Document:

EXHIBIT
      4.5

     

    [FORM
      OF FACE OF SECURITY]

     

    PERMANENT
      GLOBAL FIXED RATE SENIOR BEARER NOTE

     

    
      	
              BEARER

            	
              BEARER

            	
               

            
	
              No.
                PGFXR

            	 	 

    

     

    ANY
      UNITED
      STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER
      THE
      UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS
      165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

     

    UNLESS
      AND
      UNTIL IT IS EXCHANGED IN WHOLE FOR DEFINITIVE BEARER NOTES OR IN WHOLE OR IN
      PART FOR REGISTERED NOTES, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS
      A
      WHOLE BY THE DEPOSITARY (WHICH FOR THIS PURPOSE INCLUDES ANY COMMON SAFEKEEPER)
      TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
      DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
      SUCH
      NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
      DEPOSITARY.

     

    THIS
      NOTE
      HAS NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES AND EXCHANGE
      LAW
      OF JAPAN.  THIS NOTE MAY NOT BE OFFERED OR SOLD, DIRECTLY OR
      INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY RESIDENT OF JAPAN (WHICH
      TERM AS USED HEREIN MEANS ANY PERSON RESIDENT IN JAPAN INCLUDING ANY CORPORATION
      OR OTHER ENTITY ORGANIZED UNDER THE LAWS OF JAPAN) OR TO OTHERS FOR THE
      RE-OFFERING OR RE-SALE, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO A RESIDENT OF
      JAPAN EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF,
      AND
      OTHERWISE IN COMPLIANCE WITH, THE SECURITIES AND EXCHANGE LAW OF JAPAN AND
      OTHER
      RELEVANT LAWS AND REGULATIONS OF JAPAN.1

     

    ______________

    1  If
      this
      Note is offered in Japan or denominated in Japanese Yen, appropriate legends
      need to be added.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    MORGAN
      STANLEY

    GLOBAL
      MEDIUM-TERM NOTE, SERIES [G/H]

    Permanent
      Global Fixed Rate Senior Bearer Note

     

    
      	
              ORIGINAL
                ISSUE DATE:

            	
              INITIAL
                REDEMPTION DATE:

            	
              INTEREST
                RATE:

            	
              MATURITY
                DATE:

            
	
              INTEREST
                ACCRUAL DATE:

            	
              INITIAL
                REDEMPTION PERCENTAGE:

            	
              INTEREST
                PAYMENT 

              DATE(S):

            	
              OPTIONAL
                REPAY­MENT 

              DATE(S):

            
	
              SPECIFIED
                CURRENCY:

            	
              ANNUAL
                REDEMPTION PERCENTAGE REDUCTION:

            	
              EUROCLEAR
                NO.:

            	
              MINIMUM
                DENOMINATIONS:

            
	
              EXCHANGE
                RATE AGENT:

            	
              REDEMPTION
                NOTICE PERIOD:2

            	
              CLEARSTREAM
                NO.:

            	
              APPLICABILITY
                OF MODIFIED PAYMENT UPON ACCELERATION OR REDEMPTION:

            
	
              INITIAL
                OFFERING DATE:

            	
              EXCHANGE
                FOR REGISTERED NOTES: [NO]3

            	
              COMMON
                CODE:

            	
              If
                yes, state Issue Price:

            
	
              NEW
                GLOBAL NOTE (“NGN”):

              [YES/NO]4

            	
              PRICE
                APPLICABLE UPON OPTIONAL REPAYMENT:5

            	
              ISIN:

            	
              ORIGINAL
                YIELD TO MATURITY:

            
	
              IF
                THIS IS AN NGN, INTENDED TO BE HELD IN A MANNER THAT WOULD ALLOW
                ELIGIBILITY AS COLLATERAL FOR 

            	
              OTHER
                PROVISIONS:

            	 	 

    

     

    
      ______________  
        2Applicable
          if other than 30-60 calendar
          days. Consult with Euroclear or Clearstream if a shorter redemption is
          requested.  A minimum of 10 calendar days may be
          possible.

      

        
        3  Unless
          explicitly stated otherwise in term sheet, MS practice has been to exclude
          this
          option.

      

        
        4
          To be Eurosystem
          eligible, NGNs must also be denominated in euro, listed (Series G) and
          must meet
          certain other criteria established by the European Central
          Bank.

      

        
        5
          Applies if this Note
          has optional repayment and is issued with original issue
          discount.

      

       

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      
        	
                EUROSYSTEM
                  INTRA-DAY CREDIT AND MONETARY POLICY OPERATIONS:

                        [YES]4

              	
                 

              	 	 

      

    

     

    Morgan
      Stanley, a Delaware corporation (together with its successors and assigns,
      the
“Issuer”), for value received, hereby promises to pay to
      bearer, upon surrender hereof, the principal amount specified in [Schedule
      A
      hereto]6 [Schedule A-1 hereto]7,
      or, if the face of this Note indicates that
      it is intended to be an NGN, the aggregate principal amount from time to time
      entered in the records of both Euroclear Bank S.A./N.V. and Clearstream Banking,
      société anonyme (together, the “Relevant Clearing Systems”), on the Maturity
      Date specified above (except to the extent previously redeemed or repaid) and
      to
      pay interest thereon at the Interest Rate per annum specified above from and
      including the Interest Accrual Date specified above until but excluding the
      date
      the principal amount is paid or duly made available for payment (except as
      provided below) weekly, monthly, quarterly, semi-annually or annually in arrears
      on the Interest Payment Dates specified above in each year commencing on the
      Interest Payment Date next succeeding the Interest Accrual Date specified above,
      and at maturity (or on any redemption or repayment date); provided,
      however, that if the Interest Accrual Date occurs fifteen calendar days or
      less prior to the first Interest Payment Date occurring after the Interest
      Accrual Date, interest payments will commence on the second Interest Payment
      Date succeeding the Interest Accrual Date.  If this Note is intended
      to be an NGN, the records of the Relevant Clearing Systems (which, in this
      Note,
      means the records that each Relevant Clearing System holds for its customers
      to
      reflect the amount of such customers’ interests in this Note) shall be
      conclusive evidence of the aggregate principal amount of this Note and, for
      these purposes, a statement issued by a Relevant Clearing System (which
      statement shall be made to the Issuer, to the Trustee, to the Principal Paying
      Agent or to the bearer of this Note on request) stating the aggregate principal
      amount of this Note shall be conclusive of the records of such Relevant Clearing
      System at that time.

     

    Interest
      on this Note will accrue from and including the most recent Interest Payment
      Date to which interest has been paid or duly provided for, or, if no interest
      has been paid or duly provided for, from and including the Interest Accrual
      Date, until but excluding the date the principal hereof has been paid or duly
      made available for payment (except as provided below).  The interest
      so payable, and punctually paid or duly provided for, on any Interest Payment
      Date will, subject to certain exceptions described herein, be paid to the holder
      of this Note at the office or agency of the Principal Paying Agent (this and
      certain other capitalized terms used herein are defined on the reverse of this
      Note) or at the office or agency of such other paying agents outside

     

    
      ________________

      6  Applies
        if this Note is not issued as part of, or in relation to, a Unit and is not
        intended to be an NGN.

       

      
        7  Applies
          if this Note is issued as part of, or in relation to, a
          Unit.

      

    

     

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

     

     

    the
      United
      States as the Issuer may determine for that purpose (each, a “Paying
      Agent,” which term shall include the Principal Paying
      Agent).

     

    Payment
      of
      the principal of this Note, any premium and the interest due at maturity (or
      on
      any redemption or repayment date) will be made upon presentation and surrender
      of this Note at the office or agency of the Principal Paying Agent or at the
      office of any Paying Agent.

     

    Payment
      of
      the principal of, premium, if any, and interest on this Note will be made in
      the
      Specified Currency indicated above, except as provided on the reverse
      hereof.  If this Note is denominated in U.S. dollars, any payment of
      the principal of, premium, if any, and interest on this Note will be made in
      such coin or currency of the United States as at the time of payment is legal
      tender for payment of public and private debts.  Such payments on this
      Note will be made either by a check mailed to an address outside the United
      States furnished by the payee or, at the option of the payee and subject to
      applicable laws and regulations and the procedures of the Paying Agent, by
      wire
      transfer of immediately available funds to an account maintained by the payee
      with a bank located outside the United States if appropriate wire transfer
      instructions have been received by the Paying Agent not less than 15 calendar
      days prior to the applicable payment date.  Notwithstanding the
      foregoing, in the event that payment in U.S. dollars of the full amount payable
      on this Note at the offices of all Paying Agents would be illegal or effectively
      precluded as a result of exchange controls or similar restrictions, payment
      on
      this Note will be made by a paying agency in the United States, if such paying
      agency, under applicable law and regulations, would be able to make such
      payment.  If this Note is denominated in a Specified Currency other
      than U.S. dollars, then, except as provided on the reverse hereof, payment
      of
      the principal of, premium, if any, and interest on this Note will be made in
      such Specified Currency either by a check drawn on a bank outside the United
      States or, at the option of the payee and subject to applicable laws and
      regulations and the procedures of the Paying Agent, by wire transfer of
      immediately available funds to an account maintained by the payee with a bank
      located outside the United States.

     

    Reference
      is hereby made to the further provisions of this Note set forth on the reverse
      hereof, which further provisions shall for all purposes have the same effect
      as
      if set forth at this place.

     

    Unless
      the
      certificate of authentication hereon has been executed by the Trustee referred
      to on the reverse hereof by manual signature, and, if this Note is intended
      to
      be an NGN and will not be physically delivered to the entity appointed as common
      safe-keeper by the Relevant Clearing Systems (the “CSK”), unless this Note has
      been effectuated by the CSK, this Note shall not be entitled to any benefit
      under the Senior Indenture, as defined on the reverse hereof, or be valid or
      obligatory for any purpose.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     

     

    IN
      WITNESS
      WHEREOF, the Issuer has caused this Note to be duly executed.

    
       

      
        
          	
                  DATED:

                	 	
                  MORGAN
                    STANLEY

                
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
                  By:

                	 
	 	 	 	 	
                  Name:

                	 
	 	 	 	 	
                  Title:

                	 

        

        

        
          	
                  TRUSTEE’S
                    CERTIFICATE
OF
                    AUTHENTICATION

                   

                  This
                    is one of the Notes referred
to
                    in the within-mentioned
Senior
                    Indenture.

                   

                  THE
                    BANK OF NEW YORK,
as
                    Trustee

                   

                	 
	
                  By:

                	 	 
	 	
                  Authorized
                    Signatory

                	 

        

        

        
 

        EFFECTUATION
          BY COMMON8

        SAFE-KEEPER

        

        This
          Note
          is effectuated.

        

        [COMMON
          SAFE-KEEPER]

        
          

          
            	
                    By:

                  	 	 
	 	
                    [Authorized
                      Signatory]

                  	 

          

        

      

    

     

    
_____________  

    8
      An effectuation
      block is only applicable if this Permanent Global Fixed Rate Senior Bearer
      Note
      is intended to be an NGN and if a Note manually signed by the Issuer will not
      be
      physically delivered to the common safe-keeper.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

     

    [FORM
      OF REVERSE OF SECURITY]

     

    This
      Note
      is one of a duly authorized issue of Global Medium-Term Notes, Series [G/H],
      having maturities more than nine months from the date of issue (the
“Notes”), of the Issuer.  The Notes are issuable
      under a Senior Indenture, dated as of November 1, 2004, between the Issuer
      and
      The Bank of New York (as successor to JPMorgan Chase Bank, N.A. (formerly known
      as JPMorgan Chase Bank)), as Trustee (the “Trustee,” which term
      includes any successor trustee under the Senior Indenture) (as supplemented
      by
      the First Supplemental Senior Indenture, dated as of September 4, 2007 and
      the
      Second Supplemental Senior Indenture, dated as of January 4, 2008 and as may
      be
      further amended or supplemented from time to time, the “Senior
      Indenture”), to which Senior Indenture and all indentures supplemental
      thereto reference is hereby made for a statement of the respective rights,
      limitations of rights, duties and immunities of the Issuer, the Trustee and
      holders of the Notes and the terms upon which the Notes are, and are to be,
      authenticated and delivered.  The Issuer has appointed The Bank of New
      York, London Branch (as successor to JPMorgan Chase Bank, N.A., London Branch),
      as its principal paying agent for the Notes (the “Principal Paying
      Agent,” which term includes any additional or successor Principal
      Paying Agent appointed by the Issuer).  The terms of individual Notes
      may vary with respect to interest rates, interest rate formulas, issue dates,
      maturity dates, or otherwise, all as provided in the Senior
      Indenture.  To the extent not inconsistent herewith, the terms of the
      Senior Indenture are hereby incorporated by reference herein.

     

    Unless
      otherwise indicated on the face hereof, this Note will not be subject to any
      sinking fund and, unless otherwise indicated on the face hereof in accordance
      with the provisions of the following two paragraphs and except as set forth
      below, will not be redeemable or subject to repayment at the option of the
      holder prior to maturity.

     

    If
      so indicated on the face hereof,
      this Note may be redeemed in whole or in part at the option of the Issuer on
      or
      after the Initial Redemption Date specified on the face hereof on the terms
      set
      forth on the face hereof, together with interest accrued and unpaid hereon
      to
      the date of redemption (except as indicated below).  If this Note is
      subject to “Annual Redemption Percentage Reduction,” the Initial Redemption
      Percentage indicated on the face hereof will be reduced on each anniversary
      of
      the Initial Redemption Date by the Annual Redemption Percentage Reduction
      specified on the face hereof until the redemption price of this Note is 100%
      of
      the principal amount hereof, together with interest accrued and unpaid hereon
      to
      the date of redemption (except as provided below).  If the face hereof
      indicates that this Note is subject to “Modified Payment upon Acceleration or
      Redemption”, the amount of principal payable upon redemption will be limited to
      the aggregate principal amount hereof multiplied by the sum of the Issue Price
      specified on the face hereof (expressed as a percentage of the aggregate
      principal amount) plus the original issue discount accrued from the Interest
      Accrual Date to the date of redemption (expressed as a percentage of the
      aggregate principal amount), with the amount of original issue discount accrued
      being calculated using a constant yield method (as described
      below).  Notice of redemption shall be mailed to the holders of the
      Notes designated for redemption who have filed their names and addresses with
      the Principal Paying Agent, not less than 30 nor more than 60 days prior to
      the
      date fixed for redemption or within the Redemption Notice Period specified
      on
      the face hereof, subject to all the conditions and 

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

     

    provisions
      of the Senior Indenture.  Notice of redemption to all other holders of
      Notes shall be given in the manner set forth in “Notices” as defined below and,
      if by publication, shall be given once in each of three successive calendar
      weeks, the first publication to be not less than 30 nor more than 60 calendar
      days prior to the date set for redemption or within the Redemption Notice Period
      specified on the face hereof.  In the event of redemption of this Note
      in part only, the Principal Paying Agent shall (i) if this Note is not intended
      to be an NGN, cause Schedule [A] [A-1] of this Note to be endorsed to reflect
      the reduction of its principal amount by an amount equal to the aggregate
      principal amount of this Note so redeemed, or (ii) if this Note is intended
      to
      be an NGN, cause the details of such redemption to be entered in the records
      of
      the Relevant Clearing Systems, whereupon, in either case, the principal amount
      hereof shall be reduced for all purposes by the amount so redeemed and noted
      or
      recorded, as applicable.

    

    If
      this Note is redeemed in part but
      not in whole prior to maturity hereof, (i) if this Note is not intended to
      be an
      NGN, the Trustee shall select or cause to be selected, not more than 60 days
      prior to the redemption date, the portions of this Note for redemption from
      the
      outstanding aggregate principal amount of this Note not previously called for
      redemption by such method as the Trustee deems fair and appropriate, or (ii)
      if
      this Note is intended to be an NGN, the portion of this Note to be redeemed
      will
      be selected in accordance with the rules and procedures of Euroclear Bank
      S.A./N.V. and/or Clearstream Banking, société anonyme (to be reflected in the
      records of the Relevant Clearing Systems as either a pool factor or a reduction
      in nominal amount, at their discretion).

