Antidilutive

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.

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antidilutive

Of or relating to the conversion of convertible securities into common stock when such conversion would result in an increase in diluted earnings per share or a decrease in diluted loss per share. For example, it is an antidilutive conversion if outstanding warrants are assumed to be exercised in order to acquire shares of common stock at a higher price than the market price of the stock. Such a conversion would result in an increase in diluted earnings per share. Conversions that would increase earnings per share or reduce loss per share are not generally used in calculating diluted earnings per share.