Means of Settlement in M&A Transactions: Does Arbitration Have Competitors? U.S. Perspective Fred Fucci May 13, 2010 Dispute Resolution in M&A Transactions Warsaw, Poland

2 Principal Courts handling M&A disputes: Delaware New York California

3 Delaware Court of Chancery  Almost 60% of publicly traded corporations in the U.S. are incorporated in Delaware  Delaware courts chosen as forum in 30% of M&A Transactions*  Delaware Court of Chancery (through Chancellor and four Vice- Chancellors) is highly specialized in corporate law disputes  Only one level of appeal in Delaware - Appeal is taken directly to the Delaware Supreme Court, itself composed of judges with long experience in corporate law questions If an M&A transaction involves a Delaware corporation, particularly as seller, U.S. M& A lawyers will reflexively insist that Delaware law apply and that the Delaware Court of Chancery have exclusive jurisdiction to resolve disputes *According to a 2006 study of SEC filings over a six-month period.

New York Courts  New York State Supreme Court in Manhattan considered the most sophisticated commercial State court of first instance in the U.S.  U.S. Federal District Court for the Southern District of New York highly regarded  New York courts chosen as forum in 15% of M&A transactions* Many U.S. merger agreements are governed by New York law, in which case U.S. M&A lawyers also prefer giving jurisdiction over disputes to New York Courts *2006 study 4

California State and Federal Courts  California courts chosen as forum in 15% of M&A transactions  Courts have a good reputation for sophistication but have mandatory mediation and are slow California lawyers will try to direct the parties to naming State and Federal Courts in California as the forum 5

Reasons for Choosing Arbitration over Court Jurisdiction  Home Court Advantage - If one of the parties is foreign (or an affiliate of a foreign parent) it could well feel uncomfortable with submitting to U.S. Court jurisdiction  General cumbersome and expensive nature of U.S. litigation with its extensive document discovery procedures  U.S. Court System is in most places completely overwhelmed - Cases take a very long time to get to trial and then there are two further levels of possible appeal (except in Delaware) 6

Delaware - 4,142 new cases in Court of Chancery in 2007 (Average of 828 per Chancellor and Vice Chancellor) New York -Average of 1,078 cases for each of 460 Supreme Court justices and County Court Judges California - Average of 4,796 cases for each of 1,972 judges, commissioners and referees 7

 Ability to name arbitrators who are themselves specialized in the area – having a professional resolve a dispute instead of a judge from the general corps of judges (except for Delaware Chancery Court) or possibly even a jury if the parties have not waived a jury trial in the agreement  Possible pro-management bias of judges in Delaware  Ability to maintain privacy of the proceedings, which is of greater importance in non-public deals  Possibility of obtaining injunctive relief or provisional measures either through the tribunal or courts of competent jurisdiction under most rules of arbitration 8

9 Examples Hostile Tender Offer a dispute arose after the offer relating to whether an investment banker was entitled to a fee on the share price offered  Jury trial in Boston, Mass. on the merits - the judge didn’t understand the case and his instructions to the jury were dead wrong  Jury didn’t understand the case and found for the investment banker  In post-trail motion, the judge cut back the verdict  Appeal required getting trial transcript which took almost two years  We appealed - the appeal has still not been decided by the Mass. intermediate level appeal court  After appeal decided, the case could be remanded again to trial level or in theory appealed to the highest court in Mass.

Post-Closing Dispute Private Acquisition  AAA Arbitration Clause  Dispute over whether client entitled to take scheduled withdrawals from escrow fund - accounting issues and also whether a certain amount of progress had been made on a construction project that was under way..  Three arbitrator clause - but the parties were able to agree on a sole arbitrator  Within a matter of a few months, the seller was able to make its complaint, have a response from client, exchange memorials  The case was settled after the memorials and before a hearing - the whole thing was over in less than 6 months 10

Summary  Large public company transactions will almost always be in Delaware or New York courts  Arbitration preferable in middle-market and private transactions 11