ANDREW J. BRADY PATRICIA MORAN. Copyright 2011 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved.

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1 PATRICIA MORAN ANDREW J. BRADY PARTNER COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Pat has a diverse practice with extensive experience in a wide variety of corporate transactions in the areas of mergers and acquisitions, private equity, restructuring, corporate finance and general corporate law. Andrew focuses his practice on securities regulation, corporate transactions and corporate governance. Prior to joining the firm, he served as a special counsel in the SEC s Office of Chief Counsel of the Division of Corporation Finance. 30 April 2011 practicallaw.com

2 Publicly available SEC comment letters have become an indispensable source of information for evaluating how the SEC Staff approaches disclosure review in the context of public company M&A transactions. This Report by Patricia Moran and Andrew Brady of Skadden, Arps, Slate, Meagher & Flom LLP draws out several themes from recent correspondence between transaction parties and the SEC Staff on disclosures relating to the involvement of financial advisors in the merger process. Article photo by Yasuhide Fumoto/Photodisc/Getty Images. One of the gating items in completing a public company M&A transaction is navigating successfully any review and comment process from the Staff of the Securities and Exchange Commission (SEC). Although the Staff regards the comment process as a dialogue with a company about its disclosure, it is a dialogue that M&A practitioners hope to keep to a minimum, since in the context of a deal, delay increases execution risk. Since 2004, the Staff has made available on its website comment letters on disclosures made in the context of public company mergers, together with company responses to those comments. The SEC publishes the correspondence with a view toward making its disclosure review process more transparent. >> For an overview of the SEC disclosure review and comment process in a public company M&A transaction, search Public Mergers Disclosure: Overview and Proxy Statements: Public Mergers on our website. Careful review of the available comments and responses, as well as any related changes to the relevant disclosure documents, provides valuable insight into the issues attracting significant Staff attention and provides a roadmap for resolving those issues. Understanding the Staff s views allows parties to the transaction and their legal and financial advisors to anticipate issues and draft their disclosures and conduct the transaction process accordingly. This in turn may, in certain cases, reduce the likelihood of a Staff review or at least lead to an expedited conclusion of a review. Based on an analysis of recent Staff comments and company responses, this Report identifies several recurring issues relating to disclosures involving financial advisors, in particular: Advisor briefings and presentations. Financial projections. Valuation analyses. Disclaimers. Fees. To illustrate the themes highlighted, this Report includes extracts from representative correspondence. While this Report focuses on the Staff review and comment process, practitioners should be aware that disclosure claims, particularly those involving projections and banker s fees and analyses, have been increasingly arising in litigation under Delaware law and, by extension, are likely to arise in litigation under other state s laws. FINANCIAL ADVISOR BRIEFINGS In the context of an M&A transaction, a financial advisor typically prepares briefing materials for the board of directors, including board books, presentations and, occasionally, draft fairness opinions. Investment banks and transaction parties ordinarily prefer to keep these materials confidential. However, depending on the type of transaction and the relevant disclosure document (as well as general antifraud requirements), these materials may need to be described in the disclosure document and filed as exhibits. Correspondence on this type of disclosure emphasizes important points relating to: Confidentiality issues. Practical Law The Journal April

3 Interpretation of terms. Analysis of materiality. CONFIDENTIALITY The Staff typically requires that transaction participants supplementally provide the Staff with copies of these additional related materials, and often also engagement letters, with a view toward potential disclosure. Given the sensitive nature of briefing materials and the fact that they are the work product of the financial advisor, in-house or outside counsel to the financial advisor typically submit these materials on a confidential and supplemental basis under Rule 12b-4 of the Securities Exchange Act of 1934, as amended (Exchange Act) and Rule 418 of the Securities Act of 1933, as amended (Securities Act). As contemplated by the SEC rules, counsel invariably request that these materials be returned or destroyed promptly following completion of the Staff s review. Counsel often also request that the materials be treated confidentially under Rule 83 of the SEC s Rules of Practice, in case the Staff does not agree that the return of the documents is appropriate under the circumstances. Pfizer Inc. & Wyeth File No (2009) Please