EXHIBIT 10.1

 

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EXECUTION COPY

 

AGREEMENT AND PLAN OF MERGER

 

by and between

 

LOC ACQUISITION COMPANY

 

and

 

METRO-GOLDWYN-MAYER INC.

 

Dated as of September 23, 2004

 

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Table of Contents

 

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ARTICLE I

   DEFINITIONS    2

ARTICLE II

   THE MERGER    16

    Section 2.1

   The Merger    16

    Section 2.2

   Closing    16

    Section 2.3

   Effective Time    17

    Section 2.4

   Certificate of Incorporation and By-Laws.    17

    Section 2.5

   Directors and Officers.    17

ARTICLE III

   MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER   
17

    Section 3.1

   Effect on Capital Stock    17

    Section 3.2

   Exchange of Company Certificates.    19

    Section 3.3

   Taking of Necessary Action; Further Action    21

    Section 3.4

   Company Stock Options    21

    Section 3.5

   Equity Plans    22

ARTICLE IV

   REPRESENTATIONS AND WARRANTIES OF THE COMPANY    22

    Section 4.1

   Organization    22

    Section 4.2

   Capitalization.    23

    Section 4.3

   Subsidiaries.    24

    Section 4.4

   Authority    25

    Section 4.5

   Consents and Approvals; No Violations.    25

    Section 4.6

   SEC Reports and Financial Statements.    26

    Section 4.7

   Absence of Certain Changes or Events    27

    Section 4.8

   No Undisclosed Liabilities    28

    Section 4.9

   Benefit Plans; Employees and Employment Practices.    28

    Section 4.10

   Employment/Labor.    30

    Section 4.11

   Contracts.    31

    Section 4.12

   Insurance    32

    Section 4.13

   Litigation    32

    Section 4.14

   Compliance with Applicable Law.    33

    Section 4.15

   Taxes and Tax Returns.    34

    Section 4.16

   Environmental Matters.    36

    Section 4.17

   State Takeover Statutes    36

    Section 4.18

   Intellectual Property.    37

    Section 4.19

   Films and Elements.    38

    Section 4.20

   Opinion of Financial Advisor    39

    Section 4.21

   Board Approval    40

    Section 4.22

   Voting Requirements    40

    Section 4.23

   Brokers and Finders; Transaction Expenses    40

    Section 4.24

   Proxy Statement    40

 

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    Section 4.25

   Real Estate.    41

ARTICLE V

   REPRESENTATIONS AND WARRANTIES OF NEWCO    41

    Section 5.1

   Organization    41

    Section 5.2

   Authority    42

    Section 5.3

   Consents and Approvals; No Violations.    42

    Section 5.4

   Brokers and Finders    43

    Section 5.5

   Information Supplied    43

    Section 5.6

   Financing    43

    Section 5.7

   Interim Operations of Newco    44

    Section 5.8

   Ownership of Company Shares    44

    Section 5.9

   Board Approval    44

    Section 5.10

   Solvency    44

ARTICLE VI

   COVENANTS    45

    Section 6.1

   Covenants of the Company    45

    Section 6.2

   No Solicitation.    52

    Section 6.3

   Company Stockholder Meeting; Preparation of Proxy Statement.    55

    Section 6.4

   Access to Information    56

    Section 6.5

   Notification of Certain Matters.    56

    Section 6.6

   Reasonable Best Efforts; Notification.    57

    Section 6.7

   State Takeover Statutes    60

    Section 6.8

   Indemnification.    60

    Section 6.9

   Certain Litigation    62

    Section 6.10

   Notification of Certain Matters    62

    Section 6.11

   Tax Covenants.    63

    Section 6.12

   Section 16 Matters    63

    Section 6.13

   Employee Matters.    64

    Section 6.14

   Acquisition Financing    65

    Section 6.15

   Confidentiality Agreements    65

    Section 6.16

   Letter of Credit.    65

ARTICLE VII

   CONDITIONS    66

    Section 7.1

   Conditions to Each Party’s Obligation to Effect the Merger    66

    Section 7.2

   Conditions to Newco’s Obligation to Effect the Merger    67

    Section 7.3

   Conditions to the Company’s Obligation to Effect the Merger    67

    Section 7.4

   Frustration of Closing Conditions    68

ARTICLE VIII

   TERMINATION AND AMENDMENT    68

    Section 8.1

   Termination    68

    Section 8.2

   Effect of Termination; Liability.    70

    Section 8.3

   Fees and Expenses    72

    Section 8.4

   Termination Fee.    72

    Section 8.5

   Extension; Waiver    73

 

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ARTICLE IX

  

MISCELLANEOUS

   73

    Section 9.1

  

Nonsurvival of Representations and Warranties

   73

    Section 9.2

  

Notices

   73

    Section 9.3

  

Interpretation.

   75

    Section 9.4

  

Counterparts

   76

    Section 9.5

  

Entire Agreement; No Third Party Beneficiaries

   76

    Section 9.6

  

Governing Law

   76

    Section 9.7

  

Publicity

   76

    Section 9.8

  

Assignment

   77

    Section 9.9

  

Enforcement

   77

    Section 9.10

  

Severability

   77

    Section 9.11

  

Parties in Interest

   78

    Section 9.12

  

Modification

   78

    Section 9.13

  

Tax Treatment

   78

 

EXHIBIT A—Form of Voting and Support Agreement

EXHIBIT B—Form of Solvency Opinion

 

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AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of September 23, 2004,
by and between LOC Acquisition Company, a Delaware corporation (“Newco”), and
Metro-Goldwyn-Mayer Inc., a Delaware corporation (the “Company”).

 

WHEREAS, the Boards of Directors of Newco and the Company each have determined
that the Merger (as defined in Section 2.1) is in the best interests of their
respective companies and their respective stockholders and, accordingly, have
each agreed to effect the Merger provided for herein upon the terms and subject
to the conditions set forth herein;

 

WHEREAS, Tracinda Corporation (“Tracinda”) and 250 Rodeo, Inc. (“Rodeo” and,
together with Tracinda, the “Principal Stockholders”) have entered into a voting
and support agreement in the form of Exhibit A to this Agreement, dated as of
the date hereof, among the Principal Stockholders and Newco, pursuant to which
each of the Principal Stockholders has agreed to vote, or cause to be voted, all
of the Company Shares (as defined in Article I hereof) owned by such Principal
Stockholder in favor of the transactions contemplated by this Agreement (the
“Voting and Support Agreement”);

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, Sony Corporation of America (“SCA”) has delivered to the Company a
signed commitment letter (the “SCA Equity Commitment Letter”) pursuant to which
SCA has agreed, subject to the terms and conditions set forth therein, to make
or cause to be made an equity investment in Newco of an amount of $300,000,000;

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, Comcast Studio Investments, Inc. (“Comcast”) has delivered to the
Company a signed commitment letter (the “Comcast Equity Commitment Letter”)
pursuant to which Comcast has agreed, subject to the terms and conditions set
forth therein, to make or cause to be made an equity investment in Newco of an
amount of $300,000,000 and Comcast Corporation has agreed to cause a bank or
similar financial institution to provide a letter of credit for $23,080,000
million in favor of the Company (the “Comcast Letter of Credit”);

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, TPG Partners IV, L.P. (“TPG”) has delivered to the Company a signed
commitment letter (the “TPG Equity Commitment Letter”) pursuant to which TPG has
agreed, subject to the terms and conditions set forth therein, to make or cause
to be made an equity investment in Newco of an amount of $350,000,000 and to
cause a bank or similar financial institution to provide a letter of credit for
$26,920,000 million in favor of the Company (the “TPG Letter of Credit”);

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, DLJ Merchant Banking III, Inc. (“DLJ”) has delivered to the Company a
signed commitment letter (the “DLJ Equity Commitment Letter”) pursuant to which
DLJ has agreed, subject to the terms and conditions set forth therein, to make
or cause to be made an equity investment in Newco of an amount of $125,000,000
and to cause a bank

 

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or similar financial institution to provide a letter of credit for $9,620,000
million in favor of the Company (the “DLJ Letter of Credit”);

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, Providence Equity Partners IV, L.P. (“Providence” and, together with
SCA, Comcast, TPG and DLJ, the “Equity Investors”) has delivered to the Company
a signed commitment letter (the “Providence Equity Commitment Letter” and,
together with the SCA Equity Commitment Letter, the Comcast Equity Commitment
Letter, the TPG Equity Commitment Letter and the DLJ Equity Commitment Letter,
the “Equity Commitment Letters”) pursuant to which Providence has agreed,
subject to the terms and conditions set forth therein, to make or cause to be
made an equity investment in Newco of an amount of $525,000,000 and to cause a
bank or similar financial institution to provide a letter of credit for
$40,380,000 million in favor of the Company (the “Providence Letter of Credit”
and, together with the Comcast Letter of Credit, the TPG Letter of Credit and
the DLJ Letter of Credit, the “Letters of Credit”); and

 

WHEREAS, as a condition to the willingness of the Company to enter into this
Agreement, the Equity Investors have delivered to the Company the Letters of
Credit.

 

NOW, THEREFORE, in consideration of the representations, warranties and
covenants set forth in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, and
subject to the conditions set forth herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

Capitalized and certain other terms used in this Agreement have the meanings set
forth below. Unless the context otherwise requires, such terms shall include the
singular and plural and the conjunctive and disjunctive forms of the terms
defined.

 

“Abend Binders” shall mean those sixty-three binders that were prepared for
pictures in the Company’s library as of 1995 which binders have been made
available to Newco prior to the date hereof.

 

“Abend Laws” shall have meaning set forth in Section 4.19(d).

 

“Abend Schedule” shall have the meaning set forth in Section 4.19(d).

 

“Acquisition Agreement” shall have the meaning set forth in Section 6.2(b).

 

“Acquisition Financing” shall mean the financing referred to in the Commitments.

 

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“Additional Confidentiality Agreement” shall have the meaning set forth in
Section 6.4.

 

“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under the
Exchange Act.

 

“Agreement” shall have the meaning set forth in the Preamble hereto.

 

“Antitrust Division” shall have the meaning set forth in Section 6.6(b).

 

“Bankruptcy and Equity Exception” shall have the meaning set forth in Section
4.4.

 

“Benefit Plan” shall mean each Pension Plan, Welfare Plan and any other plan,
fund, program, arrangement or agreement (including any employment or consulting
agreement) to provide employees, directors, independent contractors,
consultants, officers or agents with medical, health, disability, life, bonus,
incentive, stock or stock-based right (option, ownership or purchase),
retirement, deferred compensation, severance, change in control, salary
continuation, vacation, sick leave, fringe, incentive insurance or other
benefits) maintained, or contributed to, or required to be contributed to, by
the Company or any of its Subsidiaries for the benefit of any current or former
independent contractors, consultants, agents, employees, officers or directors
of the Company or any of its Subsidiaries.

 

“Business Day” shall mean any day, other than a Saturday, Sunday and any day
which is a legal holiday under the Laws of the State of New York or the State of
California, or is a day on which banking institutions located in either such
State are authorized or required by Law or other governmental action to close.

 

“Certificate of Merger” shall have the meaning set forth in Section 2.3.

 

“Closing” shall have the meaning set forth in Section 2.2.

 

“Closing Date” shall have the meaning set forth in Section 2.2.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.

 

“Comcast” shall have the meaning set forth in the Recitals hereto.

 

“Comcast Equity Commitment Letter” shall have the meaning set forth in the
Recitals hereto.

 

“Comcast Letter of Credit” shall have the meaning set forth in the Recitals
hereto.

 

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“Commitment Letters” shall have the meaning set forth in Section 5.6.

 

“Commitments” shall have the meaning set forth in Section 5.6.

 

“Company” shall have the meaning set forth in the Preamble hereto.

 

“Company Adverse Recommendation Change” shall have the meaning set forth in
Section 6.2(b).

 

“Company Certificate” shall have the meaning set forth in Section 3.1(c).

 

“Company Contracts” shall have the meaning set forth in Section 4.11(a).

 

“Company Credit Agreement” shall mean that certain Restatement IV of Credit
Agreement, dated as of April 26, 2004, among Metro-Goldwyn-Mayer Studios Inc.,
the lenders and issuers party thereto and Bank of America, N.A., as agent.

 

“Company Disclosure Schedule” shall have the meaning set forth in Article IV.

 

“Company Employees” shall have the meaning set forth in Section 6.13(a).

 

“Company Filed SEC Documents” shall have the meaning set forth in Section 4.7.

 

“Company Intellectual Property” shall have the meaning set forth in Section
4.18(a).

 

“Company Joint Venture” shall have the meaning set forth in Section 4.3(d).

 

“Company Material Adverse Effect” shall mean a material adverse effect on (i)
the business, properties, assets, results of operations or financial condition
of the Company and its Subsidiaries taken as a whole or (ii) the ability of the
Company and its Subsidiaries to perform the obligations of the Company pursuant
to this Agreement; provided, however, that no fact, event or circumstance
described in the following clauses (a) through (f), or any effect resulting from
or arising out of any such fact, event or circumstance, shall constitute, or
shall be considered in determining the existence or occurrence of, a Company
Material Adverse Effect: (a) any change in Law or GAAP (or any interpretation
thereof by a Governmental Entity or quasi-Governmental Entity, including the
Financial Accounting Standards Board or a similar organization), (b) economic or
financial market conditions affecting the U.S. economy, any non-U.S. economy or
the global economy generally, (c) (A) the impact of piracy on the business of
the Company and its Subsidiaries or (B) other changes generally affecting the
industries in which the Company and its Subsidiaries operate; provided that, in
the case of this clause (c)(B), such changes do not disproportionately affect in
a material manner the relevant segment or segments of the Company, its
Subsidiaries and their respective

 

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businesses when compared with the effect of such changes on comparable
businesses of other entertainment companies (including the home video/DVD and
television distribution and sale businesses), (d) a reduction or slowdown in the
development, production or acquisition of Films by or on behalf of the Company
or any of its Subsidiaries, (e) the box office performance of any Theatrical
Motion Picture produced or distributed by or on behalf of the Company or any of
its Subsidiaries and (f) the negotiation (including activities related to due
diligence), execution, delivery or public announcement or the pendency of this
Agreement and the Voting and Support Agreement or the transactions provided for
herein or any actions required hereby (or the failure to take any action
prohibited hereby, if consent for such action was requested and denied by Newco)
including the impact thereof on the relationships of the Company or any of its
Subsidiaries with customers, suppliers, distributors, consultants, independent
contractors, talent or employees.

 

“Company Options” shall have the meaning set forth in Section 3.4.

 

“Company Permits” shall have the meaning set forth in Section 4.14(a).

 

“Company Preferred Shares” shall have the meaning set forth in Section 4.2(a).

 

“Company Recommendation” shall have the meaning set forth in Section 6.2(b).

 

“Company SEC Documents” shall have the meaning set forth in Section 4.6(a).

 

“Company Share” shall mean one share of common stock of the Company, $0.01 par
value per share.

 

“Company Stock Incentive Plan” shall mean the Company’s Amended and Restated
1996 Stock Incentive Plan, as amended.

 

“Company Stockholder Approval” shall have the meaning set forth in Section 4.4.

 

“Company Stockholder Meeting” shall have the meaning set forth in Section 4.22.

 

“Confidentiality Agreements” shall mean the (i) Confidentiality Agreement, dated
as of April 6, 2004, and any extension or modification thereto, between Sony
Corporation of America, Providence Equity Partners Inc. and TPG Partners IV,
L.P. and the Company, (ii) letter agreement, dated as of April 19, 2004, and any
extension or modification thereto, between DLJ Merchant Banking III, Inc.,
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. and the Company, (iii)
the letter agreements, and any extension or modification thereto, among the
Company and one or more of the Equity Investors and their respective
Representatives and (iv) Confidentiality Agreement, dated

 

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as of October 28, 2003, as amended on May 10, 2004, between Comcast Corporation
and the Company.

 

“Contract” shall mean any note, bond, mortgage, indenture, lease, license,
permit, concession, franchise, contract, agreement or other instrument or
obligation.

 

“Contributing Investor” shall have the meaning set forth in Section 6.16(b).

 

“Contribution Amount” shall mean the amount delivered to the Company by the
issuer of the applicable Letter of Credit upon delivery by the Company of a draw
certificate to such issuer, pursuant to the terms of any of the Equity
Commitment Letters (other than the SCA Equity Commitment Letter), to the effect
that (a) the applicable Equity Investor (other than SCA) is required to maintain
its respective Letter of Credit in favor of the Company, (b) the Scheduled
Termination Date (as such term is defined in the applicable Letter of Credit),
as such date shall have been extended from time to time, will occur within
thirty (30) calendar days of the date of such draw certificate and (c) the
applicable Equity Investor’s Letter of Credit has not been renewed or extended
by the issuer thereof or replaced with a substantially identical letter of
credit with a lender that is reasonably acceptable to the Company. For the
avoidance of doubt, any amount delivered to the Company by the issuer of a
Letter of Credit upon delivery by the Company of a draw certificate of a type
other than as described in clauses (a), (b) and (c) of the preceding sentence
shall not constitute a Contribution Amount.

 

“D&O Insurance” shall have the meaning set forth in Section 6.8(b).

 

“Debt Securities” shall mean registered or unregistered bonds, notes, debentures
or similar instruments issued to evidence indebtedness for borrowed money.

 

“Deposit Agreement” shall mean that certain agreement between SCA and the
Company, dated September 12, 2004, as amended as of the date hereof, providing
for a payment by SCA of $150 million to an account specified by the Company on
the terms and conditions set forth therein.

 

“Development Projects” shall mean any and all Films that have been proposed to
be developed, produced or acquired by or on behalf of the Company or any of its
Subsidiaries, with respect to which pre-production has not commenced, regardless
of the stage of development of such project.

 

“DGCL” shall mean the Delaware General Corporation Law.

 

“Dissenting Shares” shall have the meaning set forth in Section 3.1(e).

 

“DLJ” shall have the meaning set forth in the Recitals hereto.

 

“DLJ Equity Commitment Letter” shall have the meaning set forth in the Recitals
hereto.

 

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“DLJ Letter of Credit” shall have the meaning set forth in the Recitals hereto.

 

“EC” shall have the meaning set forth in Section 6.6(b).

 

“ECMR” means Council Regulation (EC) No. 139/2004, as amended.

 

“Effective Time” shall have the meaning set forth in Section 2.3.

 

“Elements” shall mean all physical embodiments of any Film or its elements, or
any marketing, advertising or promotional materials, behind-the-scenes footage,
featurettes, “bonus” or “added value” materials or other ancillary or subsidiary
materials of every kind and nature relating to a Film or its elements in
whatever state of completion, wherever located (including in any film laboratory
or storage facility owned or controlled by the Company, any of its Subsidiaries
or any other Person), in any video, audio or other format (including PAL, NTSC
and high definition), including: (i) all positive, negative, fine grain and
answer prints; (ii) all exposed or developed film, pre-print materials
(including positives, interpositives, negatives, internegatives, color
reversals, intermediates, lavenders, fine grain master prints and matrices and
all other forms of pre-print elements which may be necessary or useful to
produce prints or other copies or additional pre-print elements, whether now
known or hereafter devised), subtitles, special effects, cutouts, stock footage,
outtakes, tabs and trims; (iii) tapes, discs, hard drives, computer memory, or
other electronic media of any nature; (iv) all sound and music tracks, audio and
video recordings of all types and gauges (whether analog, digital or otherwise)
in all languages and (v) all cells, drawings, storyboards, models, sculptures,
puppets, bibles, outlines, scripts, screenplays and other physical properties.

 

“Employee Security Plans” shall mean the Metro-Goldwyn-Mayer Inc. Employee
Security Plan, the Metro-Goldwyn-Mayer Inc. Employee Security Plan for Named
Executive Officers and the Metro-Goldwyn-Mayer Pictures Inc. Employee Security
Plan for Named Individuals set forth on Section 1.1(a) to the Company Disclosure
Schedule.

 

“Environmental Claim” shall mean any claim, action, cause of action,
investigation or notice (written or, to the Company’s Knowledge, oral) by any
person or entity alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (i) the presence, or release into the
environment, of any Materials of Environmental Concern at any location, whether
or not owned or operated by the Company or any of its Subsidiaries or (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.

 

“Environmental Laws” shall mean all federal, state, local and foreign Laws and
regulations and common laws relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata, and natural resources), including Laws relating to
emissions,

 

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discharges, Releases or threatened Releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.

 

“Equity Commitment Letters” shall have the meaning set forth in the Recitals
hereto.

 

“Equity Investors” shall have the meaning set forth in the Recitals hereto.

 

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

 

“ERISA Affiliate” means, with respect to any entity, trade or business, any
other entity, trade or business that is, or was at the relevant time, a member
of a group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes or included the first entity, trade or
business or that is, or was at the relevant time, a member of the same
“controlled group” as the first entity, trade or business pursuant to Section
4001(a)(14) of ERISA.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

 

“Exploit” shall mean, with respect to the Films, to release, distribute,
perform, display, exhibit, broadcast or telecast, license, sell, reproduce or
create derivative works from, market, create merchandising or otherwise
commercially or non-commercially exploit by any and all known or hereafter
developed (i) technology, (ii) uses, (iii) media, (iv) formats, (v) modes of
transmission and (vi) methods of distribution, dissemination or performance. The
meaning of the term “Exploitation” shall be correlative to the foregoing.

 

“Films” shall mean all motion pictures (including features, shorts and
trailers), television, cable or satellite programming (including on-demand and
pay-per-view programming), Internet programming, direct-to-video/DVD programming
or other live action, animated, filmed, taped or recorded entertainment of any
kind or nature, and all components thereof, including titles, themes, content,
dialogue, characters, plots, concepts, scenarios, characterizations, elements
and music (whether or not now known or recognized) as to which the Company or
any of its Subsidiaries owns or controls any right, title or interest, including
in any of the following: (i) completed and released works or projects; (ii)
works or projects in any stage of progress, including works or projects in
development and/or pre-production, in principal photography and/or
post-production, and completed but not released as of the Closing Date; (iii)
abandoned or “turnaround” works or projects; (iv) to the extent related to the
works or projects referred to in the foregoing clauses (i) through (iii), any
sequel, prequel and/or remake rights and/or other derivative production rights,
including any novelization, merchandising, character, serialization, game and/or
interactive rights; (v) any other allied, ancillary, subsidiary and derivative
rights (including theme park rights) throughout the universe related to the
works and projects referenced in the foregoing clauses (i) through (iv); and
(vi) any contractual and

 

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other rights associated with or related to such works, projects or rights
referenced in the foregoing clauses (i) through (v), whether in any media now
known or hereafter developed. For the avoidance of doubt, the term “Films” shall
include all Library Films, Films in Progress, Development Projects and
Significant Unproduced Properties.

 

“Films In Progress” shall have the meaning set forth in Section 4.19(f).

 

“Foreign Plan” shall mean each Benefit Plan that is subject to the Laws or
applicable customs or rules of relevant jurisdictions other than the United
States.

 

“Franchise Picture” shall have the meaning set forth in Section 6.1(f).

 

“FTC” shall have the meaning set forth in Section 6.6(b).

 

“GAAP” shall mean United States generally accepted accounting principles.

 

“Governmental Entity” shall mean any governmental body, court, agency, official
or regulatory or other authority, whether federal, state, local or foreign.

 

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

 

“Indemnified Parties” shall have the meaning set forth in Section 6.8(a).

 

“Infringe” means, with respect to any Intellectual Property, to infringe or
misappropriate such Intellectual Property in a manner that violates applicable
Law or the legal rights of the owner thereof, or to dilute (as defined under
applicable Law) the legal rights of the owner thereof in violation of applicable
Law. The terms “Infringes” and “Infringing” shall have correlative meanings.

 

“Intellectual Property” means all intellectual property rights of any nature
under the laws of the United States or any other jurisdiction, including,
without limitation: (i) patents; (ii) trade secrets, inventions, discoveries,
improvements, databases, technology and technical data, whether or not
patentable or copyrightable; (iii) trademarks, service marks, trade dress, trade
names and Internet domain names; (iv) copyrights and works of authorship and (v)
rights of privacy and publicity and rights arising under defamation laws, and,
with respect to all of the foregoing, any and all registrations, certificates,
issuances, recordings, applications, divisionals, continuations,
continuations-in-part, reissues, renewals, extensions and/or re-examinations
related thereto.

