Carrot-and-Stick Bond

It is a convertible bond that comes with a carrot-and-stick provision. Differently stated, its carrot provision provides for a low conversion premium to allure holders to exercise conversion earlier than usual (the carrot). The stick provision allows the issuer to call the bond at a specified premium if the common stock of the issuer is trading at a certain percentage above the conversion price (the stick). This structure combines both rewards and punishments and it is up to the holder to go either course as its investment policy dictates.