supplementally provide us with copies of any materials prepared by Morgan Stanley and Evercore in connection with its fairness opinion, including, among other things, any board books, draft[s] of fairness opinions provided to the board of directors, and any summaries of presentations made to the board of directors. We may have further comments on your disclosure once we have had the opportunity to review these materials. The presentation materials are being provided to the Staff under separate cover by the respective counsel for each of Morgan Stanley and Evercore on a confidential and supplemental basis pursuant to Rule 12b-4 under the Exchange Act of 1934, as amended, and Rule 418 under the Securities Act of 1933, as amended. In accordance with such Rules, each of Morgan Stanley s and Evercore s respective counsel has requested that such materials be returned promptly following completion of the Staff s review thereof. By separate letter, counsel for each of Morgan Stanley and Evercore also has requested confidential treatment of such materials pursuant to the provisions of 17 C.F.R INTERPRETATION OF TERMS To determine which additional briefing materials will trigger disclosure obligations under the applicable rules, the Staff evaluates whether the materials would be deemed a report, opinion or appraisal that: Materially relates to the subject transaction. Has been received from an outside party. Is referred to in the relevant disclosure document. If the Staff decides any materials satisfy all of these criteria, the company must include in the disclosure document a summary of the report, opinion or appraisal and certain additional information, including: The identity of the author. A description of any material relationship the author and the company had in the previous two years (or that is mutually contemplated). Any compensation received or to be received as a result of any relationship. However, in the context of going private transactions under Rule 13e-3 of the Exchange Act, there is no requirement that the materials be referred to in the relevant disclosure document. Rather, any report, opinion or appraisal from an outside party that is materially related to the transaction must be: Described in reasonable detail in the relevant disclosure document. Filed as an exhibit to Schedule 13E-3. The same is true in the case of a stock merger registered on Form S-4, but not in the case of a cash merger requiring a proxy statement on Schedule 14A. >> >> For more information on the disclosure obligations in a going private transaction, search Going Private Transactions on our website. For an overview of the disclosure requirements of a registration statement on Form S-4 when used for business combinations, search Registration Statement: Form S-4 and Business Combinations on our website. The Staff comment letters provide some guidance on how the Staff interprets the terms report, opinion or appraisal, materially related to the transaction and outside parties. Report, Opinion or Appraisal The Staff has taken a broad view of what constitutes a report, opinion or appraisal, perhaps in part because there is no limiting definition under the federal securities laws. For example: A draft document may fall into this category under certain circumstances. 32 April 2011 practicallaw.com

4 Oral reports and any supporting written materials provided to a board of directors may need to be summarized in the relevant disclosure document (and potentially memorialized in writing and filed as exhibits). When determining whether a draft or oral report must be summarized (and potentially filed), counsel should consider whether it materially differs in substance from the final written version. Green China Res., Inc. & Shine Media Acquisition Corp. File No (2008) We note that JMP Securities LLC delivered an oral fairness opinion to the board of directors on April 28, Any presentations or reports prepared by management or JMP Securities LLC, prior to the board s determination on May 5, 2008 to approve the acquisition, should be described in reasonable detail, by date, indicating the nature of the presentation, information presented, recommendations and conclusions. Any materials, including reports, analyses, projections, talking papers and similar items which were prepared or presented at the board meetings should be supplementally provided to us. The company response confirmed, and the revised disclosure reflected, that the oral fairness opinion was consistent with the written fairness opinion delivered to the board at a later date. Therefore, the oral presentation did not constitute a separate report, opinion or appraisal. Additionally, the company revised its disclosure to list the materials presented by the company s management and JMP to the board, as well as provided those materials (including JMP s Fairness Opinion Presentation) to the SEC, on a confidential and supplemental basis. Materially Related to the Transaction While it is an inherently factual determination, the Staff generally has taken the view that a report, opinion or appraisal is materially related to the transaction if the company refers to the report, opinion or appraisal in its disclosure documents. However, companies can rebut this presumption successfully under