The convertible preferred ock pays quarterly cash

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as of the acquisition date to the holder of ACS Class B common stock. The convertible preferred ock pays quarterly cash dividends at a rate of 8 percent per year and has a liquidation preference $1,000 per share. Each share of convertible preferred stock is convertible at any time, at the option . the holder, into 89.8876 shares of common stock for a total of 26,966 thousand shares (reflecting an initial conversion price of approximately $11.125 per share of common stock ... ). On or after the fifth anniversary of the issue date, we have the right to cause, under certain circumstances, any or all of the convertible preferred stock to be converted into shares of common stock at the then applicable conversion rate. The convertible preferred stock is also convertible, at the option of the holder, upon a change in control, at the applicable conversion rate plus an additional number of shares determined If reference to the price paid for our common stock upon such change in control. In addition, upon " e occurrence of certain fundamental change events, including a change in control or the delisting of Xerox's common stock, the holder of convertible preferred stock has the right to require us to redeem any or all of the convertible preferred stock in cash at a redemption price per share equal to the liqui- dation preference and any accrued and unpaid dividends to, but not including the redemption date. unting for the conversion of preferred stock is essentially the same as that for convertible that we describe above: the preferred stock account is removed from the balance sheet and on stock is issued for the dollar amount of the preferred. Conversion privileges offer an additional benefit to the holder of a security. That is, debthold- and preferred stockholders carry senior positions as claimants in bankruptcy, and also carry a - ed interest payment or dividend yield. Thus, they are somewhat protected from losses and their ual return is guaranteed. With a conversion privilege, debtholders or preferred stockholders enjoy the residual benefits of cornmon shareholders should the company perform well. A conversion option is valuable and yields a higher price for the securities than they would rwise command. However, conversion privileges impose a cost on common shareholders. is, the higher market price received for convertible securities is offset by the cost imposed the subordinate (cornmon) securities. One final note, diluted earnings per share (EPS) takes into account the potentially dilutive -=ect of convertible securities. Specifically, the diluted EPS computation assumes conversion at beginning of the year (or when the security is issued if during the year). The earnings avail- e to common shares in the numerator are increased by any forgone after-tax interest expense preferred dividends, and the additional shares that would have been issued in the conversion, ease the shares outstanding in the denominator (see Module 5).
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