Copyright
© 2009 by Financial Accounting Standards Board, Norwalk,
Connecticut





Induced
Conversions of Convertible Debt (as amended) [Superseded by FASB Codification
9/15/2009]




an
amendment of APB No. 26





FAS 84 STATUS




Issued:
March 1985




Effective
Date:




For
conversions of convertible debt pursuant to inducements offered after March 31,
1985





Affects:




Amends
APB 26, paragraph 2





Affected
by:




No other
pronouncements





Issues
Discussed by FASB Emerging Issues Task Force (EITF)




Affects:




Nullifies
EITF Issue No. 84-3





Interpreted
by:




Paragraph
2 interpreted by EITF Issue No. 02-15





Related
Issues: EITF Issue No. 85-17 and 05-1




FAS 84 Summary




This
Statement amends APB Opinion No. 26, Early Extinguishment of Debt.
This Statement specifies the method of accounting for conversions of convertible
debt to equity securities when the debtor induces conversion of the debt by
offering additional securities or other consideration to convertible debt
holders. Such an offer has sometimes been called a convertible debt “sweetener.”
This Statement requires recognition of an expense equal to the fair value of the
additionalsecurities
or other consideration issued to induce conversion.




This
Statement is effective for conversions of convertible debt pursuant to
inducements offered after March 31, 1985, with earlier application encouraged.
Retroactive application for transactions occurring during periods for which
financial statements have previously been issued is permitted.





INTRODUCTION




1. The
FASB has been asked to address the applicability of APB Opinion No. 26, Early Extinguishment of Debt,
to situations in which the conversion privileges in a convertible debt
instrument are changed or additional consideration is paid to debt holders for
the purpose of inducing prompt conversion of the debt to equity securities
(sometimes referred to as a convertible debt “sweetener”). Opinion 26 applies to
all extinguishments of debt except debt that is extinguished through a troubled
debt restructuring and debt that is converted to equity securities of the debtor
pursuant to conversion privileges included in terms of the debt at issuance.
1
This Statement amends Opinion 26 to exclude from its scope convertible debt that
is converted to equity securities of the debtor pursuant to conversion
privileges different from those included in terms of the debt at issuance when
the change in conversion privileges is effective for a limited period of time,
involves additional consideration, and is made to induce conversion. This
Statement also specifies the method of accounting for such conversions. Examples
of application of this Statement are presented in Appendix A, background
information is presented in Appendix B, and the basis for the Board's
conclusions is presented in Appendix C.




APPLICABILITY AND
SCOPE




2. This
Statement applies to conversions of convertible debt to equity securities
pursuant to terms that reflect changes made by the debtor to the conversion
privileges provided in the terms of the debt at issuance (including changes that
involve the payment of consideration) for the purpose of inducing conversion.
This Statement applies only to conversions 2 that
both (a) occur pursuant to changed conversion privileges that are exercisable
only for a limited period of time and (b) include the issuance of all of the
equity securities issuable pursuant to conversion privileges included in the
terms of the debt at issuance for each debt instrument that is converted. The
changed terms may involve reduction of the original conversion price thereby
resulting in the issuance of additional shares of stock, issuance of warrants or
other securities not provided for in the original conversion terms, or payment
of cash or other consideration to those debt holders who convert during the
specified time period. This Statement does not apply to conversions pursuant to
other changes in conversion privileges or to changes in terms of convertible
debt instruments that are different from those described in this
paragraph.




STANDARDS OF FINANCIAL ACCOUNTING AND
REPORTING




Recognition of Expense upon
Conversion




3. When
convertible debt is converted to equity securities of the debtor pursuant to an
inducement offer described in paragraph 2 of this Statement, the debtor
enterprise shall recognize an expense equal to the fair value of all securities
and other consideration transferred in the transaction in excess of the fair
value of securities issuable pursuant to the original conversion terms. The
expense shall not be reported as an extraordinary item.




4. The
fair value of the securities or other consideration shall be measured as of the
date the inducement offer is accepted by the convertible debt holder. Normally
this will be the date the debt holder converts the convertible debt into equity
securities or enters into a binding agreement to do so.





Amendment to APB Opinion No.
26




5. The
following sentence is added to paragraph 2 of Opinion 26:




Also,
this Opinion does not apply to conversions of convertible debt when conversion
privileges included in terms of the debt at issuance are changed, or additional
consideration is paid, to induce conversion of the debt to equity securities as
described in FASB Statement No. 84, Induced Conversions of Convertible
Debt.




