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the stock price of the publicly-traded acquiring company between the signing and the
closing of the deal. This risk is, of course, exacerbated when the period between signing
and closing is lengthy.

The various graphs in the "Pricing Formulations" piece9 show that, from the
standpoint of the target company’s stockholders, the potential harm of a post-signing
drop in the acquirer’s stock price is most pronounced where the negotiated pricing
formulation is a pure, unadorned, fixed exchange ratio.

What we’re seeing now, against the backdrop of a highly volatile stock market, is
that many privately-held target companies are actively seeking some sort of pre-closing
price protection in their mergers with publicly-traded acquirers. Specifically, they seek
either a pure floating exchange ratio (an exchange ratio formulation where, as the
acquirer’s stock price falls between signing and closing, the number of shares to be issued
to the target’s stockholders automatically increases commensurately) or, at the very
least, a "collar" around the fixed exchange ratio. (Both of these exchange ratio
formulations are illustrated in the "Pricing Formulations" piece.)

We’re even seeing some privately-held target companies demand price- based
walk rights in fixed exchange ratio deals, either in conjunction with, or in lieu of, a collar.
A "price-based" walk right is a provision in the merger agreement that allows the target
company to terminate and walk away from the deal if the acquirer’s stock price falls below
some pre-determined level.

In your public-private stock-for-stock deals, have you observed a trend toward
greater insistence on post-signing/pre-closing price protection for the target company’s
stockholders?

Wilson Chu: Yes. Targets are requesting more collars and price-based walk rights
today. The possibility of an extended time between signing and closing was particularly
important for us in one recent deal because we were dealing with the regulatory
authorities in Singapore, and it took a long time to get clearance to proceed with the deal.
So I agree, pre-closing price protection can be a big issue.

9 Documents referred to in the transcript are available at http://www.realcorporatelawyer.com/
CLE/CLE06-26-02Materials.html.

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