM Business’ activities on behalf of pooled investment vehicles and other
clients.

 

“Applicable CAM Contracts” means Scheduled CAM Contracts and (i) any Contract of
the same type as the Scheduled CAM Contracts that were entered into after the
date hereof, (ii) any other CAM Advisory Contract and (iii) any Contract
relating to the distribution

 

Annex A-1

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of the shares of any CAM Non-Registered Fund, other than any related selling or
similar Contract with a third party.

 

“Applicable PC/CM Contracts” means Scheduled PC/CM Contracts and (i) any
Contract of the same type as the Scheduled PC/CM Contracts that are entered into
after the date hereof and (ii) any material Contract relating to the
distribution of investment products.

 

“Base Assets Under Management” has the meaning set forth in Section 1.3(b)(ii).

 

“Base Date” has the meaning set forth in Section 1.3(b)(ii).

 

“Base Revenue Run-Rate” has the meaning set forth in Section 1.3(b)(ii).

 

“BHC Act” has the meaning set forth in Section 5.7(d).

 

“BM” has the meaning set forth in the definition of “CAM Business.”

 

“Business Day” means any day other than a Saturday, Sunday or day on which
banking institutions in New York, New York are authorized or obligated pursuant
to the Requirements of Law or executive order to be closed.

 

“CAM 401(k) Participants” has the meaning set forth in Section 6.14(h).

 

“CAM Adjustment Amount” has the meaning set forth in Section 1.3(b)(i).

 

“CAM Advisory Client” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Advisory Contract” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Allocation” has the meaning set forth in Section 3.5(a).

 

“CAM Assets” has the meaning given such term in the CAM Restructuring attached
as Exhibit H hereto.

 

“CAM Balance Sheet Adjustment” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Balance Sheets” has the meaning set forth in Section 4.12(a).

 

“CAM Base Balance Sheet” means the unaudited combined balance sheet of the CAM
Business as of March 31, 2005, attached hereto as Section 4.12(a)(ii) of the
Citigroup Disclosure Letter.

 

“CAM Benefit Plan” means each deferred compensation, retiree medical or life
insurance plan, program or arrangement, and each bonus or other incentive
compensation, equity compensation plan, employee welfare benefit plan, fund or
program (within the meaning of Section 3(1) of ERISA); employee pension benefit
plan, fund or program (within the meaning of Section 3(2) of ERISA) and each
supplemental retirement, severance or other benefit plan, program or
arrangement; each employment, termination, severance agreement or other Contract
or agreement; and each other employee benefit plan (within the meaning of
Section 3(3) of

 

Annex A-2

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ERISA), in each case, to which any Citigroup Seller, any Citigroup ERISA
Affiliate or any CAM Subsidiary has any obligation or that is sponsored,
maintained or contributed to or required to be contributed to by any Citigroup
Seller, any Citigroup ERISA Affiliate or any CAM Subsidiary, or to which any
Citigroup Seller, any Citigroup ERISA Affiliate or any CAM Subsidiary is party,
for the benefit of any CAM Business Employee.

 

“CAM Business” means the asset management business of Citigroup described under
the caption “Asset Management” on page 4 of Citigroup’s Form 10-Q for the
quarter ended March 31, 2005 filed with the SEC, excluding (a) Citigroup’s asset
management business (“BM”) and Citigroup’s Banamex retirement services business
in Mexico, (b) Citigroup’s domestic asset management manufacturing businesses in
Colombia, Argentina and Korea, (c) Citigroup’s retirement services business in
Latin America (“LARS”), (d) Citigroup’s interest in Citistreet, (e) Citigroup’s
private bank “Tailored Portfolio Group,” (f) Citigroup’s transfer agency
operation for the Smith Barney family of Registered Investment Companies, (g)
seed capital and ownership interests in CAM investment products and entities
whose sole function is to own, hold or provide seed capital or ownership
interests in CAM investment products, (h) the fund administration business for
the Luxembourg Non-Registered Funds, (i) the business conducted under the
oversight agreement between LARS and BM and (j) the Travelers Series Trust fund
administration business, with the results of operations of such asset management
business (after giving effect to such exclusions) being reflected in the pro
forma unaudited combined income statement for such business for the three months
ended March 31, 2005 and the financial position of such asset management
business (after giving effect to such exclusions) being reflected on the pro
forma unaudited combined balance sheet for such business as of March 31, 2005
(in each case as provided to Legg Mason pursuant to Section 4.12(a)). For the
avoidance of doubt, the CAM Business shall include the business and operations
of the CAM Subsidiaries (or any portion thereof) described in the immediately
preceding sentence and shall exclude all other businesses and operations of
Citigroup and its Affiliates.

 

“CAM Business Employee” means all persons employed by Citigroup or any Affiliate
of Citigroup primarily engaged in or primarily in support of the CAM Business as
of the Closing; provided that the term “CAM Business Employee” shall not include
employees set forth in Section 6.14(a)(i) of the Citigroup Disclosure Letter;
and provided further that for purposes of (a) the definition of CAM Benefit
Plan, the term “CAM Business Employee” shall be deemed to refer to any person
employed by Citigroup or any Affiliate of Citigroup primarily engaged in or
primarily in support of the CAM Business as of the date hereof, and (b) Section
6.1(b)(v), the term “CAM Business Employee” shall be deemed to refer to any
person employed by Citigroup or any Affiliate of Citigroup primarily engaged in
or primarily in support of the CAM Business as of the date of the proposed
action thereunder.

 

“CAM Confidential Information” means all non-public information disclosed prior
to the Closing by the CAM Subsidiaries, their Affiliates and their respective
directors, officers, employees or representatives to Citigroup, its Affiliates
(other than the CAM Subsidiaries) and their respective directors, officers,
employees or representatives (including information disclosed in the course of
negotiation of this Agreement or the Related Agreements) regarding the CAM
Subsidiaries or their Affiliates to the extent that the information relates to
the CAM Business; provided, however, that this term shall not include any
information independently developed by Citigroup or its Affiliates without
violating any obligation under this

 

Annex A-3

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Agreement, the Related Agreements or the Confidentiality Agreement, so long as
such information was not obtained from a third party where Citigroup or its
Affiliates knew or should have known that such information was misappropriated
or otherwise wrongly obtained.

 

“CAM Continuing Business Employee” has the meaning set forth in Section 6.14(a).

 

“CAM Domestic Subsidiary” means a CAM Subsidiary (a) that is treated as a
corporation for United States federal income tax purposes, (b) that is created
or organized in the United States or pursuant to the Requirements of Law of the
United States or of any state thereof and (c) whose stock meeting the
requirements of Section 1504(a)(2) of the Code is acquired by Legg Mason
pursuant to this Agreement.

 

“CAM Election” has the meaning set forth in Section 8.1(a).

 

“CAM Estimated Closing Date Balance Sheet” means the balance sheet of the CAM
Business which shall reflect Citigroup’s good faith estimate of the CAM Final
Closing Date Balance Sheet and CAM Tangible Book Value as set forth therein.

 

“CAM Final Closing Date Balance Sheet” has the meaning set forth in Section
3.1(a)(i).

 

“CAM Financial Information” has the meaning set forth in Section 4.12(a).

 

“CAM Foreign Benefit Plan” means a CAM Benefit Plan that is not subject to
United States Requirement of Law.

