WEST ACADEMIC PUBLISHING’S LAW SCHOOL ADVISORY BOARD JESSE H CHOPER Professor of Law and Dean Emeritus, University of California, Berkeley JOSHUA DRESSLER Professor of Law, Michael E Moritz College of Law, The Ohio State University YALE KAMISAR Professor of Law Emeritus, University of San Diego Professor of Law Emeritus, University of Michigan MARY KAY KANE Professor of Law, Chancellor and Dean Emeritus, University of California, Hastings College of the Law LARRY D KRAMER President, William and Flora Hewlett Foundation JONATHAN R MACEY Professor of Law, Yale Law School ARTHUR R MILLER University Professor, New York University Formerly Bruce Bromley Professor of Law, Harvard University GRANT S NELSON Professor of Law, Pepperdine University Professor of Law Emeritus, University of California, Los Angeles A BENJAMIN SPENCER Earle K Shawe Professor of Law, University of Virginia School of Law JAMES J WHITE Robert A Sullivan Professor of Law Emeritus, University of Michigan I CORPORATE FINANCE IN A NUTSHELL® THIRD EDITION JEFFREY J HAAS Professor of Law New York Law School II The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney If you require legal or other expert advice, you should seek the services of a competent attorney or other professional Nutshell Series, In a Nutshell and the Nutshell Logo are trademarks registered in the U.S Patent and Trademark Office © 2004 West, a Thomson business © 2011 Thomson Reuters © 2015 LEG, Inc d/b/a West Academic 444 Cedar Street, Suite 700 St Paul, MN 55101 1-877-888-1330 West, West Academic Publishing, and West Academic are trademarks of West Publishing Corporation, used under license Printed in the United States of America ISBN: 978-0-314-28963-6 III To my father, Mike, who inspired my interest in business and finance V PREFACE _ This book is designed for those interested in learning the fundamentals of corporate finance from both a business and legal point of view In particular, it is targeted towards lawyers without a finance background who find themselves engaged in transactional work It is also designed to assist law students who are taking a corporate finance, corporations or related course Corporate finance is unique in that it is an amalgam of substantive disciplines Those with even a tangential familiarity with it are likely aware of the crucial role that mathematics and accounting play Indeed, it is the math and accounting aspects of a corporate finance course that frequently frighten law students away from taking it Accordingly, Part makes a serious attempt to explain these concepts in a straightforward, plain English manner Corporate finance, however, is much more than math and accounting, as Parts through make clear Under the umbrella of corporate finance falls a whole host of other disciplines Especially important is the subject of economics, particularly macroeconomics Changes in fiscal and monetary policy at the national level directly impact economic growth and the interest rate environment, while indirectly affecting corporate growth and earnings Corporations attempt to navigate the economic VI landscape and the concomitant risk it carries by engaging in various risk reduction strategies, especially the use of derivative instruments The law also plays a large role in corporate finance Securities laws, both Federal and state, regulate, influence and guide companies raising capital through the sale of their common stock, preferred stock and debt securities Corporate law, particularly Delaware corporate law, also affects the ability of companies to raise capital due to its strong influence on internal corporate governance and control While this book is entitled Corporate Finance, much of what it contains applies to business