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Real-Time Financial, Antitrust, Legal and Trading Analysis on Mergers, Acquisitions, Takeovers and Restructurings

Glossary of Terms

Annualized Return - The net return on investment expressed in percentage terms and annualized for the number of days from present to the projected closing date, usually expressed "net" of dividends, commissions, carry costs and rebates.

Antitrust Review (US) – A regulatory review process conducted by either the Federal Trade Commission and its staff or the Antitrust Division of the Justice Department whether a proposed transaction will create or enhance a dominant market share position and resultant pricing-power. An initial review is 30 days (fifteen calendar days for tender offers) and may be extended subsequently. Also see “Hart-Scott-Rodino” and “Second Request.”

Average Price - The final value of an acquiror company's stock price determined over a given number of trading days prior to closing used to calculate the number of its shares to be issued to the target company.

Bankruptcy - Whether the insolvent debtor petitions (voluntary) for such action or the debtor's creditors make the petition (involuntary), the objective is the same: an equitable distribution of assets to eliminate as many of the debts as possible. Chapter 11 provides for a "reorganization" and Chapter 7 provides for a liquidation of assets, all conducted under the auspices of the bankruptcy court and in conjunction with creditor negotiations.

Bear Hug - (see Unsolicited Proposal.)

Beta - A measure of a stock's sensitivity to overall market movements with a value of 1.0 representing perfect correlation to the stock market.

Bid/Ask Spread - Sets forth the net spread (gross spread less dividends, commissions, carry and net rebates) as follows: Bid Spread uses the bid side of the target stock and offered side of the acquiror stock, representing where a seller of a spread position could expect to execute an "unwind" or "take-off" order. Ask Spread uses the offered side of the target stock and bid side of the acquiror stock, representing where a buyer of a spread position could expect to execute a "set-up" or "put-on" order.

Bridge Loan - A short-term, subordinated loan incurred by a company and its acquiror in a leveraged buyout or recapitalization, usually provided by an investment bank via a "commitment" letter that is subject to current market conditions, among other conditions. Such commitment letters are rarely honored by the issuing investment bank during volatile market conditions, which is often the cause of terminated leveraged buyouts.

Canadian Competition Bureau - Enforces the Canadian Competition Act with respect to antitrust issues for mergers and acquisitions.

Cash Flow - A company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA").

CFIUS - Committee on Foreign Investment in the United States; see "Exon-Florio."

Closing Date - The date on which a merger or acquisition becomes legally effective and all conditions to the merger agreement have been satisfied. Shareholders typically receive payment for shares canceled or tendered three to five business days later.

Collar Terms - A maximum and/or minimum amount of an acquiror's stock to be issued to a target company's shareholders.

Conditions to Closing - Include U.S. and foreign regulatory approvals, receipt of financing, tax opinions, absence of litigation, accounting opinions, material adverse changes in the capital markets or the companies' respective financial conditions.

Consideration - The payment made to shareholders of a target company to acquire its shares and which may include cash, shares of the acquiring company and other newly-issued securities or warrants.

Current Hedge Ratio - The recommended amount of an acquiror's shares to short against a target company's shares expressed on a per-share basis.

Deal Risk - The components of risk that a transaction may be terminated, including regulatory issues, financing commitments, accounting or other disclosure and due diligence concerns, litigation and legislative and/or national security issues.

Definitive Agreement - The contract executed between companies to commence a merger, acquisition or tender offer (See "Merger Agreement") and which has been ratified by the boards of directors of both companies, generally following an agreement in principle (which may not be disclosed to shareholders).

Drop-Dead Date - The date on which either or both the acquiror or target company may terminate the merger agreement if all conditions to the merger agreement have not been met.

EBIT - A company's earnings before interest and taxes.

EBITDA - ( See "cash flow" above).

Effective Date - The date on which a merger or acquisition is legally consummated.

