Abstract:
In one aspect, the invention comprises a method comprising issuing perpetual preferred securities that provide non-cumulative dividends with a fixed liquidation preference; wherein valuation of the securities upon redemption or conversion is based on market value of a specified number of common shares, and wherein the securities are operable to receive treasury stock method accounting. In various embodiments: (1) the securities receive C or D Basket treatment from Moody&#39;s; (2) the securities receive treasury stock method accounting because, upon conversion or redemption, common shares are issued only with respect to the valuation of the securities in excess of the fixed liquidation preference; and (3) upon conversion or redemption the number of common shares is equal to (A×B−C)/B, where A=a conversion rate, B=price per share of the common shares, and C=the fixed liquidation preference.

Description:
CROSS-REFERENCE TO RELATED APPLICATIONS 
     This application claims the benefit of U.S. Provisional Application No. 60/692,417, filed Jun. 20, 2005, and the benefit of U.S. Provisional Application No. 60/756,824, filed Jan. 6, 2006. The entire contents of those two provisional applications are incorporated herein by reference. 
    
    
     BACKGROUND AND SUMMARY 
     Hybrid securities are securities that have some equity characteristics and some debt characteristics. Ratings agencies such as Moody&#39;s and Standard &amp; Poor&#39;s have created defined “baskets” based on the “equity-like” or “debt-like” content of a security. Securities are classified into baskets meeting specific criteria, and the basket to which a security is assigned determines a specified percentage of equity treatment for which the security qualifies. 
     For example, Moody&#39;s has five baskets (A-E). Securities with an A basket classification are treated as 0% equity and 100% debt. At the other extreme, securities with an E basket classification are treated as 100% equity and 0% debt. The A basket includes dated subordinated debt (with maturity of less than 49 years). The E basket encompasses instruments having five characteristics: mandatory convertible; convertible within three years; subordinated debt, preferred or senior, with accelerated conversion; optional deferral; and cumulative coupon. 
     In order to assign a hybrid security to a basket, Moody&#39;s assesses the instrument&#39;s equity-like characteristics. In particular, securities with the following features will be classified as Basket C securities (treated as 50% equity and 50% debt): (a) preferred; (b) perpetual or long-dated; (c) typically non-call 5 or 10 years; (d) optional deferral; (e) non-cumulative dividends; and (f0 replacement language required. Securities classified as Basket D (75% equity and 25% debt) have many of the same features as Basket C securities, the main differences being that the Basket D securities must be perpetual (not merely long-dated) and deferral must be mandatory (not optional). 
     A preferred embodiment of the present invention comprises methods and systems for providing perpetual preferred income equity replacement securities (“Perpetual PIERS”), which are perpetual convertible preferred securities that achieve equity treatment on an issuer&#39;s balance sheet, and are accounted for on a net share settlement basis, using a method similar to that for treasury stock. Perpetual PIERS achieve this accounting treatment through cash settlement of the liquidation preference upon conversion. A conventional cash settlement feature would make PIERS cash redeemable at the option of investors, and therefore would not be treated as equity on the issuer&#39;s balance sheet. Perpetual PIERS solve this problem by using a combination of non-convertibility by investors at any time and the issuance of a non-convertible preferred and net shares upon conversion, with cash only deliverable upon an issuer call or change of control. 
     Perpetual PIERS provide a novel way to achieve high equity content in a highly accretive security that qualifies as shareholder&#39;s equity on the balance sheet. The invention, in one aspect, comprises a method and system for providing a convertible security that gets treasury stock accounting while still getting high equity credit from the agencies. Each embodiment described herein achieves this. 
     In one aspect, the invention comprises a method comprising issuing perpetual preferred securities that provide non-cumulative dividends with a fixed liquidation preference; wherein valuation of the securities upon redemption or conversion is based on market value of a specified number of common shares, and wherein the securities are operable to receive treasury stock method accounting. 
     In various embodiments: (1) the securities receive C or D Basket treatment from Moody&#39;s; (2) the securities receive treasury stock method accounting because, upon conversion or redemption, common shares are issued only with respect to the valuation of the securities in excess of the fixed liquidation preference; (3) the securities are not redeemable or convertible at holder&#39;s option; (4) upon conversion or redemption the number of common shares is equal to (A×B−C)/B, where A=a conversion rate, B=price per share of the common shares, and C=the fixed liquidation preference; (5) upon redemption the liquidation preference is paid in cash: (6) the securities are convertible at any time after a specified date into non-convertible preferred stock and common shares; (7) the securities provide holders with preferred stock voting rights and are treated as preferred stock according to GAAP accounting rules; (8) the securities may be redeemed only upon notice of redemption by an issuer; (9) the notice of redemption is preceded by a stock price of common shares achieving at least a specified value for at least a specified period of time; (10) the dividends are increased if a stock price of common shares achieves at least a specified value for at least a specified period of time; and (11) a conversion rate is increased if a stock price of common shares achieves at least a specified value for at least a specified period of time. 
     In another aspect, the invention comprises a financial instrument comprising one or more perpetual preferred securities operable to provide non-cumulative dividends with a fixed liquidation preference; wherein valuation of the securities upon redemption or conversion is based on market value of a specified number of common shares, and wherein the securities are operable to receive treasury stock method accounting. 
     In various embodiments: (1) the securities receive C or D Basket treatment from Moody&#39;s; (2) the securities receive treasury stock method accounting because, upon conversion or redemption, common shares are issued only with respect to the valuation of the securities in excess of the fixed liquidation preference; (3) the securities are not redeemable or convertible at holder&#39;s option; and (4) upon conversion or redemption the number of common shares is equal to (A×B−C)/B, where A=a conversion rate, B=a stock price of the common shares, and C=the fixed liquidation preference. 
     In another aspect, the invention comprises a method comprising purchasing one or more perpetual preferred securities that provide non-cumulative dividends with a fixed liquidation preference; wherein valuation of the securities upon redemption or conversion is based on market value of a specified number of common shares, and wherein the securities are operable to receive treasury stock method accounting. 
     In various embodiments: (1) the securities receive C or D Basket treatment from Moody&#39;s; and (2) the securities receive treasury stock method accounting because, upon conversion or redemption, common shares are issued only with respect to the valuation of the securities in excess of the fixed liquidation preference. 
    
