LeapRate Exclusive… LeapRate has learned from regulatory filings that binary options brokerage group EZTD Inc (OTCMKTS:EZTD) has received the second tranche of a $3 million equity investment made in the company by alternative investment firm Yorkville Advisors Global, LLC.
The second tranche consisted of $2.2 million. We had reported on the first $800,000 tranche invested in EZTrader at the beginning of January.
The $3 million overall investment represents just part of an $11 million investment commitment made to EZTrader from Yorkville Advisors. LeapRate had exclusively reported on the commitment made to EZTD by Yorkville in November.
EZTD operates binary options brands EZTrader (at website eztrader.com), Global Option (globaloption.com) and EZinvest (ezinvest.com). EZTD sustained large losses totaling more than $11 million in the first nine months of 2016, leading the company to continually need to raise more money to remain in business. In its latest financial report for Q3-2016, the company included a going concern doubt due to the company’s continued losses.
As we reported back in January, the investment from Yorkville comes with a series of conditions, among which we’d highlight:
- preventing CEO Shimon Citron from earning a bonus based on a percentage of client deposits, which has led to Mr. Citron earning a large annual bonus the past couple of years while the company posted large losses. Mr. Citron, who will continue to be paid an annual salary of $250,000, will now earn a bonus as a percentage of net income.
- requiring Mr. Citron to put another $500,000 of his own money into the company.
- preventing large ‘consulting’ contracts to be handed out to company insiders and directors, such as the $10,000 per month fee which has been paid to company director Ron Lubash.
Mountainside, NJ based Yorkville Advisors is a hedge fund manager run by Mark Angelo, specializing in PIPES, or ‘private investment in public equity’. The once high-flying Yorkville Advisors was charged with fraud in 2012 by the SEC. According to the SEC, Yorkville exaggerated the reported returns of hedge funds it managed in order to hide losses and increase the fees collected from investors.
EZTrader itself has had problems with the SEC, recently paying a $1.7 million fine for misleading investors about binary options profitability.
Full details of the investment tranche as filed with US regulators are as follows:
Item 1.01 – Entry into a Material Definitive Agreement
On February 3, 2017, EZTD Inc. (the “Company”) entered into a Securities Purchase Agreement (the “SPA”), effective as of January 26, 2017, by and between the Company and Compagnie Financiere St. Exupery SICAV-SIF (the “Investor”) for the purchase of 366,667 shares of the Company’s common stock (the “Shares”) at a purchase price of $6 per share, or an aggregate of $2,200,000 (the “Investment”). This Investment is the second tranche of an aggregate investment by the Investor of $3,000,000. The remaining $800,000 was received by the Company upon execution of the binding term sheet by and between the Company and the Investor, entered into on December 30, 2016, and pursuant to the terms of that certain Securities Purchase Agreement entered into on January 4, 2017 by and between the Company and the Investor.
The issuance of Shares under the SPA is subject to the following conditions:
- That the Company’s existing convertible debt holders (the “Convertible Debt Holders”) convert their convertible debt in the Company in the aggregate amount of $5,457,838.74 into shares of Common Stock at conversion prices ranging from $5.7234 to $7.00 per share. The convertible debt is in the process of being converted into shares of Common Stock.
- That the Investor be granted the right to designate two directors to the Company’s board of directors (the “Investor Directors”) and to each of the Company’s subsidiaries’ boards of directors. These designations are yet to be made.
- That the Convertible Debt Holders be granted the right to appoint an observer to participate in all meetings of the board of directors for the Company and any of its subsidiaries. Such appointed observer has no voting or other powers. This appointment is yet to be made.
- That certain directors of the Company comply with the respective commitments made by each, as follows:
- Among other commitments, pursuant to an independent contractor agreement by and between the Company and Shimon Citron, entered into on February 3, 2017 (the “Citron Independent Contractor Agreement”), Mr. Citron terminated any employment, consulting or service agreements currently in place and forfeited any credits toward the Company, its subsidiaries or related entities to which he was entitled directly or indirectly. The foregoing excludes credits due to him under his employment agreement with Win Global Markets (Israel) Ltd., dated as of October 1, 2013, and his consulting agreement with Citron Investments Ltd., dated as of September 23, 2008, and any accrued amounts due to him thereunder in connection with his base salary from the Company. The Citron Independent Contractor Agreement further provides that Mr. Citron shall continue as Chief Executive Officer and a director of the Company, receiving a monthly fee of $20,000, plus a bonus of 5% of the Company’s annual consolidated net income, paid quarterly. Separately, Mr. Citron shall also continue to serve as a director of Win Global Markets (Israel) Ltd., receiving a monthly fee of NIS30,000, pursuant to an Amended and Restated Personal Employment Agreement by and between Win Global Markets (Israel) Ltd. and Mr. Citron entered into on January 23, 2017. Due to the Company’s current financial situation and modified corporate focus, Mr. Citron is required, directly or indirectly, to acquire the shares of Winner Option Ltd. currently held by the Company, and Winner Option Ltd. has foregone any payments that it may be owed by the Company after December 31, 2016. Mr. Citron is also required to invest at least $500,000 in the Company at a price of $6.00 per share by June 30, 2017. In addition, any existing options issued to Mr. Citron directly or indirectly have been amended to have an exercise price of $6.00 per share.
- Among other commitments, Gustavo Perrotta and Ron Lubash have forfeited any credits toward the Company, its subsidiaries or related entities to which either was entitled directly or indirectly, and each shall continue to serve as a director of the Company until December 31, 2017 without compensation in connection with such service. Any existing options issued to Mr. Perrotta or Mr. Lubash directly or indirectly were amended to have an exercise price of $6.00 per share.
- In addition, the Company and Hamilton Venture Capital Ltd. mutually terminated the services agreement between them dated as of March 1, 2016, and Hamilton Venture Capital Ltd. forfeited any credits toward the Company to which it is currently entitled.
- That within 10 days of January 26, 2017, the Company’s by-laws shall be amended to: (i) require shareholder approval of annual accounts at the end of each fiscal year or before entering into any extraordinary transaction or transaction modifying the composition of the Company’s share capital; (ii) require a majority vote of all directors, including the affirmative vote of the Investor Directors, in the event of purchase of shares in other entities, mergers or acquisitions, incorporation of new subsidiaries or branches, entry into consulting agreements exceeding $25,000, or approval of the Company’s budget; and (iii) incorporate a provision that requires re-election of all of the Company’s directors in the event of any one director’s resignation or disqualification.
Item 3.02. – Unregistered Sales of Equity Securities
On February 3, 2017, the Company and the Investor closed on the Investment, as described further in Item 1.01, Entry into a Material Definitive Agreement, which description is incorporated herein.
The shares of Common Stock issued to the Investor pursuant to the SPA are exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and pursuant to Regulation S of the Securities Act to non-U.S. investors. The shares of Common Stock issued pursuant to the SPA have not been registered under the Securities Act and may not be sold in the United States absent registration or an exemption from registration.
Item 5.02. – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Effective as of February 3, 2017, the Company and Mr. Citron entered into the Citron Independent Contractor Agreement, as described further in Item 1.01, Entry into a Material Definitive Agreement, which description is incorporated herein.