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Mezzanine Finance from All Angles.

Members of Chapman and Cutler LLP's Mezzanine Finance Group, composed of attorneys from a variety of practice areas, participate in mezzanine debt transactions involving a wide variety of securities and issuers, ranging along the risk/return spectrum from venture capital financing for start-up entities to later-stage equity transactions and transactions for more established private and public companies.

The Group represents clients with a range of investment approaches, from those who take a "lending" approach to those who take an "equity" approach, including institutional investors, banks, mezzanine funds and pension funds.

Careful analysis of equityholder rights and exit strategies at the outset of each transaction is a critical part of the Group's focus. The Group has participated in a significant number of transactions which have matured to exit, with institutional investors (as well as management, private equity professionals and other equity participants) realizing on their investment through strategic sales, initial public offerings and recapitalization. These successful exit transactions underscore the importance of strategic exit analysis at the outset of every private equity transaction, including the protection of the mezzanine lender's equity interest through tag-along rights, preemptive rights, rights of first refusal and anti-dilution provisions as well as registration rights and put rights.

Types of equity issued are as varied as the issuers that participate in this market and include common and preferred equity, membership interests, partnership interests and warrants in traditional C corporations, S corporations, limited partnerships, LLCs and trusts, as well as equity securities created to address specific issuer and investor requirements, such as put rights to third parties and capital or stock appreciation rights. Preferred stock issues have included convertible, exchangeable and PIK dividend features.

The Group understands the complex tax issues presented by different securities and structures from the perspective of both the borrower and the lender, including unique tax issues raised by mezzanine financing terms, such as those derived from the OID (Original Issue Discount), UBTI (Unrelated Business Taxable Income), and AHYDO (Applicable High Yield Debt Obligation) rules.

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