    
     DETAILED DESCRIPTION 
     Cost of financing: Perpetual PIERS provide lower pre-tax costs than high-equity-content alternatives, and a higher conversion premium than mandatory structures. Perpetual PIERS also provide investors with a true equity option and yield potentially beyond the call date, allowing for attractive pricing relative to mandatory and non-convertible perpetual preferred structures. 
     Earnings per share (“EPS”) efficiency: Perpetual PIERS have a low fixed dividend and qualify for treasury stock method of accounting, resulting in no additional shares in the diluted share count at issue. Shares enter the share count only to the extent the security is in-the-money. Perpetual PIERS also avoid the 3-year conversion “cliff” that applies to mandatory units, since the Perpetual PIERS are convertible only upon issuer call. 
     Share dilution: Upon a call for conversion, an issuer cash settles the liquidation preference and only issues shares for the in-the-money amount. 
     Equity content: Perpetual PIERS provide the ability to achieve C or D Basket treatment from Moody&#39;s, with certain enhancements. They also provide 100% credit from S&amp;P for financial institutions, up to certain limitations. For non-financial institutions, Perpetual PIERS can achieve “intermediate” equity credit from S&amp;P (40-60%). An issuer will have to covenant to refinance the security with a security of equal or greater equity content to maximize equity credit from rating agencies. 
     Balance sheet: Perpetual PIERS are treated as shareholder&#39;s equity on the balance sheet. 
     
       
         
               
             
               
               
               
               
             
           
               
                 TABLE 1 
               
             
             
               
                   
               
               
                 Product Comparison 
               
             
          
           
               
                   
                 PIES/PIES Units 1   
                 Trust PIERS Units 2   
                 Perpetual PIERS 
               
               
                   
               
               
                 Cost 
                 PIES tend to be a higher 
                 For most Issuers, Trust 
                 Higher after-tax cost than 
               
               
                   
                 cost alternative as 
                 PIERS Units are the 
                 Trust PIERS units and PIES 
               
               
                   
                 investors take downside 
                 least costly and most tax 
                 due to the lack of tax 
               
               
                   
                 risk and forego initial 
                 efficient convertible 
                 deductibility. 
               
               
                   
                 stock upside. 
                 funding alternative. 
                 Significantly lower cash 
               
               
                   
                   
                   
                 cost than straight preferred 
               
               
                   
                   
                   
                 alternatives. 
               
               
                 Rating 
                 Moodys: 100% equity 
                 Moody&#39;s: 100% equity 
                 Moody&#39;s: 50-75% equity 
               
               
                 Agency 
                 if preferred underlying, 
                 on warrant component, 
                 credit, depending on 
               
               
                 Credit 
                 75% equity/25% debt 
                 0% equity/100% debt 
                 features. 
               
               
                   
                 in tax-deductible unit 
                 on Trust Preferred. 
                 S&amp;P: 100% equity credit 
               
               
                   
                 form. 
                 S&amp;P: 100% on warrant 
                 for financial institutions, 
               
               
                   
                 S&amp;P: 100% capital 
                 component, 100% on 
                 subject to limits; 40-60% 
               
               
                   
                 credit up to 35% of 
                 Trust Preferred up to 
                 equity credit for non- 
               
               
                   
                 ATE. 
                 10% ATE. 
                 financial institutions. 
               
               
                 Structural 
                 Separable unit with 
                 Separable unit; no 
                 Single investment with 
               
               
                 Simplicity 
                 mandatory conversion 
                 remarketing required 
                 limited investor conversion 
               
               
                   
                 and debt remarketing. 
                 Complicated accounting 
                 right; partial cash settlement 
               
               
                   
                 Complicated tax and 
                 analysis. 
                 only upon an issuer call. 
               
               
                   
                 accounting analysis. 
                 Straight forward tax 
                 Straight-forward tax and 
               
               
                   
                   
                 analysis. 
                 accounting analysis. 
               
               
                 Balance 
                 PIES Units: Debt on 
                 100% book TCE on 
                 True preferred on balance 
               
               
                 Sheet 
                 balance sheet. 
                 warrant component. 
                 sheet. 
               
               
                   
                 PIES (with preferred): 
                 Balance is junior 
                   
               
               
                   
                 Preferred on balance 
                 subordinated debt and 
                   
               
               
                   
                 sheet. 
                 accretes over 49 years. 
                   
               
               
                   
                 Zero-value forward 
                   
                   
               
               
                   
                 contract and associated 
                   
                   
               
               
                   
                 contract fees. 
                   
                   
               
               
                 Accretion/ 
                 PIES generally entail 
                 Treasury stock method 
                 Can achieve Treasury stock 
               
               
                 Dilution 
                 the greatest share 
                 until conversion. 
                 if cash settlement and non- 
               
               
                   
                 dilution, with 
                 May be fully share- 
                 convertibility is used, 
               
               
                   
                 recognition of all the 
                 settled or net share- 
                 however it will receive less 
               
               
                   
                 shares upon delivery in 
                 settled upon a call for 
                 equity credit from Moody&#39;s. 
               
               
                   
                 year 3. 
                 conversion. 
                 Otherwise, if-converted 
               
               
                   
                 Treasury stock method 
                   
                 accounting results in the 
               
               
                   
                 until year 3. 
                   
                 more dilutive of the shares 
               
               
                   
                 Mandatory full share 
                   
                 or the interest expense. 
               
               
                   
                 dilution in year 3. 
               
               
                   
               
               
                   1 PIES are Premium Income Equity Securities. In one form, each PIES unit consists of a stock purchase contract and a senior unsecured note issued by the company with a face amount of $X. Each PIES purchase contract includes the right to receive payments from the company on the purchase contract and obligates the holder to purchase a number of shares of the company&#39;s common stock on a specified Date. The number of shares of common stock receivable on the settlement date is between Y and Z shares per unit depending on the average trading price of the company&#39;s common stock prior to the settlement date. 
               
