antidilution clause

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Antidilution Clause

1. 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 clause 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 recognize the anti-dilution clause if it is made explicit in the corporation's charter.

2. In convertible securities, the right of a holder to maintain the same conversion ratio in the event of a stock split. For example, if a convertible bond may be exchanged for 100 shares of common stock and there is a 2-for-1 stock split, the same convertible bond can be exchanged for 200 shares. This protects the investor from devaluation of the conversion option.

antidilution clause

A stipulation of virtually every convertible security that requires an adjustment to the conversion terms in the event of certain occurrences, such as stock splits, stock dividends, and new stock issues, that would dilute the value of the conversion privilege. As an example, a bond convertible into 40 shares of stock would have its terms changed to conversion into 120 shares if the stock split 3 for 1.
References in periodicals archive ?
Our analysis suggests that PIPE contracts often include many of the same protections that are found in contracts between venture capitalists and private entrepreneurial companies including special dividend rights, antidilution rights, first refusal rights, and redemption rights (Kaplan and Stromberg, 2003).
In conjunction with the completion of the April 15, 2004 European offering and the subsequent sale of 950,000 shares of common stock to existing stockholders with contractual antidilution rights, their successors-in- interest and others, the Company's cash position now stands at approximately $35 million.
Pursuant to existing antidilution rights, the conversion price of the Series F, F-1 and F-2 preferred stock of VCampus automatically adjusted from $3.
Endorex Corporation (AMEX: DOR) announced that certain stock dividend and antidilution rights provided to investors in the Company's October 1997 Private Placement will terminate effective March 20, 2000.
35 million shares of its common stock, which includes 600,000 shares being offered in a non-underwritten offering to an institutional investor pursuant to certain antidilution rights and 350,000 shares offered by certain selling stockholders.