This term sheet summarizes the principal terms with respect to a potential private placement of convertible preferred equity securities. It is not a legally binding document, but rather a basis for further discussions.
Maine Convertible Preferred Equity Securities Term Sheet
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However, convertible preferred stock also has several drawbacks, such as dilution of ownership, lower dividend rates, higher costs, and risk of conversion.
Convertible bonds give investors the option to convert the bond to common stock at their discretion. As a result, convertible bonds offer higher returns than common stock but lower returns than non-convertible corporate bonds. Corporate bonds are essentially IOUs.
Conversion price can be calculated by dividing the convertible preferred stock's par value by the stipulated conversion ratio. Conversion premium: The dollar amount by which the market price of the convertible preferred stock exceeds the current market value of the common shares into which it may be converted.
Bonds offer investors regular interest payments, while preferred stocks pay set dividends. Both bonds and preferred stocks are sensitive to interest rates, rising when they fall and vice versa. If a company declares bankruptcy and must shut down, bondholders are paid back first, ahead of preferred shareholders.
A Preference Shares Investment Term Sheet is a record of discussions between the founders of a business and an investor for potential investment by preference shares. A Preference Shares Investment Term Sheet is not legally binding, except for confidentiality and exclusivity obligations (if applicable).
Typically in a Preferred Equity investment, all cash flow or profits are paid back to the preferred investors (after all debt has been repaid) until they receive the agreed upon ?preferred return,? for example, 12%. Remaining distributions of cash flow are returned to Common Equity holders.
Bonds offer investors regular interest payments, while preferred stocks pay set dividends. Both bonds and preferred stocks are sensitive to interest rates, rising when they fall and vice versa. If a company declares bankruptcy and must shut down, bondholders are paid back first, ahead of preferred shareholders.
By this logic, the convertible bond allows the issuer to sell common stock indirectly at a price higher than the current price. From the buyer's perspective, the convertible bond is attractive because it offers the opportunity to obtain the potentially large return associated with stocks, but with the safety of a bond.