Here follows a detailed glossary of commonly used securities terms. Feel free to print it out for future reference.

Acceleration - Securities cannot be sold unless a registration statement has become effective with the SEC, or a specific exemption applies. That effective date occurs automatically 20 days after it is filed, unless an SEC stop order or refusal order is in effect. In reality, however, each filing includes a 'delaying amendment' so that it cannot become effective automatically. Then the lawyers file a request for acceleration of the effective date to a selected day and time.

Aftermarket - The trading market that develops for shares after the public offering is over. Orders to buy or sell shares are matched in the over-the-counter (OTC) market by a securities firm acting as a market maker. For NYSE or American Stock Exchange shares, a specialist on the stock exchange will match orders. The quality of the aftermarket is measured by its ability to absorb bid price or asked price orders without major disruptions in the price. That ability is a function of the market's liquidity - the number of shares owned by the public, rather than by company insiders (called the float), and the extent to which the public is active in trading the shares, rather than holding them for the long term.

Affiliate - normally defined as an individual or corporation in a position to exert direct influence on the actions of a corporation. Among such persons are owners of 10% or more of the voting shares, directors, and senior elected officers and any persons or entities in a position to exert influence through them - such as members of their immediate family and other close associates.

All-or-none Offering - Each public offering will have a total number of shares that must be sold. Sometimes, in a direct public offering or a best efforts underwriting, a condition of the offering will be that all shares offered must be sold or the offering is cancelled and none of the shares will be sold; this is an all-or-none offering.

Allotment - In an underwritten public offering, each securities firm in the underwriting syndicate is allocated an allotment of shares to sell. As a practical matter there is very little relationship between the allotment and actual sales. Technically, the agreement among underwriters could force each member of the underwriting syndicate to take its allotment.

American Depositary Receipts (ADR) - A negotiable receipt representing a specific number of equity shares in a foreign corporation. ADRs trade in American dollars in the American securities market like domestic equities.

American Depositary Shares (ADS) - A trading unit for the issuer in the U.S. which may represent more or less than one underlying share of the issuer. ADSs are issued in New York in registered form, eligible for trading and clearing in the U.S. markets, and may be made eligible for clearing outside the U.S. in Euroclear and CEDEL.

Angel Investors - Also known as informal, wealthy investors, these are people who invest money in the business at its start-up or "seed capital" stage, before other sources of capital are available. They are usually relatives or friends of the entrepreneur, or individuals with the wealth and experience to take significant risks for above-average long-term rewards.

Annual Report - Financial statements and management's discussion and analysis of the company's operations and condition. For companies with registered shares under the Securities Exchange Act of 1934, an annual report must be filed with the SEC, following a Form 10-K format. Most states require corporations to send annual reports to their shareowners. These usually require audited financial statements, but their form and content is left to management's preference.

Asked Price - Shares traded in the OTC market will have prices quoted by their market makers, either on NASDAQ, on the OTCBB? or in the Pink Sheets. The quotations are for the bid price (what the market maker will pay to buy at least 100 shares) and the asked price (what it will accept to sell at least 100 shares).

Bad Boys - Past offenders under securities fraud laws. When the SEC authorizes exemptions from full registration statements, such as Regulation A and SCOR, it prevents their use by a corporation affiliated with persons who have, within the previous five years, been convicted of securities fraud or who are subject to any enforcement order by a securities regulator. Filing under the securities laws requires disclosure of bad boy affiliations.

Best Efforts Underwriting - A type of underwriting, in which a securities firm agrees to use its "best efforts" to sell shares as an agent for the company. There is no minimum number of shares that the underwriter must sell.

Bid Price - The price at which the bidder will buy a specified number of shares (see asked price).

Big Five - The largest international independent public accounting and consulting firms.

Blind Pool - Public offerings also known as "blank check." These offerings are made without any specific business plan or purpose described for use of the offering proceeds. Normally, the business purpose of the company is to effectuate a merger or acquisition with an as-yet-to-be-specified company.

Blue Sky Laws - State securities laws.

Board of Directors - The governing body of a corporation, which sets policy and appoints major officers. Directors are elected by the shareholders.

Bonds - Debt securities generally for borrowings due to be repaid several years after they are issued. Bonds are legal instruments to evidence borrowed money.