Effective Date and
Transition




6. This
Statement shall be effective for conversions of convertible debt pursuant to
inducements offered after March 31, 1985. Earlier application is encouraged.
Retroactive application of this Statement to transactions occurring during
periods for which financial statements have previously been issued is permitted,
in which case the financial statements of all prior periods presented shall be
restated. In addition, the financial statements shall, in the year this
Statement is first applied, disclose the nature of any restatement and its
effect on income before extraordinary items, net income, and related per-share
amounts.




The provisions of this Statement need
not be applied to immaterial items.




This
Statement was adopted by the affirmative votes of six members of the Financial
Accounting Standards Board. Mr. Sprouse dissented.




Mr.
Sprouse dissents because he believes the provisions of this Statement should not
apply in circumstances similar to those described in Example 2 (paragraphs 11-13
of Appendix A) in this Statement. He believes that the Statement fails to
distinguish between induced conversions made under two distinctly different sets
of facts and circumstances: (a) debt convertible into equity securities whose
market values are greater than the conversion price (refer to Example 1,
paragraphs 8 and 9) and (b) debt convertible into equity securities whose market
values are less than the conversion price (refer to Example 2, paragraphs 11 and
12). In the circumstances described in (a), he agrees that the inducement is an
expense incurred to obtain certain benefits, such as elimination of the interest
payments that would otherwise be made before the debt holder chooses to convert.
In the circumstances described in (b), however, the substance of the obligation
is essentially the same as for debt that is not convertible. The essential
nature of an induced conversion under those circumstances is no different from a
limited tender offer of equity securities for nonconvertible debt. Accordingly,
he believes that an enterprise that extinguishes debt by issuing securities and
other assets whose aggregate fair value is less than the carrying amount of the
debt should recognize a gain in the amount of the difference in the same way
that it would if securities and other assets were exchanged for nonconvertible
debt.




Members of the Financial Accounting
Standards Board:




Donald J.
Kirk, Chairman




Frank E.
Block




Victor H.
Brown




Raymond
C. Lauver





David
Mosso




Robert T.
Sprouse




Arthur R.
Wyatt




Appendix A: EXAMPLES OF APPLICATION
OF THIS STATEMENT




7. This
appendix presents examples that illustrate application of this Statement. The
facts assumed are illustrative only and are not intended to modify or limit in
any way the provisions of this Statement. For simplicity, the face amount of
each security is assumed to be equal to its carrying amount in the financial
statements (that is, no original issue premium or discount exists).




Example 1




8. On
January 1, 19X4, Company A issues a $1,000 face amount 10 percent convertible
bond maturing December 31, 20X3. The carrying amount of the bond in the
financial statements of Company A is $1,000, and it is convertible into common
shares of Company A at a conversion price of $25 per share. On January 1, 19X6,
the convertible bond has a market value of $1,700. To induce convertible
bondholders to convert their bonds promptly, Company A reduces the conversion
price to $20 for bondholders who convert prior to February 29, 19X6 (within 60
days).




9.
Assuming the market price of Company A's common stock on the date of conversion
is $40 per share, the fair value of the incremental consideration paid by
Company A upon conversion is calculated as follows for each $1,000 bond that is
converted prior to February 29, 19X6:




Value
      of securities issueda.
      Value of securities issued to debt holders is computed as
      follows:
                      
                      $
                      2,000Value
      of securities issuable pursuant to original conversion privilegesb.Value
      of securities issuable pursuant to original conversion privileges is
      computed as follows:
                      
                      
                      1,600Fair
      value of incremental consideration
                      
                      $
                      400





10.
Therefore, Company A records debt conversion expense equal to the fair value of
the incremental consideration paid as follows:




Debit
                  
                  
                  CreditConvertible
      debt
                  
                  
                  1,000Debt
      conversion expense
                  
                  
                  400Common
      stock
                  
                  
                  
                  
                  
                  
                  1,400





Example 2




11. On
January 1, 19X1, Company B issues a $1,000 face amount 4 percent convertible
bond maturing December 31, 20X0. The carrying amount of the bond in the
financial statements of Company B is $1,000, and it is convertible into common
shares of Company B at a conversion price of $25. On June 1, 19X4, the
convertible bond has a market value of $500. To induce convertible bondholders
to convert their bonds promptly, Company B reduces the conversion price to $20
for bondholders who convert prior to July 1, 19X4 (within 30
days).





