Adjustment to exercise price clause: Copy, customize, and use instantly
Introduction
An adjustment to exercise price clause governs changes to the exercise price of options, warrants, or other equity instruments in response to corporate events such as stock splits, dividends, or mergers. This clause ensures fairness and maintains the economic value of the instrument for holders while accounting for changes in the underlying stock's value.
Below are templates for adjustment to exercise price clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Adjustment for stock splits or reverse stock splits
This variation applies when the exercise price adjusts due to stock splits or reverse stock splits.
In the event of a stock split or reverse stock split, the exercise price of the option shall be adjusted proportionately. For a stock split, the exercise price shall be divided by the same ratio as the split. For a reverse stock split, the exercise price shall be multiplied by the ratio of the reverse split. The number of shares issuable upon exercise shall also be adjusted proportionately.
Adjustment for stock dividends
This variation applies when the exercise price adjusts due to stock dividends.
If the Company issues a stock dividend, the exercise price of the option shall be adjusted to reflect the increased number of outstanding shares. The exercise price shall be reduced by multiplying it by a fraction, the numerator of which is the total number of shares outstanding before the stock dividend, and the denominator of which is the total number of shares outstanding after the stock dividend.
Adjustment for recapitalization
This variation applies to changes in the exercise price due to recapitalization events.
In the event of any recapitalization, reorganization, or similar transaction affecting the Company’s capital structure, the exercise price shall be equitably adjusted to ensure that the rights of the option holder are not diminished. The adjustment shall be determined in good faith by the Company’s board of directors.
Adjustment for mergers or acquisitions
This variation applies when the exercise price adjusts due to a merger or acquisition.
If the Company is involved in a merger, acquisition, or similar transaction, the exercise price of the option shall be adjusted to reflect the fair market value of the Company’s shares following the transaction. If the transaction results in the exchange of shares, the option holder shall be entitled to exercise the option for equivalent shares or other securities of the successor entity.
Adjustment for cash dividends
This variation applies to adjustments for cash dividends.
In the event that the Company declares a cash dividend, the exercise price of the option shall be reduced by the amount of the dividend per share. This adjustment ensures that the option holder’s economic position remains unaffected by the dividend distribution.
Anti-dilution adjustment clause
This variation applies to preventing dilution of option value due to new share issuance.
If the Company issues additional shares at a price lower than the current market value, the exercise price of the option shall be adjusted downward to account for the dilution. The adjusted exercise price shall be calculated using a weighted-average formula based on the number of new shares issued and their issuance price.
Adjustment for spin-offs
This variation applies to changes in the exercise price due to spin-offs.
In the event of a spin-off, the exercise price of the option shall be adjusted to account for the reduction in the Company’s value resulting from the spin-off. The adjustment shall reflect the relative value of the Company and the spun-off entity, as determined by the board of directors.
Adjustment for changes in par value
This variation applies when the par value of shares changes.
If the par value of the Company’s shares is altered, the exercise price of the option shall be adjusted to reflect such changes. The adjustment shall ensure that the relative value of the option remains unchanged and shall be calculated in good faith by the board of directors.
Adjustment for equity restructuring
This variation applies to major changes in the equity structure.
In the event of an equity restructuring, including but not limited to reclassifications, exchanges, or combinations of shares, the exercise price and number of shares issuable upon exercise shall be adjusted to maintain the economic value of the option as it existed prior to the restructuring.
Adjustment notification clause
This variation applies to requiring notice of any exercise price adjustments.
The Company shall provide written notice to the option holder within [time frame] of any adjustment to the exercise price, including a detailed explanation of the calculation and the reasons for the adjustment. The adjustment shall take effect on the date specified in the notice.
Adjustment for liquidation events
This variation applies to changes in the exercise price due to liquidation events.
In the event of a liquidation, dissolution, or winding up of the Company, the exercise price of the option shall be adjusted to reflect the distribution value per share. If the option is not exercised prior to the liquidation, it shall terminate immediately after the distribution.
Adjustment for rights offerings
This variation applies when rights offerings impact the exercise price.
If the Company conducts a rights offering to existing shareholders, the exercise price of the option shall be adjusted to account for the value of the rights issued. The adjustment shall be based on the fair market value of the rights at the time of issuance.
Adjustment for debt-to-equity conversions
This variation applies to adjustments resulting from debt-to-equity conversions.
If the Company converts outstanding debt into equity, the exercise price of the option shall be adjusted proportionately to reflect the dilution caused by the issuance of new shares. The adjustment shall be determined using a weighted-average calculation.
Adjustment for market price thresholds
This variation applies when adjustments are tied to market price thresholds.
If the market price of the Company’s shares exceeds or falls below a specified threshold for [time frame], the exercise price of the option shall be adjusted by [percentage or amount] to reflect the change. The threshold and adjustment parameters shall be defined in this agreement.
Adjustment for regulatory changes
This variation applies to exercise price changes due to regulatory requirements.