Book Value - The amount of a corporation's shareholders' equity. Also called net worth. Literally, the company's assets minus liabilities.

Broker - Defined in the securities laws as a person in the business of buying and selling securities for the accounts of others. This may be a registered representative of a securities firm, an independent broker-dealer, or a financial planner.

Broker-Assisted - Direct public offerings can be successful without using any commissioned sales people. However, the size of the offering, it's timing, or other factors may suggest using licensed brokers to sell part of the offering. They can be allocated a portion of the shares to sell on a best efforts basis to their own customers or by cold calling the prospects they generate. Or, the company can deliver the names and telephone numbers of people who have requested a prospectus to selected brokers and pay a negotiated commission rate for the conversion into sales.

Bulletin Board Stock - Over-the-counter shares, for which bid price and asked price information is available on-line through the OTC Bulletin Board (OTCBB), operated by the NASD.

Capitalization - The debt and equity structure of a company.

Certain Transactions - When money or property has passed between the company and one of its insiders, it may require explanation in the prospectus. The name "certain transactions" comes from the instructions accompanying the SEC forms for registering a public offering. For example, when an entrepreneur hopes to take a company public, it is wise to avoid any of the situations that would need description in the certain transactions section. They may make it difficult to qualify the offering under the blue sky laws of a merit state. Descriptions of certain transactions tend to be lengthy and complicated, causing prospects to reject the offering based on their "smell test."

Cheap Stock - When insiders have invested in the company within three years before the public offering, the amount they paid will be compared with the offering price to the public. A big difference raises the cheap shares issue, which must be dealt with satisfactorily for the public offering to be cleared through SEC and state blue sky laws. A NASAA Statement of Policy defines "cheap stock" and provides for their escrow as a condition to qualify the public offering in some states. While in escrow the shares cannot be traded. Release from escrow is typically conditioned upon meeting a three-year earnings-per-share test equal to 5 percent of the public offering price, a three-month period of trading at 175 percent of the offering price, or six to nine years after the offering.

Closing - In an underwriting, the company delivers share certificates, and the underwriters pay for the shares they have sold, less their commissions and expenses. The closing date is generally a week after the effective date of the underwriting. In a direct public offering, there will be a date when the offering closes and no more orders are accepted. An allocation is then made when more shares have been ordered than were offered, and certificates are mailed to the new shareholders.

Closing Meeting - Final meeting to effect the exchange of the offered securities for the proceeds of the offering.

Comfort Letter - A letter provided by the company's independent accountants, at the underwriters' request as part of their due diligence that details the performance of specified procedures and findings and contains certain representations.

Common Shares - Also known as common stock, these are the basic units of ownership in a corporation. Their voting rights elect the board of directors, which sets policy and hires and fires management. When a corporation is sold or liquidated, whatever is left after paying off creditors and any senior securities belongs to the owners of common shares.

Control Person - Control persons are insiders subject to special rules about trading in the company's shares and passing on information about the company that would be important to a decision about buying or selling its shares. They include executive officers, directors, and the owners of more than ten percent (10%) of the company's shares. Securities laws place potential liability for investor losses onto persons who "control" the company.

Conversion - A direct public offering follows the steps of direct marketing: (1) the proposition (offer to provide a prospectus), (2) the prospects' response in requesting the prospectus, (3) fulfillment through delivery of the prospectus, and then (4) conversion of the prospects into shareholders.

CUSIP Number - All certificates for publicly traded shares require an identification known as a CUSIP number. They are issued by the New York office of Standard & Poor's Corporation.

Deficiency Letter - Often called a "letter of comment." When a registration statement has been filed with the SEC or a state securities administrator, the regulator will usually generate a list of comments from the staff assigned to the letter's review. There are usually separate comments for the text and the financial statements. The process generally involves comparing the filing with the most recent ones the agency has cleared for similar businesses. Since the law does not call upon the SEC to pass upon the adequacy of a registration statement, the comments are only "suggestions." Failure to make changes or otherwise explain each matter may mean that the registration statement never becomes effective and the offering is cancelled. Sometimes the staff will send a bedbug letter, telling the company that its registration statement is considered so deficient that it cannot be fixed with an amendment.