               
                   2 Trust PIERS are Trust PIERS units, the components of which are preferred securities issued by a business trust formed by a Company and a warrant to purchase common stock of Company, and $N aggregate principal amount of Senior Notes. The senior notes offering is conditioned on the completion of the Trust PIERS units offering. The Trust PIERS units are separable into their components after initial issuance and may subsequently be recombined at the option of the holder. The trust preferred security component of the Trust PIERS units entitle the holders to a fixed quarterly cash distribution, which will be determined upon pricing. The warrant component of the Trust PIERS units is exercisable for a fixed number of shares (subject to customary antidilution adjustments) of Company common stock, at a price also to be determined upon pricing. 
               
             
          
         
       
     
     Term Sheet 1 in Appendix 1 sets forth proposed terms related to an offering of convertible preferred securities according to a first embodiment. 
     Second Embodiment 
     Term Sheet 2 in Appendix 2 is an exemplary term sheet for a second embodiment of Perpetual PIERS. There are two significant changes from the first embodiment. 
     1. In the first embodiment the Perpetual PIERS were convertible only upon notice of redemption by the issuer. In the second embodiment, Perpetual PIERS are convertible at any time into non-convertible preferred stock and common stock. 
     2. In the first embodiment, the dividend rate would increase if the common stock price hit a specified level. In the second embodiment, instead of the dividend rate increasing, the conversion rate increases if the stock price trigger is met. 
     Structure: Perpetual Convertible Preferred on balance sheet with provisional call after 3-5 years. Upon conversion, issuer delivers cash or non-convertible perpetual preferred stock at the same dividend rate as the PIERS, plus common stock for the in-the-money amount. 
     EPS and cost efficiency: Perpetual PIERS qualify for net share settled accounting. No additional shares in the diluted share count at issue; shares only included in the diluted share count to the extent the security is in-the-money. Perpetual PIERS avoid the 3-year conversion “cliff” that applies to mandatory units, and provide issuers with a lower initial cost than traditional convertible preferreds and mandatories. 
     Equity credit: Moody&#39;s: 50-75% (Basket C or D). Basket D requires (i) capital replacement intent and mandatory deferral trigger, or (ii) “binding” capital replacement language. S&amp;P: 100% for financial institutions, subject to limitations; 40-40% for non-financial institutions. 
     
       
         
               
             
               
               
               
               
             
           
               
                 TABLE 2 
               
             
             
               
                   
               
               
                 Product Comparison 
               
             
          
           
               
                   
                 PIES/PIES Units 
                 Trust PIERS Units 
                 Perpetual PIERS 
               
               
                   
               
               
                 Cost 
                 PIES tend to be a 
                 For most Issuers, Trust 
                 Higher after-tax cost than 
               
               
                   
                 higher cost alternative 
                 PIERS Units are the 
                 Trust PIERS units and PIES 
               
               
                   
                 as investors take 
                 least costly and most 
                 due to the lack of tax 
               
               
                   
                 downside risk and 
                 tax efficient convertible 
                 deductibility. 
               
               
                   
                 forego initial stock 
                 funding alternative. 
                 Significantly lower cash cost 
               
               
                   
                 upside. 
                   
                 than straight preferred 
               
               
                   
                   
                   
                 alternatives. 
               
               
                 Rating 
                 Moodys: 100% equity 
                 Moody&#39;s: 100% equity 
                 Moody&#39;s: 50-75% equity 
               
               
                 Agency 
                 if preferred underlying, 
                 on warrant component, 
                 credit, depending on features. 
               
               
                 Credit 
                 75% equity/25% debt 
                 0% equity/100% debt 
                 S&amp;P: 100% equity credit for 
               
               
                   
                 in tax-deductible unit 
                 on Trust Preferred. 
                 financial institutions, subject 
               
               
                   
                 form. 
                 S&amp;P: 100% on warrant 
                 to limits; 40-60% for non- 
               
               
                   
                 S&amp;P: 100% capital 
                 component, 100% on 
                 financial institutions. 
               
               
                   
                 credit up to 35% of 
                 Trust Preferred up to 
                   
               
               
                   
                 ATE. 
                 10% ATE. 
                   
               
               
                 Structural 
                 Separable unit with 
                 Separable unit; no 
                 Single investment with limited 
               
               
                 Simplicity 
                 mandatory conversion 
                 remarketing required. 
                 investor conversion right; 
               
               
                   
                 and debt remarketing. 
                 Complicated 
                 convertible into 
               
               
                   
                 Complicated tax and 
                 accounting analysis. 
                 nonconvertible preferred and 
               
               
                   
                 accounting analysis. 
                 Straight forward tax 
                 net shares or cash and net 
               
               
                   
                   
                 analysis. 
                 shares upon issuer call. 
               
               
                   
                   
                   
                 Straight-forward tax and 
               
               
                   
                   
                   
                 accounting analysis. 
               
               
                 Balance 
                 PIES Units: Debt on 
                 100% book TCE on 
                 True preferred on balance 
               
               
                 Sheet 
                 balance sheet 
                 warrant component. 
                 sheet. 
               
               
                   
                 PIES (with preferred): 
                 Balance is junior 
                   
               
               
                   
                 Preferred on balance 
                 subordinated debt and 
                   
               
               
                   
                 sheet. 
                 accretes over 49 years. 
                   
               
               
                   
                 Zero-value forward 
                   
                   
               
               
                   
                 contract and associated 
                   
                   
               
               
                   
                 contract fees. 
                   
                   
               
               
                 Accretion/ 
                 PIES generally entail 
                 Treasury stock method 
                 Structured to achieve net 
               
               
                 Dilution 
                 the greatest share 
                 until conversion, 
                 share settled accounting; 
               
               
                   
                 dilution, with 
                 May be fully share- 
                 dilutive only to extent in-the- 
               
               
                   
                 recognition of all the 
                 settled or net share- 
                 money. 
               
               
                   
                 shares upon delivery in 
                 settled upon a call for 
                   
               
               
                   
                 year 3. 
                 conversion. 
                   
               
               
                   
                 Treasury stock method 
                   
                   
               
               
                   
                 until year 3. 
                   
                   
               
               
                   
                 Mandatory full share 
                   
                   
               
               
                   
                 dilution in year 3. 
               
