Acceleration Order

(USA) An order by the SEC declaring a registration statement effective (and thereby making sales of securities permissible) before expiration of the statutory 20 day period from the date of filing. The filing of an amendment to a registration statement by the issuing company restarts the 20 day clock. See 'Acceleration Request', 'Effective Date' and 'Going Effective'.

Acceleration Request

(USA) A letter (or in some cases, oral communication) to the SEC from both the issuer and the managing underwriters of a public offering, requesting that the SEC declare a registration statement effective. The SEC's policy, often waived, is that the acceleration request be received at least two business days prior to the date the registration statement is to become effective.

Accredited Investor

(USA) A term defined in Regulation D under the Securities Act of 1933 to include any of certain financial institutions; certain corporations and trusts; an officer or director of the issuer; a natural person with a net worth (with spouse) of $1 million; or a natural person with individual income in excess of $200K in each of the two most recent years (or $300K jointly with spouse) and an expectation of the same level in the current year.


A person that controls, is controlled by, or is under common control with (directly or indirectly) the entity specified. The SEC takes the position that a corporate officer, director or 10% stockholder is presumed to be an affiliate of the corporation. An individual officer's, director's or 10% stockholder's spouse and children living at home normally are considered affiliates as well.

All Hands Meeting

A meeting during the public offering process attended by representatives of the issuer, the underwriters, their respective lawyers and the issuer's accountants. A public offering typically will involve several all hands meetings to conduct due diligence and to draft the registration statement and prospectus.


An offering of securities which provides that unless all the offered securities are sold, the offering is terminated and all funds received by the issuer, underwriter or escrow agent are returned to the investors. See 'Best Efforts Underwriting' and 'Firm Commitment Underwriting' for comparison.

AMEX (American Stock Exchange)

A US exchange or a securities market which generally lists securities of small or newer corporations than those listed on the New York Stock Exchange. It has historically been the exchange of choice for companies involved in the production and sale of natural resources. Located in New York.


A research analyst usually employed by an investment bank who 'follows' a company and issues reports regarding the condition and prospects of the company and the company's securities. An analyst will often be a key component in selecting an underwriter since analyst coverage of the company after the public offering helps to generate interest in the company's securities.


A person or entity that provides financing to companies that have progressed beyond the start-up phase but are not yet ready for venture financing.

Anti-Dilution, Full Ratchet

Anti-dilution provisions that apply the lowest sale price for any shares of common stock (or equivalents) sold by the company after the issuing of an option or convertible security as being the adjusted option price or conversion ratio for existing shareholders. As an example, if a prior round of financing raised capital at $2.00 per share with investors receiving full ratchet anti-dilution protection, and a subsequent round of financing was consummated at $1.00 per share, the early round investors would have the right to convert their shares at the $1.00 price, thereby doubling the number of shares they would receive. See 'Anti-Dilution Provisions' and 'Anti-Dilution, Weighted Average'.

Anti-Dilution Provisions

Provisions in an option or a convertible security (such as convertible preferred stock, which is the typical form of venture capital or mezzanine investment) which protect the holder's investment from dilution as the result of later issues of stock at a lower price than the investor paid by adjusting the option price or conversion ratio. See 'Anti-Dilution, Full Ratchet' and 'Anti-Dilution, Weighted Average'.

Anti-Dilution, Weighted Average

Anti-dilution provisions that apply a weighted average formula to adjust the option price or conversion ratio of an early-round investor, based on the sale price and number of common equivalent shares sold by the company after the issuing of the option or convertible security. As an example, if a first round of financing raised $1million of capital at $2.00 per share and the first round investors received weighted average anti-dilution protection, and a second round of financing was consummated for another $1million at $1.00 per share, then the first round investors would have the right to convert their shares at a weighted average adjusted price of $1.50 per share. See 'Anti-Dilution Provisions' and 'Anti-Dilution, Full Ratchet'.

Anti-Take-Over Provisions

Provisions in a company's charter and by-laws that are designed to discourage undesired take-over bids. See 'Blank Cheque Preferred Stock', 'Poison Pill', 'Shark Repellent' and 'Staggered Board of Directors'.


Unpaid dividends due to holders of preferred stock. See 'Cumulative Preferred Stock'.

Audit Committee

A committee of the board of directors consisting of independent directors, responsible for selecting and overseeing the work of outside auditors and other audit activities. Most public issuers are required to appoint an audit committee under the rules of Nasdaq and certain stock exchanges. The definition of an 'independent' director may vary from one market to another.


Balloon Note

A form of promissory note requiring repayment of little or no principal until the final payment. See 'Balloon Payment'.

Balloon Payment

The final payment under a balloon note (qv), commonly representing a large portion of the principal.

Bearer Securities

Shares of capital stock or bonds evidenced by certificates that are not registered in any name. They are negotiable without endorsement and transferable by delivery. Bearer securities often carry numbered or dated dividend coupons. See 'Registered Securities' for comparison.

Best Efforts Underwriting

An underwriting arrangement in which an underwriter agrees only to use its best efforts to sell the securities as the issuer's agent. The underwriter does not purchase the securities itself and has no obligation to purchase any amount not purchased by investors. See 'All-or-None' and 'Firm Commitment Underwriting' for comparison.

Black Scholes Formula

A statistical method of estimating the present value of stock options or warrants based upon the exercise price, fair market value of the underlying security, the length of the exercise period of the option or warrant and the volatility of the underlying security.

Blank Cheque Preferred Stock

Authorised preferred stock, the terms of which are left open under the company's charter, allowing the board of directors to fix the terms without stockholder approval. Blank cheque preferred stock may be used as an anti-take-over device. See 'Anti-Take-over Provisions', 'Poison Pill', 'Shark Repellent' and 'Staggered Board of Directors'.

Blue Sky Law (USA)

State laws regulating the offer and sale of securities and the registration of broker-dealers. All securities issued by a company must be offered and sold in compliance with or under an exemption from blue sky laws and regulations of each state in which securities are sold. The name 'blue sky' comes from the preamble to an early Wisconsin law designed to prevent companies from selling pieces of the blue sky to unsuspecting investors.

