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 ?
9) PIPE contracts use the lull ratchet antidilution provision, which gives existing investors the right to receive additional shares at the price of a new financing round at a lower valuation.
As for the federal antidilution cause of action, the Lanham Act's antidilution provision cannot be used against "[n]oncommercial use[s]," a category that may shelter parodies.
Despite the majority of states including antidilution provisions in their statutes, however, the application of these laws created problems.
While stock option grants generally contain antidilution provisions that explain how the exercise price and number of shares will be adjusted if the employer declares a stock dividend or stock split, most plans do not contain provisions for similar adjustments if an equity restructuring occurs.