Exhibit 3.1
As confidentially submitted to the Securities and Exchange Commission on February 12, 2020
This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.
Registration No. [*]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CREATIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 52390 | 84-2054332 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
c/o Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 37th Floor
New York, NY 10036
212-930-9700
(Address, including zip code and telephone number, including
area code, of registrant’s principal executive offices)
[*]
(Name, address, including zip code and telephone number, including area code, of agent for service)
Copies to:
Arthur S. Marcus, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 37th Floor New York, NY 10036 212-930-9700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | Smaller reporting company [X] | |
| Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Aggregate Offering Price Per Share | Proposed Maximum Aggregate Offering Price(1)(2) | Amount
of Registration Fee | ||||||||||||
| Shares of common stock, par value $0.001 | 1,558,639 | $ | 1.50 | $ | 2,337,958.50 | $ | 303.47 | |||||||||
| Common stock underlying Warrants | 1,558,639 | $ | 1.50 | $ | 2,337,958.50 | $ | 303.47 | |||||||||
| Total | 3,117,278 | $ | 1.50 | $ | 4,675,916.00 | $ | 606.93 | |||||||||
| (1) | Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”). |
| (2) | Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statement relating to these securities filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED __, 2020 |
3,117,278 Shares of Common Stock
Creations, Inc.
This prospectus relates to the resale of up to 3,117,278 shares of our common stock, par value $.001 per share of which 1,558,639 are shares issuable upon exercise of warrants (the “Warrant Shares”) that we have issued.(the shares of common stock and the Warrant Shares are collectively referred to as the “Securities”) by the selling stockholders named in this prospectus (the “Selling Stockholders”).
Unlike an initial public offering, the resale by the Selling Stockholders is not being underwritten by any investment bank. The Selling Stockholders may, or may not, elect to sell their Securities covered by this prospectus, as and to the extent they may determine. The Securities offered by the Selling Stockholders will be sold at a fixed price of $1.50 per share until our shares of common stock are quoted on the OTCQB and thereafter at prevailing market prices or privately negotiated prices. This price was arbitrarily determined by the Company. The Selling Stockholders will receive all of the net proceeds from the offering of their Securities.
The Selling Stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock. We agree to pay the expenses of registering the Securities; these expenses are estimated to be $50,000.
Shares may be sold by the Selling Stockholders to or through underwriters or dealers, directly to purchasers or through agents designated from time to time. For additional information regarding the methods of sale you should refer to the section entitled “Plan of Distribution” in this Prospectus.
Investing in our Securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 4 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is February __, 2020
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus, as supplemented and amended. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor any of the underwriters are making an offer to sell or seeking offers to buy these securities in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information contained or incorporated by reference in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of securities, and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.
For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”
We urge you to read this prospectus carefully, as supplemented and amended, before deciding whether to invest in any of the common stock being offered.
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This summary highlights certain information about us and this offering contained elsewhere in this prospectus and in the documents incorporated by reference herein. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our securities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus and in the documents incorporated by reference herein. Before you decide to invest in our securities, you should read the entire prospectus carefully, including “Risk Factors” beginning on page 4, and the financial statements and related notes incorporated by reference in this prospectus.
Unless the context otherwise requires, references to “we,” “our,” “us,” the “Company,” and “Creations” in this Prospectus mean Creations, Inc.., a Delaware corporation, and our subsidiaries, Yetsira Holdings Ltd. and Yetsira Investment House Ltd., where appropriate, on a consolidated basis.
Company Overview
Creations, Inc. was incorporated in May 2019. On July 1, 2019, Creations, Inc, acquired a 100% interest in Yetsira Holdings Ltd., though a share swap agreement. Yetsira Holdings is an Israeli Corporation incorporated in December 2017 which in turn owns 100% of Yetsira Investment House (“Yetsira”), our operating entity, which was incorporated in November 2018.
Through our wholly owned subsidiary, Yetsira Investment House, we operate as a portfolio manager, licensed by the Israel Securities Authority (“ISA”). Yetsira currently offers and manages five mutual funds with approximately $50,000,000 in assets, currently under management (“AUM”). While Yetsira’s core-business is the external management of Israeli mutual funds, the ISA license allows Yetsira to manage traditional private investment portfolios and IRA accounts, as well as other things, including the ability to initiate exchange traded funds.
We generate revenue primarily from management fees paid by our unitholders, which fees are based upon a certain percentage of their assets in the funds. Our expenses are mainly comprised of payments of distribution commissions to banks, thirty-party platform user fees, salary commissions and expenses, and commissions to the ISA and the Israeli Stock Exchange. We conduct our business exclusively through Yetsira and exercise effective control over the operations of Yetsira pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.
Our continued focus is on our core business of mutual fund management, while increasing our number of managed funds. Part of our growth depends on the strength of our brand, which the Company intends to strengthen by increasing our exposure to the general public, especially to the investment advisors in the banks, which constitute the main channel for funds distribution in Israel. We also plan to increase public relations activities and advertising. Furthermore, in 2020, we expect to examine possibilities for integrating technological means in our services, mainly in our private portfolio management service. We also continue to examine the expansion of our areas of activity, through cooperation, locating synergistic opportunities for our existing areas of activity and establishing additional parallel investment opportunities. In addition, we may pursue the acquisition of other unrelated businesses in the financial sector; particularly, where we believe that they can grow their business by expanding and upgrading their use of technology. We have no agreements currently in place to acquire any other entity.
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Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These reduced reporting requirements include:
| ● | an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting; | |
| ● | an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
| ● | an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; | |
| ● | extended transition periods for complying with new or revised accounting standards; | |
| ● | being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in addition to any required unaudited interim financial statements in this prospectus; and | |
| ● | reduced disclosures regarding executive compensation in our periodic reports, proxy statements and registration statements, including in this prospectus; |
We will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (ii) the end of the first fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act; (iii) the date on which we have, during the previous three-year period, issued more than $1.00 billion in non-convertible debt securities; and (iv) the end of the fiscal year during which the fifth anniversary of this offering occurs. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We currently intend to take advantage of the exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
We are also a “smaller reporting company,” as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until our public float exceeds $75 million on the last day of our second fiscal quarter in the preceding fiscal year.
Corporate Information
Creations, Inc., a Delaware corporation, was incorporated in May 2019. On July 1, 2019, Creations, Inc. acquired a 100% interest in Yetsira Holdings LTD, an Israeli corporation (‘Yetsira Holdings”), through a share swap agreement. Yetsira Holdings was incorporated in December 2017 and is the parent company of Yetsira, our operating entity, which was incorporated in November 2016.. Our principal executive offices are located at Arieh Shenkar St 1, Herzliya Our telephone number is +972 99707054. We maintain an address c/o of our U.S. counsel at Sichenzia Ross Ference LLP, 1185 Avenue of the Americas, New York, NY 10036. Our corporate website is creationsfin.com. The information on our website is not a part of, or incorporated, in this prospectus.
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The following summary of the offering contains basic information about the offering of stock and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of our common stock and warrants, please refer to the section of this prospectus entitled “Description of Capital Stock.”
| Securities offered by us | 3,117,278 shares of common stock which includes 1,558,639 shares issuable upon exercise of warrants to purchase up to 1,558,639 shares of common stock. The warrants are exercisable immediately, have an exercise price of $1.00 per share, and expire three years from the date of issuance. |
| Initial offering price | The Selling Stockholders will sell our shares at a fixed price of $1.50 per share until our shares are quoted on the OTCQB, and thereafter at prevailing market prices or privately negotiated prices. This price was arbitrarily determined by the Company.
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| Terms of the Offering | The Selling Stockholders will determine when and how they will sell the common stock offered in this prospectus. See “Plan of Distribution”. |
| Use of proceeds | We will not receive any proceeds from the sale of the shares of common stock by the Selling Stockholders, although we would receive any cash proceeds from the exercise of the warrants. |
| Risk factors | An investment in our securities involves significant risks. See the section entitled “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities. |
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Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our securities. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our securities to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
Risks Related to Our Company and Business
We may not be able to continue to grow at our historical rate of growth, and if we fail to manage our growth effectively, our business may be materially and adversely affected.
We commenced our business in 2016 and have experienced a period of growth in recent years. Our revenues grew at a compound annual growth rate, or CAGR, of 7010% from 2017 to 2018. We anticipate continuing growth in the foreseeable future. However, we cannot assure you that we will grow at our historical rate of growth. Our growth has placed, and will continue to place, a significant strain on our management, personnel, systems and resources. To accommodate our growth, we may need to establish additional branch offices, including in new cities and regions where we have no previous presence, recruit, train, manage and motivate relationship managers, experienced investment professionals and other employees and manage our relationships with an increasing number of registered clients. Moreover, as we introduce new products and services or enter into new markets, we may face unfamiliar market, technological and operational risks and challenges which we may fail to successfully address. We may be unable to manage our growth effectively, which could have a material adverse effect on our business.
Our reputation and brand recognition is crucial to our business. Any harm to our reputation or failure to enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.
Our reputation and brand recognition, which depend on earning and maintaining the trust and confidence of individuals, enterprises or institutions that are current or potential clients, is critical to our business. Our reputation and brand recognition are vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by clients or other third parties, employee misconduct, misconduct or allegations of misconduct by the managers of third-party funds that we distribute, perceptions of conflicts of interest and rumors, among other things, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of the wealth management products we distribute or the asset management or internet financial services we provide may not be the same as or better than that of other advisory firms, product distributors or internet financial service providers can also damage our reputation. Moreover, any misconduct or allegations of misconduct by managers of third-party funds that we distribute could result in negative media publicity that could affect our reputation and erode the confidence of our clients. Furthermore, any negative media publicity about the financial service industry in general or product or service quality problems of other firms in the industry, including our competitors, may also negatively impact our reputation and brand recognition. If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain clients, wealth management product providers and key employees could be harmed and, as a result, our business and revenues would be materially and adversely affected.
The determination of the investment portfolio under asset management and the amount to be invested in certain investments is subject to management’s evaluation and judgment. Poor investment portfolio performance may lead to a decrease in AUM and reduce revenues from and the profitability of our asset management business.
The determination of the investment portfolio under asset management and the investment amount varies by investment type and is based upon our periodic evaluation and assessment of inherent and known risks associated with the respective asset class. As a majority of our revenues from our asset management business comes fees, which are typically based on a percentage of assets under management, our fees will be negatively impacted if our management’s judgment is incorrect and the investment portfolio does not generate cumulative performance that surpasses the relevant target thresholds or if a fund experiences losses. Poor investment portfolio performance, either as a result of downturns in the market or economic conditions, including but not limited to changes in interest rates, inflation, terrorism, political uncertainty, our investment style and the particular investments that we make, may result in a decline in our revenues and income by causing some or all of our funds’ rating from financial institutions, which in part is based on performance, to be negatively impacted which may result in the perceived value of such funds and therefore decrease the amount of assets under management. To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our asset management business will likely be reduced and our ability to grow existing funds and raise new funds in the future will likely be impaired.
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Some of our asset management clients may redeem their investments from time to time, which could reduce our asset management fee revenues.
If the return on the assets under our management does not meet investors’ expectations, investors may elect to redeem their investments and invest their assets elsewhere, including with our competitors. Our recurring service fee revenues correlate directly to the amount of our AUM; therefore, redemptions may cause our recurring service fee revenues to decrease. Investors may decide to reallocate their capital away from us and to other asset managers for a number of reasons, including poor relative investment performance, changes in prevailing interest rates which make other investment options more attractive, changes in investor perception regarding our focus or alignment of interest, dissatisfaction with, changes in or a broadening of a fund’s investment strategy, changes in our reputation, and departures of, or changes in responsibilities of, key investment professionals. For these and other reasons, the pace of investor redemptions and the corresponding reduction in our AUM could accelerate. In addition, redemptions could ultimately require us to liquidate assets under unfavorable circumstances, which would further harm our reputation and results of operations.
Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global or Israeli economy could materially and adversely affect our business, financial condition and results of operations.
Any prolonged slowdown in the global or Israeli economy may have a negative impact on our business, results of operations and financial condition, and continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet potential liquidity needs.
Economic conditions in Israel are sensitive to global economic conditions. Since we derive the majority of our revenues from our operations in Israel, our business and prospects may be affected by economic conditions or changes in the financial markets in Israel. Our revenues ultimately depend on the appetite of high net worth individuals to invest in the products we distribute or manage, which in turn depend on their level of disposable income, perceived future earnings and willingness to invest. We may have difficulty expanding our client base fast enough, or at all, to offset the impact of decreased spending by our existing clients. Any prolonged slowdown in the global or Israel’s economy may lead to reduced investment in the products we distribute or manage, which could materially and adversely affect our financial condition and results of operations.
Volatility and disruption of the capital and credit markets, and adverse changes in the global economy, may significantly affect our results of operations and may put pressure on our financial results.
The capital and credit markets may experience volatility and disruption worldwide. Declines in global financial market conditions may result in significant decreases in our AUM, revenues and income, and future declines may further negatively impact our financial results. Such declines may have an adverse impact on our results of operations. We may need to modify our business, strategies or operations and we may be subject to additional constraints or costs in order to compete in a changing global economy and business environment.
Our reputation could suffer if we are unable to deliver consistent, competitive investment performance.
Our business is based on the trust and confidence of our clients. Damage to our reputation, resulting from poor or inconsistent investment performance, among other factors, can reduce substantially our AUM and impair our ability to maintain or grow our business.
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Maintaining adequate liquidity for our general business needs depends on certain factors, including operating cash flows and our access to credit on reasonable terms.
Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow AUM and other factors beyond our control. Our ability to issue public or private debt on reasonable terms may be limited by adverse market conditions, our profitability, our creditworthiness as perceived by lenders and changes in government regulations, including tax rates and interest rates. Furthermore, our access to credit on reasonable terms is partially dependent on our firm’s credit ratings.
Future changes in our credit ratings are possible and any downgrade to our ratings is likely to increase our borrowing costs and limit our access to the capital markets. If this occurs, we may be forced to incur unanticipated costs or revise our strategic plans, which could have a material adverse effect on our financial condition, results of operations and business prospects.
We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could put pressure on our adjusted operating margin.
Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment, managerial and executive personnel and there is no assurance that we will be able to do so.
The market for these professionals is extremely competitive and is characterized by their frequent movement among different firms. Also, they often maintain strong, personal relationships with investors in our products and other members of the business community so their departure may cause us to lose client accounts or result in fewer opportunities to win new business, either of which factors could have a material adverse effect on our results of operations and business prospects.
Additionally, a decline in revenues may limit our ability to pay our employees at competitive levels, and maintaining (or increasing) compensation without a revenue increase, in order to retain key personnel, may adversely affect our adjusted operating margin. As a result, we remain vigilant about aligning our cost structure (including headcount) with our revenue base.
We may engage in strategic transactions that could pose risks.
As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, consolidations, joint ventures and similar transactions, some of which may be material. These transactions, if undertaken, may involve a number of risks and present financial, managerial and operational challenges, including:
| ● | adverse effects on our earnings if acquired intangible assets or goodwill become impaired; |
| ● | existence of unknown liabilities or contingencies that arise after closing; and |
| ● | potential disputes with counterparties. |
Acquisitions also pose the risk that any business we acquire may lose customers or employees or could underperform relative to expectations. Additionally, the loss of investment personnel poses the risk that we may lose the AUM we expected to manage, which could adversely affect our results of operations. Furthermore, strategic transactions may require us to increase our leverage or, if we issue capital stock to fund an acquisition, would dilute the holdings of our existing shareholders.
We may not accurately value the securities we hold on behalf of our clients or our company investments.
In accordance with applicable regulatory requirements, contractual obligations or client direction, we employ procedures for the pricing and valuation of securities and other positions held in client accounts or for company investments. Extraordinary volatility in financial markets, significant liquidity constraints or our failure to adequately consider one or more factors when determining the fair value of a security based on information with limited market observability could result in our failing to properly value securities we hold for our clients or investments accounted for on our balance sheet. Improper valuation likely would result in our basing fee calculations on inaccurate AUM figures, our striking incorrect net asset values for company-sponsored mutual funds or hedge funds or, in the case of company investments, our inaccurately calculating and reporting our financial condition and operating results. Although the overall percentage of our AUM that we fair value based on information with limited market observability is not significant, inaccurate fair value determinations can harm our clients, create regulatory issues and damage our reputation.
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The quantitative models we use in certain of our investment services may contain errors, resulting in imprecise risk assessments and unintended output.
We use quantitative models in a variety of our investment services, generally in combination with fundamental research. These models are developed by senior quantitative professionals and typically are implemented by IT professionals. However, due to the complexity and large data dependency of such models, it is possible that errors in the models could exist and our controls could fail to detect such errors. Failure to detect errors could result in client losses and reputational damage.
Unpredictable events, including natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business.
War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious diseases could interrupt our operations by:
| ● | causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive; |
| ● | inflicting loss of life; |
| ● | triggering large-scale technology failures or delays; and |
| ● | requiring substantial capital expenditures and operating expenses to remediate damage and restore operations. |
Despite the contingency plans and facilities we have in place, including system security measures, information back-up and disaster recovery processes, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our operations and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services we may use or third parties with which we conduct business. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to conduct business with and on behalf of our clients may suffer, and we may not be able to successfully implement contingency plans that depend on communication or travel. Furthermore, unauthorized access to our systems as a result of a security breach, the failure of our systems, or the loss of data could give rise to legal proceedings or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation.
Our operations require experienced, professional staff. Loss of a substantial number of such persons or an inability to provide properly equipped places for them to work may, by disrupting our operations, adversely affect our financial condition, results of operations and business prospects. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses, failures or breaches that may occur.
Technology failures and disruptions, including failures to properly safeguard confidential information, can significantly constrain our operations and result in significant time and expense to remediate, which could result in a material adverse effect on our results of operations and business prospects.
We are highly dependent on software and related technologies throughout our business, including both proprietary systems and those provided by third-party vendors. We use our technology to, among other things, obtain securities pricing information, process client transactions, store and maintain data, and provide reports and other services to our clients. Despite our protective measures, including measures designed to effectively secure information through system security technology and established and tested business continuity plans, we may still experience system delays and interruptions as a result of natural disasters, hardware failures, software defects, power outages, acts of war and third-party failures. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. These adverse effects could include the inability to perform critical business functions or failure to comply with financial reporting and other regulatory requirements, which could lead to loss of client confidence, reputational damage, exposure to disciplinary action and liability to our clients.
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Many of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption. Additionally, technology rapidly evolves and we cannot guarantee that our competitors may not implement more advanced technology platforms for their products and services, which may place us at a competitive disadvantage and adversely affect our results of operations and business prospects.
Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information. As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations. Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among other things, allow competitors access to our proprietary business information and require significant time and expense to investigate and remediate the breach. Moreover, loss of confidential client information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues.
Any significant security breach of our information and cyber security infrastructure may significantly harm our operations and reputation.
It is critical that we ensure the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until a sum of money is paid), which could materially harm our operations and reputation. Additionally, while we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.
The capital markets industry is intensely competitive.
The capital market in Israel is characterized by extensive competition with several participants. Among our competitors are entities with significant organizational and marketing resources, such as insurance companies that operate lines of business that compete with the Company’s business. We face major competitors that invest significant resources in reaching the general public and potential customers. The Company believes that the ability to increase the customer base may be affected by the advantage of size.
Furthermore, if we are unable to maintain and/or continue to improve our investment performance, our client flows may be adversely affected, which may make it more difficult for us to compete effectively.
Risks Related to this Offering and the Ownership of Our Securities
Currently, there is no public market for our securities, and there can be no assurances that any public market will ever develop.
Currently, our common stock is not listed or quoted on any public market, exchange, or quotation system. Although we are taking steps to have our common stock publicly traded, a market for our common stock may never develop. We currently plan to apply for quotation of our common stock on the OTCQB upon the effectiveness of the registration statement of which this prospectus forms a part. However, our shares may never be quoted on the OTCQB, or, if traded, a public market may not materialize. Even if we are successful in developing a public market, there may not be enough liquidity in such market to enable stockholders to sell their stock. If our common stock is not quoted on the OTCQB or if a public market for our common stock does not develop, investors may not be able to re-sell the shares of our common stock that they have purchased, rendering their shares effectively worthless and resulting in a complete loss of their investment.
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We are planning to identify a market maker to file an application with the OTCQB on our behalf so as to be able to quote the shares of our common stock on the OTCQB maintained by the OTC Markets commencing upon the effectiveness of our registration statement of which this prospectus is a part. There can be no assurance as to whether such market maker’s application will be accepted. We are not permitted to file such application on our own behalf. If the application is accepted, there can be no assurances as to whether any market for our shares will develop or the prices at which our common stock will trade. If the application is accepted, we cannot predict the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
In addition, our common stock is initially unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for the common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of our company, and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
We do not intend to have the warrants quoted or listed on any exchange or market. Accordingly, any value that the Selling Stockholder derive from the warrants will be based on any appreciation of the stock price.
Shares that are eligible for future sale
Sales of a substantial number of shares of common stock in the public market following this offering could adversely affect the market price of such shares. Upon the consummation of this offering, and assuming no exercise of the outstanding warrants, the Company will have 1,558,639 shares of common stock outstanding, of which the 1,245,309 shares of common stock offered hereby by the Selling Stockholders will be freely tradeable without restriction or further registration under the Securities Act. All of the remaining 313,330 shares of common stock outstanding are “restricted securities,” as that term is defined under Rule 144 promulgated under the Securities Act, and in the future may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption revisions of Rule 144 (including, without limitation, certain volume limitations and holding period requirements thereof) or pursuant to another exemption under the Securities Act.
Our common stock may be considered a “penny stock”, and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
Our common stock may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5 per share; (ii) it is not traded on a “recognized” national exchange; or (iii) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. In addition to the exclusion based on issuer net tangible assets, Rule 3a51-1includes an alternative exclusion for the securities of an issuer with average revenues of $6 million for the past three years (i.e., revenues of at least $18 million by the end of the three-year period).
The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
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The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management.
We are subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the U.S., as well as the reporting requirements under the Exchange Act. The Exchange Act requires, among other things, filing of annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K following the happening of certain material events, with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Our existing controls have some weaknesses, as described below. Meeting the requirements of the Exchange Act and the Sarbanes-Oxley Act may strain our resources and may divert management’s attention from other business concerns, both of which may have a material adverse effect on our business.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock and warrants.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.
Our compliance with complicated U.S. regulations concerning corporate governance and public disclosure is expensive. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain..
As a publicly reporting company, we are faced with expensive and complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Act. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards of a U.S. public company are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
FINRA sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares.
Financial Industry Regulatory Authority, Inc. (FINRA) rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock or warrants adversely, the price of our common stock or warrants and trading volume could decline.
The trading market for our common stock or warrants may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock or warrants adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock or warrants would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or warrants or trading volume to decline.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and other federal securities laws. The reader should understand that several factors, including the risk factors described under “Risk Factors” in this prospectus, govern whether any forward-looking statement contained herein will be or can be achieved. Any of those factors could cause actual results to differ materially from those projected herein. These forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the products and the future economic performance of the Company. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology.
Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may, in turn, affect the Company’s results of operations. In light of the significant uncertainties inherent in the forward-looking statements included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
We will not receive any proceeds from the sale of the common stock offered through this prospectus by the Selling Stockholders. We would receive an aggregate of $1,558,639 if all of the warrants are exercised.
DETERMINATION OF OFFERING PRICE
The Selling Stockholders will sell our shares at a fixed price of $1.50 per share until our shares are quoted on the OTCQB, and thereafter at prevailing market prices or privately negotiated prices. This price was arbitrarily determined by us.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No Public Market for Common Stock
There is presently no public market for our common stock. We anticipate applying for quotation of our common stock on the OTCQB upon the effectiveness of the registration statement of which this prospectus forms a part. However, we can provide no assurance that our shares will be quoted on the OTCQB or, if quoted, that a public market will materialize.
Holders of Common Stock
As of the date of this registration statement, we have 35 stockholders of record.
Rule 144 Shares
A total of 313,330 shares of our common stock will become available for resale to the public after one year from the date the registration statement of which this prospectus forms a part is declared effective by the Securities and Exchange Commission, subject to the volume and trading limitations of Rule 144, as promulgated under the Securities Act of 1933. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company’s common stock for at least one year is entitled to sell within any three month period a number of shares that does not exceed the greater of:
| ● | 1% of the number of shares of the company’s common stock then outstanding which, in our case, will equal 22,897 shares as of the date of this prospectus; or |
| ● | the average weekly trading volume of the company’s common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
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Such sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us.
In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to have been one of our affiliates for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner who was not an affiliate, is entitled to sell those shares in the public market without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner who was not an affiliate, then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable).
As of the date of this prospectus, persons who are our affiliates hold 313,330 of the 313,330 shares described above.
Dividends and Dividend Policy
We have never declared or paid any cash dividends on our common stock and intend, for the foreseeable future, to retain any future earnings to finance the growth and development of our business. Our future dividend policy will be determined by our Board of Directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.
Securities Authorized for Issuance under Equity Compensation Plans
We currently have no securities authorized for issuance under Equity Compensation Plans.
The following table sets forth our capitalization as of September 30, 2019:
You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto, included in this prospectus.
(In thousands)
As
of September 30, 2019 | As
of December 31, 2018 | |||||||
| Stockholders’ equity (deficit) | $ | $ | ||||||
| Common stock; par value; $0.0001; 100,000,000 shares authorized; and 2,289,744 shares issued and outstanding as of September 30, 2019 | * | * | ||||||
| Additional paid-in capital | 2,272 | 329 | ||||||
| Accumulated (deficit) | (482 | ) | (217 | ) | ||||
| Accumulated other comprehensive income (loss) | (280 | ) | (167 | ) | ||||
| Total stockholders’ equity | $ | 1,511 | $ | (55 | ) | |||
* Balance less than $1,000
The above table is based on 2,289,744 shares of common stock outstanding as of September 30, 2019 and excludes any shares issuable upon exercise of the warrants.
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The common stock to be sold by the Selling Stockholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing stockholders.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of financial condition and results of operations of Creations, Inc. together with our financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, including, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Forward Looking Statements
The following discussion should be read in conjunction with our audited and unaudited financial statements and related notes included in this prospectus. Certain information contained in this MD&A includes “forward-looking statements.” Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition and results of operations, prospects, and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors our existing and proposed business, including many assumptions regarding future events. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including those risks described in detail in the section entitled “Risk Factors” of this prospectus.
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “will,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology.
In light of these risks and uncertainties, and especially given the nature of our existing and proposed business there can be no assurance that the forward-looking statements contained in this section and elsewhere in the prospectus will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
Creations, Inc. was incorporated in May 2019. On July 1, 2019, Creations, Inc, acquired a 100% interest in Yetsira Holdings Ltd., though a share swap agreement. Yetsira Holdings is an Israeli Corporation incorporated in December 2017 which in turn owns 100% of Yetsira Investment House (“Yetsira”), our operating entity, which was incorporated in November 2016.
Through our wholly owned subsidiary, Yetsira Investment House, we operate as a portfolio manager, licensed by the Israel Securities Authority (“ISA”). Yetsira currently offers and manages six mutual funds with approximately $50,000,000 in assets, currently under management (“AUM”). While Yetsira’s core-business is the external management of Israeli mutual funds, the ISA license allows Yetsira to manage traditional private investment portfolios and IRA accounts, as well as other things, including the ability to initiate exchange traded funds.
We generate revenue primarily from management fees paid by our unitholders, which fees are based upon a certain percentage of their assets in the funds. Our expenses are mainly comprised of payments of distribution commissions to banks, thirty-party platform user fees, salary commissions and expenses, and commissions to the ISA and the Israeli Stock Exchange. We conduct our business exclusively through Yetsira and exercise effective control over the operations of Yetsira pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.
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Our continued focus is on our core business of mutual fund management, while increasing our number of managed funds. Part of our growth depends on the strength of our brand, which the Company intends to strengthen by increasing our exposure to the general public, especially to the investment advisors in the banks, which constitute the main channel for funds distribution in Israel. We also plan to increase public relations activities and advertising. Furthermore, in 2020, we expect to examine possibilities for integrating technological means in our services, mainly in our private portfolio management service. We also continue to examine the expansion of our areas of activity, through cooperation, locating synergistic opportunities for our existing areas of activity and establishing additional parallel investment opportunities. In addition, we may pursue the acquisition of other unrelated businesses in the financial sector; particularly, where we believe that they can grow their business by expanding and upgrading their use of technology. We have no agreements currently in place to acquire any other entity.