entities other than corporations All businesses, regardless of their form, need capital to survive and grow While the capital structure of these other entities may differ from that of the corporation, the ways in which they pursue and, ultimately, raise capital are similar For an expanded version of this book in a fully footnoted format, see C ORPORATE FINANCE (HORNBOOK SERIES), ISBN 978-0-314-28964-3 JEFFREY J HAAS New York, New York September 1, 2015 E-mail: jeffrey.haas@nyls.edu VII ACKNOWLEDGMENTS _ Third Edition (2015) I would like to thank the wonderful folks at West Academic Publishing, especially Louis Higgins, for their constant support and encouragement over the past 12 years Second Edition (2011) I received a great deal of support and encouragement from my lovely wife, Alicja, my parents, Mike and Nancy, my brothers, Steve and Greg, and from my colleagues at New York Law School, particularly Rick Matasar, Grace Lee and Cathy Jenkins Substantive assistance and support were given by Larry Mitchell, Larry Cunningham, Robert Campbell, Brent Friedman and Ron Sarubbi Lastly, my research assistants—Trina Obi (’11), Kristin Olsen (’11), Jacklyn Swerz (’11), Jon Nowakowski (’10), Armen Khajetoorian (’10), Nick Koumoulis (’10) and Linda Hoffman (’10)—provided dedicated and much appreciated support First Edition (2004) Many provided significant assistance in the preparation of this book I would like to thank my colleagues at New York Law School, in general, and Rick Matasar and Grace Lee, in particular In addition, a great deal of thanks go to Larry Cunningham, Ron Sarubbi, Brent Friedman, David Dami and Steve Howard for their substantive VIII comments and support Lastly, I tip my hat to my “cocky and funny” research assistants, Stephen Ginsberg, Sagi Goldberg, Jon Macy, Danny Rehns, Heather Rutman, Rich Rybak, Mariam Sanni and Dimitra Tzortzatos, for their invaluable assistance and dedication IX ABBREVIATIONS _ X New York Mercantile Exchange (NYMEX), 235–38 Open outcry system, 239 Trading pits (pits), 239 630 FUTURE VALUE (FV), 99–103 Future value factor, 101 G GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) (see Accounting) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (see Accounting) GO(ING) PUBLIC, 12–14, 16–17, 550, 552 GOING-CONCERN, 137–39, 156, 175–76, 180, 196, 340, 371–72 GOODWILL (see Accounting) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GINNIE MAE), 91 GRAHAM-LEACH-BLILEY ACT OF 2004 (see Derivatives) GUARANTEE, 306 Equity infusion guarantee, 306 Payment guarantee, 306 H HEDGING (RISK) (see Derivatives-Risk Reduction (Hedging)) HIGH-YIELD DEBT SECURITIES (JUNK BONDS) (see Bonds) I IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (see Bonds) IMPUTED INCOME (see Zero Coupon Bond) INCOME STATEMENT (see Financial Statements-Statement of Profit and Loss/P&L) INDEBTEDNESS (DEFINITION) (see Bonds) 631 INDENTURE, 69, 241, 275–78, 293–304 Bond indenture, 277–78, 358, 439 Debenture indenture, 277–78, 327–28, 337, 452 Indenture trustee, 275–77, 292–97, 301–03, 305–07, 311, 319, 334, 353, 355–56 Model Debenture Indenture Provisions of the American Bar Foundation (1971) (MDIP), 328, 352–53, 355 Model Negotiated Covenants and Related Definitions (2006) (MNCRD), 305, 314, 316–18, 320–23, 330, 332 Note agreement, 278 Revised Model Simplified Indenture (2000) (RMSI), 304, 332, 335, 352–53, 439, 455, 458, 463–64, 467 Supplemental indenture, 318–19, 356 Trust Indenture Act of 1939 (TIA) (see Trust Indenture Act of 1939) Trust Indenture Reform Act of 1990 (TIRA) (see Trust Indenture Act of 1939) INFLATION (see Federal Reserve System (U.S.)) INITIAL PUBLIC OFFERING (IPO) (see Publicly-Traded Companies) INSOLVENCY (INSOLVENT), 250, 333, 336–44, 360, 363, 