Glossary of Financial Terms

• 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: $1 million or more in net worth; income in excess of $200,000 in the last two years or a joint income with a spouse exceeding $300,000 in the last two years.
• 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.
• ADJUSTMENT CONDITION
  • An adjustment condition occurs if the company does not close on an equity investment in the company for a minimum of $xxx, net of brokerage fees, on or before a series of other predetermined events, i.e. delivery of term sheet to preferred stockholders.
• 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.
• ANTI-DILUTION PROVISIONS
  • The means by which one preserves a percentage ownership in the company without having to make a new investment. One does not have to pay in order to maintain their position.
  • Types of dilution provisions
    • Typical – Provides for protection in the event of a stock split, stock dividend or similar recapitalization.
    • Full Ratchet – Complete preservation of percentage ownership in all circumstances including protection in the event of a subsequent sale or merger.
    • Modified Ratchet – Does not provide for “ratcheting” in limited circumstances such as new subsequent offerings at prices lower than per share investment price (“down rounds”) or employee equity offerings.
• AUTOMATIC CONVERSION
  • Under certain circumstances, such as the company going public or a majority of Series X share holders voting to convert, all Series X shares will be converted 1:1 into common shares.
• 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.
• BRIDGE FINANCING
  • Usually in the form of debt convertible into equity issued during the next round of financing.
• 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.
• C-CORPORATION
  • Created by state government, as a routine matter, upon the entrepreneur filing an application and paying a fee. It is a separate entity, with legal existence apart from its owners, the stockholders.
• CALL
  • Company’s right to force investor to sell his/her shares
• 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 describing the capitalization of a company including the names and number of shares owned by each principal and investors. This table is often segmented to describe each of several funding rounds in the company and clearly differentiates preferred and common shareholders.
• 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.
• CLAWBACK
  • A venture term in which the entrepreneur is allowed to increase his ownership percentage of the company, based on achieving mutually agreed-upon objectives, after the closing of a round in which the entrepreneur was diluted more than anticipated by new investors. Not frequently in use and often replaced by performance-based stock options.
• 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.
• COMMON STOCK
  • Is the baseline equity of the company. In case of bankruptcy, it is entitled to all assets and cash of the company after the payment of obligations such as bank debt, corporate debt, taxes, trade creditors, employee obligations, and preferred stock. Founders and employees almost always own shares or options for common stock.
• 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.
• CONVERSION RIGHTS
  • Rights by which preferred stock “converts” into common stock. Usually, one has this right at any time after making an investment. Company may want rights to force a conversion upon an IPO; upon hitting of certain sales or earnings’ targets, or upon a majority or supermajority vote of the preferred stock. Conversion rights may carry with them anti-dilution protections.
• CONVERTIBLE DEBT
  • A funding instrument for investments in early stage companies that converts to common or preferred stock at agreed-upon triggers, usually at the option of the investor. Normally earns interest at a moderate rate, payment of which is often deferred. Usually converted to equity securities upon the next subsequent round of investment in the company at a discount to the valuation of that next round of funding. The discount and triggers are negotiated at the time of making the note. This debt instrument put investors ahead of shareholders in case of liquidation and protects investors from down rounds in the next round of investment.  Also may somewhat limit the upside potential for those investors using such notes.
• CONVERTIBLE PREFERRED STOCK
  • Most common security for venture capital investments. Holders of this class of stock have “preference” over the common shareholders in the event of a liquidation of the company. Preferred shareholders can receive dividends, exercise voting privileges and retain the option to convert to common stock.
• CO-SALE PROVISIONS OR RIGHTS
  • Allows investors to sell their shares of stock in the same proportions and for the same terms as the founders, managers, or other investors, should any of those parties receive an offer.
• CRAM DOWN
  • A round of financing at a valuation less than the previous round of investment. In this case, the earlier investors are said to have been "crammed down," that is, to have suffered substantial dilution in ownership percentage at the expense of the current investors. (See also Down Round)
• CUMULATIVE VOTING
  • Right which gives the minority investor extra voting power by allowing for the spread of votes over many candidates or the concentration of votes to elect one director.
• COOLING-OFF PERIOD
  • See Waiting Period.
• DEAL STRUCTURE
  • An agreement made between the investor and the company defining the rights and obligations of the parties involved. The process by which one arrives at the final terms and conditions of the investment.
• DEMAND REGISTRATION RIGHTS
  • A negotiated right of investors to convert private ownership in the company through registration as shares eligible for trading in public markets.
• 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.
• DIVIDENDS
  • Proceeds paid by the company as a return on an original investment. Generally, they are discretionary with the company and aren’t paid unless contracted for or after the company has gone public. Dividends can be paid either in cash or in kind, i.e. additional shares of stock.
  • Types of dividends
    • Cumulative – Missed dividend payments that continue to accrue.
    • Non-cumulative – Missed dividend payments that do not accrue.
    • Participating – Dividends which share (participate) with common stock.
    • Non-participating – Dividends which do not share with common stock.