    

    If
      so indicated on the face of this
      Note, this Note will be subject to repayment at the option of the holder on
      the
      Optional Repayment Date or Dates specified on the face hereof on the terms
      set
      forth herein.  On any Optional Repayment Date, this Note will be
      repayable in whole or in part in increments of $1,000 or, if this Note is
      denominated in a Specified Currency other than U.S. dollars, in increments
      of
      1,000 units of such Specified Currency (provided that any remaining principal
      amount hereof shall not be less than the minimum authorized denomination hereof)
      at the option of the holder hereof at a price equal to 100% of the principal
      amount to be repaid, together with interest accrued and unpaid hereon to the
      date of repayment (except as provided below), provided that if the face
      hereof indicates that this Note is subject to “Modified Payment upon
      Acceleration or Redemption”, the amount of principal payable upon repayment will
      be limited to the aggregate principal amount hereof multiplied by the sum of
      the
      Issue Price specified on the face hereof (expressed as a percentage of the
      aggregate principal amount) plus the original issue discount accrued from the
      Interest Accrual Date to the date of repayment  (expressed as a
      percentage of the aggregate principal amount), with the amount of original
      issue
      discount accrued being calculated using a constant yield method (as described
      below).  For this Note to be repaid at the option of the holder
      hereof, the Principal Paying Agent must receive at its office in London, at
      least 15 but not more than 30 calendar days prior to the date of
      repayment, this Note with the form entitled “Option to Elect
      Repayment” below duly completed, or a telegram, telex, facsimile
      transmission or a letter from a member of a national securities exchange, or
      the
      Financial Industry Regulatory Authority, Inc. or a commercial bank or trust
      company in the United States, Western Europe or Japan setting forth the
      principal amount of the Note, the principal amount of the Note to be repaid,
      the
      certificate number or a description of the tenor and terms of this Note, a
      statement that the Option to Elect Repayment is being exercised and a guarantee
      that this Note to be repaid, together with the duly completed 

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

     

    form
      entitled Option to Elect Repayment, will be received by the Principal Paying
      Agent not later than the fifth Business Day (as defined below) after the date
      of
      that telegram, telex, facsimile transmission or letter. However, the telegram,
      telex, facsimile transmission or letter shall only be effective if this Note
      and
      an Option to Elect Repayment form duly completed are received by the Principal
      Paying Agent by the fifth Business Day after the date of such telegram, telex,
      facsimile transmission or letter.  Exercise of such repayment option
      by the holder hereof shall be irrevocable.  In the event of repayment
      of this Note in part only, the Principal Paying Agent shall (i) if this Note
      is
      not intended to be an NGN, cause Schedule [A] [A-1] of this Note to be
      endorsed to reflect the reduction of its principal amount by an amount equal
      to
      the aggregate principal amount of this Note so repaid, or, (ii) if this Note
      is
      intended to be an NGN, cause the details of such repayment to be entered in
      the
      records of the Relevant Clearing Systems, whereupon, in either case, the
      principal amount hereof shall be reduced for all purposes by the amount so
      repaid and noted or recorded, as applicable.

    

    Interest
      payments on this Note will include interest accrued to but excluding the
      Interest Payment Dates or the Maturity Date (or any earlier redemption or
      repayment date), as the case may be.  Unless otherwise specified on
      the face hereof, interest payments for this Note will be computed and paid
      on
      the basis of a 360-day year of twelve 30-day months.

     

    In
      the
      case where the Interest Payment Date or the Maturity Date (or any redemption
      or
      repayment date) does not fall on a Business Day, payment of interest, premium,
      if any, or principal otherwise payable on such date need not be made on such
      date, but may be made on the next succeeding Business Day with the same force
      and effect as if made on the Interest Payment Date or on the Maturity Date
      (or
      any redemption or repayment date), and no interest on such payment shall accrue
      for the period from and after the Interest Payment Date or the Maturity Date
      (or
      any redemption or repayment date) to such next succeeding Business
      Day.

     

    This
      Note
      and all the obligations of the Issuer hereunder are direct, unsecured
      obligations of the Issuer and rank without preference or priority among
      themselves and pari passu with all other existing and future unsecured
      and unsubordinated indebtedness of the Issuer, subject to certain statutory
      exceptions in the event of liquidation upon insolvency.

     

    This
      Note
      is issued in permanent global bearer form without interest coupons attached
      (a
“Global Bearer Note”).  The beneficial owner of all
      or a portion of this Note may exchange its interest in this Note upon not less
      than 30 calendar days’ written notice to the Principal Paying Agent through the
      relevant clearing system, (i) if this Note is not intended to be an NGN, in
      whole, or, (ii) if this Note is intended to be an NGN, in whole or from time
      to
      time in part, for Notes in bearer form with interest coupons, if any, attached
      (the “Definitive Bearer Notes,” and, together with the Global
      Bearer Notes, the “Bearer Notes”) or, if so indicated on the
      face of this Note, at the beneficial owner’s option, in whole or from time to
      time in part, for Notes in fully registered form without coupons (the
“Registered Notes”), in each case, in the minimum denominations
      set forth on the face hereof or any amount in excess thereof which is an
      integral multiple of 1,000 units of the Specified Currency set forth on the
      face
      hereof.  Interests in this Note shall also be exchanged by the Issuer
      in whole, but not in part, for Definitive Bearer Notes, which shall be serially
      numbered, with coupons, if any, attached (or, if indicated on the face of this
      Note, at the beneficial owner’s option, for Registered Notes), of any authorized
      denominations if (i) this Note is accelerated following an Event of Default
      or
      (ii) either Euroclear 

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

     

    Bank
      S.A./N.V., as operator of the Euroclear System (“Euroclear”),
      or Clearstream Banking, société anonyme (“Clearstream,
      Luxembourg”), or any other relevant clearing system (including
      Euroclear France) is closed for business for a continuous period of fourteen
      calendar days (other than by reason of public holidays) or announces an
      intention to cease business permanently or in fact does so.  The
      Issuer shall give notice to the Principal Paying Agent promptly following any
      such acceleration or upon learning of any such closure.  Any exchanges
      referred to above shall be made at the office of the Principal Paying Agent,
      or,
      in the case of Registered Notes, at the office of the transfer agent for the
      Registered Notes in London, which transfer agent will initially be The Bank
      of
      New York, London Branch (as successor to JPMorgan Chase Bank, N.A., London
      Branch), upon compliance with any procedures set forth in, or established
      pursuant to, the Senior Indenture; provided, however, that the Issuer
      shall not be required (i) to register the transfer of or exchange this Note
      for a period of fifteen calendar days preceding the first publication or other
      transmission, if applicable, of a Notice of redemption of all or any portion
      hereof or (ii) to register the transfer of or exchange any portion of this
      Note selected for redemption or surrendered for optional repayment, except
      that
      such portion of this Note may be exchanged for a Registered Note of like tenor;
      provided that such Registered Note shall be simultaneously surrendered
      for redemption or repayment, as the case may be; and provided, further,
      that if a Registered Note is issued in exchange for any portion of this Note
      after the close of business at the office of the Principal Paying Agent on
      any
      record date (whether or not a Business Day) for the payment of interest on
      such
      Registered Note and before the opening of business at such office on the
      relevant Interest Payment Date, any interest will not be payable on such
      Interest Payment Date in respect of such Registered Note, but will be payable
      on
      such Interest Payment Date only to the holder of this Note.  Upon
      exchange of this Note for a Definitive Bearer Note or Definitive Bearer Notes,
      or for a Registered Note or Registered Notes, the Principal Paying Agent shall
      (i) if this Note is not intended to be an NGN, cause Schedule [A] [A-1] of
      this
      Note to be endorsed to reflect the reduction of the principal amount hereof
      by
      an amount equal to the aggregate principal amount of such Definitive Bearer
      Note
      or Definitive Bearer Notes, or such Registered Note or Registered Notes, or
      (ii)
      if this Note is intended to be an NGN, cause the details of such exchange to
      be
      entered in the records of the Relevant Clearing Systems, whereupon, in either
      case, the principal amount hereof shall be reduced for all purposes by the
      amount so exchanged and noted or recorded, as applicable.  All such
      exchanges of Notes will be free of service charge, but the Issuer may require
      payment of a sum sufficient to cover any tax or other governmental charge
      payable in connection therewith.  The date of any Note delivered upon
      any exchange of this Note shall be such that no gain or loss of interest results
      from such exchange.

     

    All
      (and
      not less than all) interests in this Note will be exchanged for Definitive
      Bearer Notes in accordance with the procedures set forth in the following two
      sentences as soon as practicable after (i) if this Note is not intended to
      be an
      NGN, the first beneficial owner of an interest in this Note exchanges its
      interest for a Definitive Bearer Note, (ii) the Issuer gives notice to the
      Principal Paying Agent of an acceleration of the Note or (iii) either Euroclear
      or Clearstream, Luxembourg or any other relevant clearing system is closed
      for
      business for a continuous period of fourteen calendar days (other than by reason
      of public holidays) or announces an intention to cease business permanently
      or
      in fact does so.  In the event of any exchange of interests in this
      Note for a Definitive Bearer Note, (i) if this Note is not intended to be an
      NGN, a common depositary located outside the United States (the “common
      depositary”) 

     

     

    
      
        
        

      

      
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    holding
      this Note for Euroclear, Clearstream, Luxembourg and/or any other relevant
      clearing system or (ii) if this Note is intended to be an NGN, Euroclear and/or
      Clearstream, Luxembourg shall instruct the Principal Paying Agent regarding
      the
      aggregate principal amount of Definitive Bearer Notes and the denominations
      of
      such Definitive Bearer Notes that must be authenticated and delivered to each
      relevant clearing system in exchange for this Note.  Thereafter, the
      Principal Paying Agent, acting solely in reliance on such instructions, shall,
      upon surrender to it of this Note and subject to the conditions in the preceding
      paragraph, authenticate and deliver Definitive Bearer Notes in exchange for
      this
      Note in accordance with such instructions and shall, (i) if this Note is not
      intended to be an NGN, cause Schedule [A] [A-1] of this Note to be endorsed
      to reflect the reduction of its principal amount by an amount equal to the
      aggregate principal amount of this Note, or (ii) if this Note is intended to
      be
      an NGN, cause the details of such exchange to be entered in the records of
      the
      Relevant Clearing Systems.  Nothing in this paragraph shall prevent
      the further exchange of Definitive Bearer Notes into Registered
      Notes.

     

    This
      Note
      may be transferred by delivery; provided, however, that this Note may
      be transferred only to a common depositary or common safe-keeper, as applicable,
      outside the United States for Euroclear, Clearstream, Luxembourg and/or any
      other relevant clearing system or to a nominee of such a common depositary
      or
      common safe-keeper.

     

    In
      case
      this Note shall at any time become mutilated, defaced or be destroyed, lost
      or
      stolen and this Note or evidence of the loss, theft or destruction thereof
      (together with the indemnity hereinafter referred to and such other documents
      or
      proof as may be required in the premises) shall be delivered to the Trustee,
      the
      Issuer in its discretion may execute a new Note of like tenor in exchange for
      this Note, but, in the case of any destroyed or lost or stolen Note, only upon
      receipt of evidence satisfactory to the Trustee and the Issuer that this Note
      was destroyed or lost or stolen and, if required, upon receipt also of indemnity
      satisfactory to each of them.  All expenses and reasonable charges
      associated with procuring such indemnity and with the preparation,
      authentication and delivery of a new Note shall be borne by the owner of the
      Note mutilated, defaced, destroyed, lost or stolen.

     

    This
      Note may be redeemed, as a whole,
      at the option of the Issuer at any time prior to maturity, upon the giving
      of a
      Notice of redemption as described below, at a redemption price equal to 100%
      of
      the principal amount hereof, together with accrued interest to the date fixed
      for redemption (except that if this Note is subject to “Modified Payment upon
      Acceleration or Redemption,” the amount of principal so payable will be limited
      to the aggregate principal amount hereof multiplied by the sum of the Issue
      Price specified on the face hereof (expressed as a percentage of the aggregate
      principal amount) plus the original issue discount accrued from the Interest
      Accrual Date to the date of redemption (expressed as a percentage of the
      aggregate principal amount), with the amount of original issue discount accrued
      being calculated using a constant yield method (as described in the next
      paragraph) (the “Amortized Amount”)), if the Issuer determines
      that, as a result of any change in or amendment to the laws (including a
      holding, judgment or as ordered by a court of competent jurisdiction), or any
      regulations or rulings promulgated thereunder, of the United States or of any
      political subdivision or taxing authority thereof or therein affecting taxation,
      or any change in official position regarding the application or interpretation
      of such laws, regulations or rulings, which change or amendment occurs, becomes
      effective or, in the case of a change in official position, is announced on
      or
      after the Initial Offering Date hereof, the Issuer has or will become obligated
      to pay Additional 

     

     

    
      
        
        

      

      
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    Amounts,
      as defined below, with respect to this Note as described below.  Prior
      to the giving of any Notice of redemption pursuant to this paragraph, the Issuer
      shall deliver to the Trustee (i) a certificate stating that the Issuer is
      entitled to effect such redemption and setting forth a statement of facts
      showing that the conditions precedent to the right of the Issuer to so redeem
      have occurred, and (ii) an opinion of independent legal counsel
      satisfactory to the Trustee to such effect based on such statement of facts;
      provided that no such Notice of redemption shall be given earlier than
      60 calendar days prior to the earliest date on which the Issuer would be
      obligated to pay such Additional Amounts if a payment in respect of this Note
      were then due.

     

    The
      constant yield shall be calculated
      using a 30-day month, 360-day year convention, a computing period that, except
      for the initial period (as defined below), corresponds to the shortest period
      between Interest Payment Dates (with ratable accruals within a compounding
      period), and an assumption that the maturity will not be
      accelerated.  If the period from the Original Issue Date to the first
      Interest Payment Date (the “initial period”) is shorter than
      the compounding period for this Note, a proportionate amount of the yield for
      an
      entire compounding period will be accrued.  If the initial period is
      longer than the compounding period, then the period will be divided into a
      regular compounding period and a short period with the short period being
      treated as provided in the preceding sentence.

     

    Notice
      of
      redemption will be given not less than 30 nor more than 60 calendar days prior
      to the date fixed for redemption or within the Redemption Notice Period
      specified on the face hereof, which date and the applicable redemption price
      will be specified in the Notice.

     

    If
      the
      Issuer shall determine that any payment made outside the United States by the
      Issuer or any Paying Agent of principal, premium or interest due in respect
      of
      this Note would, under any present or future laws or regulations of the United
      States, be subject to any certification, identification or other information
      reporting requirement of any kind, the effect of which is the disclosure to
      the
      Issuer, any Paying Agent or any governmental authority of the nationality,
      residence or identity of a beneficial owner of this Note who is a U.S. Alien
      (as
      defined below) (other than such a requirement (a) that would not be
      applicable to a payment made by the Issuer or any Paying Agent (i) directly
      to the beneficial owner or (ii) to a custodian, nominee or other agent of
      the beneficial owner, or (b) that can be satisfied by such custodian,
      nominee or other agent certifying to the effect that such beneficial owner
      is a
      U.S. Alien; provided that in each case referred to in clauses
      (a)(ii) and (b) payment by such custodian, nominee or agent to such
      beneficial owner is not otherwise subject to any such requirement), the Issuer
      shall redeem this Note, as a whole, at a redemption price equal to 100% of
      the
      principal amount thereof (except that if this Note is subject to “Modified
      Payment upon Acceleration or Redemption,” such redemption price would be limited
      to the aggregate principal amount hereof multiplied by the sum of the Issue
      Price specified on the face hereof (expressed as a percentage of the aggregate
      principal amount) plus the Amortized Amount), together with accrued interest
      to
      the date fixed for redemption, or, at the election of the Issuer if the
      conditions of the next succeeding paragraph are satisfied, pay the additional
      amounts specified in such paragraph.  The Issuer shall make such
      determination and election as soon as practicable, shall promptly notify the
      Trustee thereof and shall publish (or transmit, as applicable) prompt notice
      thereof (the “Determination Notice”) stating the effective date
      of such certification, identification or other information reporting
      requirements, whether the Issuer will redeem this Note or has elected to pay
      the
      additional amounts specified in the next succeeding paragraph, and (if
      applicable) the 

     

     

    
      
        
        

      

      
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    last
      date
      by which the redemption of this Note must take place, as provided in the next
      succeeding sentence.  If the Issuer redeems this Note, such redemption
      shall take place on such date, not later than one year after the publication
      of
      the Determination Notice, as the Issuer shall elect by notice to the Trustee
      at
      least 60 calendar days prior to the date fixed for redemption or at least 30
      calendar days prior to the last day of the Redemption Notice Period specified
      on
      the face hereof.  Notice of such redemption of this Note will be given
      to the holder of this Note not more than 60 nor less than 30 calendar days
      prior
      to the date fixed for redemption or within the Redemption Notice Period
      specified on the face hereof.  Such redemption notice shall include a
      statement as to the last date by which this Note to be redeemed may be exchanged
      for Registered Notes.  Notwithstanding the foregoing, the Issuer shall
      not so redeem this Note if the Issuer shall subsequently determine, not less
      than 30 calendar days prior to the date fixed for redemption or prior to the
      last day of the Redemption Notice Period specified on the face hereof, that
      subsequent payments would not be subject to any such certification,
      identification or other information reporting requirement, in which case the
      Issuer shall publish (or transmit, as applicable) prompt notice of such
      determination and any earlier redemption notice shall be revoked and of no
      further effect.  The right of the holder of this Note to exchange this
      Note for Registered Notes pursuant to the provisions of this paragraph will
      terminate at the close of business of the Principal Paying Agent on the
      fifteenth day prior to the date fixed for redemption, and no further exchanges
      of this Note for Registered Notes shall be permitted.