423, 512, 519 INTANGIBLE ASSETS (see Accounting) INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC (ISDA) (see Swap Contract (SWAP)) INTRINSIC FAIRNESS TEST (see Fiduciary Duties-Duty of Loyalty) INTRINSIC VALUE (see Valuation) IPO (INITIAL PUBLIC OFFERING) (see Publicly-Traded Companies) ISDA (INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.) (see Swap Contract) 632 J JUNK BONDS (HIGH-YIELD DEBT SECURITIES) (see Bonds) L LBO (LEVERAGED BUY-OUT) (see Leveraged Buy-Out) LEGAL CAPITAL RULES, 394, 400, 473, 510–20, 544, 558 Additional paid-in capital (APIC), 48–49, 67–68, 512–13, 541–43 Balance Sheet Test, 519 Balance Sheet Surplus Test, 519–20 Capital stock (at par value) account, 512–15, 519, 543 Common stock account, 49, 512–13, 541–43 Delaware’s legal capital rule, 514–19 Equity Insolvency Test, 518–20 Earned surplus, 520, 532, 541, 543 Earned Surplus Test, 520 Insolvency (Insolvent) (see Insolvency) Legal capital, 511–12 No par (value) stock, 513–14, 532, 541 Par value, 512–14 Preferred stock account, 512, 514 Surplus (Delaware), 514–18 LEVERAGE, 267–75 Definition, 267 Leverage effect, 267 Highly-leveraged, 54, 237, 249, 272, 401, 568–69 Pure leverage effect, 270–73 LEVERAGED BUY-OUT (LBO), 309, 349–52 LEVERAGED RECAPITALIZATION (see Recapitalization (RECAP)) LIBOR (see London Interbank Offered Rate) LIQUIDITY, 13,46, 52, 55–58, 71–73, 87, 89, 95, 153, 240, 243, 284, 535 633 LONDON INTERBANK OFFERED RATE (LIBOR), 92, 94–95 LONG POSITION, 218 M MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) (see Registration Statement) MARKET CAPITALIZATION (see Valuation) MBO (MANAGEMENT BUY-OUT) (see Leveraged Buy-Out) MD&A (MANAGEMENT’S DISCUSSION AND ANALYSIS) (see Registration Statement) MDIP (MODEL DEBENTURE INDENTURE PROVISIONS OF THE AMERICAN BAR FOUNDATION (1971)) (see Indenture) MEMBER BANKS (OF THE FEDERAL RESERVE SYSTEM) (see Federal Reserve System (U.S.)) MERGERS Back end (second step) merger (see Mergers-Second step (back end) merger) Cash-out (cash-for-stock) statutory merger, 182 Consolidation, 169, 172, 179, 316–17, 331, 351, 401, 415–16, 418–19, 461, 477, 567 “Entire” or “intrinsic” fairness test (see Fiduciary Duties-Duty of loyalty) Exchange Act rules (see Securities Exchange Act of 1934—Rules) Reverse triangular merger, 180, 467, 566 Second step (back end) merger, 180–81, 496 Securities Act rules (see Securities Act of 1933—Rules) Short-form merger, 172 Stock swap (stock-for-stock) statutory merger, 14 Successors provision, 318–19 Surviving company (entity), 175, 178, 467 Triangular mergers, 180, 467, 566 634 MODEL BUSINESS CORPORATION ACT (MBCA) Section 6.30 (Shareholders’ Preemptive Rights), 555 Section 6.40 (Distributions to Shareholders), 519 MOODY’S INVESTORS SERVICE INC (see Rating Agencies) MNCRD (MODEL NEGOTIATED COVENANTS (2006)) (see Indenture) AND RELATED DEFINITIONS MULTIPLIER (see Valuation) N NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) (see Rating Agencies) NEW YORK BUSINESS CORPORATION LAW (NYBCL) Section 501 (Authorized Shares), 474, 513 Section 504 (Consideration and Payment for Shares), 513 Section 506 (Determination of Stated Capital), 513 Section 510 (Dividends and Distributions), 510, 518–19, 529 Section 513 (Purchase/Redemption of Shares by Corporation), 558, 561–63 Section 609 (Proxies), 24 Section 620 (Voting Agreements/Charter Provisions Controlling Directors), 24 Section 621 (Voting Trust Agreements), 25 Section 622 (Preemptive Rights), 555 Section 803 (Charter Amendments), 411 Section 804 (Class Voting on Charter Amendments), 411 Section 1104–a (Judicial Dissolution for Oppression and Other Misconduct), 194–96 Section 1118 (Purchase of Petitioner’s Shares/Valuation), 194–95 NEW YORK MERCANTILE EXCHANGE (NYMEX) (see Futures Contracts) NEW YORK STOCK EXCHANGE (NYSE), 452–53, 466, 533, 537 NOISE THEORY (see Efficient Capital Market Hypothesis) 635 NOTE AGREEMENT (see Indenture) NOTES (see also Bonds and Debentures), 275–76, 278, 322, 395 Conversion rights (see Convertible Securities) Definition, 278 Note agreement (see Indenture) NRSRO (NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION) (see Rating Agencies) O OFFICERS, 8–9, 12, 19–20, 25, 43, 287–88, 450, 475–80, 482, 484–85, 490–92, 506, 550–51 Generally, 478–79 Duty of care (see Fiduciary Duties-Duty of care) Duty of loyalty (see Fiduciary Duties-Duty of loyalty) OPEC (see Organization of the Petroleum Exporting Countries) OPPORTUNITY COST, 79, 232 OPPRESSION (see Closely-Held Companies) OPTIONS, 214–29, 233, 246–47, 256–57, 441, 463, 553, 555 At-the-money, 217, 219 Black-Scholes option pricing model, 223 Call option, 216–19, 227–29, 422, 441 Cash settlement, 222, 225 Chicago Board Options Exchange (CBOE), 215, 221 Distinction from warrants, 228–29 Employee stock options, 462, 260, 569 Exchange traded options (listed options), 222–23, 227–28 Exercise price (strike price), 14, 216–17, 219 Expiration date (maturity date), 227–28 In-the-money, 217–20, 223 Intrinsic value, 217–23 LEAPs (Long-term Equity AnticiPation Securities), 221 Manner of exercise, 221–22 American style, 221–22 Asian style, 222 636 European style, 222 Option writer (counterparty), 214–16, 219, 224, 226 Option premium, 215, 218, 220–27, 233 Out-of-the-money, 217–20, 227, 441 Over-the-counter (OTC) options, 215 Put option, 219–20, 223, 225–28 Time value, 217–22 ORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES (OPEC), 77–78 OVER-THE-COUNTER (OTC), 117, 215, 239, 245 P PCAOB (PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD) (see Accounting) PENNY STOCK, 537 PERIODIC REPORTS (see Securities Exchange Act of 1934—Reports) PERMITTED LIENS (see Covenants—Negative Covenants) PERPETUITY (see Annuity) POISON PILL (SHAREHOLDER RIGHTS PLAN), 496 PORTFOLIO THEORY, 201–03, 210 Diversification, 201–02, 210 Horizontal diversification, 202 Systematic risk, 201–04, 206 Unsystematic risk, 201–03 Vertical diversification, 202 PREEMPTIVE RIGHTS (see Dilution) PREFERRED STOCK, 3, 49, 61–63, 279, 313–14, 393–437, 440, 444–45, 448–50, 466– 69, 473, 479, 511–14, 519, 554, 557, 562–67 Annual dividend or yield, 407–10, 420, 424, 444–45 Blank check preferred stock provision, 398–99 Call protection, 420 637 Certificate of designation (amendment), 396, 399, 414, 428, 434–35 Conversion price, 421–22, 426, 438, 450, 454–55, 457–58, 463–67, 469 Conversion rights (see Convertible Securities) Contract, 397–99, 407–27 Covenants (see Covenants) Cumulative preferred stock, 407 Dividends, 394, 400, 402–08, 412, 423–26 Dividend arrearage (accrued dividends), 400 Dividend credit rule, 404–05 Dividend preference, 399–400 “Downstream” conversions, 423 Exchange rights, 423–24 Fiduciary duties (owed to preferred stockholders) (see Fiduciary Duties) Liquidation preference, 400–02, 406–07, 409–10, 421, 425, 434–35, 468, 519 Noncumulative preferred stock, 62–63, 402–07 Participation rights, 408, 424–25 Redemption, 394, 396, 408, 419–23, 437, 446–47, 451–54 Subordination (ranking), 409–10 “Upstream” conversions, 423 Voting rights, 410–19 PREFERRED STOCKHOLDERS (see Preferred Stock) PREMERGER NOTIFICATION OFFICE OF THE DEPARTMENT OF JUSTICE (see Antitrust) PRESENT VALUE (PV), 99, 103–115, 118–22, 126, 146, 152, 154–56, 225, 440, 442, 444 Present value factor of a lump sum, 105 Present value factor of an ordinary annuity, 110 Present value of a lump sum, 103–07 Present value of an annuity due, 113–14 Present value of an ordinary annuity, 107–12 Using present value to determine rate of return, 