Certain adjustments: Overview, definition, and example
What are certain adjustments?
Certain adjustments refer to specific changes or modifications to contractual terms, calculations, or conditions that may occur under predefined circumstances. These adjustments are typically outlined in agreements to address contingencies such as changes in market conditions, regulatory requirements, or financial performance.
For example, a stock option agreement might include certain adjustments to the exercise price if the company undergoes a stock split or dividend distribution.
Why are certain adjustments important?
Certain adjustments are important because they ensure fairness and flexibility in contractual relationships, allowing the terms to adapt to unforeseen events or changes in circumstances. They help protect the interests of both parties by maintaining the intended balance of obligations and benefits.
For businesses, clearly defining certain adjustments reduces disputes, ensures compliance with regulatory requirements, and fosters transparency in financial and operational matters.
Understanding certain adjustments through an example
Imagine a convertible bond agreement where the conversion rate allows the bondholder to convert bonds into company shares. The agreement includes an adjustment clause stating that if the company issues additional shares at a price below the current market price, the conversion rate will be adjusted to prevent dilution of the bondholder’s equity.
In another example, a lease agreement includes a provision for adjustments to the rent based on changes in the consumer price index (CPI). If inflation increases significantly, the rent is adjusted upward to reflect the new economic conditions, ensuring the landlord’s income remains consistent.
An example of a certain adjustments clause
Here’s how a certain adjustments clause might look in a contract:
“In the event of a stock split, reverse stock split, stock dividend, or other similar corporate event affecting the Company’s common stock, the Exercise Price and the number of shares issuable upon exercise of this Warrant shall be adjusted proportionately to reflect such event. The Company shall provide written notice of any such adjustment to the Warrant Holder within [Insert Timeframe].”
Conclusion
Certain adjustments provide a mechanism for adapting contractual terms to changes in circumstances, ensuring fairness and preserving the intended balance of benefits and obligations. These clauses protect both parties from adverse effects of unforeseen events and foster trust and stability in contractual relationships.
By including detailed and clear certain adjustments provisions in agreements, businesses can reduce risks, promote transparency, and ensure the contract remains equitable and enforceable under evolving conditions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.