European Commission - The European Union's policy-making board ( located in Brussels, Belgium, phone no. 32-2-299-1111) consisting of twenty commissioners who act by a simple majority vote on matters, including local, regional and national antitrust issues on mergers greater than €250 million in transaction value. The commission has one month after receiving notification of proposed mergers and acquisitions to conduct an initial review and determine whether the transaction create or enhance a dominant position. Interested third parties have 10 days after notification to submit their comments to the commission. Companies may resubmit proposed mergers and acquisitions to the commission under adjusted terms, resetting the initial investigation's one-month clock. If companies offer concessions to address EU antitrust concerns during the first three weeks of a probe, the one-month deadline is postponed two weeks. If the concessions aren't sufficient the commission opens a second-stage investigation ("Phase Two"), which can take up to four more months.

European Union ("EU") – The European Commission’s regulatory body overseeing mergers and acquisitions as they pertain to Union member countries generally. The commission has one month after receiving notification of a transaction to conduct its initial review, after which it may approve the transaction or begin a full Second-Stage ("Phase Two") review (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Portugal, Spain and Sweden.) Reviews in the United Kingdom are undertaken by the UK CMA.

Exon-Florio - Legislation permitting transactions to be reviewed by various U.S. government agency regulators on the basis of U.S. national security issues, which comprise the Committee on Foreign Investment in the United States ("CFIUS"). The initial review period is 45 days.

Federal Reserve - The Board of Governors is comprised of a committee of seven people who are heads of the seven regional federal reserve banks; responsible for approving all bank mergers in conjunction with the Department of Justice.

Federal Trade Commission - A federal agency consisting of five members and a staff of lawyers and economists which oversee enforcement of the Sherman and Hart-Scott-Rodino Acts.

Fixed Ratio - The amount of an acquiring company's shares to be issued to the target company's shareholder on a per-share basis that is set forth in the Merger Agreement.

Floating Ratio - The amount of acquiring company's shares to be issued to the target company's shareholders on a per-share basis that is subject to an average price to be determined at or near the closing of the transaction.

German Cartel Office - Enforces the German Competition Acts; 30-day regulatory review for mergers.

Gross Spread - The dollar discount a target company's shares are trading to "parity" value of a deal before dividends, carry, rebates and commissions. A target stock trading at a premium would result in a negative gross spread.

Hart-Scott-Rodino Act ("HSR") - Legislation enabling the Justice Department to review mergers on the basis of antitrust monopoly law; usually performed by the Federal Trade Commission (five members) and its staff, requiring that an acquiring entity seeking to buy another company must notify the Federal Trade Commission if it plans to spend more than $15 million or buy 15% or more of the target company. (Review period last 30 calendar days for mergers, 15 calendar days for tender offers unless extended). Also see "Second Request."

High Yield Debt - Subordinated financing incurred by an issuer in connection with a leveraged buyout or recapitalization, usually raised via a road show sponsored by the company's investment bank and sold to high yield investors such as mutual funds and insurance companies. An investment bank may issue a "highly confident" letter to an issuer prior to commencing the road show; such letters are always subject to market conditions and are rarely honored during volatile markets.

Implied Volatility - A measure of the market's prediction of a stock's future volatility, derived from a weighted average of the current volatilities of at-the-money options (see "Risk Capital".

Involuntary Bankruptcy - A bankruptcy petition field by three or more creditors holding defaulted, unsecured claims against a company. A company may proceed under this petition of file a separate voluntary petition (see "Bankruptcy").

Leveraged Buyout - An acquisition whereby the target is acquired with proceeds borrowed from lenders, usually sponsored by a private firm or hedge fund specializing in LBO's.

Material Adverse Change - An important clause contained in every merger and financing commitment agreement under which either or both parties may terminate a transaction due to financial performance or market-related events.

Maximum Loss - The potential loss an investment may sustain assuming a transaction is terminated and trading positions are liquidated at prices two standard deviations worse than adjusted pre-transaction levels.

Merger Agreement - A binding contract executed between the acquiror and target companies, signed as of the date of the definitive agreement and filed with the SEC on Form 8-K.

