Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1998-05-04
2002-04-30
Trammell, James P. (Department: 2161)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S035000
Reexamination Certificate
active
06381585
ABSTRACT:
STATEMENT REGARDING FEDERALLY SPONSORED RESEARCH OR DEVELOPMENT
Not Applicable.
REFERENCE TO A MICROFICHE APPENDIX
Total microfiche are 3 and total frames are 66.
FIELD OF INVENTION
This invention relates to the field of financial securities for enhancing the stock of a business entity and, in particular, to the joining of non-investment bonds to shares of that stock accomplished by a program that processes the complete joining including of information, payments and distributions.
BACKGROUND
A business entity or company faces daily challenges in their efforts to make their shares of stock increasingly more valuable. These companies have compelling reasons for wanting to enhance their stock's value. The first is that the company can issue more shares for sale to raise money for company operations and not go into debt to do so. The second reason is so the company can reward the shareowners who profit when the shares increase in price. Pleasing the shareowners is important since they are the voters that will decide who directs and runs the company. Keeping shareowners happy and stock prices high are also invaluable in helping to prevent a proxy fight or hostile takeover. This helps the CEO and other top executives to maintain their jobs since takeovers often lead to the removal of the CEO and those executives.
While the above situations can make the stock price rise dramatically, shareowners will often sell the entire stock in a company at a price that is far less than the worth of the company's assets. A profit is realized in the short term but is often less than the long term profit potential.
Enhancing the stock does not always mean the stock price will increase because other factors are always at work where stock prices are involved. Still enhancing the stock could help keep the price stable and avoid a stock price plunge in financially hard times, thereby preventing the picture-perfect climate for a hostile corporate takeover. Therefore stock enhancement provides benefits for the CEO, executives and shareowners.
The best and most efficient way to enhance the stock is by rewarding the shareowners as much and as directly as possible. Normally a company has three main ways of rewarding their shareowners. The first way is to use the profits of the company to invest in the company operations to increase profits in the future. This decreases the corporate taxes but does little for the shareowners. The second way is for the company to use the profits to buy back some of its own shares of stock, but this means that the shareowners who sell do not benefit from any price increase that may follow. The shareowners who sell also are unable to benefit from the larger dividends that are usually paid since there are now fewer shares to be paid from the corporation's dividend pool. Even if the company buys a percentage of stock from each shareowner, the I.R.S. considers this a dividend and the amount is taxable at the corporate level. The third and most direct way of rewarding shareowners is by paying dividends to the shareowners. The problem with dividends is that they are included in the corporate revenue when paid, therefore are taxed at the corporate level and again by the capital gains tax. This double taxation on the same money reduces the money the shareowners receive. Current corporate tax rates are from fifteen to thirty-four percent with companies paying thirty-four percent on any profit over $75,000.
In spite of this large tax burden, many companies will still pay dividends out of the profits. Other companies will invest in company operations, buy other companies, pay executives large amounts of money, pay for expensive executive luxuries or use a combination of the four to avoid making a profit, and then pay dividends by either borrowing money or paying the dividends from the company savings. This practice becomes a temporary fix since savings not replenished with profits which are subject to tax, will eventually be exhausted. Continuing to borrow, if not supported by increased revenues, will eventually collapse under the debt burden like a house of cards. Still this is often done because the tax burden is so great, and yet the rewarding of shareowners to enhance the stock is so necessary.
The present methods and system are burdened with tremendous inefficiencies. The current environment leads many companies to abandon stock enhancement. These companies instead focus on using profits to expand the company and reward top executives. Instead of paying out money to the I. R. S. and shareowners, they often make poor acquisitions and CEO'S live like kings. If the company begins to suffer financially, they lay-off employees to increase profits and repeat the process. In the meantime the shareowners receive little or no dividends since dividends are not guaranteed. The stock price drops or becomes stagnant.
There have been some attempts to reward shareowners by using the debt-favoring provision of the U.S. tax laws: interest on bonds is deductible but dividends on stock are not. The financial bonds would be issued directly to the shareowner assuming roughly a thirty-four percent corporate-income-tax rate. A company that can pay shareowners a rate of nine percent on dividends can just as easily pay twelve percent interest on debt because it can deduct the interest. This solution is effective in the short term but a big problem arises immediately after the shareowners sell the stock but retain the bonds. The new shareowners will not receive the bond interest so they will find dividends sparse and soon falling stock prices. This will cause many corporate management problems since to continue to sell new bonds to all the new shareowners would send the company into bankruptcy. Even though the company receives money from the bond sales, the debt could collapse the company. Still the deductible interest on bonds is a beneficial component of any stock enhancement method or program.
There are a variety of financial bonds and their sole purpose is to to raise money for the institution that sells or issues the bonds. Bonds are generally considered to be investment securities that differ from stock in that bonds usually have guaranteed interest payments which are paid before dividends on stock. However, there are exceptions. Adjustable-rate convertible debt is a bond with no conversion premium and a coupon (interest) equivalent to or tied to the dividend on the underlying common stock. This convertible bond or note has a variable (floating rate) coupon by reference to a standard index rate. The guaranteed interest payment that exists with most bonds is a beneficial component of any stock enhancement method or program.
Bonds are more secure than stock because failure to pay interest or the principal amount on the bonds could legally force the company into bankruptcy. Stocks are more speculative. In the case of a corporate liquidation, the bondowners are in line to be paid before the stockowners. The corporate assets are usually distributed among those owed wages, holding loans, bonds and the end-of-the-line stockowner could receive nothing. The increased investment security of a bond is a beneficial component of any stock enhancement method or program.
Convertible bonds are presently the closest form available by which most of the afore mentioned enhancement elements of a bond are in some way tied to stock. A convertible security is one that permits the holder, at his or her option and under certain conditions, to exchange an issue for another security. Usually a convertible bond may be exchanged for common stock in the same company, but there are some exceptions in which the holder may receive preferred stock and others in which the security received is an issue of another company. Holders of a convertible security may exercise this option of exchange for a profit, increase yield, avoid a call, or for any other reason they believe valid. The problem with a convertible bond is that it is an either or proposition. The combined benefits are not exercised or capable of being utiliz
Anderson Herman Russell
Maples Durham Russell
Elisca Pierre E.
Trammell James P.
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