question 10-4

alway reduce profits. Such fat is almost Targeted share repurchases, also known as greenmail, oc pany buys back stock from a potential acquirer at a price higher a ket price. In return, the potential acquirer agrees not to attem the company these expenu ail, occur when a com- than the ma to take ove Shareholder rights provisions, also known as poison pills ing shareholders to purchase additional shares of stock at the market value if a potential acquirer purchases a controlling stake i than company A restricted voting rights provision automatically deprives a sha voting rights if he or she owns more than a specified amount of sto hareholder of . A sits on Interlocking boards of directors occur when the CEO of Company A the board of Company B and B's CEO sits on A's board. A stock option provides for the purchase of a share of stock at a fixed called the exercise price, no matter what the actual price of the stock is. options have an expiration date, after which they cannot be exercised. Stock .An Employee Stock ownership Plan (ESOP) is a plan that facilitates employees' ownership of stock in the company for which they work. QUESTIONS Define each of the following terms: a. Agent; principal; agency relationship b. Agency cost c. Basic types of agency conflicts d. Managerial entrenchment; nonpecuniary benefits e. Greenmail; poison pills; restricted voting rights f. Stock option; ESOP 10-1 10-2 What is the possible agency conflict between inside owner/managers and outside shareholders? 10-3 What are some possible agency conflicts between borrowers and lenders? 10-4 What are some actions an entrenched management might take that would harm shareholders? 10-5 How is it possible for an employee stock option to be valuable even if the firm's stock price fails to meet shareholders' expectations