Mezzanine Loan - A short-term, subordinated loan, similar to a bridge loan, incurred in connection with a leveraged buyout or recapitalization, usually with less onerous terms that a bridge loan, that is provided by an institutional mezzanine lender or fund - A tender offer, filed on Schedule 14D-9 or TO-T.

Net Return - Annualized return on investment after commissions, cost of carry, short rebates and long and short dividends.

Net Spread - The dollar discount a target company's shares are trading to the "parity" value of a deal after dividends, carry, rebates and commissions. A target stock trading at a premium to parity would result in a negative net spread.

Offer to Purchase - A tender offer, filed on Schedule 14D-9 or TO-T.

Office of the Comptroller of the Currency ("OCC") - The official regulatory body which charters and supervises U.S.-based banks; also responsible for approving thrift bank mergers.

Operating Income - A company's earnings before interest taxes and other expenses.

Parity - The value a target company's shareholders will receive in a merger or acquisition, expressed in dollar-amounts on a per-share basis, which may be fixed or fluctuating depending on the consideration.

Pay-in-Kind ("PIK") - A subordinated debt or preferred equity security issued to a target company's shareholders, generally in addition to other consideration (cash or stock), that pays interest or dividends in the form of additional like securities.

Payment Date - The date on which shareholders of a target company receive the actual consideration for their shares, typically three to five business days after the closing date.

Portfolio - The aggregate of all trading positions held, typically assorted alphabetically by the target company.

Pre-packaged Bankruptcy - A negotiated settlement among defaulting company and its creditors that sets forth a specific bankruptcy plan filed in conjunction with the company's bankruptcy petition which generally eliminates years of court-mandated negotiations and is simply confirmed by the bankruptcy court judge.

Proposal - An unsolicited offer, either hostile or friendly, made by an acquiring company for all or part of a target company's shares.

Pricing Period - The range of trading days used to determine the Average Price, typically commencing ten to twenty days prior to the shareholder vote date and ending three to five trading days prior to such date.

Recapitalization - A leveraged acquisition similar to a leveraged buyout whereby a certain percentage of the target company's shares will remain outstanding.

Reorganization - A form of voluntary bankruptcy (chapter 11) in which the company can avoid liquidation. The company's financial structure changes and its management can be replaced by a court-appointed trustee, who tries to solve the company's financial troubles through negotiations with the company's creditors.

Reverse - A trading strategy whereby an investor sells short shares in the target company and buys shares in the acquiring company, typically employed when the spread is trading at levels deemed too tight given the transaction's deal risk (also known as "Chinese" trades). .

Risk Capital - The amount of equity "at risk"in an investment if a transaction is terminated representing the most likely realized trading loss on the entire investment (see also "Maximum Loss".

Securities and Exchange Commission Schedules and Forms:

         Schedule 13D - Securities and Exchange Commission form required buyers of five percent (5%) of registered equity security to file this schedule with the SEC within ten business days of such purpose.

         Schedule 13E-3 is required in connection with all "going private" transactions. The disclosure requirements are meant to inform investors of a company's intention to engage in a transaction, which will result in the cessation of periodic reporting requirements under the Securities Exchange Act of 1934.

         Schedule 14A provides the information required to be contained within the proxy statement and must be sent to shareholders and filed with the Commission when proxy is solicited. The information requirements of the proxy statement are outlined below. Many items, however, are not required in a proxy statement for a typical annual meeting of shareholders. Also, small business issuers may be exempt from certain disclosures.

         Schedule 14D-1 requires disclosure by persons planning tender offers for securities. Such disclosure is to keep investors and the management of companies apprised of takeovers by outsiders (also filed as Schedule TO-T.

         Schedule 14D-9 of the Securities Exchange Act of 1934 requires full disclosure of any solicitation or recommendation to a target company's shareholders either to accept or reject a tender by someone else.

         Form 8-K is considered the "current report."It is used to report any material events or corporate changes that are important to investors or security holders. Unlike the periodic reports (see Form 10-K and Form 10-Q), the purpose of Form 8-K is to provide more current information on certain specified events. The key to Form 8-K is that the disclosure obligation is mandatory only with respect to certain specified events. Any one of the following events is mandatory under Form 8-K.

