Q7 Corning

Conversion structure 1 - BASE CASE SCENARIO par 100

premium share price #shares

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.6 0.65 0.7 0.75 0.8 0.85 0.85 0.9 0.95 1 1.05 1.1 1.15 1.2 1.25 1.3 1.35 1.4 1.45 1.45 1.5 1.55 1.6 1.65

22% 3.15 31.746

0 1.5873015 1.58730159 9 3.1746 3.1746031 0317 7 4.7619047 4.76190476 6 6.3492 6.3492063 0635 5 7.9365079 7.93650794 4 9.5238 9.5238095 0952 2 11.1111111 11.1111111 12.698 12.698412 4127 7 14.2857143 14.2857143 15.873 15.873015 0159 9 17.4603175 17.4603175 19.0 19.047 4761 619 9 20.6349206 20.6349206 22.222 22.222222 2222 2 23.8095238 23.8095238 25.396 25.396825 8254 4 26.9 26.984 8412 127 7 28.571 28.571428 4286 6 30.1587302 30.1587302 31.746 31.746031 0317 7 33.3333333 33.3333333 34.920 34.920634 6349 9 36.5079365 36.5079365 38.095 38.095238 2381 1 39.6825397 39.6825397 41.269 41.269841 8413 3 42.8571429 42.8571429 44.444 44.444444 4444 4 46.0 46.031 3174 746 6 47.619 47.619047 0476 6 49.2063492 49.2063492 50.793 50.793650 6508 8 52.3809524 52.3809524

3.843 26.021

Payoff diagram 140

120

    d    e    r    r    e     f    e    r    P    e     l

    b    i    t    r    e    v    n    o    C

100

80

60

40

20

0 0

0.5

1

1.5

2

2.5 Stock P

1.7 1.75 1.8 1.85 1.9 1.95 2 2.05 2.1 2.15 2.2 2.25 2.3 2.35 2.4 2.45 2.5 2.55 2.6 2.65 2.7 2.75 2.8 2.85 2.9 2.95 3 3.05 3.1 3.15 3.2 3.25 3.3 3.35 3.4 3.45 3.5 3.55 3.6 3.65 3.7 3.75 3.8 3.843

53.968254 55.5555556 57.1428571 58.7301587 60.3174603 61.9047619 63.4920635 65.0793651 66.6666667 68.2539683 69.8412698 71.4285714 73.015873 74.6031746 76.1904762 77.7777778 79.3650794 80.952381 82.5396825 84.1269841 85.7142857 87.3015873 88.8888889 90.4761905 92.0634921 93.6507937 95.2380952 96.8253968 98.4126984 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

3.9 3.95 4 4.05 4.1 4.15 4.2 4.25 4.3 4.35 4.4 4.45 4.5 4.55 4.6 4.65 4.7 4.75 4.8 4.85 4.9 4.95 5

101.483216 102.784283 104.08535 105.386417 106.687484 107.988551 109.289617 110.590684 111.891751 113.192818 114.493885 115.794952 117.096019 118.397086 119.698152 120.999219 122.300286 123.601353 124.90242 126.203487 127.504554 128.805621 130.106687

2 - WITH 15% PREMIUM ONLY par 100

premium share price #shares

- 7 up 22

3   rice

3.5

4

4.5

5

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1 1.05 1.1 1.15 1.2 1.25 1.3 1.35 1.4 1.45 1.5 1.55 1.6 1.65

15% 3.15 31.746

0 1.58730159 3.17460317 4.76190476 6.34920635 7.93650794 9.52380952 11.1111111 12.6984127 14.2857143 15.8730159 17.4603175 19.047619 20.6349206 22.2222222 23.8095238 25.3968254 26.984127 28.5714286 30.1587302 31.7460317 33.3333333 34.9206349 36.5079365 38.0952381 39.6825397 41.2698413 42.8571429 44.4444444 46.031746 47.6190476 49.2063492 50.7936508 52.3809524

3.623 27.605

160 140

    d    e    r    r    e     f    e    r    P    e     l

    b    i    t    r    e    v    n    o    C

120 100 80 60 40 20 0 0

1.7 1.75 1.8 1.85 1.9 1.95 2 2.05 2.1 2.15 2.2 2.25 2.3 2.35 2.4 2.45 2.5 2.55 2.6 2.65 2.7 2.75 2.8 2.85 2.9 2.95 3 3.05 3.1 3.15 3.2 3.25 3.3 3.35 3.4 3.45 3.5 3.55 3.6 3.623 3.7 3.75 3.8 3.85

53.968254 55.5555556 57.1428571 58.7301587 60.3174603 61.9047619 63.4920635 65.0793651 66.6666667 68.2539683 69.8412698 71.4285714 73.015873 74.6031746 76.1904762 77.7777778 79.3650794 80.952381 82.5396825 84.1269841 85.7142857 87.3015873 88.8888889 90.4761905 92.0634921 93.6507937 95.2380952 96.8253968 98.4126984 100 100 100 100 100 100 100 100 100 100 100 102.139406 103.519669 104.899931 106.280193

3.9 3.95 4 4.05 4.1 4.15 4.2 4.25 4.3 4.35 4.4 4.45 4.5 4.55 4.6 4.65 4.7 4.75 4.8 4.85 4.9 4.95 5

107.660455 109.040718 110.42098 111.801242 113.181504 114.561767 115.942029 117.322291 118.702553 120.082816 121.463078 122.84334 124.223602 125.603865 126.984127 128.364389 129.744651 131.124914 132.505176 133.885438 135.2657 136.645963 138.026225

Buyers benefit more from upside (lower strike price of the implied option) Shareholders more diluted Shareholders have to issue more shares. 27.605 at P=3.623 instead of 26.021 at P=3.843 No effect on the down side Effect on the value of the new security?

Payoff diagram

0.5

1

1.5

2

2.5

3

3.5

Stock Price

20.42 81.97 102.39 81.967

106.78435

4

Implied Volatility Option type Maturity Strike Price Volatility Call Jan-05 5 0.871 Call Jan-05 7.5 0.834 Call Jan-05 10 0.78 Average 0.82833333

4.5

5

Convertible componet value Security type Position Maturity Time to matuStock Price Strike Price Shares 31.746 3.15 Call -31.746 8/16/2005 3.00 3.15 3.15 Call 26.021 8/16/2005 3.00 3.15 3.843

Call (K=3.15) Stock Price now (P) Exercise Price of Option (EX) Number of periods to Exercis Compounded Risk-Free Inter Standard Deviation (annualiz d1 d2 Value of Call

Call (K=3.843) 3.15 3.15 3 1.75% 82.83% 0.7540 -0.6808 1.70

Stock Price now (P) Exercise Price of Option (E Number of periods to Exer Compounded Risk-Free Int Standard Deviation (annual d1 d2 Value of Call

Volatility Risk Free Value per sec Total Value 0.82833333 100 0.82833333 0.0175 1.7 -53.9682 0.82833333 0.0175 1.55 40.33255 Total Value 86.36435

3.15 3.84 3 1.75% 82.83% 0.6154 -0.8194 1.55