 

“CAM Foreign Subsidiaries” means those CAM Subsidiaries that are not CAM
Domestic Subsidiaries.

 

“CAM Forfeited Equity Award” has the meaning set forth in Section 6.14(l).

 

“CAM Income Statements” has the meaning set forth in Section 4.12(a).

 

“CAM Intellectual Property” means the CAM Owned Intellectual Property and the
CAM Licensed Intellectual Property.

 

“CAM Lease” means any lease, sublease or license, including any amendment with
respect thereto, pursuant to which any CAM Subsidiary uses, leases, subleases,
occupies or holds any CAM Leased Real Property in connection with the CAM
Business.

 

“CAM Leased Real Property” means the real property leased, subleased, occupied
and/or licensed in connection with the CAM Business by any CAM Subsidiary, as
tenant, subtenant or licensee, together with, to the extent leased, subleased,
occupied and/or licensed in connection with the CAM Business by any CAM
Subsidiary, all buildings and other structures, facilities or improvements
currently located thereon, all fixtures thereto, and all easements, licenses,
rights and other appurtenances relating to the foregoing, excluding all Retained
Assets

 

Annex A-4

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(as defined in the CAM Restructuring attached as Exhibit H hereto) except those
properties where Legg Mason will be a subtenant or licensee in accordance with
Exhibit H.

 

“CAM Liabilities” has the meaning given such term in the CAM Restructuring
attached as Exhibit H hereto.

 

“CAM License Agreement” means any Contract with respect to any CAM Licensed
Intellectual Property that is licensed by the CAM Business in the name of a CAM
Subsidiary.

 

“CAM Licensed Intellectual Property” means Intellectual Property used by the CAM
Business that is not CAM Owned Intellectual Property, excluding standard,
immaterial, commercially available Software licensed via “click-wrap” or
“shrink-wrap” license agreements.

 

“CAM Material Adverse Effect” means (a) a material adverse effect on the
business, results of operations or financial condition of the CAM Business,
taken as a whole, excluding any such effect arising out of or resulting from (i)
general economic or business conditions, including securities markets generally,
or changes therein, or any act of terrorism, similar calamity or war to the
extent that they do not have a materially disproportionate effect on the CAM
Business, (ii) conditions or trends in the economic, business, financial or
regulatory environment generally affecting the investment management industry to
the extent that they do not have a materially disproportionate effect on the CAM
Business, (iii) reductions in the level of asset management revenues or revenue
run-rate following the Base Date, (iv) the execution and delivery of this
Agreement or the Related Agreements or the announcement of the Transactions; or
(b) a material adverse change or effect on the ability of Citigroup to perform
its material obligations under this Agreement or the Related Agreements.

 

“CAM Negative Consent Notice” means a written notice informing the applicable
CAM Advisory Client (a) of the Transactions, (b) of the intention of Citigroup
Sellers to complete the Transactions, which will result in an assignment or a
deemed assignment of such CAM Advisory Client’s CAM Advisory Contract(s), (c) of
the applicable CAM Subsidiary’s intention to continue to provide the advisory
services pursuant to such CAM Advisory Contract after the Closing and (d) that
the Consent of such CAM Advisory Client with respect to its CAM Advisory
Contract will be deemed to have been granted if such CAM Advisory Client
continues to accept such advisory services for a period of at least 45 days
after the sending of the CAM Negative Consent Notice without termination.

 

“CAM Non-Continuing Business Employee” has the meaning set forth in Section
6.14(c).

 

“CAM Non-Registered Fund” means any CAM Advisory Client that is a pooled
investment vehicle that is not registered as an investment company under the
Investment Company Act that is sponsored by a CAM Subsidiary.

 

“CAM Notice” has the meaning set forth in Section 6.6(a).

 

“CAM Owned Intellectual Property” means the Intellectual Property solely or
primarily related to the CAM Business that is owned by any of the CAM
Subsidiaries.

 

Annex A-5

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“CAM Owned Real Property” means the real property owned in connection with the
CAM Business by any CAM Subsidiary, together with all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures thereto, and all easements, licenses, rights and other
appurtenances relating to the foregoing, excluding all Retained Assets (as
defined in the CAM Restructuring attached as Exhibit H hereto).

 

“CAM Proposed Allocation” has the meaning set forth in Section 8.4(d)(i).

 

“CAM Qualified Plan” has the meaning set forth in Section 4.14(e).

 

“CAM Qualifying Termination” has the meaning set forth in Section 6.14(b).

 

“CAM Real Property” means the CAM Owned Real Property and the CAM Leased Real
Property.

 

“CAM Registered Investment Company” means a CAM Advisory Client that is a
Registered Investment Company other than for purposes of Article IV (other than
the first sentence of Section 4.8(a)) a Non-Sponsored CAM Registered Investment
Company.

 

“CAM Restructuring” has the meaning set forth in Section 6.13(a).

 

“CAM Revenue Adjustment” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Scheduled Matters” means those matters identified in Section 10.2 of the
Citigroup Disclosure Letter.

 

“CAM Severance Plan” has the meaning set forth in Section 6.14(a).

 

“CAM Shortfall Percentage” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Subsidiaries” means each of the Subsidiaries of Citigroup through which any
portion of the CAM Business is conducted on and, as a result of the CAM
Restructuring and the other transactions contemplated by this Agreement, after
the date hereof, including the CAM Transferred Subsidiaries; provided, however,
that, except for Sections 4.1, 4.2(a) and 4.3, no reference in any
representation, warranty, covenant or other provision of this Agreement or any
Related Agreement by Citigroup or any of its Affiliates with respect to any such
Subsidiary that also conducts business or operations not constituting part of
the CAM Business shall be construed to be made or otherwise to be applicable for
any purpose whatsoever to such other business and operations.

 

“CAM Subsidiaries Benefit Plans” has the meaning set forth in Section 4.14(a).

 

“CAM Tangible Book Value” has the meaning set forth in Section 1.3(b)(ii).

 

“CAM Tangible Book Value Target” has the meaning set forth in Section
1.3(b)(ii).

 

Annex A-6

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“CAM Transferred Non-Continuing Business Employee” has the meaning set forth in
Section 6.14(a).

 

“CAM Transferred Shares” means all of the issued and outstanding capital stock
(or other equity interest) of the CAM Transferred Subsidiaries.

 

“CAM Transferred Subsidiaries” means (a) the Subsidiaries of Citigroup set forth
in Exhibit A hereto and (b) without duplication, such other Subsidiaries of
Citigroup that are deemed to be CAM Transferred Subsidiaries pursuant to Exhibit
H hereto.

 

“CAM Transitional Business Employee” has the meaning set forth in Section
6.14(c).

 

“CAM TSA” means the Transition Services Agreement with respect to the sale of
the CAM Business from Citigroup to Legg Mason to be entered into as of the
Closing and with such terms set forth in Exhibit F-1 attached hereto and other
customary terms.

 

“Canadian Exchangeable Shares” has the meaning set forth in Section 5.20(a).

 

“CGMI” has the meaning set forth in Section 6.22.

 

“Citigroup” has the meaning set forth in the introductory paragraph to this
Agreement.

 

“Citigroup Affiliated Group” has the meaning set forth in Section 8.1(a).

