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Glossary

Abandonment option. The option of terminating an investment earlier than originally planned.

Abnormal returns. The component of the return that is not due to systematic influences (market-wide influences). In other words, abnormal returns are above those predicted by the market movement alone.

ACCELERATION REQUEST. A request to the SEC to waive the statutory 20-day waiting period and declare the registration statement effective at an earlier date.

Accounting exposure. The change in the value of a firm's foreign currency-denominated accounts due to a change in exchange rates.

ACCREDITED INVESTOR. Potential investors who meet certain minimum net worth and income tests (as determined by the SEC) as they relate to certain exempt offerings. See also Sophisticated Investor, and consult with your legal counsel for further clarification.

Act of state doctrine. This doctrine says that a nation is sovereign within its own borders, and its domestic actions may not be questioned in the courts of another nation.

AGREEMENT AMONG UNDERWRITERS. An agreement among the members of the underwriting group/syndicate that specifies, among other things, the managing underwriter and the terms of the underwriting.

AICPA (AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS). The organization that governs and disciplines the conduct of certified public accountants and establishes standards for the profession.

ALL HANDS MEETING. A meeting that occurs during preparation for an IPO that is attended by company representatives, company counsel, the independent accountants, underwriters, and underwriters' counsel.

ALL-OR-NONE. A specific type of a best efforts underwriting: If the underwriter is not able to sell all of the shares being offered, none of the shares will be offered and the offering will be canceled.

AMERICAN STOCK EXCHANGE (AMEX). One of the major stock exchanges.

ANALYST. An individual, usually employed by an investment banking firm, who studies and analyzes an industry and the publicly held companies operating within the industry for the purpose of providing investment advice.

ANGEL INVESTOR (ANGEL). Individuals who invest in businesses looking for a higher return than they would see from more traditional investments. In return for their investment they often are highly involved in the business. Usually they are the bridge from the self-funded stage of the business to the point that the business needs the level of funding that a venture capitalist would offer. Funding estimates vary, but usually range from $50,000 to $1.5 million.

ANTIDILUTIVE SECURITIES. Securities whose assumed exercise would create an increase in earnings per share or a reduction in net loss per share; these securities are generally excluded from the computation of earnings per share.

BEST EFFORTS OFFERING. An underwriting agreement where the underwriters use their best efforts to sell the stock; however, the underwriters have no obligation to purchase stock not purchased by investors.

BID AND ASK. The quoted prices of securities traded in the over-the-counter market. The bid price is the highest price a buyer is willing to offer, while the ask price is the lowest price a seller is willing to accept. The difference between the bid and ask prices is known as the "spread."

BLUE SKY LAWS. The name applied to the securities laws of various states enacted to protect investors. While the SEC regulations are national in application, various states have securities laws that affect public offerings.

BLUE SKY MEMORANDUM. A memorandum setting forth the various securities law provisions and restrictions applicable to each of the states in which the offering is to be made. The memorandum is usually prepared by legal counsel.

BOOK VALUE PER SHARE. A share of stock's equity value, computed by dividing a company's net worth (assets minus liabilities) by the number of shares outstanding.

BOOK VALUE STOCK PLANS. Plans in which restricted stock (or options) is sold to employees based on book value and the company buys back the stock (or options or shares received upon exercise of the options) at a later date, usually at its then net book value.

BROKER. A commonly used term applied to individuals or firms that trade securities. Brokers execute trades of securities between buyers and sellers in return for a fee or commission. Brokers do not own the securities in which they trade and, accordingly, do not share in the risks or rewards of ownership.

BUSINESS VALUATION. An estimate of the worth of a business entity and its assets.

CAPITALIZATION. The total amount of a company's outstanding securities. For purposes of display in a registration statement, capitalization includes short-term debt, long-term debt and equity securities.

CAPITALIZATION TABLE. A table presenting the capital structure of the company, both prior to the offering and assuming that all securities offered are sold.

CARVED-OUT ENTITY. A subsidiary, division, or lesser business component that is separated from another entity. This carved-out entity may become a separate registrant through an IPO.

