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Frequently Asked Questions
  How does Nasdaq determine whether securities that are convertible into or exercisable for common stock are issued at a discount to market value?    
Identification Number 276
To determine whether securities that are convertible into or exercisable for common stock are issued at a discount to market value, the conversion or exercise price is compared to the market value of the common stock. Market value is the consolidated closing bid price immediately before the company enters into a binding agreement with the investor. If the conversion or exercise price is less than the market value, then the issuance is at a discount.
 
A potential adjustment to the number of shares or conversion price due to a change to the company’s capital structure, such as due to a stock split or extraordinary dividend, does not affect the determination of whether a transaction is at a discount to market value. However, if the company may reduce the conversion price, issue additional shares, or make a cash payment to the investors as a result of subsequent transactions or events, including "make whole" payments, the calculation of the conversion price will presume that the maximum amount of any such adjustments will be made. Similarly, potential cash payments to the security holders at the time of conversion, other than for accrued interest, are deducted from the value of the note and the resulting amount would be divided by the number of shares issuable when determining the effective conversion price. An example of such cash payments is payments for “foregone interest” that would have been earned by the investors after the time of conversion.
 
Publication Date*: 6/4/2014 Identification Number: 276 Mailto Link
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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