Answer them all satisfactorily and grab $30!

Some things I've been wondering about stocks...

I know there are many different kinds of stocks, but I'm interested in
which is generally or usually true:

1.  Companies issue stock to raise capital.  Then they pay dividents
on the stocks.  Obviously companies want their stocks to debut with a
high price, but I'm not so clear on why companies would really care a
fig if their stock prices go down after that.  Why do they panic so
much?  Why should they care?  After all, the lower price might make a
buyback possible.  So:  why do companies care that their stock prices
are tumbling?  It's gotta be more than ego.

2.  I've heard cases of companies forgoing paying profits to the
shareholders and instead reinvesting the money.  Say, in capital
goods.  Great thinking, but what I don't understand is "where they get
permission" to do this, if you will.  By what rule can a company
"abruptly" decide to not pay dividends to what are technically its
owners?  When shareholders but stock, do they have to sign an
agreement that says the board of directors can elect to forgo dividend
payments and simply reinvest the profits in the business?  Or do the
shareholders themselves have to vote on this every time?  Is this
coded into the by-laws of the company upon corporation?  I understand
why it happens:  what I don't understand is how it can happen
technically.

3.  Let's say stock has been traded but is not issued publicly, as, I
think, was the case with Apple and Google before they went public. 
The company, we'll say, is giving out stock shares to its employees as
part of a profit-sharing program.     Well, BEFORE the stock is
public, are the employees allowed to sell the stock to each other? 
And to outsiders?

4.  Let's say I issue some stock for my new company, raise a couple of
million dollars, and then take the money and jet off to Tahiti.  I
have deliberately defrauded the investors, and something tells me the
SEC would be after me for such a stunt.  So I gather there must be a
law saying that companies must use the money raised by selling stock
to further the company.  But this seems nearly unenforceable to me. 
For example, if I buy myself a Ferrari with the capital raised, would
the SEC handcuff me?  What about if I bought myself an expensive
Italian coffee blender for my office?  What I mean is this:  totally
taking off to Tahiti with the entire amount would be obviously
illegal, but something tells me the coffee blender thing would not. 
So how is this enforceable?  How does the SEC, or the stockholders, or
whoever, determine that a company is spending the raised capital in
the proper way?  If I wanted to use raised capital to fund extended
junkets to Hawaii for all the top management, on what grounds could
they get me technically?

1.  There are a variety of reasons why companies are concerned about
their share price.  One obvious one is that employees often personally
own shares and/or have stock options whose value is adversely affected
by a decline in the share price.  Many employees are also compensated
at least partially based on share price performance, particularly
senior managers.  Customers and suppliers frequently become concerned
when a company's stock price begins to decline and impose more onerous
conditions or decline to purchase or supply goods.  If the company has
convertible debt outstanding, the company may be required to buy out
bondholders instead of compelling them to convert their bonds into
shares.  Shareholders get upset when their share price declines and
may seek to replace the Board of Directors and/or senior managers, so
job security is also at issue.

2.  Companies often pay little or no dividend so that they can
reinvest funds in the company.  Companies are run by their Board of
Directors, who are elected by the shareholders and determine its
dividend policy, which they can change at any time unless it is
restricted by loan or bond covenants.  If shareholders are unhappy
about the level of dividend payments, they can seek to replace the
Board of Directors with individuals who will declare a dividend or
increase it.  However, if the company can earn a better return on the
reinvested funds than the investors can because of outstanding growth
opportunities, then shareholders are delighted to have the company
reinvest profits in its operations.

3.  Shares that are issued to employees before the company has
registered its shares with the SEC can only be traded with
restrictions.  "SEC Rule 144 imposes restrictions on the resale of
securities of public companies that are issued without the benefit of
a registration statement. The unregistered shares of a public company
must typically be held by an investor for a minimum of one year before
they can be sold into the public market. After the one year holding
period is satisfied, public sales of the unregistered shares are
subject to volume limitations for an additional year. Sales in private
placement transactions of unregistered securities to entities
qualifying as sophisticated investors under SEC regulations are
permitted, but the minimum holding period and volume limitations
regarding resale in the public markets start anew each time the
securities change hands."  "Publicly Traded Securities, Market Prices,
Discounts and Fair Market Value" Mercer Capital Management Inc. (1998)
http://www.bizval.com/publications/articlelibrary/PubliclyTradedSecurities.htm

"Rule 144 provides for the sale of certain securities that have not
been registered with the SEC. Under Rule 144 certain restricted shares
acquired from a company, or an affiliate of a company (that is, stock
that has not been registered) may be sold after they have been held
for a period of one year. Rule 144 also provides for sales of
unregistered shares by affiliates of such companies, and the manner
and timing of those sales. For purposes of Rule 144, an affiliate is
someone who controls, or is controlled by, the company issuing the
securities." "THE BASICS - A GLOSSARY FOR INVESTORS" Stock Patrol.com
http://www.stockpatrol.com/s_basics.php

4.  There are many laws dealing with "fraudulently obtaining money in
connection with the sale of securities."  "Tale of a phony stock
offering"
By Steve Gillmor MSN Money
http://moneycentral.msn.com/articles/smartbuy/scam/2927.asp.  For an
example of some of the laws that would be violated by misappropriation
of funds, see "Complaint: Superior Opportunities, Inc., JF Simms &
Co., LLC" SEC  http://www.sec.gov/litigation/complaints/comp18545.htm.
 The nature of your actions and their consistency with the offering
documents under which you raised the money would be of considerable
importance, along with whether or not your actions were approved by
the Board of Directors.  The registration statement requires the
company to explain how it intends to spend the funds raised.

"Rule 10b-5 is a Rule enacted under Section 10 (b) of the
Securities-Exchange Act of 1934. It prohibits anyone from making
untrue statements of material facts, omitting material facts, or
engaging in any fraud or deceit in connection with the purchase or
sale of any security." "THE BASICS - A GLOSSARY FOR INVESTORS" Stock
Patrol.com http://www.stockpatrol.com/s_basics.php

Sincerely,

Wonko

Solid and well-written.  Thanks.