         Form 10-Q is used for quarterly financial disclosure reports. It must be filed within 45 days after the end of each of the first three fiscal quarters (it does not have to be filed for the fourth quarter.) The quarterly shareholder report of a company may be incorporated in response to the requirements of Part I of Form 10-Q if the reports are made available to shareholders within the 45-day filing requirement, and if a copy of the quarterly report is filed as an exhibit to Part I. In certain circumstances, a company may use a combined report that serves both the quarterly shareholders report and the Form 10-Q requirements. Finally, the form must be signed on the registrant's behalf by a duly authorized officer of the registrant and by the principal financial or chief accounting officer.

         Form 10-K requires full financial disclosure and is filed annually within 90 days of a company's fiscal year-end. The intent of the securities laws is to use mandatory disclosure of material information as the basis for promoting intelligent investing and limiting securities fraud. By establishing clear guidelines and procedures for filing material financial and business information, the 10-K provides some assurance that a company has made adequate disclosures; otherwise it may be subject to the anti-fraud provisions of the Securities Exchange Act of 1934.

         Form S-1 of the Securities Act of 1933 is a basic disclosure document used by companies registering securities in connection with an offering pursuant to the Securities Act of 1933. It is commonly used by companies "going public". Also known as a prospectus.

         Form S-3 of the Securities Act of 1933 is an even more-simplified optional registration form than either Form S-1 or Form S-2. This Form allows for incorporation reference from the 1934 Act reports.

         Form S-4 - The disclosure document used in connection with the registration of securities in connection with business combinations, including mergers, exchange offers (either for the issuer's shares or shares of another entity) or stock re-distributions.

Second Request - The Hart-Scott-Rodino rules allow the FTC or the Antitrust Division of the Department of Justice ("DOJ") to extend the initial 30-day waiting period (15 days for tender offers) by requesting additional information. Once substantial compliance with the request is certified, then the waiting period will be extended for 20 days (10 days for tender offers).

Senior Debt Financing - Bank borrowing by a company in connection with an acquisition, restructuring or leveraged buyout that is structurally senior in ranking and collateral protection to subordinated debt financing.

Set-Up - A limit order to buy a position on a spread basis (also known as a "put-on" order).

Sherman Antitrust Act - A law passed in 1890 enabling the administrative branch of the federal government to investigate business combinations that may dominate a specific industry or manipulate prices, (see Antitrust and Hart-Scott-Rodino Act). The Justice Department's Antitrust Division or the Federal Trade Commission may sue an acquiror to enjoin its acquisition of a target company in federal court.

Short Position - Selling borrowed shares, typically of an acquiror's stock in a stock-swap transaction, to lock-in an arbitrage spread.

Solicitation - A request for proxy, or shareholder vote, on corporate matters including hostile takeovers where one company seeks to replace some or all of target company's board of directors or to eliminate certain corporate governance by-laws, usually filed on a Schedule 14D-9.

Stock Swap - A merger whereby an acquiring company issues its shares to a target company's shareholders in either a fixed or floating ratio.

Subordinated Debt - Financing provided by lenders such as insurance companies, high yield mutual funds or "mezzanine" funds that is subordinated to the acquisition's senior bank financing. Certain investment banks may provide "commitment" letters or bridge loans, both of which are highly subject to future market conditions.

Tender Offer - An offer to purchase up to 100% of a target company's outstanding shares for a fixed cash amount, typically lasting twenty business days prior to closing. May be subject to a minimum amount of a target company's shares being tendered into the offer to purchase.

Total Enterprise Value ("TEV") - The aggregate valuation of target company's assets and liabilities, also expressed on a per share basis.

Unsolicited Proposal - An offer, either friendly or hostile, from one company to buy another company (also known as a "bear hug", generally necessitating the target company to form an independent special board-of-directors committee to review the proposal.

Unwind - A limit order to sell or reverse a position on a spread basis (also known as "take-off" order).

Volatility - A stock price's fluctuation within a short period of time, which affect spread levels, measured by the standard deviation of daily stock price changes.