CHEAP STOCK. Common stock, stock options, warrants, or other potentially dilutive instruments issued to employees, consultants, directors, promoters, or others providing services to an issuer at a price lower than the public offering price.

CLOSELY HELD COMPANY. A company where the equity interests are held by a few individuals or group of individuals.

CLOSING. The final meeting of the going-public process in which the company delivers its registered securities to the underwriter and receives payment for the issue. The closing is usually five to seven days after the effective date of the registration statement.

CO-MANAGER. In an underwriting, if there is a second (or third) managing underwriter representing the syndicate, that securities firm will be known as a "co-manager."

COMFORT LETTER. A letter written by independent accountants to the underwriter as part of the underwriter's due-diligence reviews. The letter discusses the results of agreed-upon procedures applied to the company's financial data, as requested by the underwriters. Comfort letters provide "negative assurance" to the underwriter and are not included in the registration statement.

COMMENT LETTER. A letter written by the SEC's review staff that requests modification to the registration statement or the inclusion of additional information.

CONFORMED COPY. A registration statement or other document displaying signatures that are printed or typed rather than signed manually. All EDGAR documents are conformed copies. However, each signatory to that electronic filing also must manually sign a signature page acknowledging the signature that appears in typed form within the electronic filing. The manual signature is executed before or at the time the electronic filing is made.

CONSENT. A document giving consent to the use of an independent accountant's or other expert's report and name in the registration statement. A conformed document is filed with the registration statement while a manually signed copy is kept by the registrant.

CONTROL STOCK. Limited transferability stock owned by individuals who control the company.

CONVERTIBLE SECURITIES. Corporate securities (usually preferred stock or bonds) that are exchangeable into a fixed number of shares of common stock at a stipulated price.

COOLING-OFF PERIOD. See Waiting Period.

DERIVATIVES. Financial instruments whose value is based on another security, commodity, or index.

DILUTION. A reduction in a shareholder's relative ownership percentage of a company or the company's earnings per share (EPS) as a result of the company's issuance of more shares. Dilution in an IPO results from a disparity between the IPO price and the net book value of tangible assets for existing shares and is usually reflected in the registration statement in tabular format, referred to as a dilution table.

DILUTIVE SECURITIES. Securities whose issuance or exercise would decrease earnings per share.

DIRECTORS'/OFFICERS' QUESTIONNAIRES. Questionnaires circulated by the company's and underwriter's counsel during the registration process. The questionnaires gather and confirm various data that must be disclosed in the registration statement.

DISSOLUTION. The process of liquidating a partnership or a corporation.

DIVISION OF CORPORATION FINANCE. A division of the SEC which, among other things, reviews registration statements filed with the SEC.

DUE DILIGENCE. A reasonable investigation conducted by the company's officers and directors, underwriters and lawyers to provide a reasonable ground for belief that, as of the effective date, the registration statement contains no significant untrue or misleading information and that no material information has been omitted.

EARLY STAGE. Seed Financing, Start-up Financing and First-Stage Financing

EARN-OUT ARRANGEMENTS. Arrangements in a business acquisition in which sellers receive additional future consideration for their security interests usually based on future earnings.

EARNINGS PER SHARE (EPS). A company's net income, generally divided by the number of its common shares outstanding and adjusted for certain dilutive securities such as stock options, warrants, and convertible debt.

EFFECTIVE DATE. The date the SEC allows the registration statement to become effective and the sale of securities may commence. 

ELECTRONIC DATA, GATHERING, ANALYSIS, AND RETRIEVAL (EDGAR) SYSTEM. The SEC's electronic system for filing registration statements and periodic reports under the 1933 and 1934 Acts.

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP). A plan instituted by a company that gives stock to its employees. The primary purpose of such a plan is to attract and retain good officers and employees.

EQUITY METHOD. Method of accounting in which the investor records an investment in the stock of an investee at cost and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition (generally applies to investments where stock ownership is between 20 and 50 percent of the outstanding securities of the investee).

