Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 4

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          to the acquisition jointly elected, pursuant to section                     
          338(h)(10), to treat the acquisition of the stock as an asset               
          acquisition.  At the time of the acquisition, Technicolor’s                 
          primary activities were film processing and videocassette                   
          duplication.  The film division provided film processing and                
          related services to major film studios.  The videocassette                  
          duplication division manufactured prerecorded videocassettes for            
          home video and nontheatrical markets.                                       
               Technicolor, a leading film processing company, had an                 
          experienced management team, sophisticated equipment, and                   
          proximity to the studios’ filming locations.  In addition,                  
          personal relationships, between Technicolor’s and the major film            
          studios’ executives, facilitated client development and                     
          retention.                                                                  
               The film processing market was extremely competitive, and              
          major studios used their strong bargaining power to negotiate               
          large up-front payments (e.g., Technicolor made a $65 million               
          payment to renew a contract with Walt Disney Pictures), volume              
          discounts, “most-favored-nation” provisions,5 and other                     
          contractual concessions from film processing companies.                     
          Technicolor’s major competitors were Deluxe Laboratories, Inc.              



               5  Most-favored-nation provisions ensured that a customer              
          would get the same pricing as any other customer ordering the               
          same volume of services.                                                    





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