C Corporation

(USA) A corporation that is subject to taxation as a separate entity. See ‘S Corporation’ and ‘Limited Liability Company’.

CAC-40 (Compagnie des Agents de Change 40 Index)

An index based on 40 of the largest and most liquid stocks traded on the Paris Stock Exchange. See ‘Index’.

Call Option or Call

A contract that gives the holder the right to purchase specified securities at a specified price during a specified period of time. See ‘Put Option’.

Capital Stock or Share Capital

Stock that a company may issue evidencing its equity ownership. The capital stock may be either, common stock (USA), ordinary shares (UK), and/or preferred stock or shares. A company’s organisational documents usually indicate the amount of authorised capital stock or share capital that a company may issue.

Capitalisation

Generally accepted as referring to the sum of a company’s long-term debt, stock and retained earnings. Also called “invested capital.” The items comprising ‘capitalisation’ may vary in different jurisdictions. See also ‘Market Capitalisation’.

Capitalisation Rate

The discount rate used to determine the present value of a stream of future earnings. Equals normalised earnings after taxes divided by present value, expressed as a percentage.

Capitalisation Ratios

The percentage of a company’s total capitalisation that each capital component (debt, preferred stock, common stock, other equity) contributes.

Capped-Style Option

An option with an established profit cap. A capped-style option is automatically exercised when the underlying security closes at or above the option’s cap price for a call, or at or below the option’s cap price for a put.

Carried Interest

The percentage of a venture capital fund’s profits allocated to the general partner/ sponsors of the fund as compensation for their entrepreneurial efforts in organising and running the fund.

Cash Basis

The accounting practice of recording sales and expenses only when cash is actually received or paid out, as opposed to accrual basis. Generally cash basis accounting is simpler than accrual basis accounting. See ‘Accrual Basis’.

Cede & Co

(USA) The nominee of depositary trust company which acts as the record owner of securities held in ‘street name’ for a large number of major brokerage firms and other financial institutions. See ‘Street Name’ or ‘Nominee Name’. See also ‘Depository Trust Company’.

Cheap Stock

Stock (or rights to acquire stock) issued to employees, consultants, promoters, etc, of the issuer at a price lower than the public offering price, particularly if issued within one year prior to the public offering.

Chinese Wall

The term used for the procedures within a multi-dimensional securities firm or universal bank to separate material non-public information obtained by the corporate finance department from use by the trading desk, lending functions, or analysts.

City Code

The City Code on Takeovers and Mergers is a non-statutory code regulating takeover activity of publicly traded companies in the UK. See ‘Takeover Code’.

Class

Classes of securities are securities that share the same terms and benefits. Classes of capital stock are generally alphabetically designated, e.g., ‘Class C Common Stock’ or ‘Class A Preferred Stock’.

Class Action Suit

A lawsuit brought by one person on behalf of a larger group of individuals all having the same legal claim.

Classified Stock

(USA) The separation of a company’s capital stock into multiple classes, such as Class A and Class B.

Claw Back Option

The right to require repayment of funds set aside for a specific purpose that have been disbursed in a manner inconsistent with or contrary to the rules or agreements governing the disbursement. In the context of an acquisition, a buyer may have ‘claw back rights’ with respect to part of the purchase price if the target company fails to meet agreed upon milestones after the acquisition. In the context of a venture capital fund, investors may have claw back rights if interim distributions result in the fund promoters receiving more than the contemplated carried interest.

Clearstream

Clearstream is an international clearing and settlement organisation offering a comprehensive service for bonds and equities – both domestic and cross border. Clearstream was formed in 2000 from the merger of Cedel International and Deutsche Bank Clearing. Clearstream is now a subsidiary of Deutsche B?rse. See ‘Euroclear’.

Closed Corporation

A corporation in which all of the voting stock is held by a few shareholders, such as management or family members. Also called a private company.

Closely Held

A corporation in which most of the stock is held by a small number of shareholders.

Closing or Completion

The date on which a financing or acquisition closes or is formally completed.

Collateral

Securities or other property pledged by a borrower to secure repayment of a loan.

Combination Stock Option Plan

(USA) A plan under which a company can grant both Incentive Stock Options and Non-Qualified Stock Options. See ‘Incentive Stock Options’ and ‘Non-Qualified Stock Options’.

Comfort Letter or Cold Comfort Letter

A letter delivered by the auditors for an issuer at the time of a registered public offering which typically (a) confirms certain numerical information in the registration statement which can be derived from the issuer’s financial records, and (b) provides limited negative assurances concerning changes in the issuer’s financial condition since the last audit. See ‘Long Form Report’ and ‘Short Form Report’.

Comment Letter

(USA) A letter prepared by an examiner at the SEC setting forth the SEC’s questions and comments with regard to a filing with the SEC, such as a registration statement.

Commercial Paper

An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory. Maturities typically range from 2 to 270 days.

Commission Bancaire et Financi?re / Commissie voor het Bank en Financiewezen (CBF)

The Belgian Commission of Banking and Finance is the competent authority regulating the securities industry in Belgium. See ‘Competent Authority’.