Delaying Amendment - When a registration statement is on file with the SEC, it would automatically reach an effective date and be usable to sell securities. To prevent this, securities lawyers and consultants routinely include a delaying amendment in the filing. They then request acceleration of the effective date to a selected time.

Depositary Receipts (DR) - Permit investors to acquire and trade in foreign securities, while at the same time giving the issuing companies access to the major international markets.

Dilution - The effect on a purchasers' common equity interest caused by disparity between the public offering price and net tangible book value per share immediately preceding the offering.

Direct Public Offering or "DPO" - An offering, in which a company sells securities to investors through direct marketing. This contrasts with an underwritten public offering sold by registered representatives who work for securities firms in an underwriting syndicate.

Due Diligence - The responsibility of underwriters and others, who prepare or sign the registration statement, to conduct a reasonable investigation to provide a basis for their belief that the registration statement does not contain misstatements or omissions of material facts at its effective date.

Effective Date - The date on which the registration statement becomes effective and the public offering begins.

EDGAR - The SEC's Electronic Data Gathering, Analysis, and Retrieval system for companies to file registration statements and periodic reports by computer media.

Equity - In finance and accounting this term means the owner's investment in the business. It is used interchangeably with shareholder's equity or net worth. It includes amounts the owners have invested, plus or minus the earnings or losses that have been accumulated from operating the business.

Escrow Account - An account in which the offering proceeds are kept prior to closing of an offering.

European Depositary Receipts (EDR) - Usually listed on a European exchange, represented by a single global certificate, and deposited with a common depository on behalf of Euroclear and CEDEL. Ownership in the EDR is shown on, and transfers thereof are effected through, records maintained by Euroclear and CEDEL. EDRs are not issued in the U.S. and therefore are not subject to regulation by the SEC.

Exempt Transactions - Registration provisions of securities laws apply to every purchase and sale of securities, unless a specific exemption applies. Most stock market transactions are exempt, as are private placements. The SEC and the courts keep the interpretation of exempt transactions rather narrow. It can be dangerous to sell shares without a no-action letter or an opinion of counsel that the proposed transaction is within SEC safe harbor rules or other defined limits.

Filing Date - The day on which a registration statement for a public offering is filed with the SEC (or a filing is made to qualify under state blue sky laws). It marks the end of the pre-filing period and the beginning of the waiting period.

Finder - A person who introduces a company to a source of financing - an investor or another financial intermediary, like a bank or securities firm. Finders typically get paid a fee upon closing of the financing.

Firm Commitment Underwriting - A public offering of securities by an underwriting syndicate, where the underwriting agreement contains a firm commitment by the underwriters to buy all of the shares. In practice, the underwriting agreement is not signed until indications of interest have been gathered by brokers for sales of more than all the shares. Large, older securities firms will usually participate only in firm commitment underwriting and not in best efforts underwriting.

Float - As a noun, the float is the number of a company's shares that are owned by the public, rather than owned by the company's officers, directors, and other insiders. A minimum float is required by a stock exchange for listed shares and by NASDAQ for its price quotation system.

Foreign Corrupt Practices Act (FCPA) - Provisions of the 1934 Act dealing with a company's requirements to (1) keep reasonably detailed accounting records and (2) devise and maintain appropriate internal accounting control systems. The FCPA also prohibits certain payments by a company or its representatives to foreign official, political parties, or candidates.

Founders' Shares - Before businesses go public, their shares are often owned by the entrepreneur and other private placement investors. Depending upon the difference between the price paid for founders' shares and the offering price to the public, special disclosure in the prospectus may be required under SEC rules. If the private placement was made within three years before the proposed public offering, the blue sky laws in merit states may require an escrow of the cheap shares, or even prohibit the sale to their residents as unfair.

Fully Diluted - Per share earnings or other amounts in a company's financial statements after giving effect to the potential issuance of additional shares. This occurs when a company has issued warrants or options to purchase shares in the future, often as incentives to employees or investors, or as compensation to an investment banker or other financial intermediary.

GAAP - Pronounced "gap," an acronym for Generally Accepted Accounting Principles that must be observed in financial statements in order to get a clean opinion from the company's auditor's ? a necessity in virtually every public offering. Conforming to GAAP may be painful for an entrepreneur if the company's bookkeeping has principally served to save on taxes.