 

“IRS” shall mean the Internal Revenue Service.

 

“Knowledge,” or any similar formulation of knowledge, shall mean (i) in the case
of the Company, the knowledge of the persons listed on Section 1.1(b) to the
Company Disclosure Schedule, and (ii) in the case of Newco, the knowledge of the
persons listed on Section 1.1(b) to the Newco Disclosure Schedule.

 

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“Law” shall mean any statute, law, ordinance, rule, regulation or other
requirement of any Governmental Entity.

 

“Leased Premises” shall have the meaning set forth in Section 4.25(a).

 

“Letter of Transmittal” shall have the meaning set forth in Section 3.2(b).

 

“Letters of Credit” shall have the meaning set forth in the Recitals hereto.

 

“Library Films” shall mean any and all Films that have been completed and/or
acquired and delivered, and for which Exploitation has commenced on or prior to
the date of this Agreement, and any and all additional Films that have been
completed and/or acquired and delivered, and for which Exploitation has
commenced after the date of this Agreement, but on or prior to the Closing Date.
For the avoidance of doubt, the term “Library Films” shall include all Films
other than Films In Progress, Development Projects and Significant Undeveloped
Properties.

 

“Liens” shall mean, with respect to any asset, pledges, mortgages, title defects
or objections, claims, liens, charges, covenants, restrictions, encumbrances and
security interests of any kind or nature.

 

“Material Event” means a material adverse effect on (i) the business,
properties, assets, financial condition or results of operations of a Person and
its Subsidiaries, taken as a whole or (ii) the ability of such Person and its
Subsidiaries to perform the obligations of such Person pursuant to this
Agreement or to consummate the Transactions to be performed or consummated by
such Person.

 

“Materials of Environmental Concern” shall mean chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products, asbestos or asbestos-containing materials or products,
polychlorinated biphenyls, lead or lead-based paints or materials, radon, fungus
or mold.

 

“Merger” shall have the meaning set forth in Section 2.1.

 

“Merger Consideration” shall have the meaning set forth in Section 3.1(c).

 

“Multiemployer Plan” shall mean any “multiemployer plan” within the meaning of
Section 4001(a)(3) of ERISA.

 

“New Production Commitment” shall have the meaning set forth in Section 6.1(f).

 

“Newco” shall have the meaning set forth in the Preamble hereto.

 

“Newco Disclosure Schedule” shall have the meaning set forth in Article V.

 

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“Newco Material Adverse Effect” shall mean a fact, event or circumstance which
has had, or is reasonably likely to have, together with all similar or related
facts, events and circumstances, a material adverse effect on the ability of
Newco to perform its obligations hereunder or which would prevent or materially
impede, interfere with, hinder or delay the consummation of the Merger and the
Transactions.

 

“Non-Competition Agreement” shall mean a Contract that prohibits or materially
restricts the ability of the Company or any of its Subsidiaries to operate in
any geographical area or compete or operate in any line of business in which the
Company or such Subsidiary, as applicable, presently is engaged, other than (a)
provisions relating to geographic exclusivity and/or exclusivity by medium or
manner of Exploitation contained in agreements for the Exploitation of Films or
Intellectual Property licenses or (b) channel distribution restrictions.

 

“Notice of Adverse Recommendation” shall have the meaning set forth in Section
6.2(b).

 

“NYSE” shall mean the New York Stock Exchange, Inc.

 

“Option Consideration” shall have the meaning set forth in Section 3.4.

 

“Order” shall mean any judgment, order, writ, preliminary or permanent
injunction or decree of any Governmental Entity.

 

“Owned Real Estate” shall have the meaning set forth in Section 4.25(a).

 

“Paying Agent” shall have the meaning set forth in Section 3.2(a).

 

“PBGC” shall mean the Pension Benefit Guarantee Corporation.

 

“Pension Plan” shall mean “employee pension benefit plan” (as defined in Section
3(2) of ERISA) maintained, or contributed to, or required to be contributed to,
by the Company or any of its Subsidiaries for the benefit of any current or
former independent contractors, consultants, agents, employees, officers or
directors of the Company or any of its Subsidiaries.

 

“Permitted Liens” shall mean (i) statutory Liens for Taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which is
being contested in good faith in appropriate proceedings, (ii) inchoate
mechanics’, materialmen’s, carriers’, workmen’s, warehousemen’s, repairmen’s,
landlords’ and similar Liens (including all statutory Liens and all privileges
or equivalent rights recognized by applicable Law) granted in the ordinary
course of business, (iii) customary Liens granted in the ordinary course of
business to any guild or other Person in connection with the production of
Films, (iv) Liens securing debt reflected as secured debt on the financial
statements included or incorporated by reference in the Company Filed SEC
Documents so secured as of December 31, 2003, (v) title of the lessor under any
capital lease, (vi) such other imperfections in title, rights of usufruct or use
or other restrictions and encumbrances that do not materially detract from the
value of or

 

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materially interfere with the use or Exploitation of the Films or Elements (as
currently Exploited by the Company and its Subsidiaries), the Owned Real Estate
or the Leased Premises, as the case may be, (vii) Contracts entered into in the
ordinary course of business pursuant to which any Person has acquired,
established, developed or granted any rights to Exploit any Film, (viii) Liens
that constitute the rights of any lessee or licensee under any lease or license
with respect to any Film or Elements, (ix) Liens securing indebtedness incurred
in the ordinary course of business attributable to “negative pick-ups” (as such
term is commonly understood in the U.S. entertainment industry) or sale and
leaseback transactions (x) Liens created under or in connection with, or
otherwise permitted under, the Company Credit Agreement and (xi) any right in,
or right to receive, money or other consideration in respect of, or relating in
any way to any Film or Elements which consideration is based on the Exploitation
of any such asset, however measured and which was granted in return for talent
or other personal services rendered or third party rights utilized in connection
with such Film or Elements or the development, financing or production thereof.

 

“Person” shall mean an individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including
any Governmental Entities.

 

“Principal Stockholders” shall have the meaning set forth in the Recitals
hereto.

 

“Proposed Settlement” shall have the meaning set forth in Section 6.9.

 

“Providence” shall have the meaning set forth in the Recitals hereto.

 

“Providence Equity Commitment Letter” shall have the meaning set forth in the
Recitals hereto.

 

“Providence Letter of Credit” shall have the meaning set forth in the Recitals
hereto.

 

“Proxy Statement” shall have the meaning set forth in Section 6.3(b).

 

“Release” shall mean any release, pumping, pouring, emptying, injecting,
escaping, leaching, migrating, dumping, seepage, spill, leak, flow, discharge,
disposal or emission.

 

“Representatives” shall have the meaning set forth in Section 6.2(a).

 

“Retention Bonus Plan” shall have the meaning set forth in Section 6.13(e).

 

“Rodeo” shall have the meaning set forth in the Recitals hereto.

 

“Sarbanes-Oxley Act” shall have the meaning set forth in Section 4.14(c).

 

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“SEC” shall mean the United States Securities and Exchange Commission.

 

“SCA” shall have the meaning set forth in the Recitals hereto.

 

“SCA Equity Commitment Letter” shall have the meaning set forth in the Recitals
hereto.

 

“Scheduled Plans” shall have the meaning set forth in Section 4.9(a).

 

“Securities Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

 

“Separate Account” shall have the meaning set forth in Section 6.16(a)

 

“Side Agreement” shall mean the agreement, dated as of the date hereof, by and
among Newco, Providence Equity Partners Inc., Texas Pacific Group, DLJ Merchant
Banking Partners, Sony Pictures Entertainment Inc., Comcast Studio Investments,
Inc. and the Company.

 

“Significant Unproduced Properties” means those Development Projects with
respect to which, as of the date of this Agreement (or, with respect to the
Closing, the Closing Date): (i) are in active development (or, if not in active
development, development has commenced within two (2) years prior to the date of
this Agreement) and have not been abandoned as of the date of this Agreement;
(ii) the Company and/or its Subsidiaries owns or controls rights in such
materials and is developing them for possible production as a Theatrical Motion
Picture or as direct-to-video/DVD or made-for-television programming, or such
materials are being developed by a Third Party for possible production as a
Theatrical Motion Picture or as direct-to-video/DVD or made-for-television
programming and the Company or one or more of its Subsidiaries has the right or
obligation to finance (in whole or in part) and/or acquire any Exploitation
rights in such Development Projects, Theatrical Motion Picture,
direct-to-video/DVD or made-for-television programming; (iii) pre-production has
not been commenced; and (iv) an amount in excess of $1 million has been expended
and/or committed by the Company and/or its Subsidiaries in respect of
development and/or production costs.

 

“Specified Actions” shall have the meaning set forth in Section 6.6(b).

 

“Subsidiary” of any Person means (i) a corporation more than 50% of the combined
voting power of the outstanding voting stock of which is owned, directly or
indirectly, by such Person or by one of more other Subsidiaries of such Person
or by such Person and one or more other Subsidiaries thereof, (ii) a partnership
of which such Person, or one or more other Subsidiaries of such Person or such
Person and one or more other Subsidiaries thereof, directly or indirectly, is
the general partner and has the power to direct the policies, management and
affairs of such partnership, (iii) a limited liability company of which such
Person or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof, directly or indirectly, is the managing
member and has the power to direct the policies, management and affairs of such
company or (iv) any other Person (other than a corporation, partnership or
limited

 

13

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liability company) in which such Person, or one or more other Subsidiaries of
such Person or such Person and one or more other Subsidiaries thereof, directly
or indirectly, has at least a majority ownership and has the power to direct the
policies management and affairs thereof.

 

“Substitute Financing” shall have the meaning set forth in Section 6.6(f).

 

“Superior Proposal” shall mean a bona fide written Takeover Proposal (with all
of the provisions in the definition of Takeover Proposal adjusted to increase
the percentage of outstanding shares of capital stock, other securities, assets,
properties and other rights to be acquired or disposed of to one hundred percent
(100%)) that was not solicited by, or the result of any solicitation by the
Company or any of its Subsidiaries or by any of their respective officers,
directors, Affiliates, investment banks, accountants, financial advisors or
other representatives or agents, in violation of Section 6.2, which the
Company’s Board of Directors determines in good faith (after consultation with
its financial advisors) to be (i) reasonably likely to be consummated and
(ii) superior to the stockholders of the Company as compared to the transactions
provided for herein and any alternative proposed in writing by Newco in
accordance with Section 6.2 hereof, taking into account, among other things, the
Person making such Takeover Proposal and all legal, financial, regulatory,
fiduciary and other aspects of this Agreement and such Takeover Proposal,
including any conditions relating to financing, regulatory approvals or other
events or circumstances beyond the control of the party invoking the condition
and any revisions made or proposed in writing by Newco prior to the time of
determination.

 

“Surviving Corporation” shall have the meaning set forth in Section 2.1.

 

“Takeover Proposal” shall mean any inquiry, proposal or offer relating to (i)
the acquisition after the date hereof of twenty percent (20%) or more of the
outstanding shares of capital stock or twenty percent (20%) or more of the
aggregate outstanding Voting Securities of the Company by any Third Party, (ii)
a merger, consolidation, business combination, reorganization, share exchange,
sale of substantially all assets, recapitalization, liquidation, dissolution or
similar transaction which would result in any Third Party acquiring twenty
percent (20%) or more of the fair market value of the assets (including capital
stock of the Company’s Subsidiaries) of the Company and its Subsidiaries, taken
as a whole, (iii) any other transaction which would, directly or indirectly,
result in a Third Party acquiring twenty percent (20%) or more of the fair
market value of the assets (including rights and capital stock of the Company’s
Subsidiaries) of the Company and its Subsidiaries, taken as a whole, immediately
prior to such transaction (whether by purchase of assets, acquisition of stock
of a Subsidiary or otherwise), (iv) a merger, consolidation, business
combination, reorganization, share exchange, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries which would result in any Third Party (other than the Principal
Stockholders) or the shareholders of such Third Party (other than the Principal
Stockholders) owning twenty percent (20%) or more of the outstanding shares of
capital stock or twenty percent (20%) or more of any other voting securities of
the Company or any resulting parent entity; provided, that in the case of a
transaction involving solely the

 

14

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Subsidiaries of the Company, such Subsidiaries constitute twenty percent (20%)
or more of the fair market value of the assets of the Company and its
Subsidiaries, taken as a whole or (v) any combination of the foregoing

 

“Tax Return” shall mean any report, return, election, notice, declaration,
information statement or other form or document (including all schedules,
exhibits and other attachments thereto) relating to and filed or required to be
filed with a Taxing authority in connection with any Tax (including estimated
Taxes), and shall include any amendment to any of the foregoing.

 

“Taxable Period” shall mean any taxable year or any other period that is treated
as a taxable year (or other period, in the case of a Tax imposed with respect to
such other period; for example, a quarter) with respect to which any Tax may be
imposed under any applicable Law.

 

“Taxes” shall mean any and all federal, state, local and foreign taxes,
assessments, duties, impositions and levies including taxes that are based upon
or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, alternative or add-on minimum, severance, capital
stock, premium, registration, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, estimated, unemployment, insurance, social
security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts. For purposes of this Agreement,
“Taxes” also includes any obligations under any agreements or arrangements with
any Person with respect to the liability for, or sharing of, Taxes (including
pursuant to Treasury Regulations Section 1.1502-6 or comparable provisions of
state, local or foreign tax Law) and including any liability for Taxes as a
transferee or successor, by Contract or otherwise.

 

“Termination Date” shall have the meaning set forth in Section 8.1(b)(ii).

 

“Termination Fee” shall have the meaning set forth in Section 8.4(a).

 

“Theatrical Motion Picture” shall mean any feature length motion picture
intended for initial exhibition in motion picture theatres.

 

“Third Party” shall mean any Person or group other than Newco and the Equity
Investors.

 

“TPG” shall have the meaning set forth in the Recitals hereto.

 

“TPG Equity Commitment Letter” shall have the meaning set forth in the Recitals
hereto.

 

“TPG Letter of Credit” shall have the meaning set forth in the Recitals hereto.

 

“Tracinda” shall have the meaning set forth in the Recitals hereto.

 

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“Transactions” shall mean the Acquisition Financing and other agreements and
arrangements between and among the Equity Investors and Newco in effect on the
date hereof or entered into after the date hereof in compliance with the last
sentence of Section 6.6(b) of this Agreement and to be in effect upon the
consummation of the Merger.

 

“Voting and Support Agreement” shall have the meaning set forth in the Recitals
hereto.

 

“Voting Securities” means capital stock of the Company having the power to vote,
or act by written consent, with respect to matters on which the stockholders are
entitled to vote.

 

“WARN Act” shall mean the Worker Adjustment and Retraining Notification Act of
1988, as amended.

 

“Welfare Plan” shall mean “employee welfare benefit plan” (as defined in Section
3(1) of ERISA) maintained, or contributed to, or required to be contributed to,
by the Company or any of its Subsidiaries for the benefit of any current or
former independent contractors, consultants, agents, employees, officers or
directors of the Company or any of its Subsidiaries.

 

ARTICLE II

THE MERGER

 

Section 2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time, Newco shall be merged with and into the
Company in accordance with the DGCL and the terms of this Agreement (the
“Merger”), whereupon the separate corporate existence of Newco shall cease, and
the Company shall be the surviving corporation of the Merger (the Company, as
the surviving corporation after the Merger is sometimes referred to herein as
the “Surviving Corporation”).

 

Section 2.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the “Closing”) shall take place on a day that is a full
trading day on the NYSE (a) at the offices of Dewey Ballantine LLP, 1301 Avenue
of the Americas, New York, New York 10019 at 10:00 a.m., New York City time, no
later than the second Business Day following the satisfaction of the conditions
set forth in Article VII of this Agreement (other than (i) those conditions that
are waived in accordance with the terms of this Agreement by the party or
parties for whose benefit such conditions exist and (ii) any such conditions
which, by their terms, are not capable of being satisfied until the Closing
Date, but subject to the satisfaction of such conditions as of the Closing) or
(b) at such other place, time and/or date as the parties hereto may otherwise
agree. The date upon which the Closing shall occur is referred to herein as the
“Closing Date.”

 

Section 2.3 Effective Time. If all of the conditions to the Merger set forth in
Article VII of this Agreement have been fulfilled or waived and this Agreement

 

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shall not have been terminated as provided in Article VIII of this Agreement,
the parties hereto shall cause a certificate of merger (the “Certificate of
Merger”) to be properly executed and filed in accordance with the DGCL and the
terms of this Agreement on the Closing Date. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of Delaware or at such other time as is specified by the parties hereto as
the effective time in the Certificate of Merger (the “Effective Time”). The
Merger shall have the effects set forth in the applicable provisions of the
DGCL.

 

Section 2.4 Certificate of Incorporation and By-Laws.

 

(a) The Certificate of Merger shall provide that, at the Effective Time, the
certificate of incorporation of the Surviving Corporation as in effect
immediately prior to the Effective Time shall, subject to the second sentence of
this Section 2.4(a), be amended as of the Effective Time so as to contain the
provisions, and only the provisions, contained immediately prior to the
Effective Time in the certificate of incorporation of Newco, except for Article
I thereof, which shall read “The name of the corporation is Metro-Goldwyn-Mayer
Inc.” Prior to the Closing Date, Newco shall amend its certificate of
incorporation to include the provisions required by Section 6.8(a), and the
certificate of incorporation of the Surviving Corporation shall include the
provisions required by Section 6.8(a).

 

(b) The by-laws of Newco, as in effect immediately prior to the Effective Time,
shall, subject to the second sentence of this Section 2.4(b), be the initial
by-laws of the Surviving Corporation. Prior to the Closing Date, Newco shall
amend its by-laws to include the provisions required by Section 6.8(a), and the
by-laws of the Surviving Corporation shall include the provisions required by
Section 6.8(a).

 

Section 2.5 Directors and Officers.

 

(a) The directors of Newco immediately prior to the Effective Time shall be the
directors of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.

 

(b) The officers of Newco immediately prior to the Effective Time shall be the
officers of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.

 

ARTICLE III

MERGER CONSIDERATION; CONVERSION OR

CANCELLATION OF SHARES IN THE MERGER

 

Section 3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of Newco, or the Company or their
respective stockholders:

 

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(a) Capital Stock of Newco. Each issued and outstanding share of (i) Class A
common stock of Newco shall be converted into and become one fully paid and
nonassessable share of Class A common stock, par value $0.01 per share, of the
Surviving Corporation, (ii) Class B common stock of Newco shall be converted
into and become one fully paid and nonassessable share of Class B common stock,
par value $0.01 per share, of the Surviving Corporation, (iii) 10% Junior
Preferred Stock, par value $1,000 per share, of Newco shall be converted into
and become one fully paid and nonassessable share of 10% Junior Preferred Stock,
par value $1,000 per share, of the Surviving Corporation and (iv) 14% Senior
Preferred Stock, par value $1,000 per share, of Newco shall be converted into
and become one fully paid and nonassessable share of 14% Senior Preferred Stock,
par value $1,000 per share, of the Surviving Corporation.

 

(b) Treasury Stock and Newco Owned Stock. Each Company Share owned by Newco or
held in the treasury of the Company immediately prior to the Effective Time
shall be automatically cancelled and retired and shall cease to exist, and no
payment shall be made with respect thereto. For the avoidance of doubt, any
Company Shares held in the Metro-Goldwyn-Mayer Inc. Deferred Compensation Plan
or that otherwise relate to or are issuable under any employee benefit plan,
program or arrangement for the benefit of current or former employees, officers,
directors or consultants of the Company or any of its Subsidiaries shall not be
cancelled pursuant to this Section 3.1(b) and shall be converted into the right
to receive Merger Consideration pursuant to Section 3.1(c).

 

(c) Conversion of Company Shares. Each issued and outstanding Company Share
(other than any Company Share to be cancelled in accordance with Section 3.1(b)
of this Agreement and any Dissenting Shares) shall automatically be converted
into the right to receive an amount in cash equal to $12.00, without interest
(the “Merger Consideration”). All Company Shares converted into the right to
receive the Merger Consideration pursuant to this Section 3.1(c) shall cease to
be outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of a certificate which immediately prior to the Effective Time
represented Company Shares (a “Company Certificate”) shall thereafter cease to
have any rights with respect to such Company Shares, except the right to receive
the Merger Consideration to be issued in consideration therefor upon the
surrender of such Company Certificate.

 

(d) Adjustments. If, between the date of this Agreement and the Effective Time,
there is a reclassification, recapitalization, stock split, stock dividend,
subdivision, combination or exchange of shares with respect to, or rights issued
in respect of, Company Shares, the Merger Consideration shall be adjusted
accordingly, without duplication, to provide to the holders of Company Shares
the same economic effect as contemplated by this Agreement prior to such event.

 

(e) Dissenting Company Shares. Company Shares that have not been voted for
adoption of this Agreement and with respect to which appraisal shall have been
properly demanded in accordance with Section 262 of the DGCL (“Dissenting
Shares”) shall not be converted into the right to receive the Merger
Consideration at or after the Effective Time unless and until the holder of such
shares withdraws such holder’s

 

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demand for appraisal (in accordance with Section 262(k) of the DGCL) or becomes
ineligible for such appraisal, but rather, the holder of the Dissenting Shares
shall be entitled only to payment of the fair value of such Dissenting Shares in
accordance with Section 262 of the DGCL. If a holder of Dissenting Shares shall
withdraw (in accordance with Section 262(k) of the DGCL) the demand for such
appraisal or shall become ineligible for such appraisal, then, as of the
Effective Time or the occurrence of such event, whichever last occurs, each of
such holder’s Dissenting Shares shall cease to be a Dissenting Share and shall
be converted into and represent the right to receive the Merger Consideration.
The Company shall give Newco prompt written notice of any written demands
received by the Company for appraisal of Company Shares and Newco shall have the
right to participate at its own expense in all negotiations and proceedings with
respect to such demands. The Company shall not make any payments with respect
to, or compromise or settle any demand for, appraisal without the prior written
consent of Newco.

 

Section 3.2 Exchange of Company Certificates.

 

(a) As soon as reasonably practicable, but no later than the Effective Time,
Newco shall deposit or cause to be deposited, with a bank or trust company
selected by Newco and reasonably acceptable to the Company (the “Paying Agent”)
for exchange and payment in accordance with this Article III, an amount in cash
sufficient to deliver the aggregate Merger Consideration in exchange for the
Company Certificates.

 

(b) As of or promptly following the Effective Time, the Surviving Corporation
shall cause the Paying Agent to mail to each holder of record of Company
Certificates (other than Company Certificates representing Dissenting Shares)
that has not previously surrendered his, her or its Company Certificates, (i) a
letter of transmittal in customary form with such other customary provisions as
Newco may reasonably specify (the “Letter of Transmittal”), that shall specify
that delivery shall be effected, and risk of loss and title to Company
Certificates shall pass, only upon proper delivery of Company Certificates to
the Paying Agent and (ii) instructions for use in effecting the surrender of
Company Certificates in exchange for the Merger Consideration (which
instructions shall provide that at the election of the surrendering holder,
Company Certificates may be surrendered, and the Merger Consideration in
exchange therefor collected, by hand delivery). Upon surrender of a Company
Certificate for cancellation to the Paying Agent, together with a Letter of
Transmittal properly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required by
the Paying Agent, the holder of such Company Certificate shall be entitled to
receive in exchange therefor the Merger Consideration into which the Company
Shares previously represented by such Company Certificate shall have been
converted pursuant to Section 3.1 and any Company Certificate so surrendered
shall be forthwith cancelled. The Paying Agent shall promptly accept such
Company Certificate upon compliance with such reasonable terms and conditions as
the Paying Agent may impose to effect an orderly exchange thereof in accordance
with customary exchange practices. No interest shall accrue on the Merger
Consideration payable upon the surrender of any Company Certificate for the
benefit of, or be paid to, the holders of Company Certificates.