Overview – Results of Operations for the Nine Months Ended September 30, 2019 and 2018
Revenues
For the nine months ended September 30, 2019 and 2018, the Company generated revenues in the amount of $271,998 and $165,624, respectively. The 2019 increase was attributable to an increase in our overall AUM, which led to an increase in investment management fees.
Compensation and Related Costs to Employees
For the nine months ended September 30, 2019 and 2018, the Company recognized a total of $291,603 and $189,659, respectively, for compensation and related costs to employees. This increase was a result of increase in payment to the founders and an additional employee, as well as costs arising from moving to new offices.
General and Administrative Expenses
For the nine-months ended September 30, 2019, our general and administrative expenses totaled $275,105, compared to $124,608 for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we had two one-off expenses: the first was due diligence for a bank acquisition that did not mature; and the second was in the preparation for the registration of the company’s shares. These expenses totaled approximately $70,000 and are not expected to be repeat.
Excluding these one-off expenses, current general and administrative expenses totaled approximately $205,000, for the nine months ended September 30, 2019, an approximate 65% increase from the nine months ended September 30, 2018. The increase in these expenses was mainly attributable to an increase in our bank distribution fees, including fees to the Israeli Stock Exchange and Israeli Securities Authority and payments for operational services to a fund manager via a hosting agreement.
Net Loss
The Company realized a net loss of $306,090 for the nine months ended September 30, 2019, compared to a net loss of $157,535 for the nine months ended September 30, 2018. The increase in net loss was in line with our strategy and mainly attributable to the Company’s launch of three new funds for which management fees were initially kept relatively low to other comparable funds. In addition, these funds were launched with a zero fee special to year-end.
After taking into account foreign currency translation adjustments, which resulted in other comprehensive income of $100,543 and $12,715 for the nine months ended September 30, 2019 and 2018, respectively, the Company realized net loss after other comprehensive income of $205,547 and $144,820 for the nine months ended September 30, 2019 and 2018, respectively.
Liquidity and capital resources
As of September 30, 2019, the Company had cash in the amount of $1,536,289, compared to cash in the amount of $94,981 as of September 30, 2018. The increase in cash was a primarily a result of the issuance of stock. The Company also had a stockholder’s equity of $1,479,424 at September 30, 2019 and stockholders’ deficit of $39,053 as of September 30, 2018.
The Company’s accumulated deficit was $706,782 and $384,542 at September 30, 2019 and September 30, 2018, respectively.
The Company’s operating activities resulted in net cash used of $216,755 for the nine months ended September 30, 2019, compared to net cash used of $166,378 for the nine months ended September 30, 2018. The increase in net cash used was mainly attributable to an increase of expenses, including an increase in salary payment to the founders and hiring additional employees and costs arising from moving to new offices and rising rents.
The Company did not use any cash in investing activities for the nine months ended September 30, 2019, compared to net cash used of $1,081 for the nine months ended September 30, 2018, which was a result of purchasing fixed assets during that period.
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The Company’s financing activities resulted in net cash provided of $1,663,028 during the nine months ended September 30, 2019, compared to net cash provided of $154,000 during the nine months ended September 30, 2018. This increase in net cash used in financing activities was primarily the result of raising capital in exchange for common stock.
Off- Balance Sheet Arrangements
The Company currently does not have any off-balance sheet arrangements.
Overview – Results of Operations for the Fiscal Year Ended December 31, 2018 and 2017.
Revenue
For the years ended December 31, 2018 and 2017, the Company recognized $271,252 and $3,815 in revenues, respectively. The increase in 2018 was attributable to an increase in overall AUM of $13.05 million, as well as an increase in our management fee from 0.0% to 1.1% of AUM. In addition, for the year ended December 31, 2017, we had only launched three of our funds, which had a limited customer base at the time and which the management fee for each were at one time during the year lowered to zero until the year end.
Compensation and Related Costs to Employees
For the years ended December 31, 2018 and 2017, the Company recognized a total of $282,498 and $101,482, respectively, for compensation and related costs to employees. The increase was mainly attributable to payments to the founders.
General and Administrative Expenses
For the years ended December 31, 2018 and 2017, the Company recognized a total of $147,417 and $129,340, respectively, for general and administrative expenses. This increase was mainly attributable to additional expenses for advertising and public relation, as well as additional costs related to the launch of two funds on September 5, 2018.
Net Loss
The Company had a net loss of $173,685 for the year ended December 31, 2018, compared to a net loss of $227,007 for the year ended December 31, 2017. The decrease in net loss is primarily a result of the Company’s operating expenses being relatively fixed expenses, which means they do not vary with the amount of AUM. However, this decrease in net loss is slightly offset by the increase in other certain variable expenses, like the fees payable to Ayalon, which do increase with the amount of AUM.
Liquidity and capital resources
As of December 31, 2018, the Company had cash in the amount of $86,094, compared to cash in the amount of $97,585 as of December 31, 2017. In addition, the Company had negative stockholders’ equity of approximately $55,000 as of December 31, 2018, compared to stockholders’ equity of $110,418 as of December 31, 2017.
The Company’s accumulated deficit was approximately $400,692 and $227,007 at December 31, 2018 and December 31, 2017, respectively.
The Company’s continuing operating activities resulted in net cash used of $169,538 and $216,910 for the year ended December 31, 2018 and 2017, respectively.
Net cash used in investing activities was $1,177 for the year ended December 31, 2018, compared to net cash used of $22,715 for the year ended December 31, 2017. This decrease in net cash used was primarily attributable to a decrease in investing in short term deposits and a decrease in the purchase of fixed assets for year ended December 31, 2018.
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The Company’s financing activities resulted in net cash provided of $166,268 for year ended December 31, 2018, compared to net cash provided of $324,195 during the year ended December 31, 2017. The decrease in net cash provided was mainly attributable to a decrease in common stock issuance during the year ended December 31, 2018, which was slightly offset by a loan from a related company as described in note 5.
Off- Balance Sheet Arrangements
The Company currently does not have any off-balance sheet arrangements.
Company Overview
We, through our wholly owned subsidiary, Yetsira Investment House (“Yetsira”), operate as a portfolio manager, licensed by the Israel Securities Authority (“ISA”). Yetsira currently offers and manages five mutual funds with approximately $50,000,000 in assets under management (“AUM”). While Yetsira’s core-business is external management of Israeli mutual funds, the ISA license allows Yetsira to manage traditional private investment portfolios and IRA accounts, as well as other things, including the ability to initiate exchange traded funds.
We generate revenue primarily from management fees paid by our unitholders, which fees are based upon a certain percentage of their assets of the funds. Our expenses are mainly comprised of payments of distribution commissions to banks, thirty-party platform user fees, salary commissions and expenses, and commissions to the ISA and the Israeli stock exchange.
Creations, Inc., is a holding company, holding 100% of the interests in Yetsira Holdings LTD, which in turn holds 100% of Yetsira. We conduct our business exclusively through Yetsira. We exercise effective control over the operations of Yetsira pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.
On January 17, 2017, the Company signed a hosting agreement with Ayalon Mutual Funds Ltd (the “Hosting Agreement”). Pursuant to the Hosting Agreement, Ayalon is the manager of the mutual funds and Yetsira is an external investment manager. All five of our mutual funds were initiated under the Hosting Agreement with Ayalon Mutual Funds (“Ayalon”). Ayalon is a company engaged in the management of joint investment mutual funds in Israel, in accordance with the provisions of the Joint Investment Trusts Law.
In accordance with the Hosting Agreement, our employees provide certain investment services for the mutual funds which are managed by Ayalon. As consideration for managing the mutual funds, Ayalon receives a monthly payment determined by the net revenue and expenses of each fund as set forth in the Hosting Agreement.
The forgoing summary of certain terms and provisions of the Hosting Agreement is not complete and is subject to, and qualified in its entirety by the provisions of the Hosting Agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the Hosting Agreement.
Our Products
The following table sets forth information on our five current mutual funds as of September 30, 2019:
| Name of the fund | Ticker | Date of Initiation | AUM as of September 30, 2019 | |||||
| Yetsira (2B) 20/80 | 5124243 | March 8, 2017 | $ | 30,947,916 | ||||
| Yetsira (2B) 30/70 | 5124227 | March 8, 2017 | $ | 19,200,015 | ||||
| Yetsira (4D) FLEX | 5124268 | March 8, 2017 | $ | 3,179,235 | ||||
| Yetsira (4D) shares | 5127964 | September 5, 2018 | $ | 2,690,086 | ||||
| Yetsira (1B) 10/90 | 5127972 | September 5, 2018 | $ | 1,135,858 | ||||
| Total | $ | 57,153,110 | ||||||
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On January 17, 2017, the Company signed a hosting agreement with Ayalon Mutual Funds Ltd (the “Hosting Agreement”). Pursuant to the Hosting Agreement, Ayalon is the manager of the mutual funds and Yetsira is an external investment manager. All five mutual funds were initiated under the Hosting Agreement with Ayalon Mutual Funds.
As shown in the table above, the Company initiated three managed funds, Yetsira (2B) 20/80, Yetsira (2B) 30/70, and Yetsira (4D) FLEX, in March 2017, all in different categories. After initial investments from investors through their individual brokerage accounts, most of which were through financial institutions with the assistance of financials advisors, we were able to position each of these funds in the top 10 in the Israeli mutual fund market in terms of performance return. In addition, these funds received top ratings from banks and from IFO, the official representative of “Morningstar” in Israel. As a result of our success with the three initial funds, in September 2018 we initiated an additional two funds. From the inception of the initial funds in 2017, the Company has demonstrated a high growth on total AUM, growing AUM from $13.6 million AUM to $57.15 AUM, an increase of over 300%.
Importantly, these five funds are still in the process of maturation. Management believes that it generally takes three years for a fund to reach full maturation. Since none of the funds are yet at the three year full maturation, the Company currently is restricted from accessing approximately 50% of the mutual funds market held by the banks. When the three funds that were initiated in March 2017 reach full maturation (estimated March 2020), we will then be able to address 100% of the market, which we believe can create significant growth for the Company.
Our Business
Through our subsidiary, Yetsira, we generate revenue primarily from management fees paid by our unitholders. These fees are based upon a certain percentage of the unitholders’ assets of the funds. The expenses of Yetsira are mainly comprised of the payment of distribution commissions to banks, hosting fees to Ayalon, salary expenses and commissions to ISA and the Israeli Stock Exchange.
As a portfolio manager of mutual funds, banks play a crucial role in our success. The bank’s investor consultant departments materially affect the fund-raising rate and redemptions in the mutual fund sector. The bank departments rely on an internal rating system, which is based on the results of the fund relative to risk. Some banks use a rating system based on a one year period of results while other systems use a three year period. Funds that are measured over the three year period generally receive a higher rating than when measured over a one year period. Our funds have received high ratings for the one year period but have not yet reached the full maturation for banks to measure the funds over three years and therefore receive a potential higher rating. When our initial funds do reach full maturation (expected March 2020), we believe that we will be well positioned and expect our funds to receive the higher rating. In addition, in the past two years, the internal rating systems used by banks underwent a significant change: they began examining the results of the funds measured over a longer period for rating recommendations. We believe this has expanded the barrier to entry in this industry.
Due to expected imminent fintech related regulatory change, we also believe Yetsira is well positioned to take advantage of an opportunity that can create significant growth. The ISA has indicated that it is planning to open the antiquated private portfolio management market to a fintech based competitive platform. This could result in approximately $50 billion of potential market opportunity being created where we believe a re-distribution may occur from the removal of minimum funding requirements and allowing quick and easy movement between funds. The potential effect is that all investment houses will be treated equally, with size and brand of the company mattering less. The process is seamless and costless. This means that every one percent movement has the potential to translate into $4 million of additional income.
In 2018, the ISA took a couple of steps toward making this change a reality. For example, the obligation to physically meet with a client for “Customer Characterization” or for opening a non-bank brokerage account was removed and allowed via web platforms. On July 23, 2018, the ISA announced the establishment of an innovation hub, a sandbox and an accompanying regulatory framework. On January 31, 2019, the ISA announced the launch of an international network of 29 regulators in various countries, including the International Monetary Fund and the World Bank. The goal of the ISA is to enable an international sandbox and enable companies to test innovative products, services or business models in several parallel jurisdictions.
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Yetsira has the license to operate in this industry and, due to the changes outlined above, we believe Yetsira is well positioned to combine technological means and become a significant player in a new way of investing in Israel. Our team is comprised of experienced managers in the field of Israeli capital markets. We believe there is currently a “home bias” atmosphere that exists in most of the investment managers in Israel, while our employees and investment managers have unique expertise in the U.S. capital markets.
Furthermore, management believes that most large investment houses are bureaucratic and connected to large insurance companies, which can cause them to not respond as quickly to the changing industry. We believe this separates us from our competition and provides a potential game-changing opportunity for Yetsira.
Mutual Funds
A mutual fund is an investment instrument that has a number of potential advantages from other instruments. These advantages include tax advantages and investment diversification. To establish a mutual fund, an agreement between a fund manager and a trustee is made, according to which the fund manager is responsible for managing the fund’s investments while the trustee holds its assets in trust for unitholders. Pursuant to the Hosting Agreement, Yetsira operates as the external manager to the funds, while Ayalon Mutual Funds LTD acts as the fund manager and Union Bank of Israel acts as the trustee.
The amount that the fund manager is entitled to receive in management fees and the maximum wage that a trustee is entitled to receive as trustee, as well as other technical provisions, is typically determined by a fund agreement and the fund’s investment policy. Each mutual fund has an investment policy to which the fund manager is committed to when he or she purchases securities for the fund. The participation units in the mutual funds are purchased and redeemed through the members of the Israeli stock exchange, mainly banks and mainly by the bank investors’ consultant departments for their clients. The end holders of the mutual fund units purchase the participation units through the members of the Israeli stock exchange in which their accounts are managed, and their identity, for the most part, is not known to the fund.
As of March 31, 2017, the managed mutual funds market in Israel is at $ 52.87 billion AUM, with approximately $477 million in annual income. Banks are interested in their customers purchasing mutual funds due to the commission the banks receive from the fund manager. The basic engine here for choosing a fund by the banks is heavily reliant on the rating of the fund created by an algorithm linked to the past performance of the fund relative to risk.
Private Portfolio Management
Private portfolio management is the management of securities by licensed portfolio managers through a power of attorney to execute transactions in the brokerage accounts of the client. Portfolio management is provided to private customers, business corporations (including local authorities, kibbutzim, non-profit organizations and provident funds). We estimate that there is currently $50 billion in potential market AUM.
As of December 31, 2019 the number of companies with a portfolio management license in Israel is 126 companies, 74 of which operate only in the private portfolio management sector. The number of companies with a fund manager license is 19, and 33 companies operate pursuant to a hosting agreement as Yetsira does., there are 52 licensed companies that operate in the Israeli mutual fund area and that manage a total of approximately $98.21 billion, including approximately $8.4 billion in deposit funds, $36.9 billion in Israeli ETF funds& index funds, and $ 52.8$ billion in managed funds.
Establishing New Funds
Our continued focus is on our core business of mutual fund management, while increasing our number of managed funds. Part of our growth depends on the strength of our brand, which the Company intends to strengthen by increasing our exposure to the general public, especially to the investment advisors in the banks, which constitute the main channel for funds distribution. We also plan to increase public relations activities and advertising. Furthermore, in 2020, we expect to examine possibilities for integrating technological means in our services, mainly the private portfolio management service. We also continue to examine the expansion of our areas of activity, through cooperation, locating synergetic opportunities for the existing areas of activity and establishing additional parallel investment instruments, etc.
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Government Regulations
In Israel, the portfolio management and investment marketing industry is regulated by “Advisory Law” and the regulations that have been installed under it. According to the Advisory Law, portfolio management must be done in a corporation that has received a license to engage in portfolio management from the ISA, which also requires that employees of the corporation hold such a license. Obtaining a license from the ISA requires passing professional exams and an internship period. In addition, in fulfilling its obligations under the Advisory Law a licensee is subject to supervision by the ISA.
On January 11, 2017, the Yetsira Investment House received an investment portfolio manager license from the ISA. The license number is 772. The industry is characterized by significant regulation mainly by the ISA. Furthermore, since the major distributors of mutual funds to the general public are the banks investor consultant department, there is exposure to regulatory changes on behalf of the Bank of Israel.
The following table presents information with respect to our sole executive officer and director, as well as key employees of our subsidiaries:
| Name | Age | Position(s) | ||
| Guy Nissensohn | 45 | Founder, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors | ||
| Illan Arad Keshat(1) | 41 | Co-Founder of Yetsira Investment House, Chief Executive Officer and Investment Manager of Yetsira Investment House | ||
| Shmuel Yelshevich(1) | 31 | Co-Founder of Yetsira Investment House, Chief Financial Officer, Investment Manager and Vice President of Sales of Yetsira Investment House | ||
| Amit Biliya(1) | 40 | Co-Founder and Analyst of Yetsira Investment House |
(1) These individuals are key employees to the Company but are not executive officers and directors of Creations, Inc.
Background of officers and directors
The following is a brief account of the education and business experience during at least the past five years of our officers and directors and key employees, indicating each person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Guy Nissensohn joined Yetsira as a Chairman of the Board of Directors in February 2017. From 2015 to 2019, Mr. Nissensohn served as President and Chief Executive Officer at Certus Port Automation / HTS, Ltd., a leader in the fields of OCR, LPR and image processing, software development and system integration with products that serve as core technology enablers for automation of mission critical, terminal and container handling operations as well as parking facilities, airports, citations and safe cities. From 1999 to 2015, Mr. Nissensohn founded NTS, Inc. and served as President and Chief Executive Officer. Mr. Nissensohn holds a MBA in International Business from Royal Holloway, University of London, and BSc and a degree in business management from Kings College, University of London. Mr. Nissensohn is a commercially focused executive with 15+ years’ line experience growing businesses organically and through accretive acquisitions with a proven track record of strategic & operational achievement in the U.S., Europe and the Middle East. He is experienced across a range of functions including finance, marketing, business operations, regulatory, public company compliance & strategic transformation. In 2014, NTS, Inc., the company he founded (formerly NYSE/AMEX:NTS) sold for a record EBITDA multiple.
Ilan Arad Keshet co-founded Yetsira and has served as Chief Executive Officer and Investment Manager of Yetsira since November 2016. From 2013 to 2015. Mr. Arad Keshet served as a private investment manager and counselor to a wealth family, specializing in complex options strategies. From 2010 to 2013, Mr. Arad Keshet served at dash- Securities, a large brokerage firm in Israel, as a trading floor manager and portfolio manager of institutional funds. Mr. Arad Keshet holds a portfolio management license from the ISA and a BA in Finance from Max Stern Yezreel Valley College. Mr. Arad Keshet is a licensed portfolio manager by the ISA.
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Shmuel Yelshevish co-founded Yetsira and served as Chief Financial Officer, Vice President of Sales and Investment Manager at Yetsira since November 2016. From 2013 to 2016, Mr. Yelshevich served as a manager of marketing department, portfolio manager and analyst at Tamir Fishman Israeli portfolio management firm. Mr. Shmuel holds a portfolio management license from the ISA and a B.A. in Finance and Financial Risk Management from The Interdisciplinary Center Herzliya. Mr. Yelshevich is a licensed portfolio manager by the ISA.
Amit Biliya co-founded Yestira and has served as a Securities Analyst and Portfolio Investment Manager at Yetsira since November 2016. From 2011 to 2016, Mr. Biliya served as a Costumer Relationship Manager, Portfolio Manager and A analyst at Tamir fishman Israeli portfolio management firm. Mr. Biliya holds a portfolio management license from the ISA and a B.A. in Finance and Management from Ruppin Academic Center. Mr. Biliya is a licensed portfolio manager by the ISA.
No Family Relationships
There is no family relationship between any director and executive officer or among any directors or executive officers.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of our company. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.
Corporate Governance Guidelines
The Board of Directors will adopt corporate governance guidelines that serve as a flexible framework within which our Board of Directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board, board membership criteria and director qualifications, director responsibilities, board agenda, roles of the chairman of the board and Chief Executive Officer and Chief Financial Officer, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines will be available on our website at www.Creationsfin.com
Involvement in Certain Legal Proceedings
To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; | |
| 4. | being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
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| 5. | being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| 6. | being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
The following table sets forth the compensation for our fiscal years ended December 31, 2019 and 2018, respectively, earned by or awarded to, as applicable, our principal executive officer, principal financial officer and our other most highly compensated executives.
| Name and Principal | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total Compensation | ||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||
| Guy Nissensohn | 2018 | $ | 10,000 | $ | 0 | - | - | - | $ | 10,000 | ||||||||||||||||
| CEO, CFO, Director | 2019 | 12,000 | 10,000 | - | - | - | 22,000 | |||||||||||||||||||
Employment Agreements with Named Officers
On November 11, 2019, the Company entered into an employment agreement (the “Employment Agreement”) with our Chief Executive Officer and Chief Financial Officer, Guy Nissensohn. The Employment Agreement has an initial term of five years with a monthly salary that is based upon the total amount of Managed Capital (as defined in the agreement) of the Company, including all of its subsidiaries.
This Agreement is filed as Exhibit 10.3 to the registration statement of which this prospectus forms a part.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards at the end of December 31, 2019 or as of the date of this prospectus.
Director Compensation
To date, we have not paid any compensation to our directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
We describe below all transactions and series of similar transactions, other than compensation arrangements, since January 1, 2016, to which we were a party or will be a party, in which:
| ● | the amounts involved exceeded or will exceed $120,000; and |
| ● | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
On July 1, 2019, Mr. Guy Nissensohn converted $204,051 of debt that was owed to him from Yetsira Holdings LTD to 253 ordinary shares of Yetsira Holdings Ltd.
On July 1, 2019, a share swap was executed between Creations and Yetsira Holdings Ltd. shareholders, in which Creations received 100% of Yetsira Holdings Ltd. Mr. Guy Nissensohn, Chairman of the Board and a stockholder of both companies, received in exchange for his Yetsira Holdings shares 379,435 shares of Creations and 379,435 warrants to purchase shares of common stock, exercisable at $1.50 per share, which is the same price as all outstanding warrants.
On July 7, 2019, Mr. Guy Nissensohn purchased 665,000 shares of Creations Inc. and 665,000 warrants to purchase shares of Common Stock. at a price of $665,000 which was the same price paid as all other investors.
On November 11, 2019, Mr. Guy Nissensohn entered into a voting agreement with certain shareholders (the “Voting Agreement”) pursuant to which Mr. Nissensohn was granted full voting power over 242,709 shares of common stock, including any shares that are received upon exercise of warrants owned by the shareholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial ownership of our common stock as of February 12, 2020 for:
| ● | each beneficial owner of more than 5% of our outstanding common stock; | |
| ● | each of our director and named executive officers; and | |
| ● | all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include common stock that can be acquired within 60 days of February 2, 2020 The percentage ownership information shown in the table is based upon 2,289,744 shares of common stock outstanding as of February 2, 2020.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are immediately exercisable or exercisable within 60 days of February 12, 2020. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The information in the table below is based on information known to us or ascertained by us from public filings made by the stockholders. Except as otherwise indicated in the table below, addresses of the directors, executive officers and named beneficial owners are in care of the Company.
| Name and Address of Beneficial Owner | Amount of Beneficial Ownership Before the Offering | Percentage of Shares Outstanding Before the Offering | ||||||
| Guy Nissensohn(1)(5) | 2,088,870 | 46.17 | % | |||||
| Blair E Sanford(2) | 200,000 | 8.12 | % | |||||
| David Slomka(2) | 200,000 | 8.12 | % | |||||
| Ilan and Dalia Bar(2) | 200,000 | 8.12 | % | |||||
| Rising Moon Assets Inc.(2) | 200,000 | 8.12 | % | |||||
| Shemer Schwarz(2) | 200,000 | 8.12 | % | |||||
| Avner Roash(3) | 140,000 | 5.83 | % | |||||
| Elnatan Ori Efraim(3) | 140,000 | 5.83 | % | |||||
| Ilan Arad Keshet(4) | 161,806 | 6.68 | % | |||||
| Amit Biliya(4) | 161,806 | 6.68 | % | |||||
| Shmuel Yelshevich(4) | 161,806 | 6.68 | % | |||||
| All Executive Officers and Directors as a group (1 individuals) | 2,088,870 | 46.17 | % | |||||
(1) Includes 1,044,435 warrants to purchase shares of common stock.
(2) Includes 100,000 warrants to purchase shares of common stock.
(3) Includes 70,000 warrants to purchase shares of common stock.
(4) Includes 80,903 warrants to purchase shares of common stock.
(5) Does not include an aggregate of 242,709 shares of common stock, which shares are subject to the Voting Agreement granting Mr. Nissensohn the right to vote such shares.
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General
We are authorized to issue up to 100,000,000 shares of common stock, $0.0001 par value per share. As of February 12, 2020, a total of 2,289,744 shares of our common stock were issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote per share. Our Certificate of Incorporation does not expressly prohibit cumulative voting. The holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock have no preemptive, subscription, redemption or conversion rights.
The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the Board of Directors and issued in the future.
Our common stock is currently not traded. We intend to apply to have our common stock listed on the OTCQB. No assurance can be given that our application will be approved.
The transfer agent of our common stock is Transfer Online, Inc. Their address is 512 SE Salmon St., Portland, OR 97214.
Outstanding Warrants
The following summary of certain terms and provisions of the Warrants is not complete and is subject to, and qualified in its entirety by the provisions of the form of warrant, which is filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Warrant.
Exercisability. The warrants are exercisable at any time after their original issuance and at any time up to the date that is three (3) years after their original issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to the warrant agent a duly executed exercise notice and payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Price. The exercise price per whole share of common stock purchasable upon exercise of the warrants is $1.00 per share. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
Stock Options and Outstanding Warrants
As of February 12, 2020, we had reserved 1,558,639 shares of our common stock for issuance pursuant to outstanding warrants, at a weighted average price of $1.00 per share.
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Each Selling Stockholders (of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on any stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers; | |
| ● | block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker dealer as principal and resale by the broker dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | settlement of short sales; | |
| ● | in transactions through broker dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; or | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus. In addition, any sale of shares by the Selling Shareholders will be the fixed price of $1.50 per share until such time that the shares are listed on the OTCQB.
Broker dealers engaged by the Selling Stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
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The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
The validity of the securities being offered by this prospectus will be passed upon for us by Sichenzia Ross Ference LLP, New York, New York.
The consolidated financial statements of Creations, Inc. for each of the nine months in the period ended September 30, 2019 and 2018, respectively, and each of the two years in the period ended December 31, 2018 and 2017, respectively, included in this prospectus have been reviewed for the nine-month periods and audited for the full year periods by Barzily and Co., independent registered public accounting firm, as set forth in their report thereon appearing therein, and are incorporated by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part of the registration statement on Form S-1 that we have filed with the SEC under the Securities Act, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, you should refer to the registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
Immediately upon completion of this listing, we will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings, including the Registration Statement, also are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this prospectus.
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CREATIONS INC.
