Skydance Corporation (63G) Risk Analysis

The issuance of shares of New Paramount Class B Common Stock as part of the Transactions could have the effect of depressing the market price of the New Paramount Class B Common Stock. In addition, we (or New Paramount after the Transactions) could encounter other transaction-related costs or effects, such as the failure to realize all of the benefits anticipated in the Transactions which could cause dilution to New Paramount's earnings per share or decrease or delay the expected accretive effect of the Transactions and cause a decrease in the market price of the New Paramount Class B Common Stock. However, factors decreasing the market price of our Class A Common Stock and our Class B Common Stock may not cause the same or similar decreases in the market price of New Paramount Class B Common Stock. See "- The market price for shares of New Paramount Class B Common Stock following the completion of the Transactions may be affected by factors different from, or in addition to, those that have historically affected or currently affect the market price for shares of our Class A Common Stock and our Class B Common Stock."

Upon completion of the Transactions, certain holders of our Class A Common Stock and holders of our Class B Common Stock will become holders of New Paramount Class B Common Stock. As a result of the Transactions, the business, financial condition and results of operations of New Paramount will be affected by factors that are different from those currently affecting our business, financial condition or results of operations. Accordingly, the market price and performance of New Paramount Class B Common Stock is likely to be different from the market price and performance of our Class A Common Stock and our Class B Common Stock in the absence of the Transactions. Factors that caused a fluctuation in the market price of our Class B Common Stock may not cause the same or similar fluctuations in the market price for shares of New Paramount Class B Common Stock following completion of the Transactions. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, New Paramount Class B Common Stock, regardless of New Paramount's actual operating performance.

Upon completion of the merger of Pluto Merger Sub II, Inc., a Delaware corporation and a wholly-owned, direct subsidiary of New Paramount ("Paramount Merger Sub II"), with and into New Paramount, with New Paramount surviving the merger, subject to the terms and conditions of the Transaction Agreement (the "New Paramount Merger"), (a) each issued and outstanding share of New Paramount Class A Common Stock (other than (i) any New Paramount Class A Common Stock or New Paramount Class B Common Stock (collectively, the "New Paramount Shares") that is held directly or indirectly by Skydance or any wholly-owned subsidiary of Skydance (collectively, the "New Paramount Merger Cancelled Shares") and (ii) shares of New Paramount Class A Common Stock held by NAI, its wholly-owned subsidiaries and any permitted subsidiary transferee thereof (collectively, the "Specified NAI Stockholders")) will be converted automatically into the right to receive, at the election of the holder of such share, the Class A Cash Consideration (i.e., an amount of cash, without interest, equal to $23.00) or the Class A Stock Consideration (i.e., 1.5333 shares of New Paramount Class B Common Stock), and (b) each issued and outstanding share of New Paramount Class B Common Stock (other than (i) any New Paramount Merger Cancelled Shares and (ii) shares of New Paramount Class B Common Stock held by a Specified Stockholder (as defined in the Transaction Agreement) or a PIPE Equity Investor) will be converted automatically into the right to receive, at the election of the holder of such share and subject to the proration mechanism described herein, the Class B Cash Consideration (i.e., an amount of cash, without interest, equal to $15.00) or the Class B Stock Consideration (i.e., one share of New Paramount Class B Common Stock). The exchange ratios set forth above were negotiated based on prices prevailing at the time of entering into the Transaction Agreement; however, the market price of our Class A Common Stock and Class B Common Stock at the time of completion of the Transactions may vary significantly from the market price of our Class A Common Stock and Class B Common Stock on the date the Transaction Agreement was executed, the date of this Annual Report on Form 10-K and the date on which our stockholders make their election. Because the Class A Stock Consideration and the Class B Stock Consideration are payable in a fixed number of shares of New Paramount Class B Common Stock, the value of the Class A Stock Consideration and Class B Stock Consideration that our stockholders will receive upon completion of the Transactions may be higher or lower than the value of our Class A Common Stock and Class B Common Stock, respectively, on such earlier dates and the value of any such stock consideration received may be lower than the corresponding cash election amount. In addition, as discussed below, the cash consideration received by holders of our Class B Common Stock will be subject to proration. Accordingly, our stockholders will not know or be able to calculate at the time they make their elections the market value of the Class A Stock Consideration or the Class B Stock Consideration they will receive upon completion of the Transactions. In addition, because no trading market currently exists for the shares of New Paramount Class B Common Stock to be issued in connection with the Transactions, the market value of New Paramount Class B Common Stock is unknown. The market value of the New Paramount Class B Common Stock will in part depend on the market value of our Class B Common Stock immediately before the completion of the Transactions. While there is a trading market for our Common Stock, the market price of our Common Stock has fluctuated since the date of the announcement of the Transaction Agreement and will continue to fluctuate from the date of this Annual Report on Form 10-K until the date that the Transactions are completed, which could occur a considerable amount of time after the date of this Annual Report on Form 10-K and the date on which our stockholders make their election. The market value of our Class B Common Stock at the time of the consummation of the Transactions may vary significantly from its price on the date of the Transaction Agreement or the date of this Annual Report on Form 10-K and the date on which our stockholders make their election and may not be reflective of the market value of the New Paramount Class B Common Stock. Because the consideration described herein will not be adjusted to reflect any changes in the values of our Common Stock, the value of the merger consideration may be higher or lower than the value of our Common Stock on earlier dates. Therefore, until the consummation of the Transactions, the holders of our Common Stock will not know or be able to determine the value, on a fully diluted basis, of the New Paramount Class B Common Stock that they will receive pursuant to the Transaction Agreement. Our stockholders are urged to obtain then-current market quotations for our Common Stock when they make their elections. Stock price changes may result from a variety of factors, including general business, market, industry and economic conditions, changes in our and Skydance's respective businesses, results of operations and prospects, market assessments of the likelihood that the Transactions will be completed, the timing of the Transactions, regulatory considerations and other risk factors set forth or incorporated by reference in this Annual Report on Form 10-K. Many of these factors are beyond our and Skydance's control.