 

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(c) All Merger Consideration delivered upon the surrender of Company
Certificates in accordance with the terms of this Article III shall be deemed to
have been paid in full satisfaction of all rights pertaining to Company Shares
theretofore represented by such Company Certificates. Until surrendered as
contemplated by this Section 3.2, each Company Certificate shall be deemed at
all times after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration into which Company Shares theretofore
represented by such Company Certificate shall have been converted pursuant to
this Article III. No interest will be paid or will accrue on the cash payable
upon the surrender of any Company Certificate.

 

(d) At the Effective Time, the stock transfer books of the Company shall be
closed, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of Company Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Company Certificates are presented to the Surviving Corporation or the
Paying Agent for any reason, they shall be cancelled and exchanged as provided
in this Article III.

 

(e) If any Company Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Company
Certificate to be lost, stolen or destroyed and, if required by the Paying
Agent, the posting by such Person of a bond or other surety in such customary
amount as the Paying Agent may reasonably direct as indemnity against any claim
that may be made with respect to such Company Certificate and subject to such
other reasonable and customary conditions as the Paying Agent may impose, the
Paying Agent shall deliver in exchange for such Company Certificate the Merger
Consideration into which Company Shares theretofore represented by such Company
Certificate shall have been converted pursuant to this Article III.

 

(f) If any payment under this Article III is to be made to a Person other than
the Person in whose name any Company Certificate surrendered in exchange
therefor is registered, it shall be a condition of payment that the Company
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the Person requesting such payment shall pay any
transfer or other Taxes required by reason of the payment to a Person other than
the registered holder of Company Certificate surrendered or such Person shall
establish to the satisfaction of the Surviving Corporation that such Taxes have
been paid or are not applicable.

 

(g) The Paying Agent shall invest any funds held by it for purposes of this
Section 3.2 as directed by the Surviving Corporation, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Surviving Corporation.

 

(h) Newco, the Company or the Paying Agent, as the case may be, shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to the holders of Company Shares such amounts, if
any, as are required to be deducted or withheld under any provision of U.S.
federal tax Law, or any provision of state, local or foreign tax Law, with
respect to the making of such

 

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payment. Amounts so withheld shall be treated for all purposes of this Agreement
as having been paid to the holders of Company Shares in respect of which such
deduction or withholding was made. Nothing contained herein shall require that
Newco or any Affiliate thereof make any additional payment to holders of Company
Shares as a result of such withholding or deduction.

 

(i) None of Newco, the Company or the Paying Agent shall be liable to any Person
in respect of any cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. Any portion of the cash that has
been made available to the Paying Agent pursuant to this Section 3.2 that
remains unclaimed by the holder of any Company Certificate twelve (12) months
after the Effective Time, shall be returned to the Surviving Corporation and any
such holder who has not exchanged such holder’s Company Certificate prior to
such time shall thereafter look only to the Surviving Corporation for any claim
for Merger Consideration hereunder.

 

Section 3.3 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, properties, rights, privileges,
powers and franchises of the Company and Newco, the officers and directors of
the Company and Newco are fully authorized in the name of their respective
corporations, or otherwise, to take, and they shall take, all such lawful and
necessary action, so long as such action is consistent with this Agreement.

 

Section 3.4 Company Stock Options. Prior to the Effective Time, the Board of
Directors of the Company (or, if appropriate, any committee thereof) shall adopt
appropriate resolutions and take all other actions necessary and appropriate to
provide that, at the Effective Time, each unexpired and unexercised option or
similar right to purchase Company Shares (the “Company Options”) under the
Company Stock Incentive Plan, whether or not then exercisable or vested, shall,
at the discretion of the Board of Directors of the Company (or, if appropriate,
any committee thereof) either (i) become fully exercisable and vested
immediately prior to the Effective Time and shall be cancelled and, in exchange
therefor, each former holder of any such cancelled Company Option shall be
entitled to receive, in consideration of such cancellation, a payment by the
Surviving Corporation in cash (subject to any applicable withholding or other
taxes required by applicable Law to be withheld) in an amount (such amounts
payable hereunder being referred to as the “Option Consideration”) equal to the
product of (A) the total number of Company Shares subject to such Company Option
immediately prior to its cancellation and (B) the excess, if any, of the Merger
Consideration plus eight dollars ($8.00) over the exercise price per share of
such Company Option; provided, that in calculating the Option Consideration,
there shall be no addition of eight dollars ($8.00) in the preceding clause (B)
with respect to any Company Option (x) with a strike price that was adjusted as
a result of the declaration or payment by the Company of the eight dollar
($8.00) per share cash dividend that became payable on May 17, 2004 or (y) that
was granted after May 17, 2004 or (ii) solely with respect to options granted to
(x) the persons listed on Section 3.4 of the Company Disclosure Schedule and (y)
persons whose options are subject to Laws outside

 

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the United States become fully exercisable and vested at the Effective Time and
be adjusted to entitle the holder upon exercise to receive the Option
Consideration, subject to any applicable withholding or other taxes required by
applicable Law to be withheld, without paying the exercise price of the Company
Option. With respect to any Company Option treated in accordance with clause
(ii) of the preceding sentence, the Company shall use commercially reasonable
efforts to obtain the consent of the holder of such Company Option to the
payment of the Option Consideration as soon as practicable following the
Effective Time, provided that the Company may not provide any holder with any
consideration to obtain such consent other than as provided in this Section 3.4.
As soon as practicable following the Effective Time, the Surviving Corporation
shall provide each holder of Company Options which are cancelled pursuant to
this Section 3.4 with cash payments equal to the Option Consideration in
accordance with the action taken by the Board of Directors of the Company (or,
if appropriate, any committee thereof) and any such cancelled Company Options
shall no longer be exercisable by the former holder thereof, but shall only
entitle such holder to the payment of the Option Consideration. At the Effective
Time, the Company Stock Incentive Plan shall be terminated, except to the extent
that it shall continue to apply to Company Options granted prior to the
Effective Time and described in clause (ii) of the first sentence of this
Section 3.4 (to the extent such Company Options remain outstanding and
unexercised following the Effective Time) and no further Company Options shall
be granted thereunder.

 

Section 3.5 Equity Plans. The Company shall take all actions necessary to
provide that any right to payment or issuance of Company Shares after the
Effective Date under any plan, program or arrangement of the Company shall be
converted into the right to receive, as applicable, Merger Consideration or the
Option Consideration. Prior to the Closing, the Company shall amend the
Metro-Goldwyn-Mayer Inc. Deferred Compensation Plan to provide that participants
in such plan shall not have the right to receive any distributions from such
plan after the Closing in a form other than cash.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth (i) in the disclosure schedule delivered by the Company to
Newco prior to or concurrently with the execution of this Agreement (the
“Company Disclosure Schedule”), which Company Disclosure Schedule identifies the
Section (or, if applicable, subsection) to which such exception relates
(provided that any disclosure in the Company Disclosure Schedule relating to one
section or subsection shall also apply to other sections and subsections to the
extent that it is reasonably apparent that such disclosure would also apply to
or qualify such other sections and subsections), or (ii) in the Company SEC
Documents filed prior to the date hereof, the Company represents and warrants to
Newco as follows:

 

Section 4.1 Organization. The Company (i) is a corporation duly incorporated and
validly existing and in good standing under the Laws of the State of

 

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Delaware, (ii) has all corporate power and authority to own, lease and operate
its properties and assets and to carry on its business as currently conducted
and (iii) is duly qualified and licensed to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned, leased or operated by it or the nature of its activities makes such
qualification or license necessary, except where the failure to be so qualified
or licensed has not had, and would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect. The Company
has made available to Newco complete and correct copies of its certificate of
incorporation and by-laws and all the amendments thereto, as currently in
effect.

 

Section 4.2 Capitalization.

 

(a) The authorized capital stock of the Company consists of 500,000,000 Company
Shares and 25,000,000 shares of preferred stock, $0.01 par value per share, of
the Company (“Company Preferred Shares”). As of September 17, 2004, (i)
238,193,195 Company Shares (excluding treasury shares) were issued and
outstanding, (ii) 13,767,310 Company Shares were held by the Company in its
treasury, (iii) no Company Preferred Shares were issued and outstanding, (iv)
100,000 Company Shares were reserved for issuance under the Company’s 1998
Non-Employee Director Stock Plan, (v) 2,000,000 Company Shares were reserved for
issuance under the Company’s Savings Plan, (vi) 1,000,000 Company Shares were
reserved for issuance under the Company’s 2000 Employee Incentive Plan and (vii)
36,000,000 Company Shares were reserved for issuance under the Company’s Stock
Incentive Plan and Company Options to acquire 27,779,630 Company Shares were
outstanding. No shares of capital stock of the Company are owned by any
Subsidiary of the Company. None of the Company Shares held by the Company in its
treasury were acquired from any current or former Subsidiary of the Company. All
of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive and similar rights. Except as set forth above, there are no
outstanding (i) shares of capital stock, Debt Securities or other voting
securities of or ownership interests in the Company, (ii) securities of the
Company or any of its Subsidiaries convertible into or exchangeable for shares
of capital stock, Debt Securities or voting securities of, or ownership
interests in, the Company, (iii) subscriptions, calls, Contracts, commitments,
understandings, restrictions, arrangements, rights, warrants, options or other
rights to acquire from the Company or any Subsidiary of the Company, or
obligations of the Company or any Subsidiary of the Company to issue any capital
stock, Debt Securities, voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable for any capital
stock, Debt Securities, voting securities, or ownership interests in, the
Company, or obligations of the Company or any Subsidiary of the Company to
grant, extend or enter into any such agreement or commitment or (iv) obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding securities of the Company, or to vote or to dispose of
any shares of capital stock of the Company. All of the outstanding equity
securities of the Company have been offered and issued in compliance with all
applicable securities laws, including the Securities Act and “blue sky” laws,
except where the failure to be in compliance would not be reasonably expected to
cause a Company Material Adverse Effect.

 

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(b) Section 4.2(b) of the Company Disclosure Schedule lists each Company Option
outstanding on September 17, 2004, the number of Company Shares issuable
thereunder, the vesting schedule, the expiration date and the exercise price
thereof. Other than the Company Options, there are no outstanding options issued
by the Company or any of its Subsidiaries with respect to any Company Shares.
Except as set forth on Section 4.2(b) of the Company Disclosure Schedule, there
are no outstanding rights under the Company’s Senior Management Bonus Plan or
Company Deferred Compensation Plan that would entitle any person to payment of
Company Shares on or prior to Closing. There are no outstanding rights under the
Company’s Senior Management Bonus Plan or Company Deferred Compensation Plan
that would entitle any person to payment in the form of Company Shares following
the Closing.

 

(c) Except for the Voting and Support Agreement, there are no voting trusts or
other agreements or understandings to which the Company or any of its
Subsidiaries is a party with respect to the voting of the shares of any capital
stock of the Company or any of its Subsidiaries. No Contract to which the
Company or any of its Subsidiaries is a party grants or imposes on any shares of
the capital stock of the Company any right, preference, privilege or transfer
restrictions with respect to the transactions contemplated by this Agreement
(including any rights of first refusal).

 

Section 4.3 Subsidiaries.

 

(a) Each Subsidiary of the Company is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and each
Subsidiary of the Company is qualified and licensed to transact business as a
foreign corporation, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed would not be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect. The
Company has made available to Newco complete and correct copies of the
certificate of incorporation and by-laws (or similar organizational documents)
of each Subsidiary, and all the amendments thereto, as currently in effect.

 

(b) All of the outstanding shares of capital stock or other ownership interests
of each Subsidiary of the Company are validly issued, fully paid, nonassessable
and free of preemptive or similar rights. All of the outstanding shares of
capital stock or other ownership interests of the Company’s Subsidiaries are
held, directly or indirectly by the Company, free and clear of all claims,
liens, and encumbrances. There are no outstanding (i) shares of capital stock,
Debt Securities or voting securities or other ownership interests of any
Subsidiary of the Company other than those owned, directly or indirectly, by the
Company, (ii) subscriptions, options, warrants, rights, calls, contracts or
other commitments, understandings, restrictions or arrangements relating to the
issuance or sale with respect to any shares of capital stock or other ownership
interests of any Subsidiary of the Company, including any right of conversion or
exchange under any outstanding security, instrument or agreement or
(iii) obligations of the Company or any

 

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of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding
securities or other ownership interests of any Subsidiary of the Company, or to
vote or to dispose of any shares of the capital stock or other ownership
interests of any Subsidiary of the Company.

 

(c) Section 4.3(c) of the Company Disclosure Schedule lists (i) each
“Subsidiary” of the Company and (ii) its jurisdiction of incorporation or
organization.

 

(d) Section 4.3(d)(i) of the Company Disclosure Schedule sets forth the name and
jurisdiction of each Person that is not a Subsidiary of the Company but in which
the Company, directly or indirectly, holds an equity interest (each, a “Company
Joint Venture” and collectively, the “Company Joint Ventures”). All of the
Company’s interests in the Company Joint Ventures are owned, directly or
indirectly, by the Company or by one or more of its Subsidiaries, in each case
free and clear of all claims, liens, and encumbrances. Except as set forth in
Section 4.3(d)(ii) of the Company Disclosure Schedule, neither the Company nor
any of its Subsidiaries has a contractual obligation, contingent or otherwise,
to fund or participate in the debts of any Company Joint Venture, which as of
the date of this Agreement, has not been funded, other than any individual
obligation to fund or participate in debts in an amount less than $20 million;
provided that such obligations do not exceed $50 million in the aggregate.

 

(e) Except for the capital stock of its Subsidiaries, and the ownership
interests in the Company Joint Ventures, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any entity.

 

Section 4.4 Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the Merger and
the other transactions contemplated by this Agreement. The execution, delivery
and performance of this Agreement and the consummation by the Company of the
Merger and the other transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate such transactions, other than, with
respect to the Merger, the adoption of this Agreement by the holders of a
majority of the outstanding Company Shares (the “Company Stockholder Approval”).
This Agreement has been duly executed and delivered by the Company and, assuming
the due execution and delivery hereof by Newco, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors’ rights
and to general equity principles (the “Bankruptcy and Equity Exception”).

 

Section 4.5 Consents and Approvals; No Violations.

 

(a) The execution, delivery and performance by the Company of this Agreement do
not, and the consummation by the Company of the Merger and the other
transactions contemplated by this Agreement will not, require any filing or
registration

 

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with, notification to, or authorization, permit, consent or approval of, or
other action by or in respect of, any Governmental Entities other than (i) the
filing of the Certificate of Merger as contemplated by Article II hereof, (ii)
the filings required under the HSR Act and filings required by any other
Governmental Entity relating to antitrust, competition, trade or other
regulatory matters, (iii) as required to comply with any applicable requirements
of the Securities Act, the Exchange Act, the NYSE and state securities and “blue
sky” Laws and (iv) such other filings, registrations, notifications,
authorizations, permits, consents, approvals or actions, the failure of which to
take or obtain would not have or be reasonably expected to have, individually or
in the aggregate, a Company Material Adverse Effect.

 

(b) Subject to the adoption of this Agreement by the holders of a majority of
the outstanding Company Shares, the execution, delivery and performance by the
Company of this Agreement do not, and the consummation by the Company of the
Merger and the other transactions contemplated by this Agreement will not, (i)
conflict with, or result in any breach of, any provision of the certificate of
incorporation or by-laws of the Company or any similar organizational documents
of any of its Subsidiaries, (ii) violate, conflict with, require consent
pursuant to, result in a breach of, constitute a default (with or without due
notice or lapse of time or both) under, or give rise to a right (by any party
other than the Company or any Subsidiary of the Company) of, or result in, the
termination, cancellation, modification, acceleration or the loss of a benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any Contract to which the Company or any of its
Subsidiaries is a party or by which any of its properties or assets may be bound
or (iii) violate any Order or Law applicable to the Company, any of its
Subsidiaries or any of their properties or assets, except, in the case of
clauses (ii) and (iii) above, for any violation, conflict, consent, breach,
default, termination, cancellation, modification, acceleration, loss or creation
that would not be reasonably expected to have, either individually or in the
aggregate, a Company Material Adverse Effect.

 

(c) The execution and delivery of the Voting and Support Agreement by the
Principal Stockholders, the consummation by the Principal Stockholders of the
transactions contemplated thereby and the performance by the Principal
Stockholders of their obligations thereunder shall not (with or without due
notice or lapse of time or both) result in any violation or the breach of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration or any payments under, or result in a loss of a
benefit or in the creation or imposition of a lien under, any of the terms,
conditions or provisions of any note, lease, mortgage, indenture, license,
agreement or other instrument or obligation to which the Company or any of its
assets, may be bound.

 

Section 4.6 SEC Reports and Financial Statements.

 

(a) The Company has filed with the SEC all forms, reports, schedules, statements
and other documents required to be filed by it since January 1, 2001 (together
with all exhibits and schedules thereto and all information incorporated therein
by reference, the “Company SEC Documents”). The Company SEC Documents, as of
their

 

26

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respective dates or, if amended, as of the date of the last such amendment, (i)
did not 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 light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. No Subsidiary of the
Company is required to make any filings with the SEC.

 

(b) The consolidated financial statements of the Company included or
incorporated by reference in the Company SEC Documents, as of the date filed
with the SEC, complied in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis during the periods indicated (except as may be indicated in the notes
thereto) and fairly presented, in all material respects (subject, in the case of
the unaudited statements, to normal, recurring audit adjustments not material in
amount), the consolidated financial position of the Company and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for each of the periods then ended. Since January 1,
2001, there has been no material change in the Company’s accounting methods or
principles that would be required to be disclosed in the Company’s financial
statements in accordance with GAAP, except as described in the notes to such
Company financial statements.

 

(c) The Company has made available to Newco a complete and correct copy of any
amendments or modifications, which, as of the date of this Agreement, are
required to be filed with the SEC, but have not yet been filed with the SEC, to
(i) agreements, documents or other instruments which previously have been filed
by the Company with the SEC since January 1, 2001 pursuant to the Exchange Act
and (ii) the Company Filed SEC Documents themselves and, reasonably promptly
following the execution of any such amendments or modifications, will make
available to Newco any such amendments or modifications entered into after the
date hereof and so required to be filed. The Company has timely responded to all
comment letters of the staff of the SEC relating to the Company Filed SEC
Documents (and will timely respond to any comment letters to the staff of the
SEC relating to any Company SEC Documents filed after the date hereof, subject
to Section 6.3 hereof), and the SEC has not advised the Company that any final
responses are inadequate, insufficient or otherwise non-responsive. The Company
has made available to Newco true, correct and complete copies of all
correspondence with the SEC occurring since January 1, 2001 and prior to the
date hereof and will, reasonably promptly following the receipt thereof, make
available to Newco any such correspondence sent or received after the date
hereof. To the Knowledge of the Company, none of the Company Filed SEC Documents
is the subject of ongoing SEC review.

 

Section 4.7 Absence of Certain Changes or Events. Except for the negotiation
(including activities related to due diligence), execution and delivery of this
Agreement, or as disclosed in the Company SEC Documents publicly available prior
to the date of this Agreement (the “Company Filed SEC Documents”), (a) since
December

 

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31, 2003, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary course, (b) since December 31, 2003, there has
not been any event or events that has had or would be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect and
(c) since June 30, 2004, neither the Company nor any Subsidiary has taken any
action that, if taken after the date hereof would be prohibited by Section
6.1(a), (d), (e), (f), (g), (h), (i), (p) and (u) hereof.

 

Section 4.8 No Undisclosed Liabilities. Except as and to the extent disclosed in
the Company Filed SEC Documents, neither the Company nor any of its Subsidiaries
has any liabilities or obligations of any nature, whether or not accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and whether or not required to be disclosed, reserved against or otherwise
provided for (including any liability for breach of Contract, breach of
warranty, torts, infringements, claims or lawsuits) other than (i) liabilities
or obligations in the amounts reflected on or reserved against in the Company’s
consolidated balance sheet as of June 30, 2004 included in the Company’s
financial statements, (ii) liabilities or obligations that would not have,
individually or in the aggregate, a Company Material Adverse Effect and (iii)
fees and expenses actually incurred by the Company in connection with the
transactions contemplated by this Agreement.

 

Section 4.9 Benefit Plans; Employees and Employment Practices.

 

(a) Section 4.9 of the Company Disclosure Schedule contains a list of all
Benefit Plans (excluding any employment or consulting agreements) (other than
(i) any such plan that is maintained for the purpose of complying with any
non-U.S. Law or (ii) any immaterial plan that is not subject to ERISA) (the
“Scheduled Plans”). With respect to the Scheduled Plans (other than
Multiemployer Plans), the Company has delivered or made available to Newco true,
complete and correct copies of (i) each such Scheduled Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (ii) the three (3) most
recent annual reports on Form 5500 filed with the IRS with respect to each such
Scheduled Plan (if any such report was required), (iii) the most recent summary
plan description and all subsequent summaries of material modifications for each
such Scheduled Plan for which such summary plan description is required, (iv)
each trust agreement and group annuity contract relating to any Scheduled Plan;
(v) the most recent determination letter from the IRS, if any and (vi) the most
recent actuarial valuation, if any. Each Benefit Plan (other than a
Multiemployer Plan) has, in all material respects, been established, funded,
maintained and administered in compliance with its terms and with the applicable
provisions of ERISA, the Code and all other applicable Laws. There are no
material amendments to any Benefit Plan or the establishment of any new Benefit
Plan (in both cases, other than a Multiemployer Plan) that have been adopted or
approved by the Company or any of its Subsidiaries (and that are not reflected
in the documents made available by the Company to Newco prior to the date hereof
with respect to such Benefit Plan), and neither the Company nor any of its
Subsidiaries has undertaken or committed to make any such amendments or to adopt
or approve any new plans.

 

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(b) All Pension Plans (other than Multiemployer Plans) have been the subject of
favorable and up-to-date (through any applicable remedial amendment period)
determination letters from the IRS, or a timely application therefor has been
filed, to the effect that such Pension Plans are qualified and exempt from
federal income taxes under Section 401(a) and 501(a), respectively, of the Code,
and, to the Knowledge of the Company, no circumstances exist and, to the to the
Knowledge of the Company, no events have occurred that could adversely affect
the qualification of any Pension Plan or the related trust.

 

(c) With respect to any plan (other than a Multiemployer Plan) subject to Title
IV of ERISA (or Section 302 of ERISA or Section 412 or 4971 of the Code) to
which the Company, any of its Subsidiaries or any ERISA Affiliate made, or was
required to make, contributions during the past six (6) years: (i) there does
not exist any accumulated funding deficiency within the meaning of Section 412
of the Code or Section 302 of ERISA, whether or not waived; (ii) the fair market
value of the assets of such Pension Plan equals or exceeds the actuarial present
value of all accrued benefits under such Pension Plan (whether or not vested,
each as determined under the assumptions and valuation method of the latest
actuarial valuation of such plan); (iii) no reportable event within the meaning
of Section 4043(c) of ERISA for which the 30-day notice requirement has not been
waived has occurred, and the consummation of the transactions contemplated by
this agreement will not result in the occurrence of any such reportable event;
(iv) all premiums to the PBGC have been timely paid in full; (v) no liability or
contingent liability (including liability pursuant to Section 4069 of ERISA but
excluding premiums to the PBGC) under Title IV of ERISA has been or is
reasonably expected to be incurred by the Company or any of its Subsidiaries or
ERISA Affiliates; and (vi) the PBGC has not instituted proceedings to terminate
any such Pension Plan and, to the Company’s knowledge, no condition exists that
presents a risk that such proceedings will be instituted or which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Pension Plan. With respect to
any Multiemployer Plan to which the Company, any of its Subsidiaries or any
ERISA Affiliate made, or was required to make, contributions during the past six
(6) years: (i) none of the Company, any of its Subsidiaries nor any ERISA
Affiliate has made or suffered a “complete withdrawal” or a “partial
withdrawal,” as such terms are respectively defined in Sections 4203 and 4205 of
ERISA; (ii) no event has occurred that presents a material risk of a complete or
partial withdrawal; (iii) none of the Company, any of its Subsidiaries nor any
ERISA Affiliate has any contingent liability under Section 4204 or 4212(c) of
ERISA and (iv) none of the Company and its Subsidiaries, nor any of their
respective ERISA Affiliates has received any notification, nor has any reason to
believe, that any such plan is in reorganization, has been terminated, is
insolvent, or may be reasonably expected to be in reorganization, to be
insolvent or to be terminated.

