Chapter 5: 9BP-a (page 451)

Question: Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 12 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 34,001 shares. Ms. Ramsey and her friends on the board control 44,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 24,998 shares. The company uses cumulative voting.
a. How many directors can Mr. Clark be sure of electing?

Short Answer

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Answer

The number of directors that Mr. Clark can elect is 4.

Step by step solution

Information provided in the question

Number of directors = 12

Proxies controlled by Mr. Clark = 34,001 shares

Calculation of the number of directors that can be elected by Mr. Clark

Mr. Clark can elect 4 directors.

$\begin{array}{rcl} Number of directors that can be elected & = & \frac{(Shares owned - 1) \times (Total number of directors to be elected + 1)}{Total number of shares outstanding} \\ = & \frac{(34, 001 - 1) \times (12 + 1)}{(34, 001 + 44, 001 + 24, 998)} \\ = & \frac{442, 000}{103, 000} \\ = & 4.3 \end{array}$

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Assets
	Book value	Liquidation value
Accounts receivables	\(1,400,000	\)1,200,000
Inventory	\(1,800,000	\)900,000
Machinery and equipment	\(1,100,000	\)600,000
Building and plant	\(4,200,000	\)2,500,000
Total assets	\(8,500,000	\)5,200,000

Liabilities and stockholder’s claims
Liabilities
Accounts payable	\(2,800,000
First lien, secured by machinery and equipment	\)900,000
Senior unsecured debt	\(2,200,000
Subordinated debenture	\)1,700,000
Total liabilities	\(7,600,000
Stockholder’s claims
Preferred stock	\)250,000
Common stock	\(650,000
Total stockholder’s claims	\)900,000
Total liabilities and stockholder’s claims	$8,500,000

Short Answer

Step by step solution

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Calculation of the number of directors that can be elected by Mr. Clark

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