Civil Case (Tel Aviv) 46886-06-22 Netra Economic Consulting Ltd. v. Strix Drones Ltd.

1. I have before me a monetary claim whose value was estimated at more than half a million NIS; ILS 277,220 in cash and the balance in the defendant's securities. This demand is in respect of capital raising services provided by the plaintiff to the defendant.

Background and main points of the relevant facts that are not in dispute

2. The plaintiff, Netra Economic Consulting inTax Appeals (hereinafter also - "Netra"), is a private company that engages, inter alia, in economic consulting and locating investors for companies at various stages, investment funds and financial ventures seeking to raise capital. The plaintiff's manager is Mr. Zohar Tal (hereinafter - "Zohar").
3. The defendant, Strix Drones in a Tax Appeal (hereinafter also - the "Company"), is a start-up company that develops a universal docking system for drones that enables them to operate autonomously and extend the time to perform the mission. The defendant's manager is Mr. Niv Aharoni (hereinafter - "Niv").
4. On March 11, 2020, the plaintiff and the defendant entered into a "capital raising agreement" (hereinafter: the "Agreement"). The services were defined (in clause 1 of the agreement) as raising capital by locating an investor for the company; Promoting a transaction in a format acceptable to the company and assisting in negotiations with investors.  There is no dispute that according to the provisions of the agreement, the plaintiff was entitled to contact only potential investors that the company had approved in advance and in writing.  There is also no dispute that according to the terms of the agreement, only for an investment by an investor that the company has approved in advance and in writing, at its discretion, Netra is entitled to fees for its services.  The fees are determined in cash at the rate of 5% of the amount of the transaction or capital raising, together with a tax appeal and in addition to the allocation of options, in accordance with the mechanism set out in the agreement.
5. There is no dispute that after entering into the agreement, Netra acted to locate investors. The company examined investors who were offered and approved them according to its considerations.  One of the investors approved by the company (on March 12, 2020) was a venture capital fund called Pro-Seed.  Pro-Seed's CEO, Mr. Danny Weintraub (hereinafter - "Weintraub"), was invited and came to visit the company on May 18, 2020, and during this visit, its technology was presented.  On May 19, 2020, Zohar provided Weintraub with additional information about the company, and on May 27, 2020, a meeting was held with the participation of Zohar, Niv Weintraub.  However, on June 11, 2020, Weintraub announced on behalf of Pro-Seed: "We held a number of discussions and conducted tests.  We decided not to participate in the capital raising..."
6. On September 10, 2020, Zohar approached Niv in order to interest him in a fund called Unicorn, which had just gone public as a potential investor in the company, noting that Weintraub was a member of the investment committee there. Niv replied on September 13, 2020 that he was happy with the success of the IPO and provided updated details about the company.  Zohar passed the information to Weintraub that day, and later passed on additional income-producing information, at Weintraub's request.  On September 30, 2020, Zohar contacted Weintraub to find out if Unicorn was interested in considering investing in the company, and Weintraub replied: "They are looking into it, along with about 20 others...  I'll update." On October 19, 2020, Weintraub connected Zohar with Mr. Amit Green (hereinafter - "Amit"), CEO of the Unicorn Foundation, by email, and Amit wrote in response that he would be happy to "chat/schedule a Zoom".  On November 10, 2020, Zohar contacted Amit by e-mail and asked, among other things, "Have you had a conversation with Danny about Strix drones?" and in response to this, Amit wrote that same day shortly afterwards, "...  I went through the materials again, it seemed less interesting to me."

These facts are not in dispute as stated by the defendant in its summaries, and there is also no dispute that after Zohar received this notice from Amit, there were no further attempts by Netra to the matter or to persuade Unicorn to invest in the company.

7. Despite Amit's message to Zohar in which he rejected the possibility of investing in the company, Unicorn invested in the company not long afterwards. The investment agreement was signed in March 2021, but in January 2021, Unicorn reported to TASE that it intends to invest about $1.1 million in the company, and later announced an increase in the investment by $560,000.
8. The defendant's version - about which there is a dispute between the parties - is that this is an investment that has nothing to do with Netra's involvement, which yielded nothing. I will address the sequence of events that led to the investment as described by the defendant, but I will note that the defendant's version - which is backed up by many documents from real time - has not been contradicted, which shows that the sequence of events that led to the investment is not related to the plaintiff.