 

(d) Neither the Company, its Subsidiaries or any ERISA Affiliate has any
material liability for life, health, medical or other welfare benefits for
former employees or beneficiaries or dependents thereof with coverage or
benefits under Benefit Plans other than Pension Plans, other than as required by
Section 4980B of the Code or Part 6 of Title I of ERISA or any other applicable
Law. All material contributions or

 

29

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premiums owed by the Company or any of its Subsidiaries with respect to Benefit
Plans under Law, contract or otherwise have been made in full and on a timely
basis. To the Knowledge of the Company, no Pension Plan or Welfare Plan or any
“fiduciary” or “party-in-interest” (as such terms are respectively defined by
Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction
prohibited by Section 406 of ERISA or 4975 of the Code for which a valid
exemption is not available. There are no pending or, to the Knowledge of the
Company, threatened, claims, lawsuits, arbitrations or audits asserted or
instituted against any Benefit Plan (other than Multiemployer Plans), any
fiduciary (as defined by Section 3(21) of ERISA) thereto, the Company, any of
its Subsidiaries or any employee or administrator thereof in connection with the
existence, operation or administration of a Benefit Plan (other than
Multiemployer Plans), other than routine claims for benefits. All liabilities
with respect to each Foreign Plan have been funded in accordance with the terms
of such Foreign Plan and have been properly reflected in the financial
statements of the Company and its Subsidiaries.

 

(e) Neither the execution and delivery of this Agreement nor the consummation of
the transactions provided for herein will (either alone or in conjunction with
any other event (which event would not alone have an effect described in the
following clauses (i) through (iii)) (i) cause or result in the accelerated
vesting, funding or delivery of, or increase the amount or value of, any
material payment or benefit to any employee, officer or director of the Company
or any of its Subsidiaries, (ii) cause or result in the funding of any Benefit
Plan or (iii) cause or result in a limitation on the right of the Company or any
of its Subsidiaries to amend, merge, terminate or receive a reversion of assets
from any Benefit Plan or related trust. Without limiting the generality of the
foregoing, no amount paid or payable by the Company or any of its Subsidiaries
in connection with the transactions provided for herein (either solely as a
result thereof or as a result of such transactions in conjunction with any other
event) will be an “excess parachute payment” within the meaning of Section 280G
of the Code.

 

Section 4.10 Employment/Labor.

 

(a) Except as set forth in Section 4.10(a)(i) of the Company Disclosure
Schedule, as of the date of this Agreement, there is no labor dispute,
controversy, arbitration, grievance, strike, slowdown, lockout or work stoppage
against the Company or any of its Subsidiaries pending, or to the Knowledge of
the Company, threatened which may interfere with the business activities of the
Company or any of its Subsidiaries, except where such dispute, controversy,
arbitration, grievance, strike, slowdown, lockout or work stoppage would not
have, or be reasonably expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except as set forth in Section 4.10(a)(ii) of
the Company Disclosure Schedule and except for any specific labor agreements
required by Governmental Entities that are generally applicable to
similarly-situated employers, the Company and its Subsidiaries are neither party
to, nor bound by, any labor agreement, collective bargaining agreement, work
rules or practices (except for those work rules or practices required by
Governmental Entities that are generally applicable to similarly-situated
employers), or any other labor-related agreements or arrangements with any labor
union, labor organization or works council; there are no labor agreements,
collective bargaining agreements, work rules or practices

 

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(other than those work rules or practices required by Governmental Entities that
are generally applicable to similarly-situated employers), or any other
labor-related agreements or arrangements that pertain to any of the employees of
the Company or its Subsidiaries; and no employees of the Company or its
Subsidiaries are represented by any labor organization with respect to their
employment with the Company or its Subsidiaries. No labor union, labor
organization, works council, or group of employees of the Company or its
Subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. To the Knowledge of the Company, there are no
organizational efforts presently being made involving any of the presently
unorganized employees of the Company or its Subsidiaries. Neither the Company
nor any of its Subsidiaries is a party to, or otherwise bound by, any Order
relating to employees or employment practices.

 

(b) The Company and its Subsidiaries are in compliance in all material respects
with all Laws and Orders applicable to such entity or the employees or other
persons providing services to or on behalf of such entity, as the case may be,
relating to the employment of labor, including all such Laws and Orders relating
to discrimination, civil rights, immigration, safety and health, workers’
compensation, wages, withholding, hours, employment standards and
classification, including the WARN Act, the California WARN Act (California
Labor Code Section 1400, et seq.), Title VII of the Civil Rights Act of 1964,
Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay
Act, Health Insurance Portability and Accessibility Act, ERISA and Family and
Medical Leave Act.

 

(c) The Company has made a good faith and diligent effort to locate all written
personnel manuals, handbooks, policies, rules or procedures applicable to
employees of the Company and/or its Subsidiaries, and has listed such located
materials in Section 4.10(c) of the Company Disclosure Schedule and provided
true and complete copies thereof to Newco.

 

(d) Section 4.10(d) of the Company Disclosure Schedule contains a true and
complete list of the names and the sites of employment or facilities of those
individuals who suffered an “employment loss” (as defined in the WARN Act) at
any site of employment or facility of the Company or any of its Subsidiaries
(governed by the WARN Act) during the 90-day period prior to the date of this
Agreement. Section 4.10(d) of the Company Disclosure Schedule shall be updated
immediately prior to the Closing with respect to the 90-day period prior to the
Closing.

 

Section 4.11 Contracts.

 

(a) All Contracts required to be filed as exhibits to the Company Filed SEC
Documents (such Contracts, the “Company Contracts”) have been so filed. Except
as disclosed in the Company Filed SEC Documents, neither the Company nor any of
its Subsidiaries, or, to the Knowledge of the Company, any other party, (i) is
in violation or breach of or in default under (nor does there exist any
condition which together with the

 

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passage of time or the giving of notice would result in a violation or breach
of, or constitute a default under, or give rise to any right of termination,
amendment, cancellation, acceleration or loss of benefits, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries under) any Company Contract, or (ii) has otherwise failed to
exercise an option under any Company Contract which may adversely impact the
Company’s or any of its Subsidiaries’ rights under a Company Contract, in each
case, except as would not be reasonably expected to have, either individually or
in the aggregate, a Company Material Adverse Effect. To the Knowledge of the
Company, no other party to any such Company Contract has alleged that the
Company or any Subsidiary is in violation or breach of or in default under any
such Company Contract or has notified the Company or any Subsidiary of an
intention to modify any material terms of or not to renew any such Company
Contract. Since December 31, 2003, neither the Company nor any of its
Subsidiaries has released or waived any material right under any such Company
Contract other than in the ordinary course of business.

 

(b) Except as disclosed in Section 4.9 (or any subsection thereof) or Section
4.11(b) of the Company Disclosure Schedule or disclosed in the Company SEC
Documents filed prior to the date hereof, neither the Company nor any of its
Subsidiaries is a party to, or bound by, any undischarged written or oral (i)
Non-Competition Agreement or (ii) agreement not entered into in the ordinary
course of business between the Company and any of its Affiliates other than any
Subsidiary of the Company.

 

Section 4.12 Insurance. The Company has made available to Newco prior to the
date of this Agreement copies of all material insurance policies which are owned
by the Company or its Subsidiaries or which name the Company or any of its
Subsidiaries as an insured (or loss payee), including those which pertain to the
Company’s or its Subsidiaries’ assets, employees or operations. All such
insurance policies are maintained in full force and effect during the relevant
policy periods, are in such amounts and against such losses and risks as are
consistent with industry practice in all material respects and all premiums due
thereunder have been paid. Neither the Company nor any of its Subsidiaries have
received written notice of cancellation of any such insurance policies.

 

Section 4.13 Litigation. Except as would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect, (i) there
is no suit, claim, action, proceeding, arbitration or investigation pending
before any Governmental Entity or, to the Company’s Knowledge, threatened
against the Company or any of its Subsidiaries or their respective assets or
properties; provided that this clause (i) is not intended to address any suit,
claim, action, proceeding, arbitration or investigation of the type described in
the clauses (a) and (b) of the second sentence of this Section 4.13, and (ii)
neither the Company nor any of its Subsidiaries is subject to any outstanding
Order or Orders. As of the date hereof, there is no suit, claim, action,
proceeding, arbitration or investigation pending or, to the Company’s Knowledge,
threatened against the Company or any of its Subsidiaries, (a) which seeks to,
or would be reasonably expected to, restrain, enjoin or delay the consummation
of the Merger or any of the other transactions provided for herein or (b) which
seeks damages in

 

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connection therewith, and no injunction has been entered or issued with respect
to the transactions provided for herein.

 

Section 4.14 Compliance with Applicable Law.

 

(a) Each of the Company and its Subsidiaries hold all material permits,
licenses, variances, exemptions, Orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses or
ownership of their respective assets and properties (the “Company Permits”).
Each of the Company and its Subsidiaries are in compliance, in all material
respects, with the terms of the Company Permits. The businesses of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any Law, except to the extent any such violations, individually or in the
aggregate, would not be reasonably expected to cause a Company Material Adverse
Effect. No investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the Company’s
Knowledge, threatened, nor, to the Company’s Knowledge, has any Governmental
Entity indicated an intention to conduct any such investigation or review.

 

(b) The Company is not an “investment company” under the Investment Company Act
of 1940, as amended, and the rules and regulations promulgated by the SEC
thereunder.

 

(c) The Company and each of its officers and directors are in compliance with,
and have complied, in all material respects with (i) the applicable provisions
of the Sarbanes-Oxley Act of 2002 and the related rules and regulations
promulgated under such Act (the “Sarbanes-Oxley Act”) or the Exchange Act and
(ii) the applicable listing and corporate governance rules and regulations of
the NYSE. There are no outstanding loans made by the Company or any of its
Subsidiaries to any executive officer (as defined under Rule 3b-7 under the
Exchange Act) or director of the Company. Since the enactment of the
Sarbanes-Oxley Act, neither the Company nor any of its Subsidiaries has made any
loans to any executive officer or director of the Company or any of its
Subsidiaries. The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act);
such disclosure controls and procedures are designed to ensure that all material
information relating to the Company, including its consolidated Subsidiaries, is
made known on a timely basis to the Company’s principal executive officer and
its principal financial officer by others within those entities; and such
disclosure controls and procedures are effective in timely alerting the
Company’s principal executive officer and its principal financial officer to
material information required to be included in the Company’s periodic reports
required under the Exchange Act. The Company’s principal executive officer and
its principal financial officer have disclosed, based on their most recent
evaluation, to the Company’s auditors and the audit committee of the Board of
Directors of the Company (i) all significant deficiencies in the design or
operation of internal controls which could adversely affect the Company’s
ability to record, process, summarize and report financial data and have
identified for the Company’s auditors any material weaknesses in internal
controls and (ii) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s

 

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internal controls. For purposes of this paragraph, “principal executive officer”
and “principal financial officer” shall have the meanings given to such terms in
the Sarbanes-Oxley Act.

 

Section 4.15 Taxes and Tax Returns.

 

(a) All income Tax Returns and all other material Tax Returns required to be
filed by or with respect to the Company or any of its Subsidiaries for all
Taxable Periods (or portions thereof) ending on or before the Closing Date have
been or will be timely filed (taking into account any extension of time within
which to file). All such Tax Returns (i) were prepared in the manner required by
applicable Law and (ii) are true, correct, and complete in all material
respects.

 

(b) True and complete copies of all federal and state income Tax Returns of or
including the Company and its Subsidiaries for their respective 1999-2002 tax
years have been made available to Newco prior to the date hereof. Since the date
of the Company’s last financial statements, neither the Company nor any of its
Subsidiaries has incurred any liability for Taxes other than Taxes incurred in
the ordinary course of business.

 

(c) All material Taxes for which the Company or any of its Subsidiaries is or
may be liable in respect of Taxable Periods (or portions thereof) ending on or
before the Closing Date, whether or not shown (or required to be shown) on a Tax
Return, have been timely paid, or in the case of material Taxes not yet due and
payable, sufficient reserve for the payment of all such material Taxes (without
regard to deferred tax assets and deferred tax liabilities) is provided on the
consolidated financial statements of the Company and its Subsidiaries included
in the Company Filed SEC Documents.

 

(d) No deficiencies for income Taxes or other material Taxes have been claimed,
proposed or assessed in writing against the Company or any of its Subsidiaries
by any Taxing authority in the past five (5) years, and neither the Company nor
any of its Subsidiaries has Knowledge of any pending or threatened claim,
proposal or assessment against the Company or any of its Subsidiaries for any
such deficiency for Taxes. The Company has not received written notice of any
pending or threatened audits, investigations or other proceedings relating to
any liability of the Company or any of its Subsidiaries in respect of Taxes, and
there are no matters under discussion between the Company or any of its
Subsidiaries, on the one hand, and any Taxing authority, on the other hand, with
respect to income Taxes or other material Taxes. None of the income Tax Returns
or other material Tax Returns of the Company or any of its Subsidiaries is
currently being, or in the past five (5) years has been, formally examined by
the IRS or relevant state, local or foreign Taxing authorities and the Company
has not received any examination report from a Taxing authority in the past five
(5) years. None of the Company or any of its Subsidiaries has entered into a
closing agreement pursuant to Section 7121 of the Code during the prior five (5)
years.

 

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(e) The Company and each of its Subsidiaries has duly and timely withheld,
collected, paid and reported to the proper governmental authority all Taxes
required to have been withheld, collected, paid or reported.

 

(f) There are no Liens or other security interests upon any property or assets
of the Company or any of its Subsidiaries for Taxes, except for Liens for real
and personal property Taxes not yet due and payable.

 

(g) Neither the Company nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or Tax Returns or agreed to any extension of
time with respect to a Tax assessment or deficiency. No power of attorney that
is currently in force has been granted by the Company or any of its Subsidiaries
with respect to any matters relating to Taxes.

 

(h) Neither the Company nor any of its Subsidiaries is a party to any Contract,
plan or arrangement relating to allocating or sharing the payment of, indemnity
for, or liability for, Taxes.

 

(i) Neither the Company nor any of its Subsidiaries has constituted either a
“distributing corporation” or a “controlled corporation” in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (x) in the
two (2) years prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a “plan” or “series of related transactions”
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.

 

(j) Neither the Company nor any of its Subsidiaries has any deferred
intercompany gain within the meaning of Treasury Regulation Section 1.1502-13 or
excess loss account within the meaning of Treasury Regulation Section 1.1502-19.

 

(k) None of the indebtedness of the Company or any of its Subsidiaries
constitutes (i) “corporate acquisition indebtedness” (as defined in Section
279(b) of the Code) with respect to which any interest deductions may be
disallowed under Section 279 of the Code or (ii) an “applicable high yield
discount obligation” under Section 163(i) of the Code.

 

(l) The Company is not, and has not been, a “United States real property holding
corporation” within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(m) Neither the Company nor any of its Subsidiaries has engaged in any “listed
transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

 

(n) To the Knowledge of the Company, since October 11, 1996, there has been no
ownership change (within the meaning of Section 382(g) of the Code) with respect
to the Company.

 

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(o) Neither the Company nor any of its Subsidiaries has joined in filing a
consolidated or combined income Tax Return with either of the Principal
Stockholders.

 

Section 4.16 Environmental Matters.

 

(a) Except as would not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect, (i) the Company and each of its
Subsidiaries is in compliance with all Environmental Laws, which compliance
includes the possession by the Company and each of its Subsidiaries of all
permits and other governmental authorizations required under any Environmental
Laws and compliance with the terms and conditions thereof, (ii) neither the
Company nor any of its Subsidiaries has received any communication (written or,
to the Company’s Knowledge, oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that the Company or any of
its Subsidiaries is not in compliance with any Environmental Laws, and (iii) to
the Company’s Knowledge, there are no circumstances that would be reasonably
expected to prevent or interfere with such compliance in the future.

 

(b) Except as would not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect, there is no Environmental Claim
pending or, to the Company’s Knowledge, threatened against the Company or any of
its Subsidiaries or to the Company’s Knowledge against any person or entity
whose liability for any Environmental Claim either the Company or any of its
Subsidiaries has retained or assumed either contractually or by operation of law
for which the Company reasonably expects to incur costs or be held legally
liable.

 

(c) Except as would not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect, to the Company’s Knowledge, there
are no past or present actions, activities, circumstances, conditions, events or
incidents, including the Release or threatened Release of any Material of
Environmental Concern, that would be reasonably expected to form the basis of
any Environmental Claim against the Company or any of its Subsidiaries or
against any person or entity whose liability for any Environmental Claim either
the Company or any of its Subsidiaries has retained or assumed either
contractually or by operation of law.

 

(d) The Company has provided to Newco all material assessments, reports, data,
results of investigations or audits and other information that is in the
possession of the Company or any of its Subsidiaries, regarding environmental
matters pertaining to or the environmental condition of the business of the
Company or any of its Subsidiaries or the compliance (or noncompliance) by the
Company or any of its Subsidiaries with any Environmental Laws.

 

Section 4.17 State Takeover Statutes. The Board of Directors of the Company has
taken all actions required to be taken by it so that the restrictions contained
in Section 203 of the DGCL applicable to a “business combination” (as defined in
such Section 203) will not apply to the execution, delivery or performance of
this Agreement

 

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or the Voting and Support Agreement or to the consummation of the Merger or the
other transactions provided for herein or therein. To the Knowledge of the
Company, no other “control share acquisition,” “fair price” or other
anti-takeover regulations enacted under state Laws in the United States apply to
this Agreement, the Voting and Support Agreement or any of the transactions
provided for herein and therein.

 

Section 4.18 Intellectual Property.

 

(a) Except where the failure would not have a Company Material Adverse Effect,
the Company and each of its Subsidiaries own or possess adequate licenses or
other valid rights to use all Intellectual Property (including, without
limitation, Intellectual Property rights that exist in the Films) used in the
conduct of the business of the Company and its Subsidiaries (collectively, the
“Company Intellectual Property”). Section 4.18(a) of the Company Disclosure
Schedule sets forth a complete and accurate list of all trademarks, service
marks and domain names in which the Company or one of its Subsidiaries purports
to have an ownership interest. Such schedule will include the title of the mark
or domain name and, in the case of trademarks and service marks, the
registration, certificate or issuance number (or application number with respect
to pending applications) and the date registered or issued (or filed with
respect to pending applications) and the identification of the particular
Company or Subsidiary which holds the interest. Neither the Company nor any of
its Subsidiaries owns or exclusively licenses any patents.

 

(b) Except where the failure would not have a Company Material Adverse Effect,
the Company and its Subsidiaries take and have taken reasonable measures,
consistent with industry practice as of the date of this Agreement, to register,
maintain and renew all trademarks, trade names, copyrights and service marks
owned by the Company and its Subsidiaries that are included in the Company
Intellectual Property.

 

(c) The Company Intellectual Property and the conduct of the business of the
Company and its Subsidiaries as currently conducted do not Infringe any
Intellectual Property right of any Person in any way that would be reasonably
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. To the Company’s Knowledge, no Third Party is Infringing any Company
Intellectual Property which would be reasonably expected to have, individually
or in the aggregate, a Company Material Adverse Effect, except for Infringement
arising from unauthorized copying as is commonly of concern to the motion
picture and entertainment industry (e.g., piracy and “bootlegging”, peer-to-peer
file sharing over the Internet and the like). No legal proceedings are pending
or, to the Knowledge of the Company, threatened in writing, that (i) assert that
any Company Intellectual Property or any action taken by the Company or any of
its Subsidiaries Infringes any Intellectual Property of any Person or that any
Company Intellectual Property or any action taken by the Company or any of its
Subsidiaries constitutes a libel, slander or other defamation of any Person or
(ii) challenge the validity or enforceability of, or the rights of the Company
or any of its Subsidiaries in, any Company Intellectual Property.

 

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(d) The consummation of the transactions provided for herein will not adversely
affect any right or interest of the Company or any of its Subsidiaries in any
Company Intellectual Property in any way which would be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect.

 

Section 4.19 Films and Elements.

 

(a) Section 4.19(a) of the Company Disclosure Schedule sets forth a list that is
complete and accurate in all material respects of all released Theatrical Motion
Pictures, direct to video/DVD and made-for-television programming owned by or
licensed to the Company or one of its Subsidiaries and the identification of the
particular library of the Company with which such Theatrical Motion Picture is
associated.

 

(b) Except where the failure would not have a Company Material Adverse Effect,
the Company and/or one of its Subsidiaries owns, controls or has licensed all
rights in and to the Films necessary for the conduct of the business of the
Company and its Subsidiaries.

 

(c) Neither the Company nor any of its Subsidiaries has, as of the date of this
Agreement, any material executory contractual obligations to any Third Party
relating to the distribution of any minimum number of prints, minimum
advertising spend and/or minimum screen release obligations (i.e. minimum number
of screens or markets) for any Theatrical Motion Picture that has not been
released but for which principal photography has commenced or that has been
completed.

 

(d) The Company has made available to Newco correct and complete copies of (i)
the schedule maintained by the Company in the ordinary course of business (the
“Abend Schedule”) setting forth the United States copyright termination rights,
if any, that to the Company’s Knowledge are applicable to the titles in the
historic “UA Library” (and as compiled on an ad hoc basis, certain titles in the
libraries acquired from Polygram and Orion), pursuant to 17 U.S.C. § 203 as
construed by Stewart v. Abend, 495 U.S. 207 (1990) (collectively, the “Abend
Laws”), and (ii) the Abend Binders. As of the date hereof, except as set forth
in the Abend Schedule, the Abend Binders, or the Company Disclosure Schedule,
and except with respect to reversions or claims of reversion that have been
resolved prior to June 30, 2004 by settlement, reacquisition of rights by the
Company, non-renewal or loss of rights, defeat or abandonment of the claimed
reversion or expiration of the reversion right, to the Company’s Knowledge,
neither the Company nor any of its Subsidiaries has received, or will receive
subsequent to the date of this Agreement, any notice from any Third Party
purporting to terminate pursuant to the Abend Laws or 17 U.S.C. § 304 any grant
of copyright material to the conduct of the business of the Company and its
Subsidiaries as a whole.

 

(e) The Company has delivered to Newco a list that is complete and accurate in
all material respects, setting forth all locations where any Elements set forth
in subsections (i), (ii), (iii) and (iv) of the definition of Elements that the
Company or its Subsidiaries own or have access to are maintained. To the extent
such locations are owned or controlled by a Third Party, the Company or its
Subsidiaries have access to the

 

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Elements at such locations. With respect to each Library Film, the Elements
owned or controlled by the Company and its Subsidiaries are free and clear of
all Liens other than Permitted Liens, customary laboratory pledge agreements and
rights of access by Third Parties having contractual rights of access thereto
except where such Liens or Third Party rights of access would not be reasonably
expected to have a Company Material Adverse Effect.

 

(f) Section 4.19(f) of the Company Disclosure Schedule sets forth as of the date
of this Agreement (or, with respect to the Closing, as of the Closing Date) (i)
a list of all Theatrical Motion Pictures, direct-to-video/DVD and
made-for-television programming that have not been released and for which
principal photography or post-production has commenced, which are being (or are
to be) produced by the Company or any of its Subsidiaries, or which the Company
or any of its Subsidiaries have “green lit” or committed (or have the right) to
finance, in whole or in part, or acquire any ownership interest, distribution
rights or other rights from a Third Party (collectively, the “Films In
Progress”), together with a summary of the following with respect to each such
Film In Progress: (A) a budget and production schedule, if available, (B) all
material costs and expenses paid by the Company or such Subsidiary, (C) all
remaining material amounts that the Company or such Subsidiary is obligated to
pay (including a list of print and advertising and release commitments, if any),
and (D) the names of “above-the-line” talent attached to each such Film In
Progress and the fixed and contingent compensation payable to each such Person,
if known; and (ii) a list of Significant Unproduced Properties, together with a
summary of the following with respect to each such Significant Unproduced
Property: (A) all material costs and expenses paid by the Company or its
Subsidiaries, (B) all remaining material amounts that the Company or such
Subsidiary is obligated to pay (including a list of print and advertising and
release commitments, if any), (C) to the Company’s Knowledge, any applicable
option period expiration dates, reversion dates or other applicable dates when
any material rights may become unavailable for use by the Company or its
Subsidiaries in connection with the possible production of such Significant
Unproduced Property, and (D) the names of “above-the-line” talent attached to
each such Significant Unproduced Property and the fixed and contingent
compensation payable to each such Person, if known.

