Anti-dilution adjustment

A formula that adjusts the price of a convertible security (such as convertible debt note) when it changes into another form of equity. The general purpose of the provision is to protect the holder of security against price dilution. In a “weighted average” formula adjusts the conversion rate using different variables including the number of shares involved with the dilutive issuance and the price of the dilutive issuance. The “ratchet” method reduces the conversion price to the price paid for the dilutive issuance, no matter how many shares were part of the dilutive issuance.

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