During the investment bubble of the late ‘90s when it seemed as if all investments always went up, issuers, investors, bankers, and attorneys did not spend a lot of time worrying about those long sections in the middle of the preferred stock or convertible note terms that govern the soporific topic of antidilution. Clients did not read them because they are too boring (after all, the lawyers read them), partners at law firms asked associates at law firms to read them (after all, it is good for the associates to work through the issues), and associates skimmed them (after all, they must be correct since they came from the last deal and someone else reviewed them then). All it takes is one down round to send everyone scurrying to read them. With the bursting of the bubble came more than one down round.
Another result of the hot equity market of the ’90s was the development of the market for so-called PIPE (private investment in public equity) transactions, in which a public company sells securities privately and registers the public resale of those securities by the investor. Many large public companies with active markets for their common equity and many smaller public companies with thin markets have engaged in PIPE transactions. Furthermore, because clear standards for antidilution provisions have evolved in the venture capital community, many attorneys have simply transferred these provisions into the public realm, where they may not be appropriate. Little systematic thought has been give to antidilution provisions in recent years. Some notable articles include Stephen I. Glover, Solving Dilution Problems, 51 Bus Law 1241 (1996); Stanley A. Kaplan, Piercing the Corporate Boilerplate: Anti-Dilution Clauses in Convertible Securities; 33 U. Chi. L. Rev. 1 (1965); David L. Ratner, Dilution and Anti-Dilution: A Reply to Professor Kaplan, 33 U. Chi. L. Rev. 494 (1966).
See Part 2 here.