CSUSB Comp Review FIN 680

Article 1. Classified Board

"Staggered board" is one in which directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to control the board. This slow replacement makes a classified board a crucial component of the delay group of provisions, and one if the few provisions that clearly retains some deterrent value in modern takeover battles.

Article 2. Reverse Merger

A Reverse Merger is a transaction in which a private company's owners gain control of a public company (a shell) by merging it with their private company. The owners of the private company receive most of the shares of the shell (More than 50%) and control of the shell's board of directors. The transaction can be completed in as little as 3 months, and the private company then becomes a public company. If the benefits of RMs are equal to IPOs in the going public process, economic theory suggests RMs would eventually dominate the going public process because of the lower cost associated with RMs. Conversely, if there are other problems with RMs, such as poorer performing firms self-selecting this form of going public, then RMs will not likely threaten IPOs as the preferred way to go public.

Article 1. Poison Pills

Provide their holders with special rights in the case of a triggering event such as a hostile takeover bid. If a deal is approved by the board of directors, the poison pill can be revoked, but if the deal is not approved and the bidder proceeds, the pill is triggered. Typical poison pills give the holders of the target's stock other than the bidder the right to purchase stock in the target or the bidder's company at a steep discount, making the target unattractive or diluting the acquirer's voting power Poison pills are a crucial component of the "delay" strategy at the core of modern defensive tactics. Nevertheless, we do not include poison pills in the Delay group of provisions, but include it in the Other group because the pill itself can be passed on less than one-day's notice, so it need not be in place for the other Delay provisions to be effective.

Differences Between Warrant and Call Options

Stock Warrant and Call Option are derivatives of a stock. Both are investment securities that an investor can use to generate a profit or leverage in an investment portfolio. These act as a right but not an obligation for the holder to buy the underlying asset at a certain price before the expiration. However, there is one big difference between warrant vs call option. Warrants are issued directly by the company, while the call option is a contract between two investors. In the call option, the buyer gets the right but not the obligation to buy the underlying asset at a predetermined rate and time. Stock warrant, on the other hand, gives the holder the right to avail the specific number of shares at a pre-determined price and at a specific date. TYPE OF CONTRACT A call option contract is standardized, while warrants are non- standardized contracts. WHO IS THE ISSUER? Stock exchanges or options exchanges issue the call option. On the other hand, warrants come directly from the company. Also, stock exchanges issue options independently or as a separate product. Companies, however, issue warrants together with other instruments such as bonds WHO SETS TERMS AND CONDITIONS? The exchanges set the terms and conditions for trading options. In case of warrants, the terms and conditions are set by the issuing company. UNDERLYING ASSETS In the call option, the underlying asset would be equities, bonds or indices. The underlying asset in the warrant is usually currencies and international shares. TYPE OF PRODUCTS Products in case of the call option range from equity or index calls and put options. Warrants could be anything from capital guarantee investments and other high risk/return trading warrants. EFFECT OF EQUITY OR TOTAL SHARES Issue of the call option does not result in the dilution of equity. Warrant issuance, however, results in dilution of the equity. TENURE The lifespan of a call option does not stretch beyond one year. On the other hand, the life span of warrant can be up to 15 years or as the company decides. TAX RULES The call options are governed by different tax rules as they are compensatory in nature. Since warrants are not compensatory in nature, therefore, they follow usual tax rules. WHAT PRINCIPLES APPLY? Option trading follows futures market principles, while warrants follow the principle of cash markets. Therefore, one can buy or short a call option, or apply various strategies to profit from them. One can't short warrants like the options. Also, options have margin calls, while there is no margin call in the warrant.

Article 1. Blank Check Preferred Stock

This is stock over which the board of directors has broad authority to determine voting, dividend, conversion, and other rights. While it can be used to enable a company to meet changing financial needs, its most important use is to implement poison pills or to prevent takeover by placing this stock with friendly investors. Because of this role, blank check preferred stock is a crucial part of a "delay" strategy. Companies that have this type of preferred stock but require shareholder approval before it can be used as a takeover defense are not coded as having this provision in our data.

Warrant

Warrants are options that permit the holder to buy stock at a fixed price, thereby providing a gain if the price of the stock rises. A warrant is a certificate issued by a company that gives the holder the right to buy a stated number of shares of the company's stock at a specified price for some specified length of time. Generally, warrants are issued along with debt, and they are used to induce investors to buy long-term debt with a lower coupon rate than would otherwise be required. A warrant is a long-term call option issued along with a bond. Warrants are generally detachable from the bond, and they trade separately in the market. When warrants are exercised, the firm receives additional equity capital, and the original bonds remain outstanding. Issuing of a certificate that gives the right to the holder to buy a stated number of company's stocks at a specified price after a specified period of time. Will give the right to buy stock at a certain price. Makes bond attractive to investor or lender

Call Option

call option gives its owner the right to buy a share of stock at a fixed price, which is called the strike price (sometimes called the exercise price because it is the price at which you exercise the option). A call option is an option to buy the underlying asset within the specified period of time.