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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?
Identification Number 276

To determine whether securities that are convertible into or exercisable for common stock are issued at a discount to the Minimum Price, the conversion or exercise price is compared to the Minimum Price of the common stock. "Minimum Price" means a price that is the lower of: (i) the closing price (as reflected on Nasdaq.com); or (ii) the average closing price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. See FAQ #271. If the conversion or exercise price is less than the Minimum Price, then the issuance is at a discount to the applicable value.

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 Minimum Price. 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.

Note that the determination as to whether convertible securities are issued at a discount may differ for insiders (officers, directors, employees and consultants) and all other investors. When considering an issuance to an insider, the security must be issued at a price greater than market value. See FAQ#271.

Publication Date*: 10/10/2018 Mailto Link Identification Number: 276
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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