REVIEW REPORT
AS OF SEPTEMBER 30, 2019
CREATIONS INC. AND SUBSIDIARIES
SEPTEMBER 30, 2019 AND 2018
INDEX TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
| Page | |
| Consolidated Balance Sheets | F-2 |
| Consolidated Statements of Comprehensive income | F-3 |
| Consolidated Statements of Cash Flow | F-4 |
| Notes to consolidated Financial Statements | F-5 - F-10 |
| F-1 |
CREATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars)
| As of September 30, | As of September 30, | |||||||
| 2019 | 2018 | |||||||
| Unaudited | Unaudited | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 1,536,289 | 94,981 | ||||||
| Short-term deposit | 11,604 | 10,992 | ||||||
| Accounts Receivables (Note 3) | 7,802 | 23,075 | ||||||
| Related parties | 1,421 | - | ||||||
| Total current assets | 1,557,116 | 129,048 | ||||||
| Long-term assets | ||||||||
| Long-term deposit | 1,926 | 1,849 | ||||||
| Fixed assets, net | 5,503 | 8,742 | ||||||
| Total long-term assets | 7,429 | 10,591 | ||||||
Total assets | 1,564,545 | 139,639 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (Deficit) | ||||||||
| Current liabilities | ||||||||
| Shareholders | - | 400 | ||||||
| Accounts Payables (Note 4) | 85,121 | 14,922 | ||||||
| Total current liabilities | 85,121 | 15,322 | ||||||
| Long-term liabilities | ||||||||
| Loan from related company | - | 163,370 | ||||||
| Total liabilities | 85,121 | 178,692 | ||||||
| Shareholders’ equity | ||||||||
| Share capital | 226 | 133 | ||||||
| Additional paid-in capital | 2,176,441 | 332,641 | ||||||
| Capital reserve | 9,539 | 12,715 | ||||||
| Accumulated deficit | (706,782 | ) | (384,542 | ) | ||||
| Total shareholders’ equity (deficit) | 1,479,424 | (39,053 | ) | |||||
| Total liabilities and shareholders’ equity | 1,564,545 | 139,639 | ||||||
Guy Nissenson Chairman of the Board |
Ilan Arad Keshet CEO |
The accompanying notes are an integral part of the review report
| F-2 |
CREATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars)
| For 9 months ended September 30, | For 9 months ended September 30, | |||||||
| 2019 | 2018 | |||||||
| Unaudited | Unaudited | |||||||
| Revenue | 271,998 | 165,624 | ||||||
| Expenses: | ||||||||
| Compensation and related costs to employees | (291,603 | ) | (189,659 | ) | ||||
| General and administrative expenses | (275,105 | ) | (124,261 | ) | ||||
| Operating loss | (294,710 | ) | (148,296 | ) | ||||
| Financial expense , net | (11,380 | ) | (9,239 | ) | ||||
| Net loss for the period | (306,090 | ) | (157,535 | ) | ||||
| Other comprehensive income (expenses): foreign currency translation adjustments | 100,543 | 12,715 | ||||||
| Net loss after Other comprehensive income | (205,547 | ) | (144,820 | ) | ||||
| Per share data- | ||||||||
| Basic and Diluted loss | (0.09 | ) | (287 | ) | ||||
| Shares used in computing earnings (loss) per ordinary share: | ||||||||
| Basic and Diluted | 2,262,144 | 504 | ||||||
The accompanying notes are an integral part of the review report
| F-3 |
CREATIONS INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(U.S. dollars)
| For 9 months ended on September 30, 2019 |
For 9 months ended on September 30, 2018 | |||||||
| Unaudited | Unaudited | |||||||
| Cash flows for operating activities: | ||||||||
| Net loss | (306,090 | ) | (157,535 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities (Appendix A) | 89,335 | (8,843 | ) | |||||
| Net cash used in continuing operating activities | (216,755 | ) | (166,378 | ) | ||||
| Cash flows for financing activities: | ||||||||
| Issuance of shares | 1,639,740 | (4,651 | ) | |||||
| Loan from related party | 23,288 | 159,312 | ||||||
| Credit from banks | - | (261 | ) | |||||
| Net cash used in financing activities | 1,663,028 | 154,000 | ||||||
| Cash flows for investing activities: | ||||||||
| Purchase of fixed assets | - | (1,081 | ) | |||||
| Net cash used in investing activities | - | (1,081 | ) | |||||
| Translation difference in regard to cash balances | 3,992 | 10,455 | ||||||
| Decrease in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of year | 86,094 | 97,585 | ||||||
| Cash and cash equivalents at end of year | 1,536,289 | 94,981 | ||||||
| Appendix A | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Income and expenses that do not involve cash flow: | ||||||||
| Depreciation for the period | 1,102 | 7 | ||||||
| Loan from related company | 9,998 | 7,213 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivables | 2,740 | (15,609 | ) | |||||
| Shareholders | (1,695 | ) | - | |||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | 77,190 | (454 | ) | |||||
| 89,335 | (8,843 | ) | ||||||
Supplementary information on financing activities not involving cash flows (unaudited):
The company calculate the Warrants fair value by using the Black and Scholes model, the key inputs used in the fair value calculations were as follows:
| September 30, 2019 | ||||
| Dividend yield (%) | - | |||
| Expected volatility (%) | 32.11 | |||
| Risk free interest rate (%) | 1.75 | |||
| Expected term of options (years) | 3 | |||
| Exercise price (US dollars) | 1 | |||
| Share price (US dollars) | 0.258 | |||
| Fair value (US dollars) | 0.24 | |||
| F-4 |
| NOTE 1 - | GENERAL |
| Creations Inc. (the “Company”) was established on May, 2019 under the laws of the State of Delaware. On November, 2016, Yetsira Investment House Ltd. (hereinafter: “Yetzira”) an Israeli corporation was established by the stockholders of the Company. In February, 2018, the stockholders of the Company established Yetsira Holdings Ltd. (hereinafter: “Holdings”) an Israeli corporation, and completed the transfer of all of the stakeholders shares into Holdings. In May, 2019 the stockholders of the Company and Holdings transferred all of the stakeholders’ shares of Holdings to the Company. Pursuant to the above transfers, all equity holders of Yetzira received the same proportional ownership in the Company as they had in Yetzira prior to the described transfers. Following the transfers, Yetzira became a wholly-owned subsidiary of the Holdings, which became a wholly-owned subsidiary of the Company. As the transfers constituted a structural reorganization, the transfers have been accounted for at historical cost in a manner similar to a pooling of interests. Yetzira is an Israeli company, which focuses on the management of investment portfolios and the marketing of investment opportunities. |
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES |
| The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). |
| A. | Use of Estimates in Preparation of Financial Statements | |
| The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. | ||
| B. | Functional currency | |
| The functional currency of the Company is the US dollar, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income or expenses. The functional currency of Israel is the New Israeli Shekel (“NIS”) and its financial statements are included in consolidation, based on translation into US dollars. Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year. Gains or losses resulting from translation adjustments are reflected in stockholders’ deficit, under “accumulated other comprehensive income (loss)”. |
| September 30, | September 30, | |||||||
| 2019 | 2018 | |||||||
| Official exchange rate of NIS 1 to US dollar | 0.287 | 0.281 | ||||||
| F-5 |
| C. | Merger of entities under common control | |
| The Company accounted for the exchange of shares between Yetsira Holdings Ltd and Creations Inc. pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-50, Transactions between Entities under Common Control. Accordingly, all prior financial information has been presented to reflect this transaction as a “pooling of interests” as of the earliest period presented under common control. | ||
| When accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. If the receiving entity issues equity interests in the exchange, the equity interests issued are recorded at an amount equal to the carrying amount of the net assets transferred, even if the fair value of the equity interests issued is reliably determinable. | ||
| The financial statements of the receiving entity shall report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had. Common control was established between these entities on 01/07/2019, the date of incorporation of Creations Inc. and therefore, this transaction was recorded as of the merger occurred on 01/07/2019 (the “Merger Date”). | ||
| D. | Property and equipment, net | |
| Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations. |
| % | ||||
| Computers and equipment | 33 | |||
| Vehicles | 15 | |||
| F-6 |
| E. | Fair value of financial instruments | |
| The carrying amounts reported in the balance sheets for cash and short-term debt approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of September 30, 2019. | ||
| F. | Net Profit (Loss) Per Ordinary Share | |
| Basic and diluted net profit (loss) per share have been computed in accordance with ASC 260-10 (formerly SFAS No. 128, “Earnings per Share”) using the weighted average number of ordinary shares outstanding. Basic profit (loss) per share excludes any dilutive effect of options and warrants. | ||
| G. | Recently issued accounting pronouncements | |
| In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. The core principle of this ASU is that revenue should be recognized for the amount of consideration expected to be received for promised goods or services transferred to customers. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and assets recognized for costs incurred to obtain or fulfill a contract. ASU 2014-09 was scheduled to be effective for all other entities aside from public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date,” which deferred the effective date of ASU 2014- 09 by one year and allowed entities to early adopt, but no earlier than the original effective date. ASU 2014-09 is now effective for the Company for the annual reporting period beginning January 1, 2019. | ||
| This update allows for either full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which amends guidance previously issued on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are the same as those for ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition requirements of ASU 2016-12 are the same as those for ASU 2014-09. | ||
| The new standards are effective for the Company effective January 1, 2019. The Company has evaluated the new guidance and its adoption did not have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption was not necessary. There was no change to the Company’s accounting policies. |
| F-7 |
| In February 2016, the FASB issued ASU 2016-02, “Leases.” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for all other entities aside from public business entities for annual reporting periods beginning after December 15, 2020, but early adoption is permitted. The Company adopted the new standard as of January 1, 2019 and noted that a cumulative-effect adjustment as of the adoption date was not necessary as the Company had no active leases as of January 1, 2019. |
| In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for all other entities aside from public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted ASU 2018-07, effective January 1, 2019, and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. | ||
| Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements. |
| NOTE 3 - | Accounts receivables |
| September 30, | September 30, | |||||||
| 2019 | 2018 | |||||||
| Open debt in Israel | 2,488 | (55 | ) | |||||
| Income receivables | - | 8,594 | ||||||
| Income tax | 6,832 | 4,538 | ||||||
| VAT | (1,518 | ) | 1,738 | |||||
| Prepaid expenses | - | 8,260 | ||||||
| Total accounts receivables | 7,802 | 23,075 | ||||||
| NOTE 4 - | Accounts payables |
| September 30, | September 30, | |||||||
| 2019 | 2018 | |||||||
| Unpaid debts | 49,991 | 2,915 | ||||||
| Checks | (2,930 | ) | 1,355 | |||||
| Institutes | 2,631 | - | ||||||
| Accrued expenses | 35,428 | 9,563 | ||||||
| Others | - | 1,089 | ||||||
| Total accounts payables | 85,120 | 14,922 | ||||||
| F-8 |
| NOTE 5 - | Loan from related company |
| The Company had an outstanding loan with Mr. Guy Nissenson and its fully owned subsidiary. | |
| Loan terms: Guy Nissenson will lend the company up to 3 loans for a cumulative amount of NIS 300,000. Each loan carries a 15% interest rate. The principal of each loan will repay about 4 equal annual payments, starting from the second payment date of the annual interest payment. Early repayment - Beginning 6 months after the loan is repaid, the company may repay the loan with early repayment provided it has notified it 30 days in advance. | |
| On January 29, 2018, the Company entered into a loan agreement with Mr. Nissenson for an original principal amount of approximately $85,000. The loan was transferred in two payments of approximately $42,500. The loan was issued for 5 years with an annual interest rate of 10%, with only the interest being paid in the first year, and from the second year the interest and loan are paid in 4 equal payments. A full lien was signed up on the shares of Yetsira Investment house in favor of Guy Nissenson and is fully owned subsidiary. Against those two loans. | |
| On July 2018 the Company entered a second loan agreement for an additional amount of $76,250. The loan was issued for 5 years with an annual interest rate of 15%, with only the interest being paid in the first year, and from the second year the interest and loan are paid in 4 equal payments. Due to additional terms of this loan guy Nissensohn purchased additional 16 shares of Yetsira holding for amount of $8,837. | |
| On March 2019, a loan and options agreement were signed between Yetsira Holdings and Guy Nissenson for $28,500. |
On July 2019, Mr. Guy Nissensohn converted $204,051 of the debt owed to him by Yetsira holdings Ltd. to 253 ordinary shares of Yetsira Holdings Ltd. and a share swap was executed between Creations Inc. and Yetsira Holdings Ltd. shareholders, during which Creations Inc. received 100% of Yetsira Holdings Ltd. and in exchange Mr. Nissensohn received shares of Creations Inc. and entitlement for an equal amount of warrants with an exercise price of $1.00 per share. Post the above share swap the Company has no financial debt to its shareholders.
| NOTE 6 - | Share Capital |
| G. | Issued, authorized and outstanding |
| September 30, | ||||||||
| 2019 | ||||||||
| Authorized | Issued and outstanding | |||||||
| Ordinary shares of $ 0.0001 par value | 2,262,144 | 226 | ||||||
| September 30, | ||||||||
| 2018 | ||||||||
| Authorized | Issued and outstanding | |||||||
| Ordinary shares of NIS 1 par value | 100,000 | 316 | ||||||
| Preferred shares | 10,000 | 200 | ||||||
As Yetsira Holdings LTD. was established, it issued and sold 200 preferred shares for a total consideration of NIS 750,000, to Mr. Guy Nissenson. The Preferred shares entitled its holders preference in the event future dividend distributions. Until the day of this report there were no dividend distributions. On July 1, 2019 just after the establishment of the Company (Creations Inc.) the Preferred Shares were converted to ordinary shares of the Company for no additional consideration.
| F-9 |
| H. | Issuance of stock options |
| Since the fourth quarter of 2018, the Company founders has entered into Purchase Agreements with several investors. Pursuant to the Purchase Agreements, the Company agreed to issue 2,262,144 ordinary shares at $1.00 per share on November 17, 2019. The proceeds from the Purchase Agreements were received until September 30, 2019. The purchasers also received three-year warrants to purchase ordinary shares at an exercise price of $1.00 per share (subject to adjustments). The Company evaluated each component in the Purchase agreement to determine whether it should be classified as equity or liability. The Company determined that all components (warrants and shares) were determined to be eligible for equity classification. As such the warrants were initially recorded in equity at their fair value at the date of issuance, with no subsequent premeasurement, with the remainder of the proceeds allocated to the shares. The fair value of the warrants amounted to $566. |
| NOTE 7 - | Subsequent events |
| On the fourth quarter of 2019, the Company founders has entered into Purchase Agreements with several additional investors. Pursuant to the Purchase Agreements, the Company agreed to issue 27,000 ordinary shares at $1.00 per share. The proceeds from the Purchase Agreements amounted to $ 27,000. The purchasers also received three-year warrants to purchase ordinary shares at an exercise price of $1.00 per share (subject to adjustments). | |
| In addition, Mr. Guy Nissensohn entered into a voting agreement with certain shareholders (the “Voting Agreement”) pursuant to which Mr. Nissensohn was granted full voting powers over 242,709 shares of common stock, including any shares that are received upon exercise of warrants owned by the shareholders. |
| F-10 |
YETZIRA HOLDINGS LTD AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018 AND 2017
YETZIRA HOLDINGS LTD AND SUBSUDUARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018 AND 2017
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-12 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Yetsira Holdings Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Yetsira Holdings Ltd. and Subsidiaries (the “Company”) as of December 31, 2018 and 2017 , and the related statements of operations, changes in shareholders’ equity and cash flows for the years ended December 31, 2018 and 2017 , and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Acquisition of Yetsira Investment House Ltd. (“Investment”)
As discussed in Note 1 to the financial statements, on 28/01/2018, the Company acquired Investment through a share exchange. As of 28/01/2018, Investment became a wholly-owned subsidiary of the Company.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
BARZILY AND CO.
We have served as the Company’s auditor since 2019.
Jerusalem, Israel
February 10, 2020
The accompanying notes are an integral part of the financial statements
| F-13 |
YETZIRA HOLDINGS LTD AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(U.S. dollars)
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 86,094 | 97,585 | ||||||
| Short-term deposit | 10,781 | 11,500 | ||||||
| Accounts Receivables (Note 3) | 9,872 | 8,121 | ||||||
| Total current assets | 106,747 | 117,206 | ||||||
| Long-term assets | ||||||||
| Long-term deposit | 1,789 | 1,934 | ||||||
| Fixed assets, net (Note 4) | 6,167 | 8,042 | ||||||
| Total long-term assets | 7,956 | 9,976 | ||||||
| Total assets | 114,703 | 127,182 | ||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY(DEFICIT) Current liabilities |
||||||||
| Credit from banks | - | 268 | ||||||
| Related Parties (Note 5) | 303 | 311 | ||||||
| Accounts Payables | 6,594 | 16,185 | ||||||
| Total current liabilities | 6,897 | 16,764 | ||||||
| Long-term liabilities | ||||||||
| Loans from related company (Note 6) |
162 ,806 |
- | ||||||
| Total liabilities | 169,703 | 16,764 | ||||||
| Shareholders’ equity (deficit) | ||||||||
| Share capital (Note 7) | 133 | 129 | ||||||
| Additional paid-in capital | 332,641 | 323,808 | ||||||
| Capital reserve | 12,918 | 13,488 | ||||||
| Accumulated deficit | (400,692 | ) | (227,007 | ) | ||||
| Total shareholders’ equity (deficit) | (55,000 | ) | 110,418 | |||||
| Total liabilities and shareholders’ equity (deficit) | 114,703 | 127,182 | ||||||
Guy Nissenson Chairman of the Board |
Ilan Arad Keshet CEO |
The accompanying notes are an integral part of the financial statements
| F-14 |
YETZIRA HOLDINGS LTD AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars)
| For the year ended December 31, | For the year ended December 31, | |||||||
| 2018 | 2017 | |||||||
| Revenue | 271,252 | 3,815 | ||||||
| Expenses: | ||||||||
| Compensation and related costs to employees | (282,498 | ) | (101,482 | ) | ||||
| General and administrative expenses | (147,416 | ) | (129,340 | ) | ||||
| Operating loss | (158,662 | ) | (227,007 | ) | ||||
| Financial expenses | (15,023 | ) | - | |||||
| Net loss for the year | (173,685 | ) | (227,007 | ) | ||||
| Other comprehensive income (expenses): | ||||||||
| Foreign currency translation adjustments | (570 | ) | 13,488 | |||||
| Net loss after Other comprehensive income (expenses) | (174,255 | ) | (213,519 | ) | ||||
| Per share data- | ||||||||
| Basic and Diluted loss | (342 | ) | (454 | ) | ||||
| Shares used in computing loss per ordinary share: | ||||||||
| Basic and Diluted loss | 508 | 500 | ||||||
The accompanying notes are an integral part of the financial statements
| F-15 |
YETZIRA HOLDINGS LTD AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars)
| Number of ordinary shares | Number of preferred shares | Share capital | Additional paid-in Capital | Accumulated other comprehensive income | Accumulated deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2017 | ||||||||||||||||||||||||||||
| Changes during 1-12/2017: | ||||||||||||||||||||||||||||
| Issuance of shares | 300 | 200 | 129 | 323,808 | - | - | 323,937 | |||||||||||||||||||||
| Other comprehensive income | - | - | - | - | 13,488 | - | 13,488 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (227,007 | ) | (227,007 | ) | |||||||||||||||||||
| Balance at December 31, 2017 | 300 | 200 | 129 | 323,808 | 13,488 | (227,007 | ) | 110,418 | ||||||||||||||||||||
| Changes during 1-12/2018: | ||||||||||||||||||||||||||||
| Issuance of shares | 16 | - | 4 | 8,833 | 8,837 | |||||||||||||||||||||||
| Other comprehensive income | (570 | ) | (570 | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | (173,685 | ) | (173,685 | ) | |||||||||||||||||||||
| Balance at December 31, 2018 | 316 | 200 | 133 | 332,641 | 12,918 | (400,692 | ) | (55,000 | ) | |||||||||||||||||||
The accompanying notes are an integral part of the financial statements
| F-16 |
YETZIRA HOLDINGS LTD AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(U.S. dollars)
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Cash flows for operating activities: | ||||||||
| Net loss | (173,685 | ) | (227,007 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities (Appendix A) | 4,147 | 10,097 | ||||||
| Net cash used in continuing operating activities | (169,538 | ) | (216,910 | ) | ||||
| Cash flows for financing activities: | ||||||||
| Issuance of shares | 8,837 | 323,937 | ||||||
| Loan From related company | 157,689 | - | ||||||
| Credit from banks | (258 | ) | 258 | |||||
| Net cash provided by financing activities | 166,268 | 324,195 | ||||||
| Cash flows for investing activities: | ||||||||
| Short-term deposit | (150 | ) | (11,075 | ) | ||||
| Long-term deposits | - | (1,863 | ) | |||||
| Purchase of fixed assets | (1,027 | ) | (9,777 | ) | ||||
| Net cash used in investing activities | (1,177 | ) | (22,715 | ) | ||||
| Translation differences in regard to cash balances | (7,044 | ) | 13,015 | |||||
| Decrease in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of year | 97,585 | - | ||||||
| Cash and cash equivalents at end of year | 86,094 | 97,585 | ||||||
| Appendix A | ||||||||
| Adjustments to reconcile net loss to net | ||||||||
| cash used in operating activities: | ||||||||
| Income and expenses that do not involve cash flow: | ||||||||
| Depreciation for the period | 2,353 | 2,032 | ||||||
| Financial expenses related to loans from related company | 12,971 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in assets: | ||||||||
| Receivables | (2,460 | ) | (7,822 | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Payables | (8,717 | ) | 15,887 | |||||
| 4,147 | 10,087 | |||||||
| F-17 |
| NOTE 1 | - | GENERAL |
Yetsira Holdings Ltd. (hereinafter: “Holdings”) an Israeli corporation established on January 2018 through a share exchange, transferring the shareholders holdings in Yetzira to Holdings (see also note 2d). As a result Yetsira Holdings owns 100% of Yetsira Investment House Ltd. (hereinafter: “Yetsira”), our operating entity which is an Israeli corporation established on November 2016. Yetsira focuses on the management of investment portfolios and the marketing of investment opportunities.
| NOTE 2 | - | SIGNIFICANT ACCOUNTING POLICIES |
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
| A. | Use of Estimates in Preparation of Financial Statements |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| B. | Functional currency |
The functional currency of the Company is the NIS, which is the currency of the primary economic environment in which it operates. In accordance with ASC 830, “Foreign Currency Matters” (ASC 830), balances denominated in or linked to foreign currency are stated on the basis of the exchange rates prevailing at the applicable balance sheet date. For foreign currency transactions included in the statement of operations, the exchange rates applicable on the relevant transaction dates are used. Gains or losses arising from changes in the exchange rates used in the translation of such transactions are carried as financing income or expenses. The functional currency of Yetzira and Holdings is the New Israeli Shekel (“NIS”) and its financial statements are included in consolidation, based on translation into US dollars. Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year. Gains or losses resulting from translation adjustments are reflected in stockholders’ deficit, under “accumulated other comprehensive income (loss)”.
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Official exchange rate of NIS 1 to US dollar | 0.281 | 0.288 | ||||||
| C. | Principles of consolidation |
The consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
| F-18 |
| D. | Merger of entities under common control |
The Company accounted for the exchange of shares between Yetsira Investment House and Yetsira Holdings Ltd pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-50, Transactions between Entities under Common Control. Accordingly, all prior financial information has been presented to reflect this transaction as a “pooling of interests” as of the earliest period presented under common control.
When accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. If the receiving entity issues equity interests in the exchange, the equity interests issued are recorded at an amount equal to the carrying amount of the net assets transferred, even if the fair value of the equity interests issued is reliably determinable.
The financial statements of the receiving entity shall report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period in which common control was established. Results of operations for that period will thus comprise those of the previously separate entities combined from the beginning of the period in which common control was established to the date the transfer is complete, and those of the combined operations from that date to the end of the period. Common control was established between these entities on 29/01/2018, the date of incorporation of Yetsira Holdings Ltd and the transaction was recorded as a merger occurred on 29/01/2018 (the “Merger Date”).
The presented shareholder’s equity as of December 31, 2017 was adjusted to present the share capital and additional paid in capital of Holdings.
| E. | Cash and cash equivalents |
The Group considers all highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, and short-term debentures, with original periods to maturity not exceeding three months, to be cash equivalents.
| F. | Property and equipment, net |
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations.
Depreciation percentage | |
| Computers and equipment | 33 |
| Vehicles | 15 |
| F-19 |
| G. | Revenues recognition |
The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, which supersedes the existing revenue recognition accounting rules. The new guidance is applicable for public business entities for periods beginning after December 15, 2017. All other reporting entities using U.S. generally accepted accounting principles (GAAP) must adopt ASC 606 for fiscal years beginning after December 15, 2018. Early adoption is permitted.
Wealth Management and Investments Brokerage Fees (Gross): The Company earns wealth management and investment brokerage fees from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services provided include financial planning services and the fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered.
| H. | Fair value of financial instruments |
The carrying amounts reported in the balance sheets for cash and short-term debt approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2018.
| I. | Income taxes |
The Company accounts for income taxes under ASC 740, “Income Taxes”. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740-10-05 (the “Subtopic”). The Subtopic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and certain recognition thresholds must be met before a tax position is recognized. An entity may only recognize or continue to recognize tax positions that meet a “more likely-than-not” threshold. As of December 31, 2018, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense.
| F-20 |
| J. | Net Profit (Loss) Per Ordinary Share |
Basic and diluted net profit (loss) per share have been computed in accordance with ASC 260-10 (formerly SFAS No. 128, “Earnings per Share”) using the weighted average number of ordinary shares
Outstanding. Basic profit (loss) per share excludes any dilutive effect of options and warrants.
| K. | Recently issued accounting pronouncements |
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. The core principle of this ASU is that revenue should be recognized for the amount of consideration expected to be received for promised goods or services transferred to customers. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and assets recognized for costs incurred to obtain or fulfill a contract. ASU 2014-09 was scheduled to be effective for all other entities aside from public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date,” which deferred the effective date of ASU 2014- 09 by one year and allowed entities to early adopt, but no earlier than the original effective date. ASU 2014-09 is now effective for the Company for the annual reporting period beginning January 1, 2018.
This update allows for either full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which amends guidance previously issued on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are the same as those for ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition requirements of ASU 2016-12 are the same as those for ASU 2014-09.
The new standards are effective for the Company effective January 1, 2018. The Company has evaluated the new guidance and its adoption did not have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption was not necessary. There was no change to the Company’s accounting policies.
In February 2016, the FASB issued ASU 2016-02, “Leases.” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for all other entities aside from public business entities for annual reporting periods beginning after December 15, 2020, but early adoption is permitted. The Company will adopt the new standard as of January 1, 2019.
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
| F-21 |
| NOTE 3 | - | Accounts receivables |
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Open debt in Israel | 39 | - | ||||||
| Income receivables | 5,251 | - | ||||||
| Income tax | 1,130 | - | ||||||
| VAT | 330 | 7,590 | ||||||
| Prepaid expenses | 3,122 | 531 | ||||||
| Total accounts receivables | 9,872 | 8,121 | ||||||
| NOTE 4 | - | Fixed assets, net |
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Cost: | ||||||||
| Computers and equipment | 4,394 | 3,639 | ||||||
| Vehicles, Purchases this year | 6,024 | 6,513 | ||||||
| Total Purchases this year | 10,418 | 10,152 | ||||||
| Depreciation: | ||||||||
| Computers and equipment | (2,299 | ) | (1,133 | ) | ||||
| Vehicles, depreciation for the period | (1,952 | ) | (977 | ) | ||||
| Total depreciation for the period | (4,251 | ) | (2,110 | ) | ||||
| Computers and equipment, net | 2,095 | 2,506 | ||||||
| Vehicles, net | 4,072 | 5,536 | ||||||
| Total, net | 6,167 | 8,042 | ||||||
| NOTE 5 | - | Related parties |
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Balance of shareholders | (303 | ) | (311 | ) | ||||
| 2018 | 2017 | |||||||
| Interest on related party loans | 12,049 | — | ||||||
| 2018 | 2017 | |||||||
| Related party - management fee | 38,944 | 264 | ||||||
| F-22 |
| NOTE 6 | - | Loans from related company |
The Company has an outstanding loan received from Mr. Guy Nissenson through a fully owned subsidiary of his.
Loan terms: Guy Nissenson will lend the company up to 3 loans for a cumulative amount of NIS 300,000. Each loan carries a 15% annual interest rate. The principal of each loan will be repaid at 4 equal annual payments, starting from the second annual interest payment date (i.e. the first principle payment will be during 2020). Early repayment - Beginning 6 months after the loan was originally received, the company may repay the loan with such early repayment provided it subject to 30 days notification in advance.
On January 29 ,2018, the Company entered into a loan agreement with Mr. Nissenson for an original principal amount of approximately $85,000. The loan was issued for 5 years with an annual interest rate of 10%. The principle of the loan will be repaid at 4 equal annual payments, starting from the second annual interest payment date (i.e. the first principle payment will be during 2020). A full lien was signed up on the shares of Yetsira Investment house in favor of Guy Nissenson and his fully owned subsidiary. Against those two loans.
On July 2018 the Company entered a second loan agreement for an additional amount of $76,250. The loan was issued for 5 years with an annual interest rate of 15%, with only the interest being paid in the first year, and from the second year the interest and loan are paid in 4 equal payments. Due to additional terms of this loan guy Nissensohn purchased additional 16 shares of Yetsira holding for amount of $8,837.