Commission des Op?rations de Bourse (COB)

The Commission des Op?rations de Bourse, or COB, is the competent authority regulating the securities industry in France. See ‘Competent Authority’.

Common Stock

(USA) The basic form of equity ownership in a corporation. Generally equivalent to ordinary shares in the United Kingdom.

Common Stock Equivalents

Debt and/or equity type securities capable of subscription, exchange or conversion into common stock of the corporation. In calculating dilution, earnings per share, etc., the amount of common stock is often adjusted to reflect conversion of common stock equivalents.

Common Stock Ratio

A company’s common stock divided by its total capitalisation, expressed as a percentage.

Compensation Committee

A committee of the board of directors responsible for reviewing and setting the compensation of certain executive officers of the company. The compensation committee may also be responsible for the allocation of stock options to employees. A compensation committee is typically comprised of independent (i.e., non-employee) directors of the company. The definition of an ‘independent’ director may vary from one market to another.

Competent Authority

A term used within directives produced by the European Commission (see ‘Investment Services Directive’ and ‘Prospectus Directive’) to describe a body which has been identified by a member state of the European Union as being responsible for specified functions related to the securities market within that member state. Areas of competence include the recognition of firms permitted to offer investment services, the approval of prospectuses for public offerings, the recognition and surveillance of stock markets, etc. A member state may nominate different competent authorities for different areas of responsibility.

Confidentiality and Proprietary Rights Agreement

An agreement by which an employee, customer, or vendor agrees not to disclose the company’s trade secrets or other confidential information to any third party or to use such trade secrets or confidential information other than in connection with company business. Also referred to as a Non-disclosure Agreement. If such an agreement is made between a company and its employee, the employee typically also agrees to convey to the company all inventions the employee develops while employed by the company, and represents that the employee is not bound by obligations to a former employer that would restrict the employee’s services to the company.

Consolidated Financial Statements

Financial statements for a company and all of its subsidiaries as if a single enterprise rather than for the company on a stand-alone basis.

Conversion

The act of exchanging one form of security for another security of the same company (i.e., preferred stock for common stock, debt securities for equity.)

Conversion Parity

The equal dollar relationship between the price of a convertible security and that of the underlying security into which it can be converted. As an example, if a $1,000 debt instrument is convertible into 50 shares of common stock, conversion parity occurs when the common stock price is at $20.00 per share. If the prevailing common stock price is other than $20.00 per share, conversion parity does not exist.

Conversion Premium

The dollar or percentage amount by which the price of the convertible security exceeds the current market value of the common stock into which it could be converted.

Conversion Ratio

The ratio indicating the number of underlying securities that can be acquired upon exchange of a convertible security.

Convertible Debt

A debt obligation of a company that is convertible into stock.

Convertible Preferred Stock

Preferred stock convertible into common stock.

Cooling-off Period

(USA) A delay imposed informally by the SEC before declaring a registration statement effective in those cases where it believes the issuer has engaged in ‘gun-jumping’ or other impermissible marketing activities in relation to a public offering. The delay, which can be anywhere from a few days to 30 days or more, is to allow the effect of the promotional activities to dissipate and the market to ‘cool off’. This is different from the waiting period and quiet period. The basic concept of a cooling-off period exists in other markets, although its exact meaning may vary from market to market. See ‘Gun-Jumping’, ‘Quiet Period,’ and ‘Waiting Period’.

Co-sale Agreement

See ‘Tag Along Agreement’.

Cost Basis

See ‘Basis’.

Covenants

Provisions in a venture capital investment agreement, underwriting agreement or other financing document whereby the investee company agrees to do or not to do something in the future. Covenants may remain in effect as long as the investors hold a stated amount of securities or may terminate on the occurrence of certain events (i.e., completion of a public offering). Affirmative covenants define acts that the company must perform, and may include payment of taxes, maintenance of corporate existence, insurance, property and equipment, environmental and legal compliance, representation of venture capital firm on the board, etc. Negative covenants define acts which the company may not perform, and could include a prohibition on mergers, sale or purchase of assets, amendments to its organisational documents, incurring of indebtedness, the issuing of securities, distributions and redemption of securities, etc.

CREST

The UK’s share settlement system, based in London. In July 2002, CREST announced plans to merge with Euroclear. See ‘Euroclear’.

Cross-Collateralization

When collateral for one loan or obligation is also serving as collateral for other loans or obligations.

Crossover Fund

A mutual fund that invests in both public and private equity.

Cumulative Dividend

A dividend that accumulates if not paid in the period when due and must be paid in full before other dividends are paid on the company’s common stock. See ‘Arrearage’.

Cumulative Preferred Stock

A form of preferred stock that provides that if one or more dividends is omitted, those dividends accumulate and must be paid in full before other dividends may be paid on the company’s common stock. See ‘Arrearage’.

Cumulative Voting

A technique permitted by the laws of some states in the USA that is intended to assure minority shareholder representation on the board of directors. A shareholder is allowed to cumulate votes equal to the number of shares owned multiplied by the number of directors to be elected, and vote them all for one nominee.