 

“Citigroup Competitive Business” has the meaning set forth in Section 6.17(d).

 

“Citigroup Confidential Information” means all non-public information disclosed
by Citigroup, its Affiliates (other than the CAM Subsidiaries) and their
respective directors, officers, employees or representatives to Legg Mason, its
Affiliates and their respective directors, officers, employees or
representatives and, prior to the Closing, by the CAM Subsidiaries and their
directors, officers, employees or representatives (including information
disclosed in the course of negotiation of this Agreement or the Related
Agreements) regarding Citigroup or its Affiliates to the extent that the
information does not relate primarily to the CAM Business; provided, however,
that this term shall not include any information independently developed by Legg
Mason or its Affiliates or, subsequent to the Closing, the CAM Subsidiaries
without violating any obligation under this Agreement, the Related Agreements or
the Confidentiality Agreement, so long as such information was not obtained from
a third party where Legg Mason, its Affiliates or the CAM Subsidiaries knew or
should have known that such information was misappropriated or otherwise wrongly
obtained.

 

“Citigroup Continuing Deferred Compensation Amount” has the meaning set forth in
Section 6.14(l).

 

“Citigroup DCAP” has the meaning set forth in Section 6.14(g).

 

Annex A-7

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“Citigroup Disclosure Letter” means a letter delivered by Citigroup to Legg
Mason on or before the execution and delivery of this Agreement setting forth
items the disclosure of which is required under this Agreement either in
response to an express disclosure requirement contained in a provision of this
Agreement or as an exception to one or more of the representations, warranties,
covenants or agreements contained in this Agreement; provided that the mere
inclusion of an item in the Citigroup Disclosure Letter as an exception to a
representation or warranty will not be deemed an admission by Citigroup that
such item (or any non-disclosed item or information of comparable or greater
significance) represents a material exception or fact, event or circumstance or
that such item has had or is expected to have a CAM Material Adverse Effect; and
provided further that the information disclosed in any section or subsection of
the Citigroup Disclosure Letter shall be deemed to be disclosed with respect to
such other sections or subsections of this Agreement or the Citigroup Disclosure
Letter to which such disclosure is reasonably apparent in the light of the form
and substance of the disclosure made (based solely on the text of the Citigroup
Disclosure Letter, without examining any document listed in the Citigroup
Disclosure Letter).

 

“Citigroup ERISA Affiliate” means any trade or business, whether or not
incorporated, that together with Citigroup Sellers would be deemed a “single
employer” within the meaning of Section 4001(b) of ERISA.

 

“Citigroup FSA” has the meaning set forth in Section 6.14(f).

 

“Citigroup Guaranties” has the meaning set forth in Section 6.10(a)(i).

 

“Citigroup Indemnification Cap” has the meaning set forth in Section 10.5(a).

 

“Citigroup Indemnified Parties” has the meaning set forth in Section 10.3.

 

“Citigroup Permitted Activities” has the meaning set forth in Section
6.17(b)(i).

 

“Citigroup Principal Marks” has the meaning set forth in Section 6.13(a).

 

“Citigroup Replacement Retention Plans” has the meaning set forth in Section
6.15(l).

 

“Citigroup Restricted Activities” has the meaning set forth in Section
6.17(b)(ii).

 

“Citigroup Restricted Period” has the meaning set forth in Section 6.17(b)(iii).

 

“Citigroup Sellers” means Citigroup and the Subsidiaries of Citigroup that own
the CAM Transferred Shares immediately prior to the Closing.

 

“Citigroup Target Business” has the meaning set forth in Section 6.17(d).

 

“Citigroup Tax Indemnitees” has the meaning set forth in Section 8.1(b).

 

“Citigroup Tax Items” means (i) income, gain, loss or deductions in respect of
the grant, exercise, vesting or disposition by a CAM Business Employee of an
option on shares of

 

Annex A-8

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Citigroup common stock with respect thereto and any Citigroup restricted stock,
Citigroup deferred stock or any other award of Citigroup stock (“Citigroup
Compensation Items”) and (ii) any other deduction arising in respect of any
payment, loss, obligation, Tax or liability that Citigroup or any of its
Affiliates is responsible for under, or in connection with, this Agreement or
the Related Agreements or that is otherwise borne by Citigroup or its
Affiliates, including, without limitation, any amounts paid after the Closing by
Citigroup or any of its Affiliates of the Legg Mason Continuing Deferred
Compensation Amounts.

 

“Citigroup Territory” has the meaning set forth in Section 6.17(b)(iv).

 

“Citigroup Threshold” has the meaning set forth in Section 10.5(a).

 

“Closing” has the meaning set forth in Section 2.1.

 

“Closing Adjusted Assets Under Management” has the meaning set forth in Section
1.3(b)(ii).

 

“Closing Agreement” means a written and legally binding agreement with a
Governmental Authority with respect to Taxes.

 

“Closing Date” has the meaning set forth in Section 2.1.

 

“Closing Revenue Run-Rate” has the meaning set forth in Section 1.3(b)(ii).

 

“Closing Revenue Run-Rate Date” has the meaning set forth in Section 1.3(b)(ii).

 

“CM Business” has the meaning set forth in the definition of “PC/CM Business.”

 

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

 

“Confidential Information”, with respect to Citigroup or Legg Mason, as the case
may be, and/or its Affiliates and representatives, means “Confidential
Information” (as defined in the Confidentiality Agreement) and the Citigroup
Confidential Information, the Legg Mason Confidential Information, the CAM
Confidential Information and the PC/CM Confidential Information, as the case may
be.

 

“Confidentiality Agreement” has the meaning set forth in Section 6.3(c).

 

“Consent” means, with respect to any Person, any consent, approval,
authorization, waiver, permit, license, grant, agreement, exemption or order of,
or registration, declaration or filing with, any other Person, including any
Governmental Authority, that is required in connection with (a) the execution
and delivery by such Person of this Agreement or any Related Agreement or (b)
the consummation by such Person and its Affiliates of the Transactions.

 

“Consenting CAM Advisory Contract” has the meaning set forth in Section
1.3(b)(ii).

 

Annex A-9

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“Contract” means, with respect to any Person, any loan agreement, indenture,
letter of credit, mortgage, security agreement, pledge agreement, guarantee,
lease, sublease, license or any other agreement, contract, instrument,
obligation, commitment or arrangement, whether written or oral, in each case as
amended, supplemented, waived or otherwise modified, to which such Person is a
party or by which it is bound or any of its assets are subject.

 

“Controlling Party” has the meaning set forth in Section 8.1(h)(v).

 

“Conveyance Taxes” has the meaning set forth in Section 8.3.

 

“Copyrights” means all registered and unregistered copyrights, including moral
rights and rights of attribution and integrity, and copyrights in computer
Software and the content contained on any Web site.

 

“Current CAM Bonus Year” has the meaning set forth in Section 6.14(j).

 

“Current PC/CM Bonus Year” has the meaning set forth in Section 6.15(j).

 

“Delayed Closing” has the meaning set forth in Section 2.7(c).

 

“Delayed Closing Assets” has the meaning set forth in Section 2.7(a).

 

“Delayed Closing Date” has the meaning set forth in Section 2.7(c).