ESCROW ACCOUNT. An account in which the offering proceeds are kept prior to closing, usually in a best efforts underwriting.

EXEMPT OFFERING. A securities offering that does not require a registration statement to be filed with the SEC. Exempt offerings include Regulations A and D and intrastate offerings.

EXPERTS. Independent accountants, engineers, or others whose proficiency in a specific area qualify them as specialists in their fields.

F-SERIES FORMS. Forms used by foreign companies to comply with the 1933 and 1934 Acts. Examples include (1) Forms F-1 through F-10, registration statements similar to Forms S-1 through S-4 and Forms SB-1 and SB-2, and (2) Form 20-F, an annual report similar to Form 10-K.

FAMILY LIMITED PARTNERSHIPS. A partnership set up to transfer wealth to family members while maintaining control over the income-producing property. The donor would generally be the general partner while the heirs would be the limited partners. The general partners maintain control over the assets with respect to voting, investment decisions, and liquidation while the limited partners will not participate in these decisions. Establishment of family limited partnerships can be used as a tax strategy to distribute assets to family members without triggering a taxable event.

FIDUCIARY LAWS. Laws that require transactions between a company and its officers, directors, or large shareholders to be fair to the company. These laws apply to privately held as well as publicly held companies.

FINAL PROSPECTUS. A document that must be circulated to all purchasers of stock disclosing material facts about the company's operations, its financial status and the details of the offering. It is often preceded by a preliminary prospectus, also known as a red herring.

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB). A private body that establishes financial accounting and reporting standards in the United States.

FINANCIAL PRINTER. A printer that specializes in the printing of financial documents-including registration statements, prospectuses, and proxy statements. These printers are also capable of converting your documents to an EDGAR format and electronically submitting the document to the SEC.

FINANCIAL REPORTING RELEASES (FRRs). Releases designed to communicate the SEC's positions on accounting principles and auditing practices.

FIRM COMMITMENT UNDERWRITING. A type of offering in which the underwriter agrees to purchase all of the shares being offered regardless of whether investors purchase the shares. Any shares not sold to the public are paid for and held by the underwriters for their own account.

FIRST STAGE FINANCING. Financing of market release.

FOREIGN CORRUPT PRACTICES ACT (FCPA). An amendment to the 1934 Act that requires reporting companies to keep adequate accounting records, maintain adequate internal accounting control systems, and not make certain payments to specified foreign officials and politicians.

FOREIGN SALES CORPORATION. Entities recognized by the Internal Revenue Code that may eliminate or defer payment of U.S. corporate income taxes on a portion of the income generated from export sales.

FORM 8-K. A form required to be filed with the SEC when certain significant reportable events occur (e.g., major acquisitions or legal proceedings).

FORM 10-K. An annual report required to be filed with the SEC pursuant to the 1934 Act. Form 10-K includes annual financial statements, related schedules, and various textual information.

FORM 10-KSB. An annual report form required by the 1934 Act that may be filed with the SEC by small business issuers under Regulation S-B.

FORM 10-Q. A quarterly report required to be filed with the SEC pursuant to the 1934 Act; consists primarily of the company's quarterly financial statements.

FORM 10-QSB. A quarterly report required by the 1934 Act that may be filed with the SEC by small business issuers under Regulation S-B.

FORM S-1. The most common form of registration statement used in the initial public offering of securities by issuers for which no other form is authorized or prescribed.

FORM S-2. The registration statement used by companies that have been subject to the 1934 Act reporting requirements for at least 36 months and which combines incorporation by reference with delivery of the annual shareholder report and interim reports.

FORM S-3. A short-form registration statement available to companies that have been subject to the 1934 Act reporting requirements for at least 12 months and that meet certain market value or debt-rating tests. This registration statement also permits incorporation by reference, but does not require delivery, of the latest annual report to investors.

FORM S-4. The registration form used to register shares offered in connection with business combinations (e.g., mergers, consolidations, exchange offers for securities of another entity).

