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The following discussion thread excerpt is from a recently completed law.com online seminar “Mergers and Acquisitions Roundtable: The Post-Pooling Era.” Craig Wasserman of Wachtell, Lipton, Rosen & Katz and Tom Kennedy of Skadden Arps Slate & Meagher & Flom head a distinguished Board of M&A Roundtable Advisers. Program contents, including discussions and library documents, remain available. CLE credit is available in over 20 states. For information on this program and other law.com seminar offerings, please visit http://www.law.com/seminars. CRAIG WASSERMAN, WACHTELL, LIPTON, ROSEN & KATZ, NEW YORK What are the implications of the new accounting rules for deal protection structures going forward? In large strategic combinations accounted for as poolings — 19.9 percent cross lock-up options with a pooling killer feature had become prevalent. While these options still work to provide economic and potential strategic advantages to an acquirer in a competitive situation they no longer have the same deterrent effect as the pooling-killer feature once did. Will people come up with more creative structures to provide deal protections (and/or return to some of the more controversial structures of the past — such as asset lock-ups) and will the Delaware courts permit such structures? Even in the context of cash bust-up fees, it appears that people are beginning to test the boundaries by pushing out from 2 to 3 percent to 4 to 6 percent. Isn’t the question of the permitted scope of deal-protection very case-specific, and what types of arguments can best support a more aggressive lock-up structure? What forms of noneconomic features can people use to protect their deals? Lock-out features that say no other deal is possible while the current deal is pending and providing for no termination right even if the shareholders vote down the deal at the first meeting? What about letting the friendly acquirer purchase a toe-hold position up front (or allowing the lock-up option to be exercised upon the announcement of a competing bid rather than the typical double-trigger structure that has the option exercisable only when there is an agreement reached between the target and the interloper)? JEFFREY GORDON, PROFESSOR OF LAW, COLUMBIA LAW SCHOOL, NEW YORK I think questions would be raised about permitting exercise of a lock-up option upon the announcement of an offer. Does Bidder One get to vote those shares, and if so, it may become the dominant shareholder. Also, how will Bidder One finance its exercise of the option? Target and Bidder One don’t have identical interests here; this opens a tricky set of issues for target board. TOM KENNEDY, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, NEW YORK The new rules obviously change certain lock-up theory, such as the in terrorem effect of a pooling-queering 19.9 percent option. It seems to me, on the whole, that in the world of bust-up fees/stock lock-ups, etc., that other factors (court decisions, stock exchange rules) will keep the range of lock-ups fairly close to where they were pre-change. As to asset “lock-ups”, I don’t see them becoming trendy again. Perhaps where asset issues will change is in literally allowing multiple-step deals, the first of which is some form of asset transfer (sale, joint venture, etc.), but as a straight business deal … a device … protection device . … By the way, the best summary of asset lock-ups I know of is in Professor Coates’ discussion paper no. 274, available at http://www.law.harvard.edu/ programs/olin_center/, at pages 3-5, especially footnote 70. As he says, “the Court in both Revlon and Macmillan explicitly stated that asset lock-ups were not per se illegal, yet practitioners responded as if they were.” VICTOR LEWKOW, CLEARY, GOTTLIEB, STEEN & HAMILTON, NEW YORK Of course, though the accounting treatment has changed, the legal principles have not. Thus, what may be justifiable deal protection may depend, among other things, on whether a transaction is or is not a Revlon transaction, as well as whether or not the target was “shopped” prior to signing up the deal. And, if you are not in Delaware, the legal landscape may be different. One side effect of the elimination of pooling, and the resultant likely increase in mixed-consideration transactions, is that lawyers will more often have to try to ascertain how much of the consideration must be acquirer common stock in order for Revlon not to apply.

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