Issues List Shareholders Agreement 7/26/12

Issues List Shareholders Agreement 7/26/12

Issues List -- Shareholders Agreement 7/26/12

Issue / Promoter Counsel’s Draft / SPE’s Draft

1.Restrictions on Transfers (Section 2.1)

/ Change in control of Non-SPE Shareholders not a deemed transfer. PP will agree if similar clause applies to SPE (we could consider agreeing to that if it only applies to SPE Mauritius, but we should think about how it applies to MSM if MSM becomes the buyer) / Change in control of Non-SPE Shareholder is deemed transfer [Proposal: OK, but onlyapplies to SPE to entity holding shares and only if owns no other assets]

2.No-Transfers to Non Permitted Transferees (Section 2.1(c))

/ Concept is deleted (but kept definition of Non-Permitted Transferees). PP’s argument is that the promoters cannot transfer for 5 years, and then SPE can protect itself by exercising the call. / Non-SPE Shareholders will not transfer Shares to Non-Permitted Transferees under any circumstances. In Letter of Intent.

3.Permitted Transfers (Section 2.2)

/ All Shareholders may transfer Shares to their respective Affiliates without any consent. PP thinks the promoters should have the same internal restructuring flexibility as SPE. / Only SPE Shareholders may transfer Shares to their Affiliates without any consent. In Letter of Intent.[OK if Affiliate is 100% owned by the same persons/entities that own the transferring shareholder]

4.Right of First Negotiation (Section 3.1)

/ 15 Business-Day negotiation period between transferring Shareholder and all other Shareholders (i.e., SPE does not have first right to negotiate). PP agrees to 30 days, and agrees that SPE has the first right to negotiate. The actual point being raised (albeit not clearly) is that the Promoters want the right to sell among themselves without restriction (i.e., can sell during first 5 years, can sell without first and last rights after that).[We can agree. We don’t need the converse right] / If transferring Shareholder is a non-SPE Shareholder – SPE Shareholders have a right to negotiate first for 30 days; If no agreement is reached or SPE Shareholders have no interest, other Shareholders have a right to negotiate for additional 30 days
If transferring Shareholder is a SPE Shareholder – Non-SPE Shareholders have right to negotiate for 30 days

5.Right of Last Refusal (Section 3.2)

/ SPE Shareholders have 30-day period to exercise right of last refusal on sales by Non-SPE Shareholders
Silent on Non-SPE Shareholders having right to exercise secondary refusal right on sales by other Non-SPE shareholders, but that may be an oversight.
If Transferring Party is SPE Shareholders, Non-SPE Shareholders have 30-day period to exercise right of last refusal
Same issue as under first negotiation: Promoters want to be able to transfer among themselves without rights of first and last. / SPE Shareholders have 30-day period to exercise right of last refusal on sales by Non-SPE Shareholders
If SPE Shareholders do not exercise their right, other Non-SPE Shareholders have a 30-day additional period to exercise right of last refusal.
If Transferring Party is SPE Shareholders, Non-SPE Shareholders have 30-day period to exercise right of last refusal

6.Tag-Along (Section 3.3)

/ If a SPE Shareholder is the Transferring Party (no matter how many shares are being transferred), Non-SPE Shareholders have a 30-day period to tag-along such number of Shares as they wish under the same terms. PP says tag-along can be pro-rata rather than all shares, but says the Promoters want a tag along right because SPE has no restriction against selling to bad guys (note that those two points are contradictory, because if the tag is pro-rata then Promoters will still be partners with the bad guy. / No tag-along rights. Not in Letter of Intent.[Agreed on proportionate tag for both parties (no limit on what is being sold) and drag for SPE if SPE sells more than 50%]

7.Certain Corporate Matters (Section 4.3)

(a)Super-Majority Vote (Section 4.3)

/ Shareholders holding 75% of issued Shares but approval shall not be unreasonably withheld or delayed. PP seems willing to drop this but didn’t 100% commit. / Shareholders holding 75% of issued Shares

(b)Issuance of Share Capital (Section 4.3(b))

/ 75% vote required for all issuances of Shares and other equity securities. / 75% vote not required if issuance is subject to preemptive rights. [Agreed that no veto if subject to preemptive right and shares issued at FMV. Propose that FMV is reasonably determined by the Board (which we control). If a shareholder opts in to the cap call he cannot challenge the Board's determination. If a shareholder doesn't opt in he can challenge within a limited period of time, in which case FMV will be determined by an investment bank selected by the Board from the same list of investment banks the promoters have already agreed to in relation to the Call Option. If FMV as originally determined by the Board is within 20% of the investment bank's determination then the challenging shareholder has to pay the investment bank's fees, otherwise Maa pays the investment bank's fees.]

