Series 79 Chapter 1

Preemptive rights

right of existing shareholders to maintain their % ownership by buying newly issued shares before they're offered to the public (protects against dilution)

Warrants

long-term securities giving the holder the right to buy a company's stock at a fixed price at some point in the future; often attached to bonds/preferred stock as a “sweetener”; longer-dated than rights and traded separately

Broker

effecting agency transactions in securities for the account of others and earn a commission (match up buyers and sellers)

Dealer

buys and sells securities for its own account aka engaging in principal transactions and earn either a markup/markdown

Third market

trading of exchange-listed securities OTC, usually by non-member broker-dealers for institutional clients

ADRs

negotiable receipts issued by a US bank representing shares of a foreign company held in custody abroad; let US investors trade foreign shares in USD without the same voting/preemptive rights as direct holders

Hybrid securities

combine features of debt and equity, e.g. convertible bonds, convertible preferred stock

Derivative securities

value is derived from an underlying asset (stock, index, currency, commodity); e.g. options, warrants, rights, futures

Sole proprietorship

unincorporated business owned by one person; no legal separation from owner (unlimited personal liability, income taxed on owner's personal return)

C Corporation

may have unlimited # of shareholders and s.t. regular corporate taxation; pay corporate taxes on their income and shareholders pay personal income taxes on their dividends (corporate earnings s.t. double taxation)

S corporation

may elect to pass through expenses and revenue directly to owners, thus avoiding federal taxation for the corporation (requirements

Limited Liability Company (LLC)

combines pass-through taxation of a partnership with the limited liability of a corporation; members aren't personally liable for company debts

General Partnership

2+ partners carry on a business for profit; each partner has unlimited personal liability and can bind the partnership

Limited Partnership

has at least 1 general partner (unlimited liability, runs the business) and 1+ limited partners (liability limited to investment, no management role)

REIT

raise capital and invest the proceeds in real estate and mortgages; profits derived from both the rental income they receive and the difference between the interest they pay and the greater amount of interest they receive (so they only invest in income-generating property, rather than things like undeveloped land)

o Required to pass through a minimum of 90% of its income to its shareholders but NOT permitted to pass through losses

Special Purpose Acquisition Funds (SPACs)

blank check shell company that IPOs solely to raise capital to acquire/merge with a private operating company, taking it public without a traditional IPO

Institutional investors

large entities that invest on behalf of others (banks, insurance cos, pension funds, investment companies, RIAs); presumed sophisticated and afforded less regulatory protection than retail investors

Qualified institutional buyer (QIB)

an institution that owns/invests $100mm+ in securities of unaffiliated issuers on a discretionary basis ($10mm for broker-dealers); used to determine Rule 144A resale eligibility

Info required in 10k and 10Q

business line and assets of company, legal proceedings they’re involved in, risk factors, accounting policies, market for their securities, # shares outstanding, audited financial statements, comments on their financial condition, list of directors and officers

Schedule 14A

proxy filing; has the most detailed information about the compensation paid to an issuer’s executives

Annual report

signed by the CEO, CFO, and a majority of the board of directors

Large, accelerated filer

public float of $700mm+ as of the last business day of the most recently completed 2nd fiscal quarter; required to file 10-K within 60 days after the end of the discal year and 10-Q within 40 days after the end of the fiscal quarter

Accelerated filer

public float of $75mm-$700mm; required to file 10-K within 75 days after the end of the fiscal year and 10-Q within 40 days after the end of the fiscl quarter

Non-accelerated filer

public float under $75mm; required to file 10-K within 90 days and 10-Q within 45 days

Form 8K

filed within 4 business days of an event that materially affects the issuer’s financial condition or share price

Regulation FD

when an issuer discloses material nonpublic info to certain persons (analysts, institutional investors), it must simultaneously (intentional) or promptly (unintentional) disclose that info publicly

Schedule 13D

triggered when a person(s) acquires equity ownership exceeding 5%; required within 5 business days of the transaction; contains information on the company’s largest shareholders

Schedule 13G

filed when an investor with no intent to control an issuer acquires more than 5% of the issuers shares; if the company is sold, the 13G must be updated

Form 13F

quarterly filing by institutional investment managers with $100mm+ in equity AUM, disclosing their equity holdings

IBES

Institutional Brokers' Estimate System – database of consensus analyst earnings estimates

Form 3

filed within 10 days of becoming an insider

Form 4

must be filed within 2 business days of the date on which an insider directly buys/sells securities

Form 5

annual filing by insiders reporting transactions not already reported on Form 4; due within 45 days of fiscal year-end

Short swing profit

profit an insider (officer, director, >10% owner) realizes from a purchase and sale (or sale and purchase) within 6 months; must be disgorged to the company under Section 16(b)

Proxy statement

document sent to shareholders ahead of a meeting containing info needed to cast an informed vote

Definitive proxy

must be filed with SEC no later than the date its first sent to shareholders

Preliminary proxy

must be filed with SEC at least 10 days prior to the date the definitive proxy is sent to shareholders

Annual proxy

sent in connection with the annual meeting; covers matters like election of directors, exec comp, and ratifying auditors

Special proxy

sent for a special meeting called to vote on a specific matter outside the annual meeting (e.g. a merger, charter amendment)

Section 10A of ’34 Act

requires auditors to include procedures to detect illegal acts, assess going-concern status, and review related-party transactions; requires audit committee pre-approval of audit/non-audit services

Sarbanes-Oxley Act

prohibits loans from a corporation to its executive officers and board members, even if board member isn’t an executive

Section 404 of Sarbanes-Oxley Act

requires management to assess/report on internal controls over financial reporting; larger filers' external auditor must attest to that assessment

Audit committee

board committee of independent directors overseeing financial reporting, internal controls, and the external auditor; must include at least 1 financial expert