FORM SB-1. The registration form available to small business issuers to register up to $10 million of securities, to be sold for cash, in any continuous 12-month period.

FORM SB-2. The registration form available to small business issuers to register securities to be sold to the public for cash. This form differs from Form SB-1 in that there is no limitation on the amount that can be raised in the offering.

GIFT TAX EXCLUSION. An annual exclusion granted by the Internal Revenue Service that allows a donor to give up to $10,000 per year to an unlimited number of donees without incurring gift taxes.

GOING PUBLIC. The process of a privately owned company selling its ownership shares to the investing public. See Initial Public Offering.

GRANTOR RETAINED ANNUITY TRUST (GRAT). An irrevocable trust that provides an effective way to reduce gift tax on property while providing an income annuity to the grantor. At the termination of the trust, the trust principal is paid to the beneficiary of the trust. A GRAT allows the grantor to retain control while retaining income from the property granted. A GRAT works particularly well with appreciated property/stock.

GREEN-SHOE OPTION/OVERALLOTMENT OPTION. An option contained in the underwriting agreement that allows the underwriter to purchase and sell additional shares if the market's demand for the shares is greater than originally expected.

GROSS PROCEEDS. The total dollar amount raised through an initial public offering, before deduction of discounts or commissions for underwriters and for expenses for legal, auditing, printing, filing, and blue sky laws.

IN REGISTRATION. The status of a company that has filed a registration statement with the SEC prior to the date the SEC declares the registration statement effective.

INCORPORATION BY REFERENCE. Certain materials previously filed with the SEC which may, under certain conditions, be referred to rather than included in the text of subsequently filed documents.

INDUSTRY GUIDES. Guides followed by the SEC staff requiring the disclosure of policies and practices by certain industries.

INDUSTRY POP/INDUSTRY FLURRY. An industry where there has been a significant number of successful IPOs. Generally, in that industry, there may be many "me too" companies trying to follow the leaders.

INITIAL PUBLIC OFFERING (IPO). The offering or sale of a company's securities to the investing public for the first time (i.e., converting a company from private to public ownership).

INSIDER TRADING. The sale or purchase of a company's securities by directors, officers, and others. See Insiders.

INSIDERS. Individuals that may have access to nonpublic information, e.g., officers, directors, and major shareholders.

INSTITUTIONAL INVESTORS. Nonindividual shareholders. Institutional investors include pension funds, mutual funds, and trusts.

INTERIM FINANCIAL STATEMENTS. See Stub-Period Financial Information.

INTRASTATE OFFERING. A securities offering limited to investors residing in the state in which the issuer is doing a significant portion of its business. Such offerings are usually exempt from registration with the SEC.

INVESTMENT BANKER. A person or (usually) a firm that, among other things, underwrites securities, functions as a broker/dealer, and performs corporate finance and merger and acquisition advisory services. Investment bankers are usually full-service firms that perform a range of services, as opposed to an underwriter or broker/dealer, which only provides one specific service.

IPO BACKLOG. The number of companies that have filed initial registration statements with the SEC but whose registration statements are not yet effective. Also, an estimate of the gross offering amount of those companies.

ISSUE. A block of securities sold to investors by a company through an offering.

ISSUER. A company offering its securities for sale.

JOINT VENTURE. An arrangement whereby two or more parties (the venturers) jointly control a specific business undertaking and contribute resources towards its accomplishment.

LEGENDED STOCK. See Restricted Stock.

LETTER OF INTENT. A nonbinding letter from the underwriter to the company that sets forth the general terms and conditions of the securities offering.

LETTERED STOCK. See Restricted Stock.

LEVERAGED BUYOUT. An acquisition of a company financed largely by debt.

LIMITED OFFERING. An offering of securities exempt from registration due to exemptions for the size of offering and the number of purchasers.

LISTING APPLICATION. A document, similar in nature to a registration statement, formally requesting that an issuer's securities be listed on a national securities exchange.

LOCK-UP PERIOD. Usually appears as a provision in the underwriting agreement. Represents the period of time after an IPO during which (at the underwriter's request) insiders are prohibited from selling their shares. This period can range from a few months to several years.