 

“Determination” has the meaning set forth in Section 1313(a) of the Code or any
similar state or local Requirement of Law with respect to Taxes.

 

“Disregarded Entity” has the meaning set forth in Section 3.5(a).

 

“Distribution and Product Access Agreement” means the Global Distribution
Agreement entered into on the date hereof, in the form set forth in Exhibit E
attached hereto.

 

“DOJ” means the United States Department of Justice.

 

“Environmental Laws” means any and all local, state and federal laws,
regulations, codes, decrees, orders, judgments, principles of common law and
binding judicial or administrative interpretation thereof pertaining to: (a) the
protection of the environment (including air quality, surface water,
groundwater, soils, subsurface strata, drinking water, natural resources and
biota) or human health; or (b) the presence, use, processing, generation,
management, storage, treatment, recycling, disposal, discharge, release,
threatened release, investigation or remediation of Hazardous Materials,
including the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act and the Federal Occupational
Safety and Health Act (as it relates solely to exposure to Hazardous Materials)
and their implementing regulations as well as state analogues.

 

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

 

Annex A-10

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“Exchange Act” means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder by the SEC.

 

“Excluded Advisory Contract” means, with respect to a CAM Advisory Contract in
effect as of May 31, 2005, a contract set forth on Support Schedules G, H, I and
J of the Revenue Run-Rate Schedule and, with respect to a CAM Advisory Contract
in effect after May 31, 2005, a contract of such type.

 

“Excluded CAM Business Employee” has the meaning set forth in Section 6.14(a).

 

“Excluded PC/CM Business Employee” has the meaning set forth in Section 6.15(a).

 

“Filings” has the meaning set forth in Section 4.7(h).

 

“FIRPTA Certificate” has the meaning set forth in Section 2.3(h).

 

“FIS” has the meaning set forth in Section 6.18(b)(i).

 

“Forfeited DIP Account” has the meaning set forth in Section 6.14(l).

 

“Forms 8023” has the meaning set forth in Section 8.4(a)(i).

 

“FTC” means the United States Federal Trade Commission.

 

“Fund Annual Financial Statements” has the meaning set forth in Section 4.8(k).

 

“Fund Financial Statements” has the meaning set forth in Section 4.8(k).

 

“Fund Interim Financial Statements” has the meaning set forth in Section 4.8(k).

 

“GAAP” means United States generally accepted accounting principles in effect at
the time any applicable financial statements were prepared or any act requiring
the application of GAAP was performed.

 

“Governmental Authority” means any federal, national, supranational, state,
provincial, local, or similar government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body, including the SEC and any SRO within or outside the
United States.

 

“Hazardous Materials” means (a) any petrochemical or petroleum products or
by-products, waste oil, radon gas, asbestos in any form that is or could become
friable or any material containing asbestos, lead-based paint, Mold, urea
formaldehyde foam insulation and polychlorinated biphenyls; or (b) any
chemicals, materials or substances defined in any Environmental Law as or
included in the definition, or having the characteristics, of “hazardous
substances,” “hazardous chemicals,” “hazardous wastes,” “hazardous materials,”
“toxic substances,” “contaminants” or “pollutants” or words of similar meaning
or regulatory effect.

 

“HSR Act” has the meaning set forth in Section 6.5(b).

 

Annex A-11

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“Indebtedness” means, without duplication, (a) all indebtedness for borrowed
money or for the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), whether or not evidenced by a
writing, (b) any other indebtedness that is evidenced by a note, bond,
debenture, draft or similar instrument, (c) all obligations under financing or
capital leases, (d) all obligations in respect of acceptances issued or created,
(e) notes payable and drafts accepted representing extensions of credit, (f) all
liabilities secured by any Lien on any property, (g) letters of credit and any
other agreements relating to the borrowing of money or extension of credit and
(h) any guarantee (including by way of a “keep well” or other similar
undertaking) of any of the foregoing obligations.

 

“Indemnified Party” has the meaning set forth in Section 10.3.

 

“Indemnifying Party” has the meaning set forth in Section 10.4.

 

“Institutional Contract” means, with respect to a CAM Advisory Contract in
effect as of May 31, 2005, a contract set forth under the heading “Institutional
Contracts” on the Revenue Run-Rate Schedule and, with respect to a CAM Advisory
Contract in effect after May 31, 2005, a contract of the type set forth under
such heading.

 

“Intellectual Property” means all Copyrights, Patents, Trademarks, Trade
Secrets, all other similar intangible assets, any applications for any of the
foregoing and the right to sue for past infringement of any of the foregoing.

 

“Interim Financial Statements” has the meaning set forth in Section 6.21.

 

“Investment Company Act” means the United States Investment Company Act of 1940,
as amended, and the rules and regulations promulgated thereunder by the SEC.

 

“IRS” has the meaning set forth in Section 3.5(b).

 

“Knowledge” means, with respect to Citigroup and/or Citigroup Sellers, the
knowledge of the individuals set forth in Annex C hereto and, with respect to
Legg Mason and/or Legg Mason Sellers, means the actual knowledge of the
individuals set forth in Annex D hereto, which in each case shall be deemed to
include the knowledge any such person would have had if he or she had made
reasonable inquiry of those persons that such individual would reasonably expect
to have actual knowledge of the relevant subject matter.

 

“LARS” has the meaning set forth in the definition of “CAM Business.”

 

“Legg Mason” has the meaning set forth in the introductory paragraph to this
Agreement.

 

“Legg Mason 401(k) Plan” has the meaning set forth in Section 6.14(h).

 

“Legg Mason Affiliated Group” has the meaning set forth in Section 8.1(c).

 

“Legg Mason Capital Stock” has the meaning set forth in Section 5.20(a).

 

Annex A-12

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“Legg Mason Common Stock” means the common stock, par value $0.10 per share, of
Legg Mason.

 

“Legg Mason Competitive Business” has the meaning set forth in Section 6.18(c).

 

“Legg Mason Confidential Information” means all non-public information disclosed
by Legg Mason, its Affiliates (other than the PC/CM Subsidiaries) and their
respective directors, officers, employees or representatives to Citigroup, its
Affiliates and their respective directors, officers, employees or
representatives and, prior to the Closing, by the PC/CM Subsidiaries and their
respective directors, officers, employees or representatives (including
information disclosed in the course of negotiation of this Agreement or the
Related Agreements) regarding Legg Mason or its Affiliates to the extent that
the information relates to the PC/CM Business; provided, however, that this term
shall not include any information independently developed by Citigroup or its
Affiliates or, subsequent to the Closing, the PC/CM Subsidiaries without
violating any obligation under this Agreement, the Related Agreements or the
Confidentiality Agreement, so long as such information was not obtained from a
third party where Citigroup, its Affiliates or the PC/CM Subsidiaries knew or
should have known that such information was misappropriated or otherwise wrongly
obtained.

 

“Legg Mason Continuing Deferred Compensation Amount” has the meaning set forth
in Section 6.15(l).

 

“Legg Mason DCAP” has the meaning set forth in Section 6.14(g).