     

    If
      and so
      long as the certification, identification or other information reporting
      requirements referred to in the preceding paragraph would be fully satisfied
      by
      payment of a backup withholding tax or similar charge, the Issuer may elect
      by
      notice to the Trustee to pay as additional amounts such amounts as may be
      necessary so that every net payment made outside the United States following
      the
      effective date of such requirements by the Issuer or any Paying Agent of
      principal, premium or interest due in respect of this Note of which the
      beneficial owner is a U.S. Alien (but without any requirement that the
      nationality, residence or identity of such beneficial owner be disclosed to
      the
      Issuer, any Paying Agent or any governmental authority, with respect to the
      payment of such additional amounts), after deduction or withholding for or
      on
      account of such backup withholding tax or similar charge (other than a backup
      withholding tax or similar charge that (i) would not be applicable in the
      circumstances referred to in the second parenthetical clause of the first
      sentence of the preceding paragraph, or (ii) is imposed as a result of
      presentation of this Note for payment more than 15 calendar days after the
      date
      on which such payment becomes due and payable or on which payment thereof is
      duly provided for, whichever occurs later), will not be less than the amount
      provided for in this Note to be then due and payable.  In the event
      the Issuer elects to pay any additional amounts pursuant to this paragraph,
      the
      Issuer shall have the right to redeem this Note as a whole at any time pursuant
      to the applicable provisions of the immediately preceding paragraph and the
      redemption price of this Note will not be reduced for applicable withholding
      taxes.  If the Issuer elects to pay additional amounts pursuant to
      this paragraph and the condition specified in the first sentence of this
      paragraph should no longer be satisfied, then the Issuer will redeem this Note
      as a whole, pursuant to the applicable provisions of the immediately preceding
      paragraph.

     

    The
      Issuer
      will, subject to certain exceptions and limitations set forth below, pay such
      additional amounts (the “Additional Amounts”) to the holder of
      this Note who is a U.S. Alien as may be necessary in order that every net
      payment of the principal of and interest on this Note 

     

     

    
      
        
        

      

      
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    and
      any
      other amounts payable on this Note, after withholding or deduction for or on
      account of any present or future tax, assessment or governmental charge imposed
      upon or as a result of such payment by the United States, or any political
      subdivision or taxing authority thereof or therein, will not be less than the
      amount provided for in this Note to be then due and payable.  The
      Issuer will not, however, make any payment of Additional Amounts to any such
      holder who is a U.S. Alien for or on account of:

     

    (a)           any
      present or future tax, assessment or other governmental charge that would not
      have been so imposed but for (i) the existence of any present or former
      connection between such holder, or between a fiduciary, settlor, beneficiary,
      member or shareholder of such holder, if such holder is an estate, a trust,
      a
      partnership or a corporation for U.S. federal income tax purposes, and the
      United States, including, without limitation, such holder, or such fiduciary,
      settlor, beneficiary, member or shareholder, being or having been a citizen
      or
      resident thereof or being or having been engaged in a trade or business or
      present therein or having, or having had, a permanent establishment therein
      or
      (ii) the presentation by or on behalf of the holder of this Note for
      payment on a date more than 15 calendar days after the date on which such
      payment became due and payable or the date on which payment thereof is duly
      provided for, whichever occurs later;

     

    (b)           any
      estate, inheritance, gift, sales, transfer, excise or personal property tax
      or
      any similar tax, assessment or governmental charge;

     

    (c)           any
      tax, assessment or other governmental charge imposed by reason of such holder’s
      past or present status as a controlled foreign corporation or passive foreign
      investment company with respect to the United States or as a corporation which
      accumulates earnings to avoid U.S. federal income tax or as a private foundation
      or other tax-exempt organization or a bank receiving interest under Section
      881(c)(3)(A) of the Internal Revenue Code of 1986, as amended;

     

    (d)           any
      tax, assessment or other governmental charge that is payable otherwise than
      by
      withholding or deduction from payments on or in respect of this
      Note;

     

    (e)           any
      tax, assessment or other governmental charge required to be withheld by any
      Paying Agent from any payment of principal of, or interest on, this Note, if
      such payment can be made without such withholding by any other Paying Agent
      in a
      city in Western Europe;

     

    (f)           any
      tax, assessment or other governmental charge that would not have been imposed
      but for the failure to comply with certification, information or other reporting
      requirements concerning the nationality, residence or identity of the holder
      or
      beneficial owner of this Note, if such compliance is required by statute or
      by
      regulation of the United States or of any political subdivision or taxing
      authority thereof or therein as a precondition to relief or exemption from
      such
      tax, assessment or other governmental charge;

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

     

    (g)           any
      tax, assessment or other governmental charge imposed by reason of such holder’s
      past or present status as the actual or constructive owner of 10% or more of
      the
      total combined voting power of all classes of stock entitled to vote of the
      Issuer or as a direct or indirect subsidiary of the Issuer; or

     

    (h)           any
      combination of items (a), (b), (c), (d), (e), (f) or (g).

     

    In
      addition, the Issuer shall not be required to make any payment of Additional
      Amounts (i) to any such holder where such withholding or deduction is imposed
      on
      a payment to an individual and is required to be made pursuant to any law
      implementing or complying with, or introduced in order to conform to, any
      European Union Directive on the taxation of savings; or (ii) by or on behalf
      of
      a holder who would have been able to avoid such withholding or deduction by
      presenting this Note or the relevant coupon to another Paying Agent in a member
      state of the European Union.  Nor shall the Issuer pay Additional
      Amounts with respect to any payment on this Note to a U.S. Alien who is a
      fiduciary or partnership or other than the sole beneficial owner of such payment
      to the extent such payment would be required by the laws of the United States
      (or any political subdivision thereof) to be included in the income, for tax
      purposes, of a beneficiary or settlor with respect to such fiduciary or a member
      of such partnership or a beneficial owner who would not have been entitled
      to
      the Additional Amounts had such beneficiary, settlor, member or beneficial
      owner
      been the holder of this Note.

     

    The
      Senior
      Indenture provides that (a) if an Event of Default (as defined in the
      Senior Indenture) due to the default in payment of principal of or premium,
      if
      any, or interest on any series of debt securities issued under the Senior
      Indenture, including the series of Global Medium-Term Notes of which this Note
      forms a part, or due to the default in the performance or breach of any other
      covenant or warranty of the Issuer applicable to the debt securities of such
      series but not applicable to all outstanding debt securities issued under the
      Senior Indenture, shall have occurred and be continuing, either the Trustee
      or
      the holders of not less than 25% in aggregate principal amount of the
      outstanding debt securities of each affected series, voting as one class, by
      notice in writing to the Issuer and to the Trustee, if given by the
      securityholders, may then declare the principal of all debt securities of all
      such series and interest accrued thereon to be due and payable immediately
      and
      (b) if an Event of Default due to a default in the performance of any other
      of the covenants or agreements in the Senior Indenture applicable to all
      outstanding debt securities issued thereunder, including this Note, or due
      to
      certain events of bankruptcy, insolvency or reorganization of the Issuer, shall
      have occurred and be continuing, either the Trustee or the holders of not less
      than 25% in aggregate principal amount of all outstanding debt securities issued
      under the Senior Indenture, voting as one class, by notice in writing to the
      Issuer and to the Trustee, if given by the securityholders, may declare the
      principal of all such debt securities and interest accrued thereon to be due
      and
      payable immediately, but upon certain conditions such declarations may be
      annulled and past defaults may be waived (except a continuing default in payment
      of principal of or premium, if any, or interest on such debt securities) by
      the
      holders of a majority in aggregate principal amount of the debt securities
      of
      all affected series then outstanding.

     

    If
      the face hereof indicates that this
      Note is subject to “Modified Payment upon Acceleration or Redemption,” then
      (i) if the principal hereof is declared to be due and payable as described
      in the preceding paragraph, the amount of principal due and payable with respect
      to 

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

     

    this
      Note
      shall be limited to the aggregate principal amount hereof multiplied by the
      sum
      of the Issue Price specified on the face hereof (expressed as a percentage
      of
      the aggregate principal amount) plus the original issue discount accrued from
      the Interest Accrual Date to the date of declaration (expressed as a percentage
      of the aggregate principal amount), with the amount of original issue discount
      accrued being calculated using a constant yield method (as described above),
      (ii) for the purpose of any vote of securityholders taken pursuant to the
      Senior Indenture prior to the acceleration of payment of this Note, the
      principal amount hereof shall equal the amount that would be due and payable
      hereon, calculated as set forth in clause (i) above, if this Note were declared
      to be due and payable on the date of any such vote and (iii) for the
      purpose of any vote of securityholders taken pursuant to the Senior Indenture
      following the acceleration of payment of this Note, the principal amount hereof
      shall equal the amount of principal due and payable with respect to this Note,
      calculated as set forth in clause (i) above.

     

    The
      Senior
      Indenture permits the Issuer and the Trustee, with the consent of the holders
      of
      not less than a majority in aggregate principal amount of the debt securities
      of
      all series issued under the Senior Indenture then outstanding and affected
      (voting as one class), to execute supplemental indentures adding any provisions
      to or changing in any manner the rights of the holders of each series so
      affected; provided that the Issuer and the Trustee may not, without the
      consent of the holder of each outstanding debt security affected thereby,
      (a) extend the final maturity of any such debt security, or reduce the
      principal amount thereof, or reduce the rate or extend the time of payment
      of
      interest thereon, or reduce any amount payable on redemption thereof, or change
      the currency of payment thereof, or modify or amend the provisions for
      conversion of any currency into any other currency, or modify or amend the
      provisions for conversion or exchange of the debt security for securities of
      the
      Issuer or other entities or for other property or the cash value of the property
      (other than as provided in the antidilution provisions or other similar
      adjustment provisions of the debt securities or otherwise in accordance with
      the
      terms thereof), or impair or affect the rights of any holder to institute suit
      for the payment thereof or (b) reduce the aforesaid percentage in principal
      amount of debt securities the consent of the holders of which is required for
      any such supplemental indenture.

     

    Except
      as
      set forth below, if the principal of or premium, if any, or interest on this
      Note is payable in a Specified Currency other than U.S. dollars and such
      Specified Currency is not available to the Issuer for making payments hereon
      due
      to the imposition of exchange controls or other circumstances beyond the control
      of the Issuer or is no longer used by the government of the country issuing
      such
      currency or for the settlement of transactions by public institutions within
      the
      international banking community, then the Issuer will be entitled to satisfy
      its
      obligations to the holder of this Note by making such payments in U.S. dollars
      on the basis of the Market Exchange Rate (as defined below) on the date of
      such
      payment or, if the Market Exchange Rate is not available on such date, as of
      the
      most recent practicable date; provided, however, that if the euro has
      been substituted for such Specified Currency, the Issuer may at its option
      (or
      shall, if so required by applicable law) without the consent of the holder
      of
      this Note effect the payment of principal of or premium, if any, or interest
      on
      any Note denominated in such Specified Currency in euro in lieu of such
      Specified Currency in conformity with legally applicable measures taken pursuant
      to, or by virtue of, the relevant treaty of the European Union, as
      amended.  Any payment made under such circumstances in U.S. dollars or
      euro where the required payment is in an unavailable Specified Currency will
      not
      constitute an Event of Default.  

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     

    If
      such
      Market Exchange Rate is not then available to the Issuer or is not published
      for
      a particular Specified Currency, the Market Exchange Rate will be based on
      the
      highest bid quotation in The City of New York received by the Exchange Rate
      Agent (as defined below) at approximately 11:00 a.m., New York City time, on
      the
      second Business Day preceding the date of such payment from three recognized
      foreign exchange dealers (the “Exchange Dealers”) for the
      purchase by the quoting Exchange Dealer of the Specified Currency for U.S.
      dollars for settlement on the payment date, in the aggregate amount of the
      Specified Currency payable to those holders or beneficial owners of Notes and
      at
      which the applicable Exchange Dealer commits to execute a
      contract.  One of the Exchange Dealers providing quotations may be the
      Exchange Rate Agent unless the Exchange Rate Agent is an affiliate of the
      Issuer.  If those bid quotations are not available, the Exchange Rate
      Agent shall determine the market exchange rate at its sole
      discretion.

     

    The
      “Exchange Rate Agent” shall be Morgan Stanley & Co.
      International plc, unless otherwise indicated on the face hereof.

     

    All
      determinations referred to above made by, or on behalf of, the Issuer or by,
      or
      on behalf of, the Exchange Rate Agent shall be at such entity’s sole discretion
      and shall, in the absence of manifest error, be conclusive for all purposes
      and
      binding on holders of Notes.

     

    So
      long as
      this Note shall be outstanding, the Issuer will cause to be maintained an office
      or agency for the payment of the principal of and premium, if any, and interest
      on this Note as herein provided.  If this Note is listed on the London
      Stock Exchange plc and such exchange so requires, the Issuer shall maintain
      a
      Paying Agent in London.  If any European Union Directive on the
      taxation of savings comes into force, the Issuer will, to the extent possible
      as
      a matter of law, maintain a Paying Agent in a member state of the European
      Union
      that will not be obligated to withhold or deduct tax pursuant to any such
      Directive or any law implementing or complying with, or introduced in order
      to
      conform to, such Directive.  The Issuer may designate other agencies
      for the payment of said principal, premium and interest at such place or places
      outside the United States (subject to applicable laws and regulations) as the
      Issuer may decide.  So long as there shall be such an agency, the
      Issuer shall keep the Trustee advised of the names and locations of such
      agencies, if any are so designated.

     

    With
      respect to moneys paid by the Issuer and held by the Trustee or any Paying
      Agent
      for payment of the principal of or interest or premium, if any, on any Notes
      that remain unclaimed at the end of two years after such principal, interest
      or
      premium shall have become due and payable (whether at maturity or upon call
      for
      redemption or otherwise), (i) the Trustee or such Paying Agent shall notify
      the holders of such Notes that such moneys shall be repaid to the Issuer and
      any
      person claiming such moneys shall thereafter look only to the Issuer for payment
      thereof and (ii) such moneys shall be so repaid to the
      Issuer.  Upon such repayment all liability of the Trustee or such
      Paying Agent with respect to such moneys shall thereupon cease, without,
      however, limiting in any way any obligation that the Issuer may have to pay
      the
      principal of or interest or premium, if any, on this Note as the same shall
      become due.

     

    No
      provision of this Note or of the Senior Indenture shall alter or impair the
      obligation of the Issuer, which is absolute and unconditional, to pay the
      principal of and premium, if any, and 

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

     

    interest
      on this Note at the time, place and rate, and in the coin or currency, herein
      prescribed unless otherwise agreed between the Issuer and the holder of this
      Note.

     

    The
      Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
      holder of this Note as the owner hereof for all purposes, whether or not this
      Note be overdue, and none of the Issuer, the Trustee or any such agent shall
      be
      affected by notice to the contrary.

