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SeeTree Systems Ltd Dispute: Shareholders Allege Underhanded Opportunism Led to Dilution of Their Holdings

The company’s minority shareholders are alleging the company’s management and controlling shareholders increased their holdings in breach of obligations to the minority shareholders and while discriminating against them. § The company completed its sixth funding round this year according to a valuation of USD 70 million.

The minority shareholders of the SeeTree startup, who, until recently, held 3.8% of the company’s shares, are alleging in a lawsuit they filed that their holdings were diluted by between 20% and 25%. This, they allege, deprived them of their rights, while the majority shareholders exceeded their authority and breached obligations to them.

Founded in 2017, SeeTree Systems Ltd. operates in the agrotech sector and provides an “agronomic intelligence network for trees.” SeeTree engages in the development and marketing of AI-based systems that monitor quality indicators and tree development in agricultural orchards, and also creates customized cultivation programs.

The plaintiffs consist of seven international shareholders, represented by Sharon Roded and Boaz Gershon. The defendants in the claim filed on December 14, 2021 with the Economic Department of the Tel Aviv District Court, include the company; the controlling shareholder IFC (the investment corporation of the World Bank); co-founder, CEO, and chairman of the board Israel Talpaz, co-founder and CTO Guy Morgenstern; and the directors Uri Levin, Pavel Romanovsky, and Ehud Levy.

The plaintiffs are petitioning for an order to rescind the resolution of SeeTree’s board of directors, passed during an extraordinary meeting of the shareholders at the end of October. That resolution called to grant options with immediate vesting to the founders for the purchase of shares of the company (and, as a result, to increase its pool of options) and to allot additional shares to some of the shareholders.

To quote the statement of claim: “These invalid and irregular actions, some of which are tainted with personal interest, were unlawfully approved by the company’s organs in an act of ultra vires and in breach of obligations to the company and its shareholders. The outcome is dilution of the plaintiffs’ holding ratio of the company’s shares by between 20% and 25%. This is the discrimination at the crux of the action.”

The lawsuit, filed through Advs. Eyal Nachshon and Shachar Rothschild of Barnea Jaffa Lande, claims that the option grant date was not coincidental. The statement of claims notes that pursuant to the investment agreement in the November 2020 funding round, temporary anti-dilution protection was granted to the controlling shareholder, IFC, in the event of an increase in the company’s pool of options, so that IFC’s holding ratio would not be affected.

According to the statement of claim, SeeTree has recruited about USD 47 million to date in six rounds. Its first funding round was in early 2017, according to a valuation of USD 5 million. IFC led the fifth funding round in 2020, during which about USD 21 million were raised, according to a valuation of USD 42 million. During the latest round in 2021, Hanaco Growth Fund invested USD 5 million according to a valuation of about USD 70 million.

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