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Anti-Dilution Provision

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Anti-Dilution Provision
In common and preferred stock, the right of a shareholder to maintain the same percentage of ownership in a company, should the company issue more stock. This protects the investor from devaluation of his/her shares if the company decides to hold a round of financing. In preferred stock, the anti-dilution provision also indicates the right of a shareholder to purchase more shares in a new round of financing at the offering price up to his/her previous percentage of ownership. Most U.S. states only allow the anti-dilution provision if it is made explicit in the corporation's charter.


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Note: since there would be an anti-dilution provision in the shareholders agreement, the anti-dilution provision would require waiver by the shareholders to proceed with the new issuance.
Alternatively, design the liquidation preferences to balance the interests of the investors and management or be prepared to renegotiate (read: eliminate) the full ratchet anti-dilution provisions upon a subsequent round of financing — which, of course, eviscerates the effect of those provisions.
The warrants to be issued to Haywood are expected to contain customary anti-dilution provisions in the event of certain corporate reorganizations or issuances of securities by Apollo to all its shareholders.
 
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