     

    No
      recourse shall be had for the payment of the principal of or premium, if any,
      or
      interest on this Note for any claim based hereon, or otherwise in respect
      hereof, or based on or in respect of the Senior Indenture or any indenture
      supplemental thereto, against any incorporator, shareholder, officer or
      director, as such, past, present or future, of the Issuer or of any successor
      corporation, either directly or through the Issuer or any successor corporation,
      whether by virtue of any constitution, statute or rule of law or by the
      enforcement of any assessment or penalty or otherwise, all such liability being,
      by the acceptance hereof and as part of the consideration for the issue hereof,
      expressly waived and released.

     

    This
      Note
      shall for all purposes be governed by, and construed in accordance with, the
      laws of the State of New York.

     

    As
      used
      herein:

     

    (a)           the
      term “Business Day” means any day, other than a Saturday or
      Sunday, (i) that is neither a legal holiday nor a day on which banking
      institutions are authorized or required by law or regulation to close
      (x)  in The City of New York or in London or (y) if this Note is
      denominated in a Specified Currency other than U.S. dollars, euro or Australian
      dollars, in the principal financial center of the country of the Specified
      Currency, or (z) if this Note is denominated in Australian dollars, in Sydney
      and (ii) if this Note is denominated in euro, that is also a day on which the
      Trans-European Automated Real-time Gross Settlement Express Transfer System
      (“TARGET”) is operating (a“TARGET Settlement
      Day”);

     

    (b)           the
      term “Market Exchange Rate” means the noon U.S. dollar buying
      rate in The City of New York for cable transfers of the Specified Currency
      indicated on the face hereof published by the Federal Reserve Bank of New
      York;

     

    (c)           the
      term “Notices” refers to notices to the holders of the Notes to
      be given by publication in an authorized newspaper in the English language
      and
      of general circulation in the Borough of Manhattan, The City of New York, and
      London or, if publication in London is not practical, in an English language
      newspaper with general circulation in Western Europe; provided that
      notice may be made, at the option of the Issuer, through the customary notice
      provisions of the clearing system or systems through which beneficial interests
      in this Note are owned.  Such Notices will be deemed to have been
      given on the date of such publication (or other transmission, as applicable)
      or,
      if published in such newspapers on different dates, on the date of the first
      such publication;

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

     

    (d)           the
      term “United States” means the United States of America
      (including the States and the District of Columbia), its territories, its
      possessions and other areas subject to its jurisdiction; and

     

    (e)           the
      term “U.S. Alien” means any person who is, for U.S. federal
      income tax purposes, (i) a nonresident alien individual, (ii) a foreign
      corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust
      or
      (iv) a foreign partnership one or more of the members of which is, for U.S.
      federal income tax purposes, a nonresident alien individual, a foreign
      corporation or a nonresident alien fiduciary of a foreign estate or
      trust.

     

    All
      other
      terms used in this Note which are defined in the Senior Indenture and not
      otherwise defined herein shall have the meanings assigned to them in the Senior
      Indenture.

     

     

     

     

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

     

    OPTION
      TO ELECT REPAYMENT

     

    The
      undersigned hereby irrevocably requests and instructs the Issuer to repay the
      within Note (or portion thereof specified below) pursuant to its terms at a
      price equal to the principal amount thereof, together with interest to the
      Optional Repayment Date, to the undersigned at

     

    
      
        
          

        

         

        
          

        

         

        
          

        

      

    

    (Please
      print or typewrite name and address of the undersigned)

     

    If
      less
      than the entire principal amount of the within Note is to be repaid, specify
      the
      portion thereof which the holder elects to have
      repaid: ____________________; and specify the denomination or denominations
      (which shall not be less than the minimum authorized denomination) of the Notes
      to be issued to the holder for the portion of the within Note not being repaid
      (in the absence of any such specification, one such Note will be issued for
      the
      portion not being
      repaid):  ______________________.

     

    
      	
              Dated:

            	 	 	 

    

    

     

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

     

     

    
      
        	
                [Not
                  Applicable]9 

              	
                [SCHEDULE
                  A]10

              	 

      

    

     

     

    EXCHANGES
      FOR DEFINITIVE BEARER NOTES OR DEFINITIVE

    REGISTERED
      NOTES AND FROM TEMPORARY GLOBAL BEARER NOTE,

    REDEMPTIONS
      AND REPAYMENTS

     

    The
      initial principal amount of this Note is _______________.  The
      following (A) exchanges of (i) portions of this Note for Definitive Bearer
      Notes
      or Registered Notes and (ii) portions of a Temporary Global Bearer Note for
      an
      interest in this Note or (B) (x) redemptions at the option of the Issuer or
      (y)
      repayments at the option of the holder have been made:

     

    
      
        	
                Date
                  of Exchange, Redemption or Payment

              	 	
                Principal
                  Amount

                Exchanged

                From
                  Temporary

                Global
                  Notes

              	 	
                Principal
                  Amount

                Exchanged
                  For

                Definitive

                Bearer
                  Notes

              	 	
                Principal
                  Amount

                Exchanged
                  for

                Definitive

                Registered
                  Notes

              	 	
                Principal
                  Amount

                Redeemed
                  at the

                Option
                  of the

                Issuer

              	 	
                Principal
                  Amount

                Repaid
                  at the

                Option
                  of the

                Holder

              	 	
                Remaining
                  Principal

                Amount
                  Outstanding

                Following
                  Such

                Exchange,

                Redemption
                  or

                Repayment

              	 	
                Notation
                  Made by or

                on
                  Behalf of Paying

                Agent

              
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

      

    

     

    _______________

    9
      If Schedule A is not
      applicable because this Note is intended to be an NGN, include “Not Applicable”
and remove remainder of Schedule A.

     

    10
      Applies if this
      Note is not issued as part of, or in relation to, a Unit and is not intended
      to
      be an NGN.

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

     

    [SCHEDULE
      A-1]11

     

    PERMANENT
      GLOBAL BEARER NOTE

    SCHEDULE
      OF EXCHANGES

     

    The
      initial principal amount of this Note is __________. The following
      (A) exchanges of the principal amount of Notes indicated below for the same
      principal amount of Notes to be represented by (i) Definitive Bearer Notes
      or (ii) Definitive Registered Notes or [(iii) a Global Bearer Note
      that has been separated from a Unit (a “Separated
      Note”)]12, (B) exchanges
      of the principal amount of Notes that had been represented by (i) a
      Temporary Global Bearer Note [or (ii) a Global Bearer Note that is part of
      a Unit (an “Attached Unit Note”)]13 for an interest
      in this Note and
      (C) reductions of the principal amount of this Note as a result of
      (i) cancellation upon the application of such amount to the settlement of
      Purchase Contracts or the exercise of Warrants, (ii) redemption at the
      option of the Issuer or (iii) repayments at the option of the Holder have
      been made:

     

    
      	
              Date
                of

              Exchange,

              Cancellation

              Redemption,

              or

              Repayment

            	 	
              Principal

              Amount

              Exchanged

              From

              Temporary

              Global

              Notes

            	 	
              [Principal

              Amount

              Exchanged

              From
                an

              Attached

              Unit
                Note]3

            	 	
              [Principal

              Amount

              Exchanged

              For

              Separated

              Note]2

            	 	
              Principal

              Amount

              Exchanged

              For

              Definitive

              Bearer

              Notes

            	 	
              Principal

              Amount

              Exchanged

              For

              Definitive

              Registered

              Notes

            	 	
              Principal

              Amount

              Redeemed

              at
                the

              Option
                of

              the
                Issuer

            	 	
              Principal

              Amount

              Repaid

              at
                the

              Option
                of

              the
                Holder

            	 	
              Principal

              Amount

              Cancelled

            	 	
              Remaining

              Principal

              Amount

              Outstanding

              Following
                such

              Exchange,

              Cancellation

              Redemption
                or

              Repayment

            	 	
              Notation

              Made
                by

              or
                on

              Behalf
                of

              Paying

              Agent

            
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

    

    

     

    _______________  
      11
        This Schedule A-1
        needed only if this Note is issued as part of, or in relation to, a Unit
        and is
        not intended to be an NGN.

    

      
      12  Applies
        only if this Note is attached to a Unit.

    

      
      13  Applies
        only if this Note has been separated from a Unit.EX-10.1

 

Exhibit 10.1

 

INVESTMENT AGREEMENT

by and between

FX Real Estate and Entertainment Inc.,

The Huff Alternative Fund, L.P.

and

The Huff Alternative Parallel Fund, L.P.

Dated as of January 9, 2008

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Section 1. Rights Offering and Investor Backstop Purchases
	 	 	2	 
	1.1 Provision with Respect to Rights Offering
	 	 	2	 
	1.2 Company Option to Require Investor Backstop Purchase
	 	 	2	 
	1.3 The Rights Offering
	 	 	3	 
	 
	 	 	 	 
	Section 2. Representations and Warranties of the Company
	 	 	5	 
	2.1 Organization
	 	 	5	 
	2.2 Due Authorization
	 	 	5	 
	2.3 Due Execution; Enforceability
	 	 	5	 
	2.4 Due Issuance and Authorization of Capital Stock
	 	 	6	 
	2.5 Capitalization
	 	 	6	 
	2.6 Financial Statements; Internal Controls
	 	 	7	 
	2.7 Consents
	 	 	8	 
	2.8 No Conflicts
	 	 	9	 
	2.9 Compliance
	 	 	9	 
	2.10 Sillerman Investment Agreement
	 	 	9	 
	2.11 SEC Filings
	 	 	10	 
	2.12 No Material Adverse Change
	 	 	10	 
	2.13 Legal Proceedings
	 	 	10	 
	2.14 Title to Intellectual Property
	 	 	11	 
	2.15 No Undisclosed Relationships
	 	 	11	 
	2.16 Taxes
	 	 	11	 
	2.17 Licenses and Permits
	 	 	11	 
	2.18 Compliance With ERISA
	 	 	11	 
	2.19 No Unlawful Payments
	 	 	12	 
	 
	 	 	 	 
	Section 3. Representations and Warranties of each of the Investors
	 	 	12	 
	3.1 Organization
	 	 	12	 
	3.2 Due Authorization
	 	 	12	 
	3.3 Due Execution; Enforceability
	 	 	13	 
	3.4 No Registration Under the Securities Act
	 	 	13	 
	3.5 Acquisition for Investment
	 	 	13	 
	3.6 Accredited Investor, Etc
	 	 	13	 
	 
	 	 	 	 
	Section 4. Additional Covenants
	 	 	13	 
	4.1 Listing
	 	 	13	 
	4.2 Legends
	 	 	13	 
	4.3 Special Preferred Stock
	 	 	14	 
	4.4 Board of Directors Matters
	 	 	16	 
	4.5 Information Rights
	 	 	16	 
	4.6 Maintain Properties and Corporate Existence
	 	 	17	 
	4.7 Appraisal
	 	 	17	 
	4.8 Further Assurances
	 	 	18	 
	4.9 Commitment Fee
	 	 	18	 

i

 

	 	 	 	 	 
	4.10 Expenses
	 	 	18	 
	4.11 Notice to the Investors
	 	 	18	 
	 
	 	 	 	 
	Section 5. Conditions to Closing
	 	 	19	 
	5.1 Conditions to the Investors’ Obligations to Purchase the Investor Backstop Shares
	 	 	19	 
	5.2 Conditions to Company’s Obligations
	 	 	21	 
	 
	 	 	 	 
	Section 6. Termination
	 	 	22	 
	6.1 Termination
	 	 	22	 
	6.2 Effect of Termination
	 	 	23	 
	6.3 Fees and Expenses
	 	 	23	 
	 
	 	 	 	 
	Section 7. Indemnification; Survival of Representations and Warranties
	 	 	23	 
	7.1 Indemnification
	 	 	23	 
	7.2 Survival of Representations and Warranties
	 	 	25	 
	 
	 	 	 	 
	Section 8. Definitions
	 	 	26	 
	 
	 	 	 	 
	Section 9. Miscellaneous
	 	 	30	 
	9.1 Notices
	 	 	30	 
	9.2 Assignment
	 	 	31	 
	9.3 Entire Agreement
	 	 	31	 
	9.4 Waivers and Amendments
	 	 	31	 
	9.5 Governing Law; Jurisdiction; Venue; Process
	 	 	31	 
	9.6 Counterparts
	 	 	32	 
	9.7 Headings
	 	 	32	 
	9.8 Severability
	 	 	32	 

Exhibits

Exhibit A — Form of Sillerman Investment Agreement

 ii 

 

 

INVESTMENT AGREEMENT

Dated as of January 9, 2008

          THIS INVESTMENT AGREEMENT (this “Agreement”) is made by and between FX Real Estate and
Entertainment Inc., a Delaware corporation (the “Company”), and the investors named on
Schedule 1 attached hereto (each, an “Investor” and collectively, the
“Investors”).

          As promptly as practicable following the date of this Agreement, 19,743,349 shares of the
Company’s common stock, par value $0.01 per share (the “Common Stock”), are to be
distributed to the stockholders of CKX, Inc., a Delaware corporation, of record on December 31,
2007 (the “Distribution”). Pursuant to the Distribution, the Investors are to receive an
aggregate of 2,802,442 shares of Common Stock (the “Investor Distribution Shares”), which
will represent approximately 7.1% of the number of shares of Common Stock to be outstanding
immediately after the Distribution. The shares of Common Stock to be distributed pursuant to the
Distribution have been registered with the Securities and Exchange Commission (the “SEC”)
on a registration statement on Form S-1, registration No. 333-145672 declared effective by the SEC
on December 31, 2007 (as amended and supplemented through the date hereof, including by means of
the prospectus filed pursuant to SEC Rule 424(b) on January 3, 2008, the “Distribution
Registration Statement”).

          As promptly as practicable following the Distribution, the Company intends to conduct a rights
offering (the “Rights Offering”) pursuant to which each of the Company’s stockholders will
be offered the right to purchase one additional share of Common Stock for each two shares of Common
Stock owned as of the record date established for the Rights Offering (each, a “Right” and
collectively, the “Rights”) at a price currently expected to be ten Dollars ($10.00) per
share. The holders of 20,046,898 shares of Common Stock have agreed with the Company that they
will not participate in the Rights Offering.

          Since September 2007, the parties have been negotiating certain agreements pursuant to which
the Investors would receive the right to and would agree to purchase a substantial portion of the
shares of Common Stock underlying rights that are not exercised in the Rights Offering. The
Company and the Investors wish to set forth herein certain agreements with respect to the Rights
Offering and the purchase of certain shares of Common Stock that are not otherwise purchased in the
Rights Offering.

          Certain terms used in this Agreement have the meanings ascribed thereto in Section 8
hereof.

 

 

          NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

          Section 1. Rights Offering and Investor Backstop Purchases.

          1.1 Provision with Respect to Rights Offering. Anything to the contrary in the
Rights Offering notwithstanding, the Investors shall only be permitted to exercise, and the
Investors waive any rights to exercise any Rights in excess of, such number of Rights in the
Rights Offering as will result in the Investors owning less than ten percent (10%) of (i) the
aggregate number of issued and outstanding shares of Common Stock immediately prior to the Rights
Offering plus (ii) the number of shares of Common Stock the Investors are entitled to purchase in
the Rights Offering, whether or not such right is exercised (and excluding all shares of Common
Stock underlying Rights issued to any other Person in the Rights Offering).

          1.2 Company Option to Require Investor Backstop Purchase.

          (a) Upon and subject to the terms, provisions and conditions of this Agreement, the Company
shall have the right (but not the obligation), exercisable by written notice to the Investors as
contemplated in Section 1.2(c) hereof, to require the Investors to purchase the Maximum
Number of Backstop Shares, or such lesser number of shares of Common Stock as may be determined in
the sole discretion of the Company. Upon the Company’s exercise of the option granted in this
Section 1.2(a), the Investors shall be required to, and shall, purchase such shares at the
Investor Backstop Closing, such purchase to be made with immediately available funds for a
per-share purchase price equal to the Subscription Price, and on such other terms and conditions as
shall be applicable to the Rights Offering as set forth in the Rights Offering Registration
Statement in the form delivered to the Investors pursuant to Section 1.3(a) hereof, subject
to the terms of this Agreement which shall control in the event of any conflict; provided,
however, that, anything to the contrary notwithstanding, the maximum number of shares of
Common Stock that the Investors will be required to purchase pursuant to this Section
1.2(a) shall not exceed an aggregate of Forty Million Dollars ($40,000,000) divided by the
Subscription Price (rounded to the nearest whole share).