Board Minutes

Minutes of the meetings of the board of directors, memorialising actions taken, typically written after a board meeting and approved at the subsequent meeting.


A debt obligation, often secured by a mortgage on some property or asset of the issuer.

Book or Syndicate Book

The list of institutional investors who have indicated an interest in purchasing shares in a public offering, typically prepared by the lead managing underwriter during the road show. See 'Hard Circle'.

Book Value Per Share

A company's net worth (assets minus liabilities) divided by the number of shares outstanding. Tangible book value is the company's net tangible worth (tangible assets minus liabilities) divided by the number of shares outstanding.

Bridge Loan, Bridge Finance or Bridge Round

A loan, or equity investment to provide financing for a relatively short time period until the issuer can complete a longer term financing such as a public offering.

Bring-Down Letter

A letter confirming, as of a later date (usually the date of a closing), the representations, warranties or covenants made at an earlier date in a legal document.



(USA) A corporation that is subject to taxation as a separate entity. See 'S Corporation' and 'Limited Liability Company'.

Call Option

The right to purchase a specified number of securities at a fixed price at or during a specified time. See 'Put Option' for converse.

Call Protection

Lack of a call feature (or inclusion of a call feature that cannot be activated for a period of time) in a security.

Cede & Co

(USA) A firm which acts as the record owner of securities held in 'street name' for a large number of major brokerage firms and other financial institutions. See 'Street Name'.

Cheap Stock

Stock (or rights to acquire stock) issued to employees, consultants, promoters, etc, of the issuer at a price lower than the public offering price, particularly if issued within one year prior to the public offering.


Securities or other property pledged by a borrower to secure repayment of a loan.

Combination Stock Option Plan

A plan under which a company can grant both Incentive Stock Options and Non-Qualified Stock Options. See 'Incentive Stock Options' and 'Non-Qualified Stock Options'.

Comfort Letter or Cold Comfort Letter

A letter delivered by the auditors for an issuer at the time of a registered public offering which typically (a) confirms certain numerical information in the registration statement which can be derived from the issuer's financial records, and (b) provides limited negative assurances concerning changes in financial conditions since the last audit.

Comment Letter

(USA) A letter prepared by an examiner at the SEC setting forth the SEC's questions and comments with regard to a registration statement or prospectus.

Other filings with the SEC, such as annual reports on Form 10-K and proxy statements may also be reviewed by the SEC and may be the subject of a comment letter.

Common Stock

The basic form of equity ownership in a corporation.

Common Stock Equivalents

Debt and/or equity type securities capable of subscription, exchange or conversion into common stock of the corporation.

Compensation Committee

A committee of the board of directors responsible for reviewing and setting the compensation of certain executive officers of the company. The compensation committee may also be responsible for the allocation of stock options to employees. A compensation committee is typically comprised of independent (ie non-employee) directors of the company. The definition of an 'independent' director may vary from one market to another.

Competent Authority

A term used within Directives produced by the European Commission (see 'Investment Services Directive' and 'Prospectus Directive') to describe a body which has been identified by a member state of the European Union as being responsible for specified functions related to the securities market within that member state. Areas of competence include the recognition of firms permitted to offer investment services; the approval of prospectuses for public offerings; the recognition and surveillance of stock markets; etc. A member state may nominate different competent authorities for different areas of responsibility.

Confidentiality and Proprietary Rights Agreement

An agreement by which an employee, customer or vendor agrees not to disclose the company's trade secrets or other confidential information to any third party or to use such trade secrets or confidential information other than in connection with company business. If such an agreement is made between a company and its employee, the employee typically also agrees to convey to the company all inventions the employee develops while employed by the company, and represents that the employee is not bound by obligations to a former employer that would restrict the employee's services to the company.


The act of exchanging one form of security for another security of the same company, eg preferred stock for common stock, debt securities for equity.

Conversion Parity

The equal dollar relationship between the price of a convertible security and that of the underlying security into which it can be converted. As an example, if a $1,000 debt instrument is convertible into 50 shares of common stock, conversion parity occurs when the common stock price is at $20.00 per share. If the prevailing common stock price is other than $20.00 per share, conversion parity does not exist.

Conversion Ratio

The ratio indicating the number of underlying securities that can be acquired upon exchange of a convertible security.

Convertible Debt

A debt obligation of a company which is convertible into stock.

Convertible Preferred Stock

Preferred stock convertible into common stock.

Cooling-Off Period

(USA) A delay imposed informally by the SEC when declaring a registration statement effective where it believes the issuer has engaged in 'gun-jumping' or other impermissible marketing activities in relation to a public offering. The delay, which can be anywhere from a few days to 30 days or more, is to allow the effect of the promotional activities to dissipate and the market to 'cool off'. This is different from the waiting period and quiet period. See 'Gun-Jumping', 'Quiet Period' and 'Waiting Period'.

Co-Sale Agreement

See 'Tag Along Agreement'.


In the venture capital context, an agreement by the company, which may remain in effect as long as the venture capital investors hold a stated amount of securities or may terminate on the occurrence of certain events (eg completion of a public offering). Affirmative covenants define acts which the company must perform, and may include payment of taxes, maintenance of corporate existence, insurance, property and equipment, environmental and legal compliance, representation of venture capital firm on the board, etc. Negative covenants define acts which the company may not perform, and could include a prohibition on mergers, sale or purchase of assets, amendments to its corporate charter, incurring of indebtedness, the issuing of securities, distributions and redemption of securities, etc.

Cumulative Preferred Stock

A form of preferred stock which provides that if one or more dividends is omitted, those dividends accumulate and must be paid in full before other dividends may be paid on the company's common stock. See 'Arrearage'.

Cumulative Voting

A technique which is intended to assure minority shareholder representation on the board of directors. A shareholder is allowed to cumulate votes equal to the number of shares owned multiplied by the number of directors to be elected, and vote them all for one nominee.



A note or bond usually backed only by the general credit of a company, and not secured by specific property.

Debenture, Subordinated

See 'Subordinated Debenture'.


A fixed obligation to pay money at a stated time.


Failure to discharge an obligation, eg to pay interest or principal on a debt when due.