See also note 9.
| NOTE 7 | - | Share Capital |
| December 31, | ||||||||||||
| 2018 | 2017 | |||||||||||
| Authorized | Issued and outstanding | |||||||||||
| Ordinary shares of NIS 1 par value | 100,000 | 316 | 300 | |||||||||
| Preferred shares | 10,000 | 200 | 200 | |||||||||
As the Company was established, the Company issued and sold 200 preferred shares for a total consideration of NIS 750,000, to Mr. Guy Nissenson.
The Preferred shares entitles its holders preference in the event future dividend distributions.
During the period there were no dividend distributions.
| NOTE 8 | - | TAXES ON INCOME |
| A. | Taxation under Various Laws |
The Company is assessed for tax purposes on an unconsolidated basis. The company and subsidiary are assessed under the provisions of the Israeli Income Tax Ordinance.
| F-23 |
| B. | Forwarded loss |
As of December 31, 2018 the Company has a loss carryforward, for tax purposes, of $ 371,853 (NIS 1,393,706).
| C. | Reconciliation of Income Taxes |
The following is a reconciliation of the taxes on income assuming that all income is taxed at the ordinary statutory corporate tax rate in Israel and the effective income tax rate:
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Net profit (loss) as reported in the | ||||||||
| statements of operations | $ | (173,685 | ) | $ | (227,007 | ) | ||
| Statutory tax rate | 23.0 | % | 24.0 | % | ||||
| Income Tax under statutory tax rate | $ | 39,948 | $ | 54,488 | ||||
| Losses in respect of which no deferred tax assets were recognized | ||||||||
| Less full valuation allowance | (39,948 | ) | (54,488 | ) | ||||
| Actual income tax | $ | - | $ | - | ||||
| D. | Deferred Taxes |
Under ASC 740-10 deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carry forwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by a valuation allowance.
Since the realization of the net operating loss carry forwards and deductible temporary differences is less likely than not, a valuation allowance has been established for the full amount of the tax benefits.
| E. | Tax Assessments |
The Company has not received final tax assessments for income tax purposes since incorporation.
| NOTE 9 | - | Events subsequent to balance sheet date |
On July 2019, Mr. Guy Nissensohn converted $204,051 of the debt owed to him by Yetsira holdings Ltd. to 253 ordinary shares of Yetsira Holdings Ltd. and a share swap was executed between Creations Inc (Creations Inc. was established on May, 2019 under the laws of the State of Delaware) and Yetsira Holdings Ltd. shareholders, in which Creations Inc received 100% of Yetsira Holdings Ltd. Each shareholder received in exchange for his Yetsira Holdings shares, shares of Creations Inc and entitlement for an equal amount of warrants with an exercise price of $1.00 per share. During 2019 creations raised an additional $975,000 from investors for 975,000 shares of Creations and 975,000 warrants exercisable at a price of $1.00.
| F-24 |
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses payable by us in connection with the sale of the securities being registered. All such costs and expenses shall be borne by us. Except for the SEC registration fee, all the amounts shown are estimates.
Amount to be Paid | ||||
| Sec registration fee | $ | [*] | ||
| Legal fees and expenses | [*] | |||
| Accounting fees and expenses | [*] | |||
| Printing and miscellaneous expenses | [*] | |||
| Total | $ | [*] | ||
Our certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
| ● | any breach of the director’s duty of loyalty to us or our stockholders; | |
| ● | any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; | |
| ● | unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or | |
| ● | any transaction from which the director derived an improper personal benefit. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his, her or its actions in that capacity regardless of whether we would otherwise be permitted to indemnify him, her or it under Delaware law.
We believe that these provisions in our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers.
The limitation of liability and indemnification provisions in our certificate of incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. There is no pending litigation or proceeding naming any of our directors, officers or employees as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer or employee.
| II-1 |
RECENT SALES OF UNREGISTERED SECURITIES
[Enter Subscription Agreement Details]
EXHIBITS
A list of exhibits filed with this registration statement on Form S-1 is set forth on the Exhibit Index and is incorporated in this Item [16] by reference.
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission (the “Commission”) pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.
| II-2 |
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(b) The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the indemnification provisions described herein, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
EXHIBIT INDEX
| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the year 2020 on the [xx]th day of February.
| By: | /s/ Guy Nissenson | |
| Name: | Guy Nissenson |
| II-4 |
Exhibit 3.1
Exhibit 3.2
Exhibit 10.1
AGREEMENT
Made and entered into in Ramat Gan on the ___ of _______________________ 2016
| Between: | Ayalon Mutual Funds Ltd., private company number 513011445 |
| Of Aba Hillel Silver 12, Ramat-Gan, 5250606 | |
| (Hereinafter: the “Fund Manager”) |
Of the first part;
| And: | Yetsira Investment House Ltd. private company no. 515552495 |
| Of Habrosh 49, Pardessiyah (Hereinafter: the “Investment Manager”) |
Of the second part;
| Whereas: | the Fund Manager is a company engaged in the management of joint investment mutual funds in Israel, in accordance with the provisions of the Joint Investment Trusts Law, 5754-1994 (hereinafter: the “Joint Investment Law”); | |
| And whereas: | the Investment Manager is authorized to manager investment portfolios, subject to the provisions of the Law to Regulate Engagement in Investment Consultancy, Investment Marketing and Investment Fund Management, 5755-1995 (hereinafter the “Investment Advice Law”); | |
| And whereas: | the Fund Manager wishes to procure that investment services are provided by the Investment Manager’s employees for the mutual funds which will be managed by the Fund Manager (hereinafter, the “Funds”), all as set out in Appendix A to this Agreement, and as amended from time to time, including granting permission to operate in Fund accounts and deposits (hereinafter, the “Services” or the “Management Services”); | |
| And whereas: | the Investment Manager wishes to provide the Services, all subject to the provisions of any law which applies to its activity, including the provisions of the Investment Advice Law, and subject to the provisions of the power of attorney given and/or to be given by the Trustee to the Fund Manager; |
Therefore, it is hereby agreed, declared and stipulated between the parties as follows:
| 1. | Introduction | |
| 1.1 | The Preamble and the Appendices to this Agreement constitute an integral part hereof. | |
| 1.2 | The division of this Agreement into chapters and appendices, and the assignment of headings to the chapters and appendices thereof, is for convenience purposes only and they will not be used for interpretation purposes. | |
| 2 |
| 1.3 | All the terms contained in this Agreement, which are defined in the Joint Investment Law and/or the Investment Advice Law and/or the directives of the Tel Aviv Stock Exchange Ltd. (hereinafter: the “Stock Exchange”) will be interpreted as defined in the Investment Advice Law and/or the Joint Investment Law and/or the relevant directive of the Stock Exchange, and in case of inconsistency, the definition provided in the Joint Investment Law will prevail. | ||
| For the purpose of convenience, in this Agreement, the term - “Legislative Regulation” – will include the Joint Investment Law, the Investment Advice Law, Securities Law, 5728-1968 and the Law to Prevent Money-Laundering 5760-2001, and regulations promulgated by virtue of these laws and/or any legal provision, laws, regulations and orders relating to fund managers and mutual funds, the Israel Securities Authority, the Stock Exchange and any other body, authority and other competent parties – all as they currently are and as they will be in the future from time to time. | |||
| 1.4 | This Agreement constitutes a contractual engagement for the purpose of portfolio management of the Funds, and therefore both it and the Services provided and to be provided by the Investment Manager under this Agreement, are subject to all provisions of the Legislative Regulation, other than if it is determined otherwise in this Agreement, and provided that such stipulation is permitted under the provisions of the Legislative Regulation. | ||
| 1.5 | Everything stated in this Agreement will apply to each of the Funds to be managed by the Investment Manager in accordance with the provisions of this Agreement, and unless specifically stated otherwise in this Agreement. | ||
| 2. | Declarations and Undertakings of the Investment Manager and the Provider of the Investment Management Services | ||
| 2.1 | The Investment Manager declares as follows: | ||
| 2.1.1 | That it meets all legal requirements applicable on the execution date of this Agreement with respect to its engagement as mentioned above; that the execution of this Agreement is within its capabilities and does not contradict any other agreement and/or obligation to which it is a party; and it undertakes to meet the requirements of the law as applicable to their operations, throughout the term of the Agreement. | ||
| 2.1.2 | That it has a good reputation as an investment manager, the know-how, expertise, resources and experience to comply with the undertakings it is taking upon itself, as stated in this Agreement. | ||
| 2.1.3 | That both it and its employees who will be engaged in managing the investment fund portfolios, are and will be familiar, throughout the term of this Agreement with the provisions of the Legislative Regulation, including to the extent that the Investment Manager will implement updates and revisions resulting from changes to legislation and incorporate any such update and/or revision which is made by the Fund Manager. | ||
| 2.1.4 | That it is not aware of any possible conflict of interest between its own interests and/or the interests of anyone acting on its behalf, and the interests or the Fund Manager and/or the Funds being managed by the Fund Manager. | ||
| 2.1.5 | That it is duly authorized under the law to engage in the management of portfolios by virtue of license number . | ||
| ***a copy of the portfolio management license is attached as Annex “B” to this Agreement. | |||
| 3 |
| 2.1.6 | That no disciplinary, administrative or criminal proceedings have been conducted and/or managed against it and/or against any of its employees, by any legally competent authority, and it is not aware of any intention to initiate any such proceedings, in relation to the Services which are the subject of this Agreement. | ||
| 2.1.7 | That there have been no findings made against it, in the course of being audited by a legally competent authority, and if any such were to be found, that they will immediately be referred to the Fund Manager for investigation. | ||
| 2.1.8 | It has not been subject to financial penalties/sanctions by a legally competent authority, nor is it aware of any intention to do so. | ||
| 2.1.9 | That it is a corporation owned by Ilan Arad Keshet, Amit Hezi Bilia, Shmuel Yelshevich and will also be owned by Guy Nisenson and that they are not affiliated with institutional bodies and/or marketers as these terms are defined in law, and/or have a connection with financial assets other than the Funds which are the subject of this Agreement and that none of them are aware of proceedings being conducted against any of the owners of the Investment Manager and/or of the existence of any circumstances that would prejudice the trustworthiness of the Fund Manager and/or which could have on the contractual engagement in this Agreement. In addition, the Investment Manager undertakes that it does not own and/or control of a banking corporation, as defined in the Banking (Licensing) Law, 5741-1981. | ||
| 2.1.10 | That it has an insurance policy which complies with the required terms of the Regulations to Regulate Engagement in Investment Consulting, Investment Marketing and the Management of Investment Portfolios (Equity and Insurance), 5760-2000, and that it undertakes to continually maintain such policy in force for the duration of the engagement under this Agreement, including by periodically checking that it complies with the required equity and insurance, and by doing so not less than each quarter, and that it will provide the Fund Manager with a confirmation from the insurer that the insurance is in force, the level of insurance cover and the scope of deductibles. | ||
| 2.2 | The restrictions regarding investment in personal accounts by virtue of the Legislative Regulation that applies to employees of the Fund Manager, the members of the investment committee at the Fund Manager and anyone employed by the Fund Manager who is actively involved in taking decisions regarding securities held in Funds, will apply to anyone who is employed by the Investment Manager to provide the Services which are the subject of this Agreement. | ||
| 2.3 | For the avoidance of doubt it is clarified that as of the date of commencing operations in the Funds that are subject of this Agreement and for the duration of the period in which the Services are provided to the Fund Manager as stated in this Agreement, the Investment Manager and its employees who will actually provide the Management Services and/or participate in making decisions regarding the management of the investment fund portfolio, will be licensed to manage investment portfolios, in accordance with the Investment Advice Law; in addition, throughout the period in which the Services are provided, the individuals who actually provide the Management Services on behalf of the Investment Manager will not be engaged in any role which involves taking decisions regarding the management of an investment portfolio of another fund managed by another fund manager and/or the management of a Nostro account, unless they have received prior, written approval from the Fund Manager and after this issue has been reviewed and approved by the Fund Manager’s board of directors. For the avoidance of doubt, the purchase of mutual fund units managed by the Fund Manager will not be deemed as Nostro management in the context of this section and for this purpose, the limitations set out in section 49 of the Law as detailed in section 3.9.1 below will apply. | ||
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| 2.4 | For the avoidance of doubt, it is clarified that there will be no employer-employee relationship, for all intents and purposes, between the employees of the Investment Manager who are engaged in providing the Services that are the subject of this Agreement, and the Fund Manager, and the Services are provided through its employees. The Investment Manager is entitled to engage employees to provide the Services that are the subject of this Agreement, at its expense (subject to the issue of the consideration for the Services as determined in section 5 hereunder), and provided that the employees are engaged by the Investment Manager and who participate in decision making on the investment of the Fund’s assets, have the licenses required to manage the investment portfolios as portfolio managers, and provided that they comply with the legal requirements regarding anyone who is employed by a fund manager and who participate in making decisions regarding securities held in funds, as they will be from time to time. | ||
| As of the date of the contractual engagement, the particular employees who have been appointed by the Investment Manager, to provide the Services to the Fund Manager are as follows: | |||
| Ilan Arad Keshet, | |||
| Amit Hezi Bilia, | |||
| Shmuel Yelshevich | |||
| If there are changes to the names of the specific employees who are to provide the Management Services, a written notification will be sent to the Fund Manager by 3 business days prior to the date of such change, in order for the report required under law, to be sent. | |||
| 2.5 | In the context of the Services, the Investment Manager will provide the following Services and will be responsible for the following activities: | ||
| 2.5.1 | It will be responsible for and carry out the daily management of the Fund’s assets (taking investment decisions, giving instructions regarding purchases, sales, creating and exercising option letters, converting securities, etc.), subject to the decision of the Fund Manager’s Investment Committee and board of directors, the policy and practise for selecting and managing investments and for risk management of the Fund, in accordance with policies to be put together by the Fund Manager, from time to time, the provisions of the Fund Agreements, the Fund’s prospectuses and the provisions of any law, and under the supervision of the Fund Manager. | ||
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| 2.5.2 | Without derogating from the generality of the foregoing, the Investment Manager undertakes to act in accordance with the Fund’s working practices, as they will be updated from time to time, and as the Investment Manager will be updated, and to carry out daily audits as required by the Fund Manager, including but not limited to, by providing daily reports and accounting to the Fund Manager. | ||
| 2.5.3 | The Investment Manager will be responsible for, will conduct and prepare, research and/or background review and/or provide clarification, as required, in order to establish the value of assets held in the Fund’s investment portfolios, in accordance with the Fund Manager’s procedures and/or valuation guidelines, required to establish the value of an asset which varies from the last Stock Exchange rate, or which is required to explain to why this valuation should not be changed. | ||
| 2.5.4 | The Investment Manager will be responsible for, will conduct and prepare, research and/or background review, as required and to the Fund Manager’s satisfaction, for the purpose of approving the implementation of a transaction which requires approval by virtue of the provisions of sections 18 and 60 of the Joint Investments Law and by virtue of the Conflict of Interests Regulations. | ||
| 2.5.5 | The Investment Manager will be responsible for checking and monitoring the Funds’ published unit and redemption prices, and will do so in addition to the checks carried out by the Fund Manager in this regard and/or by the outside service bureaux with which the Fund Manager and/or the external investment manager is connected. | ||
| 2.5.6 | The Investment Manager will be responsible for, will conduct, prepare and monitor, all required data required by the Fund Manager in order to prepare the Funds’ annual reports or to prepare a main prospectus relating to all aspects of the Funds of funds and/or in connection with Funds and/or Services, including data which cannot be produced by way of the outside service bureaux with which the Fund Manager and/or the Investment Manager and/or other data that may be required by the Fund Manager, provided that the information is not available to the Fund Manager. | ||
| 2.5.7 | The Investment Manager will be responsible for, will conduct, prepare and monitor all data required by the Fund Manager in order to send all required references to the competent authorities, if required, including producing data, analysis, providing responses regarding policy, methodology and/or any other issues required by the competent authorities, and all within the time frame in which the Fund Manager is allowed to review the data and/or the responses before forwarding them to the competent authorities. | ||
| 2.5.8 | Any other subject which is required by the Fund Manager in order to provide the Services. | ||
| 2.6 | The Fund Manager will be responsible for carrying out the ongoing management of the Funds (including preparing and publishing immediate reports, issuing notices under law, publishing Fund Prospectuses, sending information to the Securities Authority, etc.), provided that, if the Fund Manager requires data and information from the Investment Manager for such purpose, the Investment Manager will send such data and information in advance and it is confirmed that it has been received as required, when the situation so requires. | ||
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| 2.7 | The Investment Manager undertakes to cooperate in every way and as soon as possible, with a request by the Fund Manager, including a request to report to any authority and/or be present at the signing of any document, subject to any law and/or transfer of any information required for the purpose of management of the Funds by the Fund Manager. | |
| 2.8 | Fund names will bear the name of the Investment Manager. | |
| 2.9 | The Fund Manager will notify the Investment Manager of changes in the investment policy and/or in the investment guidelines and the Investment Manager will take immediate action to carry out the actions required by the notification of a change and the Investment Manager will follow up the Fund Manager’s reports and give warning if he has not received any such instructions and/or updates. Such updates will be sent by email to: _________________. The Investment Manager undertakes to notify the Fund Manager, if the email address is changed and otherwise will be deemed to have received the directives/instructions immediately after having been sent by the Fund Manager. | |
| 2.10 | In parallel with what is stated in section 2.9 above, the Investment Manager will follow up on the Fund Manager’s reports on the Securities Authority’s website, at the address www.magna.isa.gov.il (hereinafter “Magna”) and on the documents which are required in order to implement this Agreement, and will act to give warning if it does not receive such provisions and/or updates. | |
| 2.11 | The Investment Manager will send a representative on its behalf to meetings of the Investment Committee, to meetings of other committees of the board of directors and/or relevant forums of the Fund Manager which discuss the Funds which are the subject of this Agreement, in accordance with invitations issued by the Fund Manager, and at least once each quarter. This representative will not have a voting right and will be counted in a quorum of those attending such committee meetings or forums. The Fund Manager will be empowered at its sole discretion, not to invite and/or to bar the presence of the Investment Manager’s representative at such board of directors’ committee meetings or forums. If the Investment Manager is invited to such meeting, it will be required the Investment Manager’s representative will be required to attend the meeting and present his position. | |
| 2.12 | The Investment Manager undertakes not to carry out transactions in securities that require the approval of the Fund Manager’s Board of Directors in accordance with, inter alia, the Joint Investment Trust Regulations (Transactions which may include a conflicts of interests, material transactions and off-Stock Exchange transactions), 5755-1994 (hereinafter, the “Conflict of Interest Regulations”), and without derogating from the foregoing, any other transaction required by the Fund Manager’s procedures, from time to time, other than after the Fund Manager has been notified of its intention to carry out such transaction, notified the Fund Manager in writing of all the details relating to such transaction, and received the Fund Manager’s prior approval in writing, stating that the Fund Manager’s board of directors or a designated committee thereof to which such authority has been assigned, has been convened to consider approving the transaction and has approved it, in accordance with Legislative Regulation. |
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| 2.13 | The Investment Manager undertakes not to carry out transactions in derivatives (options, futures contracts and short-sales) and/or lending operations and/or credit operations, until after the Fund Manager has been sent, in writing, all details regarding these transactions or the context of the operation, according to the circumstances, and has received the written approval of the Fund Manager’s board of directors or until a designated committee thereof, to which has such authority has been assigned, has been convened to approve the context of the operation and has approved it in advance, in accordance with the provisions of the Legislative Regulation. For the avoidance of doubt, if the board of directors or such committee, approves the context of such operations for the Fund and the Investment Manager receives written confirmation thereof, it may operate in the framework thereof for as long as such contexts are not changed. | |
| 2.14 | If the Fund Manager’s board of Directors determined, in a procedure approved by the Trustee for the Funds, the conditions on which securities are to be acquired for the Funds in a public offering carried out according to a prospectus, including in a connected issue, as defined by law, the Investment Manager may, subject to complying with the conditions laid down in such procedure, perform the transactions, subject to the Fund Manager’s obligation to provide a written report regarding the implementation of such transactions, which will be deemed to be a transaction which the board of directors has reviewed as stated in the provisions of the Joint Investment Law. | |
| 2.15 | Without derogating from the aforesaid requirements, the Investment Manager undertakes to report to the Fund Manager, in writing, all transactions performed outside the Stock Exchange or a regulated market and/or coordinated transactions (irrespective of whether they required approval by virtue of the Conflict of Interest Regulations, or not), which the Investment Manager has carried out, and to indicate whether the transactions required approval under the Conflict of Interest Regulations, and all details required by the Joint Investments Regulations (Reports), 5755-1994, by no later than two business days prior to the date on which the Fund Manager is required to provide a report of such transactions under law. | |
| 2.16 | Without derogating from any of the other provisions of the Investment Advice Law, when managing the investments, the Investment Manager will not give preference to its securities or financial assets or those of a connected investment manager, unless the Fund Manager’s board of directors, has given its prior, written agreement thereto, and in accordance with the provisions of the Investment Advice Law. | |
| 2.17 | The Investment Manager will not discriminate between the various funds whose investment portfolio it manages, and will not discriminate between owners of units in these funds. | |
| 2.18 | The Investment Manager will adopt the Fund Manager’s policy for selecting investments and the manner in which they are managed as will be determined by the Fund Manager from time to time, and provided to the Investment Manager, and the Investment Manager undertakes to comply with the stated selection policy set by the Fund Manager for all activity in selecting and/or managing investment in the Funds, and all to the complete satisfaction of the Fund Manager, throughout the whole term of this Agreement. | |
| 2.19 | The Investment Manager will adopt the Fund’s risk management policy in accordance with its investment policy, as will be determined by the Fund Manager, from time to time, and provided to the Investment Manager, and the Investment Manager undertakes to comply with this risk management policy, including drawing up any document and/or carrying out any check, and/or complying with any duty of care, and/or notice required by the Fund Manager’s said policy, and all to the complete satisfaction of the Fund Manager, throughout the entire term of this contractual engagement. |
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| 2.20 | The Investment Manager and/or the portfolio managers acting on its behalf and all of them - including those who act on their behalf, will refrain from performing any Front Running in a transaction, opinion or action they carry out in the mutual funds, any of their other activities and, without derogating from the generality of the foregoing or the provisions of any law, and will not manage and/or advise others in contexts which are not portfolios managed by the Company, in connection with securities and financial assets, including securities and foreign securities, purchased and/or held in mutual funds. | |
| 3. | Additional undertakings and declarations | |
| 3.1 | The Fund Manager declares that it is aware that the Investment Manager has not undertaken to achieve any minimum return for the Funds. | |
| 3.2 | The Fund Manager and the Investment Manager declare and confirm that they are aware that this Agreement is subject to the supervision and instructions of the Securities Authority and other authorities as regards the operations of the Investment Manager. | |
| 3.3 | The Fund Manager declares that it is aware that the Investment Manager’s duty to maintain confidentiality in respect of all information which the Fund Manager brings to the Investment Manager’s attention, including documents which are made available to it and the contents thereof, and any other detail relating to the activities which the Investment Manager will carry out on behalf of the Fund Manager, is subject to the Investment Manager’s duty to provide information and reports under the law. | |
| 3.4 | The Investment Manager undertakes to operate in accordance with the Funds’ investment policies as determined by the Fund Manager’s board of directors and the directives of the Investment Committee or the General Manager of the Fund Manager, as they will be from time to time, and the policy for selecting investments and the manner in which they are managed as determined by the Fund Manager, if so determined, as that will be from time to time. If the Investment Manager deviates from the investment policies and/or the directives, it must rectify this in accordance with the timings set out in the Legislative Regulation or in the directives of the Fund Manager, if given and as the case may be. | |
| 3.5 | The Investment Manager undertakes to enable the Compliance Officer, the Internal Auditor, the Internal Enforcement Officer and/or the Internal Control Officer and/or any other person appointed for such purpose by the Fund Manager, to carry out audits at its offices at any time required. The Investment Manager and its employees undertake to assist in the implementation of audits as required. Without derogating from the generality of the aforesaid, the Investment Manager undertakes to attend all training sessions and to comply with examinations and tests prepared by the Fund Manager from time to time, in order to verify that the Investment Manager is fully conversant with all of the Company’s procedures. | |
| 3.6 | The Investment Advisor undertakes to update the Funds Manager, immediately and in writing, of any event in respect of which the Fund Manager is or may be bound to report according to the provisions of the Legislative Regulation. | |
| 3.7 | In addition, and without derogating from any of the provisions hereinabove and/or hereunder, the restrictions and obligations imposed on the Fund Manager by virtue of the Legislative Regulation, including the Regulations under the Joint Investments Law, will also apply to the Investment Manager and in any place where the term “Fund Manager” appears, it will be deemed that the wording is written as “the Fund Manager and/or the Investment Manager”, if the issue relates to the Services being provided by virtue of this Agreement. | |
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| 3.8 | The Investment Manager declares that it is aware of the fact that the Fund Manager will have sole discretion regarding contracting in distribution agreements with various distributors in respect of the Funds, both with regard to the parties with which the Fund Manager opts to engage and with respect to the terms of the engagements. | ||
| 3.9 | The Investment Advisor declares that it is aware that, with respect to the Joint Investment Law and the Regulations promulgated thereunder, the Investment Advisor and its employees who are engaged in the provision of the Services that are the subject of this Agreement will be perceived in the following manner: | ||
| 3.9.1 | As “Related Entities” of the Fund Manager, and that it is aware of the reporting obligations applicable to the Fund Manager’s Related Entities as set out in the Joint Investment Trust Regulations (Reporting), 5755-1994, and of the provisions of Section 49 of the Joint Investment Law regarding holdings of Related Entities, and that it will act in accordance with such provisions; | ||
| 3.9.2 | As participants in taking decisions relating to the management of a Fund managed by the Fund Manager, that a shortcoming in their credibility and/or competence could impact to the detriment of the Fund Manager’s credibility and/or competence, and therefore, they are required to report to the Fund Manager in accordance with the provisions of sections 13-15 of the Joint Investment Law, circumstances which could constitute a shortcoming in credibility - see the summary of the reporting obligations and the list of circumstances published by the Authority (without derogating from the provisions of the law) Annex “D” attached. | ||
| 3.10 | The Investment Advisor will neither initiate nor issue, by itself and/or through its employees and/or anyone on its behalf, either directly or indirectly, any publication, as defined below, including but not limited to publications intended for investment advisors in the banks and/or Eligible Clients, as defined in the Investment Advice Law, with respect to and/or in connection with this Agreement or the funds and/or in connection with the Fund Manager, unless it has obtained the explicit written approval of the Fund Manager and the Funds’ Trustee, and provided it has met all the provisions of the law relating to publication. The Fund Manager will be entitled to object to any publication related to the Funds, at its sole discretion. | ||
| For the purpose of this Section: “publication” – any publication relating to the funds under the management of the Fund Manager and/or under the management of other fund managers and/or publication relating to the funds’ unit and redemption prices, which is directed to third parties, including by virtue of Section 73 of the Joint Investment Law, either verbal, written or printed, by electronic means or online (including via blogs, talkbacks, Twitter, Facebook, LinkedIn, social networks, etc.) and/or by email, including painting, image, movement, sound, and any other means, which direct to third parties. | |||
| 3.11 | Without derogating from any of the Investment Manager’s aforesaid declarations and undertakings, on signing this Agreement, the Investment Manager will sign a declaration confirming its eligibility to serve as Investment Manager and to provide the Services in accordance with this Agreement. | ||
| The declaration is attached as Annex “E” to this Agreement. | |||
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| The declaration will also be submitted to the board of directors of the Fund Manager and will constitute the basis for the engagement under this Agreement, and the Investment Manager, through the investment managers who are expected to manage the Funds’ investment portfolios and the Investment Manager’s CEO, undertake to appear before the board of directors prior to entering into the Agreement and to answer all questions relating to it and/or to the controlling shareholders therein and/or to its operations and/or otherwise for the purpose of the provision of the services and to complete the required preparation document for the board of directors’ meeting and to submit it to the Fund Manager’s board of directors a reasonable time prior to the meeting of the board of directors at which the engagement of an external investment advisor is to be discussed. | ||
| The preparation document for the board of directors’ meeting is attached as Annex “F” to this Agreement. | ||
| 4. | Providing Information and its retention by the Investment Manager | |
| 4.1 | The Investment Manager declares that it is aware and agrees that the information and/or data which is provided to the Investment Manager could also be held, in whole or in part, on computerized data bases by the Investment Manager, and in such event, the Investment Manager undertakes to do so subject to complying with the provisions of the law, including those provisions which apply by virtue of the Privacy Protection Law, 5741-1981. | |
