Pennsylvania Anti-Dilution Adjustments
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How to fill out Anti-Dilution Adjustments?
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FAQ
Anti-dilution clauses That is, in case shares are issued at a lower price than the price per share that was paid by the existing shareholder. This is achieved by granting such existing investors the right to receive additional shares (referred to here as ?anti-dilution shares'') for free in the course of a down round.
Full ratchet anti-dilution lowers the conversion price of the protected stock to the price paid in the down round. The new conversion price is then divided into the original issue price to arrive at the new conversion ratio.
In the venture capital and private equity context, a provision which protects an equity holder from dilution due to subsequent equity issuances (issued either directly or indirectly through options or convertible securities).
Exceptions to anti-dilution clauses These typically include shares issued pursuant to the exercise of share options or pursuant to warrants or other convertible instruments that are already outstanding on the issue date of the relevant convertible instruments.
?Definition? Anti-dilution provisions in a term sheet adjust the number of common shares into which preferred shares convert in the event of a down round or other stock dilution. The purpose of these provisions is to protect investors' stock ownership percentage in a company.
For example, with a conversion rate of $0.50, an investor with one preferred stock will end up with twice as many common shares upon conversion. The full ratchet anti-dilution provision is rare due to the burden placed on the company's founders and initial investors.
Anti-dilution provisions act as a buffer to protect investors against their equity ownership positions becoming diluted or less valuable. This can happen when the percentage of an owner's stake in a company decreases because of an increase in the total number of shares outstanding.
For example, with a conversion rate of $0.50, an investor with one preferred stock will end up with twice as many common shares upon conversion. The full ratchet anti-dilution provision is rare due to the burden placed on the company's founders and initial investors.