Glass-Steagall - The Banking Act of 1933 that separated commercial banks from investment bankers and prohibited commercial banks or their affiliates from underwriting securities. Because an underwriting is technically an investment in securities and a resale, the underwriter must have capital to cover a prescribed ratio to the amount of the underwriting. Taking banks out of the business severely limited the number of investment bankers, which had sufficient capital to do underwriting. The Federal Reserve Board of Governors had been gradually relaxing the Glass-Steagall restrictions until the Act was finally repealed in 1999.

Global Depositary Receipts (GDR) - Depositary receipts that are eligible for settlement outside the U.S. GDRs may be issued in New York, London, or Brussels and made eligible for use in the U.S. markets.

Go Public - When a company owned by no more than a few shareholders comes to having publicly traded shares. The usual method is through an initial public offering.

Go Public by the Back Door - When a business comes to have publicly traded shares without an initial public offering. This can happen through a series of acquisitions of businesses, paying the former owners in new shares of the acquiring corporation. It may also result from a string of private placements with a gradual widening of share ownership until a trading market develops. Finally, a business can go public by the back door if promoters organize or acquire a shell corporation that already has publicly traded shares, or does a blind pool offering. Then the shell acquires the operating business.

Green Shoe - This is an option for the underwriters to acquire from the company and resell up to an additional 15% of the firm commitment stock to cover over-allotments to customers of the firm commitment stock. The option allows the underwriters to obtain some additional stock at the same price as they purchased the firm commitment stock in order to cover excess orders in a rising market immediately following the offering.

IPO - An initial public offering, whether an underwritten public offering or a direct public offering.

Insider - Each officer, director, or holder of more than 10% of any class of security registered under the 1934 Act.

Issuer - A corporation issuing shares as fractional ownership interests. Corporations may also be the issuers of debt securities and options or warrants. For each share or other security, there is an issuer and an investor.

Letter of Comment - The letter from the staff of the SEC describing deficiencies noted during its review of a registration statement.

Letter of Intent - A preliminary, non-binding agreement that specifies the terms of the underwriting agreement.

Limited Public Offering (LPO) - an initial Regulation D, Rule 504, state-registered public offering normally designed to raise between $50,000 and $250,000.

Liquidity - How quickly an asset can be converted into freely available cash. For a company, it is the proportion of its assets consisting of money in the bank, accounts receivable, salable inventory, and the like. For an investor, it means how long it would take to sell and collect cash without a resulting drop in market value.

Management's Discussion and Analysis (MD&A) - The securities laws generally require that a public offering prospectus contained management's comments on changes in financial conditions and results for comparative recent periods, as well as such issues as liquidity, and the effect of laws for environmental protection. Annual reports will also have an MD&A.

Managing Underwriter - The investment banking firm that forms the underwriting syndicate and becomes the primary contact of the company (also referred to as the "lead underwriter").

Market Capitalization - The number of shares a company has issued, multiplied by its market price per share.

Market Maker - A securities firm that quotes bid and asked prices and maintains inventory in particular shares in the over-the-counter market. A market maker must generally be willing to buy at least 100 shares at its quoted bid price and sell at least 100 shares at its quoted asked price.

Merit State - A state with blue sky laws requiring that an offering of securities must meet a quality standard, such as fair, just, and equitable.

Minimum/Maximum Offering - In a best efforts underwriting or a direct public offering, there may be a minimum and a maximum number of shares offered for sale. If orders are received for less than the minimum during the offering period, then the offering is cancelled and any money received is returned (funds are usually required to be deposited in escrow). If offers are received for more than the maximum, then shares may be prorated among investors.

NASAA (North American Securities Administrators Association) - State agencies administering blue sky laws belong to NASAA, where efforts are made to coordinate enforcement against fraud and to achieve some uniformity in the rules governing the sale of securities.

NASD (National Association of Securities Dealers) - A self-regulatory organization of the securities industry. The SEC recognizes regulation by the NASD as a substitute for what the government would otherwise have to police. Tests for registered representatives, broker-dealer principals, and other securities professionals are administered by the NASD.

National Association of Securities Dealers Automated Quotations (NASDAQ) - An automated trading system information network that provides price and volume information on certain securities traded over-the-counter.

