Question

1. Cite and explain the disclosure requirements for contingently convertible securities.

Answer 1

1. Disclosures of information about derivative instruments entered into in connection with the issuance of the contingently convertible securities may be useful in terms of fully explaining the potential impact of the contingently convertible securities.

2. That information might include the terms of those derivative instruments (including the terms of settlement), how those instruments relate to the contingently convertible securities, and the number of shares underlying the derivative instruments.

3. One example of a transaction entered into in connection with the issuance of a contingently convertible security is the purchase of a call option such that the terms of the purchased call option would be expected to substantially offset changes in value of the written call option embedded in the convertible security. Derivative instruments are also subject to disclosure information,

For contingently convertible securities, an issuer should provide additional disclosures, such as:

1. The nature of the contingency and the potential effect of conversion, including: o Events or changes in circumstances that would cause the contingency to be met.

2. Any significant features necessary for understanding the conversion rights and the timing of those rights (e.g., the periods in which the contingency might be met and the securities may be converted).

3. The conversion price.

4. The number of shares into which a security is potentially convertible.

5. Events or changes in circumstances that could trigger a change in the contingency, conversion price, or number of shares, including significant terms of those changes.

6.   The manner of settlement upon conversion (e.g., cash, shares, or a combination).

7.   Alternative settlement methods.

8. Whether the shares that would be issued upon a contingent conversion are included in the calculation of diluted EPS and the reasons why or why not.

An issuer should provide special disclosures about derivative instruments that it has executed in connection with the issuance of the contingently convertible securities, such as: •

1. The terms of those derivative instruments (including the terms of settlement).

2. How those instruments are related to the contingently convertible securities.

3. The number of shares underlying the derivative instruments.

An issuer should also consider other disclosure requirements that may apply to convertible instruments, such as those related to:

1. EPS .

2. The fair value of financial instruments

3. Embedded conversion options that are no longer bifurcated).

4. SEC registrants should consider any applicable disclosure requirements issued by the SEC