In the event that regulatory changes mandate an adjustment to the exercise price of the option, the Company shall make the necessary changes in compliance with such regulations. The adjustment shall be effective as of the date specified by the regulatory authority.
Adjustment for preferred stock conversion
This variation applies when preferred stock conversions affect the exercise price.
If the Company converts preferred stock into common stock, the exercise price of the option shall be adjusted to reflect the increase in the number of common shares. The adjustment shall ensure that the option holder’s economic position remains consistent.
Adjustment for extraordinary distributions
This variation applies to adjustments for extraordinary distributions.
If the Company declares an extraordinary distribution, such as a special dividend or non-cash distribution, the exercise price of the option shall be reduced by the value of the distribution per share. The adjustment shall be calculated and approved by the board of directors.
Adjustment for fractional shares
This variation applies to handling fractional shares in adjustments.
Any adjustment to the exercise price or number of shares issuable upon exercise that results in fractional shares shall be rounded to the nearest whole share. No cash compensation shall be provided for fractional shares unless expressly stated in this agreement.
Adjustment for fair market value disputes
This variation applies to resolving disputes over adjusted values.
If a dispute arises regarding the fair market value used to calculate an adjustment to the exercise price, the parties agree to engage an independent appraiser. The appraiser’s determination shall be final and binding, and the costs shall be shared equally by both parties.
Adjustment for share buybacks
This variation applies to share buybacks affecting the exercise price.
In the event that the Company conducts a share buyback, the exercise price of the option shall be adjusted to reflect the reduction in the number of outstanding shares. The adjustment shall maintain the relative value of the option as determined prior to the buyback.
Adjustment for bonus issues
This variation applies when the company issues bonus shares.
If the Company issues bonus shares to its shareholders, the exercise price of the option shall be adjusted downward to reflect the increased number of outstanding shares. The adjustment shall be proportional to the bonus shares issued relative to the existing shareholding structure.
Adjustment for employee stock option plans (ESOPs)
This variation applies when ESOP grants affect the exercise price.
In the event of new employee stock option plan issuances that significantly dilute shareholder equity, the exercise price of existing options shall be adjusted proportionally to maintain their original economic value. The adjustment shall be calculated based on the increase in total shares outstanding.
Adjustment for equity carve-outs
This variation applies to carve-outs of specific business units.
If the Company executes an equity carve-out for a subsidiary or business unit, the exercise price of the option shall be adjusted to account for the resulting decrease in the Company’s overall valuation. The adjustment shall be determined by the board of directors based on fair market value.
Adjustment for concurrent financings
This variation applies when financing rounds affect the exercise price.
If the Company raises additional equity financing during the term of the option, the exercise price shall be adjusted using a weighted-average formula to account for any dilution resulting from the issuance of new shares at a lower price.
Adjustment for internal reorganizations
This variation applies to internal restructuring events.
In the event of an internal reorganization that affects the Company’s equity structure, the exercise price of the option shall be adjusted to ensure consistency with the restructured shareholding arrangement. Any adjustments shall be approved by the board of directors.
Adjustment for special voting rights
This variation applies to changes in voting rights tied to shares.
If the Company alters the voting rights attached to its shares, the exercise price of the option shall be adjusted to reflect any premium or discount associated with such changes. The adjustment shall ensure that the relative economic value of the option is preserved.
Adjustment for changes in dividend policy
This variation applies when the Company modifies its dividend policy.
If the Company adopts a new dividend policy that significantly alters the expected yield on shares, the exercise price shall be adjusted to reflect the impact of this change on the share value. The adjustment formula shall be determined by the board of directors.
Adjustment for IPO events
This variation applies when the Company undergoes an initial public offering.
In the event of an initial public offering, the exercise price of the option shall be adjusted to reflect the public offering price of the shares. The adjustment shall ensure alignment with the valuation established in the IPO.
Adjustment for staggered vesting options
This variation applies to options with staggered vesting schedules.
For options subject to staggered vesting, the exercise price of each tranche shall be adjusted independently to reflect any changes in the underlying share value during the respective vesting periods. Adjustments shall be calculated in accordance with the terms of this agreement.
Adjustment for convertible securities issuance
This variation applies to adjustments resulting from convertible securities.
If the Company issues convertible securities, the exercise price of the option shall be adjusted to account for the potential dilution caused by the conversion of such securities into equity. The adjustment shall be based on the conversion terms and the resulting increase in share count.
Adjustment for forfeited shares
This variation applies when forfeited shares affect the exercise price.
In the event of share forfeitures due to employee departures or other reasons, the exercise price of the option shall be adjusted to reflect the reduction in outstanding shares. The adjustment shall maintain the original economic value of the option.
Adjustment for warrants issuance
This variation applies to adjustments caused by the issuance of warrants.
If the Company issues warrants that dilute existing equity, the exercise price of the option shall be adjusted using a weighted-average calculation. The adjustment shall account for the number of warrants issued and their exercise price.
Adjustment for regulatory capital requirements
This variation applies when regulatory capital adjustments impact the exercise price.