Default Risk

The difference between the expected rate of return and the promised rate of return on an investment.

Demand Registration Rights

The contractual right of a security holder to require an issuer to file a registration statement to register the holder's securities so that the holder may sell them in the public market without restriction. See 'Piggy-Back Registration Rights' and 'Registration Rights'.


A decrease in the value of securities as the result of the issuing, or potential issuing, of additional securities.

Drag Along Rights

The right of controlling shareholders to force other shareholders to join in the sale of a company.

Dual Trading Facility

Admission to trading by a stock market or exchange of stock that is already traded on another stock market, and where the company does not raise any capital as part of the further admission process. For example, where a company has raised capital on and its shares are traded on Nasdaq, it can apply to Nasdaq Europe for a 'dual trading facility', whereby it does not have to raise any capital on the Nasdaq Europe market and its existing shares can also be traded on the Nasdaq Europe market during the European trading day.

Due Diligence

An examination of the books and records of an issuer and interviews with officers, partners, etc, to confirm information about the issuer's business as well as legal and accounting affairs. It typically includes a review of such matters as significant customers and suppliers; the background of key employees (to learn of prior employment problems, criminal convictions, disciplinary actions by market regulators, fraudulent resumés); material contracts; facilities; real property owned; subsidiaries; judgements and lawsuits; insurance; patents and other intellectual property rights; licenses and permits; and tax status. The phrase derives from the fact that certain persons (including the directors, underwriters and auditors) are personally liable for a misstatement of material fact in a registration statement unless they can demonstrate that after reasonable investigation they had reasonable ground to believe, and in fact did believe, that the statement was true. Conducting the due diligence examination enables these persons to raise a 'due diligence defence' if sued.



(European Association of Securities Dealers)
An association of securities houses, investment banks, venture capital firms, professional advisors and others formed to promote the development of securities markets in Europe for growth companies.


Earnings before interest and taxesa financial measurement often used in valuing a company.


Earnings before interest, taxes, depreciation and amortisationa financial measurement used in valuing a company.

Effective Date

(USA) The date of the SEC order declaring the registration statement for a public offering to be effective, at which time the sale of shares to the public can commence. See 'Acceleration Order, 'Acceleration Request' and 'Going Effective'.

Employee Stock Purchase Plan

A plan under which key employees are given the right to purchase shares of the company at a future date on favourable terms. In the USA, under the Internal Revenue Code, if a plan meets certain requirements, employees can purchase stock at 85% of market price without any tax consequence, though the rules in other countries are different.

Exemption or Exempt from Registration

(USA) An exemption from the statutory requirement to register the offer and sale of a security with the SEC under the Securities Act of 1933. Exemptions are provided for certain types of securities (eg government issues and pension plans) and certain types of transactions (eg private placements and offerings to existing security holders).

EVCA (European Venture Capital Association)

An association formed to promote and facilitate European private equity and venture capital. It has over 300 member organisations from across Europe and North America. EVCA was key in the founding of EASD (qv). Headquartered in Brussels.

Expense Allowance

An amount paid by the issuer of a security to an underwriter (most common in smaller, higher risk offerings) to reimburse it for expenses incurred in connection with a securities offering. An expense allowance may be accountable (reimbursement against documented out-of-pocket expenses) or non-accountable (typically a percentage of the offering amount without documentation of the expense).


Firm Commitment Underwriting

An underwriting arrangement in which an underwriter agrees to purchase all of the securities being offered for resale to the public, thereby, in theory, assuming the risk of finding buyers. In practice, this risk is very slight by the time an underwriter becomes legally obligated to purchase the securities from the issuer, as buyers will have been found. See 'All-or-None' and 'Best Efforts Underwriting' for comparison.


(Foreign Investment in Real Property Tax Act of 1980)
(USA) A law subjecting foreign investors owning US real estate (directly or through certain corporations) to US taxation on the sale of the real estate or stock. It is common for an investor to obtain a FIRPTA Affidavit to assure that the company invested in is not deemed a 'US real-property holding corporation' by the US Internal Revenue Service.

First Refusal

See 'Right of First Refusal'.

Follow-On Investment

An additional investment by existing investors, which may be provided for in documentation relating to the initial investment.


See 'Registration Statement' and 'Reporting Company Forms'.

Founder's Stock

Stock issued to the founders of a company, usually at a low price in comparison to that paid by investors.


A process whereby a controlling stockholder of a company prevents dividends or other benefits from flowing to minority stockholders, usually as a prelude to buying out their stock at a low price.



(Generally Accepted Accounting Principles)
Rules and procedures developed by the US Financial Accounting Standards Board setting forth guidelines for accepted accounting practices.

General Partner

A partner in a partnership who has unlimited personal liability and the right to participate in management.

Going Effective

(USA) The order from the SEC declaring a registration statement effective under the US Securities Act of 1933, so that sales (not just offers) of the securities being registered can be made. See 'Acceleration Order', 'Acceleration Request' and 'Effective Date'.

Golden Handcuffs

A method of insuring that key employees remain with the company for a certain period of time by granting the employees options or restricted shares of stock that vest over a period of time.

Golden Parachute

Usually a contractual arrangement between key employees and the company, that provides for the payment of a large bonus or other payment to the employee upon the occurrence of certain events, such as termination of employment without cause, or the merger or sale of the company.


Acquiring a large block of a public company's securities and threatening a take-over, tender offer, proxy fight or other action for the purpose of inducing the company to repurchase the securities at an above-market price.

Green Shoe or Shoe

Term for an underwriter's over-allotment option. This name derives from the fact that the over-allotment option technique was first used in a public offering of the securities of The Green Shoe Company. See 'Over-Allotment Option'.


The offering of a security prior to the filing of a registration statement or during the registration process, or the publication of materials deemed to promote the sale of the company's securities, other than through a prospectus filed with the SEC. See 'Cooling-Off Period', 'Quiet Period' and Waiting Period'.


Hard Circle

Prospective purchasers of securities in a public offering, listed in the 'book' maintained by the lead managing underwriter, who are considered very likely to actually buy shares in the offering. See 'Book or Syndicate Book'.


