MERGERS AND ACQUISITIONS UPDATE

1. MERGERS AND ACQUISITIONS UPDATE RICHARD J. BUSIS SEPTEMBER 24, 2008

2. MERGERS AND ACQUISITIONS UPDATE MAC Clauses Forthright Negotiating Personal Liability of Directors

3. Update on MAC (Material Adverse Change/Effect) Clauses Typical acquisition agreement provides that Buyer doesn�t have to proceed with transaction if there is a MAC. Gives Buyer the right to terminate the agreement, typically without penalty. May also give buyer leverage to renegotiate. Intended to allocate risk � if conditions unexpectedly change Standard clause: A Material Adverse Change is: an event, change or occurrence which, individually or together with any other event, change or occurrence has a material adverse effect on the financial position, business, properties, assets or results of operations of the Company and its subsidiaries taken as a whole.

4. MAC Clauses � Background MAC clauses now highly negotiated MAC clauses typically have exceptions � specific circumstances under which the MAC out doesn't apply. Deal must proceed even if there is a material change. Party asserting a MAC has the burden of proof. Relatively few MAC cases litigated to decision in Delaware.� Most cases settle before verdict.

5. IBP v. Tyson (Delaware Chancery Court, 2001) Merger agreement had broad MAC clause with no carve-outs Condition �would reasonably be expected to� have a MAC Requires parties to consider the impact of possible future events. Tyson Foods asserted that IBP, the target, had suffered a MAC IBP�s earnings for the first quarter of 2001 were down 64% from prior year Court stated that analysis is fact intensive. Court ruled that MAC clause �is best read as a backup protecting the acquirer from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally-significant manner.� A short-term hiccup in earnings should not suffice; MAC should be material when viewed from the longer-term perspective of a reasonable acquirer. In Tyson, Court did not see downturn as affecting IBP in the future on a long-term basis No MAC out.�

6. Frontier Oil v. Holly (Del. Ch. 2005) MAC clause contained carve-outs, such as general economic, regulatory or political conditions or changes; financial market fluctuations; and general changes in the petroleum industry.� Issue was whether toxic tort litigation constituted a MAC. Agreement had representation that litigation would not have [a material adverse effect] and would not reasonably be expected to have [a material adverse effect], Phrase �would have� or �would reasonably be expected to have� a MAC, created an objective test with a significantly higher threshold than would have existed if the parties had instead used the wording �could� or �might.� No MAC out.

7. Reactions to Litigated Cases Buyers began drafting agreements with �material adverse change� defined more precisely Sometimes put in objective standards of materiality (e.g., a specific financial metric decreases by 10% or more) Trend until recently, very seller friendly. Evidenced by increasing exceptions to MAC � i.e., list of items that do not constitute a MAC: general economic, financial, regulatory or market conditions, so long as the changes have not affected the target in a �materially disproportionate� manner as compared to other companies operating in the target�s line of business.

8. Genesco v. Finish Line (Tennessee Chancery Court December 27, 2007) Genesco filed suit against Finish Line seeking specific performance of Finish Line�s $1.5 billion acquisition of Genesco. Genesco�s performance deteriorated significantly, but over a relatively short period of time. Court found that a MAC had occurred with regard to Genesco�s financial condition. Court noted MAC clause provided that condition could be cured prior to the Termination Date (December 31, 2007). Shows that MAC can be established within a relatively short timeframe. But Court found the decline in performance was due to general economic conditions such as higher gasoline, heating oil and food prices, housing and mortgage issues, and increased consumer debt loads, and was not disproportionate to the financial decline of others in its industry. Condition within exclusion to the MAC. Court ordered specific performance.

9. Genesco MAC Provisions Material Adverse Effect. Since the date of this Agreement, there shall not have occurred a Company Material Adverse Effect with respect to the Company and the Company Subsidiaries, considered as a whole, that has not been cured prior to the Termination Date. �Company Material Adverse Effect� shall mean any event, circumstance, change or effect that, individually or in the aggregate, is materially adverse to the business, condition (financial or otherwise), assets, liabilities or results of operations of the Company and the Company Subsidiaries, taken as a whole; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a Company Material Adverse Effect: (A) the announcement of the execution of this Agreement or the pendency of consummation of the Merger (including the threatened or actual impact on relationships of the Company and the Company Subsidiaries with customers, vendors, suppliers, distributors, landlords or employees (including the threatened or actual termination, suspension, modification or reduction of such relationships)); (B)�changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which the Company and the Company Subsidiaries conduct their business, so long as such changes or conditions do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (C)�any change in applicable Law, rule or regulation or GAAP or interpretation thereof after the date hereof, so long as such changes do not adversely affect the Company and the Company Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (D)�the failure, in and of itself, of the Company to meet any published or internally prepared estimates of revenues, earnings or other financial projections, performance measures or operating statistics; provided, however, that the facts and circumstances underlying any such failure may, except as may be provided in subsection (A), (B), (C), (E), (F)�and (G)�of this definition, be considered in determining whether a Company Material Adverse Effect has occurred; (E)�a decline in the price, or a change in the trading volume, of the Company Common Stock on the New York Stock Exchange (�NYSE�) or the Chicago Stock Exchange (�CHX�); (F)�compliance with the terms of, and taking any action required by, this Agreement, or taking or not taking any actions at the request of, or with the consent of, Parent; and (G)�acts or omissions of Parent or Merger Sub after the date of this Agreement (other than actions or omissions specifically contemplated by this Agreement).

