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M&A Jargons GOLDEN PARACHUTE A clause in an executive's employment contract specifying that he/she will receive large benefits in the event that the company is acquired and the executive's employment is terminated. It is a clause (or several) in an executive's employment contract specifying that they will receive certain significant benefits if their employment is terminated. Sometimes, but not always, these clauses apply only in the event that the company is acquired and the executive's employment is terminated as a result of that acquisition. These benefits may include severance pay, cash bonuses, stock options or a combination of the items. The benefits are designed to reduce perverse incentives. The use of golden parachutes have caused some investors concern since they don't specify that the executive had to perform successfully to any degree. Their concern is understandable since many golden parachute clauses can promise benefits well into the millions. In some high-profile instances, some executives cashed in their golden parachute while under their stewardship their companies lost millions and thousands of workers were laid off as a result. According to a 2006 study by the Hay Group human resource management firm, the French executives' golden parachutes are the highest in Europe, and equivalent to the funds received by 50% of the American executives. In contrast, the French standard revenues for executives located themselves in the European average. French executives receive roughly the double of their salary and bonus in their golden parachute [1][2] GOLDEN HANDSHAKE A large payment made by a company to a senior executive upon termination of employment before his/her contract ends. A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses his or her job through firing, restructuring, or even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often accompanied by an accelerated vesting of stock options. Typically, "golden handshakes" are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars. Golden handshakes are given to offset the risk inherent in taking the new job, since high-ranking executives have a high likelihood of being fired and since a company requiring an outsider to come in at such a high level may be in a precarious financial position. GOLDEN HELLO A Golden hello is a bonus offered by hiring firms if the hired joins the company from a rival firm. It is very similar to the traditional joining bonus offered by firms but will be offered usually for rival firm employees luring them into a firm.Typically, "Golden hellos" are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars GOLDEN LIFE JACKET An exceptional compensation package offered by the acquiring company to the top executives of the company being bought. GOLDEN BOOT COMPENSATION An inducement, using maximum incentives and financial benefits, for an older worker to take "voluntary" early retirement.

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GOLDEN HANDCUFFS Golden handcuffs are an incentive given to existing employees in the hope that they will decide to stay with the company. VOLUNTARY REDUNDANCY Voluntary redundancy (VR) is a financial incentive offered by an organisation to its employees with the purpose of attracting volunteers to leave the organisation, due to downsizing or restructuring situations. The purpose is to circumvent union employee regulation laws. MBO When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders. In most cases, the management will buy out all the outstanding shareholders and then take the company private because it feels it has the expertise to grow the business better if it controls the ownership. Quite often, management will team up with a venture capitalist to acquire the business because it's a complicated process that requires significant capital. BUSTED TAKEOVER A highly leveraged takeover that, to go through, requires a selling off of some of the acquired company's assets. For example, let's say the Cory's Tequila Company (CTC) wants to acquire the TSJ Sports Conglomerate (let's assume CTC is looking to diversify). However, CTC must leverage itself highly to finance the deal. As such, as a term of the deal, CTC must agree to sell off TSJ's two ice hockey teams and give the proceeds to the financier, paying back part of the amount that was lent. SATURDAY NIGHT SPECIAL slang term used to refer to a surprise takeover attempt. The term alludes to the fact that many takeover bids are announced over the weekend in order to avoid too much