When a convertible note or SAFE with a discount rate/conversion price discount (including a conversion price cap) is converted into equity, the resulting shares attributable to the discount are sometimes referred to as “discount shares.”

The discount shares may be the same class/series as the primary shares, or may be Common Stock or a shadow preferred stock. If the discount shares are the same type of shares issued in respect of the principal/face amount and not in respect of the discount, the shares will have the same rights, preferences and privileges as the other shares in the same class, including liquidation preference amounts, but because they are purchased at a discount the value of the shares will be higher than the amount paid.