An anti-dilution clause will not ordinarily applied in the event of allotment of options to employees or officers

Investors invested about USD 540,000 in a technology company that develops technologies in the field of cellular monitoring and positioning. The investment was made on the basis of representations regarding the company's status and profit forecast, and they agreed inter alia, to a 12 months full-ratchet anti-dilution mechanism in any diluting allotment of shares or options. Shortly after the investment the company allotted options to a director at a significantly lower price and several months after the investment, the company's profit forecast plummeted by 80%.
The Court rejected the claim in the context of the breach of the anti-dilution mechanism and the misrepresentation and fraud, and held that the anti-dilution clause does not apply in the event of an allotment of options to employees, as this was intended to be anti-dilution only in the case of funds raising, as is customary in investment agreements in high-tech. A director of a company is a service provider and may therefore be part of the employee stock option plan. As to the contention that the forecasts were misleading, a forecast is an estimate of a future event that is based on real-time data and therefore will be a misrepresentation only if the data were false or the preparation of the forecast negligent. A change in forecasts that was not caused by an external exogenous event does not necessarily indicate a false representation.