corporate action final dhiraj

8/3/2019 Corporate Action Final Dhiraj

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CORPORATE ACTION

Definition - Corporate Actions are events called by the issuer of securities (equity or

debt) that affects the security and the holder of the security.

Purpose: -The primaryPurpose to use corporate actions are:

Return profits to shareholders: Cash dividends are a classic example where a

public company declares a dividend to be paid on each outstanding share. Bonus is

another case where the shareholder is rewarded.

Influence the share price: If the price of a stock is too high or too low, the liquidity

of the stock suffers. Stocks priced too high will not be affordable to all investors and

stocks priced too low may be de-listed. Corporate actions such as stock splits or reverse

stock splits increase or decrease the number of outstanding shares to decrease or increase

the stock price respectively. Buybacks are another example of influencing the stock price

where a corporation buys back shares from the market in an attempt to reduce the number

of outstanding shares thereby increasing the price.

Corporate Restructuring: Corporations re-structure increases the profitability of

company. Mergers are an example of a corporate action where two companies that is

competitive or complementary come together to increase profitability. Spinoffs are anexample of a corporate action where a company breaks itself up in order to focus on its

core competencies.


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Types of Corporate Actions

There are three main types of Corporate Actions:

Mandatory Corporate Actions

A mandatory corporate action is an event initiated by the board of directors that affects

all shareholders. Participation of shareholders is mandatory for these corporate actions.

There is nothing the Share holder has to do or does in a Mandatory Corporate Action

An example of a mandatory corporate action is cash dividend. All holders are entitled to

receive the dividend payments, and a shareholder does not need to do anything to get the

dividend. Other examples of mandatory corporate actions include stock splits, mergers,

return of capital, bonus issue, pari-passu and spin offs.

Voluntary Corporate Actions

A voluntary corporate action is an action where the shareholders elect to participate in the

action. A response is required by the corporation to process the action. In this case

shareholders send their responses to the corporation's agents and the corporation will

send the proceeds to the company. An example of a voluntary corporate action is a tender

offer. A corporation may request share holders to tender their shares at a pre-determined

price. The shareholder may or may not participate in the tender offer.

Mandatory Corporate Actions with Options

This corporate action is a mandatory corporate action where share holders are given a

chance to choose among several options. An example is stock dividend option with one

of the options as default. Share holders may or may not submit their elections. In case a

share holder does not submit the election, the default option will be applied.The securities

(equitized by the com
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1 ) Cash Dividend / US Cash Dividend

Money paid to stockholders, normally out of the corporation's current earnings or

accumulated profits. All dividends must be declared by the board of directors and are

taxable as income to the recipients

If a company issues a cash dividend equal to 5% of the stock price, shareholders will see

a resulting loss of 5% in the price of their shares

Rather than paying cash dividend a company could also choose to use its profits to buy

back its own stock (and by doing so increasing the value of the remaining outstanding

shares).

Process of a Cash Dividend Payment

Here shareholder does not have to make a choice or to take any action to collect

dividends as it is mandatory events. The money will be paid to them automatically.

There are a few steps that will usually be followed:

1. Accountants and Controllers of a firm propose a Dividend amount to be paid

2. Board of Directors declares a cash dividend, the amount and the important dates

3. In many cases a Paying Agent (a financial institution specialized in the administrative

operations of handling and paying cash dividends) is appointed.

4. The information is being made public in announcements in for example newspapers or

in electronic media.

5. On the Ex date the shares trade without the entitlements to the dividend

6. On the Record date the company or the paying agent appointed by the company looks

at the records of the company to see who the owners of the company are.

7. On the Pay Date the cash proceeds are being settled on the accounts of the eligible

holders of the stock


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8. Claims between eligible and non-eligible shareholders need to be settled. Claims

processing is usually being done automatically by custodians and broker dealers.

9. Tax vouchers will be issued and these need to be collected by the investors

10. Often, the cash dividend will be forexed back into the base currency of the (global)

investor.

11. The (global) investor has to pay the taxes in his own country (and see if there are any

double taxation treaties in place between the country of his domicile and the country he

was investing in.

12. All the books and accounts from all parties down the chain from company to investor

need to be adjusted and reconciled.

Effects of a Dividend on the share price

Let's for example assume the following:

1) The investor holds 100,000 shares in company "ABC" before the event takes effect

2) The market price of the shares before the event = EUR 5.00

3) The nominal value of the shares before the event = EUR 1.00

4) The company announces a Cash Dividend of EUR 0.50 per share.

In the example the shareholder will keep all his 100,000 shares and receive a cash

payment of EUR 35,000 while the nominal value of the shares remains the same

and the market value of the shares drops from EUR 5.00 to EUR 4.65.

Total value before the ex-date of the event: 100,000 x EUR 5.00 = EUR 500,000

Total value after the ex-date of the event: 100,000 x EUR 4.65 = EUR 465,000 (+ EUR

35,000 in cash).

The Share Value decreases roughly with exactly the same amount as the cash dividend.

(This makes sense because one day before the cash dividend went ex; the shares were

traded with the entitlement to the dividend whereas on the exdate shares are no longer


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carrying the entitlements. In total no value is lost or made. The nominal value of the

shares is not affected.

