When analyzing small-cap financings, many traders focus on dilution as the primary risk. But in reality, **it's often not the dilution itself that drives price action—it's the catalyst that triggers it. One of the most impactful catalysts? Conversion price adjustments tied to events like reverse splits or registration effectiveness.
In this post, we’ll break down where to find these adjustment clauses, how they work, and why traders need to track the timing, not just the dilution.
🔍 Where to Find Conversion Adjustment Clauses
These clauses are usually buried in exhibits attached to SEC filings, often within documents related to convertible notes or warrants. While platforms like AskEdgar surface many of these terms automatically, some deals are structured in ways that require a manual read—especially when they’re buried deep in legal language.
To locate these:
- Find the relevant dilution on the AskEdgar Dilution Tab, then click the link to the filing
- Open the relevant exhibit, usually labeled something like Form of Warrant or Form of Convertible Note (usually EX 4.1 or 4.2): https://app.askedgar.io/filing?ticker=NIVF&filingUrl=https%3A%2F%2Fwww.sec.gov/Archives/edgar/data/1981662/000121390024069887/ea0211518-6k_newgen.htm&formType=6-K
- Look for terms related to "adjustments", "share combination events", or "reset conditions"
⚙️ Real Example: Reverse Split Triggers a Reset
In a recent case we tracked, the company, $NIVF, executed a reverse stock split, triggering a clause that adjusted the conversion price of their convertible note. The clause stated that the new price would be based on the average of the five lowest VWAPs over the 16 days following the split.
- Original conversion price: $6.05
- Post-adjustment price: ~$2.50
At first, the note looked out of play—but after the adjustment, it was very much in play.
🗓 Additional Adjustment Dates Matter Too
These clauses can also contain future reset dates, such as when the registration statement becomes effective. In that scenario, the conversion price is often reset to match the market price at the time of effectiveness—giving holders an incentive to short the stock in advance.
This creates a situation where the stock is actively pushed lower not because of dilution, but because the lower price benefits the holders in the form of more favorable conversion terms.
🎯 It's the Catalyst That Drives the Move
What matters most isn’t the dilution itself—it’s when and how it's activated.
- Catalysts like reverse splits, effective registrations, or inducement deals give holders a reason to act.
- In many cases, holders will short the stock ahead of these events, pushing the price down before any shares are issued.
- This means traders should focus on the timing of the adjustment—not just the fact that dilution is possible.
💡 What About Warrants?
The same logic applies to warrant inducement deals. If a company:
- Needs cash
- Has done inducements before
- Has warrants that are near expiration or out of the money
…then there's a strong chance they’ll lower the exercise price and trigger the same setup. Again, it's not the actual dilution that matters—it’s the anticipation and shorting ahead of it that moves the stock.
✅ Final Takeaway
Dilution matters—but catalyst timing matters more. Whether it's a reverse split, an effective registration, or a warrant inducement, these are the events that give holders the green light to act. Understanding when these triggers occur—and what they mean for price action—can help you stay ahead of the move.
🎥 Watch the Full Walkthrough
Want to see how to find these adjustment clauses in real filings and what to look for in real-time setups? Watch the full video breakdown here:
👉 https://www.youtube.com/watch?v=4A6w9RC4poE