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Issue of Convertible Security

In the case of issue of convertible security, promoters have an option to bring in their subscription by way of equity or subscription to the convertible security being offered so that their total contribution would not be less than the required minimum in cases of (i) par/premium issues by unlisted companies, (ii) offer for sale, (iii) issues/composite issues by listed companies and (iv) public issues at premium by infrastructure companies. However, if the conversion price is not determined and specified in the offer document and instead formula for conversion price is indicated, the promoters would not have the above option and should contribute by subscribing to the same instrument.

In the case of any issue of security convertible in stages, either at par or premium at the predetermined conversion price, the promoters contribution in terms of equity share capital would not be at a price lower than the weighted average (i.e number of shares arising out of conversion at various stages) price (i.e price of shares on conversion, taking into account the predetermined conversion price at various stages) of the share capital arising out of conversion. Their contribution should be computed on the basis of the post-issue capital assuming full conversion of such convertible security into equity. However, where the promoter contributes through the same optional convertible security as is being offered to the public, such contribution would be eligible as promoters contribution only if the promoter(s) undertakes in writing to accept full conversion.

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