|
| First time poster, long time reader.
Hoping someone may be able to tell me how I am misunderstanding this.
I was asked to review an investment prospectus for this proposed packing plant by a relative of mine. The industry could certainly use more competition and a farmers owned packing plant sounds like a wonderful thing to many including me.
Unfortunately, it appears to me that this may be a "get rich quick scheme" by the man organizing this plant?
The prospectus states that they are looking to raise $150MM in equity by selling 100,000 shares at $1500/share ($100,000 min). These are the Class C shares. There will be 4200 Class A preferred shares with a guaranteed 8% dividend, which once paid back principal and interest will be no more. Then there are 190,000 Class B shares which one man - the guy organizing - will retain at no cost - $0 paid in capital (aside from his legal fees and administrative fees up to this current point).
His class B shares appear to have full equal rights to future dividends - meaning class B and C will be treated as equal, junior to Class A. The Class B shares appear to be allowed to be sold by him at his pleasure to anybody at anytime, while the Class C shares have to be offered to the company, then Class B owners, then Class C owners when wishing to sell, with a third party appraisal acquired first (paid for by the seller). If no offer is made, then a new lower price must be offered to the company and it goes through the process again. Also, it appears the Class B shares retain control of the Board and basically will call all the shots.
I just cannot understand why anyone would want to invest in a company that is essentially illiquid and will immediately dilute your equity by almost 2/3 on day 1. I have only ever heard of a founder demanding anything close to this much equity on a pre-production startup when there is a no patent or proprietary process involved. Basically, the founder has entitled himself to almost 2/3 of all future dividends without putting any money on the line.
Can anyone comment on what I am missing? For what it's worth, I've seen the Ethanol plants prospectus's and founders shares were ALWAYS significantly less as a percentage of the total and were ALWAYS paid in capital, although getting 2 shares or 2.5 shares for the price of 1 is common.
I would certainly think the farmers and investors would be much better served to form their own group and do everything the same but just leave this man out so as not to dilute equity and future dividends? | |
|
Cattlemen's Heritage - Is this a scam investment?