National Quotation Bureau, Inc. - Now owned by the NASD and formerly a subsidiary of Commerce Clearing House, Inc., it has been the publisher since 1913 of the Pink Sheets - the daily printed lists of 10,000 to 12,000 over-the-counter market shares and the most recent bid and asked quotations announced by their market makers. Before NASDAQ and the OTC Bulletin Board? this was the only source of information about shares that are not listed for trading on a stock exchange.

No-Action Letter - This is a letter from the staff of the SEC saying that it will not recommend enforcement action. A no-action letter is issued in response to a request by lawyers for the company, prepared because they are uncertain whether some proposed steps are in violation of the securities laws. The no-action letter is limited to the facts presented in the letter request. However, the SEC releases most no-action letters for publication, and lawyers often use them to support their own opinion to clients. As a matter of published policy, the SEC will not issue no-action letters on certain types of questions.

Offering Circular - The information or disclosure document by which an offer of securities is made to prospects. It is the same type of document as a prospectus ? the different name results from the term used in the applicable securities laws. For instance, a security registered under the federal Securities Act of 1933 would be offered by a prospectus, while one filed under the Regulation A exemption from that act would use an offering circular.

Officers and Directors' Questionnaire - As part of the underwriters' and lawyers' due diligence, a lengthy list of questions is required to be answered in writing by the company's officers and directors.

Options - Contracts allowing the owners to buy or sell securities at an agreed price and within an agreed time. In an underwritten public offering, the company will often grant options (also called underwriters' warrants), giving the underwriters the right to buy a new issue of the company's shares at any time within five years after the offering. The price is set at the minimum permitted by the NASD and blue sky laws ? usually from 100 percent to 140 percent of the offering price.

OTC Bulletin Board (OTCBB) - An electronic information system started in June 1990. Initially available only to NASD dealer members, who are market makers in over-the-counter shares, it displays names and telephone numbers of market makers in a company's shares. The dealers may or may not list firm or "unfirm" bid and asked price quotations. Rules for use of the OTC Bulletin Board are expected to evolve to make it similar to NASDAQ, with more firm quotations and much broader access.

OTC Companies - Corporations which have over-the-counter shares traded by market makers, rather than exchange-traded shares.

OTC Market - The "inter-dealer" trading of shares, where a brokerage firm quotes a bid price and an asked price, at which it is willing to buy or sell shares.

Par Value - When shares are issued, they may be assigned a par value. This number no longer has any practical meaning, except that it must be less than the offering price. Many corporations now issue "no par" shares, assigning them instead a "stated value" for accounting purposes.

Partial Public Offering - Selling shares in part of a business by having a subsidiary corporation go public. This is currently being done with subsidiaries operating in foreign countries, so that the shares can be marketed to residents there and traded on local stock exchanges. It could be especially appropriate for a direct public offering, where part of a business can be matched to target markets in another country.

Penny Stocks - Low-priced shares, trading at anywhere from a fraction of $0.01 to $5. A price movement that is very small in amount can represent a large percentage change.

Pink Sheets - A 300-plus page book or electronic listing of about 10,000 to 12,000 corporate shares traded in the over-the-counter market. The name comes from the non-glare color of their original form. It's published once each business day. There are about 2,000 subscribers to the Pink Sheets, which has been published by the National Quotation Bureau, Inc. since 1913. The National Quotation Bureau, Inc. is now owned by the NASD, which also uses the information to display prices for some shares through its OTC Bulletin Board.

Post-Effective Period - The period after the effective date and before the public offering is considered to be over. During this time, any material changes in the information contained in the prospectus need to be disclosed, usually by stickering the prospectus.

Preferred Shares - A separate class of corporate shares having some preferential features over common shares. Preferences often include a right to receive a percentage rate of dividends, to be repaid first if the corporation liquidates, or to elect a majority of the board of directors if performance standards are not met. Preferred shares may be voting or nonvoting and may or may not participate in dividends on common shares.

Private Placement - In the language of the federal securities laws, a sale of securities "not involving a public offering." Generally, a negotiated sale between a corporation and one or a few investors. An investment banker or other agent may be involved for a fee. The securities laws dictating use of a prospectus do not apply to private placements. Consequently, private placements are subject to a web of other regulations and decisions.