               
                   
               
             
          
         
       
     
     Term Sheet 2 in Appendix 2 sets forth exemplary terms related to an offering of convertible preferred securities used in a second embodiment. 
     Embodiments of the present invention comprise computer components and computer-implemented steps that will be apparent to those skilled in the art. For ease of exposition, not every step or element of the present invention is described herein as part of a computer system, but those skilled in the art will recognize that each step or element may have a corresponding computer system or software component. Such computer system and/or software components are therefore enabled by describing their corresponding steps or elements (that is, their functionality), and are within the scope of the present invention. 
     For example, all calculations preferably are performed by one or more computers. Moreover, all notifications and other communications, as well as all data transfers, to the extent allowed by law, preferably are transmitted electronically over a computer network. Further, all data preferably is stored in one or more electronic databases. 
     
       
         
               
             
               
               
             
           
               
                 APPENDIX 1 
               
               
                   
               
               
                 TERM SHEET 1 
               
               
                   
               
             
             
               
                   
               
             
          
           
               
                 Securities Offered 
                 “Company” issues Perpetual Preferred Income Equity Replacement 
               
               
                   
                 Securities (the “Perpetual PIERS”) to third-party investors. The 
               
               
                   
                 PIERS are perpetual, non-cumulative preference shares issued by 
               
               
                   
                 the Company that are convertible upon redemption based on the 
               
               
                   
                 value of a fixed number of common shares of the Company. 
               
               
                 Liquidation Preference 
                 $50 per Perpetual PIERS. 
               
               
                 Maturity 
                 Perpetual. 
               
               
                 Dividends 
                 Non-cumulative quarterly dividends on the Perpetual PIERS will be 
               
               
                   
                 paid, as and if declared at the discretion of the Company&#39;s Board of 
               
               
                   
                 Directors, on quarterly payment dates at a fixed dividend rate equal 
               
               
                   
                 to [x]% (the “Dividend Rate”) of the liquidation preference. 
               
               
                   
                 [The Company cannot make payments on the Perpetual PIERS for 
               
               
                   
                 any dividend period in which the Company fails to maintain a 
               
               
                   
                 Fixed Charge Coverage Ratio of at least [x] or a Leverage Ratio of 
               
               
                   
                 less than [y] for the prior fiscal quarter (a “Mandatory Deferral 
               
               
                   
                 Period”). 
               
               
                   
                 During a Mandatory Deferral Period, the company may make 
               
               
                   
                 dividend payments in stock in lieu of cash as described below in 
               
               
                   
                 “Mandatory Deferred Dividends Payment in Stock”.] 
               
               
                 Rankings 
                 Dividends: With respect to the payment of dividends on the 
               
               
                   
                 Perpetual PIERS, the Perpetual PIERS will rank junior to all 
               
               
                   
                 Company indebtedness and senior to common shares of the 
               
               
                   
                 Company. Further, to the extent that the Company makes dividend 
               
               
                   
                 payments on its common shares, full dividends on the Perpetual 
               
               
                   
                 PIERS are required to be paid. In the event that the Company 
               
               
                   
                 ceases to make dividend payments on the Perpetual PIERS, the 
               
               
                   
                 Company may not make cash dividend payments on its common 
               
               
                   
                 shares. 
               
               
                   
                 Liquidation: Upon a liquidation of the Company, the Perpetual 
               
               
                   
                 PIERS will rank junior to all Company indebtedness, pari passu 
               
               
                   
                 with outstanding preferred stock, if any, and senior to Company 
               
               
                   
                 common shares with respect to the assets available for distribution. 
               
               
                   
                 The liquidation preference of the PIERS will be $50. 
               
               
                 Option to Make 
                 In the event that the Company fails to make any quarterly dividend 
               
               
                 Mandatory Deferred 
                 payment due to a Mandatory Deferral Period, dividends may be 
               
               
                 Dividends Payment in 
                 paid in shares based on a [%] discount to the 10 trading day 
               
               
                 Stock 
                 average immediately preceding such distribution date; provided 
               
               
                   
                 that such shares are freely tradeable or the company has an 
               
               
                   
                 effective S-3 resale registration statement for the sale of such 
               
               
                   
                 shares. 
               
               
                 Conversion Right 
                 Perpetual PIERS will be redeemable for cash and, if applicable, 
               
               
                   
                 shares of common stock based on an initial conversion ratio of 
               
               
                   
                 [ ] shares of common stock for each $50 in stated liquidation amount 
               
               
                   
                 of Perpetual PIERS (equivalent to an initial conversion price of 
               
               
                   
                 approximately $[ ] per share of common stock), subject to 
               
               
                   
                 customary anti-dilution adjustments, pursuant to the settlement 
               
               
                   
                 provisions as described under “Optional Redemption by the 
               
               
                   
                 Company”. 
               
               
                   
                 Perpetual PIERS will not be convertible at the option of holders at 
               
               
                   
                 any time. Perpetual PIERS will be deemed to be converted on the 
               
               
                   
                 settlement date upon a notice of optional redemption by the 
               
               
                   
                 Company as described under “Optional Redemption by the 
               
               
                   
                 Company.” 
               
               
                 Optional Redemption by 
                 After the [3 rd ] anniversary of the issuance of the Perpetual PIERS, 
               
               
                 the Company 
                 if for 20 trading days within any period of 30 consecutive trading 
               
               
                   
                 days, including the last day of such period, the closing price of its 
               
               
                   
                 common shares on the New York Stock Exchange or any other 
               
               
                   
                 nationally recognized exchange exceeds [130%] of the then 
               
               
                   
                 prevailing Conversion Price then, the Company may, at its option, 
               
               
                   
                 provide notice of redemption. The Perpetual PIERS will be 
               
               
                   
                 automatically redeemed 23 trading days after the notice of 
               
               
                   
                 redemption. On the settlement date, all holders will receive cash 
               
               
                   
                 and, if applicable, shares of common stock in an amount calculated 
               
               
                   
                 as follows: 
               
               
                   
                 a cash amount equal $50 per each Perpetual PIERS; and 
               
               
                   
                 if the product of the applicable stock price and the 
               
               
                   
                 conversion ratio then in effect exceeds $50, a number of shares 
               
               
                   
                 of common stock equal to (i) (a) the conversion ratio then in 
               
               
                   
                 effect multiplied by (b) the applicable stock price, (c) minus 
               
               
                   
                 $50, divided by (ii) the applicable stock price. 
               