Incentive Stock Options or ISOs (USA)

Stock options available only to full time employees that are entitled to special tax treatment under the US Internal Revenue Code. The employee who exercises the option does not have to pay tax until the employee actually sells the stock. However, the employee may be subject to US Alternative Minimum Tax. The company does not get a tax deduction. See 'Non-Qualified Stock Options' and 'Combination Stock Option Plan' for comparison.

Independent or Outside Director

A member of the Board of Directors who is not an employee of a company nor affiliated with a controlling stockholder of a company. The definition of 'independent' may be further defined in different countries or markets.

Information Rights

The contractual right to obtain information about a company, attend board meetings, etc. Typically received by venture capitalists investing in privately held companies.

Initial Public Offering (IPO)

The registered public offering of securities of an issuer to the public for the first time.


Directors, officers, key employees and any other persons privy to material non-public information relating to a company. This may be further defined in different countries or markets.

Insider Trading

The term commonly used in reference to the buying and selling of the company's securities based on material information relating to the company that has not been made public. Insider trading according to this definition is against the law in most countries. The term may also be used to refer to the buying and selling of shares of a public company by its officers, directors and stockholders who own more than 10% of the company's stock. In the USA such transactions must be reported monthly to the SEC under Section 16 of the Securities Exchange Act of 1934: reporting rules for similar trading may also exist in different countries or markets.


(USA) A concept under the US Securities Act of 1933 which requires that nominally separate offerings be 'integrated' and treated as a single offering for the purpose of determining if they are exempt from the registration requirements of the US Securities Act of 1933.

Intellectual Property

Patents, copyrights, trademarks, trade secrets and similar rights in ideas, concepts, etc.

Internal Rate of Return

Compounded rate of return on an investment that an investor receives on its investment at the time of sale or other exit.

Investment Banker

A person or firm engaged in the investment banking business, which typically includes activities such as underwriting the sale of securities, valuing businesses, advising on the financial aspects of mergers and acquisitions, etc.

Investment Letter

A written agreement between an investor and a seller of securities in a private placement.

Investment Services Directive (ISD)

A Directive produced by the European Commission regarding the provision of investment services within the member states of the European Union. The Directive was due to be implemented into the national legislation of each member state by 1 January 1996, though some countries have still not implemented it at the date of publishing. The Directive has been described as the 'passport to Europe' for securities houses. The key feature of the Directive is that of 'mutual recognition', in that:

a) any firm approved to provide investment services within its home state is mutually recognised by all other member state as being allowed to provide the same services within those other member states;

b) any stock market or exchange that is recognised by its competent authorities (qv) within one member state is mutually recognised in all other member states as being allowed to offer its services (including the installation of trading system computer terminals) within those other member states.

The result of ISD will be a borderless single marketplace for securities covering all member states of the European Union (15 countries at the date of publishing).


See 'Initial Public Offering'.

Issued and Outstanding Stock

Issued stock of a corporation that is still outstanding and has not subsequently been repurchased by the corporation. See 'Treasury Stock' for comparison.


The legal entity offering its securities for sale, whether it be a corporation, partnership, trust, or other appropriate entity.




Lehman formula

A compensation formula initiated by Lehman Brothers for investment banking activities, originally structured as follows: 5% of the first million dollars involved in the transaction; 4% of the second million; 3% of the third million; 2% of the fourth million; and 1% of everything thereafter (ie above $4 million). As a result of inflation, investment bankers often seek some multiple of the original Lehman formula. See 'C Corporation' and 'S Corporation'.

Limited Liability Company or LLC

A non-incorporated association that resembles a corporation in some ways and a partnership in others. An LLC, if structured properly, will be taxed as a partnership meaning it will not pay separate income tax as an entity, but at the same time will enjoy the limited liability of a corporation. See 'C Corporation' and 'S Corporation'.

Limited Partner

A person having an interest in a limited partnership whose liability is limited to a fixed amount and who does not participate in the management of the partnership.

Lock-Up Agreement

Agreement between an underwriter and certain stockholders of a company requiring the stockholders to refrain from selling their shares in the public market for a specified period after a public offering. In the USA this period is customarily 180 days after an IPO and 90 days after subsequent offerings, but may range from as little as 30 days to as much as one year or more.


Management Buy-In

An operation where a manager or management group from outside of a company buys in to that company, often with the assistance of venture capital investors.

Management Buy-Out

An operation where the current operating managers of an existing company and investors purchase that company or a business activity or range of products of that company.

Managing Underwriters

The underwriters whose names appear on the cover page of the prospectus, who assist the company in preparation of the prospectus and the road show, and who form the syndicate of underwriters to sell the securities. The name of the 'lead underwriter' will be printed in the left-hand side of the prospectus cover.

Market Maker

Brokerage and securities firms that are required by the rules of a stock market or exchange to both buy and sell securities of a quoted company, for which they act as Market Marker, at bid and offer prices which they quote. All Nasdaq-traded companies are required to have one or more market makers: all Nasdaq Europe-traded companies are required to have two or more Market Makers.

Market Overhang

The depressive effect on the market price of a publicly traded security when the market knows that there is a substantial number of shares which are freely tradable and there is reason to believe the holders may sell in the foreseeable future.

Material Information

Information that a reasonable investor would consider an important part of the total mix of information required when deciding whether to buy or sell a security, to vote for or against a director, merger, etc, or when making some other investment decision.

MD&A (Management Discussion and Analysis)

(USA) A required part of the disclosure in a registration statement under the US Securities Act of 1933 or Form 10-K or 10-Q under the US Securities Exchange Act of 1934, where management of the issuer explains, in narrative form, the financial results of operations and financial liquidity of a company.

Merchant Bank

A firm investing its own funds for its own account, often acquiring a controlling interest in a company.

Mezzanine Financing or Round

A financing round in venture capital-backed companies occurring after the company has completed its product development and after it is an operating company, but before the company is ready for a public offering or to be acquired.



(National Association of Securities Dealers)
The largest self-regulatory organization for the securities industry in the United States. NASD is responsible for the operation and regulation of Nasdaq and the over-the-counter securities markets; it is the parent company of NASD Regulation, Inc., and The Nasdaq Stock Market, Inc. See "Nasdaq National Market".