certain circumstances. Teva Pharm. Indus. Ltd. & Barr Pharm., Inc. File No (2008) We note that Lehman Brothers Inc. served as your financial advisor. If you have received a report, opinion or appraisal from Lehman Brothers Inc. that is related to your transaction with Barr Pharmaceuticals, Inc., please provide all information required by Item 4(b) of Form F-4 and Item 1015 of Regulation M-A. If Lehman Brothers Inc. did not provide a report, opinion or appraisal, please describe the services provided as your financial advisor. Lehman Brothers Inc., Teva s financial advisor in connection with the proposed merger, is mentioned only once in reference to certain of its representatives attendance at negotiation sessions between executives of Teva and Barr Pharmaceuticals, Inc. As the transaction will be submitted to a vote of only Barr s stockholders, and no holders of Teva s shares (including Teva s American Depository Shares) will vote on the transaction, the proxy statement/prospectus included in the Registration Statement is directed at Barr shareholders only, with no further description of Lehman s role in the transaction. Even though Lehman Brothers did provide Teva s board of directors with a fairness opinion, it is not referred to in the prospectus included in the Registration Statement, and accordingly, the provisions of Item 4(b) of Form F-4 and Item 1015 of Regulation M-A do not apply to Lehman Brothers or its opinion. Outside Parties It appears that the Staff applies a plain reading to the term outside parties. Therefore, in limited circumstances, the Staff has been receptive to the argument that certain presentation materials were not prepared by outside parties. Tercica, Inc. & Ipsen, S.A. File Nos , (2008) The Staff requested a summary of and the filing of all the presentations made by the financial advisors as well as counsel for the company, [certain parties] or the Special Committee. Practical Law The Journal April

5 Counsel successfully argued that, [t]o the extent the Staff s comment is intended to cover presentations by counsel, presentations by [certain parties] themselves for internal use, and presentations by the Special Committee itself for internal use,... [s]uch a requirement would be inconsistent with historical and current practice in connection with Schedule 13E-3 and would constitute a new, burdensome and impractical disclosure requirement. Item 1015 covers, and has been interpreted to cover, reports by outside parties and is not intended to cover legal advice by counsel to its client. ANALYSIS OF MATERIALITY The Staff generally applies an overriding materiality analysis to the question of whether additional briefing materials will trigger disclosure obligations on behalf of the transaction parties. Parties have succeeded in omitting certain preliminary materials where they: Did not serve as the basis for the final decisions of the special committee or the board of directors. Were earlier versions of the financial advisors financial analyses and generally contained the same analyses as those already included in the disclosure document. Would be unnecessarily duplicative and potentially confusing to shareholders of the subject company. Nationwide Fin. Servs., Inc. & Nationwide Mut. Ins. Co. File Nos , (2008) Please note that each presentation, discussion or report held with or presented by an outside party that is materially related to the Rule 13E-3 transaction, whether oral or written, is a separate report that requires a reasonably detailed description meeting the requirements of Item 1015 of Regulation M-A. This requirement applies to both preliminary and final reports. To the extent you have not already done so, please revise your disclosure to summarize all the presentations made by the financial advisors as well as counsel for the company, Nationwide or the special committee, and file all relevant materials, spreadsheets, talking papers, board books, drafts, summaries or outlines as exhibits to the Schedule 13E-3. With respect to the Lazard materials, the materials used during Lazard presentations prior to August 6, 2008 did not serve as the basis for the final decisions of the Special Committee or the Board of the Company. With respect to the UBS and Goldman Sachs materials, earlier versions of the August 6, 2008 UBS and Goldman Sachs financial analysis generally contained the same analyses as those set forth in the August 6, 2008 version of the presentation as of earlier dates. As such, we respectfully submit that providing detailed summaries of the preliminary presentations filed as Exhibits to the Schedule 13E-3 would be unnecessarily duplicative and potentially confusing to shareholders of the Company. PROJECTIONS SEC regulations generally contain no specific requirement to disclose financial projections. Nevertheless, the Staff often requires companies involved in an M&A transaction to include a summary of the target company s and, in some cases, the buyer s financial projections. In addition to an overriding materiality analysis, the determination that financial projections must be disclosed generally depends on: Whether the financial projections were used in the preparation of any of the financial analyses. The type of M&A transaction involved. Who received the projections. The