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The 3N Corporation has developed its financial structure during the past decade by issuing and selling the following securities: (1) 500 bonds, with a principal amount of 1,000 each, interest at 6% plus .0025% of profit per year, without security, each exchangeable for 200 shares of common stock at the holder’s option. The money received from the bonds has been used exclusively to purchase equipment for the corporation; (2) 500 shares of preferred stock, 1 par value, with a 5% dividend preference and no voting rights; and (3) 1,000 shares of common stock, 5 par value. Answer the following questions concerning this financial structure:
a. Are the bonds best described as
(1) 6% convertible equipment bonds;
(2) income bearer equipment bonds;
(3) registered participating redeemable debentures; or
(4) participating convertible debentures?
b. What is the minimum amount required for the corporation’s stated capital account?
c. What additional rights would be given to the preferred stock under the corporation statute in your state?
d. Would the bonds have any preemptive rights to buy additional shares of common stock under the corporation statute in your state?
e. Would the preferred stock have any preemptive rights to buy additional shares of preferred stock under the corporation statute in your state?
f. If the corporation issues 5,000 additional shares of common stock, what adjustments will be required to the terms of the bonds or the preferred stock, if any, to keep the bondholders and preferred stockholders in the same positions they now occupy?
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