Proceeds - The amount received by the issuer from a public offering of securities (after the underwriting spread in an underwritten public offering). Net proceeds is the amount after payment of all other offering expenses. Securities laws require that the prospectus have a "Use of Proceeds" section explaining what the issuer is going to do with the money received from investors.

Projections - Estimates of the future operations and conditions for a business. They have been permitted and encouraged for many years but almost never used in prospectuses for underwritten public offerings of shares. Projections are generally used in private placements of shares and in public offerings of junk bonds.

Promoter - The founder or organizer of a corporate business. Securities law administrators often require the identity and background of promoters to be described in the prospectus.

Promotional Shares - Shares issued in return for services or ideas, usually when a business is first incorporated. Securities regulators look for full disclosure about promotional shares in the prospectus. Shares issued to founders or promoters at a nominal price within three years before the filing of a registration statement, will often be considered cheap stock, and it may be necessary for those shares to be kept in escrow for a period after the public offering.

Prospectus - The part of the registration statement used as a selling document distributed by the underwriting syndicate to prospective investors. It contains information about the offering and the company, including financial information.

Proxy - Written authorization of a shareholder for another person to represent and vote the shareholder's shares at a shareholders meeting.

Proxy Statement - The information required by the SEC to be provided to shareholders by those soliciting shareholder proxies.

QIB - Qualified institutional buyers

Quiet Period - The period between the filing and effective dates of the registration statement, during which the company curtails publicity about itself, even though that publicity may have nothing to do with the offering.

Rescission Offer - An offer to existing shareowners to exchange their shares for return of the price they paid. A rescission offer is usually made only because the shares are considered to have been originally sold in violation of the securities laws. Most often this is discovered by the securities lawyers during the corporate cleanup or due diligence. A typical case is a series of share sales to small groups of investors without following the filing and prospectus delivery requirements for a public offering.

Red Herring - The preliminary prospectus distributed to the underwriting syndicate. Its cover includes a legend in red ink that the registration statement has not yet become effective.

Registrar and Transfer Agent - Acts as an agent for the company, issues the securities sold to investors, maintains current records of all shareholders and their addresses, and maintains the records for subsequent transfers of securities upon resale.

Registration Statement - A disclosure document filed with the SEC in compliance with Federal securities laws.

Regulation A - An exemption made by the SEC from filing a registration statement under the Securities Act of 1933. It applies to offerings below a certain dollar amount, which has changed over the years. It still requires much of the same filing material and process as a registration statement, but is processed through regional SEC offices, rather than Washington, D.C. (except for any number of interpretations for which the regional officials may have to send to Washington).

Regulation S-K - Sets forth required content of the nonfinancial statement portions of registration statements and periodic reports.

Regulation S-X - Sets forth required content of the financial statement portions of registration statements and periodic reports.

Reneges - Cancellations by investors who have placed orders in an underwritten public offering. They will have expressed their indication of interest to a registered representative of a member of the underwriting syndicate or selling group before the effective date. They will then receive a confirmation with the prospectus. Within five days the investor must pay for the shares. Those who do not are reneges and the shares allotted to them come back to the underwriting syndicate.

Restricted Shares - Sale of restricted shares is limited, either because of who owns them (such as an insider), or because of the way they were acquired (such as in a private placement). The restriction may be imposed by the securities laws or by an agreement. When shares are used as incentive compensation to employees, they are often subject to a restriction that they can only be sold back to the company until a certain date or event.

Rights Offering - An offering of securities made only to persons who are already owners of the company's securities. The name comes from the day when it was common for a company's charter to give current holders the first right to acquire new issues. That provision is rare today, but many corporations find they can raise all the capital they need by asking their existing shareowners if they would like to buy more.

Road Show - Also known as a "dog and pony" show. In the last week or so before the effective date of an underwritten public offering, there is usually a road show. Top officers of the company, investment bankers, and perhaps lawyers and auditors, travel to meetings with money managers and representatives of the underwriting syndicate. These are usually conducted over the days' three meals, with smaller sessions for major prospects. Preparation for road shows is often very elaborate, with speech training, mock session rehearsals, video, and slide presentations. Shares can legally be offered only by the prospectus; however, that document is not yet available in required final form at the time of the road show. While the road show cannot lawfully provide any information that is not available to the entire public, it is typically the only marketing effort in which the company participates.