| 4.2 | The Investment Manager and any person employed by the Investment Advisor in the provision of the services as stated in this Agreement, undertake to keep confidential, all matters relating to this Agreement, the Funds with respect to which the services under this Agreement are to be provided and/or the Fund Manager, other than disclosure required by law or by a competent authority or with the prior written approval of the Fund Manager when requested by the Investment Manager. In order to guarantee this, the Investment Advisor, its employees/those working on its behalf in managing the Funds’ investment portfolios will sign the letter of confidentiality attached as Annex “G” to this Agreement. | |
| 4.3 | The Investment Manager declares that it is aware that the Fund Manager is subject to the duty to provide details of said engagements and the Funds that are the subject of this Agreement in Fund prospectuses and reports as determined in the Joint Investment Law and by virtue thereof, and, inter alia, to provide such details to the Fund Manager’s board of directors, the Funds Trustee, the securities Authority and any other entity and/or authority in accordance with the provisions of all laws. | |
| 5. | Consideration for the Management Services and expenses | |
| “Fund Management Revenue” – the Fund Manager’s monthly revenue in respect of the management of a fund, arising from management fees and loading charge. | ||
| “Net Value of the Fund Assets” – the net value of the fund assets, as defined in the Joint Investment Law. | ||
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| “Fund Management Expenses” – all expenses, direct and indirect, involved in managing the Fund, including: distribution commissions to Stock Exchange members and/or banks, payment of prospectus publication fee, any statutory or voluntary publication, annual commission to the Stock Exchange Clearing House, annual commission to the Securities Authority, commission for the creation of units in the fund and/or any other fee required and/or to be required from time to time by law, in accordance with the instructions of the Securities Authority and/or by the Stock Exchange, legal advisor cost, commissions and/or payments for execution of transactions in the fund’s assets borne by the Fund Manager out of its own resources unless the Fund Manager has entered into a tender with a trading company for the payment of such commissions out of the fund’s assets, directors’ remuneration required as a result of convening mandatory meetings and/or convening meetings at the request of the investment manager and/or convening meetings required in respect of the management of the funds and/or this Agreement – of the Board of Directors, the Audit Committee or a Board Committee (including Revaluation Committee and/or Conflict of Interest Committee), as well as any additional and/or other expense that applies to the Fund Manager, including operating expenses (inter alia, in respect of the establishment of funds, mergers, liquidations, splits, etc.), control, computers and data communications, external directors’ remuneration, professional liability insurance and officers insurance in proportion to the number of funds managed by the investment manager in relation to all the funds under the management of the Fund Manager, applicable at present and/or in the future, including new expenses borne by the Fund Manager, inter alia, due to regulatory changes (and according to the sole discretion of the Fund Manager). For the avoidance of doubt, as much as the value attributable to such expense falls below NIS 100, it will be charged with the amount of NIS 100. | ||
| “Fund Manager Net Revenue” – Fund Management Revenue net of Fund Management Expenses. | ||
| “Linkage to Index” – linkage to the rise in the Consumer Price Index, relative to the Index known on the date of signing this Agreement. | ||
| “The Fixed Amount” | ||
| For the first 12 months of the contractual engagement under this Agreement, - NIS.6,000 per month, index linked, for each Fund. | ||
| From the 13th month onwards, up until the 24th month, of the contractual engagement under this Agreement (inclusive) - NIS.6,250 per month, index linked, for each Fund. | ||
| From the 25th month of the contractual engagement under this Agreement, - NIS.6,500 per month, index linked, for each Fund. | ||
| “Cost of the legal advisor” – NIS.750 per month, index linked, for each Fund (excluding VAT). | ||
| “One-off cost” - a one-off cost for setting up the Fund, in a sum of NIS.10,000 (excluding VAT), which will apply solely to the Trust Funds which the Investment Manager will start to manage as their investment portfolio manager, as of the 13th months and thereafter. | ||
| 5.2 | In respect of the Services to be rendered under this Agreement, the Investment Advisor is entitled to receive a monthly payment equal to the Fund Manager’s Net Revenue from the Funds after deduction, for each Fund, of the Fixed Amount and the Cost of the Legal Advisor (hereinafter: the “Consideration”). In addition, up until full repayment of the One-off Cost, the One-off Cost for each Fund will first be deducted from the Fund Manager’s Net Revenue, if that is relevant. |
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| 5.3 | It is agreed, in any event, that the overall Fixed Amount to be deducted as stated in section 5.2 above, will not be less than the Fixed Amount, as defined above, multiplied by the number of Funds that will be in existence from the outset of the contractual engagement, and/or the investments portfolio which are managed by the Investment Manager. | |
| 5.4 | Notwithstanding the aforesaid, if, in a certain month, the Fund Management Expenses exceed the Fund Management Revenue, (and, for the avoidance of doubt, plus the Cost of the Legal Advisor), the Investment Manager will pay to the Fund Manager, from its resources, the difference between these amounts plus VAT, and will do so without derogating from the liability to pay the Fixed Amount to each Fund. | |
| 5.5 | Without derogating from the foregoing, the Investment Manager will, on the date of signing this Agreement, deposit with the Fund Manager, a security check without restrictions as to its immediate realization, in the sum of NIS 50,000 in order to secure future, unforeseen payments and the implementation of this Agreement. The security check will be returned to the Investment Manager 18 months after the termination of this Agreement, as stated in section 6 below. | |
| 5.6 | Payment of the Consideration will be made by the 25th day of each month in respect of the month preceding the payment date. So long as the Fund Manager is a financial institution, such payments will not be subject to VAT, and in the event of VAT payment obligation by law, such obligation will apply to the Investment Advisor, and at its expense. | |
| 5.7 | The Fund Manager will pay the Consideration by check payable to the Investment Manager only, or as is customary with the Fund Manager, from time to time. When requested by the Investment Manager in writing, it will receive details of the calculation of the Revenues and of the Expenses, as is customary with the Fund Manager, from time to time. | |
| 5.8 | Confirmation of the records contained in the accounting books of the Fund Manager will constitute prima facie evidence in all matters pertaining to the Revenues and Expenses of the Fund Manager. | |
| 5.9 | Payments that are to be made by the Investment Manager to the Fund Manager, including for reimbursement of expenses and/or to supplement the Fixed Amount and/or the Cost of Setting up the Fund, will be paid on the date that payments are required under this Agreement or within 7 days from the date on which the Fund Manager issues a notice to the Investment Manager regarding such payments, if there is a liability for payment to the Fund Manager and if no other date is set in the Agreement, whichever is earlier. For the avoidance of doubt, to the extent that the Investment Manager does not pay these amounts, the Fund Manager may offset such sums from the amount owing to the Investment Manager under this Agreement, without derogating from any other remedies to which the Fund Manager is entitled under the law and/or the provisions of this Agreement. | |
| 5.10 | For the avoidance of doubt, the Fund Manager may offset any amount which the Investment Manager owes to it under this Agreement or to Ayalon including under sections 6.9 and 7 hereunder, from the amounts to which the Investment Manager is entitled, if so entitled, and provided that the Fund Manager issues a notice to that effect to the Investment Manager. |
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| 6. | Term and Cancellation of the Agreement | ||
| 6.1 | This Agreement is for an unlimited period of time and will come into effect after being signed and in accordance with the date to be determined in the report to be published by the Fund Manager relating to the contractual engagement under this Agreement. Notwithstanding the aforesaid, the coming into effect of this Agreement is conditional on the approval of the Fund Manager’s board of directors. | ||
| 6.2 | The Fund Manager may immediately cancel this Agreement at its sole discretion and without cause, provided that individual notice is given to that effect to the Investment Manager for each of the Funds in respect of which the Services under this Agreement are provided and/or by revoking this framework Agreement in its entirety, and the provisions of this Agreement relating to cancellation will apply, mutatis mutandis. | ||
| 6.3 | The Investment Advisor may cancel this Agreement by giving prior, written notice of ninety (90) days. (The notice of cancellation in section 0 and in this section 6.3, hereinafter, the “Notice of Cancellation”). | ||
| 6.4 | Notwithstanding the aforesaid, the Investment Manager will have the option to instruct the Fund Manager to transfer the Funds to the management of another fund manager (hereinafter, the “Option”), provided that the following conditions are met: | ||
| 6.4.1 | The Investment Manager notifies the Fund Manager in writing of his wish to exercise the option, within 14 business days of the Notice of Cancellation (hereinafter: “the First Notice”). | ||
| 6.4.2 | Within 30 days from the date of the First Notice, the Investment Manager must provide the Fund Manager with a written notice, which includes details of the new Fund Manager to whom the Funds are to be transferred and to which there is attached a confirmation from the Trustee and from the new fund manager for such transfer (hereinafter: the “Transfer Notice”). | ||
| 6.4.3 | To the extent that the Transfer Notice is sent, the parties will act to carry out the required transfer of the Funds, including applying to the Trustee for approval of the said Transfer, and provided that this does not impose additional costs or additional responsibilities on the Fund Manager. | ||
| 6.5 | Notwithstanding the aforesaid, if this Agreement is canceled by the Fund Manager due to a fundamental breach of the Agreement by the Investment Manager, including in the event of: a liquidation and/or receivership and/or sequestration of the Investment Manager or the bulk of its assets, the freezing of the Investment Manager’s activity or the denial or suspension of its portfolio management license or if it is indicted in a judicial proceeding including, for the removal of doubt, in the context of an administrative proceeding by an administrative enforcement committee, for an offense, or if an application is filed against it and/or anyone acting on its behalf, requesting the recognition as a class action and is recognized as a class action, in respect of and/or in connection with an offense and/or violation of a provision of financial law, as these terms are defined in these Funds Law and/or in respect of the manner in which the Investments are managed, the Fund Manager will be entitled to immediately cancel this Agreement and the Fund Manager will enable an external investment manager to appear before the board of directors and the Investment Manager will not be entitled to exercise the Option and/or the right to transfer specified in section 6.4 above, unless the Fund Manager agreed to this in writing, after determining that the interests of unit owners in the Funds have not, at its reasonable discretion, been prejudiced thereby. The Fund Manager may require the opinion of the Investment Manager’s lawyer in order to do so. The Option and/or right to transfer will automatically expire (and the Investment Manager will no longer have the right to transfer the Funds being transferred to another fund manager) even in the event that the First Notice and/or Transfer Notice are not sent on the dates stated in section 6.4 above and/or if the management of the Funds is not transferred for any reason, within a further 30 days from the Transfer date stated in section 6.4 above, provided that no notices have been sent and/or the management has not been transferred as stated, due to the Investment Manager fault or in circumstances which were under his control. | ||
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| 6.6 | In the event of cancellation of this Agreement, for any reason whatsoever, the Funds’ investment portfolios will be managed by the Fund Manager only, unless the Fund Manager agrees in writing to another arrangement, Notwithstanding the aforesaid, only when it is the Fund Manager which cancels the Agreement and not due to a breach of the Agreement by an external manager of the Investments Portfolio or due to the provisions of section 6.5 above, will the external manager of the Investment be entitled to continue managing the Funds’ investments portfolio up until their transfer to the management of another fund manager in accordance with the provisions of the section, provided that 30 days have not elapsed from the date on which the Agreement was terminated up until the date of such transfer. | |
| 6.7 | For the avoidance of doubt, the Investment Advisor will not be entitled, in respect of the provisions of section 5 above, for the period up to the termination of the contractual engagement, to any consideration and/or compensation whatsoever for the termination of the contractual engagement as stated in section 6, and the Investment Manager will have no claim and/or suit and/or demand against the Fund Manager in respect thereof, nor will the Investment Manager have any rights whatsoever in the Funds (other than the Option specified in section 6.4 and subject to what is stated in section 6.5) and the Investment Manager will be deemed as estopped from making any claims against the Fund Manager and/or anyone acting on its behalf. | |
| 6.8 | In addition, and for the avoidance of doubt, the Investment Manager will have no claim and/or suit and or demand against the Fund Manager for what is stated in sections 6.5 to 6.6 above, and/or any rights in the Funds and the Investment Manager will be deemed as estopped from making any claims against the Fund Manager and/or anyone acting on its behalf in these contexts. | |
| 6.9 | Where the Agreement is canceled by the Investment Manager on a date earlier than 36 months from the date of the contractual engagement between the parties, the definition of the One-off Cost in section 5.1 above will be changed to that that it also applies during the first 12 months of the contractual engagement under this Agreement and the Investment Manager will be required to pay the Fund Manager the One-off Cost in respect of the Funds, from the date on which the contractual engagement under this Agreement commences, up to the date of cancellation of the Agreement. |
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| Indemnification | ||
| 7.1 | In addition and without derogating from anything stated in this Agreement regarding payments required of the Investment Manager, the Investment Manager will be liable for and undertakes to indemnify, out of its own resources, the Fund Manager, its office holders and/or its executives and/or its employees and/or anyone acting on its behalf (hereinafter, the “Ayalon Indemnified Parties”), provided there is no legal impediment to do so under any applicable law, for the entire amount of any loss, expense and/or damage including financial penalties and/or sanctions imposed on the Ayalon Indemnified Parties by any competent authority (in the framework of any type of proceeding, including financial sanctions and administrative enforcement proceedings) and/or a judgment and/or if the Ayalon Indemnified Parties compensate and/or indemnify holders of units in the Fund/s and/or in respect of any compensation to be paid by Ayalon Indemnified Parties, inter alia, to any third party and/or in respect of any expense and/or loss incurred by the Ayalon Indemnified Parties, at their exclusive discretion, and, in addition to the aforesaid, for the cost of legal fees for all these – and all, if caused as a result of an act and/or omission committed by the Investment Manager and/or anyone acting on its behalf, including its office holders and/or controlling shareholders, related to and/or arising from, directly or indirectly, this Agreement including, inter alia, a breach of and/or a deviation from of the provisions of the Legislative Regulation, including the Mutual Trust Fund Regulations that apply to the Trust Funds which relate, inter alia, to the management of the Fund’s investment assets and/or their publication and/or the use of credit by the Trust Fund, and/or the provisions of the Funds’ investment policy as set out in the Funds’ prospectuses as such are in force from time to time and/or a deviation from the Agreement and/or the Investment Manager’s authority and responsibilities under this Agreement and/or in respect of the management of the Fund and/or of the Funds’ investment portfolio, up to the date on which the contractual engagement under this Agreement commenced. | |
| Furthermore, the Investment Manager undertakes to indemnify the Ayalon Indemnified Parties for any payment for which the Ayalon Indemnified Parties are held responsible in respect of any claim or allegation of the existence of employer-employee relations between the Fund Manager and the Investment Manager’s employees and/or anyone employed by the Investment Manager in the provision of the Services that are the subject of this Agreement. | ||
| 7.2 | It is hereby agreed that the indemnity obligation specified above will remain in force without limitation of time, even after cancellation of this Agreement for any reason whatsoever, in respect of the period in which the Agreement has been in force. | |
| 7.3 | The Fund Manager undertakes to notify the Investment Manager after it has learned of a demand and/or claim and/or suit and/or loss and/or expense and/or the existence of any legal and/or administrative proceeding which establishes indemnification by the Investment Manager as stated in Section 7.1 above (hereinafter, “Fund Manager’s Indemnity Notice”), and the Fund Manager will allow the Investment Manager to take the necessary steps to cancel the proceeding set out above in this subsection, as far as practicable. In addition, and without derogating from the aforesaid, the Investment Manager may, to the extent that it may be required to provide indemnification at the end of the proceeding, to request from the Ayalon Indemnified Parties that the Investment Manager should handle the claim and/or demand and/or suit and/or payment of the fine/financial sanction and/or loss and/or expense and/or other, all as far as possible and in the circumstances, at the Fund Manager’s discretion, immediately after the Fund Manager’s Indemnity Notice, and the Ayalon Indemnified Parties undertake to cooperate, as far as possible and subject to the provisions of any law, in managing the proceedings. For the avoidance of doubt, it is clarified, and notwithstanding the aforesaid, that, the Ayalon Indemnified Parties will, at their absolute discretion, decide whether to transfer the handling of the proceedings to the Investment Manager, or deal with the matter themselves, and the Investment Manager will have no claim regarding this decision or to the manner in which the proceedings are handled by Ayalon Indemnified Parties or in connection with the legal or administrative proceedings and their outcome. | |
| 16 |
| 7.4 | The Investment Manager undertakes to indemnify the Ayalon Indemnified Parties, as stated, immediately upon their first written demand. | |
| 8. | Absence of Third Party Rights | |
| 8.1 | It is hereby expressly agreed that nothing in this Agreement will constitute a contract to the benefit of a third party nor does it confer any rights upon any third party, including and without derogating from the generality of the above, purchasers of units in the Funds. | |
| 8.2 | The Fund Manager may assign its rights and/or obligations under this Agreement to a third party which is a company authorized by the Securities Authority to serve as fund manager without the consent of the Investment Advisor. The Investment Advisor is not allowed to assign its rights and/or obligations under this Agreement other than with the prior written approval of the Fund Manager. | |
| 8.3 | The Investment Manager undertakes that there will be no change to those owning control in the Investment Manager for the duration of the contractual engagement under this Agreement, other than with the prior, written approval of the Fund Manager. | |
| 9. | Waiver of a breach | |
| 9.1 | A waiver by either party of any prior breach or noncompliance with one or more of their obligations under this Agreement will not be deemed justification or excuse for another breach or noncompliance with any of the terms and conditions of this Agreement, and each party’s refraining from exercising any right conferred upon it pursuant to the terms of this Agreement will not be construed as a waiver of such right. | |
| 9.2 | No waiver on the part of any of the parties, no compromise or other arrangement, to the extent this Agreement is concerned, will be binding upon the parties unless made in writing. | |
| 10. | Changes in Funds | |
| Changes to Funds, including changes to eh Funds’ Agreements relating to investment policies, the Fund Manager’s remuneration, the supplement rate, a merger and/or splitting of a Fund/Funds and/or a decision regarding the liquidation of a Fund, and any other issue which constitutes a fundamental change in the Funds’ conditions, other than the transfer of a Fund/Funds to the management of another manager, will be implemented after consultation with the Investment Manager and taking its views into consideration, but ultimately, and for the avoidance of doubt, will be made at the Fund Manager’s discretion alone, and the Investment Manager will have no claim and/or demand and/or suit against the Fund Manager in respect thereof, including any demand for any payment and/or entitlement, including, in this respect, where there is a merger and/or liquidation which is required by virtue of the provisions of the law. | ||
| 17 |
| 11. | Shareholders’ guarantees | |
| Messrs Ilan Arad Keshet, i.d. 035904820, Amit Hazi Milia, i.d. 040055766, Shmuel Yelevitzi, i.d. 307703876 and , i.d. , shareholders in Yetsira Investment House Ltd., will serve as personal guarantors, jointly and severally, to ensure full compliance with the Investment Manager’s undertakings set out in this Agreement, and will sign the confirmation of their guarantees at the end of this Agreement. | ||
| 12. | General | |
| 12.1 | The addresses of the parties for the purpose of sending notices are as set out in the preamble to the Agreement. | |
| 12.2 | This Agreement constitutes a framework agreement for all aspects of the investment management Services provided by the Investment Manager to the Funds managed by the Fund Manager, and its provisions will apply to all Funds which are included in the Annexes hereunder, as they will be amended from time to time, relating to the Funds. | |
| 12.3 | This Agreement and everything relating thereto, will be subject to the laws of the State of Israel and sole jurisdiction to review any disputes between the parties and/or any matter or issue relating to and/or arising from this Agreement, is allocated to the courts of the district of Tel Aviv. | |
In witness whereof the parties have signed:
_______________________ _______________________
Ayalon Mutual Funds Ltd. Yetsira Investment House Ltd.
Shareholders’ Guarantees
We the undersigned, , shareholder/s in Yetsira Investment House Ltd., after having read all provisions in the Agreement, hereby personally guarantee, jointly and severally, the full compliance of Yetsira Investment House Ltd., with all the provisions of this Agreement.
In witness whereof, I/we have signed:
Date: _________________ Signature:_________________
| 18 |
Annex “A” – Details of Funds
List of Funds
| 19 |
Annex “B” – Copy of Investment Manager’s Portfolio Management License
| 20 |
Annex “C” – Details of Procedures
| 21 |
Annex “D” - Obligation to Report of Faults in Reliability
List of events that must be reported:
| 1. | Conviction for an offense, but – if the offense is a heinous offense – only if the Court determined that the offense is heinous; |
| 2. | An indictment that was brought or a disciplinary proceeding that took place in respect of an offense that is not heinous; |
| 3. | An investigation or administrative inquiry in connection with the commission of an offense that is not heinous or with the violation of an economic statute provision, by an authority authorized to conduct an investigation or administrative inquiry, as the case may be; |
| 4. | Payment of a monetary obligation in lieu of a criminal proceeding in connection with the violation of an economic statute provision, and also the conduct of an administrative proceeding for violation of said provisions, a possible result thereof being the imposition of administrative enforcement measures; |
| 5. | Payment of monetary composition or the receipt of a demand for the said payment for violation of an economic statute provision; |
| 6. | Judgment in a civil action or a civil action brought for the violation of an economic statute provision, also by way of an action by virtue of section 63 of the Civil Wrongs Ordinance [New Version], on condition that the said action included a claim of fraud or negligence. |
“economic statute provision” – any provision of the statutes enumerated in the definition of “offense”;
“monetary obligation in lieu of a criminal proceeding” – as defined in section 260(a) of the Companies Law;
“offense” – an offense under one of the Laws specified below, other than an offense for which the penalty is only a fine – this Law; the Prohibition of Money Laundering Law, 5760-2000; the Securities Law; the Regulation Law; the Companies Ordinance; the Companies Law; the Banking Law; the Banking Ordinance 1941; the Banking (Service to Clients) Law 5741-1981; the Revenue Tax Ordinance; the Real Estate Taxation (Appreciation and Acquisition) Law 5723-1963; the Value Added Tax Law 5736-1975; the Customs Ordinance; the Trade Levies and Defensive Measures Law 5751-1991; the Restrictive Business Practices Law 5748-1988; the Control of Financial Services (Insurance) Law 5741-1981; the Control of Financial Services (Pension Counseling, Pension Marketing and Pension Clearing System) Law 5765-2005; the Control of Financial Services (Provident Funds) Law 5765-2005; or a heinous offense;
“heinous offense” – a different offense which, due of its nature, severity or circumstances makes a person convicted of it unfit for being an officer in a Fund Manager or Trustee, as the case may be, or to hold means of control in a Fund Manager, including offenses under foreign law and disciplinary offenses
Personal Reporting Obligation
You are required to report to the Fund Manager in writing immediately upon learning of any of the events set out above.
Breach of this reporting obligation is enforceable towards the person who breached the reporting obligation.
Nothing stated will derogate from your obligation to be updated at all times of the provisions of the law and of the reporting obligations which apply to you, including those relating to circumstances which may testify to a defect in reliability likely to apply if there is a change, and/or other provisions.
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List of Circumstances for reviewing the failure in reliability of supervised entities by the Authority
The following is a list of circumstances which could testify to a failure of reliability, subject to the Authority’s review:
1) Conviction for an offense, filing of an indictment or a criminal investigation relating to the commission of an offense.
2) A ruling stating that a disciplinary offense has been committed, the filing of a disciplinary claim or the opening of a proceeding to investigate the commission of such offense;
3) The imposition of administrative enforcement measures, including the imposition of financial sanctions, the issuance of a demand to pay a financial sanction or an administrative claim or the opening of administrative inquiries relating to the commission of a breach;
4) Entering into alternative administrative arrangements with a propensity for an indictment or the conducting of administrative proceedings, such as payment of a forfeit, a consent order, or contracting in an agreement for a conditional termination of proceedings, for the commission of an offense or violation;
5) Refusal of a permission due to a defect in reliability - revocation of license, refusal to obtain a permit or denial of being engaged in any profession or field due to a defect in reliability, whether the permit is granted by law or by a professional association;
6) Findings in civil legal proceedings relating to a breach, in a proceeding in the context of which the Commissioner is given the opportunity to present his position - either as a party to the proceeding or otherwise (such as giving evidence or an affidavit in a court);
7) Audit Findings and customer complaints – the Authority’s audit findings, another supervising entity, an independent auditor, an internal auditor, the findings of an internal compliance system or cumulative customer complaints - all on substantive issues and on conditions which are found to be substantiated;
8) Dismissal following disclosure of findings testifying to apparent misconduct, which have an affinity to activities supervised by the Authority and on conditions which are found to be substantiated;
9) liquidation due to insolvency, declaration of bankruptcy or failure to comply with material economic obligations relating to the supervised area of activity.
In this list:
“offense” or “breach” – an offense or breach under the Securities Law or another financial offense or breach which, due to its nature, severity and circumstances, a person is deemed unfit to be a license holder (including, theft, bribery, fraud, deception, etc.) and including a disciplinary offense, both in Israel and overseas.
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Appendix E – External Investment Manager’s Declaration
I the undersigned, _____________, bearing ID number _________________, on behalf of ______________, private company number / ID number __________________, hereby certify, after being warned that I must state the truth and that I will be subject to the penalties imposed by law if I fail to do so, hereby declare as follows:
| A. | Professional experience in investment management and/or in the capital market, according to the type of service required from the external employee, during the last 10 years, at least, while specifying the reputation in the industry, proven experience in making similar investments, etc.: | |
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
| B. | If the external employee lacks experience, please state this fact explicitly and in an emphasized manner, both in the Statement and in the publication, if any, regarding the contractual engagement, to the unit holders: | |
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
| C. | Absence of any possible conflict of interest between the interest of unit holders of the relevant funds and/or fund and/or the Fund Manager, directly and/or indirectly, and the interest of the external employee and/or a related party thereof, directly and/or indirectly, including concern for such possible conflict of interest: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| D. | Connection to financial assets of the external employee: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| E. | Structure of ownership of the external employee: |
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
| F. | Related parties of the external employee, directly and/or indirectly: |
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
| 24 |
| G. | Existence of a valid license for investment management/advising/marketing – please attach the license to the Statement: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| H. | Professional insurance – please attach the insurance company’s confirmation of the existence of such license and to the extent possible, the insurance policy list, to the Statement, while verifying that it includes the period in which the insurance will be in force so that it would apply during the period of the engagement with the external employee: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| I. | Approval as to whether audits were conducted by the Securities Authority at the external employee and findings of such audits: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| J. | Were any fines imposed on the external employee and/or any of its workers and/or employees by the Securities Authority or by another competent authority, and the reasons for the fines, if imposed: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| K. | Legal or disciplinary proceedings, if initiated and/or conducted and/or brought against the external employee and/or any of its workers and/or employees: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| L. | Any other information in the possession of the external employee and/or any of its workers and/or employees, which may affect the reliability of the Fund Manager as a result of the engagement: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
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| M. | Do any circumstances apply to the external employee and/or any of its employees and/or employees who participate in decision-making regarding the management of the Funds listed in Annex “A” of this Agreement and/or the officer holders at the external employee, which may affect the Fund Manager’s reliability according to cases and/or circumstances for reviewing defects in the reliability of entities supervised by the Authority, as specified in Annex “F” to this Agreement. |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| N. | That all its workers and/or employees are and will be throughout any term of the contractual engagement under this Agreement with the Fund Manager, be license holders as required by law. |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| O. | That all its workers and/or employees who will be engaged in managing the Investment Portfolios of the Fund managed by the Fund Manager are, and will be throughout the period of the engagement with the Fund Manager, be holders of a valid portfolio management license: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| P. | The external employee’s approval that he has obtained similar statements from its workers and/or employees and that it has taken all necessary measures to ensure that such statements in connection with its workers and/or employees contain full, correct and true information: |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
| Q. | That it is well familiar with the provisions of the Regulatory Arrangement relating to mutual funds (Joint Investment Trusts Law, Investment Advice Law, Securities Law, regulations, orders and competent authority’s guidelines thereunder): |
Yes/No. If yes – please specify:_______________________________________________
________________________________________________________________________
________________________________________________________________________
Upon the occurrence of a change in any of my aforementioned statements, I will give an immediate notice in writing about it to the Fund Manager.
| 26 |
Confirmation
I the undersigned, ____________, Adv. Of ____________ Street, ___________, hereby certify that on ___________ Mr. /Mrs. _______________, bearing ID/ private company number _____________, whom I recognized by means of an identity card / whom I know personally, appeared before me, and after I warned him/her must state the truth and be subject to the penalties imposed by law if he/she fail to do so, he/she confirmed the correctness of the above statement and signed it in my presence.
| Date | Signature and Stamp | ||||
| 27 |
Annex “F” - Guidelines for introducing an external Investment Manager to the board of directors of the Fund Manager
You are due to appear before the Board of Directors of Ayalon Mutual Funds Ltd.
