Preference shares. Conversion of ordinary and preferred shares of the JSC Ordinary shares of the company can be converted

Buying stocks always carries the risk of losing money, but avoiding stocks altogether means you won't be able to make a good profit. However, there is one security that can help solve this dilemma for some investors: convertible preferred stock offers the security of a fixed rate of return plus the opportunity for capital appreciation. Here we'll look at what these securities are, how they work, and how to determine when a conversion is profitable.

What are convertible preferred shares

These shares are corporate fixed income securities that an investor can choose to convert into a specified number of shares of a company's common stock over a specified period of time or on a specific date. The fixed income component provides a stable income stream and some capital protection for investors. However, the ability to convert these securities into shares allows the investor to benefit from rising share prices.

Convertibles are especially attractive to those investors who want to participate in the growth of high-growth companies while being insulated from price declines if the stock doesn't live up to expectations.

Opportunities for investors

To demonstrate how convertible preferred stock works and how the stock benefits investors, let's look at an example. Let's say Acme Semiconductor issues 1 million shares of convertible preferred stock at $100 per share. These convertible preferred shares (because they are fixed income securities) give holders priority over common shareholders in two ways. First, convertible preferred shareholders receive a dividend of 4.5% (assuming Acme's earnings remain sufficient) before any dividends are paid to common shareholders. Second, convertible preferred shareholders would be ahead of common shareholders in returning capital if Acme ever went bankrupt and its assets had to be sold off. However, convertible preferred shareholders, unlike ordinary shareholders, rarely have voting rights.

By purchasing Acme Convertible Preferred Stock, the worst investors will ever receive a $4.50 annual dividend for each share they own. But these securities offer owners the potential for even higher returns: If convertible preferred shareholders see Acme stock rise, they may have the opportunity to profit from that rise by converting their fixed-income investment into equity. On the reset date, shareholders of Acme Convertible Preferred Stock have the option to convert some or all of their preferred shares into shares of common stock.

Determining conversion profit

The conversion ratio represents the number of shares of common stock that shareholders can receive for each preferred share that is converted. The conversion ratio is set by management prior to issuance, typically with management of the investment bank. For Acme, assume the conversion ratio is 6.5, allowing investors to trade preferred stock for 6.5 Acme shares.

The conversion ratio indicates what price the common stock must trade for the preferred stockholder to profit from the conversion. This price, known as the conversion price, is equal to the purchase price of the preferred stock divided by the conversion rate. So for Acme the market conversion price is $15.38 ($100/6.5).

In other words, Acme common stock should trade above $15.00. 38 for investors to receive from the conversion. If the stock converts and goes below $15. 38, investors will suffer a capital loss on their investment of $100 per share. If the common stock ends at, for example, $10, then the convertible preferred shareholders will only receive a common share worth $65 ($10), in exchange for their $100 preferred stock. ($100 represents the par value of the preferred shares.)

Conversion Bonus

Convertible preferred shares can be traded in the secondary market, and market price and performance are determined by the conversion premium, the difference between the par value and the value of the preferred shares if the shares were converted. As shown above, the value of a converted preferred share is equal to the market price of the common stock multiplied by the conversion factor. Let's say Acme shares are currently trading at $12, which means the value of the preferred stock is $78 (12 x 6 5). As you can see, this is significantly lower than the parity value. So, if Acme shares are trading at $12, the conversion premium is 22% [($100 - $78) / 100].

The lower the premium, the more likely it is that the market conversion price will match the overall share price up and down. Higher-end convertibles act more like bonds in that there is less likely to be a chance for a profitable conversion. This means that interest rates can also affect the price of convertible preferred shares: for example, the price of bonds, the price of convertible preferred shares usually declines as interest rates rise: a fixed dividend looks less attractive than rising interest rates. Conversely, as rates fall, convertible preferred shares become more attractive.

The Bottom Line

Converts appeals to investors who want to participate in the stock market without feeling like they are taking wild risks. Trading a security like a stock when the price of the common stock moves above the conversion price. If the stock price falls below the conversion price, the convertible trades just like a bond, effectively putting a price floor under the investment.