examples below address three scenarios, involving financial projections provided by: The target to its financial advisor. The target to the buyer or buyer s financial advisor. The buyer to the target or target s financial advisor. TARGET TO ITS FINANCIAL ADVISOR The Staff has taken the view that disclosure of financial projections provided by a target company to its financial advisor in connection with the preparation of the fairness opinion is often necessary to assure that the description of the various financial analyses supporting the opinion is meaningful and transparent to investors. This disclosure should include the material assumptions underlying these projections. For instance, where a fairness opinion is based on, among other things, a discounted cash flow analysis, the Staff often issues a comment seeking the underlying financial 34 April 2011 practicallaw.com

6 projections. This approach is based on the theory that a discounted cash flow analysis cannot be evaluated properly unless accompanied by the projected future cash flows of the target company. In going private transactions, the Staff has taken the view that shareholders should have access to the same projections to which target company management (who are likely participants in the deal with the buyer) has access. Fidelity Nat l Info. Services, Inc. & Metavante Technologies, Inc. File No (2009) We note that in formulating their fairness opinions Goldman Sachs, Banc of America and Barclays all relied upon certain financial forecasts and analysis prepared by your and Metavante s management, as applicable. Please revise your filing to include a summary of any non-public information, such as the financial forecasts and analysis, used by Goldman Sachs, Banc of America or Barclays in formulating their fairness opinions. In response to the Staff s comment, the company revised the disclosure to add summaries of the referenced projections and cautionary language that, among other things, the estimates were not prepared with a view toward public disclosure, or in compliance with SEC or accounting guidelines. TARGET TO BUYER OR BUYER S FINANCIAL ADVISOR The Staff has taken the view that, to the extent they are material, financial projections should be disclosed to shareholders when the target company provides the projections to the buyer or the buyer s financial advisor. The rationale, broadly speaking, is to provide shareholders with access to the same information as the buyers. The overriding materiality analysis makes it possible to avoid triggering a disclosure requirement if the financial projections are deemed immaterial because they were not used or relied on by the buyer or the buyer s financial advisor. For example, the Staff may not require the disclosure of projections if either: The projections consist of stretch numbers perceived to be unreliable or stale due to changed circumstances. Significant changes in the financial markets cause a target management s expectations to diverge from what was contained in financial projections previously provided to the buyer. PNC Fin. Servs. Group, Inc. & National City Corp. File No (2008) Please tell us about any projections or other material non-public information provided by National City to PNC or its financial advisors. For any projections or other information provided by one party to the other party or their advisors, please disclose any material non-public information provided. In response to the Staff s comment, we supplementally advise the Staff that we have not included in the Amendment the financial projection information provided by National City to PNC based on PNC s conclusion that the projections provided to PNC by National City did not represent material, non-public information. Our conclusion was based on several factors, including that the projections were last fully updated in August, do not take into account the subsequent changes in market and economic conditions, including the extreme conditions and volatility experienced over the last several months (during which time, among other things, public analyst estimates for financial services firms generally have been significantly reduced), do not take into consideration the likely impact on counterparty relationships, depositors or regulatory relations of the environment generally and at National City in particular, and as a result of the foregoing do not reflect management s expectations for National City on a stand-alone basis or otherwise. The projections at issue were not disclosed. BUYER TO TARGET OR TARGET S FINANCIAL ADVISOR In some cases, the buyer may provide the target company or its financial advisor with financial projections. This typically occurs in connection with a transaction that involves the issuance of buyer securities as all or part of the consideration. In these cases, the target and its financial advisor would request financial projections from the buyer to establish the value of the buyer securities to be issued to the target company shareholders. While the Staff has taken the view that the financial projections of the buyer that have been provided to the target company or its financial advisor generally would not be deemed a report, opinion or appraisal Practical Law The Journal April

