Contingent issuance definition
/What is a Contingent Issuance?
A contingent issuance refers to a possible issuance of common stock that will occur only if certain conditions have been satisfied. A business may set up a contingent issuance in order to make it more expensive for a hostile acquirer to buy it; thus, an event such as an offer to buy a majority of the shares outstanding will trigger the automatic issuance of more shares to existing shareholders , which the hostile acquirer must then purchase. Alternatively, the acquirer might agree to issue additional shares to the existing shareholders if the acquiree’s profits exceed a certain threshold level in the following year.
Examples of Contingent Issuances
There are several cases in which contingent issuances may be used. Here are several examples:
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Warrants . A business might issue warrants to a third party that gives it the right, but not the obligation, to purchase the firm’s shares at a specific exercise price, and within a certain date range. Warrants are sometimes given to investors as an inducement for them to purchase a company’s securities.
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Contingent convertible bonds . A business may issue bonds that can be converted into its common stock under conditions specified in the bond indenture agreement.
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Contingent share issuances . A business may issue additional shares to investors if certain predetermined conditions arise. For example, a firm might be required to issue additional shares if the market price of its stock does not exceed $20 by the end of the year.
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