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 ?
Additional warrants were granted in accordance with anti-dilution provisions following capital raisings undertaken by the Company.
60 per share and customary anti-dilution provisions.
Some CITs have anti-dilution provisions that require plan sponsors to pay to move assets in or out of a plan when it reaches a certain size, the paper noted.
35 for a period of five years from closing, and contains certain anti-dilution provisions.
01 per share, subject to anti-dilution adjustments, to Lazarus Energy Holdings LLC and pursuant to the anti-dilution provisions contained in the purchase and sale agreement, Blue Dolphin issued 32,896 shares of Common Stock to Lazarus Energy LLC.
In addition to studying Connie's comments, he did his own research on the concepts he found in the terms sheets, such as liquidity preference, redemption, anti-dilution provisions, exclusivity, and more.
It also carries discussion and examples of letters of intent for financing, due diligence requests, articles of incorporation for the venture-backed enterprise, anti-dilution provisions, the stock purchase agreement, investor rights agreements, co-sale agreements, warrants and other equity sweeteners, promissory notes, founders agreements, and closing opinion letters.
Companies should beware of anti-dilution provisions that provide for issuance of additional stock to existing shareholders at no cost.
Although most provisions of a typical term sheet are non-binding, founders should take the term sheet seriously because it serves as the blueprint for the entire deal, Founders should particularly focus on these provisions: (a) valuation of the investment (while founders and investors will rarely agree on valuation, there are creative methods in which to bridge this gap); (b) liquidation preferences and anti-dilution provisions which, if not properly addressed, could effectively leave the founders with very little equity; (c) investor voting rights; and (d) binding exclusivity provisions which, if not limited appropriately, could effectively hinder the company from obtaining capital from other sources.
In conjunction, the company has received approval from holders of a majority of the warrants subject to the offering to amend those warrants in order to remove the price-based anti-dilution provisions contained therein.

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