The provisions of the agreement and the interpretive dispute that arose between the parties

9. The main dispute that arose between the parties is whether a condition for the plaintiff's entitlement to legal fees is a causal connection between Netra's activity and the engagement in an investment transaction, as well as the nature of the causal connection to the extent required. According to Netra, it is sufficient that this is an investor that the company has approved in order for it to be entitled to fees in the event that an investment transaction has been concluded with that investor, even if it has no connection to the transaction that was formed, when at most it requires an initial contact with the investor regarding the company.  According to the defendant, on the other hand, the plaintiff's entitlement to legal fees is contingent on her actions leading to the formulation of a transaction.
10. As main support for its position, Netra refers to clause 8 of the agreement, which states that the company may contract with other similar entities to receive services, but it (Netra) will have "exclusivity with respect to any investor". The defendant, for its part, refers to the definition of the term "investor/business partner" that appears in clause 2 of the agreement, for which entitlement to legal fees arises, where, according to the definition, it refers to a person who "entered into a transaction with the company following the consultant's referral...".
11. In order to understand the interpretive dispute, we will turn our attention to the main provisions of the agreement [emphases in prominence in the original and those in the underline were added - L. C]:
12. Natra Economic Consulting inTax Appeal (hereinafter referred to as the "Consultant") will act to its best ability, within a period of 12 months from the date of signing this Agreement, which will be renewed from time to time with the prior written consent of the parties (hereinafter - the "Engagement Period") as follows:

• RAISE CAPITAL FOR STRIX DRONES IN TAX APPEAL (THE "COMPANY") THROUGH LOCATING AN INVESTOR FOR THE COMPANY.
• To promote an acquisition, merger, joint venture, license or other transaction that the Company and the consultant will agree to.
• To assist in negotiations with potential investors and/or business partners

(hereinafter - the "Services")

2. Regarding this Agreement:

• "Raising Capital": [...]
• "Company": [...]
• "Investor/Business Partner": An entity or entity included in the Appendix to this Agreement and approved in writing by the Company or added to the Appendix after the signing of the Agreement with the Company's written consent , and which invested in the Company and/or entered into a transaction with the Company following the referral of the consultant during the engagement period or during the additional period, as stated in Section 3 below. The company will have exclusive discretion regarding the approval of an entity or entity as an investor/business partner, as well as regarding the realization of a transaction with that investor/business partner.
• "Closing Date": [..]
• "Transaction": Capital raising, debt raising, acquisition, acquisition of assets or activity, merger, joint venture, exclusive license, or any other transaction between the Company and an investor/business partner.
• "Transaction Amount": All amounts and considerations on account of the capital raising or transaction actually received by the Company from the Investor/Business Partner at the Closing Date, as well as the amounts and considerations actually received by the Company from the Investor during a period of twenty-four (24) months from the Closing Date. Considerations that are transferred in cash will be assessed according to their fair value.

3. The consultant's fees will be as follows:

• Raising capital or transaction: An amount in cash equal to 5% of the amount raised/transaction. These amounts will be added from the tax appeal as a matter of law, and they will be paid no later than 7 business days from the date of transfer of the transaction amount to the company.
• [...]
• [...]
• The provisions of this section shall also apply in the case of a transaction with an investor/business partner, which was first executed within a period of twenty-four (24) months after the end of the engagement period (hereinafter the "Additional Period"). The Company shall notify the Consultant and report to him on an ongoing basis of all contacts and inquiries it has had, to or from it, with entities or persons related to the raising of capital or debt referred by the Consultant during the period of the engagement, and during the additional period.

[...]

8. The parties confirm that the consultant acts as an independent receiver for all intents and purposes and that there is not and will not be an employee-employer relationship between him and the Company, its employees and/or anyone on its behalf, with all that entails and derives therefrom. This agreement does not restrict the company from receiving similar services from another entity, but the advisor has exclusivity with respect to each investor.
9. Notwithstanding the provisions of Section 1 above, this Agreement may be terminated by either party upon written notice to the other party at least 14 days in advance. For the avoidance of doubt, it is clarified that the termination of the agreement does not detract from the company's obligation to pay the consultant, all as stated in clause 3.
10. After presenting the main points of the dispute and the provisions of the agreement, we will turn to a summary of the parties' arguments.

