You may well be right. Though it seems to be that ego may have something to do with his taking the job---the world is full of fools with money who think they can fix anything. BTW, does FSTW really need a Senior VP of Professional Services? Is he going to have a staff of junior VPs running around? Sounds like a bureaucracy to me.
Be that as it may, and going by just the excerpt in the press release (The preferred stock will be convertible into common stock of the company at a conversion price equal to a 20% premium over the average price of the common stock for the 20 days prior to the subscription for the preferred stock and will carry a dividend of 9% per annum payable in either cash or common stock at the company's option.), he's got a relatively good deal. Assuming FSTW can stay afloat, he's going to be pulling in $90k/year in interest. As a Senior VP let's say he pulls in $160k in comp and benefits each year. So he's making $250k/year on a $1M investment (and his time investment, of course). If his preferred stock is converted to common stock, his cost basis is probably around $1.8 ($1.5 average price over last 20 days + 20%), giving him ~555k shares. Let's say that FSTW can move the stock to $2.8 in a year, and he can dump the stock at that time (perhaps the company is sold out). So, after a year he's got his $250k and about $555k in stock gain and his $1M back. Meanwhile the ordinary shareholder with average cost ~$5 (like most of you) is still hurting.
Downside, the company goes bankrupt in one year. If I remember my finance classes preferred stock receives, well, preferred treatment. In other words, they get their moolah before commoners. Common stock holders are screwed again. If he can get $.75 on the dollar in a year, he's done okay. |