12.
Assuming the market price of Company B's common stock on the date of conversion
is $12 per share, the fair value of the incremental consideration paid by
Company B upon conversion is calculated as follows for each $1,000 bond that is
converted prior to July 1, 19X4:




Value
      of securities issueda.Value
      of securities issued to debt holders is computed as
    follows:
                      
                      $
                      600Value
      of securities issuable pursuant to original conversion privilegesb.Value
      of securities issuable pursuant to original conversion privileges is
      computed as follows:
                      
                      
                      480Fair
      value of incremental consideration
                      
                      $
                      120





13.
Therefore, Company B records debt conversion expense equal to the fair value of
the incremental consideration paid as follows:




Debit
                  
                  
                  CreditConvertible
      debt
                  
                  
                  1,000Debt
      conversion expense
                  
                  
                  120Common
      stock
                  
                  
                  
                  
                  
                  
                  1,120





The same
accounting would apply if, instead of reducing the conversion price, Company B
issued shares pursuant to a tender offer of 50 shares of its common stock for
each $1,000 bond surrendered to the company before July 1, 19X4. Refer to
footnote 2 to paragraph 2 of this Statement.




Appendix B: BACKGROUND
INFORMATION




14. The
FASB has received several requests that it address the applicability of Opinion
26 when the conversion privileges in a convertible debt instrument are changed,
or when additional consideration is paid to debt holders, for the purpose of
inducing prompt conversion of the debt to equity securities.




15. Prior
to an induced conversion of a convertible debt instrument, a debtor has
outstanding convertible debt that is (or will become) convertible to equity
securities of the debtor at the option of the debt holder. Usually the
conversion privileges are exercisable for an extended period of time, frequently
up to the maturity date of the debt. During the period when the conversion
privileges are exercisable, the securities issuable upon conversion may have a
fair value that exceeds the face amount of the debt; however, convertible debt
holders often do not exercise conversion privileges until the debt is called or
the conversion privileges are about to expire.




16. A
debtor sometimes wishes to induce prompt conversion of its convertible debt to
equity securities to reduce interest costs, to improve its debt-equity ratio, or
for other reasons. Thus, the debtor may offer additional consideration as an
inducement for debt holders to convert promptly. This additional consideration
can take many forms, including a temporary improvement of the conversion ratio
(effected by a reduction of the conversion price), the issuance of warrants or
other securities, or the payment of a cash incentive or other assets to debt
holders who convert by a specified date.




17. The
first sentence of paragraph 2 of Opinion 26, as amended by paragraph 7 of FASB
Statement No. 76, Extinguishment of Debt, but
prior to amendment by this Statement, described the applicability of Opinion 26
as follows:





Applicability.This Opinion
applies to all extinguishments of debt, whether early or not, except debt that
is extinguished through a troubled debt restructuring and debt that is converted
to equity securities of the debtor pursuant to conversion privileges provided in
terms of the debt at issuance.




18.
Paragraph 20 of Opinion 26 describes the accounting for an extinguishment of
debt:




. . . A
difference between the reacquisition price and the net carrying amount of the
extinguished debt should be recognized currently in income of the period of
extinguishment as losses or gains and identified as a separate item. [Footnote
reference omitted.]




19.
Paragraph 8 of FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, specifies the income statement classification of
gains and losses on extinguishment of debt:




Gains and
losses from extinguishment of debt that are included in the determination of net
income shall be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. [Footnote reference
omitted.]




Appendix C: BASIS FOR
CONCLUSIONS




20. An
Exposure Draft of a proposed Statement, Induced Conversions of Convertible
Debt,was issued on December 6, 1984. The Board received 59 responses to
the Exposure Draft, a majority of which agreed with its principal conclusions.
The following paragraphs discuss factors considered significant by the Board in
reaching the conclusions in this Statement. Individual Board members gave
greater weight to some factors than to others.




