Finance

Preemptive Right

A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. A preemptive right is written in the contract between the purchaser and the company, but does not function like a put option.

Greenmail

Greenmail is the practice of purchasing enough shares in a firm to threaten a takeover, thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover.

Mark to Market

The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.

Principal Place of Business

The headquarters that holds the senior executives of a firm and is usually the centre from where other locations are controlled. Law Dictionary: http://thelawdictionary.org/principal-place-of-business/#ixzz2riE6wgSo

Supermajority Amendment Provision

Under Section 18-302(e) (Delaware LLC's) a supermajority vote is required to amend any part of an LLC that requires or uses a supermajority vote.

HIC Repo

"Hold In Custody Repo:-- a form of repurchase agreement in which the borrower of cash doesn't deliver out the collateral but rather keeps it in his custody. The seller of securities retains custody of the securities used as collateral on behalf of the buyer. No settlement charges are incurred. This exposes the buyer to some risk because he only has the dealer's pledge that his cash is fully collateralized (e.g. the ETC aircraft loans are a HIC REPO).

Qualified Dividends (Qualified Dividend Income or QDI)

(IRS) Ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate rather than at higher tax rate for an individuals ordinary income.

Sunset

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DVP Account

A DVP account refers to an account into which the buyer's payment for securities is due at receipt of securities. In this agreement, the seller of securities is supposed to pay the buyer upon delivery to the seller. This account is designed to reduce risk to both parties.

Out of the Money

A call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. An out of the money option has no intrinsic value, but only possesses extrinsic or time value. As a result, the value of an out of the money option erodes quickly with time as it gets closer to expiry. If it still out of the money at expiry, the option will expire worthless.

Clearing Broker

A member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction.

Fair Price Provision

A provision in the bylaws of some publicly-traded companies stating that a company seeking to acquire it must pay a fair price to targeted shareholders. The formula for determining a fair price may be indicated in the bylaws; it is often a calculation based on historic prices. Additionally, the fair price provision mandates that the acquiring company must pay all shareholders the same amount per share in multi-tiered shares. The fair price provision exists both to protect shareholders and to discourage hostile acquisitions by making them more expensive.

Interested Shareholder

A shareholder or association with beneficial ownership, whether direct or indirect, of enough voting stock to affect company decisions.

Anti-Greenmail Provision

A special clause located within a firm's corporate charter that acts as a deterrence against the board of directors passing a share buyback (so that they cannot pay the blackmail from the hostile acquirer).

Deadhand

A stipulation on a defense mechanism (or poison pill) used by companies in order to protect against a merger or takeover by another company. The dead hand provision prevents the removal of the poison pill, a strategy used to discourage a hostile takeover, even if shareholders of the target company favor the takeoverA dead hand provision states that only the original directors who put the provision into place can dismantle the pill, so any new directors are prevented from interfering.

Poison Pill

A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. 2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.

Classified Board

A structure for a board of directors in which a portion of the directors serve for different term lengths, depending on their particular classification. Under a classified system, directors serve terms usually lasting between one and eight years; longer terms are often awarded to more senior board positions (i.e. chairman of the corporate governance committee). Classified boards are often referred to as "staggered boards", although staggered boards and classified boards have somewhat different structures. Staggered boards need not be classified, but classified boards are inherently staggered.

Subadvisor

A subadvisor is a manager that works outside of the fund, and is hired by a fund to help with an investment portfolio.

Subscription Agreement

An application by an investor to join a limited partnership. In most cases, the investor will have to fill out a form created by the general partner evaluating the investor's suitability for the investment in the partnership. Difference between a subscription agreement and a stock purchase agreement is that in a SPA the shares have already been created).

Statuatory Liquidity Ratio

Statutory liquidity ratio refers to the amount that the commercial banks require to maintain in the form of gold or govt. approved securities before providing credit to the customers.

Freezeout

is a technique by which one or more shareholders who collectively hold a majority of shares in a corporation gain ownership of remaining shares in that corporation. The majority shareholders incorporate a second corporation, which initiates a merger with the original corporation. The shareholders using this technique are then in a position to dictate the plan of merger. They force the minority stockholders in the original corporation to accept a cash payment for their shares, effectively "freezing them out" of the resulting company.