Under the Transaction Agreement, the maximum amount of cash consideration that holders of our Class B Common Stock will be entitled to receive pursuant to the New Paramount Merger, is approximately $4.3 billion in the aggregate, and a maximum number of shares of our Class B Common Stock equal to 285,889,212 shares of New Paramount Class B Common Stock (the "Maximum Class B Cash Share Number") will be entitled to receive the Class B Cash Consideration. The cash consideration payable to holders of our Class B Common Stock in the New Paramount Merger will be subject to proration in the event that the number of cash elections made by such stockholders in the aggregate exceeds this limit. Accordingly, some of the merger consideration a holder of our Class B Common Stock receives may differ from the type of merger consideration selected by such holder and such difference may be significant. This may result in, among other things, tax consequences that differ from those that would have resulted if such holder of our Class B Common Stock had received solely the form of merger consideration elected. If one of our stockholders makes a stock election in respect of their Class A Common Stock or Class B Common Stock and the market value of our Class B Common Stock falls between the time of the election and the time the merger consideration is actually received, the value of such stock consideration received may be less than the value of the cash consideration that such stockholder would have received under a cash election. Conversely, if one of our stockholders makes a cash election and the market value of our Class B Common Stock rises between the time of the election and the time the cash consideration is actually received, the value of such cash consideration received may be less than the value of the stock consideration that such stockholder would have received under a stock election.

After the completion of the Transactions, our stockholders will own a smaller percentage of New Paramount than they currently own of Paramount. Following closing of the New Paramount Merger, the transfer of all of the issued and outstanding equity interests in certain blocker entities held by such blocker entities to New Paramount in exchange for an allocation of 316,666,667 shares of New Paramount Class B Common Stock and the Skydance Merger (as defined below) (the "Closing"), it is anticipated that the PIPE Equity Investors will receive approximately 17% to 38% of the outstanding shares of New Paramount Class B Common Stock as a result of the PIPE Transaction, the Specified NAI Stockholders will hold 100% of the outstanding shares of New Paramount Class A Common Stock and approximately 3% of the outstanding shares of New Paramount Class B Common Stock, the members of Skydance will receive approximately 27% to 30% of the outstanding shares of New Paramount Class B Common Stock as a result of the Merger of Sparrow Merger Sub, LLC, a California limited liability company and wholly-owned, direct subsidiary of New Paramount (the "Skydance Merger"), with and into Skydance, with Skydance surviving the merger and becoming a wholly-owned subsidiary of New Paramount, and other stockholders will hold approximately 29% to 53% of the outstanding shares of New Paramount Class B Common Stock, in each case, depending on the cash and stock elections described elsewhere herein. Consequently, our stockholders will have a reduced ownership and economic interest in New Paramount as a combined company compared to their ownership of Paramount prior to the combination. Similarly, a change in the concentration of the ownership of New Paramount Class B Common Stock as a result of the Transactions could result in a reduction to the public float and trading volume in the New Paramount Class B Common Stock, which could adversely affect the trading price of shares of New Paramount Class B Common Stock. In addition, following the Closing, the amended and restated certificate of incorporation of New Paramount will provide holders of shares of New Paramount Class A Common Stock with the option to convert each such share into 1.5 shares of New Paramount Class B Common Stock. Any exercise of this conversion right following the Closing will result in further dilution to the holders of New Paramount Class B Common Stock at the time of conversion.

