Understanding Antidilution in Economic Provisions

What is the purpose of antidilution provisions in the context of company financing?

Which term describes the difference between broad-based and narrow-based weighted average antidilution provisions?

What is the purpose of 'antidilution carve-outs' in company financing?

What is the main reason for including more exceptions in 'antidilution carve-outs'?

What does a broad-based weighted average provision encompass as part of its definition of common stock outstanding?

What is the purpose of the antidilution provision in investment agreements?

In a full ratchet antidilution scenario, what happens if the company issues shares at a price lower than the series with the full ratchet provision?

What is the most common antidilution provision based on?

When did full ratchets come into vogue?

What situation would lead to all previous round stock being repriced in a full ratchet world?

In a full ratchet antidilution scenario, what happens if the company issues shares at a price lower than the series with the full ratchet provision? The conversion price of the existing stock is ______.

The number of shares and how you count them matter; make sure you are agreeing on the same definition, since you’ll often find different lawyers arguing over what to include or not include in the ______.

Mathematically, it works as follows: where NCP = new conversion price OCP = old conversion price CSO = common stock outstanding CSP = common stock purchasable with consideration received by company (i.e., what the buyer should have bought if it hadn’t been a down round issuance) CSAP = common stock actually purchased in subsequent issuance (i.e., what the buyer actually bought) Note that despite the fact that one is buying preferred stock, the calculations are always done on an as-if-converted to common stock basis. The company is not issuing more shares; rather, it determines a new conversion price for the previous series of stock. Alternatively, the company can issue more shares, but we think this is a silly and unnecessarily complicated approach that merely increases the amount the lawyers can bill the company for the financing. Consequently, antidilution provisions usually generate a conversion price ______.

A narrow-based provision will not include these other convertible securities and will limit the calculation to only currently outstanding ______.

What makes the provision broad-based versus narrow-based is the definition of common stock outstanding (CSO). A broad-based weighted average provision encompasses both the company’s common stock outstanding (including all common stock issuable upon conversion of its preferred stock) as well as the number of shares of common stock that could be obtained by converting all other options, rights, and securities (including employee ______).

Full ratchet ______ means that if the company issues shares at a price lower than the price for the series with the full ratchet provision, then the earlier round price is effectively reduced to the price of the new issuance. One can get creative and do partial ratchets, such as half ratchets or two-thirds ratchets, which are less harsh but rarely seen. Full ratchets came into vogue in the 2001–2003 time frame when down rounds were all the rage, but the most common ______ provision is based on the weighted average concept, which takes into account the magnitude of the lower-priced issuance, not just the actual valuation. In a full ratchet world, if the company sold one share of its stock to someone for a price lower than the previous round, all of the previous round stock would be repriced to the new issuance price. In a weighted average world, the number of shares issued at the reduced price is considered in the repricing of the previous round.

Full ratchet antidilution means that if the company issues shares at a price lower than the price for the series with the full ratchet provision, then the earlier round price is effectively reduced to the price of the new issuance. One can get creative and do partial ratchets, such as half ratchets or two-thirds ratchets, which are less harsh but rarely seen. Full ratchets came into vogue in the 2001–2003 time frame when down rounds were all the rage, but the most common ______ provision is based on the weighted average concept, which takes into account the magnitude of the lower-priced issuance, not just the actual valuation. In a full ratchet world, if the company sold one share of its stock to someone for a price lower than the previous round, all of the previous round stock would be repriced to the new issuance price. In a weighted average world, the number of shares issued at the reduced price is considered in the repricing of the previous round.

Full ratchet antidilution means that if the company issues shares at a price lower than the price for the series with the full ratchet provision, then the earlier round price is effectively reduced to the price of the new issuance. One can get creative and do partial ratchets, such as half ratchets or two-thirds ratchets, which are less harsh but rarely seen. Full ratchets came into vogue in the 2001–2003 time frame when down rounds were all the rage, but the most common ______ provision is based on the weighted average concept, which takes into account the magnitude of the lower-priced issuance, not just the actual valuation. In a full ratchet world, if the company sold one share of its stock to someone for a price lower than the previous round, all of the previous round stock would be repriced to the new issuance price. In a weighted average world, the number of shares issued at the reduced price is considered in the repricing of the previous round.

Full ratchet ______ means that if the company issues shares at a price lower than the price for the series with the full ratchet provision, then the earlier round price is effectively reduced to the price of the new issuance. One can get creative and do partial ratchets, such as half ratchets or two-thirds ratchets, which are less harsh but rarely seen. Full ratchets came into vogue in the 2001–2003 time frame when down rounds were all the rage, but the most common ______ provision is based on the weighted average concept, which takes into account the magnitude of the lower-priced issuance, not just the actual valuation. In a full ratchet world, if the company sold one share of its stock to someone for a price lower than the previous round, all of the previous round stock would be repriced to the new issuance price. In a weighted average world, the number of shares issued at the reduced price is considered in the repricing of the previous round.

Full ratchet ______ means that if the company issues shares at a price lower than the price for the series with the full ratchet provision, then the earlier round price is effectively reduced to the price of the new issuance. One can get creative and do partial ratchets, such as half ratchets or two-thirds ratchets, which are less harsh but rarely seen. Full ratchets came into vogue in the 2001–2003 time frame when down rounds were all the rage, but the most common ______ provision is based on the weighted average concept, which takes into account the magnitude of the lower-priced issuance, not just the actual valuation. In a full ratchet world, if the company sold one share of its stock to someone for a price lower than the previous round, all of the previous round stock would be repriced to the new issuance price. In a weighted average world, the number of shares issued at the reduced price is considered in the repricing of the previous round.