(c)Change in Accounting and Tax Methods; Policies of Maa (Sections 4.3(o)(p))

/ 75% vote not required if Board determines that change mandated by applicable law PP agreed that best interests exception can apply. / 75% vote not required if Board determines that change mandated by applicable law or is in the best interest of Maa

8.Election of Directors, Numbers and Composition (Section 4.4)

/ Board comprised of 7 directors
SPE Shareholders have right to designate four directors; Non-SPE Shareholders have right to designate three directors
So long as SPE Shareholders own more than 50% they have right to recommend a SPE Director to be appointed Chairman. Purely a drafting issue: Only the board members, not the shareholders, can elect the chairman (and PP agrees that SPE ‘s board nominees can control that vote).
Right to designate directors is not updated to reflect ownership percentage; SPE Shareholders and Non-SPE Shareholders lose their rights only if their respective ownership percentage is 10% or less. PP thinks proportionality not necessary since no transfers allowed for 5 years (but that ignores what happens after 5 years).
Non-SPE Shareholders may appoint a Non-SPE Director who is affiliated with a Non-Permitted Transferee; If a Non-SPE Director becomes affiliated with a Non-Permitted Transferee he/she may remain director. PP to revert on this.
Person who has been charged or convicted of any crime may be a director. PP OK with convicted, but not with charged.
Matters required 75% vote of Shareholders require also approval of at least one Non-SPE Director (in effect, Non-SPE Shareholders have veto right as long as they have 10%). This was just a drafting point. PP did not intend to give veto rights at 10%.
At Closing Non-SPE Shareholders have right to appoint one observer. PP agrees that someone convicted of a crime can’t be an observer.Issue is whether someone charged with a crime can be an observer. / Board comprised of 5 directors
SPE Shareholders have right to designate three directors; Non-SPE Shareholders have right to designate two directors
Number of directors designated by SPE Shareholders or Non-SPE Shareholders to reflect ownership percentage at any point of time (if holdings less than 10% no right to appoint director). [OK to agree to 4/3 without adjustments]
So long SPE Shareholders hold more than 50% they have right to designate majority of directors and to designate chairman of Board. [Not necessary to include since board fixed at 4/3]
Non-SPE Shareholders shall not appoint a Non-SPE Director who is affiliated with a Non-Permitted Transferee; If a Non-SPE Director becomes affiliated with a Non-Permitted Transferee he/she will be removed
No person who has been charged or convicted of any crime can be a director
Matters requiring 75% vote of Shareholders do not also require approval of a Non-SPE Director

9.Board Committees (Section 4.5)

/ Constitution of committees require agreement of Non-SPE Shareholders. PP’s point is that committees are operational in nature and can be made up of non-directors. Agreed that SPE directors should be majority of non-operational committees like audit committee. We should determine what committees are needed post-closing.
Silent re existing committees / Board may constitute committees [Proposal: don’t mention committees. Up to board to decide if there will be any]
At Closing, all committees already constituted will be reconstituted to be comprised of SPE Directors only as members

10.Officers (Section 4.7)

/ Appointment of CEO, CFO, CPO and CRO requires affirmative vote of at least one Non-SPE Director. Not resolved, but we explained consolidation issue and offered consultation right.
Person who has been charged or convicted of any crime may be an officer, manager or employee. Issue is “charged” / Appointment of CEO, CFO, CPO and CRO requires affirmative vote of at least two SPE Directors. In Letter of Intent.
No person who has been charged or convicted of any crime can be an officer, manager or employee

11.External Auditors (Section 4.8)

/ Replacement of PWC requires consent of at least one Non-SPE Director. PP offered to limit approval right to only auditors other than PWC or any other firm that is Sony’s global auditor. PP also wants SPE’s approval over financial statements to not be unreasonably withheld or delayed.[Check with Mark Rogers] / Replacement of PWC requires consent of SPE Shareholders so long designate majority of directors