               
                   
                 The “applicable stock price” means the average closing sale price 
               
               
                   
                 of a share of common stock over the 20 trading-day period (the 
               
               
                   
                 “cash settlement averaging period”) beginning on the trading day 
               
               
                   
                 immediately following the notice of redemption. 
               
               
                   
                 The settlement date will occur 23 trading days after the notice of 
               
               
                   
                 redemption. 
               
               
                 Dividend Step-up 
                 After the [3 rd ] anniversary of the issuance of the Perpetual PIERS, 
               
               
                   
                 if for 10 trading days within any period of 30 consecutive trading 
               
               
                   
                 days, including the last day of such period, the closing price of its 
               
               
                   
                 shares on the New York Stock Exchange or any other nationally 
               
               
                   
                 recognized exchange exceeds [200%] of the then prevailing 
               
               
                   
                 Conversion Price then the dividend rate on the Perpetual PIERS 
               
               
                   
                 will increase to % [comparable yield at issue] per annum on the 
               
               
                   
                 liquidation preference of the Perpetual PIERS. 
               
               
                 Change of Control 
                 If a change of control occurs, investors can elect to have the 
               
               
                   
                 Perpetual PIERS placed by a placement agent as non-convertible 
               
               
                   
                 preferred stock with the following terms: 
               
               
                   
                 liquidation preference of $50 
               
               
                   
                 distribution rate that will be reset to the rate determined 
               
               
                   
                 by the placement agent as the floating rate market yield for a 
               
               
                   
                 $50 non-convertible preferred stock at that time with 
               
               
                   
                 substantially the same terms and conditions as the Perpetual 
               
               
                   
                 PIERS. 
               
               
                   
                 the company may elect to redeem the preferred stock, in 
               
               
                   
                 whole but not in part, for cash at a redemption price equal to 
               
               
                   
                 $50 plus accrued and unpaid distributions to the redemption 
               
               
                   
                 date, (1) at any time during the 30 days beginning on the 90th 
               
               
                   
                 day after the change of control occurs and (2) at any time, 
               
               
                   
                 beginning on the fifth anniversary of the change of control date, 
               
               
                   
                 for the remaining life of the preferred stock. 
               
               
                   
                 If the placement agent cannot place the preferred stock at a price of 
               
               
                   
                 $50, a “failed placement” will be deemed to occur. 
               
               
                   
                 Upon a failed placement, investors who have elected to 
               
               
                   
                 place their Perpetual PIERS will receive reset non-convertible 
               
               
                   
                 preferred stock and, if applicable, shares of common stock on 
               
               
                   
                 the settlement date as described below. The reset rate will equal 
               
               
                   
                 Libor plus bps [the comparable floating rate yield at issue 
               
               
                   
                 plus 100 bps]. 
               
               
                   
                 If investors elect to have their Perpetual PIERS placed as non- 
               
               
                   
                 convertible preferred stock and the product of the applicable stock 
               
               
                   
                 price and the conversion ratio then in effect, including the change 
               
               
                   
                 of control make whole, exceeds the stated liquidation amount of the 
               
               
                   
                 Perpetual PIERS, then they will also receive a number of shares of 
               
               
                   
                 common stock per Perpetual PIERS equal to (i) (a) the conversion 
               
               
                   
                 ratio then in effect multiplied by (b) the applicable stock price, (c) 
               
               
                   
                 minus $50, divided by (ii) the applicable stock price. 
               
               
                   
                 If a change of control occurs and the market price of a share of 
               
               
                   
                 common stock for the 5 trading days immediately preceding the 
               
               
                   
                 change of control effective date (“the average change of control 
               
               
                   
                 stock price”) is above the stock price at issue (subject to anti- 
               
               
                   
                 dilution adjustments) and below [300%] of the stock price at issue 
               
               
                   
                 (subject to anti-dilution adjustments), the conversion ratio of the 
               
               
                   
                 Perpetual PIERS will increase pursuant to a table of predetermined 
               
               
                   
                 values (“change of control make whole”). 
               
               
                   
                 Notwithstanding the foregoing, in the case of a “public acquirer” 
               
               
                   
                 change of control, the company may, in lieu of the change of 
               
               
                   
                 control make whole, elect to adjust the conversion ratio (“public 
               
               
                   
                 acquirer option”) and the related redemption settlement obligation 
               
               
                   
                 such that from and after the effective date of such public acquirer 
               
               
                   
                 fundamental change, holders that convert their Perpetual PIERS 
               
               
                   
                 (pursuant to the settlement procedures of the Perpetual PIERS as 
               
               
                   
                 described above) into a number of shares of public acquirer 
               
               
                   
                 common stock (as defined below) by multiplying the conversion 
               
               
                   
                 ratio in effect immediately before the public acquirer fundamental 
               
               
                   
                 change by a fraction: 
               
               
                   
                 the numerator of which will be (i) in the case of a share 
               
               
                   
                 exchange, consolidation, merger or binding share exchange, 
               
               
                   
                 pursuant to which our common stock is converted into cash, 
               
               
                   
                 securities or other property, the average value of all cash and 
               
               
                   
                 any other consideration (as determined by our board of 
               
               
                   
                 directors) paid or payable per share of common stock or (ii) in 
               
               
                   
                 the case of any other public acquirer fundamental change, the 
               
               
                   
                 average of the last reported sale prices of our common stock for 
               
               
                   
                 the five consecutive trading days prior to but excluding the 
               
               
                   
                 effective date of such public acquirer fundamental change, and 
               
               
                   
                 the denominator of which will be the average of the last 
               
               
                   
                 reported sale prices of the public acquirer common stock for the 
               
               
                   
                 five consecutive trading days commencing on the trading day 
               
               
                   
                 next succeeding the effective date of such public acquirer 
               
               
                   
                 fundamental change. 
               
               
                   
                 If the issuer elects the public acquirer option, then the optional 
               
               
                   
                 redemption date, liquidation preference, and other terms of the 
               
               
                   
                 Perpetual PIERS will not change except for the conversion ratio 
               
               
                   
                 and obligation as described under the public acquirer option. 
               
