Series A Preferred Stock
Term Sheet
This Term Sheet is for discussion purposes and summarizes certain proposed provisions of the Company’s Series A Preferred Stock. It does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of (i) the Company’s Articles of Incorporation, and (ii) the Series A Preferred Stock Subscription Agreement to be dated as of the Closing Date between the Company and each prospective investor (an “Investor”), where such rights will be set forth in full, and the provisions of applicable law.
Principal Terms
Financing Size: $______________
Pre-Money Valuation: $______________ (before investment)
Securities: Series A Preferred Stock (“Series A Preferred”)
Price Per Share: $_________ (“Original Purchase Price”)
Pro Forma Capitalization
Pre-Offering Post-Offering
Common Stock
Preferred Stock
Options Authorized
TOTAL
Preferred Stock Terms
Closing Date: As soon as suitable subscriptions for shares of Series A Preferred totaling [$500,000] (the “Minimum Amount”) are received and accepted by the Company (the “Closing Date”)
Rights, Preferences, Privileges and Restrictions of Series A Preferred
Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A Preferred will be entitled to receive, prior and in preference to any distribution of any assets or surplus funds to the holders of Common Stock, liquidation amounts equal to the sum of (i) the Original Purchase Price ($____ per share), plus (ii) all declared but unpaid dividends (the “Senior Preferential Amount”). After payment of the Senior Preferential Amount, liquidation proceeds will be shared pro-rata by the holders of the Common Stock and the Series A Preferred on an as-converted basis.
In the event of a merger, reorganization, acquisition or sale of all or substantially all of the assets of the Company in which the holders of the Company’s capital stock hold less than 51% of the voting power of the surviving entity, such holders shall be entitled to receive cash, assets or other property distributable in the same manner as is applicable in the context of a liquidation; provided, however, that if the sale proceeds exceed [$15 million], and if the conversion of the Series A Preferred to Common Stock would entitle the holders thereof to receive an amount in excess of the Original Purchase Price per share (as proportionately adjusted for any stock splits, etc.
We started our research by reading through the discussions posted within the Topic of Research. From there we read the recommended pages of the text, 20-2, 20-3, and 20-4 regarding the liquidation process. Using the CCH Tax Research Network, we used a selected content search, Federal Tax--Federal Tax Editorial Content--Standard Federal Tax Reporter (2014), to research the following laws: Section 331(a), 336(a), and 6901(a). We also used the Citator in CCH to review the facts and decisions shown in the liquidation cases of Kennemer and Al Zuni of Arizona.
The value of Poor Son declined significantly since external economic conditions. It shows that the fair value of Poor Son, the emerging entity, should be way less than its book value, and the value of assets is less than the total of liabilities and claims. Additionally, Parent will receive 100% voting shares of Poor Son and have the ability to name all members of Poor Son’s board of directors. This means that existing voting shares receive less than 50% of the voting shares of the emerging entity. For that reasons, Poor Son should apply “Fresh-Start” under ASC 852-10-45-19.
Stock Options granted are properly authorized – Approval by BOD on guidelines, approval of grant, approval of vesting.
Based on the Consolidated Statements of Shareholder?s Equity, year ended September 2015, in page 71, as shown in the statement, there are no preferred stocks.
Any stockholder signing the Letter of Transmittal “irrevocably and unconditionally releases, acquits and forever discharges” the Releasees from:
... this cash to reduce the number of shares outstanding in conjunction with the reduction
Ross, S.A., Westerfield, R.W., Jaffe, J.F., & Roberts, G.S (2001) Corporate Finance. 3 th ed.Toronto, McGraw-Hill Ryerson.
Prior to the winding-up of an insolvent company, its creditors may individually enforce any measure available to them in order to obtain payment of the debt owed to them by such company. However, upon the opening of the winding-up proceedings these individual actions are replaced by a collective insolvency regime which attempts to ensure the rateable and equitable distribution of the assets of the insolvent company among its creditors. This distribution is known as pari passu distribution.
Secondary capital consists of nonpermanent forms of equity, included limited-life, preferred stock and subordinated notes and debentures.
3. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Harry Davis would incur flotation costs of $2.00 per share on a new issue.
Formal corporate bankruptcy proceedings generally take on two distinct forms: Chapter 7 (liquidation) and Chapter 11 (reorganization). Under Chapter 7 liquidation, the firm is shut down by a court-appointed trustee, and the firm’s assets are liquidated and the proceeds distributed in accordance with the absolute priority rule. Chapter 7 is also referred to as a “cash auction” procedure. In Chapter 11, an organization remains in control of its business operations (known as a ‘going-concern’), but is subject to the oversight of the bankruptcy courts.
Thirdly, serial borrowing and repurchase throughout several years is considered. This is essentially the financial policy the company has adopted these years. This policy is less risky measured by coverage ratios and is more acceptable to stockholders. However, UST has imminent challenges and value enhancing objectives to meet. If the company has debt capacity untapped upon, large sum repurchases avoid excessive advisory fee, negotiation time and effort, potentially credit rating charge while immediate significant tax shield benefit is made possible.
In “Preferred Shares” alternative, a local investment fund will invest $3.5 million preferred shares with a coupon rate of 7%, which will add interest expense by $245,000 annually as well as a leverage of 50% of the firm’s ownership if Globals are unable to pay dividends for two consecutive years. Total outstanding will come to 1,500,000 shares, making weighted average shares of 1,250,000. Net income will be brought to $330,750 and EPS will come up to
i.e. 8 years after closing of the loan and 6 years after funding of the loan
= According to Indian Companies Act 1956, “ A preference share is a share which carries preferential right as to the payment of dividend at a fixed rate either free or subject to income tax and as to the payment of capital at the time of liquidation prior to the equity shareholders. 38