7 for purposes of the relevant rules as applied to the target company, the determination of whether the financial projections must be disclosed likely will turn on whether this disclosure is deemed necessary to make the other disclosures in the disclosure document not misleading under a general antifraud analysis. RRI Energy, Inc. & Mirant Corp. File No (2010) Please disclose the financial forecasts and projections, and underlying assumptions, that were exchanged by and among and relied upon by the parties, reviewed by the financial advisors and referenced [in the proxy statement/prospectus]. The proxy statement/prospectus was revised to include a new section titled Unaudited Financial Forecasts, which included, among other things, financial projections prepared by the buyer and provided to the target company s board and financial advisor. The new disclosure cautioned that the projections were not prepared with a view toward public disclosure. VALUATION ANALYSES Staff review of disclosure related to the valuation analyses performed by the financial advisors in M&A transactions focuses heavily on the data underlying those analyses. Consequently, the Staff s comments tend to be very detailed and highly transaction-specific. Nevertheless, there are certain recurring themes. The Staff often focuses closely on any disclosure explaining the selection process for the companies or transactions included in the financial advisor s comparable company analyses or comparable transaction analyses. In the case of comparable companies, the Staff generally requires a detailed explanation of how the financial advisor determined: That the specified companies were comparable. What similar characteristics the companies had, including capitalization, industry, product mix and markets. Because a financial advisor may cherry-pick comparable companies that best support its analyses, the Staff routinely requires disclosure of whether any companies that met the criteria for selection were excluded from the analyses, including: Identification of the excluded companies. An explanation of why the companies were excluded. Similarly, the Staff requires identification of the criteria used for determining that a given transaction was comparable, including: The parties to the transaction. The industry of the parties. The premium paid. The year of the transaction. Whether there were any transactions that met the criteria and were excluded from the analyses and why. The Staff also routinely looks for disclosure of the methodology used to select the market prices for determining the premiums paid in the identified transactions, such as whether the market prices used to make the premium calculations were averages calculated over particular periods or prices on particular dates. Rohm & Haas Co. & Dow Chemical Co. File No (2008) Please explain why Goldman Sachs selected these transactions for its premium comparison. In doing so, please address the characteristics of these transactions that make them more comparable to your transaction than the characteristics of other transactions that may have been considered by Goldman Sachs but were excluded from the premium comparison. In addition, please describe the methodology Goldman Sachs used to select the market price for the listed transactions. Your revised disclosure should make it clear whether the market price used to make the premium calculation was an average calculated over a particular period or a price on a particular date. GLG Partners, Inc. & Man Group plc File Nos , (2010) We note your disclosure on page 39 that Moelis made qualitative judgments that ultimately led Moelis to select a range of implied premiums for the transaction of 25% to 35%, which was applied to the closing price of GLG common stock on May 14, Please revise the disclosure to explain the qualitative judgments made by Moelis in determining the range of implied premiums, and why Moelis chose only to apply it to the closing price of May 14, April 2011 practicallaw.com

8 Practitioners generally respond to the Staff s comments by including additional detail regarding the selection processes, although qualifications are often included as well. For example, disclosure in this area frequently contains the caveat that the determinations of the applicable criteria are based on the financial advisors professional judgment and experience and that no identified company or transaction is directly comparable. Regarding the methodologies used to support the financial advisor s opinion, such as the discounted cash flow analysis, the Staff requires detailed disclosure of the various assumptions used and judgments made in connection with the calculations underlying the methodologies and the reasons those assumptions and judgments were made. For example, the Staff often requires disclosure of: How the financial advisor determined that a particular cost of equity assumption was appropriate. The source of any Wall Street estimates that were used and why they were used. Why a particular discount rate or trading multiple was appropriate. Rohm & Haas Co. & Dow Chemical Co. File No (2008) Please explain how Goldman Sachs determined the ranges for the discount rates, EBITDA multiples and free cash flow perpetuity growth rates used in its discounted cash flow analysis. In addition, please