The Nasdaq Stock Market® is the world's first electronic-based market and has become the model for developing markets worldwide. Today, almost 5,000 companies - including small, growing companies, as well as many large corporations that have become household names - trade their securities on this electronic market. Nasdaq operates using today's information technologies and a system under which Market Makers compete with each other for the best buying and selling prices.

Nasdaq Europe

Nasdaq Europe is a pan-European stock market which operates throughout Europe, with members spread across the different countries. The Nasdaq Europe market is not a physical stock exchange in the traditional sense and does not have an exchange floor, but instead uses computer-based information and trade support systems. Nasdaq Europe is headquartered in Brussels.

No-Action Letter

A procedure where private parties can write to the SEC staff and request an interpretation of how particular aspects of the securities laws apply to their factual situation. The SEC's response takes the form of a letter indicating that the SEC staff will or will not recommend that the SEC take any enforcement action if the parties proceed as described.

Non-Accountable Expense Allowance

See 'Expense Allowance'.

Non-Qualified Stock Options

Stock options that do not qualify for special tax treatment. Accordingly, there are no limitations on the exercise price, person to whom granted, etc. In the USA, the option holder has no tax at the time of grant, but will have ordinary taxable income at the time of exercise equal to the difference between the exercise price on the date of option exercise and fair market value on that date. The company may take a deduction at the same point in an equal amount. The taxation regime in other countries is often different to this. See 'Incentive Stock Options or ISOs' for comparison.


New York Stock Exchange.



A contractual right to purchase something (such as stock) at a future time or within a specified period at a specified price.

Organisational Meeting

In the public offering process, the first meeting after the underwriter or underwriters have been selected, attended by representatives of the issuer, the underwriters, their respective lawyers and the issuer's accountants. The initial portion of the meeting is typically spent reviewing the timetable for the proposed public offering with the remainder being used to familiarise the underwriters and their lawyers with the company's business.

Outside Director

See 'Independent or Outside Driector'.

Over-Allotment Option

The option granted to an underwriter in a public offering giving it the option, for a period of anywhere from 15 to 45 days (usually 30 days) after the effective date, to purchase additional securities from the issuer (usually up to 15% of the shares being sold) at the initial price to the public, for the purpose of covering over-subscriptions for the securities. See 'Green Shoe'.


'Pari Passu'

Equably, rateably, without preference. Generally used in the USA to describe securities which are to be treated as being of equal priority or preference.

Participating Preferred Stock

Preferred stock which entitles the holder not only to its stated dividend and liquidation preference, but also allows the holder to participate in dividends and liquidating distributions declared on common stock.

Piggy-Back Registration Rights

Contractual rights granted to security holders giving them the right to have their holdings included in a registration statement if and when the issuer files a registration statement. See 'Demand Registration Rights' and 'Registration Rights'.

Placement Agent

A person or entity that acts as agent for the issuer in privately placing securities, typically a broker-dealer.

Poison Pill

The most famous anti-take-over device. It normally takes the form of granting existing stockholders (other than stockholders who acquire more than a certain percentage of the company) the option (which can only be exercised upon certain events) to buy more stock on very favourable terms as a way of diluting the position of the person trying to take control. See 'Anti-Take-over Provisions', 'Blank Cheque Preferred Stock', 'Shark Repellent' and 'Staggered Board of Directors'.

Pratt's Guide

A directory of venture capital firms, the types of investments that they typically make and the industries in which they specialise.

Pre-emptive Right

The right of an investor to participate in a financing to the extent necessary to ensure that its percentage ownership of the company's securities will remain the same before and after the financing.

Preferred Stock

Stock which has a 'preference' over common stock, including priority in receipt of dividends and upon liquidation. In some cases it also has redemption rights, preferential voting rights, and rights of conversion into common stock. Venture capitalists generally insist upon receiving convertible preferred stock.

Preferred Stock, Cumulative

See 'Cumulative Preferred Stock'.

Preliminary Prospectus

The form of prospectus used to solicit indications of interest in an issuer's securities prior to the effectiveness of a registration statement. In the USA it contains a legend printed in red ink (hence, it is sometimes called a 'red herring') indicating its preliminary nature and that it does not contain final pricing information.

Pricing Call

The discussion between the company and the underwriters of a public offering during which the price of the securities to be sold is determined. This discussion typically occurs the afternoon or evening immediately after the registration statement has been declared effective and immediately preceding the date on which the securities are to be publicly sold.

Primary Distribution

A distribution (ie public offering) of securities by the issuer itself, as distinct from a distribution by an existing stockholder. See 'Secondary Distribution'.

Private Placement

The offer and sale of securities not involving a 'public offering' (qv). The definition of 'public offering' varies from country to country. A private placement typically at least implies that the stock will be placed only with a limited number of private investors. In the USA, a private placement is one which is exempt from the registration and prospectus delivery requirements of the US Securities Act of 1933. See 'Public Offering' for converse.

Private Placement Memorandum (or Private Offering Circular or Offering Circular)

A document used to describe securities being offered in an offering exempt from the registration requirements of national competent authorities, or in the USA of the Securities Act of 1933. It may contain much of the same information that would be included in a prospectus (qv).


A document which must be delivered to recipients of offers to sell securities and to purchasers of securities in a public offering and which contains a detailed description of the issuer's business. It is included as part of the registration statement filed with the SEC. And with documents required by stock markets, stock exchanges and national competent authorities.

Prospectus Directive

A Directive produced by the European Commission requiring the implementation into the national law of all member states of the European a set of common standards for securities prospectuses. A key feature of this Directive is that of 'mutual recognition', ie that a prospectus that has been approved by the appropriate competent authority of one member state is mutually recognised by the competent authorities of all other member states.

Public Offering

An offering of stock to the general investing public. The definition of a public offering varies from country to country, but typically implies that the offering is being made to more than a very restricted number of private investors; that road shows promoting the offering will be open to more than a very restricted audience; or that the offering is being publicised. For a public offering, registration of prospectus material with a national competent authority is generally compulsory. See 'Private Placement' for converse.

