Convertible financial instruments with contingent payments

• US 7,987,129 B2
• Filed: 08/12/2002
• Issued: 07/26/2011
• Est. Priority Date: 08/10/2001
• Status: Active Grant

• Current Assignee: Bank of America Corp.
• Original Assignee: Bank of America Corp.
• Inventors: Strong, Frank R., Steifman, Eric, Epelbaum, Yonathan, Kolev, Dragomir K., Edwards, Jeffrey N., Stein, Russell L., Kaperst, Stuart C., Luciano, Richard P., Kaplan, Todd K., Rudnick, Robert A., Kerstein, Daniel Y., Patrick, Thomas H. Jr., Warble, Brennan J., Birle, James R. Jr., Dolan, David K., Green, Richard J., Pepe, Paul A., Fiddle, Frederick J., Jones, Emerson P.
• Primary Examiner(s): APPLE, KIRSTEN SACHWITZ
• Application Number:
  US10/064,745
• Publication Number:
  US 20030130941A1
• Time in Patent Office: 3,270 Days
• Field of Search: 705/37.R, 705/36.R
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A convertible financial instrument provides incentives to holders to keep the instruments outstanding so that issuers maintain flexibility and control over the maturity date of the instrument and the manner in which it is settled. The instrument may provide issuers with the ability to deduct an amount for tax purposes that approximates the true economic cost of the financial instrument. The instrument may contain a provision calling for contingent payments (which may include, for example, contingent interest, preferred distributions, contingent principal, dividends, and other pay-outs) to the holder in some circumstances, which may be based on formulae calculations. For example, this may occur when the trading value of the convertible instrument exceeds a pre-determined value such as, for example, a certain percentage of the accreted value of the convertible instrument, or, for example, another circumstance that may trigger a contingent payment may be when the price of another financial instrument (e.g., the underlying security, the reference security, etc.) is below, higher than, or equal to a pre-determined value.

Claims

1. A financial instrument system comprising:

a memory storing financial instrument data associated with a financial instrument issued by a stock company and held by a holder, shares of stock of the company trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a repayment obligation according to a provision of the instrument obligating the company to repay the principal according to a predetermined term;

calculate a stock conversion according to a provision of the instrument making the instrument convertible into a predetermined number of shares of stock of the company at a predetermined conversion price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

2. The financial instrument system of claim 1 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

3. The financial instrument system of claim 2 wherein the predetermined function of the market price is the average market price for a measurement period.

4. The financial instrument system of claim 3 wherein the amount of the payment is selected to be the greater of:

an amount of any dividend per share of the stock in the interval multiplied by the number of shares of stock into which the instrument may be converted, or

a predetermined percentage of the average market price of the instrument for the measurement period.

5. The financial instrument system of claim 2 wherein the time interval is six months.

6. The financial instrument system of claim 1 wherein the payment is made over time.

7. The financial instrument system of claim 1 wherein the payment is made by adjusting the principal amount.

8. The financial instrument system of claim 1 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

9. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument issued by a stock company and held by a holder, shares of stock of the company trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a repayment obligation according to a provision of the instrument obligating the company to repay the principal according to a predetermined term;

calculate a stock conversion according to a provision of the instrument making the instrument convertible into a predetermined number of shares of stock of the company at a predetermined conversion price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

10. The offering document system of claim 9 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

11. The offering document system of claim 10 wherein the predetermined function of the market price is the average market price for a measurement period.

12. The offering document system of claim 11 wherein the amount of the payment is selected to be the greater of:

an amount of any dividend per share of the stock in the interval multiplied by the number of shares of stock into which the instrument may be converted, or

a predetermined percentage of the average market price of the instrument for the measurement period.

13. The offering document system of claim 9 wherein the time interval is six months.

14. The offering document system of claim 9 wherein the payment is made over time.

15. The offering document system of claim 9 wherein the payment is made by adjusting the principal amount.

16. The offering document system of claim 9 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices;

period.

17. An offering document system comprising:

a memory storing offering document data associated with an offering document offering a financial instrument comprising issued by a stock company and held by a holder, shares of stock of the company trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a repayment obligation according to a provision of the instrument obligating the company to repay the principal according to a predetermined term;

calculate a stock conversion according to a provision of the instrument making the instrument convertible into a predetermined number of shares of stock of the company at a predetermined conversion price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder upon a contingency;

the offering document further comprising an indication that the issuer will report income to the holder based upon a yield at which the issuer would issue a fixed-rate, nonconvertible debt instrument comparable to the financial instrument.

18. The offering document system of claim 17 in which the contingency is with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

19. The offering document system of claim 17 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

20. The offering document system of claim 18 wherein the time interval is six months.

21. The offering document system of claim 19 wherein the predetermined function of the market price is the average market price for a measurement period.

22. The offering document system of claim 17 wherein the amount of the payment is selected to be the greater of:

an amount of any dividend per share of the stock in the interval multiplied by the number of shares of stock into which the instrument may be converted, or

a predetermined percentage of the average market price of the instrument for the measurement period.