Following the consummation of the Transactions, a minimum of $1.5 billion of cash proceeds from the PIPE Transaction (prior to giving effect to the subscription discount) will remain at New Paramount after the payment of cash consideration to holders of our Common Stock that make cash elections (the "primary gross proceeds") as described herein; however, the primary gross proceeds may be greater than $1.5 billion to the extent holders of our Class A Common Stock elect stock consideration or holders of our Class B Common Stock make cash elections that do not, in the aggregate, exceed the Maximum Class B Cash Share Number. The Subscription Agreements (as defined in the Transaction Agreement) provide that the maximum additional primary gross proceeds in such situation will not be greater than $1.5 billion (or $3.0 billion in the aggregate), in each case prior to giving effect to the subscription discount, and thereafter the obligations of the subscribers to subscribe for New Paramount Class B Common Stock in the PIPE Transaction will be reduced on a pro rata basis. As a result, the aggregate amount of gross proceeds from the PIPE Transaction may decrease as a result of such cutback mechanisms.

Certain of our and Skydance's executive officers, directors and affiliates may have interests in the Transactions that are different from, or in addition to, those of our stockholders. These interests include the potential continued employment of certain of our and Skydance's executive officers by New Paramount, the potential payment of transaction awards in connection with the Closing and enhanced change in control severance benefits on certain qualifying terminations following the Closing, the potential appointment of certain of our and Skydance's directors as directors of New Paramount and the rights of our and Skydance's executive officers and directors to indemnification by New Paramount and the other surviving entities in the Mergers. These interests may also include the conversion of our outstanding equity awards into equity awards of New Paramount in the New Paramount Merger, following the Closing. In addition, the interests of our executive officers, directors and affiliates may not be the same as the interests of our other stockholders. For instance, the potential payment of transaction awards in connection with the Closing and enhanced change in control severance benefits on certain qualified terminations following the Closing may create incentives for our officers that are different from those of our other stockholders. Furthermore, the board of directors of New Paramount will consist of up to 13 members designated by Skydance prior to the Closing, including David Ellison. Additionally, pursuant to the NAI Transaction, the NAI Equity Investors agreed to purchase, upon the terms and subject to the conditions set forth in the NAI Stock Purchase Agreement (as defined in the Transaction Agreement), all of the outstanding equity interests of NAI from the NAI Shareholders (as defined in the Transaction Agreement). As a beneficiary of the NAI Shareholders, Shari E. Redstone ("Ms. Redstone") will receive a portion of the proceeds from the NAI Transaction. Ms. Redstone is the non-executive Chair of our Board of Directors. As of December 31, 2024, Ms. Redstone was the beneficial owner of 52,226 cash-settled Class A Common Stock phantom units, 61,920 cash-settled Class B Common Stock phantom units, and 617,409 shares of Class B Common Stock, which includes 177,326 vested, deferred Paramount RSU Awards. Ms. Redstone is a beneficiary of the NAI Shareholders, and, as of December 31, 2024, NAI beneficially owned, directly and through two wholly-owned subsidiaries, approximately 77.4% of our Class A Common Stock outstanding and approximately 9.5% of our Class A Common Stock and Class B Common Stock outstanding on a combined basis. NAI is controlled by the General Trust, which owns 80% of the voting interest of NAI. NA Administration, LLC is the corporate trustee of the General Trust, and is governed by a seven-member board of directors, which acts by majority vote (subject to certain exceptions), including with respect to the NAI shares held by the General Trust. Ms. Redstone is the Chairperson, CEO and President of NAI, is one of the seven directors of NA Administration, LLC and one