MAKING A MARKET. The process by which a securities dealer supports the trading activity of a particular security. The process may include the dealer
purchasing and selling the security in order to balance the market. Such dealers are referred to as "market makers."

MANAGING UNDERWRITER. In a syndicate of underwriters, the managing or lead underwriter functions as the primary decision maker.

MARKET MAKER. An underwriting firm that stands ready to buy and sell a company's stock and thus make a market where shareholders or prospective
shareholders can dispose of or purchase shares.

MERGERS. A business combination where one entity becomes a part of another entity.

MINORITY INTEREST DISCOUNT. For tax purposes, a minority interest discount represents a discounted amount from the fair market value of property or
securities transferred to minority interests due to lack of voting power/control.

MINORITY INTEREST. An individual or aggregate interest held in an entity that is generally less than 50 percent of outstanding voting securities.

NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD). An independent, self-governing association of securities brokers and dealers that helps to
govern, among other things, its members and the over-the-counter stock market.

NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION SYSTEM (NASDAQ). The NASDAQ is the electronic trading
system in the over-the-counter (OTC) market. Unlike the New York (NYSE) or American (AMEX) stock exchanges, the NASDAQ is not physically located in
one location.

NEW ISSUE. An initial public offering, or an issue of securities by a corporation (also known as a primary offering).

NEW YORK STOCK EXCHANGE (NYSE). One of the major stock exchanges.

"NO ACTION" LETTER. A letter issued by the SEC stipulating that it does not object to a course of action proposed by a registrant. "No action" letters are
generally issued after a request has been made by a registrant.

NONACCREDITED INVESTOR. Investors that do not meet the accredited investor criteria. See Accredited Investor.

OFFERING CIRCULAR. Sometimes referred to as a private offering memorandum. A document used in certain securities offerings that are exempt from SEC
registration requirements.

OPTIONS. A security giving its owner the right to purchase or sell a company's shares at a fixed date and agreed-upon price.

OVER-THE-COUNTER MARKET (OTC). A market for the exchange of stocks not traded on a listed exchange, maintained by dealers. See also National
Association of Securities Dealers.

OVERALLOTMENT OPTION. The sale of shares by the underwriter in excess of those shares initially available. See also Green-Shoe Option.

OWNERSHIP CHANGE. A term defined in the Internal Revenue Code. Generally, it is defined as a change in ownership of a corporation during a three-year
period of greater than 50 percent, which results in limitations on the ability of the corporation to utilize pre-ownership change net operating losses.

PERFORMANCE SHARE PLANS. Incentive compensation plans, whereby the number of shares to be issued to employees is determined by a formula based on
the achievement of predetermined performance criteria (e.g. increases in earnings per share, increases in return on equity, or growth in sales).

PERFORMANCE UNITS PLANS. These plans provide for the award of units to employees, where each unit entitles an employee to receive in cash or stock a
certain amount if certain performance criteria (e.g., sales growth, increases in earnings per share, or return on equity) are attained during the period specified by the
award. 

PHANTOM STOCK PLANS. Incentive compensation plans whereby hypothetical (phantom) shares are granted to employees, which entitles the employees to
receive amounts based on the increase in the market price of the stock from the date of grant. Some phantom stock plans also provide for dividend equivalents, i.e.,
employees will receive amounts equal to dividends declared on the stock. Also known as Stock Appreciation Rights (SAR).

POST-EFFECTIVE AMENDMENT. A registration statement amendment filed subsequent to the effective date of registration.

PREFILING CONFERENCE. A conference with the SEC usually attended by a company's principal financial officer together with representatives from the
company's independent accounting firm to discuss unique accounting issues prior to the SEC's registration review process.

PRELIMINARY PROSPECTUS. A document that provides information concerning a forthcoming issue of stock. Also known as a red herring.

PRICE AMENDMENT. Usually the final amendment to a registration statement; includes the offering price and final pro forma financial information.

