Dilution glossary

43 terms you meet on a DilutionScan ticker page and in the SEC filings behind it, each with a short definition, a worked example and links to the guides that use it.

A

At-the-market (ATM) offering: An at-the-market (ATM) offering is a program that lets a company sell newly issued shares into the open market at prevailing prices, a little at a time, through a sales agent.
Authorized shares: Authorized shares are the maximum number of shares a company's charter allows it to issue, a cap that shares outstanding plus shares reserved for warrants, convertibles and plans cannot exceed.

B

Baby shelf rule: The baby shelf rule (Form S-3 General Instruction I.B.6) caps companies with under $75 million of public float at selling one-third of that float in primary shelf offerings in any 12 months.

C

Cash runway: Cash runway is an estimate of how many months a company's cash could fund its operations at its recent rate of cash burn, before any new financing.
Cashless exercise: A cashless exercise is a way to exercise a warrant or option without paying cash, where the holder receives only the net number of shares whose value exceeds the exercise price.

D

Days to cover: Days to cover is short interest divided by average daily trading volume, a rough estimate of how many days of normal trading it would take short sellers to buy back their shares.
Death spiral: A death spiral is an informal name for a loop where conversions of a market-priced convertible add shares, the supply coincides with a lower price, and the lower price yields more shares.
Deficiency notice: A deficiency notice is an exchange letter telling a listed company it no longer meets a continued listing requirement, such as the $1.00 minimum bid price, and starts a compliance period.

E

Equity line of credit (ELOC): An equity line of credit (ELOC) is an agreement under which an investor commits to buy a company's new shares over time, at the company's request, at a price set by a formula tied to recent trading.

F

Floorless convertible: A floorless convertible is a convertible note or preferred stock whose conversion price can fall with the market price without any minimum, so a lower stock price means more shares on conversion.
Form 10-Q: A Form 10-Q is the quarterly report a US public company files for each of its first three fiscal quarters, with unaudited financial statements, due 40 or 45 days after quarter end.
Form 25: Form 25 is the SEC form filed to remove a class of securities from listing on a national securities exchange; the delisting takes effect 10 days after it is filed.
Form 4: Form 4 is the SEC filing that officers, directors and holders of more than 10% must make within two business days to report a change in their holdings of the company's securities.
Form 424B5 prospectus supplement: A 424B5 is a prospectus supplement filed under SEC Rule 424(b)(5) to document a specific offering made off an effective shelf, stating the securities sold, the price and the use of proceeds.
Form 8-K: A Form 8-K is the SEC current report a public company files, generally within four business days, to disclose material events such as agreements, offerings, executive changes and listing notices.
Form S-3: Form S-3 is the short-form SEC registration statement eligible reporting companies use for shelf offerings, letting them incorporate existing filings by reference and sell securities quickly.
Full ratchet: A full ratchet is the strongest price-reset protection, where a warrant or convertible's price drops all the way to the price of any later, cheaper issuance, however small that issuance is.

G

Going concern warning: A going concern warning is a disclosure of substantial doubt about a company's ability to keep operating and meet its obligations for one year after its financial statements are issued.

L

Leak-out agreement: A leak-out agreement is a contractual limit on how many shares a holder may sell per day or per period, often a percentage of daily trading volume, so a large block is not sold at once.
Limit Up-Limit Down (LULD): Limit Up-Limit Down (LULD) is the US market-wide rule that keeps each stock trading within price bands around a recent average and pauses trading for five minutes if a band is not restored.
Lockup agreement: A lockup agreement is a promise by insiders or investors not to sell or transfer their shares for a set period, commonly 90 to 180 days after an IPO or an offering.
Lookback period: A lookback period is the window of recent trading days a financing agreement looks back over to set a conversion or purchase price, such as the lowest VWAP in the prior ten trading days.

N

Non-affiliate float: Non-affiliate float is the shares, or their market value, held by anyone who is not an affiliate of the company; it is the SEC's float measure and includes restricted shares held by non-affiliates.

O

Ownership blocker: An ownership blocker is a clause that stops a holder from converting or exercising if doing so would push its beneficial ownership above a set limit, typically 4.99% or 9.99% of the common stock.

P

PIPE (private investment in public equity): A PIPE (private investment in public equity) is a private sale of unregistered shares, warrants or convertibles by a public company to selected investors, usually followed by a resale registration.
Placement agent: A placement agent is a broker-dealer hired to find investors for a company's offering on a best-efforts basis, paid a cash fee and often warrants, without committing to buy the securities.
Pre-funded warrant: A pre-funded warrant is a warrant sold for almost the full share price up front, leaving a nominal exercise price such as $0.0001, so a buyer can stay under ownership limits until it exercises.
Prepaid advance: A prepaid advance is a financing where an investor pays the company cash up front and is repaid mainly in newly issued shares, usually priced at a discount to recent trading.
Public float: Public float is the shares held by investors other than a company's officers, directors and controlling holders, or their market value; the SEC uses the dollar figure for form eligibility.

R

Ratchet (price reset provision): A ratchet is a clause that lowers a warrant's exercise price or a convertible's conversion price if the company later issues stock at a lower price, or if the stock trades below a set level.
Registered direct offering: A registered direct offering is a sale of new shares to a small group of investors, arranged by a placement agent off an effective shelf, so the shares are freely tradeable at closing.
Relative volume (RVOL): Relative volume (RVOL) is a stock's trading volume divided by its typical volume for the same period, so a reading of 3.0 means three times the usual activity.
Reverse stock split: A reverse stock split is a corporate action combining existing shares into fewer shares, cutting the share count and raising the per-share price by the same ratio; ownership percentages stay the same.
Rule 144: Rule 144 is the SEC safe harbor that lets holders publicly resell restricted or control securities without registration once conditions such as a holding period are met.

S

S-1 resale registration: An S-1 resale registration registers shares already issued or issuable to named investors so they can sell them publicly; the company itself usually receives no proceeds from those sales.
Selling shareholder: A selling shareholder is a holder named in a resale registration statement whose shares are being registered so that holder, not the company, can sell them publicly.
Shelf registration: A shelf registration is a registration statement, usually on Form S-3, that registers securities now so the company can sell them later in one or more offerings without a new registration each time.

T

Toxic financing: Toxic financing is market slang for financing structures, such as floorless or variable-price convertibles and aggressive price resets, whose share issuance grows as the stock price falls.
Trading halt: A trading halt is a temporary stop in trading of a security ordered by its listing exchange or the SEC, for example pending material news, to request information, or after a volatility pause.

V

Variable-price conversion: Variable-price conversion is a feature where the price at which a note or preferred converts into common stock resets to a formula based on recent trading prices, often at a discount.
VWAP discount: A VWAP discount is the percentage below a volume-weighted average price at which an investor buys or converts into shares under a financing, such as 97% of VWAP or 80% of the lowest VWAP.

W

Warrant inducement: A warrant inducement is a deal in which a company persuades warrant holders to exercise for cash now, usually by lowering the exercise price and issuing new warrants as a sweetener.
Warrant overhang: Warrant overhang is the block of shares that could be created if a company's outstanding warrants are exercised, potential dilution not yet in the shares outstanding figure.

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