explain why Goldman Sachs calculated indications of net present value of free cash flows only for the second half of 2008, 2009 and 2010 and not for a longer period. Hess Corp. & American Oil & Gas Inc. File No (2010) Please explain how Tudor Pickering calculated the enterprise value as used in the Select Public Company Trading Statistics Analysis. GLG Partners, Inc. & Man Group plc File Nos , (2010) Please revise to disclose the method Perella Weinberg used to calculate the cost of equity rate and perpetuity rate used as part of the Discounted Cash Flow Analysis discussed on page 58. Once again, the practice generally is to provide this additional detail, but often with the qualification that these determinations rely in part on the professional judgment and experience of the financial advisor. Counsel can sometimes successfully persuade the Staff that requested details regarding the analysis of the financial advisors are not necessary or appropriate. This situation often arises in relation to requests for disclosure that potentially would imply that any one factor or method of analysis carried more or less weight than another. DISCLAIMERS It has become increasingly common for SEC disclosure documents to contain disclaimers that seek to shield the issuer or its financial advisors from liability to shareholders of the transaction parties. In a few areas, such as projections, disclaimers are typically accepted by the Staff in disclosure documents, subject to certain limitations. However, the Staff has questioned the inclusion of disclaimers in M&A disclosure documents in several other contexts, including disclaimers by or on behalf of a financial advisor regarding shareholders rights to rely on the fairness opinion that the advisor has provided to a transaction party s board of directors or special committee. Examples of these disclaimers include statements in the disclosure document and/or the fairness opinion to the effect that: The opinion is solely for the use of the board or special committee and may not be used or relied upon by any other person. Inclusion of the opinion in the disclosure document is not intended to be relied upon by or does not confer any rights on shareholders or other parties. The Staff has taken the position that even a mild version of this language inappropriately seeks to limit shareholder reliance on the fairness opinion and typically will require the deletion of these disclaimers. The basis for the Staff s objection is twofold: Because it is uncertain whether a shareholder may bring an action in state court against a financial advisor concerning a fairness opinion issued to a board of directors, the Staff believes that these disclaimers are not statements of law. Rather, the disclaimers are opinions of the financial advisor (and its counsel) that the financial advisor would not be liable for claims brought by shareholders. The Staff believes that these disclaimers potentially mislead shareholders regarding the Practical Law The Journal April

9 financial advisor s (and company s) liability under the federal securities laws. If the company resists deleting the language (or sometimes to preempt any resistance), the Staff often requests alternative disclosure of the basis for the company s belief that the fairness opinion does not confer rights or remedies on the shareholders. This may include a description of applicable state law supporting the assertion, or in the absence of this authority, disclosure that the available rights and remedies will be resolved by the proper court. Company responses vary, but the vast majority of companies seek to avoid inclusion of the quasi-legal opinion contemplated by the Staff s comment and instead delete the qualification language, sometimes with the inclusion of modified language that the Staff has accepted. Dominion Homes, Inc. & Investor Group File Nos , (2008) We note the disclosure that Houlihan Lokey s opinion was not intended to be used, and may not be used, by any other person or for any other purpose, without Houlihan Lokey s prior written consent and that [t]his Opinion is not intended to, and does not, confer any rights or remedies upon any other person. These limitations appear to limit reliance by investors on the opinions. We view these limitations as inappropriate. Please either delete these limitations or disclose the basis for the advisors belief that shareholders cannot rely on the opinion to support any claims against it arising under applicable state law. Describe any applicable authority or disclose that the availability of this defense will be resolved by a court of competent jurisdiction. The disclosure was revised to read as follows: Houlihan Lokey s opinion was furnished for the use and benefit of the Special Committee in connection with its consideration of the Merger and was not intended to be used for any other purpose, without Houlihan Lokey s prior written consent. The Staff routinely takes issue with statements in disclosure documents that the summary of the financial advisor s fairness opinion is qualified in its entirety by reference to the full text of the opinion included as an exhibit to the disclosure document. In the Staff s view, shareholders are entitled to rely on the summary disclosure as written. In response