PRICE EARNINGS RATIO. A measurement of common stock value computed as the price per share divided by earnings per share.

PRICE RANGE. A proposed price-per-share range is often printed on the cover page of a preliminary prospectus. Example: "It is estimated that the offering price
will be $8 to $10 per share."

PRIMARY OFFERING. An offering in which all of the proceeds from the sale of previously unissued stock are received directly by the company.

PRIVATE PLACEMENT. An offering that is exempt from the requirements of registration and is limited in distribution.

PRO FORMA. Financial statements or financial tables prepared as though certain transactions had already occurred. For example, a registration statement might
include a pro forma balance sheet that reflects the anticipated results of the offering.

PROSPECTUS. The primary selling document in an offering distributed to potential investors. The prospectus provides information about the company and the
offering. See also Preliminary Prospectus and Final Prospectus.

PROXY. A document prepared for a shareholder to authorize another person to act on his/her behalf at a shareholders' meeting.

PROXY SOLICITATION. The request to be authorized to vote on someone else's behalf. A proxy statement must be provided to shareholders prior to soliciting
their proxies.

PROXY STATEMENT. An SEC-required statement of information to be furnished to shareholders by those individuals soliciting shareholder proxies.

PUBLIC FLOAT. The aggregate market value of voting common stock held by nonaffiliates.

QUALIFIED INSTITUTIONAL BUYER (QIB). A nonindividual shareholder that owns and manages at least $100 million in securities, with certain exemptions for
broker-dealers, banks, and savings and loan associations. 

QUIET FILING. See Silent Filing.

QUIET PERIOD. The period which begins on the date an offering commences (usually once the company and its underwriter reach a preliminary understanding)
and generally ends 90 days following the effective date of the registration statement. Referred to as the quiet period because of the SEC's restrictions on publicity
about the company and/or its offering.

RED HERRING. The preliminary prospectus circulated during the waiting period to potential investors. Commonly referred to as a red herring because the
disclaimer, at one time, was required to be printed in red ink. 

REGISTRANT. An entity that must file reports with the SEC. 

REGISTRAR. An agent, usually a bank, that physically issues, transfers, and cancels stock certificates as stock transactions occur.

REGISTRATION PERIOD. The time from which a registration statement is filed with the SEC to the day the SEC allows the registration statement to be declared effective.

REGISTRATION STATEMENT. The primary document required to be filed with the SEC in connection with the issuance of securities. Required by the Securities
Act of 1933. A registrant generally uses Form S-1, SB-1, or SB-2 for an initial public offering.

REGULATION A. Provisions of the 1933 Act that contain the rules governing certain public offerings of no more than $5,000,000 which are exempt from registration.

REGULATION D. Provisions of the Securities Act of 1993 that contain the rules for certain private placement offerings.

REGULATION S-B. Specifies the form and content of financial statements as well as the disclosure requirements for the nonfinancial statement portion of filings to
be filed with the SEC by small business issuers. It is an integrated and simplified version of Regulations S-K and S-X.

REGULATION S-K. Contains the disclosure requirements for the nonfinancial statement portion of filings with the SEC.

REGULATION S-T. Governs the preparation and submission of documents filed via the SEC's EDGAR system.

REGULATION S-X. Specifies the financial statements to be included in filings with the SEC and provides rules and guidance on their form and content.

RESTRICTED STOCK. Securities, usually issued in private placements, that have limited transferability. Also called legended stock or lettered stock.

ROAD SHOW. A presentation to potential investors, brokers, and dealers by the company's management and underwriters in order to facilitate a securities offering.

RULE 144A. An SEC exemption permitting the sale of certain restricted stock without registration.

RULE 147. See Intrastate Offering.

RULE 504. A rule under Regulation D that permits an issuer to raise up to $1,000,000 within a 12-month period. Under Rule 504, a company may offer securities
to an unlimited number of investors and need not provide an offering circular to them.

RULE 505. A rule under Regulation D that exempts from registration offers and sales of securities of up to $5,000,000 during any 12-month period. Rule 505 limits
the number of non-accredited investors to 35; however, there can be an unlimited amount of accredited investors.