Rule 144 - The rule governing sales of shares by controlling shareholders and holders of restricted stock.

Rule 144A - SEC exemption from registration requirements to permit U.S. institutional investors to trade foreign stocks. Only qualified investing company (QICs) meeting conditions regarding the size of their portfolios, may trade 144A securities either as buyers or sellers.

Safe Harbor Rules - The SEC has issued interpretations for some of its rules, giving numerical and other objective standards. They are not the exclusive answers. However, if the facts of a particular situation fall within those standards, then the rules provide a "safe harbor" and the company does not need to get a no-action letter or other assurance that it will not violate the securities laws. There are, for instance, safe harbor rules with respect to the use of financial forecasts in a prospectus.

Sales against the Box - Sales of securities that the seller owns but does not presently plan to deliver.

Secondary Market - The trading market for securities that have been previously issued by a corporation. (The original issuance would have been an offering in the primary market.)

Secondary Offering - An offering, generally through an underwriting, of securities already issued and owned by a selling shareowner. This occurs when the number of shares to be sold is considered too large for the trading market to absorb without harmful effects on the market price. A secondary offering is often included with a primary offering made at the same time by the company. When there is a secondary offering included in the initial public offering, some investors believe it shows a lack of faith and an effort by the selling shareowners to bail out. The term secondary offering is frequently misused to apply when a company makes its second public offering.

Securities Act of 1933 ("1933 Act") - Regulates the offer and sale of securities and generally requires the filing of certain information and disclosures with the SEC before the securities can be sold. Also referred to as "the 1933 Act."

Securities and Exchange Act of 1934 ("1934 Act") - Regulates the trading of outstanding securities and generally requires the filing of periodic reports with the SEC. Also referred to as "the 1934 Act" or "the Exchange Act." Amended from time to time, this law is the federal structure governing the trading of securities and the secondary market. It defines and governs stock exchanges, securities firms, and other participants in the securities markets.

Securities and Exchange Commission (SEC) - A governing body that administers Federal securities laws under the 1933 Act and the 1934 Act.

Selected Dealer Agreement - Large public offerings often require a broader telemarketing network than all the registered representatives employed by members of all the underwriting syndicate. Other securities firms will be invited to sell a specific number of shares in return for the selling concession portion of the underwriting spread. They sign a selected dealer agreement, which becomes effective when the underwriting agreement is signed.

Self-Regulatory Organization (SRO) - A trade group recognized by the SEC as capable of enforcing rules about fairness of the securities markets. Principal SRO's are the stock exchanges and the NASD.

Self-Underwritten Offering - Offerings of this type are sold by officers, directors, founders, and licensed sales agents of an issuer as opposed to being sold by a licensed and professional underwriter and investment banking firm. In effect, the issuer in these types of offerings is acting as its own underwriter. An example of this type of offering is a direct public offering or DPO.

Selling Concession - The portion of the underwriting spread paid to the securities firm employing the registered representative who actually sells shares in an underwritten public offering. The selling concession is typically 60 percent of the underwriting spread.

Selling Group - The securities firms who sell shares in an underwritten public offering, but not as members of the underwriting syndicate. They sign a selected dealer agreement and receive a selling concession for shares they sell.

Shelf Offering - A public offering of securities which have been through the effective date of a registration statement and then held "on the shelf" until the company decides to offer them. This allows management to indulge in market timing, trying to sell securities when the terms are most favorable to the company. It also encourages bought deals, where underwriters come to the company after they have already arranged for the buy side of a transaction.

Shell Corporation - A corporation with publicly traded shares but no operating business. This can happen when the business has been sold or discontinued without dissolving the corporate form. It also results from a blind pool IPO. By placing an operating business into the shell corporation, a business can go public by the back door.

Short Sales - Sales of securities that the seller does not own.

Short-Swing Profits - Profits earned by an insider who either purchases and sells, or sells and purchases, any of the company's equity securities within a period of six months.

SCOR (Small Corporate Offering Registration) - Also known as ULOR, the Uniform Limited Offering Registration. It is a procedure for public offerings of securities in amounts of up to $1 million every 12 months. These "small offerings" are exempt from SEC registration but must still qualify under state blue sky laws that require delivery of a prospectus or offering circular to prospects. The form used by corporations has been approved by a committee of the American Bar Association and by NASAA. The SCOR rules had been adopted in 18 states through 1990. (42 states by 1997.)