 

(g) No Third Party has any put right or other right, which, if exercised would
require the Company or any of its Subsidiaries to produce, finance in whole or
in part, acquire any rights in or to, or “green light” any Theatrical Motion
Picture or direct-to-video/DVD or made-for-television programming that has not
yet commenced principal photography.

 

Section 4.20 Opinion of Financial Advisor. The Company has received the opinions
of Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, each dated the
date of this Agreement, to the effect that, as of the date of this Agreement the
Merger Consideration is fair, from a financial point of view, to the holders of
Company Shares (other than the Principal Stockholders and their principal
stockholder). Complete and correct copies of such signed opinions will be
delivered to Newco simultaneously with the execution of this Agreement.

 

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Section 4.21 Board Approval. On or prior to the date of this Agreement, the
Board of Directors of the Company has, by unanimous vote of all directors voting
on the matter, (i) determined that this Agreement, the Voting and Support
Agreement and the transactions provided for herein and therein, including the
Merger, are fair to and in the best interests of the Company and the holders of
Company Shares and (ii) adopted resolutions (A) approving this Agreement and the
Voting and Support Agreement, (B) declaring this Agreement and the Merger
advisable and in the best interests of the Company and the holders of the
Company Shares and (C) recommending to the holders of Company Shares that they
vote in favor of adopting this Agreement in accordance with the terms hereof.

 

Section 4.22 Voting Requirements. The affirmative vote of holders of a majority
of the outstanding Company Shares at a meeting of the holders of Company Shares
(the “Company Stockholder Meeting”) or any adjournment or postponement thereof
to adopt this Agreement is the only vote of the holders of any class or series
of capital stock of the Company necessary to adopt this Agreement and approve
the transactions provided for herein.

 

Section 4.23 Brokers and Finders; Transaction Expenses. No broker, investment
banker, financial advisor or other Person, other than Goldman, Sachs & Co., Banc
of America Securities LLC and Morgan Stanley & Co. Incorporated, the fees and
expenses of which will be paid by the Company (as reflected in the agreements
between each such firm and the Company, copies of which have been delivered to
Newco), is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
Section 4.23 of the Company Disclosure Schedule sets forth (i) the transaction
fees and expenses incurred by the Company as of the date hereof and (ii) all
transaction fees and expenses that, as of the date hereof, the Company is
obligated to pay upon consummation of the transaction contemplated hereby.

 

Section 4.24 Proxy Statement. None of the information supplied or to be supplied
by the Company or any of its Affiliates, directors, officers, employees, agents
or representatives for inclusion or incorporation by reference in, and which is
included or incorporated by reference in, the Proxy Statement or any other
documents filed or to be filed with the SEC in connection with the transactions
provided for herein, will, at the respective times such documents are filed, at
the time of mailing of the Proxy Statement (or any amendment thereof or
supplement thereto) to the holders of Company Shares or as of the time of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading
(it being understood that receiving and responding to comments from the SEC on
the Proxy Statement will not, in and of itself, constitute an admission that
anything contained in the Proxy Statement did not meet the requirements of this
Section 4.24). If, at any time prior to the Effective Time, any event or
circumstance relating to the Company or any of its Subsidiaries, or their
respective officers or directors, should be discovered by the Company which,
pursuant to the Exchange Act, should be set forth in an amendment or

 

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supplement to the Proxy Statement or such other document filed with the SEC in
connection with the transactions provided for herein, the Company shall promptly
notify Newco in writing. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Newco or
the Equity Investors for inclusion or incorporation by reference in the Proxy
Statement or any such other document filed with the SEC in connection with the
transactions provided for herein.

 

Section 4.25 Real Estate.

 

Neither the Company nor any of its Subsidiaries owns any real estate, other than
the premises identified in Section 4.25 of the Company Disclosure Schedule (the
“Owned Real Estate”). Neither the Company nor any of its Subsidiaries leases any
real estate material to the Company and its Subsidiaries other than the premises
identified in Section 4.25 of the Company Disclosure Schedule as being so leased
(the “Leased Premises”). The Leased Premises are leased to the Company or its
Subsidiaries, pursuant to written leases, true, correct and complete copies,
including all amendments thereto, of which have been made available to Newco.
The Company or its Subsidiaries have fee simple title to its Owned Real Estate
and valid leasehold interests in the Leased Premises, in each case, free and
clear of all Liens, other than Permitted Liens. Except for matters that would
not, individually or in the aggregate have a Company Material Adverse Effect, to
the Company’s Knowledge the Owned Real Estate and Leased Premises and the
business conducted thereon comply in all material respects with the terms of the
applicable leases and applicable Laws. To the Company’s Knowledge, the leases of
the Leased Premises are in full force and effect. Neither the Company nor any of
its Subsidiaries is in material default under any of the leases of the Leased
Premises, and to the Company’s Knowledge, there is no material default by any of
the landlords thereunder.

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF NEWCO

 

Except as set forth in the disclosure schedule delivered by Newco to the Company
prior to or concurrently with the execution of this Agreement (the “Newco
Disclosure Schedule”), which Newco Disclosure Schedule identifies the section to
which such exception relates (provided that any disclosure in the Newco
Disclosure Schedule relating to one section or subsection shall also apply to
other sections and subsections to the extent that it is reasonably apparent that
such disclosure would also apply to or qualify such other sections and
subsections), Newco represents and warrants to the Company as follows:

 

Section 5.1 Organization. Newco (i) is a corporation duly incorporated, validly
existing and in good standing under the Laws of the State of Delaware, (ii) has
all corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as currently conducted and (iii) is duly
qualified and licensed to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned, leased
or operated by it or

 

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the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or licensed has not had or would not be
reasonably expected to have, individually or in the aggregate, a Newco Material
Adverse Effect. Newco has made available to the Company complete and correct
copies of its certificate of incorporation and by-laws and all amendments
thereto, as currently in effect.

 

Section 5.2 Authority. Newco has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the Merger and the other
transactions provided for in this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the other
transactions provided for in this Agreement have been duly authorized by all
necessary corporate action on the part of Newco and no other corporate
proceedings on the part of Newco are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly executed and
delivered by Newco and, assuming the due execution and delivery hereof by the
Company, this Agreement constitutes a valid and binding obligation of Newco
enforceable against Newco in accordance with its terms, subject to the
Bankruptcy and Equity Exception.

 

Section 5.3 Consents and Approvals; No Violations.

 

(a) The execution, delivery and performance by Newco of this Agreement does not,
and the consummation by Newco of the transactions contemplated by this Agreement
will not, require any filing or registration with, notification to, or
authorization, permit, consent or approval of, or other action by or in respect
of, any Governmental Entities other than (i) the filing of the Certificate of
Merger as contemplated by Article II hereof, (ii) the filings required under the
HSR Act and filings required by any other Governmental Entity relating to
antitrust, competition, trade or other regulatory matters, (iii) as required to
comply with any applicable requirements of the Securities Act, the Exchange Act
and state securities and “blue sky” Laws and (iv) such other filings,
registrations, notifications, authorizations, permits, consents, approvals or
actions, the failure of which to take or obtain would not have or be reasonably
expected to have, individually or in the aggregate, a Newco Material Adverse
Effect.

 

(b) The execution, delivery and performance by Newco of this Agreement does not,
and the consummation by Newco of the transactions contemplated by this Agreement
will not, (i) conflict with, or result in any breach of, any provision of the
certificate of incorporation or by-laws of Newco, (ii) violate, or result in, a
breach of, constitute a default under (with or without due notice or lapse of
time or both), or give rise to a right of, or result in, the termination,
cancellation, modification, acceleration or the loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of Newco
under, any of the terms, conditions or provisions of any Contract to which Newco
is a party or by which any of its properties or assets may be bound or (iii)
violate any Order or Law applicable to Newco or any of its properties or assets,
except, in the case of clauses (ii) and (iii) above, for any violation,
conflict, consent, breach, default, termination, cancellation, modification,
acceleration, loss or creation that would not be reasonably expected to have,
either individually or in the aggregate, a Newco Material Adverse Effect.

 

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Section 5.4 Brokers and Finders. No broker, investment banker, financial advisor
or other Person, other than as set forth in Section 5.4 of the Newco Disclosure
Schedule, the fees and expenses of which will be paid by Newco, is entitled to
any broker’s, finder’s, financial advisor’s or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Newco.

 

Section 5.5 Information Supplied. None of the information supplied or to be
supplied by Newco or the Equity Investors or any of their respective Affiliates,
directors, officers, employees, agents or representatives for inclusion or
incorporation by reference in the Proxy Statement or any other documents filed
or to be filed with the SEC in connection with the transactions provided for
herein, will, at the respective times such documents are filed, at the time of
mailing of the Proxy Statement (or any amendment thereof or supplement thereto)
to the holders of Company Shares or as of the time of the Company Stockholder
Meeting, contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or necessary to correct any statement in any earlier communication
(it being understood that receiving and responding to comments from the SEC on
the Proxy Statement will not, in and of itself, constitute an admission that
anything contained in the Proxy Statement did not meet the requirements of this
Section 5.5). If, at any time prior to the Effective Time, any event or
circumstance relating to Newco, the Equity Investors or their respective
Affiliates, or any of their respective officers or directors, should be
discovered by Newco which, pursuant to the Exchange Act, should be set forth in
an amendment or supplement to the Proxy Statement, or such other document filed
with the SEC in connection with the transactions provided for herein, Newco
shall promptly notify the Company in writing. Notwithstanding the foregoing,
Newco makes no representation or warranty with respect to any information
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement or any such other document filed with the SEC in connection with the
transactions provided for herein.

 

Section 5.6 Financing. Newco has delivered to the Company (i) true, correct and
complete signed counterpart(s) of (i) the commitment letter(s), dated as of the
date hereof, pursuant to which the lenders party thereto have agreed, subject to
the terms and conditions set forth therein, to provide or cause to be provided,
debt financing in connection with the transactions provided for herein and
revolving credit to Newco (the “Commitment Letters” and, together with the
Equity Commitment Letters, the “Commitments”) and (ii) the Equity Commitment
Letters. The Commitments and the Letters of Credit have not been amended in a
manner that would be prohibited by Section 6.6(f) of this Agreement and are, to
the Knowledge of Newco, in full force and effect. The Commitments and the
Letters of Credit are subject to no contingencies or conditions other than those
set forth in the copies of the Commitments and the Letters of Credit delivered
to the Company. Subject to the terms and conditions of the Commitments, and
subject to the terms and conditions of this Agreement, the Commitments would
provide Newco with Acquisition Financing at the Effective Time sufficient to
consummate the Merger upon the terms contemplated by this Agreement. Nothing
contained in this Agreement shall, subject to the requirements of the last
sentence of Section 6.6(b),

 

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prohibit Newco or the Equity Investors from entering into agreements relating to
the financing or the operation of Newco or the Surviving Corporation including
adding other equity providers or operating partners, provided that the aggregate
amount of the Equity Commitment Letters shall not be reduced in any way.

 

Section 5.7 Interim Operations of Newco. Newco was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement and entering into
agreements with the Equity Investors relating to the operation of the Surviving
Corporation following consummation of the Merger. Newco has not owned, operated
or conducted and, prior to the Effective Time, will not own, operate or conduct
any businesses or activities other than in connection with its organization, the
negotiation and execution of this Agreement and the Agreements with and among
the Equity Investors and the consummation of the transactions contemplated
hereby and thereby.

 

Section 5.8 Ownership of Company Shares. None of Newco (either individually or
together with the Equity Investors) or any Equity Investor (either individually
or together with Newco and the other Equity Investors) is, or at any time during
the last three (3) years has been, an “interested stockholder” of the Company as
defined in Section 203 of the DGCL.

 

Section 5.9 Board Approval. On or prior to the date of this Agreement, the Board
of Directors of Newco has (i) determined that this Agreement and the
transactions provided for herein, including the Merger, are fair to and in the
best interests of Newco and the stockholders of Newco and (ii) adopted
resolutions (A) approving this Agreement, (B) declaring this Agreement and the
Merger advisable and (C) recommending to the stockholders of Newco that they
vote in favor of adopting this Agreement in accordance with the terms hereof.
This Agreement has been adopted by the unanimous vote of the stockholders of
Newco and no other vote or action on the part of the stockholders of Newco is
necessary in connection with this Agreement, the Merger or other transactions
provided for herein.

 

Section 5.10 Solvency. At the Effective Time, the Surviving Corporation and each
of its Subsidiaries, after taking into account consummation of the Merger, the
transactions contemplated by the Commitments (and any Substitute Financing) and
the way Newco intends that the businesses of the Company and its Subsidiaries be
operated after the Effective Time (including any agreements or arrangements by
and among Newco and the Equity Investors), (a) will be able to pay its debts,
including its stated and contingent liabilities as they mature, (b) will not
have unreasonably small capital for the business in which it is and will be
engaged and (c) will be solvent.

 

ARTICLE VI

COVENANTS

 

Section 6.1 Covenants of the Company. From the date hereof until the Effective
Time, except as set forth in the Company Disclosure Schedule, as required by

 

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applicable Law or as required by this Agreement or as consented to in writing by
Newco (such consent not to be unreasonably withheld or delayed), the Company
shall, and shall cause each of its Subsidiaries to (i) conduct its business in
the ordinary course substantially in the same manner as heretofore conducted,
(ii) use reasonable efforts to preserve intact its business organizations and
(iii) use reasonable efforts to keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers,
business partners, distributors and others having business dealings with the
Company and its Subsidiaries. Without limiting the generality of the foregoing,
except as set forth in the Company Disclosure Schedule, as required by
applicable Law, as required by this Agreement or as consented to in writing by
Newco (such consent not to be unreasonably withheld or delayed), from the date
hereof until the Effective Time:

 

(a) Dividends; Changes in Stock. The Company shall not, and shall not permit any
of its Subsidiaries to, and shall not propose or commit to, (i) declare or pay
any dividends on, or make other distributions in respect of any of, its capital
stock (except for dividends by a wholly owned Subsidiary of the Company to its
parent), (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, except pursuant to the
exercise of options, warrants, conversion rights and other contractual rights
existing on the date hereof and disclosed in the Company Disclosure Schedule,
(iii) repurchase, redeem or otherwise acquire, or modify or amend, any shares of
capital stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities, except, in the case of clause (iii), for repurchases of shares of
capital stock of the Company or its Subsidiaries upon termination of employment
pursuant to employee severance, retention, termination, change of control or
similar agreements in effect as of the date hereof and set forth on Section
6.1(a) of the Company Disclosure Schedule.

 

(b) Issuance of Securities. The Company shall not, and shall not permit any of
its Subsidiaries to, issue, deliver, sell, pledge or encumber, or authorize,
propose or agree to the issuance, delivery, sale, pledge or encumbrance of, any
shares of its capital stock, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of any class or series of its capital stock (other than pursuant to the
exercise of Company Options outstanding on the date hereof or as otherwise
described in Section 6.1(b) of the Company Disclosure Schedule).

 

(c) Governing Documents. Except to the extent reasonably necessary to comply
with its obligations hereunder, the Company shall not, and shall not permit any
of its Subsidiaries to, amend or propose to amend its certificate of
incorporation or by-laws or similar organizational or governance documents.

 

(d) No Acquisitions. The Company shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire, by merger or consolidation, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any

 

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assets (excluding acquisitions that, in the aggregate, have a purchase price of
less than $15 million); provided that, subject to the provisions of Sections 6.1
(f) - (h), such limitations shall not prohibit or restrict the ability of the
Company or any of its Subsidiaries from entering into any Contract with writers,
directors, producers, performers, actors, artists, musicians, animators, voice
talent, cinematographers, camera persons, financiers, exhibitors, distributors
and other parties relating to the development, preparation, production,
acquisition, disposition or Exploitation of Films in the ordinary course of
business.

 

(e) No Dispositions. The Company shall not, and shall not permit any of its
Subsidiaries to, or otherwise agree to, sell, lease, license, mortgage, pledge,
encumber or otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of the Company) excluding the disposition of assets that in the
aggregate have a purchase price of less than $15 million; provided that, subject
to the provisions of Sections 6.1 (f) - (h), such limitations shall not prohibit
or restrict the ability of the Company or any of its Subsidiaries from entering
into any Contract with writers, directors, producers, performers, actors,
artists, musicians, animators, voice talent, cinematographers, camera persons,
financiers, exhibitors, distributors and other parties relating to the
development, preparation, production, acquisition, disposition or Exploitation
of Films in the ordinary course of business.

 

(f) New Film and Television Production. The Company shall not, and shall not
permit any of its Subsidiaries to, make any New Production Commitment(s) which
would cause any of the following parameters to be exceeded: an aggregate
investment of the Company and/or its Subsidiaries of more than $60 million in
any single motion picture except with respect to pictures derived from the James
Bond, Pink Panther and Legally Blonde (but only if it is starring Reese
Witherspoon) franchises (each a “Franchise Picture”). With respect to the James
Bond franchise there will be no such investment cap, with respect to the Pink
Panther franchise, the aggregate investment cap shall be $100 million and with
respect to the Legally Blonde franchise (but only if it is starring Reese
Witherspoon), the aggregate investment cap shall be $75 million. There shall be
an aggregate investment cap on all New Production Commitments, including the
Franchise Pictures (but excluding the James Bond franchise), of $200 million.
The Company shall not enter into (and shall not permit any of its Subsidiaries
to enter into) any “pay or play” or “pay and play” commitments (as such terms
are generally understood in the motion picture industry) with any Person other
than budgeted amounts in connection with motion pictures which were “green lit”
by the Company prior to the date of this Agreement and/or in connection with New
Production Commitments which are permitted under this Section 6.1(f). “New
Production Commitment” means the “green light,” commitment to or commencement of
the production or financing of, or acquisition of any ownership interest or
Exploitation rights in or to, any motion picture(s) not already “green lit” (or
otherwise committed to or commenced) by the Company prior to the date of this
Agreement. The Company shall not, and shall not permit any of its Subsidiaries
to, commit to or commence production or financing of, or acquire any ownership
interest or Exploitation rights in or to any television programming which would
exceed the amount set forth in the Company’s budget for any given year by $50
million.

 

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(g) Development Projects/Term Deals. The Company shall not, and shall not permit
any of its Subsidiaries to, enter into any commitment or agreement with respect
to any Development Project pursuant to which the Company and/or any of its
Subsidiaries would be obligated to pay non-contingent fixed sums in excess of
$2.5 million in connection with any individual Development Project (other than a
Franchise Picture) or in excess of $25 million in the aggregate in connection
with all Development Projects (other than Franchise Pictures) and all “term
deals” permitted under this Section 6.1(g). The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any “term deal” (as such term is
generally understood in the motion picture industry) or other multiple picture
development or production agreement with any writer, producer, director, actor
or other Person, which would require payment by the Company of non-contingent
fixed sums in excess of $2.5 million in connection with any individual “term
deal” or which would require the Company to “greenlight” any film.

 

(h) Exploitation Commitments. The Company shall not, and shall not permit any of
its Subsidiaries to, (i) materially amend any existing material distribution
agreement, (ii) without first consulting with Newco, enter into any
multiple-film license or other Exploitation agreement covering more than 100
Films, or (iii) without first consulting with Newco, enter into any
multiple-film license or other Exploitation agreement (in each case, where the
Company is granting rights to Films to another party (rather than being obtained
by the Company from another party)) having a license term or duration longer
than seven (7) years; provided, that this Section 6.1 (h)(iii) shall not prevent
the Company from entering into any license so long as (a) the license period
(the “Window”) for any Film is customary and in the ordinary course of business
(but in no event shall such Window exceed five (5) years in duration) and (b)
such license does not grant any Person the right to exhibit or distribute (A)
any Film which is scheduled for initial theatrical release in the United States
after 2005 or (B) any season of television programming scheduled for initial
broadcast in the United States after the 2005/2006 United States broadcast
season, other than (aa) third-party television programming for which the Company
acts as a distributor or for which the Company is contractually obligated as of
the date of this Agreement to purchase future seasons or future shows and pay
minimum guarantees or other minimum fees in connection with such distribution or
obligation and (bb) renewals of broadcast licenses for the 2006/2007 United
States broadcast season for Stargate Atlantis, Dead Like Me, Stargate SG-1 and
Entrepreneurs, provided such renewals are consistent with the Company’s past
practice and in the ordinary course of business and reflective of the success of
such shows; or (iv) enter into any Front Loaded Exploitation Agreement. “Front
Loaded Exploitation Agreement” shall mean any Exploitation agreement in which
the aggregate amount of payments that are not to be made reasonably pro rata
over the period of availability of the applicable Films exceeds the greater of
(x) 10% of the aggregate amount of all payments under such Exploitation
agreement and (y) the aggregate of payments which would be made under such
Exploitation agreement over the subsequent twelve months if all payments under
such Exploitation agreement were to be made reasonably pro rata.

 

(i) Investments; Indebtedness. The Company shall not, and shall not permit any
of its Subsidiaries to, or otherwise agree to, (i) make, any loans, advances or

 

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capital contributions to, or investments in, any other Person, other than (A) in
the ordinary course of business up to $25 million in the aggregate or (B) loans
or investments by the Company or a wholly owned Subsidiary of the Company to or
in any wholly owned Subsidiary of the Company, (ii) incur, assume or modify any
indebtedness for borrowed money, other than borrowings to fund operations of the
Company, its Subsidiaries and Company Joint Ventures in the ordinary course of
business as permitted by the Company Credit Agreement, (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the Debt Securities, material indebtedness or
other obligations of another Person (other than a guaranty by the Company or one
of its Subsidiaries on behalf of the Company or one of its Subsidiaries), (iv)
issue or sell any Debt Securities or warrants or other rights to acquire any
Debt Securities of the Company or any of its Subsidiaries, (v) enter into any
“keep well” or other agreement to maintain any financial statement condition of
another Person other than any or the wholly owned Subsidiaries of the Company or
(vii) enter into any arrangement having the economic effect of any of the
foregoing; provided that, subject to the requirements set forth in Sections 6.1
(f) - (h), the restriction in clauses (i) through (iii) of this Section 6.1(i)
shall not prohibit or restrict the ability of the Company or any of its
Subsidiaries from entering into any Contract with writers, directors, producers,
performers, actors, artists, musicians, animators, voice talent,
cinematographers, camera persons, financiers, exhibitors, distributors and other
parties relating to the development, preparation, production or Exploitation of
Films in the ordinary course of business.

 

(j) Accounting Matters. Except as disclosed in the Company SEC Documents filed
prior to the date of this Agreement or as required by a Governmental Entity or
quasi-Governmental Entity (including the Financial Accounting Standards Board or
any similar organization), the Company shall not change in its methods of
accounting in effect at December 31, 2003, except as required by changes in GAAP
or Regulation S-X of the Exchange Act (as required by the Company’s independent
public accountants) or as may be required by a change in applicable Law.

 

(k) Capital Expenditures. The Company shall not, and shall not permit any of its
Subsidiaries to, or otherwise agree to, make or agree to make any new capital
expenditure or expenditures, or enter into any agreement(s) or arrangement(s)
providing for payments for capital expenditures in any calendar year in excess
of $5 million individually or $30 million in the aggregate or which is to be
paid after September 27, 2005, in each case, other than capital expenditures in
the ordinary course of business not in excess of $30 million in the aggregate in
any twelve (12) month period; provided that such individual and aggregate
limitations shall not prohibit or restrict the ability of the Company or any of
its Subsidiaries from entering into any Contract with writers, directors,
producers, performers, actors, artists, musicians, animators, voice talent,
cinematographers, camera persons, financiers, exhibitors, distributors and other
parties relating to the development, preparation, production or Exploitation of
Films in the ordinary course of business (it being understood that expenditures
related to Film production shall not be considered capital expenditures);
provided, further, that the Company and its Subsidiaries may make new capital
expenditures in excess of such amounts in furtherance of the Company’s video
initiative pertaining to scan-based distribution of home video product so long
as such capital expenditures are in accordance

 

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with the Company’s business plan in effect on the date hereof and recently
revised business initiatives and the liabilities associated with terminating all
commitments relating to such video initiatives do not exceed $15 million in the
aggregate.