23. The offering document system of claim 17 wherein the payment is made over time.

24. The offering document system of claim 17 wherein the payment is made by adjusting the principal amount.

25. The offering document system of claim 17 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

26. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument comprising issued by a stock company and held by a holder, shares of stock of the company trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a repayment obligation according to a provision of the instrument obligating the company to repay the principal according to a predetermined term;

calculate a stock conversion according to a provision of the instrument making the instrument convertible into a predetermined number of shares of stock of the company at a predetermined conversion price;

calculate a payment obligation according, to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity;

the offering document further comprising an indication that the issuer will report income to the holder based upon a yield at which the issuer would issue a fixed-rate, nonconvertible debt instrument comparable to the financial instrument.

27. The offering document system of claim 26 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

28. The offering document system of claim 27 wherein the predetermined function of the market price is the average market price for a measurement period.

29. The offering document system of claim 28 wherein the amount of the payment is selected to be the greater of:

an amount of any dividend per share of the stock in the interval multiplied by the number of shares of stock into which the instrument may be converted, or

a predetermined percentage of the average market price of the instrument for the measurement period.

30. The offering document system of claim 26 wherein the time interval is six months.

31. The offering document system of claim 26 wherein the payment is made over time.

32. The offering document system of claim 26 wherein the payment is made by adjusting the principal amount.

33. The offering document system of claim 26 wherein the amount of the payment is determined as a function of a value selected from the set consisting of

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

34. A financial instrument system comprising:

a memory storing financial instrument data associated with a financial instrument held by a holder, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a security conversion or exchange according to a provision of the instrument making the instrument convertible or exchangeable into a predetermined number of an underlying security at a predetermined conversion or exchange price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

35. The financial instrument system of claim 34 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

36. The financial instrument system of claim 35 wherein the predetermined function of the market price is the average market price for a measurement period.

37. The financial instrument system of claim 35 wherein the time interval is six months.

38. The financial instrument system of claim 34 wherein the payment is made over time.

39. The financial instrument system of claim 34 wherein the payment is made by adjusting the principal amount.

40. The financial instrument system of claim 34 wherein the amount of the payment is determined as a function of a value selected from the set consisting of

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

41. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument held by a holder, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a security conversion or exchange according to a provision of the instrument making the instrument convertible or exchangeable into a predetermined number of an underlying security at a predetermined conversion or exchange price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

42. The offering document system of claim 41 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

43. The offering document system of claim 42 wherein the predetermined function of the market price is the average market price for a measurement period.

44. The offering document system of claim 41 wherein the time interval is six months.

45. The offering document system of claim 41 wherein the payment is made over time.

46. The offering document system of claim 41 wherein the payment is made by adjusting the principal amount.

47. The offering document system of claim 41 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

48. A financial instrument system comprising:

a memory storing financial instrument data associated with a financial instrument relating to an underlying security, the underlying security trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a security conversion or exchange according to a provision of the instrument making the instrument convertible or exchangeable into a predetermined number of the underlying security at a predetermined conversion or exchange price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

49. The financial instrument system of claim 48 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

50. The financial instrument system of claim 49 wherein the predetermined function of the market price is the average market price for a measurement period.

51. The financial instrument system of claim 49 wherein the time interval is six months.

52. The financial instrument system of claim 48 wherein the payment is made over time.

53. The financial instrument system of claim 48 wherein the payment is made by adjusting the principal amount.

54. The financial instrument system of claim 48 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

55. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument relating to an underlying security, the underlying security trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a security conversion or exchange according to a provision of the instrument making the instrument convertible or exchangeable into a predetermined number of the underlying security at a predetermined conversion or exchange price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to passage of a time interval in the event the market price of the instrument is in a predetermined relationship to an accreted value thereof, the accreted value defined as the issue price of the instrument plus an economic accrual of a portion of a difference between the issue price and the principal amount at maturity.

56. The offering document system of claim 55 wherein the predetermined relationship is that a predetermined function of the market price of the instrument is greater than 120 percent of the instrument'"'"'s accreted value.

57. The offering document system of claim 56 wherein the predetermined function of the market price is the average market price for a measurement period.

58. The offering document system of claim 55 wherein the time interval is six months.

59. The offering document system of claim 55 wherein the payment is made over time.

60. The offering document system of claim 55 wherein the payment is made by adjusting the principal amount.

61. The offering document system of claim 55 wherein the amount of the payment is determined as a function of a value selected from the set consisting of:

such dividends as holder of the underlying security would normally receive;

a value of a predetermined index;

a value of a reference security;

a value of a pool of securities;

a value of a pool of indices, and

a value of a pool of securities and indices.

62. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument relating a stock company, shares of stock of the company trading at a price, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a repayment obligation according to a provision of the instrument obligating the company to repay the principal according to a predetermined term;

calculate a stock conversion according to a provision of the instrument making the instrument convertible into a predetermined number of shares of stock of the company at a predetermined conversion price;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to a contingency;

the offering document further comprising an indication that the issuer will report income to the holder based upon a yield at which the issuer would issue a fixed-rate, nonconvertible debt instrument comparable to the financial instrument.

63. An offering document system comprising:

a memory storing financial instrument data associated with an offering document offering a financial instrument, the instrument having a market price; and

a processor in communication with the memory and operable to;

calculate a stock exchange according to a provision of the instrument making the instrument exchangeable into a predetermined number of shares of stock of a company;

calculate a payment obligation according to a provision of the instrument obligating the company to make a payment to the holder with respect to a contingency;

the offering document further comprising an indication that the issuer will report income to the holder based upon a yield at which the issuer would issue a fixed-rate, nonconvertible debt instrument comparable to the financial instrument.