Sponsor - A person, group, or company standing behind an offering of shares. Investors can reasonably conclude that the sponsor has performed due diligence and has an economic stake in the company or its shares. In underwritten public offerings, the managing underwriter is usually thought of as a sponsor (and is referred to by that term in England). In a direct public offering there may be a large corporate strategic partner or venture capitalist who purchased shares of the company in an earlier private placement and whose name conveys endorsement or sponsorship. Arrangements can be made for a recognized name to be a sponsor through a standby commitment, by agreeing to buy all shares not purchased by prospects in the offering.

Stabilization Bid - A bid for shares made shortly after the underwritten public offering by a member of the underwriting syndicate. There is a specific exemption for this under the anti-manipulation provisions of the securities laws. The purpose is to keep the market price from falling below the offering price until the underwriting syndicate has disposed of all the shares it committed to buy in the underwriting agreement.

Standby Commitment - An agreement to purchase any shares left over after completion of a public offering. This is commonly done in a rights offering, where a standby underwriter agrees to purchase all shares not subscribed for by the existing shareowners. Initially, the function of an underwriter in a public offering was to insure that all the money would be raised by issuing a standby commitment. It was akin to a performance bond. Today, there is only a letter of intent between the underwriter and the company proposing to go public. The risk that the public offering will not occur, or that the offering price will decline substantially, is borne entirely by the company. It is not until hours before the effective date, after all the selling efforts have been completed, that the contemporary underwriters will sign an underwriting agreement to buy the shares at an agreed price.

Statutory Underwriter - Someone who has become an underwriter within the meaning of the securities laws, even if that was not the intended status. The statutory definition of underwriter has sometimes been interpreted very broadly, especially where securities fraud has been alleged. Persons, who purchased shares from the company or an insider and then resold them, may find they are a statutory underwriter. So may persons who provide services in a public offering. Since liability can arise solely out of the status of underwriter, often without regard to intent, it is an important area for preventative law.

Street Name - When certificates for shares owned by an investor are issued and held in the name of a nominee. Securities firms, often own all or part of a nominee corporation, used exclusively as the street name in which securities are held for its customers. The reason is to make shares more quickly available for transfer in the event they are sold. Sometimes, a street name is used to conceal the identity of the real owner from corporate management or others.

Suitability - A test for whether someone really should be investing in a particular security. Checking suitability goes along with the know-your-customer rule. Several blue sky laws require that certain investments be offered only to persons meeting a set of suitability standards, usually related to wealth and income. Determining suitability is part of what it means to qualify a prospect.

Tombstone Advertisement - A published notice of a public offering.

ULOR (Uniform Limited Offering Registration) - Also known as SCOR. Available under some state blue sky laws for public offerings of not more than $1 million, which are then exempt from SEC registration.

Underwriter - A securities firm that purchases securities from the issuer and then sells them in an underwritten public offering. The name came from the former practice, where the underwriter became legally obligated to buy the securities at a fixed price, well in advance of selling them to the public. In insurance terms, it underwrote the risk that the securities would not be sold to the public at a price higher than the underwriter agreed to pay the company.

Underwriters (Underwriting Group) - The managing underwriter and underwriting syndicate who sell securities to the public.

Underwriting Agreement - An agreement between the company and the underwriters that details the nature, price, and size of the offering. It also specifies details about commissions and expense reimbursements.

Underwriters' Warrants - Also known as options. They are rights to buy shares of the issuer in the future at prices based upon the Offering price in an underwritten public offering. They represent additional compensation to the underwriters beyond the underwriting spread. Their terms are usually for five years, with the option price starting at 100 percent of the offering price and increasing by 10 percent each year. These terms are limited by blue sky laws and the NASD, which also permit the warrants to cover no more than 10 percent of the number of shares in the underwriting.

Working Group - The group that prepares the registration statement. It consists of representatives of the company, underwriters, legal counsel, and independent accountants.

E-mail us at: info@publicshell.com

This website is for information purposes only and it should not be construed as an offer to buy or sell publicly traded companies.