Fundamental Transaction Adjustments in Warrants and Convertible Securities


Convertible debt and equity securities, such as preferred stock, convertible notes or debentures, and warrants, which we refer to collectively as “convertible securities,” are financial instruments with embedded derivatives. Generally, these securities contain antidilution adjustment provisions that are intended to protect the holder or the issuer from the occurrence of a number of events that could affect the value of the instruments. “Standard” antidilution provisions, including provisions related to stock options, stock dividends, and similar transactions, are found in virtually all such instruments. Other antidilution provisions provide adjustments in connection with mergers, acquisitions, other fundamental transactions, and down round financings. These are less common and may raise problematic accounting issues.

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