Chapter 15

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Regulation A

a SEC regulation that exempts public issues of less that $5 million from most registration requirements

Initial Public Offering

a company's first equity issue made available to the public. Also called an unseasoned new issue or an IPO

Green Shoe Provision

a contract provision giving the underwriter the option to purchase additional shares from the issuer at the offering price. Also called the overallotment option

Syndicate

a group of underwriters formed to share the risk and to help sell an issue

Prospectus

a legal document describing details of the issuing corporation and the proposed offering to the potential investors

Seasoned Equity Offering (SEO)

a new equity issue of securities by a company that has previously issued securities to the public

Red Herring

a preliminary prospectus distributed to prospective investors in a new issue of securities

Oversubscription Privilege

a privilege that allows shareholders to purchase unsubscribed shares in a rights offering at the subscription price

Rights Offer

a public issue of securities in which securities are first offered to existing shareholders. Also called a rights offering

Registration Statement

a statement filed with the SEC that discloses all material information concerning the corporation marking a public offering

Tombstone

an advertisement announcing a public offering

Standby Fee

an amount paid to an underwriter participating in a standby underwriting agreement

General Cash Offer

an issue of securities offered for sale to the general public on a cash basis

Gross Spread

compensation to the underwriter, determined by the difference between the underwriter's buying price and offering price

Term Loans

direct business loans of typically one to five years

Venture Capital

financing for new, often high-risk ventures

Underwriters

investment firms that act as intermediaries between a company selling securities and the investing public

Private Placements

loans (usually long-term) provided directly by a limited number of investors

Dilution

loss in existing shareholders' value in terms of ownership, market value, book value, or EPS

Shelf Registration

registration permitted by SEC Rule 415, which allows a company to register all issues it expects to sell within two years at one time, with subsequent sales at any time within those two years

Ex-rights Date

the beginning of the period when stock is sold without a recently declared right, normally two trading days before the holder-of-record date

Holder-of-Record Date

the date on which existing shareholders on company records are designated as the recipients of stock rights. Also, the date of record

Lockup Agreement

the part of the underwriting contract that specifies how long insiders must wait after an IPO before they can sell stock

Dutch Auction Underwriting

the type of underwriting in which the offer price is set based on competitive bidding by investors. Also known as a uniform price auction

Standby Underwriting

the type of underwriting in which the underwriter agrees to purchase the unsubscribed portion of the issue

Firm Commitment Underwriting

the type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares

Best Effort Underwriting

the type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility


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