publicity. SLEEPING BEAUTY company that is prime for takeover but has not been approached by an acquiring company. A company may be considered a sleeping beauty because it has large cash reserves, undervalued real estate, or huge potential. LADY MACBETH STARTEGY corporate-takeover strategy with which a third party poses as a white knight to gain trust, but then turns around and joins with unfriendly bidders. Lady Macbeth, one of Shakespeare's most frightful and ambitious characters, devises a cunning plan for her husband, the Scottish general, to kill Duncan, the King of Scotland. The success of Lady Macbeth's scheme lies in her deceptive ability to appear noble and virtuous, and thereby secure Duncan's trust in the Macbeths' false loyalty. DAWN RAID The action of a firm or investor buying a substantial amount of shares in a company (making it a target firm) first thing in the morning when the stock markets open. This is done by a stock broker acting on behalf of a company. Because the bidding company builds a substantial stake in its target at the prevailing stock market price, the takeover costs are likely to be significantly lower than they would be had the acquiring company first made a formal takeover bid. Like the dawn

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raid in war, the corporate dawn raid is done early in the morning, so by the time the target realizes it's being attacked, it's too late - the investor has already scooped up some controlling interest. However, only a maximum of 15% of a firm's shares can be bought this way. So, after a successful dawn raid, the raiding firm is likely to make a takeover bid to acquire the rest of the target company. EMPLOYEE BUYOUT A restructuring strategy in which employees buy a majority stake in their own firms. This form of buyout is often done by firms looking for an alternative to a leveraged buyout. Companies being sold can be either healthy companies or ones that are in significant financial distress. For small firms, an employee buyout will often focus on the sale of the company's entire assets, while for larger firms, the buyout may be on a subsidiary or division of the company. The official way an employee buyout occurs is through an employee stock ownership plan (ESOP). The buyout is complete when the ESOP owns 51% or more of the company's common shares. REVERSE LEVERAGE BUYOUT The action of offering new shares to the public by companies that initially went private through past LBOs. Companies undergoing a reverse LBO are attempting to obtain cash in order to reduce their debt to more manageable levels. This debt may have been from operating activities or from the company's previous LBO. LBO In business, the purchase of a controlling proportion of the shares of a company by its own management, financed almost exclusively by borrowing. It is so called because the ratio of a company's long-term debt to its equity (capital assets) is known as its ‘leverage’. leveraged buyout the takeover of a company, financed by borrowed funds. Often, the target company's assets are used as security for the loans acquired to finance the purchase. The acquiring company or group then repays the loans from the target company's profits or by selling its assets. Many leveraged buyouts have been financed through junk bonds. A leveraged buyout is a tactic through which control of a corporation is acquired by buying up a majority of their stock using borrowed money. A leveraged buyout may also be referred to as a hostile takeover, a highly-leveraged transaction, or a bootstrap transaction. Once control is acquired, the company is often made private, so that the new owners have more leeway to do what they want with it. This may involve splitting up the corporation and selling the pieces of it for a high profit, or liquidating its assets and dissolving the corporation itself. The concept of the leveraged buyout originated sometime in the late 1960s, and for the first decade of its existence remained relatively obscure and quiet. In the 1980s, Congress began examining the practice of the leveraged buyout closely for legislation and the media devoted an enormous amount of attention to high-profile cases of leveraged buyout. By the late 1990s, it was declared that the leveraged buyout was a dead tactic. With the advent of the "New Economy" and seemingly never-ending highs for the market, it appeared the leveraged buyout would remain a historical artifact. Since the dot-com collapse, however, the tactics of the leveraged buyout appear to be making a comeback, albeit in a slightly revised format.

