The BOOK of JARGON® Global Mergers & Acquisitions The Latham & Watkins Glossary of Global M&A Slang and Terminology First Edition Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. The Law Office of Salman M. Al-Sudairi is Latham & Watkins associated office in the Kingdom of Saudi Arabia. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2013 Latham & Watkins. All Rights Reserved. Welcome to the Book of Jargon® – Global Mergers & Acquisitions. For readers who are lawyers, bankers, or studying to be one, this book can serve as an introduction to the legal and business terms — including corporate and private equity sponsor terminology — often encountered in the structuring, negotiation and execution of mergers, acquisitions and dispositions in many countries around the globe. From statutory terms and nomenclature to sometimes colorful slang, this book includes the words that comprise both home country law and the lingua franca of the M&A world — which has become truly global. Whether private equity or strategic, most deals now cross borders, either due to the global nature of the business being acquired or sold, or because public companies combine to create truly global enterprises. In response, the authors have endeavored to provide an equally global Book of Jargon. This first edition includes key M&A terms used in the United States, the United Kingdom, France, Germany, Hong Kong, Italy, Qatar, Russia, Saudi Arabia, Singapore, Spain and the United Arab Emirates. This glossary of more than 1,500 financial, legal and regulatory terms in the M&A area is also available as a free app for Apple and Android devices. These apps will always contain our most up-to-date glossaries. Latham & Watkins publishes a series of practice area-specific glossaries. This publication does not itself constitute legal advice. The terms are also subject to change as applicable laws and customary practice evolve. The authors welcome suggestions for additional terms as well as expanded or clarified definitions for the current terms via e-mail to [email protected] Terms are applicable in the relevant jurisdictions using the key below: FRA France DEU Germany HKG Hong Kong ITA Italy QAT Qatar RUS Russia SAU Saudi Arabia SGP Singapore ESP Spain UAE United Arab Emirates UK United Kingdom US United States 4 ‘33 Act: another name for the Securities Act Jurisdiction: US ‘34 Act: another name for the Securities Exchange Act Jurisdiction: US 100 Day Plan: the name often given to a Buyer’s post Acquisition integration plan or plan to achieve a Financial Buyer’s investment objectives Jurisdiction: UK 13e-3 Deal: see 13e-3 Transaction Jurisdiction: US 13e-3 Transaction: shorthand for a Business Combination that is subject to the special disclosure requirements of SEC Rule 13e-3 — the SEC’s going private rule. See also Going Private and Schedule 13E-3. Jurisdiction: US 1933 Act: another name for the Securities Act Jurisdiction: US 1934 Act: another name for the Securities Exchange Act Jurisdiction: US 2.4 Announcement: used in the context of UK public Takeovers and shorthand for the announcement of a possible Takeover Offer subject to Rule 2.4 of the City Code Jurisdiction: UK 2.7 Announcement: used in the context of UK public Takeovers and shorthand for the announcement required by Rule 2.7 of the City Code of a firm intention to make a Takeover Offer Jurisdiction: UK 2.8 Announcement: an announcement, or informal statement, which a party will usually be held to for six months, referring to a decision not to make an Offer under the City Code Jurisdiction: UK 2030 Vision: the Qatari national vision to transform Qatar into a developed and advanced country by 2030 Jurisdiction: QAT 28 Day Rule: means the 28 day period under the City Code at the expiration of which (unless an extension is granted) a party making a possible Offer and a 2.4 Announcement must either make a firm 2.7 Announcement of an Offer or a 2.8 Announcement that it has no intention to Offer Jurisdiction: UK 1 280G: US Internal Revenue Code section that provides for the loss of tax deductions by the company and a 20 percent excise tax for the individual for Parachute Payments that exceed a certain Threshold amount paid to certain executives, shareholders and highly compensated employees of the Target Company in connection with a Change of Control transaction Jurisdiction: US 280G Gross Up: a Gross Up for the excise tax penalty resulting under 280G, which puts the individual in the same tax position as if the excise tax did not apply Jurisdiction: US 338(h)(10): US