In this ruling, the District Court rejected a demand to apply an anti-dilution price protection mechanism. The Court held that the anti-dilution provision was intended to prevent dilution of the investors' holdings as a result of capital raising activity as opposed to dilution as a result of option grants to employees or service providers.

The plaintiffs purchased shares of Wave Guard Technologies Ltd. (the "Company") pursuant to an investment agreement, which included a price protection anti-dilution provision. The provisions provided that if the Company were to offer shares and/or other securities, including convertible securities or options, during a set period after the execution of the investment agreement, at a price lower than the price paid by the plaintiffs, then the Company would issue additional shares to the plaintiffs in a quantity that would reflect such reduced price.

Three weeks after the execution of the investment agreement, the Company granted a director options to purchase shares at an exercise price that the plaintiffs alleged was lower than the price they paid for their shares. Thus, the plaintiffs demanded that the Company apply the anti-dilution protection mechanism.

The Court examined the wording of the anti-dilution section in the investment agreement. Despite the broad language in the agreement, which included protection upon the issuance of options, the Court found that this protection should be applied only in the case of a capital raising event and not in the case of option grants to employees or service providers. The Court based its ruling on the parties' e-mail correspondence during the negotiations of the investment agreement, which stated that the anti-dilution protection was intended to avoid dilution upon an investment, as well as on additional evidence. The Court also noted the defendants' argument that in investment agreements in the high-tech industry, anti-dilution protection mechanisms generally compensate shareholders only in investment situations and not in situations of option issuances as an incentive to employees or to service providers.

The Court ruled that the options were granted to a director as a Company service provider, and therefore, the anti-dilution protection in the investment agreement was not applicable.

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