The issue of preferred shares implies serious, open-ended obligations of the JSC to make payments to investors, and this is possible if the company is confident in the stability of its financial position. As the analysis shows, foreign companies quite rarely and in small quantities risk issuing perpetual preferred shares. For the vast majority of issues of such shares, companies stipulate their right to withdraw them after a certain period or convert them into ordinary shares. Formally, callable preferred shares are considered to be perpetual, but the issuer can redeem them, as happens with bonds. Therefore, these shares are called revocable.

The company's right to withdraw preference shares must be provided for in the terms of issue. This stipulates a specific date from which the company can fully or partially redeem shares, or indicates how many days in advance the company must notify investors about the start of redemption. Typically, notice is sent 30 days before the start of the buyback. The notice specifies the redemption price, which provides compensation to the investor for the value of the security, dividends due and a certain amount of the premium. Due to the fact that the redemption of preferred shares is an advantage of the company, not the investor, the company pays a premium to the owners of preferred shares for the right to repurchase, which is usually 1% of the share price.

The following valuation estimates can be taken as the basis for determining the value of a redeemable preferred share:

• · par value of the share. Setting the redemption price at the par value of the share is not entirely correct, since the market price of the shares may significantly exceed the par value. In this case, when repurchasing shares, investors will suffer significant losses, since the size of the premium may not compensate for the difference between the market and nominal value of the shares;
• · the redemption price provided for in the charter of the joint-stock company. In this case, as a rule, the charter does not indicate a specific value, but provides a methodology for calculating the redemption price, the determination of which is based on the value of net assets per share;
• · repurchase price based on the market value of the shares. In this case, stock quotes on the exchange and over-the-counter markets are taken as a base. The specific repurchase price is set by the board of directors with the involvement of an independent appraiser or auditor.

In order to ensure the redemption of revocable preferred shares, in some cases joint stock companies create a redemption fund. The conditions for issuing shares with a redemption fund provide for the company's obligation to repurchase shares if their price drops to a certain level. For example, the company may be required to contribute funds to a redemption fund so that 5% of the callable shares can be redeemed each year if their price declines to the offering price. This protects the owners of revocable shares. If quotes rise, the company may not repurchase shares or purchase them at market prices. If quotes drop to a certain level, the company buys them back. In this case, the stock price stabilizes. As buybacks progress, fewer shares remain outstanding, increasing the value of the assets per share and increasing the market value of the shares.

Many companies, when issuing callable shares, provide for the creation of a deferred fund. Unlike a redemption fund, it is built up through regular annual contributions to pay off the entire issue of callable preferred stock within a specified period of time. The deferred fund is used to purchase shares on the open market, as well as to directly purchase shares directly from shareholders. The fundamental difference between a deferred fund and a redemption fund is that if the company fails to purchase shares on the open market, it has the right to offer the owners of shares to surrender them at the price of the deferred fund, which may be lower than the market price. A deferred fund, on the one hand, protects the interests of investors when shares are purchased on the open market and thereby provides market support when market prices decline. On the other hand, if the market price of the shares is higher than the price of the deferred fund, then the investor will incur some loss when the shares are called. However, the remaining outstanding shares increase in value and may pay a higher dividend because the profits are distributed over fewer shares.

Typically, redemption of callable shares is a company privilege. But the investor does not have clear guarantees that these shares will definitely be redeemed. To increase the attractiveness of revocable preferred shares, in a number of cases, revocable shares are issued, the right of redemption of which belongs to the investor. The owner of the share has the right to present it for redemption at a predetermined price, having previously notified the company about this.

In a number of cases, firms resort to issuing convertible preferred shares, the terms of issue of which provide for the possibility of exchanging them for ordinary shares. In this case, the conversion period, the conversion price, the number of ordinary shares that can be received in exchange for one preferred share, and other parameters are established. By analogy with bonds, the conversion price at the initial stage is indicated below the level of market prices for ordinary shares, since otherwise the issue of convertible shares becomes meaningless. In most cases, when a company issues convertible preferred stock, it makes it callable to control the conversion process.