Price per earnings ratio

A ratio that shows the valuation of the shares against the earnings per share (EPS) of the

company

Put differently: it is the current price per share in the market divided by the Earnings of

the Company per share (EPS).

For example:

For example; Company A's shares are trading at GBP 50 per share and Company B's

shares are trading at GBP 100 per share. Both companies announce Earnings per share ofGBP 5 per share.

Earnings per share ratio = Price per share / Earnings per share.

Earnings per share ratio A = 50 / 5 = 10

Earnings per share ratio B = 100 / 5 = 20

An investor is willing to pay a multiple of 10 times the earnings per share for Company

A's shares and a multiple of 20 times the earnings per share for Company B's shares.

Investors buying shares in Company B have higher growth expectations of Company B

than of Company A.

Dividend Yield

The dividend yield is a ratio which shows how much a company pays in dividends

relative to its share price.

Put differently: it is the annual dividend per share divided by the price per share.

For example; Company A's shares are trading at GBP 50 per share and Company B's

shares are trading at GBP 100 per share. Both companies announce an annual divided of

GBP 5 per share.


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Dividend Yield = Annual Dividend per share / price per share.

Dividend Yield A = 5 / 50 = 0.10 = 10%

Dividend Yield B = 5 / 100 = 0.05 = 5%

An investor would prefer to buy shares in Company A.

Dividends Glossary

Declaration Date (15th March 2011

This is the date at which the board of directors announces how much the dividend is

going to be, as well as what the record date and the payment date are going to be.

CUM Dividend Date (before Ex date i.e. before 29th march 2011

The Cum Dividend date is the date at which the shares end trading WITH the entitlement

to the dividend. This means that an investor who buys the shares on this date (and on that

day will become the beneficial owner of the shares), will be entitled to the dividend.

Ex (Dividend) Date (29th March 2011

The Ex Date is the date at which the shares start trading WITHOUT the entitlement to thedividend. This means that an investor who purchases the shares on this date (and on that

day will becomes the beneficial owner of the shares), will not be entitled to the dividend.

Record Date (31st March 2011)

This is the date used to determine to which shareholders to pay the dividend to. Because

shares are being traded between shareholders continuously, a cut off date is needed which

is called the record date. The dividend is being paid to the shareholder who holds theshares at the record date (which does not mean that he is actually entitled to it).

Payment Date (15th April 2011)

This is the day on which the dividend is actually going to be paid


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2) Stock Dividend

A dividend payment made in the form of additional shares, rather than a cash payout.

If dividends paid are in the form of cash, those dividends are taxable. When a company

issues a stock dividend, rather than cash, there usually are not taxconsequences until the

shares are sold. Companies may decide to distribute stock to shareholders of record if thecompany's availability of liquid cash is in short supply. A stock dividend, increase in the

amount of shares of a company with the new shares being given to shareholders.

For example, if companies were to issue a 5% stock dividend, it would increase the

amount of shares by 5% (1 share for every 20 owned). If there are 1 million shares in a

company, this would translate into an additional 50,000 shares. If you owned 100 shares

in the company, you'd receive five additional shares. This, however, like the cash

dividend, does not increase the value of the company. If the company was priced at $10

per share, the value of the company would be $10 million. After the stock dividend, the

value will remain the same, but the share price will decrease to $9.52 to adjust for

the dividend payout. The benefit of a stock dividend is choice. The shareholder can

either keep the shares or hope that the company will be able to use the money not paid

out in a cash dividend to earn a better rate of return, or the shareholder could also sell

some of the new shares to create his or her own cash dividend. It is also known as a

"scrip dividend."

Effects of a Stock Dividend on the share price

Let's for example assume the following:

1) The investor holds 100,000 shares in company "ABC" before the event takes effect

2) The market price of the shares before the event = EUR 5.00

3) The nominal value of the shares before the event = EUR 1.00

4) The company announces a Stock Dividend of 0.05 new shares for every 1 old share.

In the example the shareholder will keep all his 100,000 shares and receive additional

shares of the company; 100,000 x 0.05 is 5000 new shares with nominal value EUR

1.00. Please note that the nominal value of the company increases (the profits that

would normally have been paid out in cash will now be added to the capital of the

company), while the nominal value per share remains the same (since there will be more

shares).
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Depending on the relative size of the stock dividend, it is believed that the share value

might increase or decrease. There are many other variables that influence the share price,

but roughly speaking though it is to be expected that the price in the market stays the

same.

Assuming that the share price does stay the same, our investor would end up with;

(100,000 + 5000) x EUR 5.00 = EUR 125,000

The relative stake of his holdings in the company stays exactly the same

3 . Bonus Issue

An offer of free additional shares to existing shareholders. A company may decide to

distribute further shares as an alternative to cash dividend payout.The nominal value of

shares does not change.

Let us say you purchased 1000 shares in ABC plc at 100p per share.

Before Bonus Issue you own:

1000 x shares ABC plc @ total cost = 1,000

Base cost per share = 100p

In this example, you receive 1 new Bonus Issue share for every 4 shares held.

If you own 1000 shares, (1000/4 = 250) then you will receive 250 new bonus shares.