21. As
amended by Statement 76 but prior to amendment by this Statement, Opinion 26
required recognition of a gain or loss equal to the difference between the
reacquisition price and the carrying amount of debt when convertible debt was
converted to equity securities pursuant to terms different from the original
conversion privileges, including situations in which a debtor offered to give
additional consideration for the purpose of inducing prompt conversion. A few
respondents to the Exposure Draft recommended that that accounting should also
be applicable to induced conversions of convertible debt, stating that
conversions pursuant to terms different from the original conversion privileges
should be recognized based on the fair value of all securities issued. The Board
did not agree with those respondents for the reasons set forth in the paragraphs
that follow. Some of those respondents also questioned whether all conversions
of debt to equity securities, including conversions pursuant to the original
conversion privileges, should be recognized based on the fair value of all
securities issued. The Board did not address accounting for conversions in
general, noting that such a project would be a major undertaking and would delay
the issuance of this Statement.





22. Many
of those who urged the Board to address this issue and most respondents to the
Exposure Draft stated that they believe accounting for an induced conversion as
an extinguishment rather than as a conversion of debt does not faithfully
portray the substance of such a transaction. They stated that the payment of an
incentive to a debt holder could require recognition of a loss on extinguishment
that might exceed the value of the conversion incentive by a material amount.
The Board generally agreed that extinguishment accounting is not
representationally faithful for certain induced conversions of convertible debt
instruments. APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants,states that no portion of the
proceeds from the issuance of convertible debt should be accounted for as
attributable to the conversion feature. The amount recognized as a liability
relating to convertible debt represents an obligation either to pay a stated
amount of cash or to issue a stated number of shares of equity securities. The
Board believes that the nature of that obligation does not change if an
incentive is paid to a debt holder to induce the holder to exercise a right
already held. Therefore, this Statement requires no recognition of gain or loss
with respect to the shares issuable pursuant to the original conversion
privileges of the convertible debt when additional securities or assets are
transferred to a debt holder to induce prompt conversion of the debt to equity
securities.




23. In a
conversion pursuant to original conversion terms, debt is extinguished in
exchange for equity pursuant to a preexisting contract that is already
recognized in the financial statements, and no gain or loss is recognized upon
conversion. Unlike a conversion pursuant to original terms, in an induced
conversion transaction the enterprise issues securities or pays assets in excess
of those provided in the preexisting contract between the parties. The Board
believes that the enterprise incurs a cost when it gives up securities or assets
not pursuant to a previous obligation and that the cost of those securities or
assets should be recognized.




24. Some
respondents contended that the cost associated with a conversion inducement is a
cost of obtaining equity capital that should be recognized as a reduction of the
equity capital provided in the transaction. The Board did not agree, noting that
a conversion of debt to equity securities is a transaction that involves both
issuance of equity securities and extinguishment of debt securities. Although
the cost of issuing equity securities in a transaction to raise capital is
usually recorded as a reduction of the equity capital provided, transactions
that involve the issuance of equity securities for other purposes often require
recognition of expense. The Board believes that expense recognition is
appropriate in circumstances involving an induced conversion of convertible
securities because the transaction is not solely a capital-raising
transaction.




25. The
Board believes that an induced conversion transaction is also different from an
extinguishment of debt transaction as described in Opinion 26, in which any
preexisting contract between the debtor and the debt holder is effectively
voided and the debt is extinguished pursuant to newly negotiated terms. In those
circumstances, an extraordinary gain or loss is recognized equal to the
difference between the carrying amount of the debt extinguished and the fair
value of the securities or assets given. Some respondents stated that any
expense to be recognized under the provisions of the Exposure Draft similarly
should be reported as an extraordinary item. However, in an induced conversion,
the preexisting contract for conversion remains in effect and an inducement is
paid in an attempt to cause the conversion option to be exercised. Although the
Board believes that an enterprise should recognize the cost of an inducement
offer, that cost is different from the gain or loss that is recognized according
to the provisions of Opinion 26 for extinguishment transactions. Therefore, the
Board concluded that the cost of a conversion inducement, as defined in
paragraph 2 of this Statement, should not be reported as an extraordinary
item.




26. Some
respondents stated that no cost should be recognized on induced conversions of
convertible debt instruments. They recommended that the original and incremental
consideration be accounted for in the same manner as a conversion pursuant to
original conversion terms. They reasoned that changes in the number of shares
issuable to satisfy a preexisting obligation do not change the nature of that
obligation and also noted that gains and losses are not recognized by an
enterprise in certain types of transactions involving issuance of shares of
ownership.





27. When
a debtor induces a holder of its debt to act by transferring assets or by
issuing securities to the debt holder, the Board believes that an exchange has
taken place. In exchange for the assets or securities given up in excess of
those it was already committed to pay or issue, the enterprise receives
performance. In the absence of such consideration, the conversion would not have
occurred at that time. The Board believes that this type of an exchange of
consideration for performance is a transaction that should be recognized as a
cost of obtaining that performance.




