Rose Marketing Inc. (Rose or the Company) is a private company that provides immersive

marketing for locally sold products and handcrafts. Rose entered into a seriesof agreements with

InVest Co. (InVest), to whom shares of preferred stock (the Preferred Stock or the Shares) and

warrants were issued, in exchange for $100 million.

The Preferred Stock Issuance

Par value $0.01 per share.

Total shares 250,000.

Liquidation In the event of any voluntary or involuntary liquidation, dissolution, or winding

up of the Company (a Liquidation Event), or any Deemed Liquidation Event (defined

below), before any payment is made to the shareholders of Rose common stock (Common

Stock), the shareholders of eachseries of Preferred Stock then outstanding should be entitled

to payment out of thefunds and assets available for distribution to its stockholders an amount

per share equal to the greater of (1) the original issue price for such series of Preferred Stock,

plus any dividends declared but unpaid, or (2) such amount per share that would have been

payable had all shares of such series of Preferred Stock been converted into Common Stock

immediately before such Liquidation Event or Deemed Liquidation Event.

A Deemed Liquidation Event includes any of the following events, unless the holders of at

least a majority of the outstanding shares of Preferred Stock electotherwise:

A merger or consolidation, except for one in which the stockholders of theCompany

continue to represent at least a majority of voting power after the transaction (a

Merger or Consolidation).

The sale, lease, transfer, or other disposition, in a single transaction or aseries of

related transactions, by the Company, of all or substantially allthe assets of the

Company taken as a whole.

The amount deemed paid or distributed to the holders of capital stock of the Company upon

any such merger, consolidation, sale, transfer, exclusive license, or other disposition should be

the cash or the value of the property, rights, or securities paid or distributed to such holders by

the Company or the acquiring person, firm, or other entity. Consent of the Companys board of

directors must beobtained before a Deemed Liquidation Event can occur.

Conversion option Each share of Preferred Stock should be convertible at anytime, at the

holders option, and without the payment of additional considerationby the holder into one

fully paid and nonassessable share of Common Stock (theConversion Rights).

Termination of conversion rights In the event of a Liquidation Event or a Deemed

Liquidation Event, the Conversion Rights should terminate at the closeof business on the

last full day preceding the date fixed for the payment of any such amounts distributable on

such event to the holders of Preferred Stock.

Mandatory conversion Each share of Preferred Stock should be mandatorily converted upon the date and time specified by vote or written consent of the holders of a majority of the

then-outstanding shares of Preferred Stock, in whichcase (1) all outstanding shares of

Preferred Stock should automatically be converted into shares of Common Stock, for no

additional consideration, and (2)such shares may not be reissued by the Company.

Voting rights Holders of the Preferred Stock have the right to vote as a single class with

common stockholders on an as-converted basis on any matter presentedto the Companys

stockholders for their action or consideration at any stockholders meeting. Holders of Preferred

Stock, as a separate class, should also be entitled to elect four directors of the Company, and

holders of shares of Common Stock, as a separate class, should be entitled to elect one director

of the Company. Thus, the holders of the Preferred Stock control the voting power and Roses

board of directors.

The Warrant Agreement

In connection with the issuance of the Preferred Stock, Rose and InVest entered into an agreement (the

Warrant Agreement) providing InVest with the right to purchase sharesof the Preferred Stock (the

Warrants). The Warrants are initially exercisable for 300,000 shares of Preferred Stock.

Exercise price $0.01 per share.

Term The Warrants may be exercised at any time on or after issuance and willexpire 10

years later or upon the occurrence of a Deemed Liquidation Event.

Method of exercise Cash payment.

Transfer rights The Warrants are transferrable with the Companys priorwritten

consent, which should not be unreasonably withheld.

No stockholder rights Prior to exercise, holders of the Warrants are not entitledto voting

rights, dividends, or any other rights of holders of Preferred Stock or Common Stock.

Unit of account If the Warrants are exercised, there would be no

extinguishment of Preferred Stock.

While the Company is not currently an SEC registrant, it is contemplating a potential registration of

its shares of Common Stock and therefore applies the SEC and SEC staffguidance codified in ASC

480-10-S99 of ASC 480, Distinguishing Liabilities From Equity (ASC 480) to determine whether the

Preferred Stock should be classified outsideof permanent equity.

Required:

1. How should Rose classify the Preferred Stock under ASC 480?