After Bonus Issue:

You previously owned 1000 shares in ABC plc which you bought for 1,000. You then

received 250 bonus issue ABC plc shares, at no additional cost. And so, pooling the new

shares together with your original holding, you now own a total 1,250 shares in ABC plc

with total combined cost of 1,000. As you can see the base cost per share is therefore

reduced:

1250 x shares ABC plc @ total cost = 1,000

New base cost per share = 80p

4) Right Issue


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Right issue is the share that a company offers to its existing shareholders. The number of

right issue to be offered to an investor depends on the number of shares that the investor

is currently holding. While the right issue is offered to the shareholders, he or she has the

right to buy shares or ignore the right issue offer to lapse or even sell the entitlement of

the shares. The companies offer the right issue to get more funds from the equity to meettheir capital requirement or further expansion of the business. In most cases one share is

allotted for two shares.

When the right issue is offered to the existing shareholders, it is offered to them at a

lower price than the existing price of the stock at the stock market. But that does not

mean that the shareholders can make huge profit from this price difference. This is

because after the right issue is offered price of that particular stock falls in the stock

market. It happens because the number of stock of that company increases in the market.

Especially if the number of the right issue is relatively higher than the paid-up capital the

price falls. Moreover the dividend yield and the PE ratio of that particular stock also falls

after the right issue is offered.

Theoretically the right issue does not give significant profit to the shareholders in spite of

the fact that they get the stock in lower price. But in practice the shareholders always find

the right issue an attractive option to buy the shares of the company. This is because the

presume that the company is going to utilize the additional fund from the right issue for

further development and expansion of the company that will eventually strengthen the

financial standing of the company.

Options

The options that shareholders have during the event of a rights issue are to 1) Exercise the

rights, 2) Oversubscribe to new securities, 3) buy additional rights, 4) sell their rights, 5)

Lapse their rights or 6) Take No Action. In theory, every beneficiary owner of the rightswill have to send an official instruction to their broker or custodian on what they decide

to do with their rights.


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In the money

If the exercise price is lower than the market price of the shares the rights issue is called

"in the money". It is attractive to subscribe to the new securities, because they can be sold

in the market for a higher price

Out of the money

The company can set the exercise price too high. In that case it would be unattractive for

the investor to subscribe to the new securities in the event. The same shares could be

bought in the market for a lower price

At the money

When the exercise price is exactly the same as the price of the securities in the market,the event is called "at the money".

6) ADR DIVIDEND (American Depository Receipt DIVIDEND)

ADR holders are eligible for all stock dividends or other entitlements accruing on the

underlying shares and receive all cash dividends in US dollars. These are normally paid

twice a year.

Dividend cheques are mailed directly to the ADR holder on the payment date or ADRs

that are registered with brokers are sent to the brokers, who forward them to ADR

holders.

Dividends from ADRs are indeed subject to U.S. taxes. As far as foreign taxes, in many

(if not most) cases foreign taxes will be withheld from the payment. You should not

technically be liable for both foreign and U.S. taxes.


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7) Amortizing Bond

Amortization - The paying off of debt in regular installments over a period of time.

An amortizing bond is a bond that repays part of the principal (face value) alongwith the coupon payments.

In banking andfinance, an amortizing loan is a loan where the principal of the loan is

paid down over the life of the loan, according to someamortization schedule, typically

through equal payments.

An amortized bond is one that is treated as an asset, with the discount amount being

amortized to interest expense over the life of the bond. If a bond is issued at a discount

- that is, offered for sale below its par (face value) - the discount must be treated

either as an expense or it can be amortized as an asset.

Amortization is an accounting method that gradually and systematically reduces the cost

value of a limited life, intangible asset. Treating a bond as an amortized asset is an

accounting method in the handling of bonds. Amortizing allows bond issuers to treat the

bond discount as an asset over the life of the bond (until the bond's maturity).

8) AUCTION-RATE PREFERRED STOCK

A type of floating-rate preferred stock for which dividend payments are determined at

periodic auctions conducted by the issuer rather than by short-term interest rates. Its

dividends are reset every 49 days through a Dutch auction bidding process. These

securities are known by many names coined by the underwriters who bring them to

market. These preferred securities are usually issued by a tax-exempt bond fund and offer

regularly adjusted dividends.

Every preferred stock has a guaranteed dividend; an auction market preferred stock is

distinguished by the fact that the amount of its dividends changes from time to time. An

auction market preferred stock is beneficial for some investors because the auction

reveals the current market yield every seven weeks, which helps in investment decisions

on whether tobuy, sell, orhold

Other names are: Dutch auction preferred stock (DAPS) Cumulative Auction Market

Preferred Stock (CAMPS), , Floating-Rate Auction Preferred Stock (FRAPS), Market

Auction Preferred Stock (MAPS), Rate Adjustable Preferred Stock (RAPS), Short-Term

Auction-Rate Stock (STARS) and Money Market Preferred (MMP).
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9) Capital repayment

A corporate action in which the company partly repays the capital in issue by paying the

holders a proportion of the paidup capital of the security

When a company needs to reduce expenses and liabilities, it can make a capital

repayment in a lump sum to the creditor or shareholders to reduce the amount remainingon the loan. This can also be used to reduce the term of the loan to a shorter period.