28. Some
respondents disagreed with the accounting proposed in the Exposure Draft in
circumstances when conversion is induced on debt that is convertible into equity
securities whose market value is less than the conversion price. They stated
that such debt instruments are traded at amounts primarily attributable to the
interest and principal payments, and would account for an induced conversion of
such an instrument like an extinguishment of nonconvertible debt, recognizing a
gain. The Board disagrees with both the assertion about the security's trading
characteristics and the respondents' proposed accounting.




a. Even
though the equity securities issuable upon conversion have a market value less
than the conversion price, the market value of a convertible debt security may
not be primarily attributable to its debt characteristics if interest rate
levels have increased significantly since issuance, thereby reducing the market
value of those debt characteristics. Furthermore, the Board believes it is
impractical to attempt to determine on an even-handed basis whether a
convertible security is trading based primarily on its equity characteristics or
on its debt characteristics. The Board believes that the market value of all
convertible debt securities are simultaneously influenced by both interest rates
and stock prices, even though the relative influence of those factors varies.
The Board believes that it is inappropriate to require significantly different
accounting for a convertible debt security based on the perceived prominence of
only one of its characteristics.




b. The
Board notes that changes in either market interest rate levels or the market
value of the equity securities issuable upon conversion do not affect the
financial reporting of convertible debt securities. Even when convertible
securities are perceived as trading based primarily on their equity
characteristics, and even if exercise of the conversion privilege is considered
highly probable, they are classified as debt securities in the balance sheet,
the return to investors is reported as interest expense, and the difference
between carrying amount and cash paid to retire them is reported as gain or loss
from extinguishment of debt.




Thus, the
Board concluded that the use of different recognition or measurement principles
for induced conversions of convertible debt, based on the underlying market
value or trading characteristics of the convertible security, would be
inconsistent with existing accounting for other transactions involving
convertible securities. The Board further noted that, in all induced conversions
of convertible debt described herein, the debtor corporation gives debt holders
equity securities (or a combination of equity securities and other
consideration) whose total fair value exceeds the value of the securities it was
previously obligated to give upon conversion. The Board believes that a debtor's
election to induce conversion, causing additional value to be given up, should
result in recognition of the cost of that inducement and not in the recognition
of a gain that could result from extinguishment accounting.





29. The
Board is aware that some convertible debt instruments include provisions
allowing the debtor to alter terms of the debt to the benefit of debt holders in
a manner similar to transactions described in paragraph 2 of this Statement.
Such provisions may be general in nature, permitting the debtor or trustee to
take actions to protect the interests of the debt holders, or they may be
specific, for example, specifically authorizing the debtor to temporarily reduce
the conversion price for the purpose of inducing conversion. The Board concluded
that conversions pursuant to amended or altered conversion privileges on such
instruments, even though they are literally “provided in the terms of the debt
at issuance,“ should be included within the scope of this Statement. The Board
concluded that the substantive nature of the transaction should govern. The
Board believes that the existence of provisions in terms of the debt permitting
changes to the conversion privileges should not influence the
accounting.




30. The
Board also considered whether a change in conversion privileges of a convertible
debt instrument to induce prompt conversion should be recognized when the change
is made, that is, when the inducement is offered to debt holders. The Board
rejected that approach. Until the debt holder accepts the offer, no exchange has
been made between the debtor and the debt holder. The Board concluded that the
transaction should not be recognized until the inducement offer has been
accepted by the debt holder.




31. Some
respondents stated that the fair value of a change in conversion privileges
should be measured (but not recognized) as of the date the conversion inducement
is offered. They reasoned that the fair value of the conversion inducement at
the offer date is the basis for management's decision to make the offer and that
the value as of that date is the best measure of the consideration
paid.




32. The
Board did not adopt that approach. The Board believes that the transaction
should not be measured until the parties agree, that is, until the inducement
offer has been accepted by the debt holder. The Board notes that in many cases
the difference between the measurements of value of the inducement offer at the
offer date and the acceptance date will be minimal due to the normal structure
of conversion inducement offers and the requirement in paragraph 2 of this
Statement that the inducement be offered for a limited period of time. However,
in circumstances involving differences in values, the Board believes the fair
value as of the acceptance date is the appropriate measure because that is the
value of the inducement which presumably causes the transaction to
occur.




