LAW COURSEWORK

Law coursework

Law coursework

Question No. 1

Exe plc is an unlisted public company. Exe plc has 200,000 £1 ordinary voting shares and 100,000 £1 cumulative preference shares. The preference shares have no right to vote in general meetings unless their dividends are in arrears. The directors of Exe plc own all the ordinary shares and 80,000 preference shares. Sarah owns the remaining 20,000 preference shares.

Advise Exe plc on the validity of the following proposals and any steps that would have to be taken (Do not discuss petitioning under s.994 Companies Act 2006):

(a) Exe plc would like to repay the 100,000 preference shares and cancel them under a capital reduction scheme. The Exe plc articles of association are based mainly on the 1985 Table A with some modifications including the insertion of the following clause:

''...any attempt to reduce the shares of a class shall be deemed to be a variation of the rights of that class.''

The EXE Directors accept responsibility for the information contained in this announcement. To the best of the knowledge and belief of the EXE Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

firm's decisions about dividends are often mixed up with other financing and investment decisions. Some firms pay low dividends because management is optimistic about the firm's future and wishes to retain earnings for expansion. Other firms might finance capital expenditures largely by borrowing. All the above are examples of dividend policies which can be defined more precisely as the trade-off between retaining earnings on the one hand and paying out cash and issuing new shares on the other. In order to understand the dividend policy we must understand that this phrase means different things to different people (R.A. Brealey & S.C. Myers, 2003).

EXE Products, Inc. announced both a change in its business focus and a reduction of its dividend in June 1988. To offset the likely stock price effect of the dividend reduction, EXE announced at the same time an unusual exchange offer under which it would take up to 25% of its common stock. The case traces the history of EXE from 1979-88. We will evaluate EXE's efforts at diversification in the early 1980s, and will relate that effort to the company's dividend history. Moreover we will evaluate EXE's operating and financial strategies from 1979 to 1988 and the company's financial condition in mid-1988.

PERFORMANCE OF EXE'S STOCK FROM 1978-1988Based on Exhibit 4, EXE's stock price has declined from $50.75 in 1978 to $24.125 in 1988 (decline equal to 52.5%). At the same time, S&P 500 has increased from $96.11 in 1978 to $266.69 in 1988 (increase equal to 177.5%). This rather poor performance of EXE stock contradicts with the performance of the overall market. Moreover, based on Exhibit 1, ROE decreased from 31% in 1978 to 21% in ...