10 ).Tender Offer

A tender offer may be made by a firm to its own shareholders to reduce the number of

outstanding shares, or it may be made by an outsider wishing to obtain control of the

firm. The offered states a price at which it is willing to buy the shares. Shareholderswishing to take up on the offer, agree to sell their shares at the offer price.The price

offered is usually at a premium to the market price.

Tender offers may be friendly or unfriendly. Securities and Exchange Commission laws

require any corporation or individual acquiring 5% of a company to disclose information

to the SEC, the target company and the exchange.

Friendly Tender Offer

When an offer is made for the outstanding shares of a target company, the board of

directors usually is being informed about the imminent bid by the offerer first. It can then

advise its own shareholders whether to accept the offer or to reject it.

In case the board of the target company recommends its shareholders to accept the offer,

the offer is called a friendly offer.

Hostile Tender Offer

In case the offerer does not inform the board of the target company of the imminent

publication of its bid, or if the board thinks the offer price is too low and the offerer still

continues to publicize the bid, the offer is called hostile.


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Creeping Tender Offer

In the United States Tender Offers are regulated by the Williams In a creeping Tender

Typically a group of individuals tries to gradually acquire target company shares in the

open market. Often, the ultimate goal of a creeping tender offer is to acquire enough

shares of the stock to have enough interest in the company to create a voting bloc at the

target company's AGM.

With a creeping tender offer, the offerer(s) will attempt to circumvent the

legal requirements and quietly go about purchasing shares from different shareholders.

Only once a substantial number of shares have been acquired with the group do they

comply with filing the proper documents with the SEC. The result can be that the target

company finds itself in a hostile takeover bid before there is a chance to prepare them.

Exclusionary Tender Offer

In most countries this type of tender offer is forbidden. Under this scenario a bidder

would offer to purchase outstanding shares from certain shareholders only while

excluding others.

Mini Tender

An offer to purchase less than 5% of a company's stock directly from current investors.

These types of Tender Offers are not regulated by the Securities Exchange Act and for

that reason there is no requirement for disclosure.

Mini Tenders often carry high risk, because other than in a normal Tender Offer where a

bidder often aims to take over the target company, in a mini tender it is not always clear

what the real intentions of the offerer are.

Partial Tender Offer

An offer to purchase shares of a company, but not all of the shares.


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Self Tender

An offer from a firm to its own shareholders to buy some or all of the shares. Also known

as a buy-back offer. Self Tenders are sometims called in order to prevent a (hostile) Take

Over or to make it more difficult.

Two Tier Tender Offer

The acquiring company will make a Tender Offer to obtain voting control of the target

company. In a second stage they will try to purchase the rest.

11 ).Partial Redemption

It is an investment-transaction that refers to the withdrawal of a portion of a security's

value by the owner. Rather than withdrawing the entire amount of his or her security's

value from the account, an investor may prefer to keep a portion of the value invested in

the asset while still obtaining some cash.

For example, a partial redemption occurs if an investor orders the withdrawal of a portion

of Treasury notes held in an account. The account owner would specify the proportion of

the asset he or she would like to withdraw; the amount withdrawn includes a portion of

the asset's principal and interest earned.


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12) Scheme of arrangement

A scheme of arrangement is a court-approved agreement between a company and its

shareholders orcreditors. It may effect mergers and amalgamations and may alter

shareholder or creditor rights.

Schemes of arrangement are used to execute arbitrary changes in the structure of a

business and thus are used when reorganization cannot be achieved by other means. They

may be used for rescheduling debt, for takeovers, and for returns of capital, among

other purposes

There are two types ofscheme of arrangement: a creditors' scheme and a members' or

shareholders' scheme. A creditors' scheme is generally used by companies in financialdifficulties. Creditors may agree to defer payments in the hope of a better eventual return

than they would receive if the company were liquidated. A members' scheme is used to

effect corporate reorganizations, including mergers, although it cannot be used to avoid

the takeoverprovisions of the Corporations Law.

A scheme of arrangement is carried out in three steps:

1. The court is approached to order a meeting of creditors or shareholders directly

affected;

2.The scheme must be approved by a vote of more than 50 per cent of the creditors or

members present and voting who represent 75 per cent of the total debts ornominal value

of the shares of those present and voting at the meeting; and

3. The scheme is referred back to the court for confirmation
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13 . Consent Solicitation

An offer by the issuerof a security to change the terms of the security agreement. For

example, abond issuer may askbondholders if the terms of the indenture may be

changed. Consent solicitations are made because security agreements require mutual

consent in order to be altered.A solicitation by one party to the stakeholders of aparticular security for the consent of a material change.

Should the majority of stakeholders provide valid consent prior to the consent expiry

date, the issuer may then follow through with the proposed amendments.

This is commonly used to change various provisions within an indenture. Bondholders

who have consented to the amendments may also receive a consent payment.

14 ).Real Estate Investment Trust REIT

A security that sells like a stock on the major exchanges and invests in real estate

directly, either through properties or mortgages.

REITs receive special tax considerations and typically offer investors high yields, as well

as a highly liquid method of investing in real estate.