Internal Revenue Code section that allows purchasing and selling corporations to jointly elect to treat the sale of the Stock of a Target corporation as a sale of its assets for tax purposes, thus giving the Buyer a Step-Up in Tax Basis of the assets of the Target. Such election is available where the Target corporation is a member of a consolidated group, an affiliated group that does not file a consolidated return, or an S Corporation. Jurisdiction: US 363 Sale: a transaction under the authority of Section 363 of the Bankruptcy Code in which certain assets of a bankrupt company in a Chapter 11 proceeding are sold to a Buyer free and clear of all debts and liabilities of and claims against the bankrupt company, except those specifically assumed under the terms of the transaction. Section 363 Sales are very common in Chapter 11 Reorganizations and are invariably structured as an Auction supervised by the Bankruptcy Court under specified mandatory procedures (as compared to M&A Auctions where the Auction rules are informal — developed and implemented by the Target Company and its Financial Advisor — and can and often are, unilaterally changed and/or ignored). Jurisdiction: US 409A: US Internal Revenue Code section that sets forth rules regarding the timing of elections, deferrals and distributions of income paid under a Non-Qualified Deferred Compensation Plan. If such rules are not satisfied, all deferred amounts are includible in income when vested and subject to a 20 percent excise tax, interest and penalties plus any additional taxes, as well as interest and penalties imposed under similar state statutes. Jurisdiction: US 67 Plan: a pre-Insolvency Restructuring plan under Article 67, third paragraph, letter (d), of the Italian bankruptcy law. The plan must be suitable to restructure the indebtedness and rebalance the financial position of an enterprise and an independent auditor shall attest to the reasonableness and also attest the truthfulness of the relevant financial information. A compliant 67 Plan protects from possible clawback 2 actions, payments and guarantees covered by the plan, and is often use to frame distressed M&A transactions. See Distressed Sale. Jurisdiction: ITA 800 lb Gorilla: used to describe a party with significantly greater commercial leverage than its counterparties on a deal Jurisdiction: US UK A/B Capital Structure: see High Vote/Low Vote Jurisdiction: US DEU ESP FRA ITA SGP A/B Structure: see High Vote/Low Vote Jurisdiction: US DEU ESP FRA ITA SGP ABI: acronym for Association of British Insurers, the UK’s leading shareholder group. ABI is the industry body which represents the general insurance, investment and long-term savings industry. ABI liaises with the government, regulators and UK, EU and international policy makers. Jurisdiction: UK Above the Line: refers to items on an Income Statement (or Profit and Loss Statement) which are incurred before the calculation of a company’s gross profit. Above the Line profit is gross operating profit before deduction of certain expenses to give net profit. Jurisdiction: US UK FRA HKG ITA SGP UAE Acceleration: the end of the line in the Bond and loan world. The definitions of “Default” and “Event of Default” describe how we get there. Following an Event of Default, the bondholders (in accordance with the Terms and Conditions or the Indenture) or Lenders (under a Credit Agreement) have the right to “accelerate” the Due Date of their debts; in other words, they have the right to declare their Bonds or loans immediately due and payable. Note that practice in the US (and in European Indentures) is for Insolvency Events of Default to automatically lead to Acceleration, however this is uncommon in European bank financings. Note that Acceleration can lead to an obligation on the officers of the Issuer/Borrower to file for Insolvency, thereby precluding the ability to agree a consensual out-of-court Restructuring. Jurisdiction: US UK FRA HKG ITA RUS SGP UAE Accordo di Ristrutturazione: a pre-Insolvency Restructuring agreement under Article 182-bis of the Italian bankruptcy law. Filings bring about a stay on creditor action for 60 days, and the company can obtain an immediate stay preceding the agreement in certain circumstances. Must be supported by a report by an independent auditor attesting the agreement’s feasibility and suitability to allow payment of all external creditors, and requires the approval of 60 percent of the creditors (by value). Must be homologated, or officially approved, by the bankruptcy court.