In accordance with the Securities and Exchange Commission’s observations in its circular dated February 12, 2008, outsourcing the Fund Manager’s core activity (Investing) requires it to exercise increased caution when engaging with an external investment manager and to monitor its activities after entering into the contractual engagement.
In this context, the Authority’s position is that the Fund Manager’s board of directors will make a decision regarding the engagement with an external investment manager, whilst the board of directors will be provided with information regarding the external investment manager, as detailed in the circular, in a manner that will enable it to make its decision in an informed way.
Accordingly, you are required to complete the attached document, to submit it for the board of directors’ meeting that is to review the engagement with you, and to supplement your comments, as required at the time of the meeting.
Please ensure that the completed questionnaire submitted to the Fund Manager is verified by a lawyer.
As stated above, please ensure that when you appear before the Fund Manager’s board of directors, you address each of the following issues in an orderly manner:
| a. | Professional Experience | |
| What is the Company’s overall professional experience in the management of investments on the capital market? | ||
| _________________ | ||
| _________________ | ||
| What is the Company’s professional experience in the management of investments with fund managers in particular? | ||
| _________________ | ||
| _________________ | ||
| Please make sure that you bring with you, illustrations of your investment capability, instances in which you have “beaten” the market or case where your appropriate investment management has prevented prejudice to the fund’s returns, etc. | ||
| If you lack previous significant experience – please explain to the board of directors why you believe that you are suitable to serve as an external investment manager, and how you will ensure that you will not make errors in managing the investments and/or that your management work can be effectively monitored? | ||
| _________________ | ||
| _________________ |
| 28 |
| b) | Management Strategy | |
| Please outline for the board of directors, your investment management strategy. | ||
| _________________ | ||
| _________________ | ||
| Please outline for the board of directors, your business plan for managing the hosting investment funds. | ||
| _________________ | ||
| _________________ | ||
| Please outline for the board of directors, how you will operate with routine investments and how when dealing with exceptions, and when will “routine” apply and when will “exceptions” apply. | ||
| _________________ | ||
| _________________ | ||
| Please outline for the board of directors, the most extreme investment management strategy you have operated and your reasons for such operation, by describing the circumstances. | ||
| _________________ | ||
| _________________ | ||
| c) | Supervision | |
| How will you ensure that your work will be supervised at the highest level? | ||
| _________________ | ||
| _________________ | ||
| How you enable the Fund Manager to supervise and monitor your operations during a trading day, and in general? | ||
| _________________ | ||
| _________________ | ||
| How do you plan to remain up to date with the decisions of the Fund Manager’s investment committee? | ||
| _________________ | ||
| _________________ | ||
| How do you plan to be involved. if at all, in the decisions of the Fund Manager’s investment committee? | ||
| _________________ | ||
| _________________ | ||
| 29 |
| c) | Conflict of Interests | |
| Who are the controlling shareholders in the Company? | ||
| Who are the Company’s employees? | ||
| Are they connected to other companies and if so, which? | ||
| Do any of the companies and/or connected individuals have a conflict of interest with the interests of the Fund Manager and/or with any of the Funds managed by the Fund Manager? | ||
| Is your Company connected by marketing agreements with any third parties? | ||
| Do you market the financial assets (basket certificates, participation units or others) of other parties? | ||
| e) | Licensing and Insurance | |
| For the records only, please state that you have a valid license and insurance for the management of investments, in accordance with the provisions of the law. | ||
| f) | Auditing by the Authority | |
| Have you been subject to an audit by the Securities Authority? | ||
| If so, what were the audit’s findings? | ||
| Have the deficiencies that were disclosed in the audit been rectified? | ||
| Is there a report on this issue that can be presented? | ||
| g) | Financial Penalties/Sanctions by the Authority | |
| Has the external employee been subject to financial penalties/sanctions imposed by the Securities Authority? | ||
| Has the external employee been subject to financial penalties/sanctions imposed by any other entity? | ||
| Have any of the external employee’s workers been subject to financial penalties/sanctions imposed by the Securities Authority or any other entity? | ||
| What were the reasons for the imposition of the financial penalties/sanctions? | ||
| Please provide a copy of the notification of the financial penalties/sanctions. | ||
| Have the financial penalties/sanctions been paid? | ||
| What lessons were learned as a result of this? | ||
| h) | Legal or disciplinary proceedings | |
| Have any legal, administrative or disciplinary proceedings been initiated against the external employee? | ||
| Have any legal, administrative or disciplinary proceedings been initiated against any of the external employee’s employees? | ||
| What were the reasons for initiating the legal, administrative of disciplinary hearings? | ||
| Please provide a copy of the notification of the proceedings. | ||
| What lessons were learned as a result of this? |
| 30 |
| i) | Other information | |
| Do you and/or your workers and/or your employees have information which could have implications on the reliability of the Fund Manager after the contractual engagement? | ||
| j) | License Declaration | |
| Please state, for the records, that all your workers and/or employees are and will be during the term of the contractual engagement under the Agreement with the Fund Manager, licensed as required by law. | ||
| k) | Compliance declarations by employees and/or workers | |
| Please state for the record, that a declaration signed by you in the presence of the Fund Manager has been forwarded to be signed by your employees and/or workers and that you have done everything necessary to ensure that your aforesaid declarations in connection with your employees and/or workers include full, correct and true information. | ||
| l) | Familiarity with the provisions of the Regulatory Arrangement | |
| Please state for the record that you are familiar with the provisions of the Regulatory Arrangement regarding Mutual Funds (the Mutual Trust Investment Law, the Consultancy Law, the Securities Law, the Regulations, the Orders and Directives of the Authority authorized thereby). | ||
| Explain how you have acquired your familiarity and provide examples of how you will ensure that you remain up to date with the provisions of such legislation and the changes made thereto. |
| 31 |
Annex “G” – Letter of Undertaking to Maintain Confidentiality
Ref: Letter of Undertaking of Confidentiality
I hereby declare and confirm as follows:
| 1. | I am aware that, in the context of my work at (hereinafter, the “Company”) and/or of my employment by the Company, I will have access to information, knowledge and/or data relating to the activities of Ayalon Mutual Funds Ltd. (hereinafter, “Ayalon Funds”) and/or to a company connected to Ayalon Funds, including a company that controls Ayalon Funds and/or a company controlled by such company and/or relating to the businesses of any of these companies and/or the individuals therein (hereinafter, the “Ayalon Group”), including information regarding Ayalon Group’s financial data, information regarding the Ayalon Group’s clients, as well as information regarding the Ayalon Group’s commercial and financial policies, including commercial, technical, professional and/or any information relating to intellectual property and/or trade secrets and confidential information (as these terms are defined in section 5 of the Commercial Torts Law, 5759-1999), and/or agreements and/or prices and/or working practices relating to the Ayalon Group and/or any other information provided and/or disclosed to me, directly or indirectly, in the context of my work and/or employment and which is not public knowledge (all of the above shall be referred to as the “Information”). |
| 2. | I am aware that the Information is the sole property of Ayalon Funds and was provided for my use and/or brought to my attention solely in connection with my work in servicing the Company and/or in the context of my employment by the Company and for the purpose of my work and/or employment only, and therefore I undertake, both during my employment by the Company and at any time thereafter, whether directly or indirectly, either by myself or through others, to maintain absolute confidentiality and not to disclose the Information, or use, disclose or publicize it, and not to provide it to any third party and/or to any other person, directly or indirectly, except to the extent that the disclosure or use or publication has been expressly permitted to me by the Company in writing, and to the extent required for the purposes of my employment thereat. |
| 3. | All files, records and documents that form a part of the Information are and will remain the sole property of Ayalon Funds, and will not be removed from the Company’s offices without the Company’s explicit, prior, written consent. |
| 4. | At any time when the Information, in whole or in part, is in my possession, I will take strict care of the Information and take all reasonable care required to prevent the loss of the Information and/or its transfer to any person and/or party which has not been permitted therefor, in advance in writing by the Company. |
| 5. | I will notify the Company of any loss and/or disclosure of the Confidential Information immediately upon being I am made aware of such loss and/or disclosure. |
| 6. | I hereby undertake that immediately upon the termination of my work at and/or with the Company, for any reason, I will return to the Company any document and/or other data storage resource which contains Information and/or any part thereof, and all copies thereof, and I will immediately destroy any document and/or data storage resource, which does not contain any part of the information, but has been prepared based on the Information or any part thereof. |
| 7. | I am aware that a breach of my undertakings under this Letter of Confidentiality may cause Ayalon serious harm, and I undertake to indemnify and compensate Ayalon Funds for any damages, direct or indirect, it may suffer. In the event of such breach of this Letter of Confidentiality by me, and without derogating from any other remedies and/or reliefs available to Ayalon Funds under any agreement and/or law, I hereby agree that an injunction will be given against me to prevent me from using any Information and/or to prevent me from disclosing the Information. |
| 8. | For the avoidance of doubt, it is hereby clarified that each of my undertakings under this Letter of Undertakings is autonomous and not inter-dependent. |
| 9. | My undertaking under this Letter will continue and will continue to be binding upon me after the end of my working relationship with Ayalon Funds, for an unlimited period of time. |
In consideration whereof, I have signed:
Signature:
Name or worker/employee: ______________________ i.d. _______________________
Exhibit 10.2
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this “Agreement”) is made and entered into as of July __, 2019 (the “Signature Date”) by and among: from the first part: Guy Nissenson, Israeli ID ________ of___Ofuk Uriel 8/16, Herzlyia_________ ., Israel (“Guy”); Ilan Arad Keshet, Israeli ID ________ of___St. Harbrosh 49, _Pardessia________., ____ Israel (“Ilan”); Amit _Bilia_____, Israeli ID ________ of__St.Harishonim 59, Haniel__________., _____, Israel (“Amit”); Shmuel_Yelshevich____, Israeli ID ________ of_St, Ahi Dakar 24, Tel- Aviv___________., ____, Israel (“Shmuel ”); Yetsira Holdings Ltd., a company organized under the laws of the State of Israel, of 12 Aba Hillel, Ramat Gan, Israel, Israel (“Yetsira”) and from the other part: Creations, Inc., a company organized under the laws of Delaware of_8 The Green, St. A, Dover, Delaware, 19901___________(“Creations”) (each, a “Party”, and collectively, the “Parties”).
RECITALS
| WHEREAS, | Guy, Ilan, Amit and Shmuel (together the “Shareholders”) are the sole shareholders of Yetsira; |
| WHEREAS, | as of the Signature Date, Yetsira is the sole shareholder of Yetsira Investment House Ltd., a holder of a portfolio manager license (“Yestira Portfolio Manager”); |
| WHEREAS, | the Parties have agreed that it would be in their best interests to effect a transaction pursuant to which 200 Prefered Shares and 300 Ordinary shares of Yetsira, 1.00 NIS par value which constitute all of the issued shares of Yetsira, currently held by the Shareholders (the “Transferred Yetsira’s Shares”) shall be exchanged, transferred and assigned to Creations in consideration of the issuance by Creations to the Shareholders, of an aggregate of 622, 145 shares of common stock, $_0.001 par value per share of Creations (the “Issued Creations’ Shares”), so that following consummation of the transaction contemplated hereunder, Creations shall become the sole shareholder of the entire issued share capital of Yetsira, and the shareholders shall become shareholders of Creations, all as more fully set forth in this Agreement; and |
| 1 |
NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:
| 1. | Preamble, Annexes and Headings |
| 1.1. | The Preamble and the Annexes to the Agreement constitute an inseparable part of the Agreement. | |
| 1.2. | The headings in the Agreement and its annexes are for purposes of reference only and shall not be used in interpreting the Agreement. |
| 2. | The Transaction |
Subject to the terms and conditions of this Agreement, on the Signature Date:
| 2.1. | Shareholders shall transfer, assign, convey and deliver to Creations the Transferred Yetsira’s Shares, and (b) Creations shall issue and allot to the Shareholders the Issued Creations’s Shares, constituting on the date hereof, 99.99 % of the issued share capital of Creations, on a fully diluted base as of the Signature Date, without giving effect to the contempled sale of an additional up to 1,750,000 shares of common stocks of Creations, to be sold by Creations at $1.00 (USD) per share, to third parties (“Other Creations’ Investors”), as such sale to Other Creations Investors will dilute the Shareholders’ holding in Creation respectively. | |
| 2.2. | It is agreed that in the event that Creations will issue to the Other Creations’ Investors warrants and/or options to purchase additional shares of Creations in exercise price of 1 USD, so in addtion to the Issued Creations’s Shares to be issued to the Shareholders according to this Agreement, Creations undertake to issue the Shareholders identical warrants and/or options (as the case might be) with the same terms, and in a proportional amount to the number of Creations’ warrants to be issued. | |
| 2.3. | The closing of the transaction, the transfer of the Transferred Yetsira’s Shares to Creations, and the issue and allotment of the Issued Creations’ Shares by Creations, and the registration of all such transactions in the register of shareholders of each Yetsira and Creations (the “Closing”) shall occur simultaneously with the signature of this Agreement, or such other date, time and place the Parties shall mutually agree (the “Closing Date”). |
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| 2.4. | The Closing shall take place at the offices of M. Firon & Co, 3 Hashlosha Street, Tel Aviv. | |
| 2.5. | At the Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered: |
| 2.5.1. | The Parties shall sign duly share transfered deeds with regards to Transfered Yetsira’s Shares. | |
| 2.5.2. | Validly executed share certificates for the Issued Creations’s Shares issued to the Shareholders shall be transferred to the shareholders and will be attached hereto as Annex 2.5.2. | |
| 2.5.3. | Copies of resolutions of the Yetsira and Creations’ Board of Directors approving the transaction will be attached hereto as Annex 2.5.3. | |
| 2.5.4. | Updated register of shareholders of each of Yetsira and Creations, shall be attached hereto as Annex 2.5.4. |
| 3. | Representations and Warranties of Shareholders and Yetsira |
The Shareholders and Yetsira, severally and jointly, represent and warrant to Creations as follows:
| 3.1. | Yetsira is a company duly incorporated and organized and validly subsisting under the laws of the State of Israel. The Articles of Association of Yetsira as in effect at the Signature Date is attached hereto as Annex 3.1. | |
| 3.2. | Yetsira Portfolio Manager is duly licensed as a portfolio Manager by the Israel Securities Authorities (the: “ISA”) and holds license no. 772 in effect since January 11th, 2017. | |
| 3.3. | Yetsira Portfolio Manager is bound to an agreement with Ayalon Mutual Funds Ltd. (“Ayalon MFM”), whereby Yetsira Portfolio Manager receives hosting services, and manages the portfolios of funds under the management of Ayalon MFM (the “Ayalon Agreement”), and has conformed to the provisions set out in the Ayalon Agreement. |
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| 3.4. | The authorized share capital of Yetsira at the Signature Date (prior to the transfer of the Transfered Yetsira’s Shares) shall consist of (A) 100,000 Ordinary Shares, of which 569 are issued and outstanding and (ii) 10,000 Preffered Shares of which 200 are issued and outstanding. | |
| 3.5. | Each of the Shareholders and Yetsira has the absolute and unrestricted right, power and authority to perform its obligations under this Agreement and the execution, delivery and performance by the Shareholders and Yetsira of this Agreement have been duly authorized by all necessary action on the part of Yetsira. This Agreement constitutes the legal, valid and binding obligation of the Shareholders and Yetsira. | |
| 3.6. | Execpt Ayalon MFM’’s approval for the change of holdings and control in Yetsira Portfolio Manager which is mandated under the Ayalon Agreement and which will be obtained by Yetsira whitin 30 days and thereafter will be attached to this Agreement as Annex 3.6A, and the report to the ISA of said change of holdings and control, a draft of which is attached hereto as Annex 3.6B, no consent, approval, order, license, permit, action by, or authorization of or designation, declaration, or filing with any governmental authority or other third party on the part of the Shareholders and Yetsira is required that has not been, or will not have been, obtained by the Shareholders and Yetsira prior to or at the Closing in connection with the valid execution, delivery and performance of this Agreement or the sale and transfer of Transfered Yetsira’s Shares, except approval of the Board of Directors of Yetsira, and a waiver of the Shareholders on their right of first refusal regarding the transfer of Transfered Yetsira’s Shares according to the shareholder agreements between the Shareholders. | |
| 3.7. | The Shareholders are the sole record and beneficial owner of the Transfered Yetsira’s Shares Shares and have the sole power to dispose of and to vote such shares. |
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| 3.8. | The Transfered Yetsira’s Shares are free and clear of any and all liens, claims, charges, encumbrances, rights, options to purchase, right of first refusal, proxies, voting trusts and other voting agreements, calls or commitments of every kind, except rights to the Shareholders under the shareholders agreements between the Shareholders, and except to the Shareholders’s rights under the Articles of Association of Yetsira. | |
| 3.9. | The execution, delivery and performance of this Agreement does not violate Yetsira’s Articles of Association nor will it conflict with or violate the terms of (i) any judgment, order or ruling of any governmental authority to which Yetsira is subject, (ii) applicable law or (iii) any agreement, license or commitment to which Yetsira is a party or to which it is subject and which would impair the ability of the Shareholders and Yetsira to execute, deliver or perform this Agreement, except the provisions of the shareholders agreements between the Shareholders which have been terminated by the Shareholders, and the provisions of the Articles of Association of Yetsira. | |
| 3.10. | Yetsira has not received any written notice of any action, suit, litigation, or governmental proceeding pending or contemplated against Yetsira. | |
| 3.11. | Yetsira’s financial statement for the fiscal year ending on December 31, 2018, (together, the “Yetsira’s Financial Statements”) will be signed within 14 days of the Signature Date and thereafter will be attached to this Agreement as Annex 3.11. Yetsira’s Financial Statements shall be in accordance with the books and records of Yetsira and shall be prepared in accordance with Israeli generally accepted accounting principles (“GAAP”) consistently applied, and fairly present in all material respects the financial position of Yetsira as of such dates and the results of its operations for the periods then ended all in accordance with GAAP. | |
| 3.12. | To the best of their knowledge, Yetsira Portfolio Manager has been handled since its foundation in a regular course of business. | |
| 3.13. | The number of individual clients, corporate clients, and the portfolios of the fund under the management of Ayalon MFM, are attached as Annex 3.13, including the yearly and latest quarterly report to the ISA of Yetsira Portfolio Manager business as mandated under law. |
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| 3.14. | To the best of their knowledge, no fault in their credibility, as such is defined under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995, has occured and there is no reason that such fault shall be found by the ISA or that Yetsira Portfolio Manager fit&proper standing shall be prejudiced or for them to hold the position of controlling shareholders, licensed portfolio managers, directors and officers in Yetsira Portfolio Manager. | |
| 3.15. | Except for the representations and warranties expressly contained in this Section 3, the Shareholders and Yetsira do not make any other express or implied representation or warranty, and the Shareholders and Yetsira hereby disclaim any other representations or warranties, whether express or implied. |
| 4. | Representations and Warranties of Creations |
Creations represents and warrants to the Shareholders and Yetsira as follows:
| 4.1. | Creations is a company duly incorporated and organized and validly subsisting under the laws of Delaware. The Articles of Association of Creations as in effect at the Signature Date is attached hereto as Annex 4.1. | |
| 4.2. | The authorized share capital of Creations at the Signature (prior to the allotment of the Issued Creations’ Shares) shall consist of (A) 100,000,000 Shares, of common stock which 1 share is issued as of the Signature Date, and 1,000,000 shares of blank check preferred stock none of which is issued as of the Signature Date. | |
| 4.3. | Creations has the absolute and unrestricted right, power and authority to perform its obligations under this Agreement and the execution, delivery and performance by Creations of this Agreement have been duly authorized by all necessary action on the part of Creations. This Agreement constitutes the legal, valid and binding obligation of Creations. |
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| 4.4. | No consent, approval, order, license, permit, action by, or authorization of or designation, declaration, or filing with any governmental authority or other third party on the part of Creations is required that has not been, or will not have been, obtained by Creations prior to or at the Closing in connection with the valid execution, delivery and performance of this Agreement or the sale and transfer of Issued Creations’ Shares, except approval of the Board of Directors of Creations, and a waiver of Creations’ Shareholders on their right of first refusal/preemptive rights regarding the issue of Issued Creations’ Shares according to the shareholder agreements between the Creations’ Shareholders and Creations. | |
| 4.5. | The name of the sole record and beneficial owner of Creations’ Shares which has the sole power to dispose of and to vote such shares is atteched hereto as Annex 4.5. The Issued Creations’ Shares are free and clear of any and all liens, claims, charges, encumbrances, rights, options to purchase, right of first refusal, proxies, voting trusts and other voting agreements, calls or commitments of every kind, except rights to the Creations’ Shareholders under the shareholders agreements between the Creations’ Shareholders and Creations, and except to the Creations’ Shareholders’ rights under the Articles of Association of Creations. | |
| 4.6. | The execution, delivery and performance of this Agreement does not violate Creations’ Articles of Association nor will it conflict with or violate the terms of (i) any judgment, order or ruling of any governmental authority to which Creations is subject, (ii) applicable law or (iii) any agreement, license or commitment to which Creations is a party or to which it is subject and which would impair the ability of Creations’ Shareholders and Creations to execute, deliver or perform this Agreement, except the provisions of the shareholders agreements between Creations’ Shareholders and Creations, and the provisions of the Articles of Association of Creations. | |
| 4.7. | Creations has not received a written notice of any action, suit, litigation, or governmental proceeding pending or contemplated against Creations. |
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| 4.8. | To the best of its knowledge, no fault in Creations’ credibility, as such is defined under any law, has occured and there is no reason that such fault shall be found by any government autohrity or that Creations’ fit& proper standing shall be prejudiced. | |
| 4.9. | Except for the representations and warranties expressly contained in this Section 4, Creations does not make any other express or implied representation or warranty, and Creations hereby disclaim any other representations or warranties, whether express or implied. |
| 5. | Shareholders’ Release of Claims |
Upon signing hereof:
| 5.1. | each one of the Shareholders hereby warrants and represents that he, or anyone acting on his behalf, does not have, and shall not have, any demand and/or claim against the other Shareholders, Yetsira, its affiliates, directors, officers, representatives, or anyone acting on their behalf, in relation to Yetsira, its subsidiarry, its financial state, this Agreement, or any act or omission, including such act or omission as a shareholder, director, officer or otherwise in relation to Yetsira and/or its subsidiary, all – whether known or unknown at the time of signing this Agreement. | |
| 5.2. | The Shareholder’s Agreement of the Shareholders dated 28/2/2017 (and any of its amandments, if any) with regards to their holdings of Yetsira’ shares, shall be terminated. |
| 6. | Indemnification |
Definitions: In this Section 6, with regards to Yetsira’s Shares - The Shareholders is referred to as the “Seller” and Creations is referred as “Buyer”, and with regards to Creations’ Shares, Creations is referred to as the “Seller” and the Shareholders is referred as “Buyer”. In addition, the Buyer is referred to as the “Indemnified Party”, and the Seller is referred to together as the “Indemnifying Party”.
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| 6.1. | The indemnification provided for in Section 6 shall be subject to the following limitations: |
| 6.1.1. | Except in the event of fraud, willful misconduct or intentional breach by the Seller’s representations and warranties contained herein by Seller; shall survive the Closing and shall remain in full force and shall remain in effect until the date that is 18 month from the Closing. With respect to fraud, willful misconduct or intentional breach by the Seller such representations and warranties shall survive the Closing and shall remain in full force until the applicable statute of limitation lapses. | |
| 6.1.2. | Subject to the limitations set forth in this section 6, from and after the Closing, Seller hereby undertakes to indemnify, and agree to defend, and hold harmless Buyer from, against, and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost, and expense (including, without limitation, reasonable attorneys’ fees and costs and expenses reasonably incurred in investigating, preparing, defending against, or prosecuting any litigation or claim, action, suit, proceeding, or demand) (collectively, the “Loss”), as and when incurred, of any kind or character directly arising out, relating, or attributable to inaccuracy of any material representation or breach of any warranty of Seller contained in this Agreement. | |
| 6.1.3. | The Buyer may not recover Losses from the Seller in respect of any claim for indemnification in accordance with section 6 unless the amount of Losses claimed in the aggregate is greater than amounts Creations shall fund Yetsira (as invetment(s) and/or as loan(s) (the “Indemnification Threshold”). Once the Indemnification Threshold has been exceeded, the Buyer shall be entitled to recover all Losses including those within the Indemnification Threshold. Notwithstanding the foregoing, the Indemnification Threshold shall not apply as a threshold to any Losses based on fraud, willful misconduct or international breach by the Seller. |
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| 6.1.4. | The aggregate liability of Seller shall be as follows: |
| 6.1.4.1. | except with respect to Losses based on or otherwise related to Seller’s fraud and/or intentional misrepresentation, Seller’s aggregate liability for all Losses shall not exceed the Value of the Issued Creations’ Shares at Closing based on the value of USD 1.00 per share; and | |
| 6.1.4.2. | with respect to Losses based on or otherwise related to Seller’s fraud and/or intentional misrepresentation , the Buyer may recover all of its Losses from the Seller without limitation. |
| 7. | Miscellaneous |
| 7.1. | The Agreement and the Annexes attached thereto constitute the entire agreement among the Parties, supersedes all prior understandings, whether written or oral, and may not be amended or modified except by a writing signed by each of the Parties. | |
| 7.2. | Each Party hereto shall execute and cause to be delivered to each other Party hereto such instruments and other documents, and shall take such other actions, as such other Party may reasonably request (prior to, at or after the Closing) for the purpose of carrying out or evidencing any of the transactions contemplated by this Agreement. | |
| 7.3. | Each of the Parties hereto shall pay its own expenses in connection with this Agreement and the transactions contemplated hereby. | |
| 7.4. | No waiver of any term, provision or condition of the Agreement shall be deemed to be construed as a further or continuous waiver of any such, or other, term, provision or condition. |
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| 7.5. | All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) business days after the business day of deposit with the Israel Postal Service, if delivered by postage prepaid; (b) upon delivery, if delivered by hand; (c) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission. All such notices and other communications shall be addressed to the following addresses or such other address as the recipient party may designate by ten (10) days’ advance written notice to the other party pursuant to the provisions above: | |
| 7.6. | This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. | |
| 7.7. | This Agreement shall be governed for all purposes exclusively by the laws of the State of Israel. Any dispute arising under or in relation to this Agreement shall be resolved in the competent court for the Tel Aviv-Jaffa district, and each of the parties hereby submits irrevocably to the jurisdiction of such court. | |
| 7.8. | This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. The Parties may not assign their rights and obligations under this Agreement without the prior written consent of the other Parties hereto. | |
| 7.9. | No failure or delay on the part of any party to exercise any power, right, privilege or remedy under this Agreement shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. | |
| 7.10. | This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of all parties hereto. |
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IN WITNESS WHEREOF, the parties hereto have set their signature as of the date first written above.
Guy Nissenson |
Ilan Arad Keshet | Amit Bilia | ||
| Shmuel Yelshevich |
| YETSIRA HOLDINGS LTD. | ||
| By: | ||
| Ilan Arad Keshet, CEO | ||
| CREATIONS, INC. | ||
| By: | ||
| Guy Nissenson, President and CEO | ||
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Annex 2.5.2
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Annex 2.5.3: UNANIMOUS WRITTEN CONSENT
OF
OF THE SOLE DIRECTOR
OF
Creations Inc.
(a Delaware corporation)
The undersigned, being the sole member of the Board of Directors (the “Board”) of Creations Inc., a Delaware corporation (the “Corporation”), does hereby consent to the adoption of the following resolutions by written consent in lieu of a meeting of the Board of Directors pursuant to the laws of the State of Delaware, effective as of July 1, 2019.
WHEREAS, the Board deems it to be in the best interests of the Corporation and its stockholders to approve the Exchange Agreement made and entered into as of July 1, 2019 and the issuance of an aggregate of 622,144 shares of common stock, $.001 par value per share of Creations to the following individuals in the amounts set forth next to their respective names. Guy Nissenson (379,435), Ilan Arad Keshet (80,903), Amit Bilia (80,903), and Shmuel Yelshevich (80,903), pursuant to applicable laws of the State of Delaware.
WHEREAS, the Corporation shall file the amendment to the Certificate of Incorporation with the Secretary of State of Delaware.