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Some historic examples of successful leveraged buyouts may help to demonstrate the tactic. In 1982, the company Gibson Greeting Cards was acquired by a financial group headed by Wesray Capital. The purchase price of the buyout was US$80 million. The financial group itself put in only US$1 million, borrowing the rest in junk bonds. Upon acquisition, the group turned Gibson Greeting Cards into a privately held corporation. A year and a half later, in the midst of a bull market, they went public with the company again. The total value of the company at this point was US$220 million. One of the principle architects of the leveraged buyout, William Simon, who had initially invested US$330,000, received US$66 million from the final transaction. At its peak in 1989, total revenue in transactions for leveraged buyouts was just over US$76.6 billion. With fairly low risk and the potential for enormous profit, it is not surprising that the leveraged buyout strategy was so popular during the ideal market conditions of the 1980s. Perhaps the most popular story of a leveraged buyout is that related in the book Barbarians at the Gate by John Helyar and Bryan Burrough, about the hostile takeover of the Nabisco corporation. In the wake of the surge of leveraged buyout tactics during the 1980s, a number of precautionary measures were conceived by corporations to make themselves less vulnerable. The most famous of these is the poison pill, a method by which the corporation destroys itself if it is taken over. By ensuring that valuation would fall dramatically in the event of a takeover, corporations remove any incentive for leveraged buyout firms to target them. JUNK BONDS junk bond a bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. Junk bonds became a common means for raising business capital in the 1980s, when they were used to help finance the purchase of companies, especially by leveraged buyouts ; the sale of junk bonds continued to be used in the 1990s to generate capital. ANTI TAKEOVER DEFENSE POISON PILL A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. 2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger. 1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive. 2. An example of a flip-over is when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger. This is similar to the macaroni defense, except it uses equity rather than bonds. PEOPLE PILL

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A type of poison pill in which most or all of the current management team threatens to quit in the event of a hostile takeover. defensive strategy to ward off a hostile takeover. Management threatens that, in the event of a takeover, the entire management team will resign. This is a variation of the poison pill defense. SANDBAG A stalling tactic used by management to deter a company that is showing interest in taking them over. The company stalls in hopes that a more favorable company will take them over. SUICIDE PILL An extreme version of the poison pill defense in which a target company engages in an activity that might destroy the company in order to avoid a hostile takeover. A defensive strategy by which a target company engages in an activity that might actually ruin the company rather than prevent the hostile takeover. Also known as the "Jonestown Defense." The term refers to the 1978 Jonestown massacre, where a religious cult (the People's Temple) led by Jim Jones committed mass suicide in Guyana.This is an extreme version of the poison pill. JONESTOWN DEFENSE An extreme kind of poison pill in which a company trying to avoid a hostile takeover will use tactics so extreme that they threaten the company's ability to survive. The term refers to the 1978 Jonestown massacre. CROWN JEWELS The most valuable unit(s) of a corporation, as defined by characteristics such as profitability, asset value and future prospects. The origins of this term are derived from the most valuable and important treasures that sovereigns possessed. Despite the fact that crown jewels are often the most valuable part of a company, some companies opt to use their crown jewels as part of a takeover defense. A company can employ this crown jewels defense by creating anti-takeover clauses which compels the sale of their crown jewels if a hostile takeover occurs. This deters would be acquirers from attempting to take the firm over. SCORCHED-EARTH POLICY A reaction to a takeover attempt that involves liquidating valuable assets and assuming liabilities in an effort to make the proposed takeover unattractive to the acquiring company. An anti-takeover strategy that a firm undertakes by liquidating its valuable and desired assets and assuming liabilities in an effort to make the proposed takeover unattractive to the acquiring firm. In extreme cases, this strategy might end up being a 'suicide pill'. The scorched earth policy is actually a classic military strategy: generals would instruct troops to burn any land/crops/trees as they retreated so there would be no supplies to refresh the advancing army BANKMAIL An agreement made between a company planning a takeover and a bank, which prevents the bank from financing any other potential acquirer's bid. Bankmail agreements are meant to stop other potential acquirers from receiving similar financing arrangements. Bankmail is an agreement between a bank and a firm pondering a takeover, or a firm which is about to experience a hostile takeover. Under the terms of the agreement, the bank refuses to