33. Some
respondents questioned the need for the requirement in paragraph 2(b) of the
Exposure Draft that the induced conversion “include the issuance of all of the
equity securities issuable pursuant to the original conversion privileges for
each debt instrument that is converted.” They noted that not all induced
conversions would necessarily meet this requirement and that it could lead to
significantly different accounting for substantially similar transactions. The
Board disagreed with those respondents, noting that a transaction that does not
include the issuance of all of the equity securities issuable pursuant to the
conversion privileges should not be characterized as a conversion transaction.
Therefore, paragraph 2(b) of this Statement requires that an induced conversion
include the issuance of all of the equity securities issuable pursuant to
conversion privileges included in the terms of the debt at issuance for each
debt instrument that is converted.




34. Some
respondents suggested that the final Statement specify a maximum time period
that could be considered a “limited period of time” for purposes of applying the
provisions of paragraph 2 of this Statement. The Board did not specify any time
period, noting that any period so specified would be arbitrary and that the
terms of conversion inducement offers may vary according to the circumstances.
This Statement applies to conversion inducements that are offered for a limited
period of time because inducements offered without a restrictive time limit on
their exercisability are not, by their structure, changes made to induce prompt
conversion.





35. Some
respondents urged the Board to address other issues relating to the issuance,
conversion, or reporting of convertible securities. The Board concluded that the
scope of the project should remain narrow to permit the Board to resolve the
primary issue at hand without unnecessary delay. This Statement does not change
the accounting for the original issuance of convertible debt instruments or the
accounting for changes in conversion privileges other than those described in
paragraph 2 of this Statement. The Board decided that this project should not
consider other issues relating to convertible securities.




36. Some
respondents stated that the effective date specified in the Exposure Draft
should be changed from transactions effected after March 31, 1985 to induced
conversions offered after March 31, 1985. They observed that some inducements
offered before March 31, 1985 may not be accepted until after that date and
stated that such transactions should not be affected by a standard that did not
apply at the time the offer was made. The Board agreed and modified the
effective date accordingly.




37. Some
respondents objected to the provisions of the Exposure Draft permitting, but not
requiring, retroactive application of its provisions. They said that past
financial statements properly reflect the accounting pronouncements in effect
when those statements were issued and that they do not believe that the issuance
of a new pronouncement should affect those statements. Other respondents urged
the Board to permit retroactive application of the provisions of this Statement,
noting that some induced conversions have already occurred and questions have
been raised about the way those transactions have been reported. The Board
concluded that permitting, but not requiring, retroactive application was an
appropriate practical solution. The Board also noted that such application was
expected to apply to relatively few companies.


1




The
scope of Opinion 26 was also amended by FASB Statement No. 76,Extinguishment of Debt.
Refer to paragraph 17 of this Statement.


2





For
purposes of this Statement, a conversion includes an exchange of a convertible
debt instrument for equity securities or a combination of equity securities and
other consideration, whether or not the exchange involves legal exercise of the
contractual conversion privileges included in terms of the debt.


a.





Face
      amount
                  
                  $
                  1,000÷
      New conversion price
                  
                  ÷ $20 per shareNumber
      of common shares issued upon conversion
                  
                  50
      shares×
      Price per common share
                  
                  × $40 per shareValue
      of securities issued
                  
                  $
                  2,000





b.





Face
      amount
                  
                  $
                  1,000÷
      Original conversion price
                  
                  ÷ $25 per shareNumber
      of common shares issuable pursuant to original conversion
      privileges
                  
                  40
      shares×
      Price per common share
                  
                  × $40 per shareValue
      of securities issuable pursuant to original conversion
      privileges
                  
                  $
                  1,600





a.





Face
      amount
                  
                  $
                  1,000÷
      New conversion price
                  
                  ÷ $20 per shareNumber
      of common shares issued upon conversion
                  
                  50
      shares×
      Price per common share
                  
                  × $12 per shareValue
      of securities issued
                  
                  $
                  600





b.





Face
      amount
                  
                  $
                  1,000÷ Original conversion
      price
                  
                  ÷ $25 per shareNumber
      of common shares issuable pursuant to original conversion
      privileges
                  
                  40
      shares×
      Price per common share
                  
                  × $12 per shareValue
      of securities issuable pursuant to original conversion
      privileges
                  
                  $
                  480





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