antidilution clause

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.