A small company, Stevens Textile Co. is expanding its operations and needs additional financing to support its expansion projects. The company is planning to change its business registration from a limited liability company to a corporation. As a corporation it will be listed on the stock exchange market and sell shares to the public to raise capital from investors. The business will be managed by professional executives who are not owners of the corporation. The company will appoint CEO and agrees to pay him $1.2 million in cash and over $25 million in stocks and options. Potential shareholders have reacted angrily to these proposals and are very likely to vote against the proposed compensation plans. The shareholders believe that the company has experienced losses over the years and agreeing to such a compensation plan will not be in the best interests of shareholders.

6. Explain the following terms:

i. Greenmail

ii. poison pills

iii. restricted voting rights

7. Briefly describe the use of stock options in the proposed compensation plan.

8. What are some potential problems with stock options as a form of compensation.