Individuals can invest in REITs either by purchasing their shares directly on an open

exchange or by investing in a mutual fund that specializes in public real estate. An

additional benefit to investing in REITs is the fact that many are accompanied by

dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping

malls, office buildings, apartments, warehouses and hotels. Some REITs will invest

specifically in one area of real estate - shopping malls, for example - or in one specific

region, state or country. Investing in REITs is a liquid, dividend-paying means of

participating in the real estate market.
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15 . Spin-off

The event through which a new company is created and separated from its parent

company. After the event there are 2 separate companies, each with their own

outstanding share capital. Owners of the parent company's shares are being given an

amount of shares in the spun off company according to a ratio (for example, each

shareholder in parent company A will receive 5 shares in the spun off company B) both

company's shareholders and stakes are identical at the moment of the spin off even taking

place. Each shareholder holds shares in company A as well as in B at the moment of the

spin-off.

Reasons for a Spin-off

* The company has adopted a strategy to focus on its core activities. Non-core related

activities are spun off

* The company thinks that the spun of activities can be better developed on their own,

rather than as part of a bigger concern (usually the new company is a new technology or a

new market)

* The company thinks that it can make more money by spinning the activities off. For

example it could be that the spun off company yet needs to prove it can be profitable.

* Sometimes the activities don't fit in the overall branding strategy of the parent

company.

* The spin off activities could be more profitable than the overall parent company

* Newly independent entities are no longer constrained by the overall culture of the

parent company that might not fit

* The management of the new company is often formed out of employees from the old

company. For these employees, a spin off represents a good chance to make career

progress.


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* In a takeover, sometimes the acquirer does not want or can not for regulatory reasons,

buy one of the target company's businesses. A spin-off of that business to the target

company's shareholders prior to the merger can provide a solution.

* Tax advantages - Tax laws differ per country and jurisdiction, but in many a spin-off,

distribution can be made tax-free to the parent corporation and the receiving

shareholder. Rather than selling the division outright, a spin off can represent significant

savings to the parent company, especially if the subsidiary is carried on the books at a

large discount to expected market value. A sale would generate a big capital gain tax. If

at least 80% of a subsidiarys equity is distributed to existing shareholders, a spin-off lets

a company avoid the potentially large capital gains tax liability that a straight sale would

incur. Spin-offs are the most tax efficient mechanism to separate a division.

Example of a Spin-off

A very famous and complex example of a spin off was that of a newly formed company

called Reinet Investments SCA from its Parent Company. Compagnie Financire

Richemont SA. Shareholders in Compagnie Financire Richemont SA voted at the AGM

(9 October 2008) to spin off its Richemont luxury goods business as part of a planned

restructuring of the firm. It also sold off its stake in British American Tobacco Plc and set

up a separate investment unit called Reinet Investments SCA. Richemont owns a

portfolio of leading international jewellery, watch, writing instrument and accessories

brands including the Chlo fashion label. What made this spin off so complex was that

the spin off was actually a cross-border corporate action event whereby the parent

company is a Swiss listed company and the spun-off entity a Luxemburg listed entity.


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16 . Stock Split

A Company can decide to increase the amount of its outstanding shares while at the same

time decreasing the nominal share price proportionally. The price is adjusted such that the

before and aftermarket capitalization of the company remains the same anddilution

does not occur.

Example: a 4 for 1 stock split (from a issuer's point of view)

BEFORE THE STOCK SPLIT:

Amount of outstanding shares: 1,000,000

Nominal value per share: EUR 0.50.

Total nominal value of the company: 1,000,000 x EUR 0.50 = EUR 500,000

AFTER THE STOCK SPLIT


Nominal value per share: EUR 0.125

Total nominal value of the company: 4,000,000 x EUR 0.125= EUR 500,000

Example 4:1 stock split (from an investor's point of view)

BEFORE THE STOCK SPLIT:

A shareholder holds 500 shares of company ABC

Nominal Value per share: EUR 0.50

Market Value per share: EUR 0.60 (this is an assumption)

Total value of his holdings: 500 shares x EUR 0.60 = EUR 300

AFTER THE STOCK SPLIT:

The shareholder holds 2000 shares

Nominal Value per share: EUR 0.125

Market value per share: EUR 0.15 (the market value of the shares does not have to equal

the nominal value of the shares)

Total value of his holdings: 200 shares x EUR 0.15 = EUR 300
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Why companies split their shares

* Increase liquidity (100 shares of USD 2, 00 are easier to trade than 1 share of USD 200)

* Increase their perceived attractiveness for small investors

* People believe that it has a psychological effect many believes that it is a signal thatthe board of directors believe that the company is going to perform well in the future.

* Some people believe that share splits will result in higher share prices (although this is

never proven)

* Make itself better comparable with its peer group (i.e. other companies in the same

industry whose shares are trading at lower prices)

DATES FOR STOCK SPLITS

The EXDATE is the date at which the shares are trading at post split prices.

The RECORD DATE is used by the custodian to establish whom to debit and credit the

shares from and to.

Depending on the market (country) the dates will be set in different ways. There are two

main principles:

In Exdate driven markets, the exdate will be after the record date.