12.Compliance with Anti-Bribery Laws (Section 4.10)

/ SPE Shareholders may cause Maa to adopt anti-bribery policies only if policies are reasonable. PP dropped the point.
No requirement to conduct diligence on third parties with whom Maa may engage. PP dropped the point.
Deleted requirement that any third party retained to deal with Government Officials sign non-bribery compliance representation. PP will provide details on Chiranjeevi. / SPE Shareholders may cause Maa to adopt anti-bribery policies
Diligence to be performed on third parties with whom Maa may engage
Any third party retained to deal with Government Officials will sign non-bribery compliance representation

13.Code of Conduct (Section 4.11)

/ Maa is not required to comply with Sony Pictures Code of Business Conduct or any other policies of Sony Pictures Entertainment (other than anti-bribery related). PP appears flexible on this. Asked for copies of current policies. / Maa is required to comply with Sony Pictures Code of Business Conduct and any other policies of Sony Pictures Entertainment

14.Related Party Transactions (Section 4.13)

/ Acquisition of programming from SPE Shareholders only if on arm’s length terms. TBD
Mechanics of challenging related party transactions deleted. PP believes it is too subjective to determine how a contract should be rewritten. Puts the onus on SPE to determine what arms-length is and risk another challenge by Promoters. Possible solution: If Promoters challenge, they must offer up arms length terms that they can live with (which SPE can accept or reject).
[We will agree to their proposal] / Acquisition of programming from SPE Shareholders even if not on arm’s length terms permitted up to an agreed cap
Shareholders may challenge related party transactions in breach; challenged Shareholder retroactively shall revise terms to be on arm’s length but transaction shall not be voided

15.Programming Right of First Refusal and Last Negotiation (Section 4.14(d))

/ Definition of “Promoter Content” – any Telegu motion picture rights or content owned by Geeta Arts or Annapoorna Studio. TBD
If Geeta Arts or Annapoorna Studio elects to grant satellite license rights to any Promoter Content, it will negotiate with Maa for 7 days for such rights. TBD
No right of last refusal, TBD
Obligation ceases if Arvid Babu does not hold Shares in Maa or does not control Geeta Arts and if Nagarjuna Rao does not hold Shares in Maa or does not control Annapoorna Studio, as applicable. TBD
[7 days OK. Manjit to negotiate the rest. Note that there are other licensors: Anjana, Allu, SS Creations, Annapoorna Productions and Nagarjuna. Babu is part of Chiranjeevi group. I suggested to Manjit that we still have it apply to promoter groups and their affiliates and let them tell us who should be excluded.] / Definition of “Promoter Content” – any motion picture or TV Programming rights or content owned by a Promoter Shareholder (Prasad, Chiranjeevi, Nagarjuna Rao, Ramakrishna) or Affiliates
If a Promoter Shareholder elects to license the distribution and exploitation rights to any Promoter Content, it will negotiate with Maa for 30 days for such rights
Before accepting a third party offer, a Promoter Shareholders must notify Maa of its terms and allow Maa 30 days to match

16.Option to Purchase Underlying Shares (Section 5.1)

/ SPE Shareholders to purchase 811,270 Shares underlying options held by employees by September 30, 2014. TBD[Manjit agrees it’s an obligation]
Shares will include 400,000 Shares held by Ramakrishna. PP clarified that their proposal is actually 400,000 shares in addition to the 811,270 employee shares. That means the option/obligation is for approximately 2%, not 1.34%. / SPE Shareholders have call option to purchase 811,270 Shares underlying options held by employees, which expires on September 30, 2014

17.Call Option (Section 5.2)

/ Cap is deleted. TBD
/ Call Price subject to a cap equal to the product of (i) percentage of Shares owned by Non-SPE Shareholders and (ii) Rs. 2,000 Crores. In Letter of Intent. [Manjit may trade for subscription]

18.Determination of Fair Market Value (Section 5.3)

/ If difference between Independent Valuers’ determinations is 10% or less, value is the average. TBD
If difference is more than 10% a third Independent Valuer is appointed by Independent Valuers. TBD
If Independent Valuers cannot appoint a third valuer, the president of SIAC will. ICC / If difference between Independent Valuers’ determinations is 20% or less, value is the average
If difference is more than 20%, a third Independent Valuer is appointed by Independent Valuers
If Independent Valuers cannot appoint a third valuer, the president or vice president of LCIA will