114–15 PRIMARY OFFERING (see Publicly-Traded Companies) PRIME RATE, 92, 94 638 PRIVATELY-HELD COMPANY (see Closely-Held Companies) PROSPECTUS (see Registration Statement) PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB) (see Accounting) PUBLICLY-TRADED COMPANIES, 3–19, 44, 132, 139–40, 142–44, 152, 156, 163, 176– 77, 398, 477–78 Initial public offering (IPO), 3–5, 12, 14–16, 19–20, 421, 475, 551–52 Primary offering, 49 Reporting company, 3, 6–7, 9–10, 17, 21, 252, 311, 323, 383 Reporting person, 12 Reporting requirements, 6–12 Secondary (“follow-on”) offering, R RANDOM WALK (THEORY), 159–60 RATING AGENCIES, 278–92, 308, 349 Credit Rating Agency Reform Act of 2006, 284–86 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Applicability to rating agencies, 286–92 Chief compliance officer (necessity of), 287 Office of Credit Ratings, 286 Penalties, 290 Private right of action, 291 Rating analysts, 289 Rating performance, 289–90 Rating symbols, 289–90 Securities Act liability, 291 Form NRSRO (see Securities Exchange Act of 1934 (Exchange Act)—Forms) “Issuer pays” model, 284, 291–92 Moody’s Investors Service Inc (Moody’s), 125, 278, 280–83, 349 Nationally recognized statistical rating organization (NRSRO), 278, 284–92 Regulation of (generally), 283–92 639 Split rating, 280 Standard & Poor’s Corp (S&P), 278, 280–83 RECAPITALIZATION (RECAP), 422, 268–69, 538, 556, 563–76 Leveraged recapitalization, 567–76 Strategic recapitalization, 599–67 RECIPROCAL, 105, 110, 142–43, 151, 156 REDEMPTION, 187, 192, 242, 314, 325–32, 394, 396, 408, 409–23, 437, 446–54, 511, 557, 562–63 Common stock, 562 Convertible securities, 451–54 Debt securities, 325–32 Mandatory redemption, 329–32, 420–21 Notice of redemption, 451–54 Optional redemption, 326–29, 419–20 Preferred stock, 419–21 Redemption premium, 326, 419 REGISTRATION STATEMENT, 4–6, 16, 285, 291, 295–96 Credit rating agency, 285, 291 Effectiveness, 5, 296 Information not required in the prospectus, Management’s Discussion and Analysis (MD&A), Prospectus, 4, 375, 550–52 Shelf registration statement, 295–96 REPORTING COMPANY (see Publicly-Traded Companies) REPORTING PERSON (see Publicly-Traded Companies) REPURCHASE (OF STOCK), 557–62 Conducted by privately-held companies, 559–60 Conducted by publicly-traded companies, 560–62 RESERVABLE LIABILITIES (see Federal Reserve System (U.S.)) RESERVE REQUIREMENTS (see Federal Reserve System (U.S.)) 640 RESTRUCTURINGS, 563, 569–76 Spin-off transaction, 451, 464, 466, 468–69, 530,572–76 REVERSE STOCK SPLIT, 422, 438, 457–60, 531, 533, 536–40, 542–43 RISK, 79–80, 201–11, 213–14 RMSI (REVISED MODEL SIMPLIFIED INDENTURE (2000) (see Indenture)) RULE OF 72S, 97–88 RULE OF 110, 98 S SALE-LEASEBACK TRANSACTION, 322 “SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS” (OF A COMPANY), 23, 316–17, 331, 401, 461, 477 S&P (STANDARD & POOR’S CORP.) (see Rating Agencies) SARBANES-OXLEY ACT OF 2002 (SOX), 9, 18–19, 41–42, 383–84 SEC (see Securities and Exchange Commission) SECONDARY (FOLLOW-ON) OFFERING (see Publicly-Traded Companies) SECONDARY MARKET, 6, 13–15, 38, 49, 91, 93, 117–19, 121, 125, 128–29, 139, 159, 226, 229, 277, 312, 328, 330, 350, 440, 442, 448, 531 SECURITIES ACT OF 1933 (SECURITIES ACT) Regulations Regulation S-K (Integrated Disclosure System), 550, 552 Rules Rule 144 (Persons Not Deemed To Be Underwriters), 14, 226 Rule 144A (Private Resales of Securities to Institutions), 295 Rule 415 (Delayed or Continuous Offering and Sale of Securities), 295 641 Sections Section (Exempted Securities), 293–94 Section (Exempted Transactions), 295 Section 11 (Civil Liabilities on Account of False Registration Statement), 291 SECURITIES AND EXCHANGE COMMISSION (SEC), 3–7, 9, 12, 16, 19–21, 40–42, 45, 161, 