 

(l) Certain Actions. The Company shall not, and shall ensure that its
Subsidiaries shall not, take any action that, or Knowingly omit to take any
action where such omission, would be reasonably expected to prevent, materially
delay or impede the consummation of the Merger or the other transactions
contemplated by this Agreement, or would be reasonably expected to result in a
Company Material Adverse Effect.

 

(m) Discharge of Liabilities. The Company shall not, and shall not permit any of
its Subsidiaries to pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent in amount and kind
with past practice or in accordance with their terms, of claims, liabilities or
obligations (i) disclosed in the most recent financial statements (or the notes
thereto) of the Company included in the Company Filed SEC Documents, (ii)
incurred or which became payable after the date of such financial statements in
the ordinary course of business or (iii) set forth in Sections 4.10, 4.13 or
6.1(m) of the Company Disclosure Schedule.

 

(n) Material Contracts. Except as expressly required or contemplated by this
Agreement, the Company shall not, and shall not permit any of its Subsidiaries
to, (i)(A) amend, in any material respect, terminate, cancel, extend or request
any material change in, or agree to any material change in, or (B) waive,
release or assign any material right or claim under, any material Contract or
(ii) enter into any Contract, arrangement, commitment, lease or understanding
(whether written or oral) material to the business, properties, assets, results
of operations or financial condition of the Company and its Subsidiaries, taken
as a whole; provided that nothing in this clause (n) shall be deemed to limit
the ability of the Company or any of its Subsidiaries to engage in, and enter
into Contracts in connection with, the development, preparation, production or
Exploitation of Films in the ordinary course of business and not in violation of
Sections 6.1(f)-(h).

 

(o) Intellectual Property. The Company shall not, and shall not permit any of
its Subsidiaries to do, or agree to do, any of the following: (i) sell, assign,
license, mortgage, pledge, sublicense, encumber or impair any Company
Intellectual Property except in the ordinary course of business and consistent
with Sections 6.1(f) - (h), or for Permitted Liens in place as of the Closing
Date or later in place as otherwise authorized under this Agreement, (ii) grant,
extend, amend, waive or modify any rights in or to any Company Intellectual
Property except in the ordinary course of business and not in violation of
Sections 6.1(f) - (h), or (iii) fail to maintain or diligently prosecute the
Company’s and its Subsidiaries’ material Intellectual Property registrations and
applications for registration, as applicable.

 

(p) Benefits Changes. The Company shall not, and shall not permit any of its
Subsidiaries to, (i) increase the compensation or benefits of any director,
officer, any other employee, consultant or other service provider (except for
such

 

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increases that are contractually required or are in the ordinary course of
business), (ii) adopt any new employee benefit plan or any amendment to an
existing Benefit Plan other than as required by applicable Law, (iii) enter into
or amend any agreement with any director, officer or employee, other than the
renewal of contracts which expire in accordance with their terms prior to the
Effective Time which may be renewed on substantially the same terms (including
any change permitted by clause (i) hereof) for a period of (x) in the case of
any such contract without a specified renewal period, not more than two (2)
years from the date of such expiration so long as such renewal does not obligate
the Company to pay severance benefits greater than the severance benefits that
the employee would have last received absent the renewal or (y) in the case of
any such contract providing for a minimum renewal period, the minimum renewal
period provided for therein, (iv) enter into or amend consulting agreements with
any individuals providing non-professional services as independent contractors
or consultants to the Company or any of its Subsidiaries providing for payments
in the aggregate in excess of $2.5 million, (v) accelerate the payment of
compensation or benefits to any director, officer, employee, consultant or other
service provider except pursuant to the terms of any agreement existing on the
date of this Agreement, (vi) except as otherwise permitted by this Section
6.1(p), enter into or amend any employment, severance, retention, termination,
change of control or similar agreement or arrangement with any director,
officer, employee, consultant or other service provider of the Company or any of
its Subsidiaries, (vii) grant any stock option or other equity or incentive
awards to any director, officer, employee, consultant or other service provider
or (viii) make any loans to any of its officers, directors, employees,
Affiliates, consultants or other service provider or make any change in its
existing borrowing or lending arrangements for or on behalf of any of such
Persons pursuant to an employee benefit plan or otherwise, other than advances
to employees in the ordinary course of business. Notwithstanding the foregoing,
the Company may (A) grant or pay retention bonuses pursuant to the Retention
Bonus Plan up to an aggregate maximum amount not to exceed $5 million, (B) grant
or pay bonuses for calendar year 2004 and pro-rated bonuses for the portion of
calendar year 2005 for the period beginning January 1, 2005 through the Closing
Date, in each case in accordance with the Performance Measures and Bonus Targets
(as such terms are defined in the Incentive Plan) established for the 2004
Performance Period (as such term is defined in the Incentive Plan); provided
that the methodology for determining the Performance Goals established for the
2005 Performance Period shall be no more favorable to employees than the
methodology for determining the Performance Goals established for the 2004
Performance Period, (C) hire employees to fill the open positions set forth in
Section 6.1(p)(C) of the Company Disclosure Schedule, which employees shall be
entitled to participate in the Employee Security Plans, (D) hire employees to
replace current employees on the payroll of the Company or any of its
Subsidiaries prior to the Effective Time, which replacement employees shall be
entitled to participate in the Employee Security Plans (provided that there is
no increase in the net severance obligation of the Company in the event of a
termination of such replacement employee) and (E) hire additional employees in
connection with the Company’s new home video initiative in accordance with the
business plan for the home video initiative provided to Newco on September 13,
2004 (provided that the aggregate severance obligation in connection with the
termination of such employees shall not exceed $5 million).

 

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(q) Compliance with the WARN Act and Similar Laws. The Company shall not, and
shall cause each of its Subsidiaries (governed by the WARN Act) not to, at any
time within the 90-day period before the Effective Time, without complying fully
with the notice and other requirements of the WARN Act, effectuate (1) a
“plant closing” (as defined in the WARN Act) affecting any single site of
employment or one or more facilities or operating units within any single site
of employment of the Company or any of its Subsidiaries; or (2) a “mass layoff”
(as defined in the WARN Act) at any single site of employment or one or more
facilities or operating units within any single site of employment of the
Company or any of its Subsidiaries (governed by the WARN Act). Nor shall the
Company or any of its Subsidiaries otherwise undertake or implement any
termination or lay-off which, as a consequence of the number of employees
affected by such termination or lay-off, gives rise to liability under any
applicable Laws for the payment of severance pay, separation pay, termination
pay, pay in lieu of notice of termination, redundancy pay, or the payment of any
other compensation, premium or penalty upon termination of employment, reduction
of hours, or temporary or permanent layoffs. For purposes of the WARN Act and
this Agreement, the Effective Time is and shall be the same as the “effective
date” within the meaning of the WARN Act.

 

(r) Personnel Manuals, Handbooks, Policies, Rules and Procedures. As of the
Closing Date, the Company shall not have in effect, and shall cause each of its
Subsidiaries not to have in effect, any personnel manuals, handbooks, policies,
rules and/or procedures applicable to any employees of the Company and/or its
Subsidiaries that directly or indirectly impose on the Company and/or its
Subsidiaries any obligations that are (individually or in the aggregate)
materially greater than those obligations imposed on the Company and/or its
Subsidiaries by the written personnel manuals, handbooks, policies, rules and
procedures listed in Section 4.10(c) of the Company Disclosure Schedule.

 

(s) Tax Matters.

 

(i) The Company shall not, and shall not permit any of its Subsidiaries to, fail
to file, on a timely basis, including allowable extensions, with the appropriate
Governmental Entities, all income Tax Returns and material other Tax Returns
required to be filed on or prior to the Closing Date, or fail to timely pay or
remit (or cause to be paid or remitted) any Taxes due in respect of such Tax
Returns. All such Tax Returns shall be prepared and filed in a manner consistent
with past practice, except as otherwise required by Law.

 

(ii) Without the written consent of Newco (such consent not to be unreasonably
withheld or delayed), the Company shall not, and shall not permit any of its
Subsidiaries to, amend any material Tax Returns, make any material election
relating to Taxes, change any material election relating to Taxes already made,
adopt any material accounting method relating to Taxes, change any material
accounting method relating to Taxes unless required by GAAP, enter into any
material closing agreement relating to Taxes, settle any material claim or
assessment relating to Taxes or consent to any material claim or audit relating
to Taxes or any waiver of the statute of limitations for any such material claim
or

 

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audit; provided that, in each case, Newco’s consent shall be presumed if the
Company provides written notice of its proposed action to Newco and Newco does
not respond within fifteen (15) Business Days of receipt of such notice.

 

(t) Transactions with Affiliates. The Company shall not, and shall not permit
its Subsidiaries to, enter into any transaction with the Principal Stockholders
or any Affiliate of the Principal Stockholders (other than transactions between
or among the Company and its Subsidiaries).

 

(u) Liquidation, Dissolutions and Mergers. Except as expressly required by this
Agreement, including Sections 6.1(d) and 6.2, the Company shall not, and shall
not permit its Subsidiaries to, adopt or enter into a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries (other than the Merger).

 

(v) General. The Company shall not, and shall not permit any of its Subsidiaries
to, commit or agree to take any of, the foregoing actions or any action which
would result in any representation or warranty of the Company contained in this
Agreement which is qualified as to materiality becoming untrue or any
representation not so qualified becoming untrue in any material respect as of
the date when made or as of any future date.

 

Section 6.2 No Solicitation.

 

(a) The Company shall, and shall cause its Affiliates, Subsidiaries and its and
each of their respective officers, directors, employees, consultants, financial
advisors, attorneys, accountants and other advisors, representatives and agents
(collectively, “Representatives”) to, immediately cease and cause to be
terminated any discussions or negotiations with any parties (other than Newco,
and, in a manner consistent with the consummation of the Merger and the
provisions of this Agreement, the Equity Investors and their respective
Affiliates) that may be ongoing with respect to, or that are intended by the
Company or its Representatives to or would be reasonably expected by the Company
or its Representatives to lead to, a Takeover Proposal. The Company shall not,
and shall cause its Affiliates, Subsidiaries and its and their respective
Representatives not to, (i) directly or indirectly solicit, initiate, propose or
take any other action that could be reasonably expected to facilitate any
Takeover Proposal, (ii) enter into any agreement, arrangement or understanding
with respect to any Takeover Proposal (including any letter of intent or
agreement in principle), (iii) initiate or participate in any way in any
negotiations or discussions regarding a Takeover Proposal, (iv) furnish or
disclose to any Third Party any information with respect to, or which would be
reasonably expected to lead to, any Takeover Proposal or (v) grant any waiver or
release under any standstill or any similar agreement with respect to any class
of the Company’s equity securities; provided, however, that at any time prior to
obtaining the Company Stockholder Approval, in response to a bona fide written
unsolicited Takeover Proposal received after the date hereof that the Board of
Directors of the Company determines in good faith (after consultation with
outside counsel and a financial advisor of nationally recognized reputation)
constitutes, or could be reasonably expected to lead to a Superior

 

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Proposal, and which Takeover Proposal was not, directly or indirectly, the
result of a breach of this Section 6.2, the Company may, subject to compliance
with Section 6.2(b), (i) furnish information with respect to the Company and its
Subsidiaries to the Person making such Takeover Proposal (and its
representatives) pursuant to a customary confidentiality agreement not less
restrictive of such Person than the Confidentiality Agreements; provided that
all such information has previously been made available to Newco or is made
available to Newco prior to or concurrently with the time it is made available
to such Person and (ii) participate in discussions or negotiations with the
Person making such Takeover Proposal (and its representatives) regarding such
Takeover Proposal.

 

(b) The Board of Directors of the Company has adopted a resolution declaring
that this Agreement and the Merger are advisable and in the best interests of
the Company and the holders of Company Shares and recommending approval and
adoption of this Agreement and the Merger by the holders of Company Shares (the
“Company Recommendation”). Neither the Board of Directors of the Company nor any
committee thereof shall (i) (A) withdraw (or modify in a manner adverse to
Newco), or publicly propose to withdraw (or modify in a manner adverse to
Newco), the Company Recommendation or (B) recommend, adopt or approve, or
publicly propose to recommend, adopt or approve, any Takeover Proposal (any
action described in this clause (i) being referred to as a “Company Adverse
Recommendation Change”) or (ii) approve or recommend, or publicly propose to
approve or recommend, or allow the Company or any of its Subsidiaries to execute
or enter into, any letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement or other agreement constituting or
related to, or that is intended to or would be reasonably expected to lead to,
any Takeover Proposal (other than a confidentiality agreement referred to in and
as permitted by Section 6.2(a)) (an “Acquisition Agreement”). Notwithstanding
the foregoing, at any time prior to obtaining the Company Stockholder Approval,
the Board of Directors of the Company (or any committee thereof) may (x) make a
Company Adverse Recommendation Change in response to a Superior Proposal or (y)
approve or recommend or allow the Company or a Subsidiary to enter into an
Acquisition Agreement with respect to a Superior Proposal, if, in each case,
such Board of Directors (or any committee thereof) determines in good faith
(after consultation with outside counsel and a financial advisor of nationally
recognized reputation) that taking such action is necessary for the members of
the Board of Directors of the Company to comply with their fiduciary duties to
the holders of Company Shares under applicable Law; provided, however, that (i)
no action described in clauses (x) or (y) of this sentence shall be taken until
after the fifth (5th) Business Day following Newco’s receipt of written notice
(a “Notice of Adverse Recommendation”) from the Company advising Newco that the
Board of Directors of the Company (or a committee thereof) intends to take such
action and specifying the reasons therefor, including the material terms and
conditions of any Superior Proposal that is the basis of the proposed action by
the Board of Directors or committee (it being understood and agreed that any
amendment to the financial terms or any other material term of such Superior
Proposal shall require a new Notice of Adverse Recommendation and a new five (5)
Business Day period) and representing that the Company has complied, in all
material respects, with its obligations under this Section

 

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6.2, (ii) during such five (5) Business Day period, the Company shall negotiate
with Newco in good faith to make such adjustments to the terms and conditions of
this Agreement as would enable the Company to proceed with its recommendation of
this Agreement and not take any of the actions described in clauses (x) or (y)
of this sentence, (iii) the Company shall not take any of the actions described
in (x) or (y) of this sentence, if, prior to the expiration of such five (5)
Business Day period, Newco makes a proposal in writing to adjust the terms and
conditions of this Agreement that the Company’s Board of Directors determines in
good faith (after consultation with its financial advisors and taking into
account any adjustments to the terms and conditions proposed in writing by
Newco) to be at least as favorable as the Superior Proposal, and (iv) in the
case of an action described in clause (y) above, the Company terminates this
Agreement and pays the Termination Fee in accordance with Section 8.4(a) hereof.

 

(c) The Company shall, promptly advise Newco orally and in writing of the
Company’s receipt of (i) any request for information relating to a Takeover
Proposal, (ii) any Takeover Proposal or (iii) any inquiry with respect to any
Takeover Proposal and the material terms and conditions of any such request,
Takeover Proposal or inquiry (including the identity of the Person or group
making any such request, Takeover Proposal or inquiry). The Company agrees that
it shall keep Newco informed of the status and material details (including
material amendments or material proposed amendments) of any such request,
Takeover Proposal or inquiry and keep Newco reasonably informed as to the
material details of any information requested of or provided by the Company and
as to the material terms and conditions of any Takeover Proposal.

 

(d) Nothing contained in this Section 6.2 shall prohibit the Company or its
Board of Directors from (i) taking and disclosing to the stockholders of the
Company a position contemplated by Rule 14e-2 promulgated under the Exchange Act
or (ii) making any disclosure to the stockholders of the Company if, in the good
faith judgment of the Board of Directors (after consultation with outside
counsel), such disclosure would be required under applicable Law (including Rule
14d-9 and Rule 14e-2 promulgated under the Exchange Act); provided, however,
that in no event shall the Company or its Board of Directors or any committee
thereof take, or agree or resolve to take, any action prohibited by Section
6.2(b).

 

(e) To the extent that it has not already done so, the Company agrees that
promptly following the execution of this Agreement it shall request each Person
(i) with whom the Company has had any discussion regarding a potential Takeover
Proposal during the twelve (12) months prior to the date of this Agreement or
(ii) which has heretofore executed a confidentiality agreement with the Company
in connection with a potential Takeover Proposal during the twelve (12) months
prior to the date of this Agreement to return or destroy (and the Company shall
use commercially reasonable efforts to cause any such destruction to be
certified in writing by an executive officer of such Person) all confidential
information heretofore furnished to such Person by or on its behalf.

 

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Section 6.3 Company Stockholder Meeting; Preparation of Proxy Statement.

 

(a) The Company shall duly provide notice to each record holder of outstanding
Company Shares of, and shall duly hold, the Company Stockholder Meeting as
promptly as practicable for the purpose of obtaining the Company Stockholder
Approval, and the Company shall use its reasonable best efforts to hold the
Company Stockholder Meeting as soon as practicable after the date on which the
Proxy Statement is cleared by the SEC. Nothing in this Section 6.3 shall be
deemed to prevent the Company or its Board of Directors from taking any action
it or such Board of Directors are permitted to take under, and in compliance
with, Section 6.2 hereof. Subject to Section 6.2(c) and 6.2(e), the Company
shall, through its Board of Directors, recommend to its stockholders adoption of
this Agreement and shall include such recommendation in the Proxy Statement.
Without limiting the generality of the foregoing, the Company’s obligations
pursuant to the first sentence of this Section 6.3(a) shall not be affected by
(i) the commencement, public proposal, public disclosure or communication to the
Company of any Takeover Proposal or (ii) any Company Adverse Recommendation
Change.

 

(b) As promptly as practicable after the execution of this Agreement, the
Company shall prepare and cause to be filed with the SEC a proxy statement
(together with any amendments thereof or supplements thereto, the “Proxy
Statement”) relating to the adoption of this Agreement. The Company will cause
the Proxy Statement to comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Newco shall and shall cause the Equity Investors to
furnish the Company with all information concerning it and the Equity Investors
for inclusion in the Proxy Statement which may be required by applicable Law and
which is reasonably requested by the Company. No amendment or supplement to the
Proxy Statement will be made by the Company without providing Newco with a
reasonable opportunity to review and comment upon such amendment or supplement.

 

(c) The Company shall notify Newco promptly after receipt by the Company of any
comments of the SEC on, or of any request by the SEC for amendments or
supplements to, the Proxy Statement. The Company shall supply Newco with copies
of all correspondence between the Company or any of its representatives and the
SEC with respect to the Proxy Statement. If at any time prior to the Company
Stockholder Meeting, any event shall occur relating to the Company or any of its
Subsidiaries or any of their respective officers, directors or Affiliates which
should be described in an amendment or supplement to the Proxy Statement, the
Company shall inform Newco promptly after becoming aware of such event. Whenever
the Company learns of the occurrence of any event which should be described in
an amendment of, or supplement to, the Proxy Statement, the parties shall
cooperate to promptly cause such amendment or supplement to be prepared, filed
with and cleared by the SEC and, if required by applicable Law, disseminated to
the persons and in the manner required. The Company shall timely mail the Proxy
Statement to its stockholders.

 

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Section 6.4 Access to Information. The Company shall, and shall cause each of
its Subsidiaries to, upon reasonable advance notice, afford to Newco, any of its
financing sources (provided that such financing sources are party to one of the
Confidentiality Agreements, or a similar agreement providing for substantially
the same terms as those set forth in the Confidentiality Agreements with respect
to information provided by the Company (each such similar agreement, an
“Additional Confidentiality Agreement”)) and their Representatives reasonable
access during normal business hours to all of the properties, personnel, books
and records of the Company and its Subsidiaries (including Tax Returns filed and
those in preparation, workpapers and other items relating to Taxes), and shall
furnish as promptly as reasonably practical or cause to be furnished promptly
such reasonably available information concerning the business, properties and
personnel of the Company and its Subsidiaries as Newco may reasonably request;
provided, however, that no such access to information shall unreasonably
interfere with the Company’s or any of its Subsidiaries’ operation of its
business; provided, further, that the Company shall not be required to provide
access to or furnish any information if to do so would contravene any agreement
to which the Company is party or any Law, or, in the event of any litigation or
threatened litigation between the parties over the terms of this Agreement,
where such access to information may be adverse to the interests of the Company
or any of its Subsidiaries; provided, further that, the Company uses
commercially reasonable efforts to obtain permission to furnish such information
and to provide such information in a manner that would not be reasonably
expected to adversely affect the Company’s interests in litigation; provided
that the Company shall not be required to make any material payment in exchange
for such permission. All such information shall be kept confidential in
accordance with the terms of the Confidentiality Agreements or any similar
agreement entered into between the Company and any Person to whom the Company
provides information pursuant to this Section 6.4.

 

Section 6.5 Notification of Certain Matters.

 

(a) The Company shall give prompt notice to Newco of (i) the occurrence or
non-occurrence of any event of which it has Knowledge, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of the
Company to be untrue or inaccurate in all material respects at or prior to the
Closing Date and (ii) to the extent it has Knowledge thereof, any failure by the
Company to materially comply with or materially satisfy any covenant, condition
or agreement to be complied with or satisfied hereunder in each instance, in all
material respects; provided that the delivery of any notice pursuant to this
Section 6.5 shall not limit or otherwise affect any remedies available to Newco.

 

(b) Newco shall and shall cause the Equity Investors to give prompt notice to
the Company of (i) the occurrence or non-occurrence of any event of which it has
Knowledge, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of Newco to be untrue or inaccurate in all material
respects at or prior to the Closing Date and (ii) to the extent it has Knowledge
thereof, any failure by Newco to materially comply with or materially satisfy
any covenant, condition or agreement to be complied with or satisfied hereunder
in each instance, in all material

 

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respects; provided that the delivery of any notice pursuant to this Section 6.5
shall not limit or otherwise affect any remedies available to the Company.

 

Section 6.6 Reasonable Best Efforts; Notification.

 

(a) Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties shall use its reasonable best efforts and Newco shall cause
the Equity Investors to use their reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
cause the satisfaction of the conditions in Article VII and consummate and make
effective, as promptly as practicable, the Merger and the other transactions to
be performed or consummated by such party in accordance with the terms of this
Agreement, including:

 

(i) the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity;

 

(ii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the Merger
and, in the case of Newco, the Transactions, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed until the issuance of a final, non-appealable Order;
provided that the Merger Agreement remains in effect and has not been
terminated; and

 

(iii) the execution and delivery of any additional instruments necessary to
consummate the Merger and, in the case of Newco, the Transactions and to fully
carry out the purposes of this Agreement.

 

(b) For the avoidance of doubt and notwithstanding anything to the contrary
contained in this Agreement, unless any such action would, individually or in
the aggregate, result in a Material Event to either the Company or Newco (for
purposes of this clause, after giving effect to the Merger), each of the Company
and Newco shall commit to any and all divestitures, licenses or hold separate or
similar arrangements with respect to its own assets or conduct of business
arrangements (“Specified Actions”) as a condition to obtaining any and all
approvals, waivers or registrations from any Governmental Entity or to avoid any
action or proceeding by any Governmental Entity for any reason in order to
consummate and make effective, as promptly as practicable, the Merger and, in
the case of Newco, the Transactions, including taking any and all actions
necessary in order to ensure that: (x) no requirement for non-action, a waiver,
consent or approval of the United States Federal Trade Commission (the “FTC”),
the Antitrust Division of the United States Department of Justice (the
“Antitrust Division”), any State Attorney General, the European Commission (the
“EC”) or other Governmental Entity,

 

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(y) no decree, judgment, injunction, temporary restraining order or any other
order in any suit or proceeding and (z) no other matter relating to any
antitrust or competition Law or regulation, would preclude consummation of the
Merger by the Termination Date; provided, that any Specified Action required to
be taken by the Company or any of its Subsidiaries shall be conditioned on the
consummation of the Merger. In addition, subject to the terms and conditions
herein provided, none of the parties hereto shall Knowingly take or cause to be
taken any action which would reasonably be expected to materially delay or
prevent the satisfaction by the Termination Date of the conditions set forth in
Section 7.1(b) of this Agreement. Each party undertakes and agrees to file as
soon as reasonably practicable a Notification and Report Form under the HSR Act
with the FTC and the Antitrust Division, as well a Form CO under the ECMR with
the EC. Nothing contained in this Agreement shall prohibit Newco or the Equity
Investors from entering into agreements relating to the financing or operation
of Newco or the Surviving Corporation, including adding other equity providers
or operating partners; provided that (a) the aggregate amount of the Equity
Commitment Letters shall not be reduced in any way, (b) Newco shall have
obtained any required consent of the lenders under the Commitment Letters and
(c) Newco and the Surviving Corporation shall not enter into agreements relating
to the financing or operation of Newco or the Surviving Corporation with persons
or entities in the same business as the Company, SCA or Comcast Corporation
(other than the Company, SCA and Comcast Corporation).