Some preferred shares may be converted into common shares of the issuer. This feature gives the holder the right to convert a portion of the preferred shares into a predetermined number of shares of the issuer's common stock. Convertible preferred stock is preferred stock with an embedded call option on the common stock. However, most preferred stock issues are also callable, which effectively allows the issuer to force preferred stock holders to either convert their preferred stock into common stock or sell it in exchange for cash.
To understand what happens with callable preferred stock, we need to explain some terms. First, there is the conversion value of preferred shares; it is equal to the number of common shares into which one preferred share can be converted, multiplied by the current price of one common share. Secondly, this
the actual price of the call, equal to the sum of the nominal price of the call, valid at the time of the call, plus all accrued dividends.
Obviously, when deciding whether to convert or surrender shares, the investor will be guided by considerations of his own benefit. If the effective call price is higher than the conversion value, the preferred stockholder will surrender the security in exchange for its redemption value. If the conversion value is higher than the actual call price, then the holder will convert his preferred shares into common shares. Companies typically call preferred shares when they are “in the money” (and therefore the conversion cost exceeds the call price). Thus, the recall of a preferred share in an “at-the-money” situation is called a “forced recall.”
As an example of callable and convertible preferred stock, consider the preferred stock issued by Western Gas Resources with an annual cash dividend of $2.6250 per share, payout
which are produced quarterly. Example 12.7 shows the Bloomberg screen for this issue's preferred securities. Each of these preferred shares is convertible into 1.2579 shares of common stock at any time prior to December 31, 2049. The preferred shares were callable at $50.79. The par price is a conversion value equal to the market price of a common share ($30.61) multiplied by the number of common shares (1.2579) into which the preferred shares can be converted. Accordingly, the premium is the ratio of the market value of preferred shares to the conversion value, expressed as a percentage. Investors who purchase common stock through preferred conversion pay a premium because the conversion feature is an embedded call option on the common stock that is converted only when it is in the investor's best interest to do so. An investor's downside risk is limited to the direct value of the preferred stock (i.e., the value of the convertible preferred stock without the conversion option).
Convertible preferred shares with special properties
In the mid-1990s. There has been a surge in innovation in the special feature convertible preferred stock sector. Next we will look at their main types.
Trust preferred securities
Trust Company Preferred Securities (TOPrS) are also convertible preferred shares. They differ from convertible shares described above in that dividends on them may be tax deductible for tax purposes; at the same time, they have a fairly high rating from rating agencies. The master issuer forms a business trust in Delaware to issue securities - the securities are guaranteed by the master issuer. In the case of TOPrS, the tax privilege in the form of exemption of 70% of dividend payments from income tax does not apply, and the issuer can defer the payment of dividends for up to 20 quarters (5 years). However, if there is a dividend payment deferral, the primary issuer cannot pay dividends to holders of common or preferred shares, so TOPrS dividends are accrued and compounded quarterly. TOPrS are generally callable starting three to five years from the issue date and mature in 20 to 30 years. Due to the specifics of taxation and the possibility of deferring dividend payments, TOPrS have a relatively higher dividend yield than other preferred shares.
Variety of abbreviations
There are many convertible preferred instruments that provide investors with higher dividend yields and the opportunity to realize the growth potential of common shares through conversion at
- 295 - preference shares. Dividend Enhanced Convertible Stocks (DECS) from Salomon Smith Barney and Preferred Redeemable Increased Dividends Equity Securities (PRIDES) from Merrill Lynch are two notable examples of such instruments. These convertible preferred securities offer high dividend yields, mandatory conversion at maturity (usually three to four years), and conversion factors that adjust for declines in value as prices of the underlying common stock rise, thereby limiting their upside potential.
Another similar type of convertible preferred security is the Preferred Equity Redemption Cumulative Stock (PERCS) from Merrill Lynch. PERCS also provide a high dividend yield and require mandatory conversion at maturity, but limit the upside potential for the investor by adjusting the conversion rate at maturity so that investors receive a fixed dollar amount of common stock.

Preference shares- this is a special type of equity securities, which, unlike ordinary shares, have special rights, but also have a number of specific restrictions.