of two directors who are beneficiaries of the General Trust. Ms. Redstone also has a minority indirect beneficial interest in the Class A Common Stock and the Class B Common Stock owned by NAI (and its wholly-owned subsidiaries). Further, in connection with the NAI Transaction, (i) the NAI Shareholders, (ii) certain directors and officers of NAI, including Ms. Redstone in her capacity as Chairperson, CEO and President of NAI (such individuals, the "NAI D&O Indemnitees") and (iii) NAI and NAI Entertainment Holdings LLC ("NAIEH") entered into an indemnification and contribution agreement, which terminated and superseded certain existing indemnification arrangements among the parties thereto and provided the NAI Shareholders and the NAI D&O Indemnitees with certain indemnification rights relating to the Transactions and the NAI Transaction from NAI and NAIEH capped at a maximum of $200 million. Affiliates of the NAI Equity Investors have guaranteed the payment and performance of the foregoing indemnification obligations of NAI and NAIEH, subject to the limitations set forth in the indemnification and contribution agreement. The foregoing indemnification obligations of NAI and NAIEH continue for ten years following the date of execution of the indemnification and contribution agreement, subject to extension for active claims thereunder and automatic termination upon the occurrence of certain triggering events set forth in the indemnification and contribution agreement, including the termination of the NAI Stock Purchase Agreement. The indemnification arrangements that were in place prior to the signing of the NAI Stock Purchase Agreement and that were terminated and superseded by the indemnification and contribution agreement provided, among other things, for uncapped indemnification of the NAI D&O Indemnitees and the NAI Shareholders by NAI and NAIEH for losses incurred in connection with their status as the controller of NAI and, in the case of Ms. Redstone, Paramount, in any litigation relating to the Transactions or the NAI Transaction. Additionally, Ms. Redstone, the current non-executive Chair of our Board of Directors, is a beneficiary of the NAI Shareholders. As a beneficiary of the NAI Shareholders and an employee of NAI, Ms. Redstone has interests in the NAI Transaction, including the right to receive a portion of the proceeds from the NAI Transaction, and therefore Ms. Redstone's interests in the NAI Transaction may not be the same as the interests of our other stockholders. The members of the special committee of our Board of Directors (the "Special Committee") and our Board of Directors who recommended that Paramount stockholders entitled to vote adopt the Transaction Agreement and approve the Transactions were aware of and considered these interests to the extent such interests existed at the time, among other matters, during their respective deliberations on the merits of the Transactions, in negotiating, evaluating and approving the Transaction Agreement and the Transactions, and in making our Board of Director's recommendation that the Paramount stockholders entitled to vote adopt the Transaction Agreement and approve the Transactions.

We (upon the recommendation of the Special Committee) have the right to waive, in whole or in part, certain of the conditions to the Closing, to the extent permitted by applicable law. Any such waiver may not require re-obtaining the approval of our stockholders (which has already been obtained via the written consent adopting and approving the Transaction Agreement), in which case we will have the ability to complete the Transactions without seeking additional stockholder approval. Additionally, if a new stockholder approval were to be required for any such waiver, the approval of NAI and its wholly-owned subsidiaries, NAI Entertainment Holdings LLC and SPV-NAIEH LLC (the "NAI Company Stockholders") would be sufficient. Any determination as to whether to waive any condition to the Closing, whether stockholder approval would be re-obtained as a result of any such waiver will be made by us (upon the recommendation of the Special Committee) at the time of such waiver based on the facts and circumstances as they exist at that time, and any such waiver could have an adverse effect on New Paramount and our current stockholders.