 

(c) Each party shall and Newco shall cause the Equity Investors to (i) respond
as promptly as reasonably practicable under the circumstances to any inquiries
received from the FTC or the Antitrust Division and to all inquiries and
requests received from any State Attorney General, the EC or other Governmental
Entity in connection with antitrust matters and (ii) not extend any waiting
period under the HSR Act or ECMR or enter into any agreement with the FTC, the
Antitrust Division or the EC not to consummate the Merger and the Transactions,
except with the prior written consent of the other parties hereto, which consent
shall not be unreasonably withheld or delayed.

 

(d) In connection with and without limiting the foregoing, each party shall,
subject to applicable Law and except as prohibited by any applicable
representative of any applicable Governmental Entity:

 

(i) promptly notify the other party of any written communication to that party
from the FTC, the Antitrust Division, any State Attorney General, the EC or any
other Governmental Entity, including regulatory authorities, and, subject to
Section 6.6(e) hereof permit the other party to review in advance (and to
consider any comments made by the other party in relation to) any proposed
written communication to any of the foregoing;

 

(ii) not agree to participate in any substantive meeting or discussion with any
Governmental Entity in respect of any filings, investigation or inquiry
concerning this Agreement or the Merger unless it consults with the other party
in advance and, to the extent permitted by such Governmental Entity, gives the
other party the opportunity to attend and participate thereat; and

 

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(iii) furnish the other party with copies of all correspondence, filings, and
written communications (and memoranda setting forth the substance thereof)
between them and its affiliates and their respective representatives on the one
hand, and any Governmental Entity, including regulatory authority, or members or
their respective staffs on the other hand, with respect to this Agreement and
the Merger.

 

(e) Notwithstanding anything to the contrary in this Agreement, each party
hereto acknowledges and agrees that it will not be required to share with any
other party any confidential or market sensitive information that such party
provides or otherwise makes available to the FTC, the Antitrust Division, any
State Attorney General, the EC or any other Governmental Entity with respect to
the Merger and the Transactions; provided, however, that if a party chooses not
to share with any other party any such confidential or market sensitive
information, such party shall nevertheless make such information available, upon
request, to the other party’s outside counsel and outside consultants to be held
confidential by such outside counsel and outside consultants.

 

(f) Newco shall and shall cause the Equity Investors to use its or their
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done all things reasonably necessary to consummate the
Acquisition Financing (including obtaining rating agency approvals and drawing
under the “bridge” facility if the bond financing cannot be consummated and, if
necessary, borrowing in the event the “flex” is exercised on the terms and
subject to the conditions thereof). Newco shall cause the Equity Investors to
comply with the terms of their respective Equity Commitment Letters. The Company
shall provide reasonable assistance to Newco in obtaining the Acquisition
Financing (including by participating in meetings, due diligence sessions and
road shows, the preparation of offering memoranda, private placement memoranda,
prospectuses and similar documents, the recordation of documents pertaining to
chain of title and the execution and delivery of financing documents and other
requested certificates or documents). Newco shall not and shall cause the Equity
Investors not to amend or modify the terms (A) of the Commitment Letters
(including all exhibits, annexes, schedules, fee letters and other ancillary
documents) in a manner that would increase the conditionality of the Commitment
Letters in a manner that would adversely impact the ability of Newco to
consummate the transactions provided for herein or the likelihood of
consummation of the Merger or (B) the Equity Commitment Letters, in each case
without the prior written consent of the Company. If funds in the amounts set
forth in the Commitment Letters, or any portion thereof, become unavailable to
Newco on the terms and conditions set forth therein, Newco shall and shall cause
the Equity Investors to use its or their reasonable best efforts to obtain
substitute financing on terms and conditions (including fees) that Newco
determines in good faith to be substantially equivalent to the terms and
conditions described in the Commitment (“Substitute Financing”). Newco will not
amend or modify, or agree to amend or modify, any agreement or other document or
plan, which, pursuant to the terms of the Commitment Letters, require the
lenders’ prior consent to amend or are a condition to the lenders’ obligations
thereunder, without the prior written consent of the lenders party to the
Commitment Letters and any other person whose consent is required pursuant to
the Commitment Letters, which consent(s) shall acknowledge that such amendment
or

 

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modification does not relieve such person of its obligations pursuant to the
Commitment Letters. For the avoidance of doubt, nothing contained in this
Agreement shall obligate any Equity Investor to provide any credit support,
guarantee or other payment to the lenders in addition to those currently
contained in the Commitment Letters (other than making their equity
contributions pursuant to the Equity Commitment Letters) in connection with
Newco obtaining the Acquisition Financing or any Substitute Financing.

 

Section 6.7 State Takeover Statutes. Newco, the Company and their respective
Board of Directors shall (i) take all reasonable action necessary to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, or the transactions contemplated by this Agreement
and (ii) if any state takeover statute or similar statute becomes applicable to
this Agreement or the transaction contemplated by this Agreement, take all
reasonable action necessary to ensure that the transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on this Agreement or the transactions contemplated by this
Agreement.

 

Section 6.8 Indemnification.

 

(a) For a period of six (6) years from and after the Effective Time, unless
otherwise required by Law, the certificate of incorporation and bylaws of the
Surviving Corporation and its Subsidiaries shall contain provisions no less
favorable with respect to the elimination of liability of directors and
indemnification of directors, officers, employees and agents than are set forth
in the certificate of incorporation and bylaws of the Company (or the relevant
Subsidiary) as in effect on the date hereof; provided, however, that in the
event any claim or claims are asserted against any individual entitled to the
protections of such provisions within such six (6) year period, such provisions
shall not be modified until the final disposition of any such claims. From and
after the Effective Time, the Surviving Corporation shall indemnify and hold
harmless, (i) to the fullest extent permitted under applicable Law and (ii)
without limiting the obligations under clause (i), as required pursuant to any
indemnity agreements of the Company or any of its Subsidiaries (and the
Surviving Corporation shall also advance costs and expenses (including
attorney’s fees) as incurred within twenty (20) days after receipt by the
Surviving Corporation of a written request for such advance; provided that the
Person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification (it being understood that the Surviving Corporation shall not
require any security for such undertaking)), each present and former director
and officer of the Company and its Subsidiaries (in and to the extent of their
capacities as such, and not as stockholders and/or optionholders of the Company
or its Subsidiaries) (collectively, the “Indemnified Parties”) against any costs
or expenses (including attorneys’ fees and expenses), judgments, fines, losses,
claims, settlements, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
pending, existing or occurring at or prior to the Effective Time (including the
transactions provided for herein and in the Voting and Support Agreement).

 

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(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall maintain in effect the Company’s current directors’ and
officers’ liability insurance and fiduciary liability insurance (the “D&O
Insurance”) in respect of acts or omissions occurring at or prior to the
Effective Time, covering each person currently covered by the D&O Insurance (a
complete and accurate copy of which has been heretofore made available to
Newco), on terms with respect to the coverage, deductible and amounts no less
favorable than those of the D&O Insurance in effect on the date of this
Agreement; provided, however, that (x) in satisfying its obligations under this
Section 6.8(b) the Surviving Corporation shall not be obligated to pay annual
premiums in excess of 300% of the amount currently paid by the Company (which
premiums are set forth in Section 6.8(b) of the Company Disclosure Schedule), it
being understood and agreed that the Surviving Corporation shall nevertheless be
obligated to provide the maximum amount of such coverage as may be obtained for
such annual 300% amount and (y) in the event of the application of clause (x),
any present or former officer or director, upon reasonable written notice
thereof (which notice shall be provided no later than thirty (30) days prior to
the Effective Time and shall set forth in reasonable detail for each person to
be covered the policy coverage, premiums, deductibles, limitations and other
pertinent information), who desires to obtain additional coverage such that,
when combined with the coverage obtained by the Surviving Corporation in
accordance with clause (x), it provides insurance coverage equivalent to the D&O
Insurance in effect on the date hereof, may so elect and the Surviving
Corporation shall acquire such additional coverage on behalf of such person;
provided that in the event any present or former officer or director makes such
an election, such former officer or director shall pay the portion of the
premium of such D&O Insurance in excess of the amount which the Surviving
Corporation is obligated to pay pursuant to this Section 6.8. The insurance
purchased pursuant to this Section 6.8 shall be prepaid in full at the Effective
Time and shall be non-cancelable. At the request of the Company, Newco shall
arrange for such insurance prior to the Effective Time to be effective only at
and after the Effective Time; provided that Newco shall pay in full for such
insurance coverage no later than the Effective Time. The Company may acquire a
six year tail policy for persons currently covered by D&O Insurance that is
consistent with the first sentence of this Section 6.8(b) so long as the one
time premium payment for such tail policy is not more than 300% of the amount
currently paid by the Company as set forth in Section 6.8(b) of the Company
Disclosure Schedule. Such policy shall be prepaid at the Effective Time and
shall be non cancelable. If the Company acquires such a tail policy, Newco’s
obligations pursuant to the first sentence of this Section 6.8(b) shall be
deemed completely satisfied. The obligation to maintain insurance provided in
this Section 6.8(b) shall continue in full force and effect for a period of not
less than six (6) years from and after the Effective Time; provided that in the
event any claim or claims are asserted or made within such six (6) year period,
the Surviving Corporation shall ensure that such insurance remains in full force
and effect with respect to such claims until final disposition thereof.

 

(c) If the Surviving Corporation or any of its successors or assigns shall (i)
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation or entity of such consolidation or merger or (ii)
transfer all or substantially all of its properties and assets to any Person,
then, and in each such case,

 

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proper provisions shall be made so that the successors and assigns of the
Surviving Corporation (or acquiror of such assets) shall assume all of the
obligations of the Surviving Corporation set forth in this Section 6.8.

 

(d) The rights of each Indemnified Party under this Section 6.8 shall be in
addition to any right such Person might have under the certificate of
incorporation or by-laws of the Company, the Surviving Corporation or any of
their respective Subsidiaries, or under any agreement of any Indemnified Party
with the Company, the Surviving Corporation or any of their respective
Subsidiaries. The provisions of this Section 6.8 survive the consummation of the
Merger and are intended to be for the benefit of, and shall be enforceable by,
each of the Indemnified Parties, their respective heirs and representatives.

 

Section 6.9 Certain Litigation. Each of the parties hereto shall promptly advise
the other parties orally and in writing of any litigation commenced by any
stockholder of the Company after the date hereof against such party or any of
its directors or Affiliates relating to this Agreement, the Merger, the Voting
and Support Agreement and/or the transactions provided for herein and therein.
In addition, subject to a customary joint defense agreement, the Company shall
keep Newco reasonably informed regarding any litigation commenced by any
stockholder of the Company after the date hereof against the Company or any of
its directors or Affiliates relating to this Agreement, the Merger, the Voting
and Support Agreement or the transactions provided for herein and therein. The
Company shall give Newco the opportunity to consult with the Company regarding
(but not to control) the defense or settlement of any such stockholder
litigation, shall give due consideration to Newco’s advice with respect to such
stockholder litigation and shall not settle any such stockholder litigation
without the prior written consent of Newco unless such settlement requires only
an immaterial payment by the Company, contains no restrictions on the Company’s
operations, and contains no admission of fault by the Company. In the event that
(i) a proposed settlement of any stockholder litigation (of which Newco has been
advised and kept informed in accordance with the terms of this Section 6.9)
would not have a Company Material Adverse Effect (a “Proposed Settlement”), (ii)
Newco does not consent to such Proposed Settlement and (iii) the ultimate
resolution of such litigation is less favorable to the Company and its
Subsidiaries than the Proposed Settlement, then such resolution and the effects
thereof on the Company and its Subsidiaries shall not constitute, or be
considered in determining the existence or occurrence of, a Company Material
Adverse Effect. In addition, the Company shall not cooperate with any third
party that may hereafter seek to restrain or prohibit or otherwise oppose the
Merger and shall cooperate with Newco to resist any such effort to restrain or
prohibit or otherwise oppose the Merger.

 

Section 6.10 Notification of Certain Matters. The Company shall give prompt
notice to Newco of (a) any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become a
default, received by it or any of its Subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any Contract material to
the business, properties, assets, results of operations or financial condition
of the Company and its Subsidiaries

 

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taken as a whole to which it or any of its Subsidiaries is a party or is
subject, (b) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement, (c) any events which have had
or would be reasonably expected to have, individually or in the aggregate, a
Company Material Adverse Effect or (d) the occurrence or existence of any event
which would make, or would be reasonably expected to make, with the passage of
time or otherwise, any representation or warranty of the Company contained
herein untrue such that the closing condition set forth in Section 7.2(a) would
not be satisfied; provided, however, that the delivery of notice pursuant to
this Section 6.10 shall not be deemed to modify the representations and
warranties of the Company hereunder. Newco shall give prompt notice to the
Company of (a) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement, (b) the occurrence of any event
or events which have had or would be reasonably expected to have, individually
or in the aggregate, a Newco Material Adverse Effect or (c) the occurrence or
existence of any event which would make, or would be reasonably expected to
make, with the passage of time or otherwise, any representation or warranty
contained herein untrue such that the closing condition set forth in Section
7.3(a) would not be satisfied; provided, however, that the delivery of notice
pursuant to this Section 6.10 shall not be deemed to modify the representations
and warranties of the Newco hereunder.

 

Section 6.11 Tax Covenants.

 

(a) Immediately prior to the Closing, the Company shall furnish to each of the
Equity Investors a certification in accordance with Treasury Regulation Section
1.1445-2(c), and otherwise in form and substance reasonably satisfactory to the
Equity Investors, certifying that an interest in the Company is not a United
States real property interest because the Company is not and has not been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.

 

(b) The Company and Newco shall coordinate and cooperate regarding any
developments in Tax Law and the making of any elections or the taking of any
other actions that would minimize any tax exposure to the Company or otherwise
preserve or enhance its Tax attributes, including without limitation, election
of the safe harbor method of accounting provided in Revenue Procedure 2004-36,
I.R.B. 2004-24 (May 27, 2004), and the Company shall follow all reasonable
requests of Newco made with respect thereto. The making of such election shall
not be deemed a breach of any representation, warranty, covenant or agreement of
the Company contained herein.

 

Section 6.12 Section 16 Matters. Prior to the Effective Time, the Company shall
take all such steps as may be reasonably necessary and permitted to cause the
transactions contemplated by this Agreement, including any dispositions of
Company Shares (including derivative securities with respect to such Company
Shares) by each individual who is or will be subject to the reporting
requirements of Section 16(a) of the

 

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Exchange Act with respect to the Company, to be exempt under Rule 16b-3
promulgated under the Exchange Act.

 

Section 6.13 Employee Matters.

 

(a) Subject to the terms of any collective bargaining agreement and the Employee
Security Plans, for a period of one (1) year after the Effective Time, the
Surviving Corporation shall provide employees of the Company and its
Subsidiaries (the “Company Employees”) with employee benefits which are
substantially comparable, in the aggregate, to those provided to such employees
as of the date hereof (other than benefits which are equity based).
Notwithstanding the foregoing, nothing in this Section 6.13 shall limit the
right of the Surviving Corporation to terminate the employment of any Company
Employee at any time for any reason. The immediately preceding sentence,
however, will not relieve the Surviving Corporation from written and binding
commitments (x) to pay any applicable severance payments and to satisfy any
other obligations pursuant to the Employee Security Plans or (y) for any
obligations under such Company Employee’s employment agreement with the Company
that survive the termination of employment and/or the termination of such
employment agreement.

 

(b) Subject to the terms of any collective bargaining agreement, for purposes of
determining eligibility to participate and vesting under any employee benefit
plan, program or other arrangement of the Surviving Corporation in which Company
Employees subsequently participate on or after the Effective Time, Company
Employees shall receive service credit for service with the Company and any of
its Subsidiaries to the same extent such service was granted under the
comparable employee benefit plans, programs or arrangements of the Company and
its Subsidiaries; provided that such service will only be credited to the extent
that service with the Surviving Corporation with respect to the same periods is
credited to similarly situated employees of the Surviving Corporation under the
terms of the applicable plan, program or arrangement.

 

(c) The Surviving Corporation shall honor all employment, severance,
termination, retention agreements, plans, programs or arrangements of the
Company and its Subsidiaries, including the Employee Security Plans.

 

(d) This Section 6.13 is not intended to be for the benefit of and shall not be
enforceable by any employee, former employee or dependent or beneficiary thereof
or any collective bargaining representative thereof.

 

(e) Other than pursuant to the Employee Security Plans, the other Benefit Plans
existing as of the date hereof or any employment agreements existing on the date
hereof to which the Company or any of its Subsidiaries is a party, the Company
shall not make any change of control, retention or other similar payments other
than (i) retention bonus payments pursuant to action of the compensation
committee of the Board of Directors of the Company on May 6, 2004 (the
“Retention Bonus Plan”), up to an aggregate maximum amount not to exceed
$5 million or (ii) as otherwise permitted pursuant to Section 6.1(p).

 

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Section 6.14 Acquisition Financing. The indebtedness contemplated by the
Commitment Letters (or any Substitute Financing) shall be incurred by Newco
prior to the Effective Time.

 

Section 6.15 Confidentiality Agreements. The Confidentiality Agreements and the
Additional Confidentiality Agreements, if any, shall continue in full force and
effect in accordance with their terms until the earlier of (a) the Effective
Time or (b) the expiration of such Confidentiality Agreements or Additional
Confidentiality Agreements, if any, according to their terms.

 

Section 6.16 Letter of Credit.

 

(a) As promptly as practicable following receipt of the Contribution Amount, the
Company shall establish a separate account, which shall include only the
Contribution Amount, and interest thereon, and no other funds (the “Separate
Account”) at Bank of America in the name of the Company. No later than the first
Business Day following receipt of the Contribution Amount by the Company, the
Chief Financial Officer of the Company shall certify in writing to Newco that
such transfer has occurred. Newco shall be entitled to receive a statement, upon
its reasonable request, of the amounts in the Separate Account.

 

(b) The Company shall, as applicable, (i) promptly return the Contribution
Amount to the Equity Investor to which the Contribution Amount relates (the
“Contributing Investor”) (to the account designated by such Contributing
Investor) or (ii) promptly notify the issuers of the Letters of Credit of the
termination of such Letters of Credit upon the first to occur of (A) receipt by
the issuer of the Contributing Investor’s Letter of Credit of a written notice
from the Company that the Contributing Investor has satisfied in full its
obligation to fund its commitment under its Equity Commitment Letter and the
remaining Equity Investors have satisfied in full their obligations to fund
their commitments under their respective Equity Commitment Letters, (B) the
Effective Time, (C) the termination of this Agreement pursuant to any provision
other than 8.1(c)(i) of this Agreement, (D) the latest to occur of (x) the
dismissal with prejudice of all claims against Newco made by the Company during
the one (1) year period following the termination of this Agreement pursuant to
Section 8.1(c)(i) alleging a willful and material breach of this Agreement by
Newco, (y) the dismissal with prejudice of all claims made against the
Contributing Investor during the one (1) year period following the termination
of this Agreement pursuant to Section 8.1(c)(i) alleging a willful and material
breach of the Contributing Investor’s obligations to fund its commitment under
its Equity Commitment Letter and (z) the dismissal with prejudice of all claims
made against the Equity Investors (other than the Contributing Investor) during
the one (1) year period following the termination of this Agreement pursuant to
Section 8.1(c)(i) alleging a willful and material breach of the Equity
Investors’ obligations (other than the Contributing Investor) to fund their
commitments under their respective Equity Commitment Letters, (E) thirty (30)
calendar days after the date on which a judgment or order in respect of all
claims described in clause (D) of this sentence (or the last of such claims to
remain unresolved) that has been entered by a court of competent jurisdiction
(and as to which all rights of appeal therefrom or other avenues of review have
been

 

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exhausted or lapsed) shall have become final and (F) this Agreement is
terminated pursuant to Section 8.1(c)(i) and, during the one (1) year period
following such termination, (x) no claims alleging a willful and material breach
of this Agreement have been made against Newco and (y) no claims alleging a
willful and material breach of its obligations to fund under their respective
Equity Commitment Letters have been made against any Equity Sponsor. For the
avoidance of doubt, a claim will be deemed to have been brought during the first
year following termination of this Agreement if such claim is made in any
pleading filed on or prior to the first anniversary of the termination of this
Agreement or if such claim is made in any amendment, revision or modification to
such pleading allowed by a court of competent jurisdiction after such date.

 

(c) In the event that the Company is entitled to any amounts as contemplated by
Section 8.2(b) of this Agreement, the Company shall be entitled to retain and
withdraw from the Separate Account a portion of the Contribution Amount equal to
the product of (i) the amount due to the Company and (ii) the quotient obtained
by dividing (x) the original amount of the Contributing Investor’s Letter of
Credit by (y) the aggregate original amount of all of the Letters of Credit,
including the Contributing Investor’s Letter of Credit. The Company shall
promptly return the remaining portion of the Contribution Amount to the
Contributing Investor by wire transfer to the account designated by such
Contributing Investor when all of the claims, if any, described in Section
6.16(b) of this Agreement have been resolved.

 

ARTICLE VII

CONDITIONS

 

Section 7.1 Conditions to Each Party’s Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction of the following conditions (unless waived in accordance with
the provisions of Section 8.5 hereof):

 

(a) Company Stockholder Approval. The Company Stockholder Approval shall have
been obtained.

 

(b) HSR Act, Governmental Consents and Approvals. All filing and waiting periods
applicable (including any extensions thereof) to the consummation of the Merger
and the Transactions under the HSR Act and the ECMR shall have expired or been
terminated, and all material consents and approvals of any Governmental Entity
necessary for the consummation of the Merger and the Transactions shall have
been obtained, including any material consents and approvals relating to
antitrust, competition, trade or other regulatory matters.

 

(c) No Injunctions or Restraints. No Law or Order issued by any court of
competent jurisdiction or other Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used its respective
reasonable best efforts to

 

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resist, resolve, lift or prevent the entry of any such Order and to appeal as
promptly as possible any Order that may be entered.

 

(d) Solvency Opinion. The Company and Newco shall have received an opinion from
Houlihan Lokey Howard & Zukin in the form attached hereto as Exhibit B.

 

Section 7.2 Conditions to Newco’s Obligation to Effect the Merger. The
obligation of Newco to effect the Merger shall be subject to the satisfaction of
the following conditions, any one or more of which may be waived, in writing, by
Newco:

 

(a) Representations and Warranties. (i) The representations and warranties of
the Company set forth in this Agreement (other than those specifically
enumerated in clause (ii) of this Section 7.2(a)) shall be true and correct in
all respects as of the date of this Agreement and as of the Closing Date (except
for those representations and warranties which address matters only as of an
earlier date which shall have been true and correct as of such earlier date),
disregarding for these purposes any exception in such representations and
warranties relating to materiality or a Company Material Adverse Effect, except
for such failures to be true and correct which do not result in a Company
Material Adverse Effect, and (ii) the representations and warranties of the
Company set forth in Sections 4.2 and 4.4 shall be true and correct in all
respects (subject to de minimus deviations) as of the date of this Agreement and
as of the Closing Date (except for those representations and warranties which
address matters only as of an earlier date which shall have been true and
correct as of such earlier date).

 

(b) Performance. The Company shall have complied, in all material respects, with
all agreements, obligations, covenants and conditions required by this Agreement
to be complied with by it on or prior to the Closing Date.