Preferred shares are a common financial instrument in Russia and around the world.

It allows the owner to receive a guaranteed income based on the dividend rates offered by the issuer of the securities.

Also, in some cases, the holder of such shares can influence the company’s development strategy.

Advantages of preferred shares

Preferred shares have a number of advantages for investors when compared to ordinary securities.

Firstly, the owner of preferred shares is almost always guaranteed some income.

Namely, preferred shares accrue a fixed income, unlike ordinary shares, which depend on the profit of the joint-stock company.

However, dividends are not paid if the company has incurred losses.

Secondly, funds for the payment of dividends are allocated to holders of such securities as a matter of priority.

That is, holders of preferred shares also have the right to receive part of the property of the joint stock company in the event of its liquidation, before it is divided among other owners.

Thirdly, dividends on preferred shares are usually fixed in the total net profit.

In addition, these shareholders may have additional rights specified in the company's charter documents.

For example, they may, under certain conditions, convert their preferred shares into .

Disadvantages of preferred shares

There are also disadvantages to owning preferred shares:

The issuing company may demand the shares back from the shareholder without giving reasons, while fully compensating the damage with interest;

Preferred shares often do not carry voting rights. That is, holders of privileged rights are deprived of voting rights and, thus, deprived of the opportunity to participate in the management process of a joint-stock company and make decisions important for society;

Fixed dividend amount. Often the size of dividends is indicated when issuing securities of this type and does not depend on the size of the company’s profit, which, with an increase in business profitability, entails a proportional decrease in the profitability of these securities.

How are preferred shares different from ordinary shares?

The very name “preferred” shares suggests that such shares provide additional opportunities and rights, so to speak, a special status.

As a rule, such benefits include the payment of guaranteed dividends.

That is, the owner of preferred shares will receive payments regardless of how the shareholders are doing - the joint stock company will receive profits or losses.

Also, unlike ordinary shares, preferred shares give the right to receive a share of the company's assets after its liquidation.

That is, the preferred shareholder will receive a predetermined amount from the joint stock company.

For such benefits, the owner of preferred shares is deprived of the opportunity to participate in voting and influence the decisions of the joint-stock company.

Thus, the owner of such shares is an indifferent investor, so to speak, not a co-owner of the business, which cannot be said about those who own ordinary shares.

However, some cases of privileges may involve just influence on the affairs of the company. In this case, the charter of the joint-stock company provides for the ratio of votes of owners of ordinary and preferred shares, for example 1:2. So, it turns out that the owner of one preferred share has two votes.

Certain cases provide the right to influence the affairs of the company and participate in meetings to those owners who cannot vote.

Such cases are also provided for by law to protect the interests of owners. Thus, the holders of all shares issued by the company can influence decisions related to the liquidation or reorganization of the company.

There are also issues relating to shareholders that cannot be resolved without their participation. For example, when guaranteed dividends are reduced.

If the JSC is unable to pay guaranteed dividends, then the preferred shareholder receives full right to participate in company meetings on all issues.

It's also worth noting that preference shares can be convertible and cumulative.

Rights of preference shareholders

Holders of preferred securities, on the same basis as the main shareholders, receive a share in the authorized capital of the company and have the right to attend general meetings.

Despite the fact that the holder of such securities does not have voting rights, he can participate in shareholder meetings and claim a share of the property upon liquidation of the organization.

Admission to voting

In general, holders of preferred shares are not allowed to vote.

An exception may be cases when decisions made during the relevant negotiations affect the personal interests of the owners of securities.

In particular, if there are particularly important issues on the meeting agenda, preferred asset holders can vote. These could be questions reflecting the procedure for a possible reorganization of the company or liquidation of the company, those related to making adjustments to the charter, those related to the rights of holders of preferred shares or, for example, the payment of dividends.

Types of preferred shares

Preferred shares are divided into classes with varying amounts of rights.

According to the Law of the Russian Federation “On Joint-Stock Companies,” there are basically two main types of preferred shares: cumulative and convertible.