If the Company makes changes to its equity structure to meet regulatory capital requirements, the exercise price of the option shall be adjusted proportionally to reflect the resulting changes in share value. Adjustments shall comply with applicable regulatory guidelines.
Adjustment for partial redemptions
This variation applies to share redemptions that are not comprehensive.
If the Company redeems a portion of its outstanding shares, the exercise price of the option shall be adjusted to reflect the reduction in equity. The adjustment shall be based on the percentage of shares redeemed relative to total outstanding shares.
Adjustment for dual-class share structures
This variation applies to changes in dual-class share arrangements.
In the event of modifications to the Company’s dual-class share structure, including conversions or reclassifications, the exercise price of the option shall be adjusted to reflect the impact on the relative value of the underlying shares.
Adjustment for capital restructuring
This variation applies to comprehensive capital restructuring.
If the Company undergoes a capital restructuring, including debt-to-equity swaps or equity reorganizations, the exercise price of the option shall be adjusted to maintain the holder’s economic position. The adjustment shall be determined in good faith by the board of directors.
Adjustment for leveraged buyouts (LBOs)
This variation applies to equity adjustments following leveraged buyouts.
In the event of a leveraged buyout, the exercise price of the option shall be adjusted to reflect changes in the Company’s equity value resulting from the transaction. Adjustments shall be based on the terms of the LBO and approved by the board of directors.
Adjustment for treasury stock transactions
This variation applies to treasury stock purchases or sales.
If the Company engages in the purchase or sale of treasury stock, the exercise price of the option shall be adjusted to reflect the impact on the number of outstanding shares. The adjustment shall ensure no dilution or undue enhancement of the option’s value.
Adjustment for deferred equity grants
This variation applies to the issuance of deferred equity grants.
In the event that the Company issues deferred equity grants, the exercise price of the option shall be adjusted to account for the future dilution anticipated from these grants. Adjustments shall be calculated based on the vesting schedule and the number of shares granted.
Adjustment for international tax implications
This variation applies when international tax laws affect the exercise price.
If adjustments to the exercise price are required due to changes in international tax laws impacting the underlying equity, the Company shall make necessary adjustments to comply with such laws while preserving the holder’s economic position.
Adjustment for restricted stock unit (RSU) conversions
This variation applies when RSU conversions affect the exercise price.
If the Company converts restricted stock units (RSUs) into common shares, the exercise price of the option shall be adjusted to reflect the dilution caused by the conversion. The adjustment shall ensure the option holder’s relative economic value remains unaffected.
Adjustment for extraordinary corporate actions
This variation applies to rare or extraordinary events affecting equity.
In the event of an extraordinary corporate action, such as a spin-in, special asset sale, or other non-standard transaction, the exercise price of the option shall be adjusted to account for any material changes to the Company’s share value as determined by the board of directors.
Adjustment for convertible debt offerings
This variation applies to convertible debt impacting equity.
If the Company issues convertible debt instruments, the exercise price of the option shall be adjusted proportionately based on the potential equity dilution upon conversion of the debt into shares. The adjustment formula shall be determined by the terms of the offering.
Adjustment for contingent equity issuances
This variation applies to equity issued upon meeting performance milestones.
If the Company issues equity tied to the achievement of specific performance milestones, the exercise price of the option shall be adjusted to reflect the dilution caused by such issuances. The adjustment shall be calculated at the time the milestones are met.
Adjustment for share repurchase programs
This variation applies to share buybacks through repurchase programs.
In the event of a share repurchase program, the exercise price of the option shall be adjusted to reflect the reduction in outstanding shares. The adjustment shall maintain the economic parity of the option and ensure fair treatment of the holder.
Adjustment for statutory recapitalizations
This variation applies to adjustments mandated by law.
If the Company undergoes a recapitalization required by statutory provisions or legal rulings, the exercise price of the option shall be adjusted in accordance with applicable legal guidelines to preserve the option holder’s economic position.
Adjustment for cross-border mergers
This variation applies when international mergers affect equity.
In the event of a cross-border merger or acquisition involving the Company, the exercise price of the option shall be adjusted to reflect the equity terms of the merged entity. Adjustments shall be determined based on the exchange ratio specified in the merger agreement.
Adjustment for partial liquidations
This variation applies when the Company partially liquidates assets.
If the Company engages in a partial liquidation of assets that materially affects its equity value, the exercise price of the option shall be adjusted to reflect the resulting changes in share value. Adjustments shall be calculated by the board of directors or an independent appraiser.
Adjustment for clawback provisions
This variation applies to adjustments related to clawback mechanisms.
If a clawback provision is exercised that results in the return of shares to the Company, the exercise price of the option shall be adjusted to reflect the change in share count. The adjustment shall ensure fair treatment of all option holders.
Adjustment for early exercise rights
This variation applies to options exercised before their maturity.
If the option includes early exercise rights and the exercise occurs before any adjustments are made, the exercise price shall be retroactively adjusted to account for changes in the underlying equity value. Any overpayment shall be refunded to the option holder.
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