 

“Legg Mason Disclosure Letter” means a letter delivered by Legg Mason to
Citigroup on or before the execution and delivery of this Agreement setting
forth items the disclosure of which is required under this Agreement either in
response to an express disclosure requirement contained in a provision of this
Agreement or as an exception to one or more of the representations, warranties,
covenants or agreements contained in this Agreement; provided that the mere
inclusion of an item in the Legg Mason Disclosure Letter as an exception to a
representation or warranty will not be deemed an admission by Legg Mason that
such item (or any non-disclosed item or information of comparable or greater
significance) represents a material exception or fact, event or circumstance or
that such item has had or is expected to have a PC/CM Material Adverse Effect or
a Legg Mason Material Adverse Effect; and provided further that the information
disclosed in any section or subsection of the Legg Mason Disclosure Letter shall
be deemed to be disclosed with respect to such other sections or subsections of
this Agreement or the Legg Mason Disclosure Letter to which such disclosure is
reasonably apparent in the light of the form and substance of the disclosure
made (based solely on the text of the Legg Mason Disclosure Letter, without
examining any document listed in the Legg Mason Disclosure Letter).

 

“Legg Mason ERISA Affiliate” means any trade or business, whether or not
incorporated, that together with Legg Mason Sellers would be deemed a “single
employer” within the meaning of Section 4001(b) of ERISA.

 

“Legg Mason FSA” has the meaning set forth in Section 6.14(f).

 

“Legg Mason Group” has the meaning set forth in Section 8.13(b).

 

Annex A-13

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“Legg Mason Guaranties” has the meaning set forth in Section 6.10(a)(ii).

 

“Legg Mason Indemnification Cap” has the meaning set forth in Section 10.5(b).

 

“Legg Mason Indemnified Parties” has the meaning set forth in Section 10.2.

 

“Legg Mason Material Adverse Effect” means (a) a material adverse effect on the
business, results of operations or financial condition of Legg Mason and its
Subsidiaries, taken as a whole, excluding any such effect arising out of or
resulting from (i) general economic or business conditions, including securities
markets generally, or changes therein or any act of terrorism, similar calamity
or war to the extent that they do not have a materially disproportionate effect
on Legg Mason and its Subsidiaries, taken as a whole, (ii) conditions or trends
in the economic, business, financial or regulatory environment generally
affecting the investment management, brokerage and investment banking industries
to the extent that they do not have a materially disproportionate effect on Legg
Mason and its Subsidiaries, taken as a whole or (iii) the execution and delivery
of this Agreement or the Related Agreements or the announcement of the
Transactions; or (b) a material adverse change or effect on the ability of Legg
Mason to perform its material obligations under this Agreement.

 

“Legg Mason Note” means the senior term note to be issued to Citigroup (or one
of its Affiliates) pursuant to the Term Loan Facility contemplated in the
commitment letter dated the date of this Agreement between Legg Mason, Inc. and
Citigroup Global Markets Inc., a subsidiary of Citigroup (the “Commitment
Letter”).

 

“Legg Mason Permitted Activities” has the meaning set forth in Section
6.18(b)(i).

 

“Legg Mason Preferred Stock” means a new series of non-voting, convertible
participating preferred stock, par value $10.00, of Legg Mason substantially in
the form attached hereto as Exhibit D hereto.

 

“Legg Mason Principal Marks” has the meaning set forth in Section 6.13(b).

 

“Legg Mason Restricted Activities” has the meaning set forth in Section
6.18(b)(ii).

 

“Legg Mason Restricted Period” has the meaning set forth in Section
6.18(b)(iii).

 

“Legg Mason SEC Documents” means any forms, reports, schedules, statements,
prospectuses and other documents and exhibits required to be publicly filed
with, or furnished to, the SEC by Legg Mason since January 1, 2002.

 

“Legg Mason Sellers” means Legg Mason and the Subsidiaries of Legg Mason that
own the PC/CM Transferred Shares immediately prior to the Closing.

 

“Legg Mason Shares” has the meaning set forth in Section 1.2(a).

 

“Legg Mason Target Business” has the meaning set forth in Section 6.18(c).

 

Annex A-14

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“Legg Mason Tax Indemnitees” has the meaning set forth in Section 8.1(a).

 

“Legg Mason Tax Items” means (i) income, gain, loss or deductions in respect of
the grant, exercise, vesting or disposition by an Legg Mason Business Employee
of an option on shares of Legg Mason common stock with respect thereto and any
Legg Mason restricted stock, Legg Mason deferred stock or any other award of
Legg Mason stock (“Legg Mason Compensation Items”) and (ii) any other deduction
arising in respect of any payment, loss, obligation, Tax or liability that Legg
Mason or any of its Affiliates is responsible for under, or in connection with,
this Agreement or the Related Agreements or that is otherwise borne by Legg
Mason or its Affiliates including, without limitation, any amounts paid after
the Closing by Legg Mason or its Affiliates of the Citigroup Continuing Deferred
Compensation Amounts.

 

“Legg Mason Territory” has the meaning set forth in Section 6.18(b)(iv).

 

“Legg Mason Threshold” has the meaning set forth in Section 10.5(b).

 

“Legg Mason’s Actual Tax Liability” has the meaning set forth in Section
8.13(b).

 

“Legg Mason’s Hypothetical Tax Liability” has the meaning set forth in Section
8.13(b).

 

“Liens” means any liens, pledges, charges, claims, security interests, deeds of
trust, mortgages, deeds to secure debt, title retention agreements or other
encumbrances.

 

“Loan Documentation” has the meaning set forth in Section 6.22.

 

“Losses” means all costs, damages, liabilities, awards, judgments, losses or
costs and expenses, interest, awards, judgments and penalties that are imposed
upon or otherwise incurred by an Indemnified Party (including reasonable
attorneys’ and consultants’ fees and expenses) actually suffered or incurred;
provided, however, that Losses shall not include lost profits or opportunity
costs or consequential, incidental, special, indirect, exemplary or punitive
damages or Taxes, unless such consequential, incidental, special, indirect,
exemplary or punitive damages are awarded against any of the Indemnified Parties
in a Third Party Claim.

 

“Margin Loans” has the meaning set forth in Section 5.8(a).

 

“Mold” means any form of multicellular fungi that live on plant or animal matter
in moist, indoor environments and shall include, without limitation,
Cladosporium, Penicillium, Altemaria, Asperigillus, Fusarium, Trichoderma,
Memnoniella, Mucor and Stachbotry’s Chartarum.

 

“Multiemployer Plan” has the meaning set forth in Section 4.14(c).

 

“Multiple Employer Plan” has the meaning set forth in Section 4.14(c).

 

“Net Adjustment Amount” means (a) the PC/CM Balance Sheet Adjustment, if any,
less (b) the CAM Balance Sheet Adjustment, if any, which amount may be positive
or negative.

 

Annex A-15

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“Net Amount” has the meaning set forth in Section 1.2(c).

 

“Non-Registered Fund” means any pooled investment vehicle that is not registered
as an investment company under the Investment Company Act.

 

“Non-Registered Fund Annual Financial Statements” means the audited financial
statements for each of the CAM Non-Registered Funds for its most recent fiscal
year ended on or prior to March 31, 2005.

 

“Non-Registered Fund Financial Statements” means the Non-Registered Fund Annual
Financial Statements and the Non-Registered Fund Interim Financial Statements.