          (b) The “Maximum Number of Backstop Shares” shall mean the number (which in any case
shall be subject to the limitation set forth in the proviso set forth at the end of
Section 1.2(a) hereof) of shares of Common Stock equal to the sum of:

               (i) the number determined by dividing Fifteen Million Dollars
($15,000,000) by the Subscription Price (such number, the “$15
Million Tranche Number”); plus

               (ii) the lesser of (x) the number determined by dividing
Twenty-five Million Dollars ($25,000,000) by the

-2-

 

               Subscription Price, and (y) one-half of the excess, if any, of the
number of shares of Common Stock that are not otherwise purchased in the
Rights Offering over the $15 Million Tranche Number;

provided, however, that, without duplication of any other conditions set forth in
Section 5.1(i) hereof, the Investors shall not be obligated to purchase any number of
shares in excess of the $15 Million Tranche Number unless Sillerman shall purchase an equal number
of shares of Common Stock at the a price not less than the Subscription Price simultaneously with
the Investor Backstop Closing. In addition, the Company agrees that it will not require or permit
Sillerman to purchase shares of Common Stock not purchased in the Rights Offering pursuant to the
Sillerman Investment Agreement or otherwise unless the Company exercises its right to require the
Investors to purchase shares pursuant to Section 1.2(a) hereof and the foregoing provisions
of this Section 1.2(b); provided, however, that the foregoing shall not
prohibit Sillerman from purchasing from the Company or the Company from selling to Sillerman any
shares of Common Stock pursuant to the exercise of Rights granted to Sillerman pursuant to the
Rights Offering.

          (c) Within two (2) Business Days after the closing of the Rights Offering, and in any event
not later than the giving of notice to Sillerman pursuant to Section 1.2(c) of the
Sillerman Investment Agreement, the Company shall deliver to the Investors a written notice setting
forth the number of shares to be purchased pursuant to Section 1.2(a) hereof (the
“Investor Backstop Shares” and, collectively with the Investor Distribution Shares and the
Investor Rights Shares, the “Investor Shares”) and the total purchase price for such shares
(which shall be determined based on the Subscription Price), together with a calculation thereof in
reasonable detail.

          (d) The Company and the Investors shall consummate the purchase and sale of the Investor
Backstop Shares at the offices of the Company or its counsel in New York, New York by no later than
the close of business on the fifteenth (15th) Business Day after the date the notice pursuant to
Section 1.2(c) hereof is received by the Investors (such closing, the “Investor
Backstop Closing”). The date of the Investor Backstop Closing is sometimes referred to
hereinafter as the “Investor Backstop Closing Date.”

          1.3 The Rights Offering.

          (a) The Company is preparing a registration statement (including each amendment and supplement
thereto, the “Rights Offering Registration Statement”) on Form S-1 covering the issuance of
the Rights and the shares of Common Stock to be issued pursuant to the Rights Offering. The Company
has furnished the latest draft of the Rights Offering Registration Statement to the Investors. The
Company intends to use its commercially reasonable efforts to (i) cause the Rights Offering
Registration Statement to be filed with the SEC as promptly as practicable after the execution and
delivery of this Agreement; (ii) cause the Rights Offering Registration Statement to be

-3-

 

declared effective by the SEC as promptly as practicable; and (iii) commence the Rights
Offering as promptly as practicable following the effective date of the Rights Offering
Registration Statement. The Company shall have the sole and absolute right to terminate the Rights
Offering without closing on the purchase and sale of any shares of Common Stock thereunder and
hereunder. Upon any such termination, the obligations of the Investors under this Agreement shall
terminate without any obligation to purchase shares of Common Stock pursuant to Section 1.2
hereof, and the provisions of Section 4.3, Section 4.4, Section 4.9,
Section 4.10, Section 6.3, and Section 7 hereof shall remain in effect.

          (b) The Company shall (i) not permit any securities other than the Rights and the shares of
Common Stock underlying the Rights to be included in the Rights Offering Registration Statement;
(ii) furnish to the Investors each amendment or supplement to the Rights Offering Registration
Statement prior to its filing with or other submission to the SEC and shall afford the Investors a
reasonable opportunity (but in any event not less than 48 hours after receipt by the Investors) to
review and comment upon such amendment or supplement in each instance before it is filed with the
SEC; provided, however, that to the extent information is contained in such Rights
Offering Registration Statement with respect to the Investors, the Company shall not (except as may
be required by law) file such Rights Offering Registration Statement if the Investors have notified
the Company of an objection with respect to such information; (iii) provide the Investors with any
written comments or other written communications that the Company or its counsel receives from time
to time from the SEC with respect to the Rights Offering Registration Statement promptly after the
receipt of such comments or other communications; and (iv) correct any information in the Rights
Offering Registration Statement if, and to the extent, that such information becomes false or
misleading in any material respect, and the Company will take all steps necessary to cause the
Rights Offering Registration Statement, as so corrected, to be filed with the SEC and, upon its
effectiveness, to be disseminated to the distributees of the Rights, in each case as and to the
extent required by applicable federal securities laws.

          (c) Each of the Investors shall furnish to the Company such information regarding itself as
the Company or its counsel may reasonably request for disclosure as the Company and its counsel
reasonably believe to be required in the Rights Offering Registration Statement pursuant to
applicable law, and each Investor hereby represents and warrants that such information will be
true, correct and complete in all material respects, and covenants, as long as the Rights Offering
Registration Statement is in effect, to promptly provide the Company with any information that may
be necessary in order to correct such information to the extent it ceases for any reason to
continue to be true, correct and complete in all material respects. The Company shall have the
right to include in the Rights Offering Registration Statement all such information furnished by
the Investors in writing expressly for use in connection with the Rights Offering Registration
Statement, as well as a description of this Agreement and a copy hereof as an Exhibit to the Rights
Offering Registration Statement.

-4-

 

          (d) The Investors shall not be obligated to participate in the Rights Offering and shall have
the sole right to determine the extent, if any, to which they may participate in the Rights
Offering; provided, however, that nothing in this Section 1.3(d) shall in any way limit the
obligations of the Investors to consummate the purchase of the Investor Backstop Shares in the
Investor Backstop Closing on and subject to the terms of this Agreement (if and to the extent the
Company exercises its option under Section 1.2(a) hereof).

          Section 2. Representations and Warranties of the Company.

          The Company hereby represents and warrants to each of the Investors as follows:

          2.1 Organization. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and each of its subsidiaries is a an
entity duly organized, validly existing and in good standing under the laws of the jurisdiction of
its organization, and each of the Company and its subsidiaries is duly qualified or licensed to do
business as a foreign corporation and is in good standing under the laws of each jurisdiction
where the nature of the property owned or leased by it or the nature of the business conducted by
it makes such qualification or license necessary, except where the failure to be so qualified or
licensed would not reasonably be expected to either prevent or materially delay its ability to
perform its obligations hereunder or under the Related Agreements and would not, individually or
in the aggregate have a Material Adverse Effect. Each of the Company and its subsidiaries has the
full corporate power and authority to own and operate its properties, to lease the property it
operates under lease and to conduct its business as now or currently proposed to be conducted
after the consummation of the Rights Offering and the Investor Backstop Closing.

          2.2 Due Authorization. The Company has the full corporate right, power and authority
to enter into, execute and deliver this Agreement and the Related Agreements and to perform its
obligations hereunder and thereunder, including the issuance of the Investor Shares and the
Special Preferred Stock to be issued hereby, and has taken all necessary corporate and stockholder
action required for the due authorization, execution, delivery and performance by it of this
Agreement, the Related Agreements and the consummation of the transactions contemplated hereby and
thereby, including the issuance of the Investor Rights Shares, the Investor Backstop Shares and
the Special Preferred Stock.

          2.3 Due Execution; Enforceability. This Agreement and the Related Agreements have
been duly and validly executed and delivered by the Company and constitute or will constitute upon
execution, valid and binding obligations of the Company, enforceable against it in accordance with
their respective terms, except as limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies
generally and subject, as to enforceability, to general principles of equity, including principles
of

-5-

 

commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is
sought in a proceeding at law or in equity).

          2.4 Due Issuance and Authorization of Capital Stock. The Investor Rights Shares, the
Investor Backstop Shares and the Special Preferred Stock issued and delivered to each of the
Investors provided herein will be, upon issuance, duly authorized, validly issued, fully paid and
non-assessable. The Investor Rights Shares, the Investor Backstop Shares and the Special
Preferred Stock will be free of any Liens, charges or encumbrances, and will be free of
restrictions on transfer, in each case other than those created by or imposed upon the Investors
through no action of the Company and other than any restrictions on transfer pursuant to
applicable state and federal securities laws.

          2.5 Capitalization.

          (a) The authorized capital stock of the Company as of the date hereof and without giving
effect to the Distribution or the Rights Offering, consists solely of (i) 300,000,000 shares of
Common Stock, par value $0.01 per share, of which 39,790,247 shares are issued and outstanding,
and (ii) 75,000,000 shares of Preferred Stock, par value $0.01 per share, none of which are
outstanding as of the date hereof. All of the issued and outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid and non-assessable, are not
subject to any preemptive rights and were not issued in violation of the Securities Act or any
other applicable laws (including, without limitation, state securities or “blue sky” laws).

          (b) The authorized, issued and outstanding capital stock of the Company immediately after the
consummation of the Distribution, the Rights Offering and the Investor Backstop Closing will be as
set forth in Schedule 2.5(b) hereto (based on the assumptions set forth thereon with
respect to the Rights Offering). All shares of capital stock of the Company issued and
outstanding immediately after the consummation of the Distribution, the Rights Offering and the
Investor Backstop Closing will be duly authorized, validly issued, fully paid and non-assessable.

          (c) Other than as set forth on Schedule 2.5(c) hereto, the Company does not have
outstanding any securities convertible into or exercisable or exchangeable for any shares of its
capital stock nor does it have outstanding any rights to subscribe for or to purchase, or any
warrants, options or other rights for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or claims of any character
relating to, any of its capital stock or securities convertible into or exercisable or
exchangeable for any of its capital stock or other equity interests. Other than as set forth on
Schedule 2.5(c) hereto, no shares of the Company’s outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or rights, or other stock
issuable by the Company, are subject to any rights of first refusal or other rights to purchase
such stock (whether in favor of the Company or any other Person), pursuant to any agreement or
commitment of the Company. Except as set forth on Schedule 2.5(c) hereto, the

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Company has no obligation to pay any dividend on or make any distribution in respect of any
capital stock.

          (d) Except as set forth on Schedule 2.5(d) hereto, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements, evidences of indebtedness or commitments of
any character, written or oral, under which the Company is or may become obligated to issue or
sell, or giving any Person a right to subscribe for or acquire, or in any way dispose of, any
shares of the capital stock or other equity interests, or any securities or obligations
exercisable or exchangeable for or convertible into any shares of the capital stock or other
equity interests of the Company, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The outstanding capital stock of the Company is not subject to
any voting trust agreement or other agreement or commitment restricting or otherwise relating to
the voting, dividend rights or disposition of such capital stock. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights providing economic benefits based,
directly or indirectly, on the value or price of the stock or other equity interests of the
Company.

          2.6 Financial Statements; Internal Controls.

          (a) The financial statements and the related notes
thereto included or incorporated by
reference in the Distribution Registration Statement and the Rights Offering Registration
Statement comply, or when filed with the SEC shall comply, in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as applicable, and fairly
present in all material respects the financial position of the Company and its subsidiaries (and
their predecessors, as applicable) as of the respective dates specified therein and the results of
its (or their) operations and cash flows for the specified periods then ended and have been
prepared in accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved except as set forth in the notes thereto;
provided, however, that, as to any such financial statement that is not
accompanied by an unqualified  report of an independent accounting
firm, the foregoing statement are qualified by the  absence of certain notes that would be required as part of audited financial
statements and by the need for certain year-end accruals that would be made in the ordinary course
for audited annual financial statements which are not expected to be material in the aggregate.
Since the date of the most recent financial statements of the Company and its subsidiaries
included in the Distribution Registration Statement, there has been no material adverse change in
the condition (financial or otherwise), earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of
business. The pro forma financial information and the related notes thereto included or
incorporated by reference in the Distribution Registration Statement and the Rights Offering
Registration Statement have been prepared, and when filed with the SEC shall have been prepared,
in accordance with the applicable requirements of the Securities Act and the Exchange Act, as
applicable, and the assumptions underlying such pro forma

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financial information are reasonable and are set forth in the Distribution Registration
Statement and Rights Offering Registration Statement, as applicable.

     (b) The Company and its subsidiaries have in place, or will have in place when required by
applicable law, rule or regulation, the “disclosure controls and procedures” (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) required in order for the principal executive officer
and principal financial officer of the Company to engage in the review and evaluation process
mandated by Section 302 of SOXA. The Company’s “disclosure controls and procedures” are
reasonably designed to ensure that material information (both financial and non-financial)
relating to the Company required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that such information is accumulated and
communicated to the Company’s principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of the principal executive officer and principal
financial officer of the Company required by Section 302 of SOXA with respect to such reports.
There is and has been no failure on the part of the Company or any of the Company’s directors or
officers, in their capacities as such, to comply with any provision of SOXA that is applicable to
the Company, including (as applicable) Section 402 related to loans and Section 906 related to
certifications.

     (c) The Company and its subsidiaries maintain, or will maintain when required by applicable
law, rule or regulation, systems of “internal control over financial reporting” (as defined in
Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have
been designed by, or under the supervision of, their respective principal executive and principal
financial officers, or persons performing similar functions, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles, including, but not
limited to, internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset accountability; (iii) access
to assets is permitted only in accordance with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. Except as disclosed in
the Distribution Registration Statement, there are no material weaknesses in the Company’s
internal controls.

          2.7 Consents. Except for such filings and approvals as may be required under, and
other applicable requirements of, federal securities laws and applicable state securities or “blue
sky” laws, which will be made as of the consummation of the Distribution and the Rights Offering
and the Investor Backstop Closing, as applicable,

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the execution, delivery and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby do not require any consent or
approval, registration or qualification of, authorization by, exemption from, filing with, or
notice to any Governmental Entity or any other Person.

          2.8 No Conflicts. The execution, delivery and performance of this Agreement and the
Related Agreements and the consummation of the transactions contemplated hereunder and thereunder,
will not (a) conflict with, violate or result in any breach of any provision of the Company’s
certificate of incorporation or by-laws, (b) conflict with, violate or result in the breach of the
terms, conditions or provisions of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give rise to any Lien, right of termination,
acceleration or cancellation under, or materially modify or trigger a change in the rights or
obligations of another party under, any agreement, lease, mortgage, license, indenture, instrument
or other contract to which the Company or any subsidiary is a party or by which any of its
respective properties or assets are bound, or (c) result in a violation of any law, rule,
regulation, order, judgment or decree (including, without limitation, federal and state securities
laws and regulations) applicable thereto or by which any of its properties or assets are bound or
affected, except (i) for such conflicts or violations that would not, individually or in the
aggregate, have a Material Adverse Effect and (ii) in the case of clauses (b) or (c), where such
conflicts or violations would not prevent or delay its ability to consummate the transactions
contemplated by this Agreement or the Registration Rights Agreement.

          2.9 Compliance. Each of the Company and its subsidiaries is, in all material
respects, in compliance with all applicable domestic, foreign and supranational statutes, laws,
regulations, ordinances, permits, rules, writs, judgments, orders, decrees and arbitration awards
(including, without limitation, environmental laws, labor laws and the Foreign Corrupt Practices
Act). There is no term or provision of any mortgage, indenture, contract, agreement or instrument
to which the Company or any of its subsidiaries is a party or by which it is bound, or of any
provision of any foreign, Federal or state judgment, decree, order, statute, rule or regulation
applicable to or binding upon the Company or any of its subsidiaries, which restricts in any
respect the conduct of their respective businesses, or that in any manner relates to their
respective policies, affairs or management, or that otherwise is reasonably likely to have a
Material Adverse Effect. Neither the Company nor any of its subsidiaries has, since its
inception, received any notice relating to any violation or potential violation of any applicable
statutes, laws, regulations, ordinances, permits, rules, writs, judgments, orders, decrees and
arbitration awards.