245–51, 253–54, 259, 289–91, 293, 295–97, 299, 323, 375–76, 383–85, 529, 550, 552, 561 SECURITIES EXCHANGE ACT OF 1934 (EXCHANGE ACT) Forms Form (Initial Statement of Beneficial Ownership of Securities), 12 Form (Statement of Changes in Beneficial Ownership of Securities), 12 Form (Annual Statement of Beneficial Ownership of Securities), 12 Form 8-A, (Registration of Certain Classes of Securities Pursuant to Section 12(b) or 12(g) of the Exchange Act), Form 8-K (Current Report), 10–11 Form 10 (General Form for Registration of Securities Pursuant to Section 12(b) or 12(g) of the Exchange Act), Form 10-K (Annual Report), 7–9, 21, 162 Form 10-Q (Quarterly Report), 9, 21 Form NRSRO (Nationally Recognized Statistical Rating Organization), 285 Regulations Regulation FD (Fair Disclosure), 11 Regulation S-K (Integrated Disclosure System), 550, 552 Rules Rule 10b–5 (Employment of Manipulative and Deceptive Devices), 167 Rule 10b–18 (Purchases of Certain Equity Securities by Issuer/Others), 560 Rule 13a–1 (Requirement of Annual Reports), Rule 13a–11 (Current Reports on Form 8-K), 10 Rule 13a–13 (Quarterly Reports on Form 10-Q), Rule 15c3–1 (Net Capital Requirements for Brokers or Dealers), 284 Rules 17g–1–g–9 (Rules Relating to Nationally Recognized Statistical Organizations (NRSROs)), 285–87 Sections Section 3(a)(11) (Definition of “Equity Security”), 362 Rating 642 Section 13(a) Section 13(b) Section 16(a) Section 36(a) (Annual Reports), (Financial Statements/Books and Records), (Disclosure by Reporting Persons), 12 (General Exemptive Authority), 247 SHAREHOLDER RIGHTS PLAN (see Poison Pill) SHAREHOLDERS’ AGREEMENT (BUY-SELL AGREEMENT), 21–28, 30–31, 133, 169, 184–85, 187, 190, 195–96, 487, 489, 559 Consent restraint, 27, 29, 31, 34 Forced resale, 26–27, 184–85 Group restriction, 27, 30 Right of first offer, 27–28, 32, 34 Right of first refusal, 27–28 Valuation by agreement, 35, 184–89 SIMPLE INTEREST, 95–97 SINKING FUND (see Bonds) SOX (see Sarbanes-Oxley Act of 2002) SPIN-OFF (see Restructuring) STANDARD & POOR’S CORP (S&P) (see Rating Agencies) STATUTORY CLOSE CORPORATION (see Closely-Held Companies) STOCK-FOR STOCK ACQUISITION, 14 STOCK SPLIT (FORWARD), 422, 426, 454, 458, 461–62, 533–36, 539, 542–43 SUBORDINATION Debt, 307–10 Equitable (see Bankruptcy) Preferred stock, 409–10 SWAP CONTRACT (SWAP), 239–61, 263–64 Commodity swap, 242, 248 Credit default swap (CDS), 49, 243–46, 250, 259–61 Currency swap, 241–42 643 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 245–60 Business conduct requirement, 254–55 Capital and margin requirement, 255–56 Clearinghouse requirement, 250, 253 De minimus swap dealing, 248 Large swap traders, 256–58 Major swap participant, 245, 248–49, 252–56, 259 Mixed swaps (definition of), 245–46 Position limits, 256–58 Registered swap data repository, 253 Securities-based swaps (definition of), 246 Substantial counterparty exposure, 248 Substantial position, 248–49 Swap dealer, 245–49, 252–56, 258–59 Swap execution facility, 252, 254 Swaps (definition of), 239–40 Swaps pushout rule, 258–60 Equity swap, 248 Interest rate swap, 240–41, 246, 250–51 International Swaps and Derivatives Association, Inc (ISDA), 243–44, 257 Notional amount (notional value), 241–42, 248, 250 SWEETHEART DEAL, 145, 321 SYNERGIES (see Appraisal Rights) SYSTEMATIC RISK (see Portfolio Theory) T TAKEOVER DEFENSES, 17, 483, 493, 496–98, 500 TANGIBLE ASSETS (see Accounting) TECHNICAL ANALYSTS (CHARTISTS) (see Efficient Capital Market Hypothesis) TENDER OFFERS, 17, 177, 180–81, 208, 330–31, 494–96, 561 Friendly tender offer, 180 Hostile tender offer (hostile takeover), 17, 208, 494–96, 498, 561, 564, 568 Issuer tender offer, 561 644 Tender offer premium (control premium) (see Control