Page 102 - M & A Disputes

seller, acting at arm’s length in an open and unrestricted market, when neither is under compul-
sion to buy or sell and when both have reasonable knowledge of the relevant facts. (NOTE: In
Canada, the term "price" should be replaced with the term "highest price.") (Practitioner —
Appendix B)

Fairness opinion. An opinion as to whether or not the consideration in a transaction is fair from a
financial point of view. (Practitioner — Appendix B)

Fair value. In valuation applications, there are two commonly used definitions for fair value:

(1.) For financial reporting purposes only, the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Source: Financial Accounting Standards Board Accounting Standards
Codification glossary.

(2.) For state legal matters only, some states have laws that use the term fair value in share-
holder and partner matters. For state legal matters only, therefore, the term may be de-
fined by statute or case law in the particular jurisdiction. (Practitioner — Appendix C)

Financial risk. The degree of uncertainty of realizing expected future returns of the business result-
ing from financial leverage. See business risk. (Practitioner — Appendix B)

Forced liquidation value. Liquidation value, at which the asset or assets are sold as quickly as pos-
sible, such as at an auction. (Practitioner — Appendix B)

GAAP. Generally accepted accounting principles are a collection of guidelines and practices used by
the accounting community. In the United States, GAAP standards are set by the Financial Ac-
counting Standards Board (FASB). FASB continually updates GAAP as new accounting issues
and concerns arise. Outside the United States, the equivalent of GAAP is International Account-
ing Standards, which are maintained by the International Accounting Standards Board.

Financial statements submitted to the Securities and Exchange Commission by publicly traded
companies are required to meet GAAP standards. When comparing financial statements from
different years, it is important to note any changes in GAAP over the intervening period. Be-
cause GAAP is only a set of guidelines, it cannot guarantee that financial statements are not
fraudulent. If company management provides the auditing firm with incorrect data, the resulting
financial statements may be GAAP compliant yet still incorrect. fn 8

Going concern. An ongoing operating business enterprise. (Practitioner — Appendix B)

Going concern value. The value of a business enterprise that is expected to continue to operate into
the future. The intangible elements of going concern value result from factors such as having a
trained work force, an operational plant, and the necessary licenses, systems, and procedures in
place. (Practitioner — Appendix B)

fn 8 See www.investorglossary.com/gaap.htm.

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