 

“Non-Registered Fund Interim Financial Statements” means the unaudited
semi-annual financial statements for each of the CAM Non-Registered Funds for
its semi-annual period, if any, ended after the date of the Non-Registered Fund
Annual Financial Statements for such CAM Non-Registered Fund and prior to the
date hereof.

 

“Non-Sponsored CAM Registered Investment Company” means a CAM Registered
Investment Company not sponsored by Citigroup or one of its Affiliates, as set
forth in Section 4.8(a) of the Citigroup Disclosure Letter under the heading
“Non-Sponsored Funds”.

 

“Non-U.S. CAM Benefit Plan” has the meaning set forth in Section 4.14(j).

 

“Non-U.S. CAM Business Employee” has the meaning set forth in Section 6.14(a).

 

“Non-U.S. PC/CM Benefit Plan” has the meaning set forth in Section 5.12(j).

 

“Non-U.S. PC/CM Business Employee” has the meaning set forth in Section 6.15(a).

 

“Note Principal Amount” has the meaning set forth in Section 1.2(c).

 

“NYSE” means the New York Stock Exchange, Inc.

 

“Other Contract” means, with respect to a CAM Advisory Contract in effect as of
May 31, 2005, a contract set forth under the heading “Other Contracts” on the
Revenue Run-Rate Schedule and, with respect to a CAM Advisory Contract in effect
after May 31, 2005, a contract of the type set forth under such heading.

 

“Parties” has the meaning set forth in the introductory paragraph to this
Agreement.

 

“Patents” means all patents and patent applications, including any
continuations, divisionals, continuations-in-part, renewals and reissues.

 

“PC/CM 401(k) Participants” has the meaning set forth in Section 6.15(h).

 

“PC/CM Allocation” has the meaning set forth in Section 3.5(a).

 

Annex A-16

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“PC/CM Balance Sheet Adjustment” has the meaning set forth in Section 1.3(a)(i).

 

“PC/CM Base Balance Sheet” means the unaudited balance sheet of the PC/CM
Business as of March 31, 2005, attached hereto as Section 5.10(a)(ii) of the
Legg Mason Disclosure Letter.

 

“PC/CM Benefit Plan” means each deferred compensation, retiree medical or life
insurance plan, program or arrangement, and each bonus or other incentive
compensation, equity compensation plan, employee welfare benefit plan, fund or
program (within the meaning of Section 3(1) of ERISA); employee pension benefit
plan, fund or program (within the meaning of Section 3(2) of ERISA) and each
supplemental retirement, severance or other benefit plan, program or
arrangement; each employment, termination, severance agreement or other Contract
or agreement; and each other employee benefit plan (within the meaning of
Section 3(3) of ERISA), in each case, to which any Legg Mason Seller, any Legg
Mason ERISA Affiliate or any PC/CM Subsidiary has any obligation or that is
sponsored, maintained or contributed to or required to be contributed to by any
Legg Mason Seller, any Legg Mason ERISA Affiliate or any PC/CM Subsidiary, or to
which any Legg Mason Seller, any Legg Mason ERISA Affiliate or any PC/CM
Subsidiary is party, for the benefit of any PC/CM Business Employee.

 

“PC/CM Business” means (a) the private client business of Legg Mason described
under the caption “Private Client Business Segment” starting on page 11 of Legg
Mason’s Form 10-K for the fiscal year ended March 31, 2005 filed with the SEC
(the “PC Business”) and (b) the capital markets business of Legg Mason as
described under the caption “Capital Markets Business Segment” starting on page
13 of such Form 10-K, including, by way of example and not limitation, the
corporate investment banking, public finance investment banking, institutional
equity sales and trading, institutional fixed income sales and trading,
structured finance, syndication and equity research, but excluding the business
of Legg Mason Real Estate Services and Legg Mason Real Estate Investors (the “CM
Business”), with the results of operations of such businesses (after giving
effect to such exclusion) being reflected in the PC/CM Income Statement and the
financial position of such businesses (after giving effect to such exclusion)
being reflected on the PC/CM Base Balance Sheet (in each case as provided to
Legg Mason pursuant to Section 5.10(a)).

 

“PC/CM Business Employee” means all persons employed by Legg Mason or any
Affiliate of Legg Mason primarily engaged in or primarily in support of the
PC/CM Business as of the Closing; provided that the term “PC/CM Business
Employee” shall not include employees set forth in Section 6.15(a)(i) of the
Legg Mason Disclosure Letter; and provided further that for purposes of (a) the
definition of PC/CM Benefit Plan, the term “PC/CM Business Employee” shall be
deemed to refer to any person employed by Legg Mason or any Affiliate of Legg
Mason primarily engaged in or primarily in support of the PC/CM Business as of
the date hereof, and (b) Section 6.1(c)(vi), the term “PC/CM Business Employee”
shall be deemed to refer to any person employed by Legg Mason or any Affiliate
of Legg Mason primarily engaged in or primarily in support of the PC/CM Business
as of the date of the proposed action thereunder.

 

“PC/CM Confidential Information” means all non-public information disclosed
prior to the Closing by the PC/CM Subsidiaries, their Affiliates and their
respective directors, officers, employees or representatives to Legg Mason, its
Affiliates (other than the PC/CM

 

Annex A-17

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Subsidiaries) and their respective directors, officers, employees or
representatives (including information disclosed in the course of negotiation of
this Agreement or the Related Agreements) regarding the PC/CM Subsidiaries or
their Affiliates to the extent that the information relates to the PC/CM
Business; provided, however, that this term shall not include any information
independently developed by Legg Mason or its Affiliates without violating any
obligation under this Agreement, the Related Agreements or the Confidentiality
Agreement, so long as such information was not obtained from a third party where
Legg Mason or its Affiliates knew or should have known that such information was
misappropriated or otherwise wrongly obtained.

 

“PC/CM Continuing Business Employee” has the meaning set forth in Section
6.15(a).

 

“PC/CM Customer” means any Person to which any PC/CM Subsidiary provides
investment advisory, investment subadvisory, wrap, brokerage, financial planning
or similar services pursuant to a PC/CM Customer Contract.

 

“PC/CM Customer Contract” means each Contract or agreement pursuant to which any
PC/CM Subsidiary provides investment advisory, investment subadvisory, wrap,
brokerage, financial planning or related services to any Person.

 

“PC/CM Domestic Subsidiary” means a PC/CM Subsidiary (a) that is treated as a
corporation for United States federal income tax purposes, (b) that is created
or organized in the United States or pursuant to the Requirements of Law of the
United States or of any state thereof and (iii) whose stock meeting the
requirements of Section 1504(a)(2) of the Code is acquired by Citigroup pursuant
to this Agreement.

 

“PC/CM Election” has the meaning set forth in Section 8.1(c).

 

“PC/CM Estimated Closing Date Balance Sheet” means the balance sheet of the
PC/CM Business which shall reflect Legg Mason’s good faith estimate of the PC/CM
Final Closing Date Balance Sheet and PC/CM Tangible Book Value as set forth
therein.

 

“PC/CM Final Closing Date Balance Sheet” has the meaning set forth in Section
3.2(a)(i).

 

“PC/CM Financial Information” has the meaning set forth in Section 5.10(a).

 

“PC/CM Foreign Subsidiaries” means those PC/CM Subsidiaries that are not PC/CM
Domestic Subsidiaries.

 

“PC/CM Income Statement” has the meaning set forth in Section 5.10(a).