          2.10 Sillerman Investment Agreement. Simultaneously with the execution and delivery
of this Agreement, the Company and Robert F.X. Sillerman are executing and delivering an
Investment Agreement in the form of Exhibit A hereto (the “Sillerman Investment
Agreement”).

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          2.11 SEC Filings. The Distribution Registration Statement and any future amendments
thereto do not contain and, upon the filing of the Rights Offering Registration Statement with the
SEC and the effectiveness thereof, the Rights Offering Registration Statement and any amendments
thereto, and any other Time of Sale Information will not contain, and, upon the purchase of the
Investor Rights Shares and Investor Backstop Shares, neither the Distribution Registration
Statement and any future amendments thereto nor the Rights Offering Registration Statement and any
amendments thereto will contain, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading. No order suspending
the effectiveness of or seeking to prevent, preventing or suspending the use of the Distribution
Registration Statement has been asserted or issued by the SEC, and, as of the consummation of each
of the Distribution and the Rights Offering and the Investor Backstop Closing, no order suspending
the effectiveness of, or seeking to prevent, preventing or suspending the use of the Distribution
Registration Statement or the Rights Offering Statement, as applicable, shall have been asserted
or issued by the SEC.

          2.12 No Material Adverse Change. Since the date of the most recent financial
statements of the Company provided in accordance with Section 2.6 hereof, and except as
described in the most recent amendment of the Distribution Registration Statement, (a) there has
not been any change in the capital stock or long-term debt of the Company, or any dividend or
distribution of any kind declared, set aside for payment, paid or made by the Company on any class
of capital stock, or any material adverse change, or any development involving a prospective
material adverse change, in or affecting the business, properties, management, financial position,
results of operations or prospects of the Company; (b) the Company has not entered into any
transaction or agreement that is material to the Company or incurred any liability or obligation,
direct or contingent, that is material to the Company; and (c) the Company has not sustained any
material loss or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor disturbance or dispute or any action, order
or decree of any court or arbitrator or governmental or regulatory authority, except in each case
as otherwise disclosed in the Distribution Registration Statement.

          2.13 Legal Proceedings. Except as described in the Distribution Registration
Statement, (i) there are no legal, governmental or regulatory investigations, actions, suits or
proceedings pending to which the Company or any of its subsidiaries is or may be a party or to
which any property of the Company or any of its subsidiaries is or may be the subject that,
individually or in the aggregate, if determined adversely to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse Effect; (ii) to the Knowledge
of the Company, no such investigations, actions, suits or proceedings are threatened or
contemplated or threatened by any Governmental Entity or pending by Person; (iii) there are no current or pending legal, governmental or regulatory actions, suits
or proceedings that are required under the Securities Act to be described in the Distribution that
are not so described in the Distribution Registration

-10-

 

Statement; and (iv) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed
as exhibits to the Distribution Registration Statement or described in the Distribution
Registration Statement that are not so filed as exhibits to the Distribution Registration Statement
or described in the Distribution Registration Statement.

          2.14 Title to Intellectual Property. The Company and its subsidiaries own or possess
adequate rights to use all material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights, licenses and know-how
(including trade secrets and other unpatented and/or un-patentable proprietary or confidential
information, systems or procedures) necessary for the conduct of their respective businesses; and
the conduct of their respective businesses will not conflict in any material respect with any such
rights of others, and neither the Company nor any of its subsidiaries has received any written
notice or, to the Knowledge of the Company, any oral notice, of any claim of infringement or
conflict with any such rights of others.

          2.15 No Undisclosed Relationships. No relationship, direct or indirect, exists
between or among the Company or any of its subsidiaries, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the
other hand, exists that is required by the Securities Act to be described in the Distribution
Registration Statement or the Rights Offering Registration Statement and is not so described
therein, or (in the case of the Rights Offering Registration Statement) will not be so described
therein. Except for transactions disclosed in the Distribution Registration Statement, all
Affiliated Party Transactions of the Company are set forth on Schedule 2.15 hereto.

          2.16 Taxes. The Company and its subsidiaries have paid all federal, state, local and
foreign taxes and filed all tax returns required to be paid or filed through the date hereof; and
except as otherwise disclosed in the Distribution Registration Statement, there is no tax
deficiency that has been, or could reasonably be expected to be, asserted against the Company or
any of its subsidiaries or their respective properties or assets.

          2.17 Licenses and Permits. The Company and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by, and have made all declarations and
filings with, the appropriate Governmental Entities that are necessary for the ownership or lease
of their respective properties or the conduct of their respective business, except
where the failure to possess or make the same would not, individually or in the aggregate,
have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received
notice of any revocation or modification of any such license, certificate, permit or authorization
and has no reason to believe that any such license, certificate, permit or authorization will not
be renewed in the ordinary course.

          2.18 Compliance With ERISA. (i) Each employee benefit plan, within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as

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amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a
member of a controlled group of corporations within the meaning of Section 414 of the Internal
Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been
maintained and operated in all material respects in accordance with its terms and is in material
compliance with any applicable statutes, orders, rules and regulations, including but not limited
to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA
or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected
pursuant to a statutory or administrative exemption; (iii) for each Plan that is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA, no “accumulated funding
deficiency” as defined in Section 412 of the Code and Section 302 of ERISA, whether or not waived,
has occurred or is reasonably expected to occur; (iv) no “reportable event” (within the meaning of
Section 4043(c) of ERISA and the regulations promulgated by the Pension Benefit Guaranty
Corporation “PBGC” under such Section) has occurred or is reasonably expected to occur which the
PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified
within thirty (30) days of the occurrence of that event; and (v) neither the Company nor any member
of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV
of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and
without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of
Section 4001(a)(3) of ERISA).

          2.19 No Unlawful Payments. To the Knowledge of the Company, neither the Company nor its
subsidiaries nor any director, officer, agent, employee or other person associated with or acting
on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.

          Section 3. Representations and Warranties of each of the Investors.

          Each of the Investors, severally and not jointly, hereby represents and warrants to the
Company as follows:

          3.1 Organization. The Investor is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization.

          3.2 Due Authorization. Each of the Investors has the requisite power and authority
to enter into, execute and deliver this Agreement and to perform its obligations hereunder and has
taken all necessary action required for the due authorization, execution, delivery and performance
by it of this Agreement.

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          3.3 Due Execution; Enforceability. This Agreement has been duly and validly
executed and delivered by each of the Investors and constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).

          3.4 No Registration Under the Securities Act. Each of the Investors understands
that the Investor Backstop Shares to be purchased by it pursuant to the terms of this Agreement
will be considered “restricted securities” as such term is defined in Rule 144 under the
Securities Act, that such shares have not been registered and, except as provided in the
Registration Rights Agreement, the Company will not be required to effect any registration under
the Securities Act or any state securities law with respect to such shares, that such shares will
be issued in reliance upon exemptions contained in the Securities Act or interpretations thereof
and in the applicable state securities laws, and that the Investor may not sell, offer for sale or
otherwise transfer such shares unless pursuant to a registration statement or in a transaction
exempt from or not subject to registration under the Securities Act.

          3.5 Acquisition for Investment. The Investor Backstop Shares to be acquired under
this Agreement are being acquired by each of the Investors solely for its own account, for present
investment and not with a view toward resale or other distribution within the meaning of the
Securities Act in violation of the Securities Act; provided, however, that the
disposition of an Investor’s property shall at all times be under its control.

          3.6 Accredited Investor, Etc. Each of the Investors is an “accredited investor”
within the meaning of Rule 501(a) under the Securities Act. Each of the Investors is able to bear
any economic risks associated with such investment (including, without limitation, the necessity
of holding the Investor Backstop Shares for an indefinite period of time, inasmuch as the shares
have not been registered under the Securities Act). Each of the Investors is an entity organized
or incorporated under the laws of a state of the United States or the District of Columbia and has
its principal place of business in the United States.

          Section 4. Additional Covenants.

          4.1 Listing. The Company shall, consistent with the fiduciary duties of its board
of directors, use its reasonable best efforts to maintain the listing of the Common Stock on The
Nasdaq Global Market stock exchange.

          4.2 Legends. Each of the Investors agrees with the Company that the certificates
evidencing the Investor Backstop Shares will bear the following legend:

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THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES OR THE SECURITIES ARE SOLD AND TRANSFERRED IN A
TRANSACTION THAT IS EXEMPT FROM OR NOT SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

          4.3 Special Preferred Stock.

          (a) Prior to the earlier of the date (the “Special Preferred Stock Creation Date”)
that is (i) the Investor Backstop Closing Date, or (ii) fifteen (15) days after the Rights
Offering is consummated, the Company shall file with the Delaware Secretary of State a
certificate of designation containing terms consistent with those set forth in Section
4.3(c) hereof and in a form, consistent with such terms, mutually agreed to in the reasonable
good faith of the Company and the Investors (the “Certificate of Designation”), pursuant
to which there shall be created a special class of the preferred stock of the Company (the
“Special Preferred Stock”) consisting of one (1) share.

          (b) Simultaneously with the earlier of (i) the Investor Backstop Closing Date or (ii)
fifteen (15) days after the Rights Offering is consummated if the Company does not elect to
require the Investors to purchase the Investor Backstop Shares pursuant to Section 1.2
hereof (provided that the Investors shall not have refused to consummate the Investor Backstop
Closing in violation of this Agreement), the Company shall sell to the Designated Investor, and
the Designated Investor shall purchase from the Company, for a purchase price of One Dollar
($1.00), one (1) share of Special Preferred Stock.

          (c) The Certificate of Designation shall provide that the Special Preferred Stock shall
have the following preferences, limitations and designations:

          (i) Right to Elect Investor Board Member. As long as the Investors
continue to own more than twenty (20%) of the Investor Shares, the holder of the
Special Preferred Stock shall have the right to elect one representative of the
Investors to the Company’s board of directors, and shall provide that such Investor
Director (as defined in Section 4.4(a) hereof) shall be entitled to be a
member of each committee of the board of
directors to the extent permissible under the applicable rules and regulations of
the SEC or the Nasdaq Global Market, or applicable law. The Investor Director, in his
capacity as a member of the Company’s board of directors, shall be afforded the same
rights and privileges as the other members of the Company’s board of directors,
including, without limitation, rights to indemnification, insurance, notice,
information and the reimbursement of expenses. The foregoing notwithstanding, the
Investor Director shall not receive a director fee unless the Company pays a director
fee to any of its

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non-independent directors, in which case the Investor Director shall
receive a fee equal to the highest fee paid to any non-independent directors.

          (ii) Right of Investor Board Member to be a Member of, and to Chair, Certain
Corporate Governance Committees of the Board of Directors. As long as the Special
Preferred Stock is outstanding, (A) the Investor Board Member shall have the right,
subject to any restrictions of The Nasdaq Global Market or the SEC, or applicable law,
to be a member of, and the chairman of, any committee of the board of directors of the
Company formed for the purpose of reviewing any “related party transaction” that is
required to be disclosed pursuant to SEC Regulation S-K, Item 404 or any successor
rule or regulation (a “Related Party Transaction”) or Affiliated Party
Transaction, including any such committee that may be formed pursuant to the
applicable rules and regulations of the SEC or The Nasdaq Global Market (each, a
“Special Committee”), and (B) the Company shall not engage in any Related
Party Transaction or Affiliated Party Transaction that requires the approval of a
Special Committee under the rules and regulations of the SEC or The Nasdaq Global
Market, unless expressly approved by a Special Committee formed with respect to a
review thereof. The foregoing notwithstanding, if the Investor Board Member would not
be deemed independent or disinterested with respect to a Related Party Transaction and
therefore would not satisfy The Nasdaq Global Market or other applicable requirements
for serving on the Special Committee formed with respect thereto, the Investor Board
Member will not serve on the relevant Special Committee but will have the right to
attend meetings of the Special Committee as an observer, subject to any restrictions
of The Nasdaq Global Market or applicable law. Notwithstanding the prior sentence, in
the event that the Investor Board Member’s attendance at any meetings of the Special
Committee would raise confidentiality issues as between the parties to the transaction
that, in the reasonable opinion of counsel to the relevant Special Committee, cannot
be resolved by a confidentiality agreement, the Investor Board Member shall be
required to recuse himself from such meetings.

          (iii) Right of the Company to Cause Conversion to One Share of Common
Stock. At any time beginning on and after the date on which the Investors shall
cease to own more than twenty percent (20%) of the Investor Shares, the Company shall
have the right to cause the Special Preferred Stock to be converted into one (1) share of Common Stock, subject to
appropriate adjustments to give effect to stock splits, stock dividends,
recapitalizations and similar transactions affecting the Company’s capital.

          (iv) No Economic Benefits. The Special Preferred Stock shall not confer
on the holder thereof any rights to dividends, participation, liquidation preference
or other economic benefits, other than the right to be

-15-

 

converted into one share of
Common Stock as contemplated in Section 4.3(c)(iii) hereof.

          4.4 Board of Directors Matters.  

          (a) Promptly after (but in no event later than three (3) Business Days after) the Special
Preferred Stock Creation Date, the Company shall cause the number of members that shall
constitute its board of directors to be increased by one (1) member and shall cause the vacancy
created thereby to be filled by one individual designated by the Designated Investor in a written
notice delivered to the Company, pursuant to the rights afforded to the Designated Investor by
virtue of the Special Preferred Stock (such person, the “Investor Director”).

          (b) As long as the Investors continue to own more than fifteen percent (15%) of the
Investor Shares, the Investors shall be entitled at their option to (but shall not be obligated
to) designate, by written notice to the Company, one individual as an observer to the board of
directors, and all committees of the board of directors, of the Company (the “Board
Observer”). The Board Observer shall, subject to any reasonable confidentiality restrictions
as such board or committee may require, and any restrictions of The Nasdaq Global Market or
applicable law, be entitled to attend all meetings of the Company’s board of directors and any
committees thereof, to be given advance notice of all meetings not later than the time notice is
given to any member of the board of directors and to receive upon issuance to the members of the
board of directors or any committees thereof any materials prepared for the members of the board
of directors or committees thereof (but shall have no right to participate in such meetings).
The Board Observer shall, subject to any reasonable confidentiality restrictions as such board or
committee may require, and any restrictions of The Nasdaq Global Market or applicable law, be
afforded to the same rights and privileges as the other members of the board of directors of the
Company, other than the right to vote on matters brought before the members, including, without
limitation, rights to indemnification, insurance, notice, information and the prompt
reimbursement of expenses (but not the payment of directors fees).

          (c) Upon the consummation of the Distribution, upon the consummation of the Rights Offering
and on the Investor Backstop Closing Date, the members of the board of directors of the Company,
not including the Investor Director, shall consist of the individuals named on Schedule
4.4(c) hereto.

          4.5 Information Rights. The Company shall make all periodic and other filings as
required by the Exchange Act and other applicable law on a timely basis (taking into account all
applicable extensions of time). In the event the Company is not subject to the periodic reporting
requirements of the Exchange Act or shall fail to make such filings on a timely basis (taking into
account all applicable extensions of time), so long as any shares of Common Stock are held by the
Investors, the Company shall deliver to the Investors annual and quarterly financial statements,
together with any variances against the budget for the applicable quarter, and the year-to-date,
and an

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annual budget. The annual financial statements to be delivered pursuant to this
Section 4.5 shall be audited by an independent audit firm of national standing that is
registered with the Public Company Accounting Oversight Board.

