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Cengage Advantage Books: Law for Business 19th Edition by John Ashcroft,Katherine Ashcroft,Martha Patterson
Edition 19ISBN: 978-1305654921Cengage Advantage Books: Law for Business 19th Edition by John Ashcroft,Katherine Ashcroft,Martha Patterson
Edition 19ISBN: 978-1305654921 Exercise 9
Archon Corp. issued preferred stock called Exchangeable Preferred Stock (EPS). The certificate stated EPS would have a liquidation preference of $2.14 per share plus accrued and unpaid dividends. The dividends were to be paid twice yearly and be cumulative at the initial rate of 8 percent of $2.14 plus accrued but unpaid dividends. For the first three years Archon could pay dividends in EPS shares instead of cash. Beginning in the fifth year, the dividend rate was to increase to 11 percent and additionally increase.5 percent each six months to a maximum of 16 percent. For the first three years, dividend payments were in EPS shares. After that, the dividends accrued and were not paid in cash. The EPS shares were redeemable by Archon at any time, and thirteen years after issuing them, Archon notified the holders that it would redeem them for $5.241 per share, saying that included all accrued dividends. That number reflected the correct percentage dividend, but only on $2.14, not on the unpaid dividends. A group of holders of EPS shares sued Archon, saying that because the shares were cumulative, and the dividend accrued on unpaid dividends, the percentage each dividend payment period should be multiplied by $2.14 PLUS the accrued, unpaid dividends. Figuring that way, total accrued and unpaid dividends were $6.55 per share, so they alleged that the redemption price should be $2.14 plus $6.55 or $8.69 per share. Should dividends be figured on only $2.14 for each payment period, or should they be figured on $2.14 plus accrued, unpaid dividends? [D.E. Shaw Laminar Portfolios, LLC v. Archon Corp., 755 F.Supp.2d 1122 (D. Nev.)]
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In D.E. Shaw Laminar P...
Cengage Advantage Books: Law for Business 19th Edition by John Ashcroft,Katherine Ashcroft,Martha Patterson
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