Punitive Financing Round

A round of financing in which some of the existing investors are unwilling to continue to invest in the company and as a result, the continuing investors agree to invest only at a low price, thus causing substantial dilution to the non-participating investors.

Purchaser Representative

(USA) A person who acts on behalf of a purchaser of securities who otherwise would not be deemed to be an accredited investor under Regulation D of the Securities Act of 1933. The Purchaser Representative must be knowledgeable in financial and business matters such that he or she is capable of evaluating the merits and risks of the prospective investment. A Purchaser Representative should be acknowledged in writing by the investor in order to qualify under Regulation D.

Put Option

The right of an investor to demand repurchase by the company or by another investor of a certain number of its shares at a fixed price within a specified time period or at a specified point in time. See 'Call Option' for converse.


Quiet Period

(USA) The period starting at the time the underwriters and the issuer reach a preliminary understanding until 25 days following the effective date of the registration statement for IPOs, and the effective date for subsequent offerings. During this period there are various restrictions imposed by the SEC on company publicity. See 'Cooling-Off Period', 'Gun Jumping' and 'Waiting Period'.



Repurchase by a company of its securities from an investor. Often required for preferred stock in a venture capital financing.

Red Herring Prospectus

See 'Preliminary Prospectus'.

Registered Secondary Distribution

(USA) An offering of securities by a stockholder (typically an affiliate) of a company that requires an effective registration statement to be on file with the SEC before distribution may be effected.

Registered Securities

Securities issued in a form allowing the owner's name to be imprinted on the certificate and allowing the issuer to maintain records as to the identity of the owners. See 'Bearer Securities' for comparison. Also commonly used in the USA in reference to securities that are registered under the US Securities Act of 1933.


See 'Transfer Agent Registrar'.


The process of filing the necessary documentation with the appropriate authorities for an offering of securities to the public, and having this registration declared effective. In Europe filing is generally made with the stock market(s) on which the stock is to be traded, as well as with the competent authorities for such filings of the country of the stock market(s). In the USA the 'registration statement' (qv) is filed with the SEC, which also declares it effective.

Registration Rights

The contractual right of a stockholder to participate in the registration of the issuer's stock for resale in the public market. See 'Demand Registration Rights' and 'Piggyback Registration Rights'.

Registration Statement

(USA) The document required by the US Securities Act of 1933 to be filed with the SEC by the issuer of securities before a public offering can be made.

The most frequently used registration statement forms include:

Forms F-1, 2, and 3

For foreign companies; correspond with Forms S-1, 2, and 3;

Form S-1

The most complete version, required for initial public offerings;

Form S-2

Short version, used for public companies already registered under the US Securities Exchange Act of 1934 which are up to date with their filings and with payments to security holders;

Form S-3

Short version, used for public companies already registered under the US Securities Exchange Act of 1934 which meet certain financial tests;

Form SB-2

Similar to Form S-1, but somewhat abbreviated, for small business issuers;

Form U-7

Short version, with minimal disclosure requirements for small businesses such as SCOR (Small Corporate Offerings Registration).

Regulation A (or Reg A)

(USA) A regulation under the US Securities Act of 1933 providing for a simplified form of filing with the SEC, used for certain public offerings of not more than $5,000,000 and exempting such offerings from full registration.

Regulation D (or Reg D)

(USA) A regulation under the US Securities Act of 1933 which exempts limited offers and sales of securities from registration if the offering satisfies certain requirements as to the number and nature of investors and the value of the offering. Advertising and resale are restricted. In general, Rule 504 of Reg D is used for offerings of $1 million or less; Rule 505 of Reg D is used for offerings of $5 million or less, with no more than 35 purchasers who are not Accredited Investors; and Rule 506 of Reg D is used for offerings over $5 million, with no more than 35 purchasers who are not Accredited Investors, but who must be either sophisticated or represented by a Purchaser Representative. See 'Accredited Investors' and 'Purchaser Representative'.

Regulation S

(USA) A regulation which under the US Securities Act of 1933 exempts from registration certain offers and sales of securities made outside of the United States by US or foreign issuers.

Regulation S-K

(USA) An SEC regulation which sets forth in detail the information to be disclosed in registration statements and periodic reports of public companies.

Regulation S-X

(USA) An SEC regulation that sets forth in detail the requirements as to the form and content of financial statements used in registration statements and periodic reports of public companies.

Reporting Company

(USA) An issuer subject to the periodic reporting requirements of the US Securities Exchange Act of 1934, such as the requirements to file Form 10-Ks and Form 10-Qs.

Reporting Company Forms (Periodic Reports)

(USA) The most common forms under the US Securities Exchange Act of 1934 include:

Forms 3, 4 and 5

Reports to the SEC required to be made under Section 16 of the US Securities Act of 1934 by directors, executive officers and certain other insiders of a public company, reporting their trades in securities of that company or its subsidiaries;

Form 6-K

The form filed with the SEC by most foreign companies in connection with the filing of information that:

(a) the company is required to make public under the laws of its jurisdiction of incorporation,

(b) it files with the securities exchange on which its securities are traded and which was made public by that exchange, or

(c) it distributes to its stockholders.

Form 8-A

The form filed with the SEC to register a company's class of securities under the US Securities Exchange Act of 1934;

Form 8-K

A form required to be filed with the SEC by any US public company upon the occurrence of certain events such as a change in control of the company, significant acquisitions or dispositions of assets, bankruptcy or receivership of the company, changes in the company's independent accountants and certain resignations of the company's directors;

Form 10-K

A form required to be filed annually with the SEC by any US public company with a class of securities registered under the US Securities Exchange Act of 1934;

Form 10-Q

Same as above, but abbreviated and filed quarterly;

Form 20-F

The form filed with the SEC by most foreign companies to either (a) register securities under the US Securities Exchange Act of 1934, or (b) file annual reports under the US Securities Exchange Act of 1934.

Representations and Warranties

Provisions in a venture capital investment agreement, underwriting agreement and other financing documents providing full disclosure of, among other things, the company's capitalisation, key personnel, financial information, brokerage, ownership of properties and assets, litigation, and compliance with legal and environmental requirements.