RULE 506. A rule under Regulation D that allows for the private placement of securities with an unlimited number of accredited investors and up to 35
"sophisticated" non-accredited investors regardless of the dollar amount of the offering.

S CORPORATIONS. Corporations that have 35 or fewer shareholders and meet certain other requirements of the Internal Revenue Code. An S corporation is taxed by the federal government and some states in a manner similar, but not identical, to a partnership.

SAFE HARBOR RULE. SEC provisions that protect issuers from legal action if specified requirements have been satisfied or, in certain cases, if a good-faith effort has been made to comply with specified requirements. 

Second-stage Financing. Growth financing for market penetration.

SECONDARY OFFERING. An offering by the company's  shareholders to sell some or all of their stock to the public. The proceeds of a secondary offering are received by the selling shareholders, not by the company.

SECURITIES ACT OF 1933 (1933 ACT). Under the 1933 Act, a registration statement containing required disclosures must be filed with the SEC before securities can be offered for sale in interstate commerce or through the mail. The 1933 Act also contains antifraud provisions that apply to offerings of securities.

SECURITIES AND EXCHANGE COMMISSION (SEC). The SEC is the federal agency responsible for regulating sales and trading of securities through its administration of the federal securities laws, including the 1933 and 1934 Acts.

SECURITIES EXCHANGE ACT OF 1934 (1934 ACT). The 1934 Act requires companies registered under the 1933 Act to file periodic reports (e.g., Forms 10-K and 10-Q) with the SEC and to disclose certain information to shareholders. Companies traded over the counter with 500 or more shareholders and total assets of more than $10 million and companies that elect to be listed on a national stock exchange must file a registration statement to register under the Act.

Seed Financing. Second Stage Financing, Third Stage Financing and Going Public.

SHELF REGISTRATION. Generally, a registration statement is considered effective only as long as there is a bona fide public offering. However, there are certain circumstances where the SEC will permit deliberately delayed or extended offerings. These are referred to as shelf registrations.

SHORT-SWING PROFIT RECAPTURE. A requirement, included in the 1934 Act, whereby officers, directors, and persons deemed to have beneficial ownership of ten percent or more of a class of a company's equity securities are required to turn over to the company any profits realized from sale of the company's stock held for less than six months.

SIGNIFICANT SUBSIDIARY. A business is deemed to be significant if any of the following tests are met:

(a) The registrant's and its other subsidiaries' investments in and advances to the subsidiary exceed ten percent of the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed business combination accounted for as a pooling of interests, this condition is also met when the number of common shares exchanged or to be exchanged by the registrant exceeds ten percent of its total common shares outstanding at the date the combination is initiated); or

(b) The registrant's and its other subsidiaries' proportionate share of the subsidiary's total assets (after intercompany eliminations) exceeds ten percent of the registrant's or its subsidiaries' consolidated total assets as of the end of the most recently completed fiscal year; or

(c) The registrant's and its other subsidiaries' equity in the income of the subsidiary from continuing operations before taxes, extraordinary items, and cumulative effect of accounting changes exceeds ten percent of such income of the registrant and its subsidiaries as of the end of the most recently completed fiscal year. These tests are performed in determining whether separate financial statements are required for businesses acquired or to be acquired or for equity method investments (materiality thresholds vary depending on the particular transaction).

SILENT FILING. A filing to the SEC that entails sending a written registration statement for initial review and waiting until all SEC comments are resolved before printing the registration statement and prospectus, i.e., the first printed version is the amended registration statement. Also known as a quiet filing.

SMALL BUSINESS ISSUER. A U.S. or Canadian entity with revenues of less than $25 million and whose public float is less than $25 million.

SOPHISTICATED INVESTOR. Potential investors who are capable of evaluating the merits of the investment venture as related to certain exempt offerings. See also Accredited Investor, and consult with your legal counsel for further clarification.

STABILIZATION. The process by which underwriters attempt to stabilize prices through the purchase of securities for their own account when the market price falls below the initial public offering price.