Summary of the plaintiff's arguments in the lawsuit

13. According to the plaintiff, the agreement stipulated that it would have exclusivity over any investor it located for the defendant. The defendant, according to her, approved the unicorn investor, and this was sufficient to entitle her to fees following the unicorn's investment in the company.  According to the plaintiff, clause 8 of the agreement is intended to prevent misunderstandings between the parties regarding the question of entitlement to consideration for the service of locating investors, in the sense that it was agreed that the company would be entitled to receive locating services from a third party as well, but the plaintiff would have exclusivity with respect to an investor that it located for the company, so that any transaction with that investor would entitle it to legal fees.  This is also evident from the provisions of the agreement that relate to her entitlement to fees for a period of two years after the end of the engagement period where a transaction was entered into (which the plaintiff calls the "tail period").
14. The plaintiff also argued that even if the defendant did not approve the unicorn fund, it was an approved investor by virtue of the defendant's approval of the Pro-Seed Fund as an investor. This is because ProSeed is held by the Landau and Rotloy family and 50% of the general partner in Unicorn is held by the Landau and Rotlevy stakeholders.
15. The plaintiff further claimed that the fact that the company negotiated with Unicorn for the purpose of making an investment without the plaintiff's update constitutes a breach of the agreement and even amounts to bad faith.
16. The remedy required in the lawsuit is to obligate the defendant to pay the sum of $83,000, which constitutes ILS 277,220 as of the date of filing the claim, plus linkage and interest differentials until the actual date of payment. In addition, the plaintiff petitions to oblige the defendant to provide it with warrants for the purchase of 1057 preferred shares of Seed at an exercise price of $26, warrants for the purchase of 476 preferred shares of Seed at an exercise price of $57, and warrants for the purchase of 213 preferred shares of Seed at an exercise price of $128.

Summary of the defendant's arguments in the statement of defense

17. According to the defendant, according to the agreement, the plaintiff will act to raise capital for the defendant and in return will be entitled to legal fees as detailed in the agreement. It was argued that a condition for the plaintiff's entitlement to legal fees, in accordance with the provisions of the agreement, is that the investment in the company is a result of the plaintiff's actions.  According to the claim, this condition is not fulfilled in the circumstances of the case when the plaintiff did not have "an arm and a leg in the investment".
18. According to the defendant, it approached, in accordance with its right under the agreement, to other entities for the purpose of raising capital and investing in the company, while the sequence of events that led to the investment of the unicorn fund in the company was, according to the claim, as follows:
19. The company contacted various parties in the economy to locate investors, including an investment banker - Mr. Victor Schimrich (in August 2020). Shimrich connected the company with Afcon, which examined the possibility of investing for a period of time and chose not to invest in the company.  However, Afcon's chairman, Israel Reif, wanted to examine an investment by a "group of friends" and therefore Maniv asked to meet with Mr. Shuki Abramovich (hereinafter - "Shuki"), who has experience in leading capital raising for start-ups.  Following Rife's connection between Shuki and Niv, on November 9, 2020, Niv met with Shuki, whom he had not known before.  The meeting and other examinations conducted by Shuki strengthened Shuki's opinion regarding the feasibility of investing in the company.

During the days following the meeting, Shuki approached a number of entities in the market and asked to recruit them for investment.  He also contacted the CEO of the Unicorn Amit Fund, which he has and Shuki has known for many years.  In response to this inquiry, Amit replied that he had been approached from several directions regarding the company and that after the examination, Unicorn was not interested in investing.  A few days later, Shuki contacted Green again and told him that he had conducted preliminary examinations and that the investment looked interesting, and asked Amit to join him in a meeting with the company and help him decide whether to invest in the company.  Green agreed to this request, and on November 17, 2020, a Zoom meeting was held, in which a Unicorn colleague and another director (Ronen Weisberg) participated, as well as Shuki and a number of people on his behalf.