to this comment, registrants typically eliminate the statement that the summary is qualified. However, they often add in its place a statement that the full text of the opinion letter is incorporated by reference or that shareholders are urged to carefully read the full text of the opinion or variations of these statements. >> For more information on disclosure requirements related to fairness opinions, search Fairness Opinions on our website. FEES For any business combination, the relevant disclosure documents must include certain disclosures regarding compensation payable to the company s financial advisor. Specifically, Regulation M-A under the Exchange Act requires disclosure of any material relationship that existed during the past two years or is mutually understood to be contemplated and any compensation received or to be received as a result of the relationship between the financial advisor and its affiliates and the subject company and its affiliates. The description of the compensation paid or payable to the financial advisor typically includes both: Narrative and quantitative disclosures of the amounts paid for transaction-specific services (that is, the fairness opinion and, often, a success fee for completion of the transaction). Depending on the circumstances, narrative and/or quantitative disclosures regarding any amounts arising from non-transaction specific relationships. In connection with disclosures related to transactionspecific compensation, the Staff frequently focuses on contingent fee arrangements. Issuers (or, more accurately, financial advisors and their counsel) often try to use imprecise language to describe these fee arrangements, such as stating a substantial portion of which or a principal portion of which is contingent on the success of the transaction. The Staff, however, has taken the view that contingent fee arrangements create the appearance of a conflict of interest and believes a detailed description of the nature of the fee arrangement is necessary to support an informed investment or voting decision. Therefore, the Staff likely will take issue with imprecise disclosure and require a specific quantitative breakdown of the amounts paid or payable and the portion that is contingent upon closing of the transaction, including estimates of amounts payable under a formula. 38 April 2011 practicallaw.com

10 PNC Fin. Servs. Group, Inc. & Nat l City Corp. Initial Disclosure: File No (2008) Pursuant to its engagement letter with JPMorgan, PNC has agreed to pay JPMorgan $10 million in fees, a significant portion of which is payable if and when the merger is completed. Please revise to disclose the specific amount to be paid by PNC to J.P. Morgan that is contingent upon the completion of the merger. Responsive Disclosure: Pursuant to its engagement letter with JPMorgan, PNC has paid JPMorgan $2.5 million in fees in connection with the merger, and an additional $7.5 million in fees will become payable upon consummation of the merger. In addition to the quantitative breakdown of contingent fees, the Staff sometimes will solicit disclosure that addresses the perceived conflict of interest associated with the contingent fee structure. Rather than directly addressing the perceived conflict of interest, it appears that most companies can resolve the comment successfully by explaining clearly the quantitative breakdown of contingent fees. In relation to non-transaction-specific relationships that warrant disclosure, the Staff has recognized that precise disclosure related to the fees paid to the financial advisor and its affiliates on occasion can prove burdensome or impossible for the parties because of the increasingly prevalent circumstances where the financial advisor has one or more affiliates that provide other services to the subject company and its affiliates. For example, where a financial advisor is controlled by a parent entity that offers traditional commercial banking services, the amounts paid or payable to the affiliates of the financial advisor may be unavailable as a result of certain ethical walls installed throughout the consolidated entity to protect against potential conflicts of interest. In this case, it appears that the Staff would deem it sufficient if the company submits both: A narrative description of the compensation paid or payable to the affiliates of the financial advisor. A statement addressing the reasons why the information necessary to quantify the compensation arrangements is not available. The following related Practice Notes can be found on practicallaw.com >> Simply search the title OR resource number Fairness Opinions or Proxy Statements: Public Mergers or Public Mergers Disclosure: Overview or Registration Statement: Form S-4 and Business Combinations or Despite this apparent flexibility on the part of the Staff, transaction participants generally elect to provide quantifiable fee disclosure in lieu of a narrative description and supporting statement. The authors would like to thank their colleagues, Kimberly Harris and Yiyang Huang, for their assistance with this article. Use of PLC websites and services is subject to the Terms of Use ( and Privacy Policy ( For further information visit practicallaw.com or call (646) Practical Law The Journal April