What is anti-dilution provision?
Anti-dilution provisions are clauses built into convertible preferred stocks and some options to help shield investors from their investment potentially losing value. When new issues of a stock hit the market at a cheaper price than that paid by earlier investors in the same stock, then equity dilution can occur.
What is meant by the term anti-dilution give an example?
What is meant by the term antidilution? Give an example. Antidilution is an increase in earnings per share resulting from the assumption that convertible securities have been converted or that options and warrants have been exercised, or other shares have been issued upon the fulfillment of certain conditions.
Are anti-dilution provisions common?
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.
What is a pay to play provision?
​Definition​ A pay-to-play provision in a term sheet requires investors to participate, at the company’s request, in subsequent financing rounds on a pro rata basis. Early investors in biotechnology or life sciences companies need to be prepared to pony up cash in future financings and go the distance.
What is a ratchet bonus?
A ratchet is an anti-dilution protection mechanism whereby management’s equity stake may be altered on the happening of various future events. Ratchet is provided as an incentive to management, as they are given the opportunity to achieve additional economic compensation.
What is a key man provision?
A key man clause (or key person clause) says that when certain executives of an investment firm are absent, the firm cannot make any new investments until they replace them. Investments need constant watching. Therefore, it’s important for investment firms to always have someone in charge.