 

(c) Officer’s Certificate. Newco shall have received a certificate of an
executive officer of the Company to the effect set forth in Sections 7.2(a) and
7.2(b).

 

(d) Material Adverse Effect. There shall not exist or have occurred any event or
events that has had, or would be reasonably expected to have, individually or in
the aggregate, a Company Material Adverse Effect.

 

(e) Funding. The Acquisition Financing to be provided under the Commitment
Letters shall have been consummated on the terms set forth therein (taking into
account any “flex” provisions in the fee letters or otherwise contained therein)
or Newco shall have received the proceeds of a Substitute Financing.

 

(f) Dissenting Shares. The number of Dissenting Shares shall represent not more
than ten percent (10%) of the total number of Company Shares in the aggregate
outstanding as of the date of this Agreement.

 

Section 7.3 Conditions to the Company’s Obligation to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the

 

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satisfaction of the following conditions, any one or more of which may be
waived, in writing, by the Company:

 

(a) Representations and Warranties. The representations and warranties of Newco
set forth in this Agreement shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date (except for those
representations and warranties which address matters only as of an earlier date
which shall have been true and correct as of such earlier date), disregarding
for these purposes any exception in such representations and warranties relating
to materiality or a Newco Material Adverse Effect except for such failures to be
true and correct which do not result in a Newco Material Adverse Effect.

 

(b) Performance. Newco shall have complied, in all material respects, with all
agreements, obligations, covenants and conditions required by this Agreement to
be complied with by it on or prior to the Closing Date. Newco shall have
provided the Company with evidence, reasonably satisfactory to the Company, of
compliance with Section 6.8(b) hereof.

 

(c) Officer’s Certificate. The Company shall have received a certificate of an
executive officer of Newco to the effect set forth in Sections 7.3(a) and
7.3(b).

 

Section 7.4 Frustration of Closing Conditions. Neither of the Company nor Newco
may rely on the failure of any condition set forth in Sections 7.1, 7.2 or 7.3,
as the case may be, to be satisfied if such failure was caused by such party’s
failure to act in good faith or to use its reasonable best efforts to consummate
the transactions contemplated by this Agreement.

 

ARTICLE VIII

TERMINATION AND AMENDMENT

 

Section 8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
receipt of the Company Stockholder Approval:

 

(a) by mutual written consent of Newco and the Company;

 

(b) by either Newco or the Company (if, in the case of the Company, it has not
violated Section 6.2 in any material respect):

 

(i) if the Company Stockholder Approval is not obtained at the Company
Stockholder Meeting or any adjournment thereof at which this Agreement has been
voted upon;

 

(ii) if the Merger shall not have been consummated by September 27, 2005,
provided that, subject to the rights of the Company under Section 8.1(c)(iii),
such date may be extended by either Newco or the Company

 

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(by written notice thereof to the other party) up to and including December 27,
2005 in the event that all of the conditions to the Merger, other than one or
more of the conditions set forth in Section 7.1(b) or Section 7.1(c) shall have
been or are capable of being satisfied at the time of such extension (the latest
applicable date shall be referred to herein as the “Termination Date”); provided
further that the right to terminate this Agreement (or extend the Termination
Date) under this Section 8.1(b)(ii) shall not be available to (x) any party
whose breach of any provision of this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before the Termination
Date or (y) any party who has failed to comply in all material respects with its
obligations under Section 6.6; or

 

(iii) if there shall be any Law (other than any Order) that prevents the
consummation of the Merger or any Order of any Governmental Entity having
competent jurisdiction that prevents consummation of the Merger and such Order
has become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.1(b)(iii) shall not be
available to any party whose breach of any provision of this Agreement results
in the imposition of such Order or the failure of such Order to be resisted,
resolved or lifted, as applicable.

 

(c) by the Company:

 

(i) if (A) Newco shall have breached any of the covenants or agreements
contained in this Agreement to be complied with by Newco such that the closing
conditions set forth in Section 7.3(b) would not be satisfied, (B) the Equity
Investors shall have breached the Equity Commitment Letters or (C) there exists
a breach of any representation or warranty of Newco contained in this Agreement
such that the closing condition set forth in Section 7.3(a) would not be
satisfied, and, in the case of either (A), (B) or (C), such breach is incapable
of being cured by the Termination Date or is not cured by Newco within twenty
(20) Business Days (or, in the case of a failure of the Equity Investors to fund
in accordance with the terms of the Equity Commitment Letters, ten (10) Business
Days) after Newco receives written notice of such breach from the Company;
provided that, in the case of a failure of the Equity Investors to fund in
accordance with the terms of the Equity Commitment Letters Newco may cure the
breach by replacing the defaulting amount within ten (10) Business Days
following the date of such default with an equity commitment letter (and letter
of credit, if applicable) on terms comparable in all material respects to, and
no less favorable to Newco than, the Equity Commitment Letter (and Letter of
Credit, if applicable) of the defaulting Equity Investor; or

 

(ii) if prior to the obtaining of the Company Stockholder Approval (A) the
Company’s Board of Directors or any committee thereof shall have received a
Superior Proposal, (B) the Company’s Board of Directors or any committee thereof
determines in good faith, after consultation with a financial advisor of
nationally recognized reputation and outside legal counsel, that the taking of
such action is necessary for the members of the Board of Directors of

 

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the Company to comply with their fiduciary duties to holders of Company Shares
under applicable Law, (C) the Company shall have complied in all material
respects with Sections 6.2, 6.3 and 6.4, (D) on the date of such termination,
the Company enters into a definitive agreement for, or consummates, the
transaction contemplated by such Superior Proposal and (E) not later than the
day of such termination, Newco shall have received the Termination Fee in
accordance with Section 8.4; or

 

(iii) if the Effective Time has not occurred by December 12, 2005 or, if the
term of the Commitment Letters has been extended, if the Effective Time has not
occurred by the date upon which the Commitment Letters expire.

 

(d) by Newco:

 

(i) if the Company (A) shall have breached any of the covenants or agreements
contained in this Agreement to be complied with by the Company such that the
closing condition set forth in Section 7.2(b) would not be satisfied or (B)
there exists a breach of any representation or warranty of the Company contained
in this Agreement such that the closing condition set forth in Section 7.2(a)
would not be satisfied, and, in the case of either (A) or (B), such breach is
incapable of being cured by the Termination Date or is not cured by the Company
within twenty (20) Business Days after the Company receives written notice of
such breach from Newco;

 

(ii) if, prior to the obtaining of the Company Stockholder Approval (A) a
Company Adverse Recommendation Change shall have occurred, (B) the Company shall
have failed to include in the Proxy Statement the recommendation of the Board of
Directors of the Company or any committee thereof that its stockholders vote in
favor of the Merger and the transactions contemplated by this Agreement, (C) a
tender or exchange offer relating to any Company Shares shall have been
commenced and the Company shall not have sent to its security holders, within
ten (10) Business Days after the commencement of such tender or exchange offer,
a statement disclosing that the Company recommends rejection of such tender or
exchange offer or (D) the Board of Directors of the Company or any committee
thereof approves or recommends a Takeover Proposal to the holders of Company
Shares or approves or recommends that holders of Company Shares tender their
Company Shares in any tender offer or exchange offer; or

 

(iii) if the Company breaches in any material respect any of its obligations
under Section 6.2 or 6.3(a).

 

Section 8.2 Effect of Termination; Liability.

 

(a) Except as otherwise set forth in this Section 8.2 or Section 8.4, in the
event of a termination of this Agreement by either the Company or Newco as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no

 

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liability or obligation on the part of Newco or the Company or their respective
officers or directors; provided, however, that, subject to the limitations in
Section 8.2(b) and Section 8.2(c), no such termination shall relieve any party
hereto of any liability or damages resulting from any willful and material
breach of this Agreement; and provided further, that the provisions of this
Section 8.2, Section 8.3 (Fees and Expenses), Section 8.4 (Termination Fee) and
Article IX of this Agreement and the Deposit Agreement and the Confidentiality
Agreements and any Additional Confidentiality Agreements shall remain in full
force and effect and survive any termination of this Agreement.

 

(b) In the event that this Agreement is terminated pursuant to Section 8.1(c)(i)
and a court of competent jurisdiction shall have made a final, binding judicial
determination (as to which all rights of appeal therefrom or other avenues of
review have been exhausted or lapsed) that Newco has willfully and materially
breached any covenant under this Agreement or any Equity Investor shall have
willfully and materially breached its obligations under its Equity Commitment
Letter, the Company shall be entitled to recover the amount of its actual
damages (including its out-of-pocket fees and expenses actually incurred by the
Company in connection with the negotiation and execution of this Agreement) in
excess of $150 million up to an additional $100 million; provided, however, that
such amount shall be an absolute limitation on Newco’s liability hereunder and
the Company shall not be entitled to any amount in excess of $250 million.

 

(c) In the event that this Agreement is terminated pursuant to Section 8.1(d)(i)
and a court of competent jurisdiction shall have made a final, binding judicial
determination (as to which all rights of appeal therefrom or other avenues of
review have been exhausted or lapsed) (i) that the Company has willfully and
materially breached the Agreement and (ii) establishing Newco’s actual damages
(including out-of-pocket fees and expenses actually incurred in connection with
the negotiation and execution of this Agreement) resulting from a willful and
material breach by the Company of any covenant under this Agreement, Newco shall
be entitled to recover the amount of its actual damages (including its out of
pocket fees and expenses actually incurred by Newco in connection with the
negotiation and execution of this Agreement) up to $135 million; provided,
however, that such amount shall be an absolute limitation on the Company’s
liability hereunder and Newco shall not be entitled to any amount in excess of
$135 million; provided further, that nothing in this Agreement shall prevent
Newco from suing for the Termination Fee. Except as expressly set forth in
Section 8.4(b) of this Agreement, the Company shall have no liability under this
Agreement in the event that the Company pays Newco the Termination Fee.

 

(d) Newco shall have no right to sue the Company in respect of any breach of
Section 6.2 solely by the Principal Stockholders. For the avoidance of doubt,
Newco’s other rights and remedies under this Agreement, including its
entitlement to the Termination Fee, shall remain in full force and effect
notwithstanding the foregoing sentence.

 

(e) With respect to the obligations of Newco to cause the Equity Investors to
take actions specified herein, the failure of the Equity Investors to take such
actions, if such failure would have been a willful material breach of this
Agreement were

 

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Newco obligated to take such action, shall be deemed to be a willful and
material breach of this Agreement.

 

Section 8.3 Fees and Expenses. Except as otherwise expressly set forth in this
Agreement, all fees and expenses incurred in connection herewith and the
transactions provided for herein shall be paid by the party incurring such
expenses, whether or not the Merger is consummated, except that each of Newco
and the Company shall bear and pay (i) one-half of the costs and expenses
incurred in connection with the filing, printing and mailing of the Proxy
Statement (including any SEC filing fees) and (ii) one-half of the filing fees
of the premerger notification and report forms under the HSR Act and filings
pursuant to the EMCR (and the filing, as soon as reasonably practicable, of any
form or report required by any other Governmental Entity relating to antitrust,
competition, trade or other regulatory matters). For the avoidance of doubt,
each party shall bear its own costs, other than the filing fees, including its
legal costs, relating to the matters set forth in clause (ii) above.

 

Section 8.4 Termination Fee.

 

(a) If this Agreement is terminated pursuant to Section 8.1(c)(ii) or 8.1(d)(ii)
then the Company shall pay Newco $135 million (the “Termination Fee”) not later
than the day of such termination. If this Agreement is terminated pursuant to
Section 8.1(b)(i), Section 8.1(b)(ii) (unless the closing conditions that have
not been satisfied at such time are solely within the control of Newco), Section
8.1(d)(i) or Section 8.1(d)(iii) then, in the event that, (i) after the date
hereof and prior to such termination, any Third Party shall have publicly made,
proposed, communicated or disclosed an intention to make a Takeover Proposal and
(ii) within nine (9) months of the termination of this Agreement, the Company
enters into a definitive agreement with a Third Party with respect to a Takeover
Proposal (with all percentages in the definition of Takeover Proposal increased
to 50%) (other than any transaction described in clauses (i) through (iii) of
the definition of Takeover Proposal solely by the Principal Stockholders who
shall be permitted to obtain financing from commercial banking institutions
required for such transactions) or any Takeover Proposal (with all percentages
in the definition of Takeover Proposal increased to 50%) involving the Company
(or in the event of a recapitalization of the Company or any of its Subsidiaries
by the Principal Stockholders referred to in this clause (ii), such
recapitalized entity ) is consummated, then the Company shall pay, or cause to
be paid to, Newco the Termination Fee upon the earlier to occur of (x) execution
by the Company of a definitive agreement with respect to such a Takeover
Proposal and (y) consummation of such Takeover Proposal. The Termination Fee
shall be paid by wire transfer of immediately available funds to an account
designated in writing to the Company by Newco. For the avoidance of doubt, in no
event shall (i) the Company be obligated to pay, or cause to paid, the
Termination Fee on more than one occasion and (ii) the Company’s maximum
aggregate liability under this Agreement, including damages under Section 8.2(c)
and this Section 8.4(a), shall not exceed $135 million.

 

(b) The Company acknowledges that the agreements contained in this Section 8.4
are an integral part of the transactions contemplated by this Agreement, that
the damages resulting from termination of this Agreement under circumstances
where a

 

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Termination Fee is payable are uncertain and incapable of accurate calculation
and that the amounts payable pursuant to Section 8.4(a) are reasonable forecasts
of the actual damages which may be incurred and constitute liquidated damages
and not a penalty, and that, without these agreements, Newco would not enter
into this Agreement; accordingly, if the Company fails to promptly pay the
Termination Fee, and, in order to obtain such payment Newco commences a suit
which results in a judgment against the Company for the Termination Fee, the
Company shall pay to Newco its costs and expenses (including attorney’s
reasonable fees) in connection with such suit.

 

Section 8.5 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent permitted by applicable Law, subject to
Section 9.12, (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. All covenants shall
survive in accordance with their terms. This Article IX, the agreements of Newco
and the Company in Section 6.8 (Indemnification) and Section 8.3 (Fees and
Expenses) and those other covenants and agreements contained herein that by
their terms apply, or that are to be performed in whole or in part, after the
Effective Time shall survive the consummation of the Merger.

 

Section 9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt by the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

 

(a) if to Newco, to

 

LOC Acquisition Company

c/o Sony Corporation of America

550 Madison Avenue, 34th Floor

New York, New York 10022

Attention: Robert S. Wiesenthal

Telecopy: (212) 833-7752

 

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with a copy to:

 

Dewey Ballantine LLP

1301 Avenue of the Americas

New York, New York 10019

Attention: Morton A. Pierce, Esq.

                 Michael J. Aiello, Esq.

Telecopy: (212) 259-6333

 

and

 

Skadden, Arps, Slate, Meagher & Flom LLP

300 South Grand Avenue

Los Angeles, California 90071

Attention: Nicholas P. Saggese, Esq.

                 Rick C. Madden, Esq.

Telecopy: (213) 621-5550

 

and

 

Davis Polk & Wardwell

450 Lexington Avenue

New York, New York 10017

Attention: Dennis S. Hersch

Telecopy: (212) 450-3800

 

(b)    if to the Company, to

 

Metro-Goldwyn-Mayer Inc.

10250 Constellation Boulevard

Los Angeles, California 90067

Attention: Alex Yemenidjian

Telecopy: (310) 449-3020

 

with a copy to:

 

Latham & Watkins LLP

885 Third Avenue, Suite 1000

New York, NY 10022-4802

Attention: Charles M. Nathan, Esq.

                 John E. Sorkin, Esq.

Telecopy: (212) 751-4864

 

and

 

Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP

10250 Constellation Boulevard, 19th Floor

Los Angeles, CA 90067

 

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Attention: Janet S. McCloud, Esq.

Telecopy: (310) 556-2920

 

Section 9.3 Interpretation.

 

(a) When a reference is made in this Agreement to an Article or a Section, or
clause such reference shall be to an Article, Section or clause of this
Agreement unless otherwise indicated.

 

(b) The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

(c) This Agreement is the result of the joint efforts of Newco and the Company,
and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of the parties and there shall be no construction
against any party based on any presumption of that party’s involvement in the
drafting thereof.

 

(d) The words “include,” “includes” or “including” shall be deemed to be
followed by the words “without limitation.”

 

(e) The term “ordinary course of business” (or similar terms) shall be deemed to
be followed by the words “consistent with past practice.”

 

(f) For purposes of this Agreement, to the extent this Agreement refers to
information or documents having been made available (or delivered or provided)
to Newco, the Company shall be deemed to have satisfied such obligation if the
Company or its Representatives made such information or document available (or
delivered or provided such information or document) to any of Newco, an Equity
Investor, or any of their respective Representatives.

 

(g) The phrases “transactions provided for in this Agreement,” “transactions
provided for herein,” “transactions contemplated by this Agreement,” and
“transactions contemplated herein” and phrases of similar import shall be deemed
to refer, in the case of the Company, only to the Merger and the
representations, warranties, covenants and agreements of the Company in this
Agreement and not to any other agreement between or among Newco, any Equity
Investor, any financing source or any other Person and, in the case of Newco, to
the Merger and the Transactions, including the covenants and agreements of Newco
in this Agreement and to the Commitments, the Acquisition Financing and the
documents related thereto.

 

(h) The disclosure of any matter or item in the Company Disclosure Schedule or
the Newco Disclosure Schedule shall not be deemed to constitute an
acknowledgement that such matter or item is required to be disclosed therein or
is material to a representation, warranty, covenant or condition set forth in
this Agreement and shall not be used as a basis for interpreting the terms
“material,” “materially,” “materiality,” “Company Material Adverse Effect” or
“Newco Material Adverse Effect” or any word or phrase of similar import and does
not mean that such matter or item

 

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would, with any other matter or item, have or be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect or a Newco
Material Adverse Effect.

 

Section 9.4 Counterparts. This Agreement may be executed in two (2) or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when such counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all parties
need not sign the same counterpart.

 

Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreements, Schedules and Annexes hereto, the
Deposit Agreement, the Side Agreement and the certain letter of even date
herewith executed between the Company and the SCA) (a) constitute the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof, and (b) other than with respect to the matters set forth in Section 6.8
(Indemnification), is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. EACH PARTY HERETO AGREES THAT,
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
NEITHER NEWCO NOR THE COMPANY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND
EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR
ANY OF ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND
LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR THE MERGER, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO THE OTHER OR THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR
OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.

 

Section 9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.

 

Section 9.7 Publicity. None of the parties hereto shall (and each of the parties
shall cause its Affiliates and Representatives and, in the case of Newco, the
Equity Investors and their Representatives, not to) issue any press release or
make any public announcement concerning this Agreement or the transactions
provided for herein without obtaining the prior written approval of the Company,
in the event the disclosing party is any of Newco or the Equity Investors (or
any of their respective Affiliates and Representatives), or Newco, in the event
the disclosing party is the Company (or any of its Affiliates and
Representatives), such consent not to be unreasonably withheld or delayed;
provided, however, that, subject to compliance with Section 6.13, if a party
determines, based upon advice of counsel, that disclosure is otherwise required
by applicable Law or the rules or regulations of any stock exchange upon which
the securities of such party is listed, such party may make such disclosure to
the extent so required.

 

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Section 9.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, except that Newco may assign, in its sole and absolute discretion, any
or all of its rights, interests and obligations hereunder to any wholly owned
Subsidiary of Newco. No assignment by any party hereto shall relieve such party
of any of its obligations hereunder. Subject to the foregoing, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.

 

Section 9.9 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, in addition to any other remedy to
which they are entitled at law or in equity. Any legal action, suit or
proceeding arising out of or relating to this Agreement or the transactions
provided for herein shall be brought solely in the Federal courts of the United
States located in the State of Delaware; provided that if (and only after) such
courts determine that they lack subject matter jurisdiction over any such legal
action, suit or proceeding, such legal action, suit or proceeding shall be
brought in the United States District Court for the Southern District of New
York; provided, further, that if (and only after) both the Federal courts of the
United States located in the State of Delaware and the United States District
Court for the Southern District of New York determine that they lack subject
matter jurisdiction over any such legal action, suit or proceeding, such legal
action, suit or proceeding shall be brought in the Chancery Court of the State
of Delaware. Each party to this Agreement hereby irrevocably submits to the
exclusive jurisdiction of such courts in respect of any legal action, suit or
proceeding arising out of or relating to this Agreement or the transactions
provided for herein, and hereby waives, and agrees not to assert, as a defense
in any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of such courts, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper or that this Agreement or the transactions
provided for herein may not be enforced in or by such courts. Each party agrees
that notice or the service of process in any action, suit or proceeding arising
out of or relating to this Agreement or the transactions provided for herein
shall be properly served or delivered if delivered in the manner contemplated by
Section 9.2. In addition, each of the parties hereto waives any right to trial
by jury with respect to any claim or proceeding related to or arising out of
this Agreement or any of the transactions provided for herein.

 

Section 9.10 Severability. This Agreement shall be deemed severable; the
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or enforceability of the balance of this Agreement or of
any other term hereof, which shall remain in full force and effect so long as
the economic or legal substance of the transactions provided for herein is not
affected in any manner adverse to any party. If any of the provisions hereof are
determined to be invalid or unenforceable,

 

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the parties shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible.

 

Section 9.11 Parties in Interest

 

(a) All parties to the transactions contemplated by this Agreement acknowledge
that none of Mr. Kirk Kerkorian, Tracinda or Rodeo (nor any other holder of
Common Shares), individually or collectively, is a party to this Agreement (it
being understood, however, that Mr. Kerkorian and any other Indemnified Party
shall be a third party beneficiary with respect to the matters set forth in
Section 6.8). Accordingly, each of the parties hereto agrees that in the event
(i) that there is any alleged breach or default by any party under this
Agreement or any agreement provided for herein, or (ii) any party has any claim
arising from or relating to this Agreement or any such agreement, no party shall
commence any proceedings or otherwise seek to impose any liability whatsoever
against Mr. Mr. Kirk Kerkorian, Tracinda or Rodeo or any other holder of Common
Shares by reason of such alleged breach, default or claim; provided, that this
Section 9.11 shall not be deemed to limit the rights of Mr. Mr. Kirk Kerkorian,
Tracinda or Rodeo in their capacity as holders of Common Shares and nothing in
this Section 9.11 shall be deemed to limit the rights or obligations of the
parties to the Voting and Support Agreement.

 

(b) All parties to the transactions contemplated by this Agreement acknowledge
that none of the Equity Investors (nor any of their Affiliates other than
Newco), individually or collectively, is a party to this Agreement. Accordingly,
each of the parties hereto agrees that in the event (i) that there is any
alleged breach or default by any party under this Agreement or any agreement
provided for herein, or (ii) any party has any claim arising from or relating to
this Agreement or any such agreement, no party shall commence any proceedings or
otherwise seek to impose any liability whatsoever against any Equity Investor by
reason of such alleged breach, default or claim; provided, nothing in this
Section 9.11 shall be deemed to limit the rights or obligations of the parties
to the Voting and Support Agreement or the ability of the Company or Newco to
draw on the Letters of Credit in accordance with their terms.

 

Section 9.12 Modification. No supplement, modification or amendment of this
Agreement shall be binding unless made in a written instrument that is signed by
all of the parties hereto and that specifically refers to this Agreement.

 

Section 9.13 Tax Treatment. The parties intend that the Merger shall be treated
for income Tax purposes as a taxable purchase of the stock of the Company by the
Equity Investors to the extent of the funds provided by the Equity Investors and
as a taxable redemption of the stock of the Company by the Company to the extent
of the funds provided pursuant to the Commitment Letters.

 

[SIGNATURE PAGE FOLLOWS]

 

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

 

LOC ACQUISITION COMPANY

        By:

 

/s/    MICHAEL DOMINGUEZ        

--------------------------------------------------------------------------------

   

Name:  Michael Dominguez

   

Title:    Chairman of the Board

METRO-GOLDWYN-MAYER INC.

        By:

 

/s/    JAY RAKOW        

--------------------------------------------------------------------------------

   

Name:  Jay Rakow

    Title:    Senior Executive Vice President and              General Counsel

 

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