Dividends on cumulative preferred shares may not be paid in normal reporting periods by decision of the general meeting of shareholders if there is no profit or if it is completely used for the development of the company.

At the same time, the obligation to pay lost income remains.

Dividends are accumulated and paid after the financial position of the joint stock company has stabilized.

That is, the peculiarity of cumulative preferred shares is the accumulation of dividends. Owners of cumulative preferred shares have the right to accumulate unpaid dividends, accrue them and pay them in the period following the missed period. In this case, dividends are not subject to periodic payment.

The holder of a cumulative share acquires the right to vote at a meeting of shareholders for the period during which he did not receive dividends, and loses it after the payment of dividends.

Convertible preferred stock can be exchanged by the owner of the stock during a specified period for common stock or another type of preferred stock.

When issuing such securities, the rate, proportionality and exchange period are determined.

There are also the following types of preferred shares:

non-cumulative, for which unpaid dividends are not added to the dividends of subsequent years;

unconverted, which cannot change their status;

with participation shares that entitle the holders of these shares to receive additional dividends in excess of the stipulated dividends.

Results

The advantages of preferred shares include the shareholder's rights:

receive a fixed income or income in the form of a percentage of the value of shares, or a certain amount of money that is paid regardless of the results of the joint-stock company’s activities;

to receive dividends first;

for preferential participation after satisfying the creditors' claims in the distribution of property remaining with the joint-stock company upon its liquidation;

for an additional payment if the amount of dividends paid on ordinary shares exceeds the amount of dividends paid on preferred shares.

Note that if you want to invest in long-term investments, then the method of purchasing preference shares is the most suitable.

Still have questions about accounting and taxes? Ask them on the accounting forum.

Preference shares: details for an accountant

• Justification of revenues in terms of financial and economic activities

  2,000 common shares and 800 preferred shares. According to the forecasts of the joint-stock company, per... pcs. with a par value of 1 thousand rubles, preferred shares - 500 thousand pieces. with a nominal value of 1 ... thousand rubles. Dividends on preferred shares are 8% of the par value of the share... let's calculate the annual amount of dividends on preferred shares: Income plan 2019 (2020, 2021...

• Key indicators of the economic strength of the enterprise and the level of performance of its owner and management team

Registration authorities, in their practice of registering securities issues, are often faced with misunderstandings and, consequently, errors when preparing documents for registration of issues related to the conversion of preferred shares into ordinary shares. In this article we will discuss the requirements, including new ones, of the Law “On Joint Stock Companies”. Let us determine the sequence of actions of the issuer associated with such a complex corporate action.

In accordance with paragraph 3 of Article 32 of the Law “On Joint Stock Companies” (as amended by Federal Law No. 120-FZ dated August 7, 2001): - “the company’s charter may provide for the conversion of preferred shares of a certain type into ordinary shares or preferred shares of other types at the request of shareholders - their owners or conversion of all shares of this type within the period specified by the company’s charter. In this case, the charter of the company at the time of making the decision that is the basis for the placement of convertible preferred shares must determine the procedure for their conversion, including the number, category (type) of shares into which they are converted, and other conditions of conversion. Changing the specified provisions of the company’s charter after the adoption of a decision, which is the basis for the placement of convertible preferred shares, is not allowed.”

In accordance with the provisions of paragraph 1 of Article 37 of the Law “On Joint Stock Companies”: - “the procedure for converting the company’s equity securities into shares is established:

the company's charter - in relation to the conversion of preferred shares;

decision on the issue - in relation to the conversion of bonds and other, with the exception of shares, equity securities.

The placement of the company’s shares within the limits of the number of authorized shares necessary for the conversion of convertible shares and other issue-grade securities of the company placed by the company into them is carried out only through such conversion.”

In accordance with the above, a joint stock company has the right to convert preferred shares into ordinary shares. In this case, the general meeting of shareholders must make decisions on introducing amendments and additions to the company’s charter.

Firstly, about the possibility of converting preferred shares into ordinary shares with one of the conditions:

or at the request of all or individual holders of preferred shares;

or conversion of all preferred shares into ordinary shares within the period specified by the company’s charter.

