Standard Terms in Non-Public Financing Transactions (G-R)
Following are more standard terms that are used in financing transactions for start-up and other pre-IPO ventures.
| IPO | An acronym for “initial public offering.” This term generally refers to the first public offering of stock by a company. |
| Issued and Outstanding Stock | Shares which the company has already sold, or “issued,” and that are presently held by shareholders. |
| Issuer | The company whose stock is being sold. |
| Liquidation Preferences | The right of the holders of preferred stock to receive distributions of a specified amount of cash or assets upon the liquidation of a company before the holders of common stock will be entitled to receive distributions. |
| Lock-Up Agreements | Agreements by shareholders not to sell their stock for a specific period of time after the completion of a public offering. |
| Mezzanine Stage Financing | A round of private financing by a company after early rounds of financing have been completed. In the pre-IPO context, usually denotes the last round of financing prior to the initial public offering. |
| Participating Preferred | Preferred stock which allows the holders to share in dividends and other distributions of assets with common stock after the dividend and liquidation preferences are paid to the preferred shareholders in full. |
| Pay to Play | A pay-to-play provision requires an investor to invest in future financing rounds or risk losing certain rights, such as anti-dilution protection. |
| Preemptive Rights | The right of a shareholder to purchase stock in any subsequent stock offering so as to allow that shareholder to maintain his, her or its percentage ownership of the company. |
| Preferred Stock | A class of stock that has a dividend preference, liquidation preference or both. |
| Private Placement | An offer of securities (such as stock or notes) to investors in a manner that does not constitute a public offering. Involves the sale of securities at a price and under other terms that are determined before the offer is made. |
| Redeemable Stock | Stock which must or may be repurchased by the company at the option of the holder, upon the occurrence of certain events or at the option of the company. |
| Registration Rights | A shareholder’s right to require that a company register his, her or its stock for public sale under the Securities Act of 1933. Demand registration rights give the shareholder the right to require the company to register that shareholder’s stock even if the company is not otherwise offering stock for public sale. Piggy-back registration rights give a shareholder a right to have the company register his, her or its stock if the company is also registering its own stock or stock held by other shareholders. |
| Registration Statement | A document that is filed with, and must be approved by, the SEC to register stock or other securities for sale in a public offering under the Securities Act of 1933. The registration statement consists of a disclosure document called a prospectus, some additional information and exhibits. |
| Regulation D | A regulation of the SEC that sets forth several ways in which offerings of securities may be conducted without the need to register the offerings under the Securities Act of 1933. Often relied on in private placements. |
| Reporting Company | A publicly-held company that is required to submit periodic reports to the SEC and to comply with various other requirements of the Securities Exchange Act of 1934. A majority of public companies, and all companies that are listed on a United States stock exchange or the Nasdaq Stock Market, are required to be reporting companies. |
| Restricted Stock | This term is commonly used in two contexts. The first refers to stock which is given to employees, directors and other service providers and which the company has a right to repurchase upon the occurrence of certain events. The second refers to stock which has been issued in a nonpublic offering (such as a venture capital financing) and may not be resold unless certain holding periods and other requirements are satisfied. |
| Restrictive Covenants | Provisions in agreements which prohibit a company from taking certain actions without the consent of specific investors or groups of investors. Also referred to as “negative covenants.” |
| Right of First Offer | The right of a shareholder to require that a company offer to sell stock to that shareholder before the company can sell stock to any other person. |