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provide financing to rival firms. This practice is used as leverage in takeover negotiations, and as a anti-hostile takeover tactic. While bankmail does not eliminate the competition or the risk of a takeover, it will create some breathing room and leverage. When a firm is considering a takeover or merger with another firm, financing is usually a major issue. If the firm feels threatened by an opponent, it may enter into a bankmail agreement, thus forcing the opponent to seek financing elsewhere or abandon the deal. While the opponent considers its options, the original firm may be able to quickly move in and finish the deal. The tactic may also be used by a firm which is at risk of a hostile takeover. A hostile takeover occurs when a another firm purchases large amounts of the first firm's stock on the open market, thereby gaining control of the firm. This problem is a risk for publicly traded companies, especially when they seem like they might be lucrative acquisitions. The board of the company is essentially powerless, as the firm executing the takeover concentrates power by holding a majority of the stock. In the instance of a hostile takeover, bankmail can prevent a hostile takeover or merger by restricting the funds available to the rival firm. In addition, it allows the vulnerable firm to pursue other avenues, hopefully resolving the situation to satisfaction. This time may give the firm a chance to come up with a working strategy to prevent the takeover, and more importantly it allows the target firm to attempt to muster some resources of its own. For banks, a bankmail agreement can be advantageous because it ensures customer loyalty. Many companies represent substantial accounts for the banks that finance them. By entering into a bankmail agreement, the bank indicates that it supports the client in its endeavors, encouraging the client to continue patronizing that bank. The company attempting the acquisition, of course, can seek financing through another bank, as bankmail only restricts lending from one financial institution. A bankmail agreement may also include a extension of financing for the company which requests the agreement. Therefore, the bank benefits by securing a financial agreement as well as retaining a valued client. BANK CHECK PREFERRED STOCK method companies use to simplify the process of creating new classes of preferred stock to raise additional funds from sophisticated investors without obtaining separate shareholder approval. To do this a company must amend its articles of incorporation to create a class of un-issued shares of preferred stock whose terms and conditions may be expressly determined by the company's board of directors. This kind of stock can also be created by a public company as a takeover defense in the event of a hostile bid for the company (poison pill). GREENMAIL A situation in which a large block of stock is held by an unfriendly company. This forces the target company to repurchase the stock at a substantial premium to prevent a takeover. It is also known as a "Bon Voyage Bonus" or a "Goodbye Kiss". Not unlike blackmail, this is a dirty tactic, but it's very effective.

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Greenmail or greenmailing is a corporate acquisition strategy for generating large amounts of money from the attempted hostile takeovers of large, often undervalued or inefficient companies. Greenmailing is a variant of the corporate raid strategy of asset stripping. However, once having secured a large share of a target company, instead of completing the hostile takeover, the greenmailer offers to end the threat to the victim company by selling his share back to it, but at a substantial premium to the fair market stock price. Whilst benefitting the predator, the company and its shareholders are impoverished. From the viewpoint of the target, the ransom payment may be referred to as a goodbye kiss. The origin of the term as a business metaphor is unclear, although it will certainly be understood in context as kissing the greenmailer and, certainly, a few million dollars goodbye. A company which agrees to buy back the bidder's stockholding in the target avoids being taken over. In return, the bidder agrees to abandon the takeover attempt and may sign a confidential agreement with the greenmailer who will agree not to resume the manoeuvre for a period of time. Greenmail proved lucrative for investors such as T. Boone Pickens and Sir James Goldsmith during the 1980s. In the latter example, Goldsmith made $90 million from the Goodyear Tire and Rubber Company in the 1980s in this manner. Occidental Petroleum paid greenmail to David Murdoch in 1984. Prevention: Changes in the details of corporate ownership structure, in the investment markets generally, and the legal requirement in some jurisdictions for companies to impose limits for launching formal bids, or obligations to seek shareholder approval for the buyback of its own shares, and in Federal tax treatment of greenmail gains (a 50% excise tax)[1] have all made greenmail far less common since the early 1990s LOBSTER TRAP A strategy used by a target firm to prevent a hostile takeover. In a lobster trap, the company passes a provision preventing anyone with more than 10% ownership from converting convertible securities into