Moreover, since it is convertible preferred stock, it allows the investor to exchange preferred stock to common stock at a specific price and at the discretion of the shareholder. So, the convertible preferred shareholder has the advantage of receiving a higher dividend payment than common stock affords, while at the same time owning the ability to convert to common stock to take advantage of capital appreciation. 2) Price per share At the price $4. 0 per preferred share will be beneficial to the entrepreneur if it is higher than the initial price. The investor is willing to pay for the higher price if the stock price tends to increase in the future from the growth of the company. 3) closing date Closing date is the last day that the investors can buy stocks 4) Proceeds The entrepreneur limits the maximum investment from an investor at $4. 5 million in order to protect the ownership and controlling power of the company. 5) Conversion
For conversion from preferred stock to common stock, the company has to receive more than $5 million and the price per share is at least 300% of the conversion price. With Full Rachet anti-dilution protection, it will be beneficial to the investor rather than the entrepreneur because Full-ratchet allows the investor to have his percentage ownership remain the same as the initial investment. The company has to bear all the downside price risk where there is no limit on the upside potential for the investors. 4) Dividends
The Research paper on Dividends Policy And Common Stock Prices
... knowledge about the relationship between companies’ dividends policies and the movement of common stock prices in the stock exchange. Finally, it will serve ... would be paid on the share. However, some equity investors prefer capital gains to dividends while some others are ... was first proposed by Miller and Modigliani in 1961. Investors prefer to have the firm retain and reinvest earnings rather ...
The preferred stock held by the investor has the better condition than the common stock held by the entrepreneur. The dividend on series E preferred stock will be accumulated annually at 10% rate and the shareholder will acquire it prior to common stockholders. This will guarantee the return on investment to preferred stockholder that he will receive 10% return every year (even it is not paid; it will accumulated to the following years).
In contrast, this means the entrepreneur has to give away 10% benefit every year. ) Subsequent Company Stock Sales According to the stated condition, the investor will gain the benefit as the same as Series A, C preferred stockholder and common stockholder to buy sufficient shares to preserve the ownership share. 6) Liquidation Preference Series A, C and E preferred stockholders will receive the price per share plus 10% interest compound annually before the distribution to common stockholders. Thus, the entrepreneur is at disadvantage because he has to pay the accumulated dividend to the preferred stockholder. ) Merger or Sale A merger or sale of the company will apply the same formula as the liquidation distribution. Thus, the entrepreneur has to pay the accumulated dividend and is inferior to the preferred stockholder. 8) Redemption The entrepreneur is unfavorable if the company loses on or after five years from the closing date because the entrepreneur is committed to repurchase the preferred stock at the purchase price per share plus accrued dividends. 9) Voting Rights
The preferred stockholders have the equal voting rights as the common stockholders because it can convert to common stocks. As a result, there are more people who have rights to votes. This is beneficial to investors. 10) Board of Directors The investors have the right to appoint one member to the company’s board of director. Thus, the investors will have the right to vote and also to select a person to be the board of director. However, the entrepreneur may determine that the board of director from entrepreneur side should be more than the investor side. 1) Registration Rights The entrepreneur is inferior to the investors because the Series A, C and E preferred stockholders have the equal voting right and the entrepreneur has to pay for the registration expenses. 12) Information Rights The investors with at least $250,000 in series E preferred stock will receive the quarterly and annual budget and financial statements. This will be beneficial to these investors because the annual financial statement is audited by a “big six” accounting firms (Arthur Anderson, Coopers & Lybrand, Deloitte Touche, Earnst & Young, KPMG, PWC).
The Essay on Investors Valuation of Stock
An investor should value a stock by looking at the intrinsic value of the stock and how the market value compare to the intrinsic value. The most common mathematical method of valuing stock is to determine the price earnings ratio (P/E). The P/E ratio is calculated by dividing the share price by the company’s net income. As a general rule a P/E ratio should be in the higher teens. Stocks with a ...
3) Proactive Covenants The entrepreneur will lose the control because he has to ask for approval from series A, C, and E preferred stockholders first in the following issues; – Authorization or issuance of additional capital stock – The sale of equity securities, with exceptions for common stock issued to employees pursuant to board approval – Liquidation, dissolution, recapitalization or reorganization – Amendments to the Articles of Incorporation or Bylaws 14) Expenses
The entrepreneur is disadvantageous because he has to pay the fees and expenses of counsel for the investors up to $10,000 at the closing. 15) Purchase Agreement The stock purchase agreement is beneficial to both entrepreneur and investors. It will be the evidence if another party defaults. After analyzing the term sheets, the entrepreneur is inferior to the investors. The entrepreneur has to give the equal rights to the investors and has to take responsible for expenses caused.