               
                   
                 However, holders will still have the right to elect to have the 
               
               
                   
                 Perpetual PIERS placed as non-convertible preferred stock as 
               
               
                   
                 described above. 
               
               
                 Anti-Dilution Protection 
                 The conversion ratio will be subject to customary anti-dilution 
               
               
                   
                 adjustments. 
               
               
                 Dividend Protection 
                 The conversion ratio will be adjusted for distributions of cash by 
               
               
                   
                 the company to common shareholders, excluding any dividend or 
               
               
                   
                 distribution in connection with its liquidation, dissolution or 
               
               
                   
                 winding up or quarterly cash dividend on its common stock to the 
               
               
                   
                 extent that the aggregate cash dividend per share of its common 
               
               
                   
                 stock in any quarter does not exceed $[ ] (the “dividend 
               
               
                   
                 threshold amount”). The dividend threshold amount is subject to 
               
               
                   
                 adjustment on the same basis as the conversion ratio, provided that 
               
               
                   
                 no adjustment will be made to the dividend threshold amount for 
               
               
                   
                 any adjustment made to the conversion ratio pursuant to this clause. 
               
               
                   
                 If an adjustment is required to be made under this clause as a result 
               
               
                   
                 of a distribution that is a quarterly dividend, the adjustment will be 
               
               
                   
                 based upon the amount by which the distribution exceeds the 
               
               
                   
                 dividend threshold amount. If an adjustment is required to be made 
               
               
                   
                 under this clause as a result of a distribution that is not a quarterly 
               
               
                   
                 dividend, the adjustment will be based upon the full amount of the 
               
               
                   
                 distribution. 
               
               
                   
                 If the company makes a dividend or distribution as described 
               
               
                   
                 above, then the conversion ratio will be adjusted by multiplying the 
               
               
                   
                 conversion ratio then in effect by a fraction: 
               
               
                   
                 the numerator of which will be the conversion ratio then 
               
               
                   
                 in effect; and 
               
               
                   
                 the denominator of which will be the conversion ratio 
               
               
                   
                 then in effect minus the amount per share of such dividend or 
               
               
                   
                 distribution (as determined above). 
               
               
                 Voting Rights 
                 Typical preferred stock voting rights. If dividends are not paid for 
               
               
                   
                 6 quarterly dividend periods, investors in the Perpetual PIERS are 
               
               
                   
                 entitled to elect 2 members to the company&#39;s Board of Directors. 
               
               
                 Accounting Treatment 
                 PIERS are treated as GAAP-Equity on the Balance Sheet as 
               
               
                   
                 “Preferred Stock.” The book value of the Perpetual PIERS will 
               
               
                   
                 equal the $50 liquidation preference. For Income Statement 
               
               
                   
                 purposes, the Perpetual PIERS will be treated under the treasury 
               
               
                   
                 stock method of accounting so that additional shares will only be 
               
               
                   
                 included in the diluted share count to the extent that the conversion 
               
               
                   
                 value of the Perpetual PIERS exceeds $50. 
               
               
                   
               
             
          
         
       
     
     
       
         
               
             
               
               
             
           
               
                 APPENDIX 2 
               
               
                   
               
               
                 TERM SHEET 2 
               
               
                   
               
             
             
               
                   
               
             
          
           
               
                 Securities Offered 
                 [ ] (the “Company”) issues Perpetual Preferred Income Equity 
               
               
                   
                 Replacement Securities (the “Perpetual PIERS”) to third-party investors. 
               
               
                 Liquidation Preference 
                 $50 per Perpetual PIERS. 
               
               
                 Maturity 
                 Perpetual. 
               
               
                 Dividends 
                 Non-cumulative quarterly dividends on the Perpetual PIERS will be paid, 
               
               
                   
                 as and if declared at the discretion of the Company&#39;s Board of Directors, 
               
               
                   
                 on quarterly payment dates at a fixed dividend rate equal to [x]% (the 
               
               
                   
                 “Dividend Rate”) of the liquidation preference. [If not paid in cash, 
               
               
                   
                 dividends may be settled in common stock, or a combination of cash and 
               
               
                   
                 common stock, in the method described below, under “Payment of 
               
               
                   
                 Dividends in Stock”.] 
               
               
                 Rankings 
                 Dividends: With respect to the payment of dividends on the Perpetual 
               
               
                   
                 PIERS, the Perpetual PIERS will rank junior to all Company indebtedness 
               
               
                   
                 and senior to common shares of the Company. Further, to the extent that 
               
               
                   
                 the Company makes dividend payments on its common shares, full 
               
               
                   
                 dividends on the Perpetual PIERS are required to be paid. In the event 
               
               
                   
                 that the Company ceases to make dividend payments on the Perpetual 
               
               
                   
                 PIERS, the Company may not make cash dividend payments on its 
               
               
                   
                 common shares. 
               
               
                   
                 Liquidation: Upon a liquidation of the Company, the Perpetual PIERS 
               
               
                   
                 will rank junior to all Company indebtedness, pari passu with outstanding 
               
               
                   
                 preferred stock, if any, and senior to Company common shares with 
               
               
                   
                 respect to the assets available for distribution. The liquidation preference 
               
               
                   
                 of the PIERS will be $50. 
               
               
                 [Payment of Dividends in 
                 Any quarterly dividend payment may be paid in shares of common stock 
               
               
                 Stock 
                 based on a [%] discount to the 10 trading day average immediately 
               
               
                   
                 preceding such distribution date; provided that such shares are freely 
               
               
                   
                 tradeable or the company has an effective S-3 resale registration statement 
               
               
                   
                 for the sale of such shares, or such shares can be delivered pursuant to an 
               
               
                   
                 exemption to the registration requirements of the ′33 Act.] 
               
               
                 Conversion Right 
                 The holders of Perpetual PIERS shall have the right to convert into shares 
               
               
                   
                 of perpetual preferred stock issued by the Company and, if applicable, 
               
               
                   
                 shares of Company common stock. 
               