• DOWN ROUND
  • Price per share is less than in the previous round of financing. (See Turnaround Financing)
• DIVISION OF CORPORATION FINANCE
  • A division of the SEC which, among other things, reviews registration statements filed with the SEC.
• DOWN ROUND FINANCING
  • See turnaround financing.
• DUE DILIGENCE
  • Process of validating a potential investment. Usually involves the study of six areas of a company’s business plan: market structure, competition and strategy; technology assessment; management team; operating plan; financial review; and legal review. Checking the references of the principals is a critical portion of this process.
• 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
  • Ownership interest in a company, usually in the form of stock or stock options.
• 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.
• EXIT STRATEGY
  • A planned action taken by a company that results in liquidity of the company’s stock, often in the form of an acquisition by a publicly traded company or a public offering.
• 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 CLOSE
  • An early close of part of a round of financing upon the agreement of all parties.
• FIRST REFUSAL RIGHTS
  • A negotiated obligation of the company or existing investors to offer shares to the company or other existing investors at fair market value or a previously negotiated price, prior to selling shares to new investors.
• FMV
  • (fair market value).  An acceptable selling price to an independent third party.
• FORCED BUYBACK
  • Redemption of convertible debt, convertible preferred stock or common stock on pre-specified terms in situations where the company’s value has not appreciated according to the agreed upon plan.
• 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.
• FOUNDER VESTING
  • A term imposed on founders of seed and early stage deals in which the founder ownership is subject to a vesting schedule with nothing up front and linear vesting over, typically, four years. The first twelve months ownership is often “cliff” vested after the first year with monthly vesting thereafter. For more mature companies, vesting credit can be applied at the time of investment. The purpose of this term is to protect investors from an early, unplanned exit by the founder and to provide investors with the equity necessary to attract a new management team.
• 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.
• HARVEST
  • Reaping the benefits of investment in a privately held company by selling the company for cash or stock in a publicly held company, also to execute the exit strategy.
• 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.
• INFORMATION RIGHTS
  • Rights granting access to company’s information, i.e. inspecting the company books and receiving financial statements, budgets and executive summaries.
• 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
  • Non-individual shareholders. Institutional investors include pension funds, mutual funds, and trusts.
• INTELLECTUAL PROPERTY
  • Right or non-physical resource that is presumed to represent an advantage to the firm’s position in the marketplace, including patents, trademarks, copyrights and licenses.
• INTERIM FINANCIAL STATEMENTS
  • See Stub-Period Financial Information.
• INTERMEDIARY
  • (Financial Intermediary). An individual or institution empowered to make investment decisions for other persons or entities.
• 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.
• LEAD INVESTOR
  • Leader among the investors in a round of equity investment in a privately held company, usually also the leader of the due diligence efforts related to the same investment round.
• 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 Takeover of a company, using borrowed funds. Most often, the target company assets serve as security for the loans taken out by the acquiring firm, which repays the loan out of the cash flow of the acquired company.
• LIMITED OFFERING
  • An offering of securities exempt from registration due to exemptions for the size of offering and the number of purchasers.
• LIQUIDATION PREFERENCE
  • A preference offered to certain investors to over the founders and investors in earlier rounds, upon liquidation of the ownership of the company.
• 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.
• LLC
  • (Limited liability company). a company owned by “members” who either manage the business themselves or appoint “managers” top run it for them. All members and managers have the benefit of limited liability, and, in most cases, are taxed in the same way as a subchapter S corporation without having to conform to the S Corporation restrictions.
• LOCK-UP AGREEMENT
  • Agreements entered into between the lead underwriter and significant stockholders, whereby the stockholders agree not to sell any company stock for number of predetermined days (usually 180). This time period allows the market to absorb the company’s offerings.
• 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.
• MARKET STANDOFF AGREEMENT
  • Similar to Lock-Up Agreements and prevents selling company stock for number of predetermined days after a previous stock offering by the company.
• MERGERS
  • A business combination where one entity becomes a part of another entity.
• MEZZANINE FINANCING
  • Provides funds for further business expansion for companies with a year or two of profitability or an initial public offering.
• 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.
• NON-DISCLOSURE AGREEMENT (NDA)
  • An agreement which precludes disclosure to third parties of private information revealed by one party to another, usually for a fixed term.
• 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-SUBSCRIPTION
  • Underwriting term describing a new stock issue for which there are more buyers than available shares.
• 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.
• PARTICIPATING LIQUIDATING PREFERENCE
  • Preferred stock, which share (participate) with the common stock upon liquidation or sale. Upon liquidation, those investors with a liquidating preference will receive their original investment, any dividends owed, and perhaps other consideration, before holders of common stock receives a distribution.
• 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).
• PIGGYBACK REGISTRATIONS RIGHTS
  • Providing investors and/or company founder(s) the right to sell stock at the IPO (rarely) or a later public offering (more commonly) by adding their shares to the aggregate listed in the registration statement. (See Registration Rights)
• POST-EFFECTIVE AMENDMENT