A company grants rights ('entitlements') to existing shareholders that allow them to subscribe for an allotment of new shares in the company at an amount called the 'offer price', subject to their eligibility to do so. 2. The offer price is less than the amount the shareholder would otherwise have to pay to subscribe for the same amount of shares (i.e. on the share market). That is, the subscription when exercising entitlements under the rights offer is at a discount. 3. Some shareholders choose not to exercise some or all their entitlement to the offered allotment or, alternatively, are not eligible to receive or exercise an entitlement. 4. Entitlements for such shareholders, which they did not take up or could not take up, are collectively referred to in this Alert as 'unexercised entitlements'. 5. The company issuing the entitlements arranges to offer a number of shares equivalent to the unexercised entitlements to other entities, such as to institutional investors, in what is referred to as a 'bookbuild process'. 6. Where the issue of shares under a bookbuild process realises an amount above the offer price (this is usually the case because of the discounted issue price), the company arranges payment of a pro rata 'Retail Premium' to shareholders who have unexercised entitlements after the offer period closes. 7. The Retail Premium paid may be all or part of the difference between the offer price under the unexercised entitlements and the price at which the buyers subscribed for the shares. 8. At the time of the initial offer or the time of payment of the Retail Premium, the company issuing the shares or another entity may offer advice to shareholders that Retail Premiums received should be treated as a capital gain, and potentially, where the original shares have been held for more than 12 months, qualify for the capital gains tax discount (e.g. for shareholders that are individuals or trustees of trusts).
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