               
                   
                 The Perpetual PIERS will be convertible based on an initial conversion 
               
               
                   
                 rate of [ ] shares of Company common stock for each $50 in stated 
               
               
                   
                 amount of Perpetual PIERS (equivalent to an initial conversion price of 
               
               
                   
                 approximately $[ ] per share of Company common stock), subject to 
               
               
                   
                 customary anti-dilution adjustments. Upon conversion, holders will 
               
               
                   
                 receive for each $50 stated amount of Perpetual PIERS: 
               
               
                   
                 $50 liquidation preference of perpetual preferred stock issued by 
               
               
                   
                 the Company with the terms described below under “Preferred Stock”, 
               
               
                   
                 provided, however, that upon mandatory conversion, holders will receive 
               
               
                   
                 $50 in cash in lieu of perpetual preferred stock; and 
               
               
                   
                 if the product of the applicable stock price and the conversion rate 
               
               
                   
                 then in effect exceeds $50, a number of shares of Company common stock 
               
               
                   
                 equal to (i) (a) the conversion rate then in effect multiplied by (b) the 
               
               
                   
                 applicable stock price, minus (c) $50, divided by (ii) the applicable stock 
               
               
                   
                 price. 
               
               
                   
                 The “applicable stock price” means the average closing sale price of a 
               
               
                   
                 share of Company common stock over the 20 trading-day period (the 
               
               
                   
                 “stock settlement averaging period”) beginning on the trading day 
               
               
                   
                 immediately following the redemption date. 
               
               
                   
                 The settlement date will occur 23 trading days after the conversion date. 
               
               
                 Mandatory Conversion 
                 The Company may, at its option, cause the PIERS to be automatically 
               
               
                   
                 converted. The Company may exercise its conversion right, only after the 
               
               
                   
                 3 rd  anniversary of the issuance of the Perpetual PIERS, if for 20 trading 
               
               
                   
                 days within any period of 30 consecutive trading days, including the last 
               
               
                   
                 day of such period, the closing price of its common shares on the New 
               
               
                   
                 York Stock Exchange or any other nationally recognized exchange 
               
               
                   
                 exceeds 130% of the then prevailing Conversion Price. If the Company 
               
               
                   
                 elects automatic conversion, it will be required to redeem the perpetual 
               
               
                   
                 preferred stock issued upon conversion 30 days after the automatic 
               
               
                   
                 conversion date of the Perpetual PIERS. 
               
               
                 Optional Redemption by 
                 The Company may not redeem the Perpetual PIERS at its option. 
               
               
                 the Company 
                   
               
               
                 Preferred Stock 
                 Upon any conversion of Perpetual PIERS, other than a mandatory 
               
               
                   
                 conversion, the perpetual preferred stock received by holders will have the 
               
               
                   
                 following terms: 
               
               
                   
                 a dividend rate equal to the distribution rate of the Perpetual 
               
               
                   
                 PIERS, with the same $50 liquidation preference per share; 
               
               
                   
                 redeemable in cash at a price equal to the liquidation preference 
               
               
                   
                 upon a change of control or at any time following [ ] (3-5 years 
               
               
                   
                 after issuance); 
               
               
                   
                 mandatorily redeemable in cash at a price equal to the liquidation 
               
               
                   
                 preference upon any mandatory conversion of the Perpetual PIERS, the 
               
               
                   
                 perpetual preferred stock will be redeemed on the date [30] calendar days 
               
               
                   
                 following the mandatory conversion of the Perpetual PIERS; 
               
               
                   
                 subject to remarketing at the election of the holders as described 
               
               
                   
                 under “Remarketing of Perpetual Preferred Stock”; and 
               
               
                   
                 the same capital replacement provisions as the Perpetual PIERS. 
               
               
                 Remarketing of Perpetual 
                 Unless the perpetual preferred stock is called for redemption, holders may 
               
               
                 Preferred Stock 
                 elect, for 10 business days following a change of control of the Company, 
               
               
                   
                 to have their perpetual preferred stock placed by a placement agent with 
               
               
                   
                 the following terms: 
               
               
                   
                 a dividend rate that will be reset to the rate determined by the 
               
               
                   
                 placement agent as the fixed or floating rate market yield (LIBOR-based) 
               
               
                   
                 for the perpetual preferred stock, with no dividend reset provision; and 
               
               
                   
                 optional redemption provisions specified by the Company prior to 
               
               
                   
                 the date of the placement. 
               
               
                   
                 Except as set forth above, the terms of the perpetual preferred stock will 
               
               
                   
                 remain the same following the placement. 
               
               
                   
                 If the placement agent cannot place the remarketed preferred security at a 
               
               
                   
                 price of $50 plus accrued and unpaid dividends to the placement date prior 
               
               
                   
                 to the 21 st  business day following any change of control, a “failed 
               
               
                   
                 placement” will be deemed to occur. 
               
               
                   
                 The placement agent will attempt to remarket the perpetual preferred 
               
               
                   
                 stock on the 6 th , 11 th , 16 th  and 21 st  business days following the effective 
               
               
                   
                 date of a change of control for settlement on the 24 th  business day 
               
               
                   
                 following a change of control. Holders must elect to participate in the 
               
               
                   
                 remarketing within 10 business days following the change of control. 
               
               
                   
                 Holders of Perpetual PIERS must convert their Perpetual PIERS during 
               
               
                   
                 such 10 business day period in order to elect to participate in the 
               
               
                   
                 remarketing. 
               
               
                   
                 Upon a failed placement, investors who have elected to place their 
               
               
                   
                 perpetual preferred stock will retain such stock with a reset dividend rate 
               
               
                   
                 and the perpetual preferred stock will be redeemable at any time by the 
               
               
                   
                 Company. The reset rate will equal LIBOR plus bps [equivalent to the 
               
               
                   
                 spread over LIBOR at issue of the comparable floating rate yield at issue 
               
               
                   
                 plus 100 bps]. 
               
               
                 Increase in Conversion 
                 After the [3 rd /5 th ] anniversary of the issuance of the Perpetual PIERS, if 
               
               
                 Rate 
                 for 20 trading days (whether or not consecutive) in the period of 30 
               
               
                   
                 consecutive trading days ending on the last trading day of a fiscal quarter 
               
               
                   
                 of the Company, the closing price of the Company&#39;s common stock on the 
               
               
                   
                 New York Stock Exchange or any other nationally recognized exchange 
               
               
                   
                 exceeds [200%] of the then prevailing Conversion Price, then beginning 
               
               
                   
                 with the first day of the next fiscal quarter (and only for such fiscal 
               
               
                   
                 quarter), the conversion rate on the Perpetual PIERS will increase at the 
               
               
                   
                 per annum rate of % [comparable yield at issue plus 100 basis points], 
               
               
                   
                 with such increase to take effect, unless the Perpetual PIERS have 
               
               
                   
                 previously been redeemed, on the first day of the following fiscal quarter. 
               