In Record date driven markets, the record date will be after the exdate.

Split on ISIN NL00B10RZP78

NEW ISIN: NL0000488639


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17 . Reverse Stock Split

A Company can decide to decrease the amount of its outstanding shares while at the same

time increasing the nominal share price proportionally.

Example 1: a 1 for 4 reverse stock split

BEFORE THE REVERSE SPLIT:


Nominal value per share: EUR 0.50.

Total nominal value: 1,000,000 x EUR 0.50 = EUR 500,000

AFTER THE REVERSE SPLIT

Amount of outstanding shares: 250,000

Nominal value per share: EUR 2.00

Total nominal value: 250,000 x EUR 2.00 = EUR 500,

Reverse Split - Why companies reverse split their shares

A Company may try to

* Avoid becoming a so called "penny stock"

* Avoid being delisted due to stock exchange's minimum share price rules

* Make their stock look more valuable

* Avoid huge volatility in terms of percentage point share price change

* Make itself better comparable with its peer group


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18 . MERGER

A merger in business or economics refers to the combination of two companies into one

larger company. It is the combination of one or more corporations, or other business

entities into a single business entity; the joining of two or more companies to achieve

greater efficiencies of scale and productivity. The decision is usually mutual between

both firms.

A merger occurs when two companies combine to form a single company. A merger is

very similar to an acquisition or takeover, except that in the case of a merger existing

stockholders of both companies involved retain a shared interest in the newcorporation.

Ex - Toronto Dominion bank and Canada Trust bank merged and have become TD

Canada Trust.

Classifications of mergers:

Horizontal mergers take place where the two merging companies both produce

similar product in the same industry.

Vertical mergers occur when two firms, each working at different stages in the

production of the same good, combine.

Conglomerate mergers take place when the two firms operate in different

industries.

19) Merger with Elections

Merger of 2 or more companies into one new company requires the shareholders

permission. Once conversion is done the shares of the old companies are consequently

exchanged into shares in the new company according to a set ratio. Shareholders of both

companies are offered choices regarding the securities they receive
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20 . Puts and calls

A call is a contract that gives the holder the right to purchase a given stock at a specific price

within a designated period of time.

It is the opposite of a put, which is a contract that allows the holder to sell a given stock at a

specific price within a designated period of time.

Puts and calls are both types of privileges, or options that add flexibility to the securities market.

In return for a put or call, the investor pays a fee to the potential buyer or seller of the stock (the

maker), who, in turn, pays a commission to the broker who brought the two parties together. Calls

are generally used by investors who want to profit from a rise in stock prices but, at the same

time, want to avoid sharp losses.

Thus, an investor holding a call chooses one of two options. If the market advances he can buy

the designated security at the lower price quoted in the call, and then sell the stock at a profit. If

the market declines, he can simply exercise his option not to buy the stock, thereby avoiding a

major loss, the only expense being the cost of the option.

A put is used by investors seeking to profit from a fall in stock prices. For example, an investor

holding a put for a stock that declines in price is able to sell the stock at the higher price quoted in

the put, thereby profiting by the amount the stock declines from the put price; if the stock price

rises the investor can lose only the money used to purchase the put option.

Puts and calls are generally written for one, two, three, or six months, although any period over

21 days is accepted by the New York Stock Exchange.

2 1. Limited Partnership - LP

Two or more partners united to conduct a business jointly, and in which one or more of the

partners is liable only to the extent of the amount of money that partner has invested. Limited

partners do not receive dividends, but enjoy direct access to the flow of income and expenses.

A limited partnership consists of two or more person, with at least one general partner and one

limited partner. While general partner in an LP has unlimited personal liability limited partners

liability is limited to the amount of his or her investment in the company.

This term is also referred to as a "limited liability partnership" (LLP).

The main advantage to this structure is that the owners are generally not liable for the debts of the

company.


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23 ) Name change

Some corporate actions such as name change have no direct financial impact on the

shareholders.

Name changes are normally proposed and approved at the Companys General meeting.

This has no effect on the capital and shareholders of the company.

A shareholders meeting decides on a change of company name. The name change may

also affect the name of each share series and often the trading ID. The name of the

company and share series are changed in the book-entry system on the registration date.

The trading ID is changed when the new ID comes into force in the Stock Exchange

trading system.

Reasons for a Company Name Change

* The main reason for Company name changes is mergers and acquisitions. When two

companies become one, they have to adopt one of the old names, combine the two or

develop a new name.

* A Change of Name might be part of a change in Corporate Branding Strategy. For

Example a company might decide to compete on the lowest price in the industry and

change their name to a name that highlights good value for money.

* Sometimes names could be much easier and consumer friendly (especially for

internationally expanding companies where language barriers might cause problems)

.EX - Apple Computers changed its name to Apple Inc. (reason was that they would no

longer focus on selling computers only, but also on mobile phones, I pods, etc.

In other words, the landscape of their industry changed, what they regarded as their core

business changed and so they changed their name along with it.22 . Maturity

1. The length of time until the principal amount of a bond must be repaid.

2. The end of the life of a security.

In other words, the maturity is the date the borrower must pay back the money he or

she borrowed through the issue of a bond.


