PART 1 of this article detailed the anatomy of a standard antidilution provision for a venture capital investment in a privately held company. Part 2 of this article considers a variety of antidilution provisions—including some unusual ones, used under a variety of other circumstances and conditions—and recommends some changes to current practices. These include provisions for convertible securities issued by large public companies with well-established markets, provisions for below-market issuances, provisions for instruments issued by small public companies, floating rate instruments, stock options issued to employees and others, warrants, and fixed percentage provisions.
LARGE PUBLIC COMPANIES • When very large public companies with well-established and highly liquid markets issue convertible instruments, the antidilution protections for investors are often limited to events which affect the underlying common stock. These events include stock splits, dividends, and other distributions to the holders of common stock. These instruments typically contain provisions covering mergers and similar transactions. They do not usually provide any protection in the event of an issuance of additional shares of common stock to new investors (as opposed to existing stockholders) at below the exercise price; nor in the event of an issuance of additional shares of common stock to new investors (as opposed to existing stockholders) below market price.
See Part 1 here.