Section 262 of the DGCL provides that stockholders have the right, in some circumstances, to dissent from certain corporate actions and to instead demand payment of the fair value of their shares. Stockholders do not have appraisal rights with respect to shares of any class or series of stock if such shares of stock, or depositary receipts in respect thereof, are either (a) listed on a national securities exchange or (b) held of record by more than 2,000 holders, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is publicly listed or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts described above or any combination of the foregoing. Therefore, because the shares of our Common Stock are currently listed on Nasdaq, a national securities exchange, and the holders of our Common Stock (other than the Specified Stockholders (as defined in the Transaction Agreement), with respect to shares of Class B Common Stock, and the Specified NAI Stockholders, with respect to shares of Class A Common Stock) will be entitled to elect to receive, in connection with the Transactions, the entirety of their merger consideration in the form of shares of New Paramount Class B Common Stock (i.e., shares of which will also be listed on Nasdaq), holders of our Common Stock (other than the Specified Stockholders, with respect to shares of Class B Common Stock, and the Specified NAI Stockholders, with respect to shares of Class A Common Stock) will not have rights under the DGCL to dissent from, or demand payment for, their shares in connection with the Transactions. NAI, NAIEH and SPV-NAIEH LLC irrevocably waived all dissent rights under the DGCL pursuant to a voting agreement with the Company and Skydance (the "Voting Agreement").

We have experienced, and may continue to experience, volatility in the prices of our Common Stock. Various factors have impacted, and may continue to impact, the prices of our Common Stock, including variations in our operating results; changes in our estimates, guidance or business plans; variations between our actual results and expectations of securities analysts, and changes in recommendations by securities analysts; changes by any ratings agency to our outlook or credit ratings; market sentiment about our business, including the viability of our streaming business and views related to its profitability; the activities, operating results or stock price of our competitors or other industry participants in the industries in which we operate; changes in management; the announcement or completion of significant transactions by us or a competitor such as the Transactions; events affecting the stock market generally; and the broader macroeconomic and political environment in the U.S. and internationally, as well as other factors and risks described in this section. Some of these factors may adversely affect the prices of our Common Stock, regardless of our operating performance.

For so long as we have a controlling stockholder, our other stockholders, who may have different interests than our controlling stockholder, are unable to affect the outcome of corporate actions requiring stockholder approval. NAI, through its direct and indirect ownership of our Class A Common Stock, has voting control of the Company. As of December 31, 2024, NAI directly or indirectly owned approximately 77.4% of our voting Class A Common Stock, and approximately 9.5% of our Common Stock. NAI is controlled by the General Trust, which owns 80% of the voting interest of NAI. NA Administration, LLC is the corporate trustee of the General Trust and is governed by a seven-member board of directors, which acts by majority vote (subject to certain exceptions), including with respect to the NAI shares held by the General Trust. Shari E. Redstone, Chairperson, CEO and President of NAI and non-executive Chair of our Board of Directors, is one of the seven directors of NA Administration, LLC and one of two directors who are beneficiaries of the General Trust. No member of our management or other member of our Board of Directors is a director of NA Administration, LLC. Accordingly, NAI is currently in a position to control the outcome of corporate actions that require, or may be accomplished by, stockholder approval, including amending our bylaws, the election or removal of directors and transactions involving a change in control. For example, our bylaws provide that: - the affirmative vote of not less than a majority of the aggregate voting power of all outstanding shares of our capital stock then entitled to vote generally in an election of directors, voting together as a single class, is required for our stockholders to amend, alter, change, repeal or adopt any of our bylaws;- any or all of our directors may be removed from office at any time prior to the expiration of his or her term of office, with or without cause, only by the affirmative vote of the holders of record of outstanding shares representing at least a majority of all the aggregate voting power of outstanding shares of our Common Stock then entitled to vote generally in the election of directors, voting together as a single class at a special meeting of our stockholders called expressly for that purpose; and - in accordance with the DGCL, our stockholders may act by written consent without a meeting if such stockholders hold the number of shares representing not less than the minimum number of votes that would be necessary to authorize or take such actions at a meeting at which all shares entitled to vote thereon were present and voted. In connection with the Transactions, the NAI Company Stockholders, which hold shares of our Class A Common Stock, executed and delivered to the Company a written consent approving and adopting the Transaction Agreement and, to the extent the consent of the Company's stockholders is required therefor, the Transactions,and the delivery of the written consent constituted the necessary approval of the Company's stockholders for the Transactions. The NAI Company Stockholders also are party to the Voting Agreement pursuant to which the NAI Company Stockholders have generally agreed to vote (or cause to be voted) all of the shares of our Class A Common Stock held by the NAI Company Stockholders in favor of certain matters set forth in the Voting Agreement relating to the Transactions. If the pending acquisition of 100% of the equity interests of NAI by certain affiliates of existing investors of Skydance (the "Skydance Investor Group") is consummated, such acquiring entities will collectively own and control 100% of NAI.