Premium) Williams Act, 561 TIA (TRUST INDENTURE ACT OF 1939) (see Trust Indenture Act of 1939) TIME VALUE OF MONEY, 77–98 TIRA (TRUST INDENTURE REFORM ACT OF 1990) (see Trust Indenture Act of 1939) TREASURY STOCK, 68 TRUE VALUE (see Valuation) TRUST INDENTURE ACT OF 1939 (TIA), 276, 292–304 Forms Form T-1 (Corporate Statement of Eligibility and Qualification), 295–96 Form T-2 (Individual Statement of Eligibility and Qualification), 295 Form T-6 (Eligibility of Foreign Person to Act as Institutional Trustee), 296 Mandatory provisions, 299–300 Permissive provisions, 299–300 Conflicts of interest, 297–99 Duties and obligations of trustee, 294, 301–04 Limitations on trustee’s liability, 303–04 Sections Section 304 (Exempted Securities and Transactions), 294–95 Section 305 (Securities Required to be Registered under Securities Act), 295 Section 310 (Eligibility/Disqualification of Trustee), 296–98 Section 311 (Preferential Collection of Claims Against Obligor), 298 Section 315 (Duties/Responsibilities of Trustee), 302–03 Section 316 (Prohibition on Impairment of Holder’s Right to Payment), 300, 352 Section 318 (Effect of Prescribed Indenture Provisions), 299 Section 323 (Liability for Misleading Statements), 304 Section 325 (Penalties), 304 Trust Indenture Reform Act of 1990 (TIRA), 293–94, 296, 298–99 645 U UCC (see Uniform Commercial Code) UNIFORM COMMERCIAL CODE (UCC), 31, 306 UNIFORM FRAUDULENT Conveyance) CONVEYANCE ACT (UFCA) (see Fraudulent UNIFORM FRAUDULENT TRANSFER ACT (UFTA) (see Fraudulent Conveyance) UNDERWRITER, 5, 14–15, 289, 291–92, 428 UNSYSTEMATIC RISK (see Portfolio Theory) U.S TREASURY SECURITIES, 85, 92–93, 205, 209, 236 Treasury Bills (T-Bills), 85, 93 Treasury Bonds (T-Bonds), 85, 93, 236 Treasury Inflation Protection Securities (TIPS), 93 Treasury Notes (T-Notes), 85, 93 V VALUATION (OF AN ENTITY), 131–58 Appraisal rights (see Appraisal Rights) Adjusted book value, 136–38 Book value, 27, 32–33, 47, 56, 134–40, 173, 187–88, 313, 487, 489 Capitalization of earnings method, 141, 143, 207 Capitalization rate (cap rate), 141–43, 151, 156, 207 Cash budget analysis, 153 Comparables, 139–43, 152, 156, 173 Discounted cash flow (DCF), 138, 146, 152–158, 207 Discounting, 103, 111, 123, 146, 151–52, 274 Discount rate (present value), 105–07, 110, 114, 124–26, 146–47, 149–52, 154–57, 207, 274, 312, 330, 349, 445 Dividend discount method (DDM), 146–52, 156 Free cash flow method, 153 Intrinsic (true) value, 131, 163, 204, 467, 495, 497 Liquidation value, 136 Market capitalization, 41, 177 Market-to-book ratio (M/B ratio) (see Financial Ratios) Multiplier (multiple), 154, 191–92, 274 646 Net tangible book value, 134, 550–51 Oppression proceedings (see Closely-Held Companies) VICINITY OF INSOLVENCY (see Fiduciary Duties-Debt Holders (Owed To)) VOTING, 23–25, 410–15, 553–54 VOTING TRUST (see Closely-Held Companies) W WARRANTS, 63, 228–29, 346, 438, 446, 454–61, 464, 470, 548, 553, 555 WILLIAMS ACT (see Tender Offers) Y YIELD TO MATURITY (YTM), 117, 125–26 Z ZERO COUPON BOND (ZERO), 93, 126–27 Imputed income, 127 ZONE OF INSOLVENCY (see Fiduciary Duties-Debt Holders (Owed To)) ... explain these concepts in a straightforward, plain English manner Corporate finance, however, is much more than math and accounting, as Parts through make clear Under the umbrella of corporate finance. .. course Corporate finance is unique in that it is an amalgam of substantive disciplines Those with even a tangential familiarity with it are likely aware of the crucial role that mathematics and accounting... towards lawyers without a finance background who find themselves engaged in transactional work It is also designed to assist law students who are taking a corporate finance, corporations or related