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24 ) Interest

Interest is a fee paid by a borrower ofassets to the owner as a form of compensation for

the use of the assets. It is most commonly the price paid for the use of borrowed money,

or, money earned by deposited funds.

When money is borrowed, interest is typically paid to the lender as a percentage of the

principal, the amount owed.

25 ) Conversion Mandatory

Conversion of securities (generally convertible bonds or preferred shares) into a set

number of other forms of securities (usually common shares). It should be done either on

or before a contractual conversion date, the holder must convert the mandatory

convertible into the underlying common stock.

26) Conversion Voluntary

Voluntary conversion may be undertaken only where it would be beneficial to the person

who applies for it, and where it would not have an adverse impact on the investment. It is

done by passing the resolution by an extraordinary general meeting of shareholders.

In a voluntary conversionan owner of a preference share request from the Board ofDirectors that the share is converted into an ordinary share.

27) Redemption early

It means the repurchase of abond by the issuer before it matures the issuer of the bond

repays the nominal value prior to the maturity date of the bond, normally with accrued

interest.

29) Warrant Expiration

An event that notifies the holder of the warrant is about to expire and the holder of the

warrant is given the option to exercise the warrant.
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28) Warrant Subscription

Type of security, usually issued together with a Bond orPreferred Stockthat entitles the

holder to buy a proportionate amount of common stock at a specified price, normally

have a subscription price lower than the current market value of the common stock and a

life of two to four weeks. It is better known as a warrant. A warrant is usually issued as aSweetener, to enhance the marketability of the accompanying fixed income securities.

Warrants are freely transferable and are traded on the major exchanges.

30. Liquidation

Liquidation is the process by which a company (or part of a company) is brought to an

end, and the assets and property of the company redistributed. Liquidation is alsosometimes referred to as winding-up ordissolution. Liquidation is the process of taking

a business' real assets and turning them into cash, either to pay off debt or to reap a

personal profit.

Liquidation can be compulsory or voluntary

Compulsory liquidation is ordered by a court, usually a court-appointed receiver takes

over to analyze the company's assets and determine the best way to handle them.

Originally, recovered cash from a compulsory liquidation was distributed evenly amongst

debtors. Now certain debtors may take precedence over others, depending on the terms of

the loans.

Voluntary liquidation may be done for a number of reasons. Some companies elect to

undergo liquidation while their assets still outweigh theirliabilities, if they believe their

business will continue to degrade. By selling off assets early, thesecorporations may

pay off debtors and still give a final dividend to shareholders.

31 Bankruptcy Notifications
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A legal proceeding involving a person or business that is unable to repay outstanding debts.

The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of

creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the

assets are used to repay a portion of outstanding debt. Upon the successful completion of

bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for

bankruptcy.

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply

can't be paid while offering creditors a chance to obtain some measure of repayment based on

what assets are available. In theory, the ability to file for bankruptcy can benefit an overall

economy by giving persons and businesses another chance and providing creditors with a

measure of debt repayment.

Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy

Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or

individual "reorganizations") and Chapter 13 (debt repayment with lowered debt covenants or

payment plans). Bankruptcy filing specifications vary widely among different countries, leading

to higher and lower filing rates depending on how easily a person or company can complete the

process.

3 2) US C D (Certificate of deposit) INTEREST

Certificate of deposit or CD is a time deposit, a financial product commonly

offered to consumers by banks, thrift institutions, and credit unions.

CDs are similar to savings accounts in that they are insured and thus virtually risk-free;

they are "money in the bank" (CDs are insured by the FDIC for banks or by the NCUA

for credit unions). They are different from savings accounts in that the CD has a

specific, fixed term (often three months, six months, or one to five years), and, usually, a

fixed interest rate. It is intended that the CD be held until maturity, at which time themoney may be withdrawn together with the accruedinterest.

A savings certificate entitling the bearer to receive interest. A CD bears a maturity

date, a specified fixed interest rate and can be issued in any denomination. CDs are

generally issued by commercial banks and are insured by the FDIC. The term of a CD

generally ranges from one month to five years.
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A certificate of deposit is a promissory note issued by a bank. It is a time deposit that

restricts holders from withdrawing funds on demand. Although it is still possible to

withdraw the money, this action will often incur a penalty.

For example, let's say that you purchase a $10,000 CD with an interest rate of 5%compounded annually and a term ofone year. At year's end, the CD will have grown to

$10,500 ($10,000 * 1.05).

CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000 are

called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs,

are negotiable.

33) Us Municipal Bonds Interest

Municipal bonds are debt obligations issued by government entities the primary

investing objective is to preserve your capital while generating a tax-free income stream

When you buy a municipal bond, you are loaningmoney to the issuer in exchange for a

set number of interest payments over a predetermined period. At the end of that period,

the bond reaches its maturity date, and the full amount of your originalinvestment is

returned to you.

34) U.S. Government Interest

States generally grant tax-free status to interest income earned from direct obligations of

the U.S. government. Direct obligations of the U.S. government include U.S. Treasury

bonds, notes, bills and certificates, U.S. savings bonds and many obligations issued by

agencies of the U.S. government

Interest income you received from U.S. bonds, bills, notes and other obligations are

taxable by the federal government.