 

“PC/CM Intellectual Property” means the PC/CM Owned Intellectual Property and
the PC/CM Licensed Intellectual Property.

 

“PC/CM Lease” means any lease, sublease or license, including any amendment with
respect thereto, pursuant to which any PC/CM Subsidiary uses, leases, subleases,
occupies or holds any PC/CM Leased Real Property in connection with the PC/CM
Business.

 

Annex A-18

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“PC/CM Leased Real Property” means the real property leased, subleased, occupied
and/or licensed in connection with the PC/CM Business by any PC/CM Subsidiary,
as tenant, subtenant or licensee, together with, to the extent leased,
subleased, occupied and/or licensed in connection with the PC/CM Business by any
PC/CM Subsidiary, all buildings and other structures, facilities or improvements
currently located thereon, all fixtures thereto, and all easements, licenses,
rights and other appurtenances relating to the foregoing.

 

“PC/CM License Agreement” means any Contract with respect to any PC/CM Licensed
Intellectual Property that is licensed by the PC/CM Business in the name of a
PC/CM Subsidiary.

 

“PC/CM Licensed Intellectual Property” means Intellectual Property used by the
PC/CM Business that is not PC/CM Owned Intellectual Property, excluding
standard, immaterial, commercially available Software licensed via “click-wrap”
or “shrink-wrap” license agreements.

 

“PC/CM Material Adverse Effect” means (a) a material adverse effect on the
business, results of operations or financial condition of the PC/CM Business,
taken as a whole, excluding any such effect arising out of or resulting from (i)
general economic or business conditions, including securities markets generally,
or changes therein or any act of terrorism, similar calamity or war to the
extent that they do not have a materially disproportionate effect on the PC/CM
Business, (ii) conditions or trends in the economic, business, financial or
regulatory environment generally affecting the brokerage and investment banking
industries to the extent that they do not have a materially disproportionate
effect on the PC/CM Business or (iii) the execution and delivery of this
Agreement or the announcement of the Transactions; or (b) a material adverse
change or effect on the ability of Legg Mason to perform its material
obligations under this Agreement or the Related Agreements.

 

“PC/CM Non-Continuing Business Employee” has the meaning set forth in Section
6.15(c).

 

“PC/CM Owned Intellectual Property” means the Intellectual Property solely or
primarily related to the PC/CM Business that is owned by any of the PC/CM
Subsidiaries.

 

“PC/CM Proposed Allocation” has the meaning set forth in Section 8.4(d)(ii).

 

“PC/CM Qualified Plan” has the meaning set forth in Section 5.12(e).

 

“PC/CM Qualifying Termination” has the meaning set forth in Section 6.15(b).

 

“PC/CM Requirements of Law” means any Requirement of Law related to or
applicable to the financial agency, principal and intermediary businesses
conducted by the PC/CM Business, include securities brokerage, market making,
investment banking and capital markets activities.

 

“PC/CM Restructuring” has the meaning set forth in Section 6.13(b).

 

“PC/CM Scheduled Matters” means those matters identified in Section 10.3 of the
Legg Mason Disclosure Letter.

 

Annex A-19

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“PC/CM Severance Plan” has the meaning set forth in Section 6.15(a).

 

“PC/CM Subsidiaries” means each of the Subsidiaries of Legg Mason through which
any portion of the PC/CM Business is conducted on and, as a result of the PC/CM
Restructuring and the other transactions contemplated by this Agreement, after
the date hereof, including the PC/CM Transferred Subsidiaries; provided,
however, that, except for Sections 5.1, 5.2(a) and 5.3, no reference in any
representation, warranty, covenant or other provision of this Agreement or any
Related Agreement by Legg Mason or any of its Affiliates with respect to any
such Subsidiary that also conducts business or operations not constituting part
of the PC/CM Business shall be construed to be made or otherwise to be
applicable for any purpose whatsoever to such other business and operations.

 

“PC/CM Subsidiaries Benefit Plans” has the meaning set forth in Section 5.12(a).

 

“PC/CM Tangible Book Value” has the meaning set forth in Section 1.3(a)(ii).

 

“PC/CM Tangible Book Value Target” has the meaning set forth in Section
1.3(a)(ii).

 

“PC/CM Transferred Non-Continuing Business Employee” has the meaning set forth
in Section 6.15(a).

 

“PC/CM Transferred Shares” means all of the issued and outstanding capital stock
(or other equity interest) of the PC/CM Transferred Subsidiaries.

 

“PC/CM Transferred Subsidiaries” means (a) the Subsidiaries of Legg Mason set
forth in Exhibit B hereto and (b) without duplication, such other Subsidiaries
of Legg Mason that are deemed to be PC/CM Transferred Entities pursuant to
Exhibit I hereto.

 

“PC/CM Transitional Business Employee” has the meaning set forth in Section
6.15(c).

 

“PC/CM TSAs” means (a) the Transition Services Agreement with respect to the
sale of the PC Business from Legg Mason to Citigroup and (b) the Transition
Services Agreement with respect to the sale of the CM Business from Legg Mason
to Citigroup, each to be entered into as of the Closing and with such terms set
forth in Exhibit F-2 attached hereto and other customary terms.

 

“Permits” means all material licenses, registrations, franchises, permits,
certificates, approvals, accreditation, or other similar authorizations.

 

“Permitted Lien” means (a) any Lien (i) for Taxes, assessments and other
governmental charges which are not yet due and payable or are being contested in
good faith by appropriate proceedings, (ii) deemed to be created by this
Agreement or (iii) which does not affect materially and adversely the current
use, occupancy or value of the asset subject thereto and which would not,
individually or in the aggregate, reasonably be expected to have a CAM Material
Adverse Effect or a PC/CM Material Adverse Effect, as applicable, and (b) in the
case of CAM Real Property or PC/CM Leased Real Property, as applicable, in
addition to those items

 

Annex A-20

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covered by the foregoing clause (a), all (A) exceptions which an accurate survey
would show, which do not affect materially and adversely the current use,
occupancy or value of the property subject thereto and which would not,
individually or in the aggregate, reasonably be expected to have a CAM Material
Adverse Effect or a PC/CM Material Adverse Effect, as applicable, (B) exceptions
of record (excluding Liens securing monetary obligations), exceptions noted in
title policies provided to the applicable Party, utility easements, building
restrictions, zoning restrictions and other easements and restrictions affecting
title to, or possession or use of, such CAM Real Property or PC/CM Leased Real
Property, as applicable, whether or not the same are of record, which do not
affect materially and adversely the current use, occupancy or value of the
property subject thereto and which would not, individually or in the aggregate,
reasonably be expected to have a CAM Material Adverse Effect or a PC/CM Material
Adverse Effect, as applicable, (C) statutory landlord’s liens and Liens granted
to landlords under any leases, (D) with respect to each CAM Leased Real
Property, the CAM Lease and all matters to which the underlying CAM Lease is
subject and subordinate and (E) with respect to each PC/CM Leased Real Property,
all PC/CM Leases and all matters to which the underlying PC/CM Lease is subject
and subordinate.

 

“Person” means any individual, corporation, business trust, partnership,
association, limited liability company, unincorporated organization or similar
organization, any Governmental Authority, fund, organized group of persons
whether incorporated or not, or any receiver, trustee under Title 11 of the US
Code or similar official or any liquidating agent for any of the foregoing in
his or her capacity as such.

