Post on 12-Jul-2015
UNDERSTANDING CAPITAL STRUCTURE
Steven R. Gersz, Esq. Underberg & Kessler LLP 300 Bausch & Lomb Place Rochester, New York 14604 (585) 258-2817 sgersz@underbergkessler.com
© 2010 Steven R. Gersz, Esq. Underberg & Kessler. All Rights Reserved.
Capital Comes from the Right Side of Your Balance Sheet
Precision Technology Corporation Balance Sheet
Current Assets Cash Marketable Securities Inventories Investments in other companies Property, Plant, and Equipment Land Buildings Less: Accumulated Depreciation Equipment Less: Accumulated Depreciation Intangible Assets Patents Trademarks Goodwill
Current Liabilities Accounts Payable Notes Payable Salaries Payable Interest Payable Income Taxes Payable Current Portion of Long-term Debt Long-term Liabilities Long-term Notes Payable Long-term Borrowings Bonds Payable Stockholders' Equity Preferred Stock Common Stock Additional Paid-in Capital, Preferred Stock Additional Paid-in Capital, Common Stock Retained Earnings
Total Assets Total Liabilities and Stockholders' Equity
Source of Growth Capital
l Grants l Loans l Equity l Strategic Alliances
Types of Debt
l Trade Debt / Accounts Payable l Notes l Debentures l Bonds
Debt Can Be In Ordered Layers
l Bank Debt (Senior Debt) l Senior Subordinated Debt l Junior Subordinated Debt l Trade Debt
Debt Can be Secured or Unsecured
Types of Equity
l Common Stock l Preferred Stock
Preference Items
l Voting l Dividends l Liquidation Proceeds l Redemption Rights (Call/Put)
Hybrids
l Convertible Debt l Convertible Preferred Stock l Detachable Warrants
Financing Sources
l Angel Financing
l Private Placements ● Friends and Family ● Broker/Dealer Placed
l Institutional Venture Capital ● Seed Funds ● Early Stage Funds ● Growth Funds ● Buy-out Funds
Important Structural Concepts
l Future Purchase Rights ● Right of Refusal ● Pre-Emptive Rights
l Ratchet Clause ● Weighted Average Dilution ● Full Ratchet
Important Structural Concepts (Continued)
l Control Provisions ● Board Seats ● Board Flips ● Transaction Restrictions ● Redemption Rights on Insider Stock ● Right of Refusal and/or Co-Sale Rights on Insider
Sales
Important Structural Concepts (Continued)
l Registration Rights ● Lock-up on IPO ● Piggyback ● Demand ● Restrictions on Future Grants of Reg. Rights ● Participation Rights Among Reg. Rights Holders
Important Structural Concepts (Continued)
l Exit Strategy ● Liquidity Events (Timing)
● Merger ● Sale of Assets ● Time Based (mandatory redemption) ● Put by Investor ● Call by Company
● Pricing l Fixed Value l Formula (compounded annual return) l Appraisal
Questions
UNDERSTANDING CAPITAL STRUCTURE
Steven R. Gersz, Esq. Underberg & Kessler LLP 300 Bausch & Lomb Place Rochester, New York 14604 (585) 258-2817 sgersz@underbergkessler.com
© 2010 Steven R. Gersz, Esq. Underberg & Kessler. All Rights Reserved.