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ProBusiness Services Inc. has devised an escape hatch in case antitrust regulators tie up its $500 million acquisition by Automatic Data Processing Corp. Included in the companies’ Jan. 6 merger agreement is an unusual provision permitting ProBusiness’ board to void the deal if regulators threaten to stop the transaction and directors have a “good faith” belief that the government is “reasonably likely” to prevail in court. Asserting this right would free ProBusiness immediately from the merger agreement, rather than forcing it to wait until Sept. 30 when the deal expires, according to a copy of the merger agreement and preliminary proxy filed Tuesday with the Securities and Exchange Commission. In a signal that ProBusiness may be worried about an antitrust fight, the merger agreement requires ADP to pay ProBusiness $25 million if this provision in invoked. Typically, ProBusiness would be liable for this payment. ProBusiness did not return calls for comment; an ADP official declined comment. Corporate law experts said the wrinkle in the ADP-ProBusiness agreement may stem from the experience of DirecTV, which was forced to wait for months last fall for its deal with EchoStar Communications Corp. to expire despite the widespread conclusion that antitrust regulators would stop the transaction. “This gives [ProBusiness] the ability to back out and keep the company out of limbo,” said Charles Elson, a professor at the University of Delaware. “In this economic climate, it is appropriate.” Merger targets typically try to minimize the time between when the deal is struck and when it is consummated. This is because most merger agreements impose limits on capital spending and strategic decision-making, which put companies on hold during the regulatory review. Also, there is less incentive to sign up new clients if the company is being absorbed by a larger rival. None of these restrictions typically effect the acquirer, so if the deal falls apart, the target could find itself at a competitive disadvantage when it tries to resume as an independent enterprise. “Having a merger agreement pending does impair your business,” said Peter Letsou, a professor at the Willamette University College of Law in Salem, Ore. “From a business perspective, this says you don’t have to wait.” ProBusiness gets to make an initial read on the view of the Federal Trade Commission or Department of Justice and decide whether prospects for clearance are sufficient to put the business on hold through September, Letsou said. “If it is clear that DOJ or FTC is digging in its feet, then this gives you a chance to walk away in March or April rather than in September,” he said. The provision in question, found in � 7(c)(i) of the ADP-ProBusiness merger agreement and explained in the preliminary proxy, may be especially appropriate for this deal. Antitrust clearance largely depends on how regulators define the market. ADP and ProBusiness are two of the biggest third-party providers of payroll services to large companies. A definition limited to this market would likely result in an antitrust challenge. Yet there are numerous companies that serve smaller businesses that could compete for large accounts if ADP tried to raise prices. Also, many firms offer consulting services that enable large companies to process payroll internally. Expanding the market to include either of these competitors results in a negligible increase in concentration, which would obviate an antitrust challenge. A corporate lawyer in Delaware said ADP would have trouble challenging a decision by the board of ProBusiness to invoke this provision, regardless of how real the threat was of an antitrust challenge. “This is a very difficult issue to litigate,” the lawyer said. “It is very fact-intensive, and you have to get into people’s minds. There has to be not only no reasonable basis, but I have to know there is no reasonable basis for the decision.” The merger agreement says ADP and ProBusiness must use their “reasonable best efforts” to complete the deal, a standard deal requirement. But it says ADP is not required to divest or license assets that are material to its payroll business. It also does not have to accept limits on its use of ProBusiness or ADP assets if such a restriction would “materially adversely impact” the merger’s expected benefits. The merger agreement expires May 31 unless the deal has not yet received antitrust clearance. In that instance, the deal is automatically extended until Sept. 30. ADP must pay ProBusiness $25 million if a court issues an unappealable order blocking the deal or if the deal expires without receiving antitrust clearance. Also, neither side may assert that an outbreak of war, act of terrorism or worldwide economic slump constitutes a materially adverse change, which is the threshold that permits a company to void the merger without penalty. Olaf de Senerpont Domis in San Francisco contributed to this report. Copyright �2003 TDD, LLC. All rights reserved.

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