NOW, THEREFORE, it is hereby:
RESOLVED, that the Amendment is hereby authorized and approved in all respects, and that the Corporation is hereby authorized to perform its obligations under the Amendment; and it is further
RESOLVED, that all actions, executions, and delivery of documents instruments and agreements taken by any officer of the Corporation prior to this date relating to the purpose and intent of the foregoing resolution be, and they hereby are, in all respects approved, ratified, confirmed and adopted as the official acts and deeds of the Corporation; and it is further
RESOLVED, that this written consent may be delivered to the Corporation by facsimile or by an e-mail which contains a portable document format (.pdf) file of an executed signature page; and it is further
RESOLVED, that the Secretary or any other officer of this Corporation, be, and hereby is, authorized to certify as to the adoption of any or all of the foregoing resolutions; and it is further
RESOLVED, that the action taken by this consent shall have the same force and effect as if taken at a meeting of the Board of Directors of the Corporation, duly called.
IN WITNESS WHEREOF, this Written Consent has been signed by the sole director of the Company, to be effective on the date first written above
| Guy Nissenson, Sole Director |
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Annex 2.5.4 – List of Shareholders of Creations Inc. 7-1-2019
| Guy Nissenson | 379, 435 | |||
| Ilan Arad Keshet | 80, 903 | |||
| Amit Bilia | 80, 903 | |||
| ShmuelYelshevich | 80, 903 | |||
| Total Shares Outstanding: | 622,144 | |||
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Annex 4.5 – Sole Shareholder of Creations upon Closing
Mr. Guy Nissenson, Israeli ID ____________
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Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment (this “Agreement”) is entered into on _________, 2019, by and between Creations, Inc., a Delaware corporation, including any of its subsidiaries (collectively “Creations”), and Guy Nissensohn, an individual (the “Executive”), to be effective as of ___________, 2019 (the “Effective Date”). Creations shall alternatively be referred to herein as the “Employer” or the “Company”.
RECITALS
WHEREAS, the Executive has been the President, Chief Executive Officer (“CEO”) and Chairman of the Board of Directors (“Chairman”) of Creations (previously named GNI LLC) since its inception in the year 2019, and is a significant shareholder of Creations; and
WHEREAS, the Executive has expertise in the areas of product and service strategy, corporate management, strategy planning, business development, mergers and acquisitions, financing, investors and debtors relations, and other areas relating to the business of the Employer; and
WHEREAS, Creations acknowledges that the Executive is a key employee and wishes to continue his employment as its President and CEO; and Creations wishes to employ the Executive as its Chairman as well; and
WHEREAS, the Executive wishes to accept such employment, upon the terms and conditions set forth in this Agreement (including its appendixes); and
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the parties, intending to be legally bound, do hereby agree as follows:
AGREEMENT
1. EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby accepts such employment by the Employer, upon the terms and conditions set forth in this Agreement (including its appendixes).
1.2 LOCATION OF EMPLOYMENT
The primary location of employment under this Agreement shall be at the Company subsidiary, Yetsira Holdings, Ltd..
Should there be a need in the future, the Employer undertakes to use its best efforts and to take any necessary steps and/or actions and complete, sign and submit, as may be required from time to time, any necessary documents and/or forms in order to maintain / renew / replace the Executive’s U.S. Visa.
1.3 DUTIES
The Executive shall serve as the President and CEO of Creations, and as the Chairman of the Board of Creations. The Executive shall be the top ranking officer of the Employer and shall report directly to the Employer’s Boards of Directors, as applicable (the “Board”). Notwithstanding the foregoing, the Executive may serve in any paid or unpaid position or capacity of Creations’ subsidiaries as may be required from time to time
The Executive shall faithfully serve the Employer and use his best efforts to promote the Employer’s interests and the success of the Employer’s business. In doing so, the Executive shall devote business time, attention, skill, and energy to the business of the Employer, and shall cooperate fully with the Board in the advancement of the best interests of the Employer.
The Executive shall perform the customary duties and have the customary responsibilities of such positions, and such other duties which fall within his skills and qualifications and do not derogate from the current conditions of his work and status, as may be assigned to Executive from time to time by the Board.
It is hereby agreed and declared that nothing in this Agreement shall derogate from, or conflict with, any duties and/or obligations and/or responsibilities and/or rights and/or authorities under and/or pursuant to the Employer’s Articles of Incorporation and/or Bylaws and/or any rules and/or regulations and/or guidelines of the OTC Markets (and/or any other applicable stock exchange) and/or any rules and/or regulations and/or guidelines of the U.S. Securities and Exchange Commission (and/or any other applicable securities commission or authority) and/or the laws of the state of Delaware and/or any other law and/or act and/or regulation that applies and/or shall apply to the Executive due to his position with the Employer as Chairman, President or CEO
2. COMPENSATION
(a) Payment. The Executive shall be paid a gross monthly salary (the “Salary”) subject to automatic increases based on the total amount of Managed Capital (as defined in Section 2(b)) of the Company, including all of its subsidiaries, as set forth in the table below:
| Managed Capital of Creations | Monthly Salary to Executive | |||
| Up to $200,000,000 | $ | 0 | ||
| $200,000,001 – $500,000,000 | $ | 10,000 | ||
| $500,000,001 – $1,000,000,000 | $ | 30,000 | ||
| $1,000,000,001 and above | $ | 50,000 | ||
The Salary will be payable in equal periodic installments according to the Employer’s customary payroll practices, but no less frequently than monthly, and shall be subject to all applicable withholding and other applicable taxes as required by law.
(b) Managed Capital. “Managed Capital” shall mean the amount of managed capital of the Employer, including its subsidiaries, as determined by all investments and assets that the company manages and/or oversees including but not limited to deposits, managed accounts, advisory role over other investments and types of funds (mutual, private, venture, pension, etc.).
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(c) Benefits. The Executive will, during his employment under this Agreement, be permitted to participate in such life insurance, hospitalization, major medical, and other Executive benefit plans of the Employer that may be in effect from time to time, to the extent the Executive is eligible under the terms of those plans.
(d) Bonus. The Board shall, from time to time, and not less than once a calendar year, consider approving a grant of success bonus to the Executive (the “Bonus”). Such Board approval shall be subject to the prior review, oversight and recommendation to the Board of any committee of the board as may be required. In connection with the performance of this Section 3 (d), the Audit Committee, the Compensation Committee, if any such committee exists, and the Board shall take into account, among other factors, growth in the Employer’s revenues and/or profits and/or successful completion of transactions or activities by the Employer (such as, but not limited to, reorganization, mergers, acquisitions, capital raisings and cost cuts). Any Independent Director of Creations may, at any time and from time to time, initiate a Bonus grant to the Executive, and in such an event the approving process contemplated by this Section 3 (d) shall be set in motion.
(e) Stock Incentive Plan. Immediately upon the establishment by Creations of any equity incentive plan or other equity compensation arrangement pursuant to which options, stock, or other economic rights may be acquired by officers, directors, employees, or consultants of Creations (collectively, “Plan”), the Board shall consider approving a grant of an appropriate amount of options (or any other applicable rights or awards) under the Plan to the Executive.
3. FACILITIES AND EXPENSES
3.1 FACILITIES
The Employer shall furnish the Executive office space, equipment, supplies, and such other facilities and personnel as may be necessary and/or appropriate for the performance of the Executive’s duties and responsibilities under this Agreement.
3.2 EXPENSES
The Employer shall bear and pay directly and/or reimburse the Executive for the following expenses (the “Expenses”): (i) costs associated with telecommunication services and products, and (ii) costs associated with transportation and/or travel (including, but not limited to, by plane, train, rented car or taxi) and/or accommodation (including, but not limited to, at rented flats and hotels) and/or any other board and lodging expenses (including, but not limited to, food, restaurants and entertainment) which will be incurred in connection with the performance of the Executive’s duties and responsibilities under this Agreement.
The Employer acknowledges that in order to perform his duties and responsibilities under this Agreement, the Executive may be required to travel frequently. Therefore, in order to enable the Executive to have a normal family life the Employer shall also bear the Expenses which are related to the Executive’s spouse and children.
In connection with the performance of this Section 3.2, the Executive may hold credit cards in the name of the Employer which may be used from time to time to make certain Employer payments and pay certain Employer expenses.
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4. PAID TIME OFF (PTO)
The Executive will be entitled to two hundred (200) PTO hours per each calendar year in accordance with the applicable policies of the Employer in effect for its executive officers from time to time. The Executive will also be entitled to the paid holidays set forth in the Employer’s policies. The Executive may carry over up to eighty (80) PTO hours, that are not used during any calendar year, to the subsequent calendar year.
5. CONFIDENTIALITY
The Executive shall treat as confidential any and all Confidential Information and Trade Secrets related, directly or indirectly, to the Employer (including its subsidiaries and affiliates), and shall not use and/or disclose and/or disseminate Confidential Information for purposes other than carrying out his duties and responsibilities pursuant to this Agreement.
For purposes of this Agreement, “Confidential Information and Trade Secrets” shall include any and all information of a confidential nature which relates to the business, activities, technology, products, services, marketing, research and financials of the Employer (including its subsidiaries and affiliates), including but not limited to business and technical information, whatever its nature and form and whether obtained orally, by observation, from written materials or otherwise, as for example: (A) financial and business information, such as information with respect to costs, commissions, fees, profits, profit margins, sales, markets, mailing lists, accounts receivables and accounts payables, pricing strategies, strategies and plans for future business, new business, product or other development, potential acquisitions or divestitures, and new marketing ideas; (B) marketing information, such as information on markets, end users and applications, the identity of the Employer’s customers, vendors, suppliers, and distributors, their names and addresses, the names of representatives of the Employer’s customers, vendors, distributors or suppliers responsible for entering into contracts with the Employer, the Employer’s financial arrangements with its distributors and suppliers, the amounts paid by such customers to the Employer, specific customer needs and requirements, leads and referrals to prospective customers; and (C) personnel information, such as the identity of the Employer’s employees, personal information such as social security numbers, skills, qualifications, and abilities. The Executive acknowledges and agrees that the Confidential Information and Trade Secrets are not generally known or available to the general public, but have been developed, complied or acquired by the Employer at its great effort and expense and for commercial advantage and, therefore, takes every reasonable precaution to prevent the use or disclosure of any part of it by or to unauthorized persons. Confidential Information and Trade Secrets can be in any form or media, whether oral, written or machine readable, including electronic files. The provisions of this Section 5 shall survive the termination of this Agreement.
6. NON-COMPETE
The Executive shall not, directly or indirectly, compete with the Employer (including its subsidiaries and affiliates) and its successors and assigns during the effective term of this Agreement and for a period of six (6) months following its termination, for any reason whatsoever.
The term “not compete” as used herein shall mean, inter alia, that the Executive shall not own, manage, operate, consult to or be employed in a business substantially similar to, or competitive with, the present business of the Employer (including its subsidiaries and affiliates) or such other business activity in which the Employer (including its subsidiaries and affiliates) may substantially engage during the effective term of this Agreement.
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During the effective term of this Agreement and for a period of six (6) months following its termination, for any reason whatsoever, the Executive will neither solicit nor employ any employee of the Employer to engage in a competing business, nor solicit the business of any customer or client of the Employer or prospective customer or client of the Employer.
7. WORK PRODUCT
All work product created by the Executive in connection with his employment shall belong exclusively to the Employer and the Employer shall be the sole rightful owner of such work product under U.S. intellectual property laws, free and clear of all claims of ownership or otherwise. The Executive will do any and all things, and execute any and all documents as may be appropriate to achieve the objectives of this Section 7.
The Executive agrees that when his employment with the Employer ends, he will immediately return to the Employer all property, data, information and knowledge which are in his possession or under his control, including without limitation all documents, forms, correspondence, financial records and forecasts, operation manuals, notebooks, reports, proposals, computer programs, software, software documentation, employee handbooks, supervisor’s manuals, lists of clients and referral sources, client data, and all copies thereof, relating in any way to the business of the Employer, whether relating to the Employer directly or to a client of the Employer, made or obtained by Executive during his employment with the Employer, whether or not such data, information, or knowledge constitute confidential or trade secret information.
8. TERM AND TERMINATION
This Agreement and the employment of the Executive hereunder shall be in effect for an initial fixed term of five (5) years, beginning on the Effective Date (the “Initial Effective Term”), and thereafter shall be automatically renewed for additional terms of three (3) years (each, an “Additional Effective Term”), unless terminated as provided below.
Each of the Employer and the Executive shall have the right to terminate the automatic renewal of this Agreement, for any reason whatsoever, by a Termination Notice, to be provided to the other party not less than six (6) months prior to: (i) the expiration of the Initial Effective Term, or (ii) the expiration of any Additional Effective Term.
Notwithstanding the foregoing, the Employer shall have the right to terminate this Agreement, by a Termination Notice, at any time, only for “Cause” (as that term is defined in Appendix A), “Disability” (as that term is defined in Appendix A) or death (each, a “Legitimate Early Termination by the Employer”). In the event of a Legitimate Early Termination by the Employer, the prior notice period shall be of not less than: (i) three (3) days in the event of termination for Cause; and (ii) thirty (30) days in the event of termination for Disability.
Notwithstanding the foregoing, the Executive shall have the right to terminate this Agreement, by a Termination Notice, at any time, for any reason whatsoever (“Early Termination by the Executive”). In the event of Early Termination by the Executive, for a reason other than Good Reason (as that term is defined in Appendix A), the prior notice period shall be of not less than eight (8) months; and in the event of Early Termination by the Executive for Good Reason (as that term is defined in Appendix A), the prior notice period shall be of not less than one (1) month.
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It is hereby clarified that any prior notice period shall constitute a part of the effective term of this Agreement and that during the prior notice period both the Employer and the Executive shall continue to perform this Agreement, and their mutual rights and obligations under this Agreement shall not be affected, in any manner whatsoever, by the “Termination Notice”.
“Termination Notice” shall be communicated to the other party in writing and shall indicate the specific termination provision in this Agreement relied upon. The Termination Notice shall also set forth in reasonable details the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Any Termination Notice shall specify the termination date of this Agreement.
9. SEVERANCE PACKAGE
In order to provide the Executive with an enhanced financial security, in recognition of the Executive’s past and future service and contribution to the Employer, the Employer shall provide the Executive with an appropriate severance package which shall include certain benefits and rights as set forth in Appendix A, attached hereto and incorporated herein by this reference.
10. GENERAL PROVISIONS
10.1 REPRESENTATIONS AND WARRANTIES BY THE PARTIES
(a) The Executive represents and warrants to the Employer that the execution and delivery by the Executive of this Agreement do not, and the performance by the Executive of the Executive’s duties and responsibilities hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Executive; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Executive is a party or by which the Executive is or may be bound.
(b) The Employer represents and warrants to the Executive that the execution and delivery by the Employer of this Agreement do not, and the performance by the Employer of the Employer’s obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Employer; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Employer is a party or by which the Employer is or may be bound.
10.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and/or assigns and/or heirs and/or legal representatives (each, a “Successor”).
Any Successor of the Employer will be deemed substituted for the Employer under the terms of this Agreement for any and all purposes. In order to remove doubt, for this purpose, “Successor” shall include: (i) any entity with which the Employer may merge or consolidate; (ii) any person or entity which, at any time and by any means, directly or indirectly, shall acquire all or substantially all of the assets or business of the Employer, and (iii) any former subsidiary of the Employer that ceases to be as such as the result of the Employer distributing the securities of such subsidiary to the Employer’s stockholders.
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The duties and responsibilities of the Executive under this Agreement, being personal, may not be delegated. None of the Executive’s rights and benefits under this Agreement may be assigned or transferred except by will or the laws of descent and distribution.
10.3 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that might be suffered by the Employer as a result of a breach of this Agreement by the Executive might be irreparable and that an award of monetary damages to the Employer for such a breach might be an inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief.
10.4 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.
10.5 NOTICES
All notices, consents, waivers, requests, demands and other communications under this Agreement must be in writing and will be deemed to have been duly given: (a) on the date of delivery, if delivered by hand (with written confirmation of delivery), (b) one (1) business day after being sent by facsimile (with written confirmation of transmission), provided that a copy is mailed by prepaid registered mail, return receipt requested, or (c) 3 (three) business days after being mailed by prepaid registered mail, return receipt requested, in each case to the appropriate addresses and/or facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other party):
If to Employer:
Creations, Inc.
Arthur Office
AND
Yetsira Investment House, Ltd
Arieh Shenkar St 1
Herzilva, Israel 4672501
If to the Executive:
At the executive’s last residential address / facsimile number provided by the Executive to the Employer.
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10.6 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.
10.7 SEVERABILITY
If any provision of this Agreement is held invalid, illegal, unenforceable or void by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid, illegal, unenforceable or void only in part or degree will remain in full force and effect to the extent not held invalid, illegal, unenforceable or void.
10.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.
10.9 GOVERNING LAW
This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Delaware, without regard to conflict of law principles.
10.10 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Delaware, or, if it has or can acquire jurisdiction, in any of the United States District Courts in Delaware, and each of the parties consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world.
10.11 WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
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10.12 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The parties hereto agree to accept facsimile signatures as an original signature.
10.13 LEGAL ADVICE.
The Executive acknowledges that he has had the opportunity to discuss this Agreement with and obtain advice from a private attorney, has had sufficient time to, and has carefully read and fully understood all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Agreement as of the date first above written.
| EMPLOYER: | EXECUTIVE: |
| Creations, Inc. | Guy Nissensohn, Individually |
| By: |
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[Appendix “A” - Severance Package]
| 1. | Definition of Terms. The following terms used to in this Appendix A shall have the following meanings: |
| (a) | Cause. “Cause” means (1) any act of dishonesty taken in connection with the Executive’s duties and responsibilities under this Agreement that is intended to result in the Executive’s substantial personal enrichment; (2) the Executive’s conviction or plea of no contest to a crime that negatively reflects on the Executive’s fitness to perform the Executive’s duties and responsibilities under this Agreement or harms the Employer’s reputation or business; or (3) willful misconduct by the Executive that is injurious to the Employer’s reputation or business.
For purposes of determining whether Cause exists, an act or failure to act will be deemed “willful” only if effected not in good faith or without reasonable belief that the action or failure to act was in the best interests of the Employer. | |
| (b) | Disability. “Disability” means the Executive’s being unable to perform the essential functions of the Executive’s duties and responsibilities under this Agreement due to a physical or mental impairment consistent with Title I of the American with Disabilities Act (as amended), but only if such inability has lasted or is reasonably expected to last for at least six (6) months.
The Employer will determine whether a Disability exists based on evidence provided by one or more physicians approved by the Employer. | |
| (c) | Good Reason. “Good Reason” means, without the Executive’s written consent: (1) a change in the Executive’s status, title, position, authorities, responsibilities or assignment to duties by the Employer that are substantially inconsistent with the Executive’s training, education, professional experience and status; (2) a reduction in the Executive’s Salary below the Executive’s Salary on the Effective Date; (3) the insolvency or the filing (by any party, including the Employer) of a petition for bankruptcy of the Employer, which petition is not dismissed within sixty (60) days; (4) any material breach by the Employer of any provision of this Agreement; or (5) the Employer’s failure to provide substantially comparable benefits in the aggregate to those provided to similarly situated employees of the Employer. | |
| (d) | Release of Claims. “Release of Claims” means a waiver by the Executive of all obligations of the Employer set forth in this Agreement and all claims and causes of action against the Employer. | |
| (e) | Successor. “Successor” means (i) any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Employer, or (ii) any Spin-Off subsidiary of the Employer. | |
| (f) | Spin-Off. “Spin-Off” means any former subsidiary of the Employer that ceases to be as such as the result of the Employer distributing the securities of such subsidiary to the Employer’s stockholders. | |
| (g) | Termination Date. “Termination Date” means the date of termination of this Agreement. |
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| 1. | Eligibility for Severance Benefits. The Executive will be entitled to the payments and benefits described in Section 3 below only if: |
| (a) | either (1) the Employer terminates this Agreement for a reason other than Cause, Disability or death, or (2) the Executive terminates this Agreement for Good Reason; and | |
| (b) | the Executive (1) signs and delivers to the Employer a Release of Claims satisfactory to the Employer, and (2) complies with all of the applicable terms of this Agreement. |
Provided, however, that in the event the Executive is employed or hired by a subsidiary of the Employer that is involved in a Spin-Off, then the Executive shall not be deemed to have been terminated for Cause nor shall the Executive be permitted to terminate for Good Reason and receive the benefits described hereunder on account of the Spin-Off, but rather such subsidiary shall be deemed to be a Successor of the Employer.
| 2. | Severance Benefits. If the Executive meets the eligibility requirements described in Section 2 above, the Executive shall receive the following: |
| (a) | Lump Sum Payment. The Executive shall receive a lump sum payment in an amount equal to three and a half (3.5) months Salary (as in effect prior to the Termination Date), for each year or part thereof, beginning on the Executive’s Date Of Commencement Of Employment until the Termination Date. This payment shall be made on the Termination Date. | |
| (b) | Option Vesting. Notwithstanding anything to the contrary in any plan, any options, whether granted to the Executive before, on or after the Effective Date that are unvested on the Termination Date, except for options that vest solely upon the achievement of a performance objective or objectives or options that have their vesting accelerate upon the achievement of a performance objective or objectives, will become fully vested and exercisable on the Termination Date if the options otherwise would have vested (solely by virtue of the Executive’s continued employment with the Employer and not, directly or indirectly, due to a change of control of the Employer) during the one-year period commencing the Termination Date. Any other unvested options will be forfeited on the Termination Date. | |
| (c) | Outstanding Salaries, Bonuses, Expenses, Employee Social & Fringe Benefits and Unused PTO. The Employer shall pay the Executive any outstanding and unpaid and/or unreimbursed Salaries, Bonuses, Expenses and employee social & fringe benefits and/or any unused PTO hours pursuant to this Agreement for periods prior to the Termination Date. These payments will be made promptly following the Termination Date. |
Notwithstanding the foregoing, in the event the Employer terminates this Agreement for Disability or death, the Executive shall be eligible to payments of the severance benefits under Section 3 (c).
| 3. | Without prejudice to the provisions of Section 10 of this Agreement regarding termination by the Employer, and without prejudice to the foregoing provisions of this Appendix A, in the event the Employer terminates this Agreement, at any time before the expiration of either the Initial Effective Term or any Additional Effective Term (as the case may be), for a reason other than Cause, Disability or death, the Executive shall also be entitled to receive a lump sum payment in an amount equal to any and all unpaid Salaries, Bonuses, Expenses and employee social & fringe benefits that would have been paid to him throughout the entire Initial Effective Term or Additional Effective Term (as the case may be) had no such termination occurred. |
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Exhibit 10.4
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this “Agreement”) is being delivered to the purchaser identified on the signature page to this Agreement (the “Subscriber”) in connection with its investment in the securities of Creations, Inc., a Delaware corporation (the “Company”). The Company is conducting a private placement (the “Offering”) of up to Five Hundred Thousand Dollars ($500,000) (the “Maximum Offering Amount”) (subject to the right of the Company in its sole discretion and without notice to the Subscribers to increase the Maximum Offering Amount to $750,000 to cover over-allotments the (“Overallotment Option”)) of the Company’s securities consisting of (i) shares of its common stock, par value $.0001 per share (the “Shares”), and (ii) warrants to purchase shares of its common stock (the “Warrants”), at an exercise price of $1.00 per Share (the “Exercise Price”)(the Shares and the Warrants are collectively referred to as the “Securities”). No minimum number of Securities must be sold before a closing can occur.
Each Warrant shall be exercisable at any time on or after the date of issuance for a period of three (3) years at the Exercise Price, subject to adjustment as provided in the agreement evidencing the Warrants in the form attached hereto as Exhibit A. The number of shares of common stock underlying the Warrant shall be equal to 100% of the number of Shares issued to the Subscriber under this Agreement. For purposes of this Agreement, the shares of common stock underlying the Warrants shall be referred to as the “Warrant Shares,” and, together with the Shares, the “Securities.”
This Offering is in connection with and a continuation of an offering on the same terms in which the Company raised $1.64 million (the “Initial Offering”).
IMPORTANT INVESTOR NOTICES
NO OFFERING LITERATURE OR ADVERTISEMENT IN ANY FORM MAY BE RELIED UPON IN THE OFFERING OF THESE SECURITIES EXCEPT FOR THIS SUBSCRIPTION AGREEMENT AND ANY SUPPLEMENTS HERETO, AND NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS EXCEPT THOSE CONTAINED HEREIN.
UNTIL SUCH TIME AS THE TRANSACTIONS CONTEMPLATED BY THIS SUBSCRIPTION AGREEMENT HAVE BEEN PUBLICLY RELEASED, THIS AGREEMENT IS CONFIDENTIAL AND THE CONTENTS HEREOF MAY NOT BE REPRODUCED, DISTRIBUTED OR DIVULGED BY OR TO ANY PERSONS OTHER THAN THE RECIPIENT OR ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT, ACKNOWLEDGES AND AGREES TO THE FOREGOING RESTRICTIONS.
THIS AGREEMENT DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE INFORMATION THAT YOU MAY DESIRE IN EVALUATING THE COMPANY, OR AN INVESTMENT IN THE OFFERING. THIS AGREEMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT WOULD NORMALLY APPEAR IN A PROSPECTUS FOR AN OFFERING REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). YOU MUST CONDUCT AND RELY ON YOUR OWN EVALUATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN DECIDING WHETHER TO INVEST IN THE OFFERING.
THIS AGREEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO ANY PERSON OR IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS UNLAWFUL OR NOT AUTHORIZED. EACH PERSON WHO ACCEPTS DELIVERY OF THIS AGREEMENT AGREES TO RETURN IT AND ALL RELATED DOCUMENTS IF SUCH PERSON DOES NOT PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN.
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NEITHER THE DELIVERY OF THIS AGREEMENT AT ANY TIME NOR ANY SALE OF SECURITIES HEREUNDER SHALL IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THE COMPANY WILL EXTEND TO EACH PROSPECTIVE SUBSCRIBER (AND TO ITS REPRESENTATIVE, ACCOUNTANT OR LEGAL COUNSEL, IF ANY) THE OPPORTUNITY, PRIOR TO ITS PURCHASE OF SECURITIES, TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE OFFERING AND TO OBTAIN ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN. ALL SUCH ADDITIONAL INFORMATION SHALL ONLY BE PROVIDED IN WRITING AND IDENTIFIED AS SUCH BY THE COMPANY THROUGH ITS DULY AUTHORIZED OFFICERS AND/OR DIRECTORS ALONE; NO ORAL INFORMATION OR INFORMATION PROVIDED BY ANY BROKER OR THIRD PARTY MAY BE RELIED UPON.
NO REPRESENTATIONS, WARRANTIES OR ASSURANCES OF ANY KIND ARE MADE OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN, IF ANY, THAT MAY ACCRUE TO AN INVESTOR IN THE COMPANY.
FOR RESIDENTS OF ALL STATES
THIS OFFERING IS BEING MADE SOLELY TO “ACCREDITED INVESTORS,” AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 4(a)(2) THEREUNDER AND REGULATION D (RULE 506) OF THE SECURITIES ACT AND CORRESPONDING PROVISIONS OF STATE SECURITIES LAWS.
THE SECURITIES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE SUBSCRIBERS SHOULD NOT CONSTRUE THE CONTENTS OF THIS AGREEMENT AS INVESTMENT, LEGAL, BUSINESS, OR TAX ADVICE. EACH SUBSCRIBER SHOULD CONTACT HIS, HER OR ITS OWN ADVISORS REGARDING THE APPROPRIATENESS OF THIS INVESTMENT AND THE TAX CONSEQUENCES THEREOF, WHICH MAY DIFFER DEPENDING ON A SUBSCRIBER’S PARTICULAR FINANCIAL SITUATION. IN NO EVENT SHOULD THIS AGREEMENT BE DEEMED OR CONSIDERED TO BE TAX ADVICE PROVIDED BY THE COMPANY.
FOR FLORIDA RESIDENTS ONLY
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH SUBSCRIBER TO THE COMPANY, AN AGENT OF THE COMPANY, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR RESIDENTS OTHER THAN U.S.
THESE SECURITIES MAY BE OFFERED OUTSIDE THE UNITED STATES BUT ONLY TO INDIVIDUALS OR ENTITIES THAT MEET THE DEFINITION OF AN “ACCREDITED INVESTOR” AS SET FORTH ABOVE AND AS VERIFIED IN THE INVESTOR QUESTIONNAIRE CONTAINED HEREIN TO BE COMPLETED BY ALL INVESTORS U.S. OR NON-U.S.