19.Purchase option on liquidation (deleted Section 4.1)

/ No party has preference to buy assets on liquidation (and such a preference likely not enforceable)TBD / In a liquidation, SPE has an option to purchase Maa’s assets.[SPE will drop the point]

20.Transfer to Third Parties; Company Sale (Section 5.4A)

/ If SPE Shareholders do not exercise Call Option, Non-SPE Shareholders have right to transfer Shares to third parties with no transfer restrictions. TBD[OK to drop matching right, but still need first negotiation and prohibition on transferring to non-permitted transferees]
Non-SPE Shareholders have right to require sale of Maa in auction between 7th anniversary and 10th anniversary of Closing. TBD
Sale price may be less than FMV.TBD.PP rationale is that if SPE doesn’t believe FMV is a good price for the call, then Promoters should be able to sell at a discount.[Agreed that floor is 90% of FMV, and SPE has matching right on any sale of Maa]
Purchaser may be a Non-Permitted Transferee. PP argues that if entire company sold then SPE shouldn’t care who the buyer is.
SPE Shareholders may be obligated to agree to any restrictive covenant or terms not equally applicable to Non-SPE Shareholders. TBD. / If SPE Shareholders do not exercise Call Option, Non-SPE Shareholders’ right to transfer Shares to third parties is subject to rights of first negotiation and last refusal
Non-SPE Shareholders have right to require sale of Maa in auction between 7th anniversary and 8th anniversary of Closing. In Letter of Intent.
In no event shall the sale price be less than FMV
In no event shall the purchaser be a Non-Permitted Transferee
SPE Shareholders will not be obligated to agree to any restrictive covenant or terms not equally applicable to Non-SPE Shareholders

21.Non-SPE Shareholders Call Option (Section 5.4B)

/ If SPE Shareholders do not exercise Call Option, Non-SPE Shareholders have a call option to purchase all Shares held by SPE Shareholders at FMV. TBD. Rationale for this not clear, other than perhaps as a stick to get SPE to exercise the call.[NO] / No Non-SPE Shareholders call option

22.Government Officials (Section 6.2(d))

/ Warranty is deleted. Same Chiranjeevi issue. / No Non-SPE Shareholder is a Government Official

23.Offset Right (Section 7.3(c))

/ No offset right. Same as inSPA. PP agreed to offset right if a claim is adjudicated in SPE’s favor, but open issue is claims in progress. / SPE Shareholders have right to offset on a pro rata basis Losses under SPA and Shareholders Agreements against amount payable to Non SPE Shareholders, including in respect of Call Price and dividends

24.Additional Capital Contributions (Section 8.1)

/ SPE Shareholders are obligated to contribute amounts required to repay Closing Indebtedness under SPA (or indemnify promoters)TBD / No additional capital contributions are required

25.Non-Solicitation (Section 9.1(c))

/ No non-solicit. PP to propose exceptions to non-solicit. / Non-SPE Shareholders’ will not induce any employee of Maa to leave position

26.Resolution of Disputes (Section 11.2)

/ SIAC rules. PP will agree to ICC
Arbitration in Singapore
Prohibition to seek relief in respect of motion pictures, productions or projects related to Purchasers and their Affiliates is deleted. PP to review again. / LCIA rules[Agreed on Indian law with ICC arbitration in Singapore]
Arbitration in London
Non-SPE Shareholders have no right to seek any injunctive relief or Order with respect to production, distribution or other exploitation of motion pictures, productions or projects related to Purchasers and their Affiliates

27.Termination (Section 10.15)

/ Agreement terminated upon occurrence of (i) listing of Shares, or (ii) dissolution or winding up. TBD regarding SPE right to terminate for breach of anti-bribery laws. PP says Promoters will agree if there is an exception for actions appoved by the shareholders or board. / Agreement terminated upon occurrence of (i) 75% vote (ii) listing of Shares, (iii) transfer of majority of Shares to third party, (iv) dissolution or winding up, or (v) material uncured breach by Non-SPE Shareholders of covenant re compliance with anti-bribery laws (if SPE Shareholders so elect)

1

PP = Platinum Partners (Promoters’ counsel)

AM = Armarchand (SPE counsel)