Right of First Refusal

A contractual right, frequently granted to venture capitalists, to purchase shares held by other shareholders before such shares may be sold to a third party.

Rights (or Rights Offering)

Usually used to refer to an option granted for a short period of time to existing stockholders to purchase additional securities on a pro-rata basis to their holdings. The options granted in a 'Poison Pill' are also referred to as rights. See 'Warrants', which are the longer term equivalent.

Road Show

The process during a public offering in which the management of an issuing company and the underwriters meet with groups of prospective investors to stimulate interest in an issuer. Road shows are conducted during the 'waiting period' shortly before the registration statement becomes effective. Road shows may take place in multiple cities and countries.


S Corporation

(or Sub-chapter S Corporation)
(USA) A small business corporation permitted to be taxed as if it were a partnership or individual proprietorship (no corporate tax; corporate losses can be claimed by the shareholders and corporate profits are taxed directly to the shareholders). See 'C Corporation' and 'Limited Liability Company'.

Schedule 13-D

(USA) A form required to be filed with the SEC by any person or entity that acquires a 5% or greater ownership interest in a public company setting forth identifying information about the investor, the source of funds used to purchase the securities and, most importantly, the investor's intent with respect to attempting to take control of the issuer.

Schedule 13-G

(USA) A short form of Schedule 13-D that some 5% owners (banks, mutual funds, etc.) who do not intend to assert any control can file in lieu of filing a Schedule 13-D. Also used for persons who acquired their 5% interest prior to an issuer's IPO.


The United States Securities and Exchange Commission.

Secondary Distribution

(or Secondary Offering)
A public offering of a security by a selling holder of securities. The term is also used more generically in reference to any public offering other than an IPO (qv). See 'Primary Distribution' for comparison.

Section 16

(USA) A provision under the US Securities Exchange Act of 1934, regulating trading by corporate insiders, which provides that any profit realised by an insider from any purchase and sale or sale and purchase of stock of such company within any period of less than 6 months shall be deemed to belong to and to and be recoverable by the company. Section 16 provides for strict liability, and the intentions of the insider will not be considered in any action by the company to recover profits. Section16 also requires insiders to report all trades in a company's securities. See 'Short Swing Profits' and 'Reporting Company FormsForms3, 4 and 5'.

Secured Obligation

A debt obligation which is secured by the pledge of physical assets.

Securities Act of 1933

(also '1933 Act' or '33 Act')
(USA) A US Federal law regulating the offer and sale of securities by the issuer or its affiliates. It generally requires issuers seeking to raise funds from the public to provide investors with extensive information. Its liability provisions, particularly for incorrect registration statements, create a liability rule of 'caveat vendor' or 'let the seller beware'.

Securities Exchange Act of 1934

(also '1934 Act' or '34 Act')
A US Federal law which regulates US stock markets, trading in US stock markets, and on-going disclosure by public companies traded on those stock markets.

Seed Capital

Initial capital for a start-up venture usually provided by the founders, friends or relatives, but that also may be provided by seed venture capital firms. Typically seed capital is provided in order to develop a business concept before a company is started.

Senior Debt

A debt instrument which expressly has a higher priority for repayment than that of general unsecured creditors. Typically used for long-term financing for low-risk companies or for later-stage financing. See 'Subordinated Debt'.

'Shark Repellent'

Defence mechanisms or tactics designed to discourage undesired take-over bids. See 'Anti-Take-over Provisions', 'Blank Cheque Preferred Stock', 'Poison Pill', and 'Staggered Board of Directors'.

Shelf Registration

A registration statement that covers securities that are not to be sold in a single offering immediately upon effectiveness, but rather are proposed to be sold over a period of time or on a continuous basis.


See 'Green Shoe or Shoe'.

Short Swing Profits

A term used in reference to profits realised by insiders from buying or selling a company's securities within a specified period. In the USA this period is six-months, and such profits are subject to recovery by the company under Section 16. See 'Section 16'.

Sinking Fund

An annual reserve of capital required by the creditor to be set aside out of a company's current earnings to provide funds for retirement of an outstanding bond issue.

'Sophisticated Investor'

(USA) An investor who is sophisticated and sufficiently knowledgeable with respect to financial matters that it can 'fend for itself' in the purchase of securities and does not require the full protection of the securities laws.

Staggered Board of Directors

A board of directors divided into classes (typically three) elected for multiple year terms, with classes coming up for re-election on a staggered basis. A staggered board may be used as a form of anti-take-over device. See 'Anti-Take-over Provisions', 'Blank Cheque Preferred Stock', 'Poison Pill' and 'Shark Repellent'.


A company at its initial stages of developmenteven before set-upthat typically has little or no earnings and only limited revenues. Start-up capital is typically provided for product development and/or initial marketing.

Stockholder Agreement

An agreement among stockholders, typically in a private company and in the context of a venture capital investment, to ensure maintenance of stable ownership and management of a company for the life of an investment. This may include, among other things, a right of first refusal in favour of the issuer or other stockholders on a proposed sale by a stockholder of his or her stock; a right to participate in insider sales (ie sales by existing shareholders); an agreement to elect certain directors; and provisions as to buyout.

Stock Options, Incentive

See 'Incentive Stock Options'.

Stock Options, Non-Qualified

See 'Non-Qualified Stock Options'.

Stop Order

(USA) An order issued by the SEC suspending the order of effectiveness of a registration statement because of misstatements in the registration statement or other improper activities by an issuer or its underwriters. Subsequent sales of new securities will violate the US Securities Act of 1933.

Street Name

A term used to refer to securities beneficially owned by individual investors, but registered in the name of a securities or brokerage firm, which are then allocated within that firm to the accounts of individual investors who purchase the securities. See 'Cede & Co'.

Strike Price

The point at which the market value of an option exceeds the exercise price.

Sub-chapter S Corporation

See 'S Corporation'.

Subordinated Debt

Debt which expressly has a lower priority for repayment than other debt, ie it may not be repaid until the 'senior debt' (qv) has been repaid.

Subordinated Debenture

A debenture expressly subordinated to financing from other institutions. It is frequently convertible into, or accompanied by warrants to purchase, common stock.