          4.6 Maintain Properties and Corporate Existence. For as long as the share of
Special Preferred Stock issued pursuant to Section 4.3(b) hereof is outstanding, the
Company shall and shall cause its subsidiaries to:

          (a) maintain its property in good condition and make all necessary renewals, replacements,
additions, betterments and improvements thereto, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may be conducted properly and
advantageously at all times, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect;

          (b) keep adequately insured, by financially sound and reputable insurers, all of its
property of a character usually insured by entities engaged in the same or a similar businesses
similarly situated against loss or damage of the kinds and in amounts customarily insured against
by such entities and with deductibles or co-insurance no greater than is customary, and carry,
with such insurers in customary amounts and with deductibles or co-insurance no greater than is
customary, such other insurance, including public liability insurance and liability insurance
against claims for any violation of applicable law, as is usually carried by entities engaged in
the same or a similar business similarly situated;

          (c) keep proper books of record and account in which entries will be made of all its
business transactions and generally maintain a system of accounting established and administered,
in accordance with GAAP and maintain the controls and procedures referred to in Section
2.6(b) hereof and (c) in accordance with applicable law, rule and regulation; and

          (d) except as otherwise permitted or contemplated hereby, do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence and such rights,
patents, trademarks, copyrights, licenses, permits, franchises and authorizations of Government
Entities as the Company determines to be necessary, or as are required for the present and
presently planned future conduct of its business, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

          4.7 Appraisal. If at any time there is no public market for the shares of Common
Stock, so long as any shares of Common Stock are held by the Investors, the Company shall pay or
reimburse the Investors for the reasonable costs of obtaining an appraisal of the value of the
shares of Common Stock owned by the Investors, no more frequently than once per calendar year,
from an accounting, appraisal or investment banking firm selected by the Investors.

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          4.8 Further Assurances. From time to time after the date of this Agreement, the
parties hereto shall execute, acknowledge and deliver to the other parties such other instruments,
documents, and certificates and shall take such other actions as the other parties may reasonably
request in order to consummate the transactions contemplated by this Agreement and the Related
Agreements.

          4.9 Commitment Fee. Except as may be expressly provided otherwise herein, the
Company shall pay to the Investors an aggregate commitment fee of $500,000 (the “Commitment
Fee”), payable upon the consummation of the Rights Offering or upon a termination of this
Agreement if required pursuant to Section 6.3 hereof.

          4.10 Expenses. Except as may be expressly provided otherwise herein, each of the
parties to this Agreement shall pay its own expenses incurred in connection with the preparation,
negotiation, execution and delivery of this Agreement and the performance of its obligations
hereunder. The foregoing notwithstanding, at the consummation of the Rights Offering and at the
Investor Backstop Closing, and upon any termination of this Agreement as contemplated in
Section 1.3(a) hereof or pursuant to Section 6.1 hereof, the Company shall promptly
pay directly to the Investors’ legal counsel, or reimburse to the Investors for, all reasonable
fees and expenses of the Investors’ legal counsel in connection with or relating to the
preparation, negotiation, execution, delivery of this Agreement and the Related Agreements and the
transactions contemplated hereby and thereby, in an aggregate amount not to exceed $250,000,
without duplication.

          4.11 Notice to the Investors. The Company will advise the Investors promptly, and
confirm such advice in writing, (i) when the Rights Offering Registration Statement has become
effective; (ii) when any amendment to the Rights Offering Registration Statement has been filed or
becomes effective; (iii) when any amendment or supplement to the prospectus, as amended or
supplemented, contained in the Rights Offering Registration Statement or in the Distribution
Registration Statement (as applicable, the “Prospectus”) has been filed with the SEC or
any other Time of Sale Information has been used, disseminated or filed; (iv) of any request by
the SEC for any amendment to the Rights Offering Registration Statement or any amendment or
supplement to the Prospectus or the receipt of any comments from the SEC relating to the Rights
Offering Registration Statement or any other Time of Sale Information or any other request by the
SEC for any additional information; (v) of the issuance by the SEC of any order suspending the
effectiveness of the Distribution Registration Statement or the Rights Offering Registration
Statement or preventing or suspending the use of a Prospectus, any amendment or supplement to a Prospectus or the
initiation or threatening of any proceeding for that purpose or pursuant to the Securities Act;
(vi) of the occurrence of any event within the Prospectus delivery period as a result of which a
Prospectus as then amended or supplemented would include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances existing when a Prospectus is delivered to
an Investor, not

-18-

 

misleading; (vii) of the receipt by the Company of any notice of objection of the
SEC to the use of the Distribution Registration Statement or the Rights Offering Registration
Statement, any post-effective amendment thereto or any other Time of Sale Information pursuant to
Rule 401(g)(2) under the Securities Act; and (viii) of the receipt by the Company of
any notice with respect to any suspension of the qualification (if any) of the Investor Rights
Shares or Investor Backstop Shares for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and the Company will use its reasonable best
efforts to prevent the issuance of any such order suspending the effectiveness of the Distribution
Registration Statement, preventing or suspending the use of a Prospectus, any amendment or
supplement to a Prospectus or any other Time of Sale Information or suspending the such
qualification (if any) of the Investor Rights Shares or the Investor Backstop Shares and, if any
such order is issued, will obtain as soon as possible the withdrawal thereof.

          Section 5. Conditions to Closing.

          5.1 Conditions to the Investors’ Obligations to Purchase the Investor Backstop
Shares. The obligation of the Investors to consummate the purchase of the Investor Backstop
Shares shall be subject to the satisfaction of each of the following conditions on the Investor
Backstop Closing Date, each of which conditions may be waived in writing in the sole discretion of
the Investors:

          (a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all respects as of the date when made and as
of such closing as though made on and as of such date.

          (b) Performance. The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this Agreement and the Related
Agreements to be performed, satisfied or complied with by it at or prior to such closing.

          (c) Officer’s Certificate. The Company shall have delivered to the Investors a
certificate of a Responsible Officer dated as of the date of such closing certifying as to (i) the
resolutions duly adopted by the board of directors of the Company, authorizing and approving its
performance of the transactions contemplated hereby and the execution and delivery of this
Agreement and the Related Agreements and that such resolutions are in full force and effect, and
(ii) the satisfaction of the conditions set forth in Section 5.1(a) and Section
5.1(b) hereof.

          (d) Good Standing Certificate. The Company shall have delivered to the Investors a
certificate evidencing the formation and good standing of the Company issued by the Secretary of
State (or comparable office) of the Company’s jurisdiction of formation and in each state where it
is qualified to do business, as of a date within five (5) Business Days of the closing.

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          (e) Stock Certificates. The Company shall have delivered to each of the Investors a
certificate or certificates representing the shares of Common Stock purchased by the Investors at
such closing.

          (f) Material Adverse Change. No event, development, change or circumstance shall
have occurred that, individually or in the aggregate, shall have had, or that, individually or in
the aggregate, would reasonably be expected to have, a Material Adverse Effect.

          (g) Governmental Entities. All authorizations, approvals, consents or permits, if
any, of any Governmental Entity or regulatory body required in connection with the transactions
contemplated by this Agreement shall have been duly obtained and shall be in full force and effect.

          (h) Registration Rights Agreement. The Company shall have duly executed and
delivered a Registration Rights Agreement containing terms and conditions consistent with the terms
and conditions described in a letter delivered to the Company as of the date hereof and otherwise
in a form reasonably negotiated by the parties hereto and their legal counsel (the
“Registration Rights Agreement”).

          (i) Sillerman Investment Agreement. The Sillerman Investment Agreement shall not
have been amended or modified and shall be in full force and effect, no material default shall have
occurred thereunder and (without duplication) Sillerman shall have exercised and purchased the
shares underlying all of his Rights in the Rights Offering, and shall have consummated his standby
purchase of shares of Common Stock not purchased in the Rights Offering in accordance with the
Sillerman Investment Agreement, for an aggregate purchase price that is not less than, and on terms
that are not more favorable than, the terms of the Investors’ purchase of the Investor Backstop
Shares pursuant to this Agreement (the “Sillerman Backstop Purchase”).

          (j) Legal Opinion. Legal counsel to the Company shall have delivered to the
Investors a legal opinion dated as of the date of such closing in form and substance reasonably
customary in transactions of the type contemplated hereby, and otherwise as reasonably agreed to by
the parties hereto.

          (k) Litigation. There shall be no action, suit or proceeding pending, or threatened
in writing, against the Company or its subsidiaries or any of their respective assets in any court
or before any arbitrator of any kind or before or by any Governmental Entity that could reasonably
be expected to prevent the Company from consummating the transactions contemplated hereby or that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

          (l) Certificate of Designation. The Company shall have duly filed, with the Delaware
Secretary of State, the Certificate of Designation, in form and substance satisfactory to the
Investors and consistent with the terms of this Agreement, governing

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the Special Preferred Stock and shall have issued, and delivered to the Designated Investor, a certificate representing one
share of Special Preferred Stock.

          (m) Fees and Expenses. The Company shall have paid the Commitment Fee and the
Investors’ fees and expenses pursuant to Section 4.9 and Section 4.10 hereof.

          (n) Rights Offering. The Company shall have consummated the Distribution and the
Rights Offering, and the gross proceeds of the Rights Offering together with the gross proceeds
from the purchase of the Sillerman Backstop Purchase, assuming the consummation of the sale of the
Investor Backstop Shares as contemplated hereby, shall not be less than $95 million. The Rights
Offering Registration Statement shall not disclose any material changes from the information
disclosed in the Distribution Registration Statement with respect to the Company’s and its
subsidiaries financial statements, results of operation, prospects or other information, financial
or otherwise, including, without limitation, information regarding pending and threatened
litigation, violations of law, and defaults under material agreements.

          (o) Detachability of Rights. The terms and conditions of the Rights Offering shall
have provided that the Rights are freely tradable (i.e., that the exercise of a Right does not
require the exercising party to own shares of Common Stock at any time, including the time of
exercise).

          5.2 Conditions to Company’s Obligations. The obligation of the Company to issue the
Investor Backstop Shares shall be subject to the satisfaction of each of the following conditions,
in each case, on the date of such closing, each of which conditions may be waived in writing in
the sole discretion of the Company:

          (a) Representations and Warranties. The representations and warranties of each of
the Investors contained herein shall be true and correct in all material respects as of the date
when made and as of such closing as though made on and as of such date.

          (b) Officer’s Certificate. Each of the Investors shall have delivered to the Company
an officer’s certificate dated as of the date of the closing certifying that (i) the resolutions
duly adopted by the governing body of the Investors, authorizing and approving its performance of
the transactions contemplated hereby and the execution and delivery of this Agreement remain in
full force and effect, and (ii) the condition set forth in Section 5.2(a) hereof has been
satisfied.

          (c) Governmental Entities. All authorizations, approvals or permits, if any, of any
Governmental Entity or regulatory body required in connection with the transactions contemplated by this Agreement, including, without limitation, lawful issuance
and sale of the shares of Common Stock pursuant to this Agreement shall have been duly obtained and
shall be in full force and effect on and as of the Investor Backstop Closing Date.

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          (d) Rights Offering. The Company shall have consummated the Rights Offering;
provided, however, that the parties hereto acknowledge, understand and agree that
the Company shall have the sole right to consummate the Rights Offering or to terminate the Rights
Offering.

          (e) Purchase Price. Each of the Investors shall have paid to the Company such
Investor’s share of the purchase price for the Investor Backstop Shares.

          Section 6. Termination

          6.1 Termination. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Investor Backstop Closing Date:

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

          (b) by either the Company or any of the Investors, if (i) the closing under the Rights
Offering shall not have occurred on or before May 15, 2008, (ii) the Company shall not have
exercised its rights pursuant to Section 1.2(a) hereof and the Backstop Closing Date shall
not have occurred within twenty days after the consummation of the Rights Offering, or (iii) the
closing of the Rights Offering shall not have occurred on or before April 1, 2008, and the Company
is not, as of such date, using diligent efforts to continue to pursue consummation of the Rights
Offering

          (c) by the Company or the Investors if any court or Governmental Entity shall have issued,
enacted, entered, promulgated or enforced any law, order, judgment, decree, injunction or ruling or
taken any other action (that has not been vacated, withdrawn or overturned) restraining, enjoining
or otherwise prohibiting the transactions contemplated hereby and such law, order, judgment,
decree, injunction, ruling or other action shall have become final and non-appealable;

          (d) by the Company, (i) if there shall have occurred, on the part of either Investor, a breach
of any representation, warranty, covenant or agreement of an Investor contained in this Agreement
that is not curable or, if curable, is not cured within ten (10) calendar days after written notice
of such breach is given by the Company to such Investor or (ii) upon the failure of a closing
condition set forth in Section 5.2 hereof that is not curable;

          (e) by the Investors, (i) if there shall have occurred, on the part of the Company, a material
breach of any representation, warranty, covenant or agreement contained in the this Agreement that
is not curable or, if curable, is not cured on or prior to the earlier of (x) ten (10) calendar
days after written notice of such breach is given by the Investors to the Company and (y) the date
on which all conditions to the consummation of the transactions contemplated hereby not related to
such breach have been satisfied or (ii) upon the failure of a closing condition set forth in
Section 5.1 hereof that is not curable; and

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          (f) by the Company in its sole discretion and without cause; provided,
however, that the Company shall immediately pay the Commitment Fee in immediately available
funds in accordance with Section 4.9 hereof to the extent not paid, and pay directly to the
Investors’ legal counsel, or reimburse the Investors for, the fees and expenses of the Investors in
accordance with Section 4.10 hereof and (without duplication) as contemplated by
Section 6.3 hereof.

          6.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 6.1 above, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party or its directors, officers, members or
stockholders, other than pursuant to the provisions of this Section 6.2 and Section
6.3 below and other than any liability from any breach of any provision of this Agreement
prior to such termination, all of which shall survive any such termination. In addition, the
provisions of Section 7 shall survive any termination.

          6.3 Fees and Expenses. Upon any termination of this Agreement (unless due to a
termination of this Agreement by the Company pursuant to Section 6.1(d)(i) hereof or
unless at the time of termination by the Investors, the Company had the right to terminate this
Agreement pursuant to Section 6.1(d)(i) but the Investors terminated this Agreement prior
to any such termination by the Company), the Company shall immediately pay the Commitment Fee to
the extent not paid and reimburse the Investors for the reasonable fees and expenses of their
legal counsel in an aggregate amount not to exceed $250,000.

          Section 7. Indemnification; Survival of Representations and Warranties.

          7.1 Indemnification.

          (a) The Company shall indemnify, save and hold harmless each of the Investors, and all of
their respective directors, officers, stockholders, employees, partners, members, managers,
representatives, Affiliates, attorneys and agents and all of its respective heirs, successors,
legal administrators and permitted assigns, and each Person who controls such Investor (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of any such controlling Person (the “Indemnitees”), from
and against all losses, claims, damages, liabilities, costs (including, without limitation, the
costs of investigation and reasonable attorneys’ fees incurred in connection with any suit, action
or proceeding or any claim asserted, as such fees and expenses are incurred) and expenses
(collectively, “Losses”), joint or several, as incurred by any or all of the Indemnitees in
connection with, as a result of or arising from or based on (i) the untruth, inaccuracy or breach
of any the Company’s representations or warranties made herein, (ii) any breach or nonperformance
of any of the covenants or agreements made by the Company pursuant to this Agreement or the Related
Agreements, (iii) the Distribution or the Rights Offering, (iv) any untrue statement or alleged
untrue statement of a material fact contained in the Distribution Registration Statement, the
Rights Offering Registration Statement, any amendment or supplement to either thereof, or any other

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Time of Sale Information or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the statements therein,
not misleading, or (v) any untrue statement or alleged untrue statement of a material fact
contained in a Prospectus (or any amendment or supplement thereto) or any other Time of Sale
Information, or caused by any omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading, except in the case of the foregoing clauses (iv) and (v) insofar as such
Losses arise out of, or are based upon, any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with any information relating to any
Investor furnished to the Company in writing by such Investor expressly for use therein. This
indemnification provision will be in addition to the rights of each and all of the Indemnitees to
bring an action against the Company for breach of any term of this Agreement.

