AEM324 - Equity financing_Notes

AEM324 - Equity financing_Notes - Equity Financing...

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Equity Financing Definitions 1. Initial public offering (IPO) -a corporation’s first offering of stock to the public -almost invariably an opportunity for the existing investors and participating venture capitalists to make big profits, since for the first time their shares will be given a market value that reflects expectations for the company’s future growth 2. Lockup -the 180-day period after an IPO during which insiders are not legally allowed to sell their shares 3. Phantom shock -shares issued to employees which, unlike options, function like a bonus pool, which has to be charged out of earnings 4. Preemptive rights -a right giving existing stockholders the opportunity to purchase shares of a new issue before it is offered to others -its purpose is to protect shareholders from dilution of value and control when new shares are issued -states can pay shareholders to waive their preemptive rights; it can also be placed in the statutes that the preemptive right is only valid if set forth in the corporate charter -since the new shares would be typically priced below the market, a financial incentive exists to exercise the preemptive right; if the right is not exercised, it can be sold 5. Primary distribution -sale of a new issue of stocks or bonds, as distinguished from a secondary distribution, which involves previously issued stock -all issuance bonds are primary distributions (primary offering, but not IPO) 6. Private placement -sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company -a private limited partnership is also considered a private placement -a private placement does not have to be registered with the SEC as a public offering does, if the securities are purchased for investment as opposed to resale 7. Secondary distribution -also known as a second offering; a public sale of previously issued securities held by large investors, usually corporations, institutions, or other affiliated persons -differs from a primary offering where the seller is the issuing corporation -no commissions are paid by buyers since all costs are borne by the selling investor -a similar form of secondary distribution, called a special offering, is limited to members of the New York Stock Exchange
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8. Securities and exchange commission rule 144: public sale of unregistered securities -a holder of unregistered securities may make a public sale without filing a formal registration statement
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AEM324 - Equity financing_Notes - Equity Financing...

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