The group of underwriters who will become legally obligated to purchase securities in a firm commitment public offering. Also, the department within the lead underwriter that compiles the book. See 'Book'.

Syndicate Book

See 'Book or Syndicate Book'.


T+3 (or Trade Date plus Three)

A term used to define the date for settlement of trades as being within three business days of the date of the trade itself. Accordingly, shares are issued and money is received three business days after the effective date of a registration statement. T+3 is the goal which the G30 countries have agreed to aim for, and is applied in the USA by the SEC and in Europe by Nasdaq Europe. The period varies from country to country.

Tag Along Agreement

(also called Co-Sale or Take Along Right)
A contractual agreement by management stockholders, typically in connection with a venture capital investment, that they will not sell any of their stock in the company without giving the investors the right to participate in the sale pro-rata to their holdings.

Take Along Right

See 'Tag Along Agreement'.

Tangible Book Value

See 'Book Value per Share'.

Tender Offer

A formal offer to all or a large group of stockholders to purchase their shares on fixed and substantially non-negotiable terms. The party making the offer customarily reserves the right to accept all, none, or a specific number of the shares presented for acceptance. In the USA tender offers of public companies are regulated under the US Securities Exchange Act of 1934.

Termination for Cause

Termination of an employee's employment with justification, typically defined in some detail.

Term Sheet

A short document summarising the principal financial and other terms of a proposed investment. It usually is non-binding, but may impose some legal obligations on the investor and the company.


A person who receives from someone else material information that has not been made public about a public company. See 'Tipper'.


A person who informs another person of material information that has not been made public relating to a public company. In the USA, under the US Securities Exchange Act of 1934, the tipper is jointly liable with his or her tippee (qv) who trades on the basis of the inside information and is subject to civil penalties of up to the greater of three times the profit gained or loss avoided or $1,000,000, and to criminal penalties of up to 10years in jail.


A short printed announcement about a proposed or completed offering of registered securities, usually appearing in the financial section of newspapers or other publications.

Trade Secret

Information, such as a formula, pattern, device, or process, that is not known to the public and which gives the person possessing the information a competitive advantage. May sometimes include customer lists, marketing and/or business plans, and suppliers.

Transfer Agent/Registrar

The agent of a company responsible for the issuing of stock certificates, for the registration of stockholders' names and re-registration of new holders when a transfer of stock occurs.

Treasury Stock

Stock that has been reacquired by the issuing company, but has not been cancelled and returned to the status of authorised but unissued stock, but instead occupies the status of issued but not outstanding stock.


ULOE (Uniform Limited Offering Exemption)

(USA) An exemption provided by many states from the registration requirements of state blue sky laws (qv) for non-public offerings of securities, which substantially parallels the requirements of Regulation D (qv) of the US Securities Act of 1933.


In a firm commitment offering, a person (typically an investment banking firm) that purchases an entire security issue for resale to the public in a public offering. In a best efforts offering, a person (typically an investment banking firm) that acts as agent for the issuer in offering the securities to the public.

Underwriter's Warrants

Warrants sometimes granted to underwriters as a form of additional compensation in a public offering, typically in a smaller, higher risk offering.

Underwriting Agreement

The document pursuant to which the underwriters of a public offering contractually commit to purchase from the issuer the securities that are the subject of the public offering (or, in a best efforts offering, in which they agree to use best efforts to sell the securities).

Underwriting Discount or Commission

The difference between the price at which underwriters buy securities from the issuer in a firm commitment public offering and the public offering price.


A security consisting of two separate securities bundled together, for example a share of stock plus a warrant.


Venture Capitalist

An individual or entity that specialises in providing venture capital financing.

Vesting (Stock, Options and Warrants)

Over a period of time an employee of a company earns rights to receive benefits (eg stock) as a result of that employment, though until such rights are earned the employee can claim no ownership of the related benefits and those potential benefits are forfeit. Restricted stock or options, or warrants to purchase stock, that may not be sold or exercised, or that are subject to risk of forfeiture, for a period of time, are 'unvested'. That portion of the stock which is not subject to risk of forfeiture and which may be sold, or the options and warrants that may be exercised, are referred to as 'vested'.


Waiting Period

(USA) The period of time between the filing of a registration statement with the SEC and the time when it is declared effective. See 'Cooling-Off Period', 'Gun-Jumping' and Quiet Period'.


Another word for an option to purchase a security. The term is generally used for options which are transferable and are sold to outside investors (as distinct from officers, employees, etc).


Waiting Period

(USA) The period of time between the filing of a registration statement with the SEC and the time when it is declared effective. See 'Cooling-Off Period', 'Gun-Jumping' and Quiet Period'.


Another word for an option to purchase a security. The term is generally used for options which are transferable and are sold to outside investors (as distinct from officers, employees, etc).


Waiting Period

(USA) The period of time between the filing of a registration statement with the SEC and the time when it is declared effective. See 'Cooling-Off Period', 'Gun-Jumping' and Quiet Period'.


Another word for an option to purchase a security. The term is generally used for options which are transferable and are sold to outside investors (as distinct from officers, employees, etc).




The rate of return on a debt instrument if the full amount of interest and principal are paid on schedule. Current yield is the interest rate as a percentage of the initial investment.


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83(b) Election

(USA) An election by an employee to treat property (usually stock) that is subject to a risk of forfeiture (ie unvested stock) as being vested, with the result that the employee is taxed currently on the difference between the fair market value of the properly and the amount paid for it (often zero or a nominal amount), rather than being taxed on the value when the risk of forfeiture ends.

144 Stock (or Rule 144 Stock)

(USA) Rule 144 Stock or Shares are those shares of a publicly traded company which cannot be resold freely for one of two reasons (1) the shares were acquired directly or indirectly from the issuer or an affiliate of the issuer in one or more transactions that were not registered under the Securities Act of 1933; or (2) the shares are owned by an affiliate. Rule 144 Stock generally can be resold in the public markets only by complying with the requirements of Rule 144, which include certain holding periods and volume limitations.

1933 Act (or '33 Act)

See 'Securities Act of 1933'.

1934 Act (or '34 Act)

See 'Securities Exchange Act of 1934'.