LeapRate Exclusive… LeapRate has learned from regulatory filings that binary options brokerage group EZTD Inc (OTCMKTS:EZTD) has drawn down the first $3 million equity tranche from an $11 million investment commitment made to the company from alternative investment firm Yorkville Advisors Global, LLC.
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.
Shimon Citron, EZTrader CEO
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 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.
Of the $3 million, $800,000 was already received by EZTrader on December 30, 2016. The remaining $2,200,000 will be transferred once a formal Share Purchase Agreement is signed, and once certain conditions (see below) are met by EZTrader.
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.
Details of the investment
On December 30, 2016, EZTD Inc. (the “Company”) entered into a binding term sheet dated December 29, 2016 (the “Term Sheet”) for the purchase of $3,000,000 of the Company’s common stock (the “Investment”) by Compagnie Financiere St. Exupery SICAV-SIF (the “Investor”) at a purchase price of $6.00 per share. The Investor will pay the Investment in two tranches: upon execution of the Term Sheet, the Company received $800,000 (the “First Tranche”), and the Company will receive the remaining $2,200,000 (the “Second Tranche”) upon the execution of a Share Purchase Agreement between the Company and the Investor (the “Share Purchase Agreement”) which is subject to the satisfaction of certain specified conditions, as further described below and therein.
Pursuant to the Term Sheet, in consideration for its Investment, the Investor will receive an aggregate of 500,000 shares of the Company’s common stock (“Common Stock”). The Investor received 133,333 shares of Common Stock upon payment of the First Tranche, and will receive the remaining 366,667 shares of Common Stock upon the Investor’s payment of the Second Tranche.
The payment of the Second Tranche and execution of the Share Purchase Agreement are subject to the following conditions, in accordance with the Term Sheet:
- The Company’s existing convertible debt holders (the “Convertible Debt Holders”) shall 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 Investor shall 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.
- The Convertible Debt Holders shall 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 will have no voting or other powers.
- Certain directors of the Company shall comply with the respective commitments made by each, as follows:
- Among other commitments, Shimon Citron shall terminate any employment, consulting or service agreements currently in place and shall forfeit any credits toward the Company, its subsidiaries or related entities to which he is entitled directly or indirectly. The foregoing shall exclude 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. Mr. Citron shall continue as Chief Executive Officer of the Company, receiving a monthly fee of $21,150, plus a bonus of 5% of the Company’s annual consolidated net income, paid quarterly. Mr. Citron shall also continue to serve as a director of Win Global Markets (Israel) Ltd., receiving a monthly fee of NIS30,000. Mr. Citron shall be required, directly or indirectly, to acquire the shares of Winner Option Ltd. currently held by the Company, and Winner Option Ltd. shall forego any payments that it may be owed by the Company after December 31, 2016. Mr. Citron shall also be 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 shall be amended to have an exercise price of $6.00 per share.
- Among other commitments, Gustavo Perrotta and Ron Lubash shall each forfeit any credits toward the Company, its subsidiaries or related entities to which either is 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. Perotta or Mr. Lubash directly or indirectly shall be amended to have an exercise price of $6.00 per share.
- In addition, the Company and Hamilton Venture Capital Ltd. shall mutually terminate the services agreement between them dated as of March 1, 2016, and Hamilton Venture Capital Ltd. shall forfeit any credits toward the Company to which it is currently entitled.
- 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.