               
                 Change of Control Make 
                 If a change of control occurs where the market price of a share of common 
               
               
                 Whole 
                 stock for the 5 trading days immediately preceding the change of control 
               
               
                   
                 effective date (“the average change of control stock price”) is above the 
               
               
                   
                 stock price at issue (subject to anti-dilution adjustments) and below 
               
               
                   
                 [300%] of the stock price at issue (subject to anti-dilution adjustments), 
               
               
                   
                 the conversion rate of the Perpetual PIERS will increase pursuant to a 
               
               
                   
                 table of predetermined values (“change of control make whole”). 
               
               
                   
                 Notwithstanding the foregoing, in the case of a “public acquirer” change 
               
               
                   
                 of control, the Company may, in lieu of the change of control make 
               
               
                   
                 whole, elect to adjust the conversion rate (“public acquirer option”) and 
               
               
                   
                 the related redemption settlement obligation such that from and after the 
               
               
                   
                 effective date of such public acquirer fundamental change, holders may 
               
               
                   
                 convert their Perpetual PIERS into nonconvertible preferred stock and 
               
               
                   
                 shares of common stock of the public acquirer (pursuant to the settlement 
               
               
                   
                 procedures of the Perpetual PIERS as described above) based on a 
               
               
                   
                 conversion rate equal to the conversion rate in effect immediately before 
               
               
                   
                 the public acquirer fundamental change multiplied by a fraction: 
               
               
                   
                 the numerator of which will be (i) in the case of a share exchange, 
               
               
                   
                 consolidation, merger or binding share exchange, pursuant to which our 
               
               
                   
                 common stock is converted into cash, securities or other property, the 
               
               
                   
                 average value of all cash and any other consideration (as determined by 
               
               
                   
                 our board of directors) paid or payable per share of common stock or (ii) 
               
               
                   
                 in the case of any other public acquirer fundamental change, the average 
               
               
                   
                 of the last reported sale prices of our common stock for the five 
               
               
                   
                 consecutive trading days prior to but excluding the effective date of such 
               
               
                   
                 public acquirer fundamental change, and 
               
               
                   
                 the denominator of which will be the average of the last reported 
               
               
                   
                 sale prices of the public acquirer common stock for the five consecutive 
               
               
                   
                 trading days commencing on the trading day next succeeding the effective 
               
               
                   
                 date of such public acquirer fundamental change. 
               
               
                   
                 If the issuer elects the public acquirer option, then the redemption 
               
               
                   
                 provision, liquidation preference, and other terms of the Perpetual PIERS 
               
               
                   
                 will not change except for the conversion rate and obligation as described 
               
               
                   
                 under the public acquirer option and the terms of the preferred stock will 
               
               
                   
                 not change except that it will be issued by the public acquirer. 
               
               
                 Anti-Dilution Protection 
                 The conversion rate will be subject to customary anti-dilution 
               
               
                   
                 adjustments, including Dividend. 
               
               
                 Dividend Protection 
                 The conversion rate will be adjusted for distributions of cash by the 
               
               
                   
                 company to common shareholders, excluding any dividend or distribution 
               
               
                   
                 in connection with its liquidation, dissolution or winding up or quarterly 
               
               
                   
                 cash dividend on its common stock to the extent that the aggregate cash 
               
               
                   
                 dividend per share of its common stock in any quarter does not exceed 
               
               
                   
                 $[regular common stock cash dividend at issuance] (the “dividend 
               
               
                   
                 threshold amount”). The dividend threshold amount is subject to 
               
               
                   
                 adjustment on the same basis as the conversion rate, provided that no 
               
               
                   
                 adjustment will be made to the dividend threshold amount for any 
               
               
                   
                 adjustment made to the conversion rate pursuant to this clause. If an 
               
               
                   
                 adjustment is required to be made under this clause as a result of a 
               
               
                   
                 distribution that is not a regular quarterly dividend, the dividend threshold 
               
               
                   
                 amount will be deemed to be zero. 
               
               
                   
                 If the company makes a dividend or distribution as described above, then 
               
               
                   
                 the conversion rate will be adjusted by multiplying the conversion rate 
               
               
                   
                 then in effect by a fraction: 
               
               
                   
                 the numerator of which will be the current market price of the 
               
               
                   
                 common stock minus the dividend threshold amount; and 
               
               
                   
                 the denominator of which will be the current market price of the 
               
               
                   
                 common stock minus the amount per share of such dividend or 
               
               
                   
                 distribution. 
               
               
                 Voting Rights 
                 Typical preferred stock voting rights. If dividends are not paid for 6 
               
               
                   
                 quarterly dividend periods, whether or not consecutive, investors in the 
               
               
                   
                 Perpetual PIERS are entitled to elect two members to the company&#39;s 
               
               
                   
                 Board of Directors. 
               
               
                 Accounting Treatment 
                 Perpetual PIERS are treated as GAAP-Equity on the Balance Sheet as 
               
               
                   
                 “Preferred Stock.” The book value of the Perpetual PIERS will equal the 
               
               
                   
                 $50 liquidation preference. For Income Statement purposes, the Perpetual 
               
               
                   
                 PIERS will be treated under the “if converted” method of accounting so 
               
               
                   
                 that additional shares will only be included in the diluted share count to 
               
               
                   
                 the extent that the conversion value of the Perpetual PIERS exceeds $50, 
               
               
                   
                 and the dividend associated with the perpetual preferred will reduce 
               
               
                   
                 earnings available for distribution. 
               
               
                 Capital Replacement 
                 It is the Company&#39;s intention that the Perpetual PIERS and the perpetual 
               
               
                 Provision 
                 preferred stock issuable upon conversion of the Perpetual PIERS may 
               
               
                   
                 only be redeemed with proceeds from the issuance of a security with equal 
               
               
                   
                 or greater equity content than the Perpetual PIERS.