voting stock.. Examples of convertible securities include convertible bonds, convertible preferred stock, and warrants. MACARONI DEFENSE An approach taken by a company that does not want to be taken over. The company issues a large number of bonds with the condition they must be redeemed at a high price if the company is taken over. Why is it called Macaroni Defense? Because if a company is in danger, the redemption price of the bonds expands like Macaroni in a pot! PAC MAN A form of defense used in a hostile takeover situation. The target firm turns around and tries to take over the company that has made the hostile bid. Just think - all those years of playing Atari games could save a company someday. SHARK REPELLENT Any corporate activity that is undertaken to discourage a hostile takeover, such as a golden parachute, scorched earth policy or poison pill. Slang term for any one of a number of measures taken by a company to fend off an unwanted or hostile takeover attempt. In many cases, a company will make special amendments to its charter or bylaws that become active only when a takeover attempt is announced or presented to shareholders with the goal of making the takeover

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less attractive or profitable to the acquisitive firm. Also known as a "porcupine provision". Most companies want to decide their own fates in the marketplace, so when the sharks attack, shark repellent can send the predator off to look for a less feisty target. While the concept is a noble one, many shark repellent measures are not in the best interests of shareholders, as the actions may damage the company's financial position and interfere with management's ability to focus on critical business objectives. Some examples of shark repellents are poison pills, scorched earth policies, golden parachutes and safe harbor strategies SHARK WATCHER A firm specializing in the early detection of takeovers. The firm's primary business is usually the solicitation of proxies for client corporations. A shark watcher monitors trading patterns in a client's stock and attempts to determine who is accumulating shares. PROXY FIGHT When a group of shareholders are persuaded to join forces and gather enough shareholder proxies to win a corporate vote. This is referred to also as a proxy battle. This term is used mainly in the context of takeovers. The acquirer will persuade existing shareholders to vote out company management so that the company will be easier to takeover. WHITEMAIL A strategy that a takeover target uses to try and thwart an undesired takeover attempt. The target firm issues a large amount of shares at below-market prices, which the acquiring company will then have to purchase if it wishes to complete the takeover. If the whitemail strategy is successful in discouraging the takeover, then the company can either buy back the issued shares or leave them outstanding. WHITE KNIGHT A company that makes a friendly takeover offer to a target company that is being faced with a hostile takeover from a separate party. The knight in shining armor gallops to the rescue! WHITE SQUARE Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in the target firm. A white squire is still considered to be a friendly acquirer, they just don't require controlling interest like a "white knight" does. WHITE SHOE FIRM A slang term for a broker-dealer firm that is strongly against hostile takeover practices. The white-shoe firm's name is derived from the white buck shoes that were a fashion requirement within elite social organizations in the 1950s. YELLOW KNIGHT A company that was once making a takeover attempt but ends up discussing a merger with the target company. The implication is that the company attempting the takeover has chickened out, deciding to discuss things instead of making an aggressive move. GRAY KNIGHT

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A second, unsolicited bidder in a corporate takeover. A gray knight enters the scene in order to take advantage of any problems between the first bidder and the target company. Think of a gray knight as a circling vulture waiting to pick clean the leftovers. In some parts of the world gray is spelled "grey." BLACK KNIGHT A company that makes a hostile takeover offer on a target company. An allusion to the fairytale villains, this term demonstrates how a targeted company sees its adversary. Fairytale black knights are associated with kidnapping princesses, slaying peasants, burning villages, and generally having unpleasant personalities. SAFE HARBOR 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. In effect, this gives the target company a "safe harbor." 3. An accounting method that avoids legal or tax regulations and allows for a simpler method (usually) of determining a tax consequence than those methods described by the precise language of the tax code. 1. In the first case, under SEC rules, safe-harbor provisions protect management from liability for making financial projections and forecasts made in good faith. 2. When trying to scare away sharks, it sometimes helps to stink up the water. 3. Here's an example of an accounting safe harbor: a firm is losing money and therefore cannot claim an investment credit, so it transfers this claim to a company that is profitable and can therefore claim the credit. Then the profitable company leases the asset back to the unprofitable company and passes on the tax savings.