Citigroup (C)

SALE AND PURCHASE

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

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

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

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

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

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

(b) the PC/CM Transferred Shares;

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

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

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

Section 1.3 PC/CM Balance Sheet Adjustment.

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

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

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

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

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

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

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

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

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

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

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

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

“Base Date” means May 31, 2005.

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

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

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

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

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

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

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

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

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

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

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

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

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