Such a decision of the general meeting is recognized as a decision on the placement of preferred convertible shares. Thus, there is no need to make a separate decision on such placement. It should be recalled that in accordance with paragraph 4 of Article 32 of the Law “On Joint-Stock Companies”, owners of preferred shares acquire the right to vote when deciding at the general meeting of shareholders the issue of introducing amendments and additions to the company’s charter in terms of adding rights to preferred shares. The conversion of preferred shares into ordinary shares can be recognized as such a “right” only if such conversion is carried out without the consent of the owners of such preferred shares upon the deadline established by the charter of the company.

Secondly, the procedure for converting preferred shares into ordinary and other conditions for conversion must be determined (for example, the timing of conversion, or the procedure and timing for accepting and satisfying shareholder applications requesting conversion).

The new edition of the Law “On Joint-Stock Companies” distinguishes between conversion at the request of shareholders - owners of convertible preferred shares and conversion upon the arrival of the deadline provided for by the company's charter. Moreover, only conversion on demand can be directly called a “right”, since only in this case the shareholder - owner of a convertible preferred share is given the right to choose: to carry out the conversion and present the corresponding demand to the company or not to carry out the conversion and not to present such a demand. In this case, a situation is possible when some shareholders make such a demand, but some shareholders do not. As a result, only part of the shares will be converted into ordinary shares, and the remaining part will either remain preferred convertible, or the requirement for conversion will arrive later, after the expiration of the period for placement of ordinary shares. You should pay attention to the timing of the placement of ordinary shares. In accordance with the requirements of clause 5.3 of the Standards approved by Resolution of the Federal Securities Commission of Russia dated April 30, 2002 No. 16/ps, if the decision on the placement of convertible securities provides that the conversion is carried out at the request of their owners, it must set a deadline in during which the owners can submit relevant applications, as well as the period during which the conversion must be carried out on the basis of such applications. In addition, in accordance with clause 10.1 of the Issue Standards, the placement of securities by conversion in the cases provided for in subclause “a” of clause 5.1 of the Standards (in our case, the placement of ordinary shares by converting preferred convertible shares into them) is carried out within the period established in the registered decision on their issue, which must correspond to the period established in the decision on the issue of securities convertible into them and cannot exceed one year from the date of approval of the decision on the issue of securities placed by conversion. Thus, if within the period established in the registered resolution on the issue, not all shareholders have submitted a request for conversion, the company will have to make a new decision on the placement of ordinary shares to exercise the conversion right of the remaining holders of convertible preference shares

In the event that the conversion is carried out upon the arrival of the deadline provided for by the company's charter, all preferred shares of the corresponding type are converted, regardless of the wishes of their owners. In other words, in this case, the shareholder - the owner of the convertible preferred share cannot waive the “right of conversion” otherwise than by ceding (selling) the ownership rights to the convertible preferred share. In accordance with clause 10.1 of the Issue Standards, the placement of securities by converting into them securities, the decision to issue which provides for their conversion upon maturity, is carried out on the day determined by the calendar date, or on the expiration date of the period determined by the time period, according to register of holders of convertible securities on that day. In the latter case, the period must be reasonable. After all, the implementation of such a conversion is possible as a result of state registration of two issues and one report on the results of the issue (issue of preferred convertible shares, report on the results of their placement and issue of ordinary shares). When establishing such a period in the company's charter, one should take into account the time required for the issuer's executive body to prepare packages of documents for registration of issues; the time required by the issuer's authorized body to approve such documents; the time required for the registration authority to review the submitted documents and make a decision on state registration of issues and reports or refusal. The following wording in the charter seems justified: - “the conversion of preferred convertible shares into ordinary shares is carried out on the 25th day after state registration of the issue of ordinary shares.”