 

“Plan Assets Regulation” has the meaning set forth in Section 4.10.

 

“Prior CAM Bonus Year” has the meaning set forth in Section 6.14(j).

 

“Prior PC/CM Bonus Year” has the meaning set forth in Section 6.15(j).

 

“Registered Investment Company” means any pooled investment vehicle that is
registered or required to be registered as an investment company under the
Investment Company Act.

 

“Registration and Investor Rights Agreement” means the Registration and Investor
Rights Agreement to be entered into as of the Closing, with such terms set forth
in Exhibit G attached hereto.

 

“Related Agreements” means each of the Distribution and Product Access
Agreements, the Transition Services Agreements, the Services Agreement and the
Investor Rights Agreement.

 

“Requirement of Law” means, with respect to any Person, any domestic or foreign
federal or state statute, law, ordinance, rule, administrative code,
administrative interpretation, regulation, order, consent, writ, injunction,
directive, judgment, decree, policy, ordinance, decision, guideline or other
requirement of (or agreement with) any Governmental Authority (including any
memorandum of understanding or similar arrangement with any Governmental
Authority), in each case binding on that Person or its property or assets.

 

Annex A-21

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“Retained CAM Liabilities” has the meaning set forth in the definition of
“Retained Liabilities” in Exhibit H attached hereto.

 

“Retained PC/CM Liabilities” has the meaning set forth in the definition of
“Retained Liabilities” in Exhibit I attached hereto.

 

“Retention Portion” has the meaning set forth in Section 6.15(l).

 

“Revenue Run-Rate Schedule” has the meaning set forth in Section 4.21.

 

“RIC Board Approval” has the meaning set forth in Section 6.6(b)(i).

 

“RIC Distribution Contract” means the principal underwriter Contract of a CAM
Registered Investment Company.

 

“RIC Services Contract” means any custody, transfer agent, shareholder
servicing, administrative, accounting and other similar Contract with a CAM
Registered Investment Company.

 

“Rule 12b-1 Plan” has the meaning set forth in Section 4.8(j).

 

“SEC” means the Securities and Exchange Commission.

 

“Scheduled CAM Contracts” has the meaning set forth in Section 4.18(a).

 

“Scheduled PC/CM Contracts” has the meaning set forth in Section 5.16(a).

 

“Section 338(g) Election” has the meaning set forth in Section 8.4(g).

 

“Securities Act” means the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder by the SEC.

 

“Services Agreement” means the Services Agreement to be entered into as of the
Closing, with such terms set forth in Exhibit F-3 attached hereto and other
customary terms.

 

“SMA Contract” means a CAM Advisory Contract that is a separately managed
account with a Citigroup private bank or retail CAM Advisory Client.

 

“Software” means computer software, including all programs, applications and
databases (whether in object code, source code or other form), and all
documentation related thereto.

 

“SRO” means the National Association of Securities Dealers, Inc., the National
Futures Association, each national securities exchange in the United States and
each other board or body, whether United States or foreign, that is charged with
the supervision or regulation of brokers, dealers, commodity pool operators,
commodity trading advisors, futures commission merchants, securities
underwriting or trading, stock exchanges, commodities exchanges, insurance
companies or agents, investment companies or investment advisers.

 

Annex A-22

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“Straddle Period” has the meaning set forth in Section 8.1(e)(i).

 

“Subsidiary” means, with respect to any Person, any other Person of which such
first Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, a majority of the outstanding equity securities or
securities carrying a majority of the voting power in the election of the board
of directors or other governing body of such Person.

 

“Tax” means any federal, state, county, local, foreign and other taxes,
assessments, charges, duties, fees, levies, imposts or other similar charges
imposed by a Governmental Authority, including all income, alternative or add-on
minimum, gross receipts, sales, use, transfer, gains, ad valorem, franchise,
profits, license, state guarantee fund assessments, withholding, payroll, direct
placement, employment, excise, severance, stamp, procurement, occupation,
premium, property, real property, escheat, environmental or windfall profit tax,
custom, duty or other tax, together with any interest, additions or penalties
with respect thereto or with respect to any Tax Return.

 

“Tax Attribute” means any net operating loss, net capital loss, investment Tax
credit, foreign Tax credit, charitable deduction or any other credit or Tax
attribute, including basis of property, which could reduce liability for Taxes
including deductions, credits, or alternative minimum net operating loss
carryforwards related to alternative minimum Taxes.

 

“Tax Benefit” means the Tax effect of any item of loss, deduction or credit or
any other item which decreases Taxes paid or payable, including any interest
with respect thereto or interest that would have been payable but for such item.

 

“Tax Claim” has the meaning set forth in Section 8.1(h)(i).

 

“Tax Indemnified Party” has the meaning set forth in Section 8.1(h)(i).

 

“Tax Indemnifying Party” has the meaning set forth in Section 8.1(h)(i).

 

“Tax Notice” has the meaning set forth in Section 8.1(h)(i).

 

“Tax Proceeding” means any Tax audit, contest, litigation, defense or other
proceeding with or against any Governmental Authority.

 

“Tax Return” means any return, declaration, report, list, claim for refund,
information return or similar statement filed or required to be filed with
respect to any Taxes, including any schedule or attachment thereto, and
including any amendment thereof.

 

“Tax Sharing Agreements” has the meaning set forth in Section 8.8.

 

“Termination Date” has the meaning set forth in Section 9.1(b).

 

“Third Party Claim” has the meaning set forth in Section 10.4.

 

“Trade Secrets” means all trade secrets and other confidential information,
including forms and types of financial, business, scientific, technical,
economic, or engineering

 

Annex A-23

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information, including patterns, plans, compilations, program devices, formulas,
designs, prototypes, methods, techniques, processes, procedures, programs or
codes, whether tangible or intangible, and whether or how stored, compiled or
memorialized physically, electronically, graphically, photographically or in
writing.

 

“Trademarks” means all registered and unregistered trademarks, service marks,
trade names, designs, logos, emblems, signs or insignia, slogans, Internet
domain names, other similar designations of source or origin and general
intangibles of like nature, together with the goodwill symbolized by any of the
foregoing.

 

“Transactions” means the consummation of the transactions contemplated by this
Agreement and the Related Agreements.

 

“Transition Services Agreements” means the CAM TSA and the PC/CM TSA.

 

“True-Up CAM Advisory Client” has the meaning set forth in Section 3.4.

 

“U.S. CAM Business Employee” has the meaning set forth in Section 6.14(a).

 

“U.S. PC/CM Business Employee” has the meaning set forth in Section 6.15(a).

 

“U.S. Retail Long-Term Contract” means, with respect to a CAM Advisory Contract
in effect as of May 31, 2005, a contract set forth under the heading “U.S.
Retain Long Term” on the Revenue Run-Rate Schedule and, with respect to a CAM
Advisory Contract in effect after May 31, 2005, a contract of the type set forth
under such heading.

 

“WARN Act” means the Worker Adjustment and Retraining Notification Act of 1988,
as amended, and any similar applicable foreign, state or local Requirements of
Law requiring notice to employees in the event of a closing or layoff.

 

Annex A-24