          (b) If any suit, action, proceeding (including any governmental or regulatory investigation),
claim or demand shall be brought or asserted against any Indemnitee in respect of which
indemnification may be sought pursuant to any provision of this Section 7.1, the Indemnitee
shall promptly notify the Person against whom such indemnification may be sought (the
“Indemnifying Person”) in writing; provided that the failure to notify the
Indemnifying Person shall not relieve it from any liability that it may have under this Section
7.1 except to the extent that its ability to defend such matter has been materially prejudiced
by such failure; and provided, further, that the failure to notify the Indemnifying
Person shall not relieve it from any liability that it may have to an Indemnitee otherwise than
under this Section 7.1. If any such proceeding shall be brought or asserted against an
Indemnitee and it shall have notified the Indemnifying Person thereof, the Indemnifying Person
shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the
consent of the Indemnitee, be counsel to the Indemnifying Person) to represent the Indemnitee and
any others entitled to indemnification pursuant to this Section 7.1 that the Indemnifying
Party may designate in such proceeding and shall pay the fees and expenses of such proceeding and
shall pay the fees and expenses of counsel related to such proceeding, as incurred. In any such
proceeding, any Indemnitee shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnitee unless (i) the Indemnifying
Person and the Indemnitee shall have mutually agreed to the contrary; (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnitee;
(iii) the Indemnitee shall have reasonably concluded that there may be legal defenses available to
it that are different from or in addition to those available to the Indemnifying Person; or (iv)
the named parties in any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnitee and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interest between them. It is understood and
agreed that the Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Indemnitees, and that all such fees and expenses
shall be reimbursed as they are

-24-

 

incurred. Any such separate firm for any Investor, its Affiliates, directors and officers and
any control persons of such Investor shall be designated in writing by the Investors. The
Indemnifying Person shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Person agrees to indemnify each Indemnitee from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an Indemnitee shall have requested that an Indemnifying Person reimburse the Indemnitee
for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall
be liable for any settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than thirty (30) days after receipt by the Indemnifying Person of
such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnitee in
accordance with such request prior to the date of such settlement. No Indemnifying Person shall,
without the written consent of the Indemnitee, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnitee is or could have been a party and indemnification
could have been sought hereunder by such Indemnitee, unless such settlement (x) includes an
unconditional release of such Indemnitee, in form and substance reasonably satisfactory to such
Indemnitee, from all liability on claims that are the subject matter of such proceeding and (y)
does not include any statement as to or any admission of fault, culpability or a failure to act by
or on behalf of any Indemnitee.

          (c) If the indemnification provided for in items (iv) or (v) of Section 7.1(a) hereof
is unavailable to an Indemnitee or insufficient in respect of any Losses, then each Indemnifying
Person under such provisions, in lieu of indemnifying such Indemnitee thereunder, shall contribute
to the amount paid or payable by such Indemnitee as a result of such Losses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company on the one hand and the
Investors on the other hand from the transactions contemplated by the applicable registration
statement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits referred to in clause
(i) but also the relative fault of the Company on the one hand and the Investors on the other hand
in connection with the statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault of the Company on the one hand and the
Investors on the other shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Investors and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission.

          (d) The remedies provided for in this Section 7.1 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any Indemnitee at law or in
equity.

          7.2 Survival of Representations and Warranties. All representations, warranties,
covenants and agreements made pursuant to or in connection with this

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Agreement and the Related Agreements and the closings hereunder (including the Investor
Backstop Closing) will survive the execution and delivery of this Agreement (including, without
limitation, the consummation of the Rights Offering and the Backstop Closing) indefinitely and all
statements contained in any certificate, instrument or other writing delivered by or on behalf of
any party hereto required to be made pursuant to the terms of this Agreement or the Related
Agreements or required to be made in connection with or in contemplation of the transactions
contemplated by this Agreement or the Related Agreements will constitute representations and
warranties by such party pursuant to this Agreement and the Related Agreements.

          Section 8. Definitions.

          For purposes of this Agreement, the following terms will have the meaning set forth below:

          “Affiliate” as applied to any Person, means any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, such Person. For
purposes of this definition and the definition of “subsidiary,” “control” (including, with
correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as
applied to any Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise, and, in addition to the foregoing, a Person shall be
deemed to control another Person if the controlling Person owns ten (10%) or more of any class of
voting securities (or other ownership interest) of the controlled Person.

          “Affiliated Party Transaction” means any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any director, officer or
Affiliate of the Company.

          “Agreement” has the meaning assigned to it in the Preamble hereof.

          “Board Observer” has the meaning assigned to it in Section 4.4(b) hereof.

          “Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by law to close.

          “capital stock” means any and all shares, interests, warrants, options,
participations, rights to acquire or subscribe for, rights of conversion into, or other equivalents
(however designated, whether voting or non-voting) in equity of the Company, whether now
outstanding or issued subsequent hereto, including, without limitation, all series and classes of
common stock and preferred stock.

          “Certificate of Designation” has the meaning assigned to in Section 4.3(a)
hereof.

-26-

 

          “Code” has the meaning assigned to it in Section 2.18 hereof.

          “Common Stock” has the meaning assigned to it in the Preamble.

          “Commitment Fee” has the meaning assigned to it in Section 4.9 hereof.

          “Company” has the meaning assigned to it in the Preamble.

          “Designated Investor” shall mean The Huff Alternative Fund, L.P.

          “Distribution” has the meaning assigned to it in the Preamble.

          “Distribution Registration Statement” has the meaning assigned to it in the Preamble.

          “Dollars” and “$” mean dollars in lawful currency of the United States of
America.

          “ERISA” has the meaning assigned to in Section 2.18 hereof.

          “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.

          “$15 Million Tranche Number” has the meaning assigned to it in Section
1.2(b)(i) hereof.

          “Governmental Entity” shall mean any: (a) state, commonwealth, county, municipality,
district or other domestic or foreign jurisdiction of any nature; (b) federal, state, local,
municipal or other government; or (c) governmental or quasi governmental authority of any nature
(including, but not limited to, any governmental division, subdivision, department, agency,
registering authority, bureau, branch, office, commission, council, self-regulatory organization,
board, instrumentality, officer, official, representative, organization, unit, body or Person and
any court or other tribunal).

          “Indemnifying Person” has the meaning assigned to it in Section 7.1(b) hereof.

          “Indemnitees” has the meaning assigned to it in Section 7.1 hereof.

          “Investor” or “Investors” has the meaning assigned to it in the Preamble.

          “Investor Backstop Shares” has the meaning assigned to it in Section 1.2(c)
hereof.

          “Investor Backstop Closing” has the meaning assigned to it in Section 1.2(d) hereof.

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          “Investor Backstop Closing Date” has the meaning assigned to it in Section
1.2(d) hereof.

          “Investor Director” has the meaning assigned to it in Section 4.4(a) hereof.

          “Investor Distribution Shares” has the meaning assigned to it in the Preamble.

          “Investor Rights Shares” means any shares of Common Stock that the Investors, or
either of them, may purchase pursuant to the rights they obtain by virtue of being stockholders of
the Company pursuant to the Rights Offering; for the avoidance of doubt, “Investor Rights Shares”
shall not include Investor Backstop Shares.

          “Investor Shares” has the meaning assigned to it in Section 1.2(c) hereof.

          “Knowledge” of any Person means (a) the actual knowledge of such Person and (b) any
knowledge that should have been acquired by such Person from making reasonable investigation
consistent with the management of his, her or its business affairs; provided,
however, that, in the case of the Company, “Knowledge” shall mean the knowledge (as defined
herein) of the Responsible Officers thereof.

          “Lien” means any mortgage, pledge, security interest, encumbrance, lien, claim,
transfer restriction, litigation or charge of any kind whatsoever (including, without limitation,
any conditional sale or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).

          “Losses” has the meaning assigned to it in Section 7.1(a) hereof.

          “Material Adverse Effect” means a material adverse effect on (a) the business,
operations, affairs, financial condition, assets, properties or prospects of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of
business, except for (i) any change or effect resulting from general economic, financial or market
conditions other than any such change that has an effect on the Company that is substantially and
disproportionately larger than on other companies generally or (ii) any change or effect resulting
from conditions or circumstances generally affecting the real estate development industry other
than any such change that has an effect on the Company that is substantially and disproportionately
larger than on the industry generally; (b) the ability of the Company to perform its obligations
under this Agreement or the Related Agreements; (c) the validity or enforceability of this
Agreement or the Related Agreements; or (d) the death of Robert F.X. Sillerman.

          “Maximum Number of Backstop Shares” has the meaning assigned to it in Section
1.2(b) hereof.

          “New York Court” has the meaning assigned to it in Section 9.5 hereof.

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          “Person” includes all natural persons, corporations, business trusts, limited
liability companies, associations, companies, partnerships, joint ventures and other entities, as
well as governments and their respective agencies and political subdivisions.

          “Plan” has the meaning assigned to it in Section 2.18 hereof.

          “Related Agreements” means the Registration Rights Agreement and any other agreement
executed and delivered by the Company to pursuant to or in connection with the transactions
contemplated by this Agreement.

          “Responsible Officer” means the Robert F.X. Sillerman (who will be the Company’s
Chairman and Chief Executive Officer immediately following the Distribution), Paul C. Kanavos (the
Company’s President), Brett Torino (who is the Company’s Chairman – Las Vegas Division) Mitchell,
C. Nelson (the Company’s Executive Vice President) and Thomas P. Benson (who will be the Company’s
Chief Financial Officer immediately following the Distribution).

          “Registration Rights Agreement” has the meaning assigned to it in Section
5.1(h) hereof.

          “Right” or “Rights” has the meaning assigned to it in the Preamble.

          “Rights Offering” has the meaning assigned to it in the Preamble.

          “Rights Offering Registration Statement” has the meaning assigned to it in Section
1.3(a) hereof.

          “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, all as the same shall be in effect from time to time.

          “SEC” has the meaning assigned to it in the Preamble.

          “Sillerman Backstop Purchase” has the meaning assigned to it in Section 5.1(i)
hereof.

          “Sillerman Investment Agreement” has the meaning assigned to it in Section
2.10 hereof.

          “SOXA” means the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated
thereunder, all as the same shall be in effect from time to time.

          “Special Committee” has the meaning assigned to it in Section 4.3(c)(ii)
hereof.

          “Special Preferred Stock” has the meaning assigned to it in Section 4.3(a)
hereof.

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          “Special Preferred Stock Creation Date” has the meaning assigned to it in Section
4.3(a) hereof.

          “Subscription Price” shall mean the lesser of (i) $10.00 per share (after giving
effect to the 10 for 1 reverse stock split contemplated in connection with the Distribution), (ii)
the cash price per share of Common Stock being paid pursuant to the Rights Offering, or (iii) the
most favorable price offered by the Company to any other Person who purchases any shares of Common
Stock in the Rights Offering or pursuant to any standby purchase or backstop commitment with
respect to shares of Common Stock not purchased in the Rights Offering, subject to appropriate
adjustments to give effect to stock splits, stock dividends, recapitalizations and similar
transactions affecting the Company’s capital.

          “subsidiary” any Person directly or indirectly controlled (as defined in the
definition of “Affiliate”) by another Person.

          “Time of Sale Information” means, collectively, each “free-writing prospectus” (as
defined pursuant to Rule 405 under the Securities Act).

          Section 9. Miscellaneous.

          9.1 Notices. Any notice or other communication required or which may be given
pursuant to this Agreement will be in writing and either delivered personally to the addressee,
telecopied to the addressee, sent via electronic mail or mailed, certified or registered mail,
postage prepaid, and will be deemed given and received when so delivered personally, telecopied,
or sent via electronic mail, or, if mailed, five (5) days after the date of mailing, as follows:

     (i) if to the Investors, to the address set forth on Schedule 1 hereto.

     (ii) if to the Company, to:

FX Real Estate and Entertainment Inc.

650 Madison Avenue

New York, New York 10022

Facsimile: (212) 980-4455

E-Mail: mitchell.nelson@flagluxury.com

Attn: Mitchell J. Nelson, Esq.

With a copy to:

Troutman Sanders LLP

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Facsimile: (212) 704-6288

E-Mail: timothy.kahler@troutmansanders.com

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Attn: Timothy I. Kahler, Esq.

          and Richard G. Cushing, Esq.

          9.2 Assignment. This Agreement will be binding upon and inure to the benefit of each
and all of the parties to this Agreement, and neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties to this Agreement
without the prior written consent of the other parties, except that the Investors may purchase any
or all of the Investor Shares as nominee. Nothing in this Section 9.2 shall be deemed to
prohibit or restrict any Investor’s right to, directly or indirectly, sell, pledge, hypothecate,
grant a security interest in, transfer, assign or otherwise dispose of shares of Common Stock or
any interest therein, whether with or without consideration and whether voluntarily or
involuntarily or by operation of law, to any Person. 

          9.3 Entire Agreement. This Agreement contains the entire agreement by and between
the Company and the Investors with respect to the transactions contemplated by this Agreement and
supersedes all prior agreements and representations, written or oral, with respect thereto.

          9.4 Waivers and Amendments. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms, provisions and conditions of this Agreement may be
waived, only by a written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any right, power or
privilege pursuant to this Agreement will operate as a waiver thereof, nor will any waiver on the
part of any party of any right, power or privilege pursuant to this Agreement, nor will any single
or partial exercise of any right, power or privilege pursuant to this Agreement, preclude any
other or further exercise thereof or the exercise of any other right, power or privilege pursuant
to this Agreement. The rights and remedies provided pursuant to this Agreement are cumulative and
are not exclusive of any rights or remedies which any party otherwise may have at law or in
equity.

          9.5  Governing Law; Jurisdiction; Venue; Process. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CHOICE
OF LAW OR CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Each party hereby irrevocably submits, for itself
and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York
located in New York, New York or the United States District Court for the Southern District of New
York, and any appellate court from any such court (as applicable, a “New York Court”), in any
suit, action or proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment resulting from any such suit, action or proceeding, and each party
hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action
or proceeding may be heard and determined in the New York Court. Each party hereby irrevocably

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and unconditionally waives, to the fullest extent it may legally and effectively do so,
(i) any objection which it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in the New York Court, (ii) the defense of
an inconvenient forum to the maintenance of such suit, action or proceeding in any such court, and
(iii) the right to object, with respect to such suit, action or proceeding, that such court does
not have jurisdiction over such party. Each party irrevocably consents to service of process in
any manner permitted by law. The foregoing consents to jurisdiction and service of process shall
not constitute general consents to service of process in the State of New York for any purpose
except as relates to this Agreement and the Related Agreements, and shall not be deemed to confer
rights on any Person other than the respective parties to this Agreement.

          9.6 Counterparts. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute one and the same
instrument. All such counterparts shall be deemed an original, will be construed together and
shall constitute one and the same instrument. Delivery of an executed counterpart of this
Agreement by facsimile or other means of electronic transmission (including by PDF file) shall be
effective as delivery of an original counterpart of this Agreement.

          9.7 Headings. The headings in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.

          9.8 Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.

[The remainder of this page is intentionally blank.]

-32-

 

          IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first
above written.

	 	 	 	 	 	 	 	 	 
	 	 	FX REAL ESTATE AND ENTERTAINMENT INC.  
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/  Mitchell J. Nelson	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:  Mitchell J. Nelson
	 	 	 
	 

	 	 	 	Title:    Executive Vice President
	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	THE HUFF ALTERNATIVE FUND, L.P.
	 
	 	 	By:	 	WRH Partners II, LLC,	 	 
	 	 	 	 	its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	/s/  Bryan Bloom	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:  Bryan
Bloom	 	 	 
	 

	 	 	 	Title:    Counsel	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	THE HUFF ALTERNATIVE PARALLEL FUND, L.P.
	 
	 	 	By:	 	WRH Partners II, LLC,	 	 
	 	 	 	 	its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	/s/  Bryan Bloom	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:  Bryan
Bloom	 	 	 
	 

	 	 	 	Title:    Counsel	 	 	 

-33-

 

SCHEDULE 1

	 	 	 
	Name	 	Address
	The Huff Alternative Fund, L.P.

	 	1776 On the Green

67 Park Place 

Morristown, New Jersey 07960

E-Mail: beb@huffcompanies.com 

Facsimile: (973) 984-5818

Attention: Bryan Bloom, Esq.

	 
	 	 
	 

	 	Copies to: 

Nixon Peabody LLP 

437 Madison Avenue 

New York, New York 10022

Facsimile: (866) 947-2363

E-Mail: lwiesenberg@nixonpeabody.com 

Attn: Lauren E. Wiesenberg, Esq.
	 
	 	 
	The Huff Alternative Parallel Fund, L.P.

	 	1776 On the Green

67 Park Place 

Morristown, New Jersey 07960

Facsimile: (973) 984-5818

E-Mail: beb@huffcompanies.com 

Attention: Bryan Bloom, Esq.
	 
	 	 
	 

	 	Copies to:

Nixon Peabody LLP 

437 Madison Avenue 

New York, New York 10022

Facsimile: (866) 947-2363

E-Mail: lwiesenberg@nixonpeabody.com 

Attn: Lauren E. Wiesenberg, Esq.

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