Thirdly, the number of authorized ordinary shares must be determined by the number of not less than outstanding preferred shares. Let us note that if there are in circulation securities convertible into shares of the company, the number of authorized shares required for such conversion cannot be placed in any other way than through such conversion. This means that if the company intends to increase its authorized capital, for example, by placing additional shares through subscription, such an increase can only be carried out within the number of authorized shares exceeding the number of authorized shares necessary to convert all the company's outstanding securities convertible into shares. In our case, if there are 100 convertible preferred shares in circulation that can be converted into 100 ordinary shares of this company, then authorized ordinary shares only in excess of the specified number can be used to place another additional issue of ordinary shares (subscription or distribution to shareholders). If the company's charter provides for only 100 authorized ordinary shares, then the company must adopt amendments to the charter related to an increase in the number of authorized shares.

It is necessary to recall that in accordance with the requirements of clause 5.2 of the Issue Standards, the par value of preferred shares, which are converted first into convertible preferred and then into ordinary shares, must be equal to the par value of the issued ordinary shares. Otherwise, the company must first carry out an additional issue related to bringing the nominal values ​​of preferred and ordinary shares into line (splitting, consolidating, increasing or decreasing the nominal value). However, we must not forget about the requirement of paragraph 2 of Art. 25 of the Law “On JSC”: the par value of outstanding preferred shares must not exceed 25 percent of the authorized capital of the company.

Registration of securities issues and placement consists of several stages.

1. Registration and placement of preferred convertible shares.

In accordance with subparagraph “d” of paragraph 5.1 of the Issue Standards, this method of placement is called “conversion into preferred shares with other rights of preferred shares of the same type, the decision to change and (or) supplement the rights for which was made by the joint-stock company.” In the Issuer's Electronic Questionnaire, you should select the method - “conversion of preferred shares of a certain type into preferred shares with other rights of the same type.” In accordance with clause 10.1 of the Standards, the conversion of preferred shares into preferred convertible shares must be carried out no later than one month from the date of state registration of the issue of shares, on one day specified in the registered decision on their issue.

2. Registration of a report on the results of the issue of convertible preferred shares.

3. Registration and placement of ordinary shares by converting preferred convertible shares into them.

In accordance with subparagraph “a” of paragraph 5.1 of the Issue Standards, this method of placement is called “conversion of preferred shares or bonds convertible into shares into shares.” In the issuer's Electronic Questionnaire, you should select the method - “conversion of preferred convertible shares of a certain type into ordinary shares.”

4. Registration of a report on the results of the issue of ordinary shares.

5. Amendments to the company's charter to increase the number of ordinary shares and reduce convertible preferred shares and a corresponding decrease in authorized ordinary shares.

The issuer's authorized body (Board of Directors, general meeting of shareholders) can approve the decision to issue convertible preferred shares and the decision to issue ordinary shares at one meeting. However, it must be borne in mind that in accordance with the requirements of the Issue Standards, the decision to issue securities must be approved no later than six months from the date of the decision to place them (clause 6.3). Documents for state registration of the issue of securities must be submitted no later than three months from the date of approval of the decision on their issue (clause 9.8).

Documents for state registration of both the first and second issues are provided in full compliance with the requirements of the Emission Standards for completeness (Chapter VIII of the Standards).

Issuers often make mistakes when preparing a decision to issue convertible preferred shares. You should pay attention to clause 6.2 of Appendix 4 to the Emission Standards. For convertible securities, the category (type) of shares, series of bonds, par value of the securities into which they are converted, the number of shares (bonds) into which each convertible share (bond) is converted, all rights granted by the securities into which they are converted are indicated. converted, as well as the procedure and conditions for such conversion; other rights provided for by the legislation of the Russian Federation. In our case, the decision on the issue must reflect information about the rights (as they are reflected in the company’s charter) provided by the shares into which the conversion takes place, i.e. ordinary shares, their par value and quantity.

In accordance with clause 6.1 of Appendix 4 to the Issue Standards, for shares, the exact provisions of the issuer’s charter on the rights granted by shares of this category (type) (including the amount of dividend on preferred shares) are indicated, and other rights of their owners, provided for by the legislation of the Russian Federation, are described . In our case, the exact provisions of the issuer's charter regarding the rights granted by convertible preferred shares are indicated, including the procedure, conditions and timing of their conversion into ordinary shares.

Sequence of actions of the issuer (scheme).