10. SLM (Sallie Mae) and J.C. Flowers Delaware Chancery Court litigation; settled in January 2008 Flowers sought to terminate its acquisition of Sallie Mae in part because new Federal legislation would decrease Sallie Mae�s earnings.� SLM contended that "core earnings" would be negatively impacted by only 1.8 to 2.1 percent annually over the next five years.� Agreement provided: "Material Adverse Effect" means a material adverse effect on the financial condition, business, or results of operations of the Company and its Subsidiaries, taken as a whole, except to the extent any such effect results from: ... (b) changes in Applicable Law provided that, for purposes of this definition, "changes in Applicable Law" shall not include any changes in Applicable Law relating specifically to the education finance industry that are in the aggregate more adverse to the Company and its Subsidiaries, taken as a whole, than the legislative and budget proposals described under the heading "Recent Developments" in the Company 10-K, in each case in the form proposed publicly as of the date of the Company 10-K) or interpretations thereof by any Governmental Authority."

11. Sallie Mae Arguments As language shows, parties were aware of new Federal legislation. Flowers argued the legislation actually adopted by Congress would be more costly to Sallie Mae than expected. Flowers wanted to terminate merger without paying the $900 million break-up fee.� Sallie Mae argued that because the MAC provisions specifically excluded contemplated legislation similar to that which Congress ultimately approved, Flowers must show that the legislation was materially worse than the proposed legislation. Sallie Mae also argued that problems in the credit markets were within exclusion from MAC regarding adverse changes in �general economic business, regulatory, political or market conditions.� Parties settled litigation and terminated acquisition in January 2008.

12. Hexion v. Huntsman Filed in Delaware Chancery Court in June 2008 Hexion, a company owned by private-equity firm Apollo Management, signed deal to acquire specialty chemical manufacturer, Huntsman Corp., in July 2007 Merger agreement has two principal outs for buyer: need to provide solvency certificate to buyer�s lenders and MAC

13. Operative Provisions from Huntsman Merger Agreement Absence of Company Material Adverse Effect.� There shall not have occurred after the date of this Agreement any event, change, effect or development that has had or is reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect. a �Company Material Adverse Effect� means any occurrence, condition, change, event or effect that is materially adverse to the financial condition, business, or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that in no event shall any of the following constitute a Company Material Adverse Effect:� (A)�any occurrence, condition, change, event or effect resulting from or relating to changes in general economic or financial market conditions, except in the event, and only to the extent, that such occurrence, condition, change, event or effect has had a disproportionate effect on the Company and its Subsidiaries, taken as a whole, as compared to other Persons engaged in the chemical industry; (B)�any occurrence, condition, change, event or effect that affects the chemical industry generally (including changes in commodity prices, general market prices and regulatory changes affecting the chemical industry generally) except in the event, and only to the extent, that such occurrence, condition, change, event or effect has had a disproportionate effect on the Company and its Subsidiaries, taken as a whole, as compared to other Persons engaged in the chemical industry, (C)�the outbreak or escalation of hostilities involving the United States, the declaration by the United States of war or the occurrence of any natural disasters and acts of terrorism, except in the event, and only to the extent, of any damage or destruction to or loss of the Company�s or its Subsidiaries� physical properties; (D)�any occurrence, condition, change, event or effect resulting from or relating to the announcement or pendency of the Transactions (provided, however, that this clause (D) shall not diminish the effect of, and shall be disregarded for purposes of, the representations and warranties relating to required consents, approvals, change in control provisions or similar rights of acceleration, termination, modification or waiver based upon the entering into of this Agreement or consummation of the Merger); (E)� any change in GAAP, or in the interpretation thereof, as imposed upon the Company, its Subsidiaries or their respective businesses or any change in law, or in the interpretation thereof; (F)�any occurrence, condition, change, event or effect resulting from compliance by the Company and its Subsidiaries with the terms of this Agreement and each other agreement to be executed and delivered in connection herewith and therewith (collectively, the �Transaction Agreements�), actions permitted by this Agreement (or otherwise consented to by Parent) or effectuating the Financing; or (G) any occurrence, condition, change, event or effect resulting from or in connection with any Divestiture Action.

14. Huntsman Status Duff & Phelps, hired by Buyer, concluded that the combined entity would be insolvent Agreement provides break-up fee of $325 million if no solvency certificate is delivered; No fee paid if Buyer uses MAC out (Buyer already paid $100 million of break up fee for a prior deal) Trial going on now. Issues are whether buyer can terminate agreement and if so, on what basis � MAC or failure to obtain solvency certificate.

15. Drafting Points In present state of the credit market, buyers and lenders attempting to gain more flexibility in terminating a transaction. Exclusions to MAC should be specific. Specific areas of concern should be addressed in the MAC clause. Don�t just rely on broad MAC language. When possible, define materiality. e.g., missed financial targets that give an objective standard Define the duration of an event. Giving a cure right may indicate a durational timeframe for a MAC.

16. Drafting Points (continued) Buyer recommendations: Changes that have a disproportionate effect on target (e.g., economy and industry) should be excluded from carve out. Exclude specific performance as a remedy. Seller recommendations: Avoid reverse termination fee. Reverse termination fee and exclusion of specific performance as a remedy can significantly alter the risks that the buyer will be able to walk away from the deal. Add exceptions Use of forward-looking language, including �prospects� and phrases such as "would have" or "would reasonably likely to have" favors buyer. Establish the burden of proof in the language of the MAC clause.

17. Mergers and AcquisitionsUpdate Ian A. Hartman