STAFF ACCOUNTING BULLETINS (SABs). SABs represent accounting interpretations and practices followed by the SEC staff in administering the disclosure requirements of the federal securities laws.

STOCK OPTION PLANS. Plans whereby employees are granted options to purchase stock of the company at a stated price within a specified period of time. Stock option plans may be:

Start-up Financing. The product is prepared for opening up the market. The company is being built up or is newly in business and its product is not yet on the market.

(a) Incentive stock option plans (ISOs), which are accorded favorable tax treatment (i.e., the employee has no tax at grant date or exercise date and shares are eligible for capital gains treatment on ultimate sale); however, there are a number of statutory restrictions including a limit on the number of ISOs that can be exercised in one year and the period of time that the stock must be held before it can be sold, or

(b) Nonqualified stock option plans, which are plans that are not ISOs. These plans do trigger a tax upon exercise. The issuing employer, however, can obtain a tax deduction in the period the option is exercised, whereas it would not have a deduction when an ISO is exercised.

STOP ORDER. An SEC order suspending effectiveness of an issue's registration and preventing the issue from being sold, due to deficiencies being present in the registration statement.

STUB-PERIOD FINANCIAL INFORMATION. Condensed financial statement information reporting results for the period subsequent to the last audited statements and prior to the effective date of the registration statement.

SUBSEQUENT OFFERING. An offering of shares by a company after its initial public offering.

SYNDICATE. A group of investment bankers who act together to underwrite and distribute an offering, with the intention of achieving wider distribution and spreading the associated risk. 

TENDER OFFER. A formal offer, usually by another company, to purchase a company's shares in order to gain control. Tender offers can be bilateral (friendly) or unilateral (unfriendly).

TESTING THE WATERS. Companies filing under Regulation A may test for potential interest in their company either through oral presentations or in the form of advertisements prior to the filing and delivery of the offering statement with the SEC.

Third-stage Financing. Developing the production and sales system for full exploitation of the market potential.

TOMBSTONE AD. An advertisement, usually in a business periodical, announcing the offering and its dollar amount, identifying certain members of the underwriting syndicate and indicating where a copy of the prospectus can be obtained. 

TRANSFER AGENT. An agent that keeps records of a company's shareholders and handles the transfer of shares from one individual to another. 

TREASURY STOCK METHOD. Method by which options, warrants, and their equivalents are included in earnings-per-share computations. It assumes that the options and/or warrants are exercised at the beginning of the year (or issue date if later) and the proceeds are used to repurchase outstanding shares of common stock. 

TRUSTS. Fiduciary relationship in which a person, called a trustee, holds title to property for the benefit of another person, known as the beneficiary. 

UNDERWRITER. Usually a firm that acts as an intermediary between the company and the investing public in connection with the sale of the company's securities. 

UNDERWRITER WARRANTS. Compensation to the underwriter in the form of warrants to purchase common stock. 

UNDERWRITER'S DISCOUNT. The commission paid to the underwriter out of the gross proceeds of an offering.

UNDERWRITING AGREEMENT. Contract between the company and the underwriter that sets forth the terms and conditions of a securities offering, including the type of underwriting, the underwriter's compensation, the offering price, and number of shares. The underwriting agreement is typically signed on the effective date of the registration. UNIT. A combination of two securities sold for one price. A unit usually consists of common stock and warrants or common stock and debt. 

VENTURE CAPITAL. Risk financing generally provided to companies unable to obtain other forms of financing. The financing can take the form of common stock, convertible preferred stock, or convertible debentures.

WAITING PERIOD. The period between the date a registration statement is initially filed with the SEC and the date the registration statement becomes effective. 

WARRANT. A security entitling its owner to purchase shares in a company under specified terms.

WINDOW. The time during which the market is receptive to a particular type of offering.

WITHDRAWN OR WITHDRAWAL. A termination of any further offering activity by the company or the underwriter. A proposed offering is withdrawn by formally notifying the SEC.

 

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