A convertible security (usually convertible bonds or convertible preferred stock) may be tendered at the option of the holder for shares of common stock in the issuing firm. In other words, the bonds or preferred stock may be converted to common stock.

When warrants are exercised, new shares are issued, or treasury stock the company has previously purchased is provided to the warrant holder. When convertibles are exercised:

-new capital is provided to the issuer.

-debt is replaced by common stock on the balance sheet.