35) U.S. Corporate bond:
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A corporate bond is a bond issued by a corporation in US. It is a bond that a

corporation issues to raise money in order to expand its business. The term is usually

applied to longer-term debt instruments, generally with a maturity date falling at least a

year after their issue date. (The term "commercial paper" is sometimes used for

instruments with a shorter maturity.)Sometimes, the term "corporate bonds" is used to include all bonds except those issued

by governments in their own currencies. Strictly speaking, however, it only applies to

those issued by corporations. Corporate bonds are often listed on majorexchanges.

36) Us Municipal Bond Amortization

Amortization The repayment of principal and interest on a loan in regular installments over a period of

time until maturity.

Municipal bond amortization specifically refers to the treatment of premium priced

bonds. Premium bonds are bonds that have risen in price after the initial public offering

of the bond and are priced above their maturity value.

The amortization ofmunicipal bonds is necessary to recognize the difference between

economic value, or the market price of the municipal bond, and the economic reality that

all bonds mature at par, or the face value of the bond at which it was issued. Because of

tax law requirements all bonds must be amortized if their purchase price is below or

above par.

37) Us corporate Bond Amortization:

A corporate bond Amortization is a bond issued by a corporation in US. In us

corporate Bond Amortization interest is paid along with the fixed principal amount in a

regular frequency. The term is usually applied to longer-term debt instruments, generally

with a maturity date falling at least a year after their issue date Strictly speaking, Us

Corporate bonds Amortization are often listed on majorexchanges.

38) Principal Pay down
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The portion of cash subtracted each month from the principal of a mortgage security

which will reduce the original principal

39) Tax

To tax is to impose a financial charge or other levy upon a taxpayer (an individual or

legal entity) by a state or the functional equivalent of a state such that failure to pay is

punishable by law.

A tax "is not a voluntary payment or donation, but an enforced contribution, exacted

pursuant to legislative authority" and is "any contribution imposed by government

Corporate Actions Events and Tax

Types of Tax

When it comes to Corporate Actions events there are two generic types of Taxes

involved:

1) Income tax

Income tax is tax that needs to be paid on any form of income, i.e. dividend payments,

interest payments among others. For example if a shareholder holds 100 shares that each

pay out a GROSS dividend of EUR 0.50 then a percentage needs to be paid in tax.

2) Capital Gains Tax

Capital Gains Tax is tax that needs to be paid over any gains in capital, in other words;

tax needs to be paid over the difference in the price at which securities are sold and the

price at which they were bought. For example: if an investor buys 10 shares of EUR 100

each and he sells them a while later for EUR 110 each, then he needs to pay a percentage

of tax over the difference (110-100=10).

Global Custody and Tax

Today's globalised financial markets add an extra dimension to taxes in relation to

corporate actions events because tax rules of more than one country can be applicable per

event.
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Take for example an English investor who holds securities in the Netherlands via his

English global custodian. Let's say he holds 500 shares of Kon. Philips N.V. and the

dividend payment have been announced as 0.40 per share, whereas current tax rates are

20% in the Netherlands. (Figures are for example purposes only).

What will happen in the event of the dividend payment is the following:

* Company (Kon Philips N.V.) pays out (500 shares x EUR 0.40) = EUR 200 Gross

* Foreign Withholding Tax (as a form of income tax in the country where the issuer is

domiciled) will be deducted at source in the Netherlands: (20% of 200) = EUR 40. This

will, depending on the country of the issuing company, be deducted at source or to be

paid by the beneficial shareholder.

* In case of deduction at source, the company will pay the net dividend of EUR 160 to

the global custodian, who in turn will pay the net dividend to the shareholder. The global

custodian will also send a tax voucher to the shareholder as a prove that tax was deducted

in the Netherlands.

* The shareholder will then have to establish how much tax needs to be paid in his own

country of domicile in the example in England. Let's say that he is high earner and

therefore falls in the 40% income tax bracket. In that case he will have to pay (EUR 160

x 40%) = EUR 64 to the UK tax authorities. The payment in EUR will somehow have to

be converted to GBP, for which rates and value dates have to be established.

* The total net payment the shareholder would receive is therefore (EUR 200 - EUR 40 -

EUR 64) = EUR 96.

In the above example the shareholder is paying tax twice: in the Netherlands and in

England. This is not very attractive and in order to stimulate cross-border investments,

many countries have signed so called "Double Taxation Treaties" with each other.

Let's say that the English and the Dutch tax authorities have agreed a Double Taxation

Treaty in which English investors who hold Dutch stock and who normally would fall in

the 40% income tax bracket under English tax law, are being made exempt of their 40%

tax obligation, but will have to pay a 10% income tax rate instead. In that case the

shareholder has to pay (EUR 160 x 10%) = EUR 16 to the English Tax Authorities and


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the total net proceeds he would receive would be (EUR 200 - EUR 40 - EUR 16) = EUR

144.

EBDIT 100, 00

(-) DEPRECIATION = 10,000

EBIT = 90,000

(-) INTEREST 5,000

EBT 85,000

(-) TAX 25,500

EAT 59,500

corporate action final dhiraj

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