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| 1. | SUBSCRIPTION AND PURCHASE PRICE |
(a) Subscription. Subject to the conditions set forth in Section 2 hereof, the Subscriber hereby subscribes for and agrees to purchase the number of Securities indicated on the signature page hereof on the terms and conditions described herein.
(b) Purchase of Securities. The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Securities shall be set at $1.00 per Share for an aggregate purchase price as set forth on the signature page hereof (the “Aggregate Purchase Price”). For each Share purchased, the Subscriber will receive one (1) Warrant. The Subscriber’s delivery of this Agreement to the Company shall be accompanied by payment for the Securities subscribed for hereunder, payable in United States Dollars, by wire transfer of immediately available funds delivered to the Company. The Subscriber understands and agrees that, subject to Section 2 and applicable laws, by executing this Agreement, it is entering into a binding agreement.
(c) Subscription Procedures. To subscribe for Securities, each prospective investor must deliver the following documents to the Company.
1. One executed copy of the Agreement and the Investor Questionnaire, and
2. A wire transfer or check payment payable to Creations, Inc.. The wire must be in the full amount for the numbers of equity ownership interests being purchased.
Wire information:
Bank Name: Signature Bank
ABA: 26013576
Address:111 Broadway Ste 811
New York, NY 10006
Account Name: Creations, Inc.
Account Number:1503672479
Address: 1 Wall Street
Hamilton, ND 58238
Israeli Residents can wire their funds to our Israeli subsidiary as follows:
Yetsiha Holdings Ltd.
Union Bank of Israel
Branch: 079
Account #: 051850054
Should you prefer to pay via check, please make the check payable to Creations, Inc. and deliver to:
Yetsira Investment House.
WeWork
Arieh Shenkar St 1
Herzliya, Israel 4672501
Documents can also be scanned and delivered by email to Yetsira Investment house at Yetsira@yetsira-invest.com
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| 2. | Acceptance, Offering Term and Closing Procedures |
(a) Acceptance. Subject to full, faithful and punctual performance and discharge by the Company of all of its duties, obligations and responsibilities as set forth in this Agreement and any other agreement entered into between the Subscriber and the Company relating to this subscription (collectively, the “Transaction Documents”) to be performed or discharged on or prior to the Closing in which such Subscriber participates, the Subscriber shall be legally bound to purchase the Securities pursuant to the terms and conditions set forth in this Agreement. For the avoidance of doubt, upon the occurrence of the failure by the Company to fully, faithfully and punctually perform and discharge any of its duties, obligations and responsibilities as set forth in any of the Transaction Documents, which shall have been performed or otherwise discharged prior to the Closing (as defined below), the Subscriber may, on or prior to the Closing, at its sole and absolute discretion, elect not to purchase the Securities and provide instructions to the Company to receive the full and immediate refund of the Aggregate Purchase Price. The Offering shall commence on September 1, 2019 and will close upon the earlier of October 31, 2019 or when the Company decides that it is in best interest of the Company to terminate the Offering subject to the Company’s right to extend the Offering for up to additional 90 day periods (the “Termination Date”).
(b) Closing. The closing of the purchase and sale of the Securities hereunder (the “Closing”) shall take place at such time and place as determined by the Company and may take place in one of more closings. Closings shall take place on a Business Day promptly following the satisfaction of the conditions set forth in Section 6 below, as determined by the Company (the “Closing Date”). “Business Day” shall mean from the hours of 9:00 a.m. (Eastern Time) through 5:00 p.m. (Eastern Time) of a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required to be closed. The initial closing shall be referred to as the “Initial Closing”. The date of the Initial Closing is sometimes referred to as the “Initial Closing Date.” Subsequent closings (each a “Subsequent Closing”) will be held until the earlier to occur of: (i) the date on which the Maximum Offering Amount has been subscribed for (subject to the ability to increase of the Maximum Offering Amount to account for the Overallotment Option) and accepted by the Company, and (ii) the Termination Date. Officers, directors and affiliates of the Company and the placement agent, if any, may purchase Securities in the Offering.
(c) Following Acceptance or Rejection. The Subscriber acknowledges and agrees that this Agreement and any other documents delivered in connection herewith will be held by the Company. Prior to the Company’s execution, in the event that this Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, this Agreement, the Aggregate Purchase Price received (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Agreement. If this Agreement is accepted by the Company, the Company is entitled to treat the Aggregate Purchase Price received as an interest free loan to the Company until such time as the Subscription is accepted.
(d) Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price and Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price and Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price and Exercise Price then in effect. The Purchase Price and Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. The number of Securities that the Subscriber shall thereafter be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price and Exercise Price that would otherwise (but for the provisions of this Section) be in effect, and (b) the denominator is the Purchase Price and Exercise Price then in effect.
(e) Certificate as to Adjustments. In each case of any adjustment or readjustment in the Securities, the Company, at its expense, will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms hereof and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail a copy of each such certificate to the Subscriber.
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| 3. | THE SUBSCRIBER’s Representations, Warranties AND cOVENANTS |
Each Subscriber, severally and not jointly, hereby acknowledges, agrees with and represents, warrants and covenants to the Company, as follows:
(a) The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).
(b) The Subscriber acknowledges its understanding that the Offering and sale of the Securities is intended to be exempt from registration under the Securities Act, by virtue of Section 4(a)(2) of the Securities Act and the provisions of Regulation D promulgated thereunder (“Regulation D”). In furtherance thereof, the Subscriber represents and warrants to the Company and its affiliates as follows:
(i) The Subscriber realizes that the basis for the exemption from registration may not be available if, notwithstanding the Subscriber’s representations contained herein, the Subscriber is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Subscriber does not have any such intention.
(ii) The Subscriber realizes that the basis for exemption would not be available if the Offering is part of a plan or scheme to evade registration provisions of the Securities Act or any applicable state or federal securities laws, except sales pursuant to a registration statement or sales that are exempted under the Securities Act.
(iii) The Subscriber is acquiring the Securities solely for the Subscriber’s own beneficial account, for investment purposes, and not with a view towards, or resale in connection with, any distribution of the Securities.
(iv) The Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for providing for its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.
(v) The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “Advisors”) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Securities. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Securities.
(vi) The Subscriber (together with its Advisors, if any) has received all documents requested by the Subscriber, if any, and has carefully reviewed them and understands the information contained therein, prior to the execution of this Agreement.
(c) The Subscriber is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic and related considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only its Advisors. Each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Company or any affiliate or sub-agent thereof.
(d) The Subscriber has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands that the Securities are a speculative investment that involves a high degree of risk of loss of the Subscriber’s entire investment. The Subscriber acknowledges that the Company was formed only very recently and as such has a limited operating history and limited business operations upon which to evaluate its business and prospects.
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(e) The Subscriber will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that the Subscriber must bear the economic risk of its purchase because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or an exemption from such registration is available. In particular, the Subscriber is aware that the Securities are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that the Company is under no obligation to register the Securities on behalf of the Subscriber or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber understands that any sales or transfers of the Securities are further restricted by state securities laws and the provisions of this Agreement.
(f) No oral or written representations or warranties have been made, or information furnished, to the Subscriber or its Advisors, if any, by the Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Offering, other than any representations of the Company contained herein, and in subscribing for the Securities the Subscriber is not relying upon any representations other than those contained herein.
(g) The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and an investment in the Securities will not cause such overall commitment to become excessive.
(h) The Subscriber understands and agrees that the certificates for the Securities shall bear substantially the following legend:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(i) Certificates evidencing Securities shall not be required to contain the legend set forth in Section 3(h) above or any other legend (i) while a registration statement covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to be sold, assigned or transferred under Rule 144 and the Subscriber is not an affiliate of the Company (provided that the Subscriber provides the Company with reasonable assurances that such Securities are eligible for sale, assignment or transfer under Rule 144 which shall not include an opinion of the Subscriber’s counsel), (iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that the Subscriber provides the Company with an opinion of counsel (at the expense of the Company), in a form generally acceptable to the Company, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the Securities Act or (v) if such legend is not required under applicable requirements of the Securities Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the SEC).
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(j) Neither the SEC nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Offering. There is no government or other insurance covering any of the Securities.
(k) The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered to the full satisfaction of the Subscriber and its Advisors, if any.
| (l) | (i) In making the decision to invest in the Securities the Subscriber has relied solely upon the information provided by the Company in the Transaction Documents. To the extent necessary, the Subscriber has retained, at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and the purchase of the Securities hereunder. The Subscriber disclaims reliance on any statements made or information provided by any person or entity in the course of Subscriber’s consideration of an investment in the Securities other than the Transaction Documents. |
(ii) The Subscriber represents and warrants that: (i) the Subscriber was contacted regarding the sale of the Securities by the Company (or an authorized agent or representative thereof) with whom the Subscriber had a prior substantial pre-existing relationship and (ii) no Securities were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith, the Subscriber did not (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising; or (C) observe any website or filing of the Company with the SEC in which any offering of securities by the Company was described and as a result learned of any offering of securities by the Company.
(m) The Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Agreement or the transactions contemplated hereby.
(n) The Subscriber is not relying on the Company or any of its employees, agents, or advisors with respect to the legal, tax, economic and related considerations of an investment in the Securities, and the Subscriber has relied on the advice of, or has consulted with, only its own Advisors.
(o) The Subscriber acknowledges that any estimates or forward-looking statements or projections furnished by the Company to the Subscriber were prepared by the management of the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company or its management and should not be relied upon.
(p) No oral or written representations have been made, or oral or written information furnished, to the Subscriber or its Advisors, if any, in connection with the Offering that are in any way inconsistent with the information contained herein.
(q) (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Company or any of its affiliates.
(r) This Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any subscription for any reason.
(s) The Subscriber is an “Accredited Investor” as defined in Rule 501(a) under the Securities Act. In general, an “Accredited Investor” is deemed to be an institution with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding such person’s residence) or annual income exceeding $200,000 or $300,000 jointly with his or her spouse.
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(t) The Subscriber, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the Offering, and has so evaluated the merits and risks of such investment. The Subscriber has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D of the General Rules and Regulations under the Securities Act) in connection with the Offering. The Subscriber is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(u) The Subscriber acknowledges that there is no trading market for any of our securities, active or otherwise. A trading market for our securities, including our Common Stock may never develop or, if developed, many not be maintained. The Subscriber will likely be unable to sell their securities unless a market can be established or maintained.
(v) The Subscriber acknowledges that the Company has not included any financial statements in this Subscription Agreement. Additionally, the Company’s financial statements have not been audited and as such may not be accurate. As of the Date of this Subscription Agreement, the Company has not established adequate internal control over financial reporting nor do we anticipate establishing such controls in the near future.
(w) The Subscriber acknowledges that the Company may require additional funds to respond to business challenges or opportunities and expects to engage in equity or debt financings in the near future to secure additional funds, although there cannot be any assurance that such funds will be available to the Company. In addition, the Company does not expect that its existing capital resources and net proceeds from this offering will be sufficient to enable us to fund our operations and we will need to raise additional capital to fund our operations.
| 4. | THE COMPANY’S Representations, Warranties and Covenants |
The Company hereby acknowledges, agrees with and represents, warrants and covenants to each Subscriber, as follows:
(a) Organization and Qualification
Each of the Company and its Subsidiary, if any, are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiary is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or its Subsidiary, either individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company or its Subsidiary to perform any of their respective obligations under any of the Transaction Documents.. “Subsidiaries” means any entity in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such entity or (II) controls or operates all or any part of the business, operations or administration of such entity , and each of the foregoing, is individually referred to herein as a “Subsidiary.”
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(b) Authorization; Enforcement; Validity
The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The Company’s Subsidiary has the requisite power and authority to enter into and perform its obligations under the Transaction Documents to which it is a party. The execution and delivery of this Agreement and the other Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Securities), have been duly authorized by the Company’s board of directors, and (other than (i) the filing with the SEC of a Form D under Regulation D of the Securities Act (ii) any action necessary in order to qualify the Securities, and any other filings as may be required by any state securities agencies or “Blue Sky” laws of the states of the United States, and (iii) if applicable, the listing of the Securities, on a Principal Market (as defined below)) no further filing, consent or authorization is required by the Company, its Subsidiary, their respective boards of directors or their stockholders or other governing body. This Agreement has been, and the other Transaction Documents will be, prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law.
(c) Issuance of Securities
The issuance of the Securities is duly authorized and, upon issuance in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. The issuance of the Securities are duly authorized, and upon issuance in accordance with the applicable Transaction Documents, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Subject to the accuracy of the representations and warranties of the Subscribers in this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the Securities Act.
(d) No Conflicts
The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Securities will not (i) result in a violation of the Charter (as defined below) or other organizational documents of the Company or its Subsidiary, any capital stock of the Company or its Subsidiary or Bylaws (as defined below) or the bylaws any Subsidiary, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or its Subsidiary is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including, without limitation, foreign, federal and state securities laws and regulations and including all applicable federal and provincial laws, rules and regulations) applicable to the Company or its Subsidiary or by which any property or asset of the Company or its Subsidiary is bound or affected other than, in the case of clause (ii) above, such conflicts, defaults or rights that could not reasonably be expected to have a Material Adverse Effect. The Company’s securities are not listed on any market or exchange including the OTCQB (the “Principal Market”).
(e) Consents
Neither the Company nor its Subsidiary is required to obtain any consent from authorization or order of, or make any filing or registration with (other than the filing with the SEC of a Form D and any other filings as may be required by any state securities agencies) any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its respective obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Closing have been obtained or effected on or prior to each Closing Date, and neither the Company nor its Subsidiary are aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents. As used herein, Person means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
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(f) Acknowledgment Regarding Subscriber’s Purchase of Securities
The Company acknowledges and agrees that each Subscriber is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that no Subscriber is acting as a financial advisor or fiduciary of the Company or of its Subsidiary (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Subscriber or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Subscriber’s purchase of the Securities. The Company further represents to each Subscriber that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent’s Fees
Neither the Company, nor its Subsidiary or affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for Persons engaged by any Subscriber or its investment advisor) relating to or arising out of the transactions contemplated hereby. Neither the Company or its Subsidiary has engaged any placement agent or other agent in connection with the offer or sale of the Securities.
(h) Conduct of Business; Regulatory Permits
Neither the Company nor its Subsidiary is in violation of any term of or in default under its Charter, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or its Subsidiary or Bylaws or their organizational charter, certificate of formation or certificate of incorporation or bylaws, respectively. Neither the Company nor its Subsidiary is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiary, and neither the Company nor its Subsidiary will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. The Company and its Subsidiary possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
(i) Foreign Corrupt Practices
Neither the Company nor its Subsidiary nor any director, officer, agent, employee or other Person acting on behalf of the Company or its Subsidiary has, in the course of its actions for, or on behalf of, the Company or its Subsidiary (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
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(j) Equity Capitalization
The capitalization of the Company is as set forth in Schedule 4(j), and such Schedule 4(j) is an accurate statement of the Company’s capitalization. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed on Schedule 4(j), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 4(j), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Subscribers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in material compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. Except as set forth in Schedule 4(j), there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. The Company has furnished to the Subscribers true, correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Charter”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all Common Stock Equivalents and the material rights of the holders thereof in respect thereto.
(k) Indebtedness and Other Contracts
The Company (i) has no outstanding Indebtedness (as defined below), (ii) is not a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is not in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is not a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. Other than as set forth in Schedule 4(k), the Company has no Indebtedness owed to any Subscriber. Schedule 4(k) also details the former indebtedness. (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, claim, lien, tax, right of first refusal, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
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(l) Absence of Litigation
There is no action, suit, proceeding, inquiry or investigation before or by any Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or its Subsidiary, the Common Stock or any of the Company’s or its Subsidiary officers or directors which is outside of the ordinary course of business or individually or in the aggregate material to the Company or its Subsidiary. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, its Subsidiary or any current or former director or officer of the Company or of its Subsidiary. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Securities Act or the Exchange Act.
(m) Intellectual Property Rights
The Company and its Subsidiary own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefore (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted, except where the failure to do so could be reasonably expected to have, individually or in the aggregate have a Material Adverse Effect. None of the Company’s or its Subsidiary’s Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. The Company has no knowledge of any infringement by the Company or its Subsidiary of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or its Subsidiary, being threatened, against the Company or its Subsidiary regarding their Intellectual Property Rights. The Company is not aware of any facts or circumstances which are likely to give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiary have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.
(n) Tax Status
The Company and its Subsidiary (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiary know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
(o) Investment Company Status
The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.
(p) Transfer Taxes.
On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Subscriber hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.
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(q) Bank Holding Company Act.
Neither the Company nor its Subsidiary is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor its Subsidiary or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor its Subsidiary or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(r) No Additional Agreements.
The Company does not have any agreement or understanding with any Subscriber with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.
(s) No Disqualification Events.
None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering contemplated hereby, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
(t) Illegal or Unauthorized Payments; Political Contributions.
Neither the Company its Subsidiary nor, to the best of the Company’s knowledge (after reasonable inquiry of its officers and directors), any of the officers, directors, employees, agents or other representatives of the Company or the Subsidiary or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any Person or (b) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or its Subsidiary.
(u) Money Laundering.
The Company and its Subsidiary are in compliance with, and have not previously violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, without limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter
(v) Disclosure.
The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Subscribers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information regarding the Company or its Subsidiary, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Subscribers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Subscribers regarding the Company and its Subsidiary, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or its Subsidiary is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or its Subsidiary or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Subscriber makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.
| -13- |
| 5. | OTHER AGREEMENTS OF THE PARTIES |
(a) Shareholder Rights Plan. No claim will be made or enforced by the Company or, to the knowledge of the Company, any other person that any Subscriber is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Subscriber could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Subscribers.
(b) Publicity. The Company and each Subscriber shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and no Subscriber shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, which consent shall not unreasonably be withheld. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Subscriber, or include the name of any Subscriber in any filing with the SEC or any regulatory agency, without the prior written consent of such Subscriber, except to the extent such disclosure is required by law in which case the Company shall provide the Subscribers with prior notice of such disclosure. The Company understands that any such disclosure shall cause irreparable harm and each Subscriber shall be entitled to injunctive relief and liquidated damages in connection therewith.
(c) Integration. The Company shall not, and shall use its best efforts to ensure that no affiliate of the Company shall, after the date hereof, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security that would be integrated with the offer or sale of the shares in a manner that would require the registration under the Securities Act of the sale of the Securities to the Subscribers.
(d) Use of Proceeds. The Company anticipates using the gross proceeds from the Offering for general corporate purposes including growth initiatives and capital expenditures. .
(e) Reserved.
(f) Form D and Blue Sky
The Company shall file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to each Subscriber promptly after such filing. The availability of the filed Form D on EDGAR shall satisfy the foregoing delivery requirement. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities for sale to the Subscribers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Subscribers on or prior to the Closing Date. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and sale of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, foreign, state and local laws, statutes, rules, regulations and the like relating to the offering and sale of the Securities to the Subscribers.
(h) Closing Documents. On or prior to five (5) calendar days after each Closing Date, the Company agrees to deliver, or cause to be delivered, to each Subscriber executed copies of the Transaction Documents, Securities and other document required to be delivered to any party pursuant to this Agreement.
| -14- |
(i) Indemnification. The Company will indemnify and hold harmless each Subscriber and, where applicable, its directors, officers, employees, agents, advisors and shareholders (each, an “Indemnitee”), from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary in any of the Transaction Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in any of the Transaction Documents or, (iii) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which otherwise involves such Indemnitee that arises out of or results from (A) the execution, delivery, performance or enforcement of any of the Transaction Documents, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (C) the status of such Subscriber or holder of the Securities either as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
| 6. | CONDITIONS TO ACCEPTANCE OF SUBSCRIPTION |
(a) The Closing of the sale of the Securities is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date:
(i) As of the Closing, no legal action, suit or proceeding shall be pending against the Company that seeks to restrain or prohibit the transactions contemplated by this Agreement.
(ii) The representations and warranties of the Company and the Subscribers contained in this Agreement shall have been true and correct in all material respects on the date of this Agreement (except whether such representations are qualified by material or material adverse effect, which shall be true and correct in all respects) and shall be true and correct as of the Closing as if made on the Closing Date and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company in connection with the consummation of the transactions contemplated by the Transaction Documents at or prior to the Closing Date and the Company shall deliver a certificate, executed by its Chief Executive Officer, dated as of the Closing Date, certifying that the foregoing is true.
| 7. | MISCELLANEOUS PROVISIONS |
(a) All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement.
(b) Each of the parties hereto shall be responsible to pay the costs and expenses of its own legal counsel in connection with the preparation and review of this Agreement and related documentation.
(c) Neither this Agreement, nor any provisions hereof, shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought.
(d) The representations, warranties and agreement of each Subscriber and the Company made in this Agreement shall survive the execution and delivery of this Agreement and the delivery of the Securities.
(e) Any party may send any notice, request, demand, claim or other communication hereunder to the Subscriber at the address set forth on the signature page of this Agreement or to the Company at its primary office (including personal delivery, expedited courier, messenger service, fax, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties written notice in the manner herein set forth.
| -15- |
(f) Except as otherwise provided herein, this Agreement shall be binding upon, and inure to the benefit of, the parties to this Agreement and their heirs, executors, administrators, successors, legal representatives and assigns. If any Subscriber is more than one person or entity, the obligation of any Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by, and be binding upon, each such person or entity and its heirs, executors, administrators, successors, legal representatives and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.
(g) This Agreement is not transferable or assignable by the Company.
(h) The Company hereby represents and warrants as of the date hereof and as of any Closing Date that none of the terms offered to any Person with respect to any offer, sale or subscription of Securities (each a “Subscription Document”), is or will be more favorable to such Person than those of the Subscriber and this Agreement shall be, without any further action by the Subscriber or the Company, deemed amended and modified in an economically and legally equivalent manner such that the Subscriber shall receive the benefit of the more favorable terms contained in such Subscription Document. Notwithstanding the foregoing, the Company agrees, at its expense, to take such other actions (such as entering into amendments to the Transaction Documents) as the Subscriber may reasonably request to further effectuate the foregoing.
(i) Except as otherwise provided herein, this Agreement shall not be changed, modified or amended and no right hereunder shall be waived, except in writing signed by both (a) the Company and (b) Subscribers representing the Required Approval. The Company shall be prohibited from offering any additional consideration to any Subscriber in this Offering (or such original Subscriber’s transferee) for the purposes of inducing such person to change, modify, waive or amend any term of this Agreement or any other Transaction Document without making the same offer on a pro-rata basis to all other Subscribers (and those transferees) in this Offering allocable to the securities acquired by such transferee(s).
(j) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles.
(k) The Company and each Subscriber hereby agree that any dispute that may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in the City of New York, Borough of Manhattan, and they hereby submit to the exclusive jurisdiction of the federal and state courts of the State of New York located in the City of New York, Borough of Manhattan with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, postage prepaid, in care of the address set forth herein or such other address as either party shall furnish in writing to the other.
(l) WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(m) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Signature Pages Follow]
| -16- |
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the Subscriber, ____________, has executed this Agreement on the ____ day of _____, 2019.
| x $1.00 per Share = | |||
Number of Shares of Common Stock subscribed for |
Aggregate Purchase Price |
For each share purchased the subscriber will receive one warrant.
Manner in which Title is to be held (Please Check One):
| 1. | ___ | Individual | 7. | ___ | Trust/Estate/Pension or Profit sharing Plan Date Opened:______________ |
| 2. | ___ | Joint Tenants with Right of Survivorship | 8. | ___ | As a Custodian for ________________________________ Under the Uniform Gift to Minors Act of the State of ________________________________ |
| 3. | ___ | Community Property | 9. | ___ | Married with Separate Property |
| 4. | ___ | Tenants in Common | 10. | ___ | Keogh |
| 5. | ___ | Corporation/Partnership/ Limited Liability Company | 11. | ___ | Tenants by the Entirety |
| 6. | ___ | IRA |
ALTERNATIVE DISTRIBUTION INFORMATION
To direct distribution to a party other than the registered owner, complete the information below. YOU MUST COMPLETE THIS SECTION IF THIS IS AN IRA INVESTMENT.
Name of Firm (Bank, Brokerage, Custodian):
Account Name:
Account Number:
Representative Name:
Representative Phone Number:
Address:
City, State, Zip:
| -17- |
IF
MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE THIS PAGE.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE THE NEXT PAGE.
EXECUTION BY NATURAL PERSONS
Exact Name in Which Title is to be Held
| Name (Please Print) | Name of Additional Purchaser | |
| Residence: Number and Street | Address of Additional Purchaser | |
| City, State and Zip Code | City, State and Zip Code | |
| Social Security Number | Social Security Number | |
| Telephone Number | Telephone Number | |
| Fax Number (if available) | Fax Number (if available) | |
| E-Mail (if available) | E-Mail (if available) | |
| (Signature) | (Signature of Additional Purchaser) |
ACCEPTED this ___ day of _________ 2019, on behalf of the Company.
| CREATIONS, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]
| -18- |
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, LLC, Trust, Etc.)
Name of Entity (Please Print)
| Date of Incorporation or Organization: |
| State of Principal Office: |
| Federal Taxpayer Identification Number: | |
| Office Address | |
| City, State and Zip Code | |
| Telephone Number | |
| Fax Number (if available) | |
| E-Mail (if available) |
| By: | ||
| Name: | ||
| Title: |
| [seal] | |||
| Attest: | |||
| (If Entity is a Corporation) | |||
| Address | |||
ACCEPTED this ____ day of __________ 2019, on behalf of the Company.
| CREATIONS, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
[SIGNATURE PAGE FOR SUBSCRIPTION AGREEMENT]
| -19- |
INVESTOR QUESTIONNAIRE
Instructions: Check all boxes below which correctly describe you.
| [ ] | You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and (1) the decision that you shall subscribe for and purchase shares of common stock or preferred stock, is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Shares is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”) or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Securities is made solely by persons or entities that are accredited investors. |
| [ ] | You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended. |
| [ ] | You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Securities and its underlying securities in excess of $5,000,000. |
| [ ] | You are a director or executive officer of the Company. |
| [ ] | You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 (excluding residence) at the time of your subscription for and purchase of the Securities. |
| [ ] | You are a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year. |
| [ ] | You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities and whose subscription for and purchase of the Securities is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D. |
| [ ] | You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs. |
| -20- |
Check all boxes below which correctly describe you.
With respect to this investment in the Securities, your:
| Investment Objectives: | [ ] Aggressive Growth | [ ] Speculation | |||||
| Risk Tolerance: | [ ] Low Risk | [ ] Moderate Risk | [ ] High Risk |
Are you associated with a FINRA Member Firm? [ ] Yes [ ] No
Your initials (purchaser and co-purchaser, if applicable) are required for each item below:
| ____ ____ | I/We understand that this investment is not guaranteed. |
| ____ ____ | I/We are aware that this investment is not liquid. |
| ____ ____ | I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering. |
| ____ ____ | I/We confirm that this investment is considered “high risk.” (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification. Success or failure of private placements such as this is dependent on the corporate issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.) |
The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased the Securities.
| Name of Purchaser [please print] | Name of Co-Purchaser [please print] | |
| Signature of Purchaser (Entities please provide signature of Purchaser’s duly authorized signatory.) | Signature of Co-Purchaser | |
| Name of Signatory (Entities only) | ||
| Title of Signatory (Entities only) |
[SIGNATURE PAGE FOR INVESTOR QUESTIONNAIRE]
| -21- |
SCHEDULES
Schedule 4(j) Capitalization
The Company currently has 2,262,144 shares of Common Stock outstanding. The following individuals are either directors, officers or 5% owners. Shares are principally beneficially owned as follows:
| Name | Shares owned | % owned prior to Offering | ||||||
| Guy Nissenson(1) | 2,088,870 | 46.17 | % | |||||
| Blair E Sanford(2) | 200,000 | 8.12 | % | |||||
| David Slomka(2) | 200,000 | 8.12 | % | |||||
| Ilan and Dalia Bar(2) | 200,000 | 8.12 | % | |||||
| Rising Moon Assets Inc. (2) | 200,000 | 8.12 | % | |||||
| Shemer Schwarz(2) | 200,000 | 8.12 | % | |||||
| Avner Roash(3) | 140,000 | 5.83 | % | |||||
| Elnatan Ori Efraim(3) | 140,000 | 5.83 | % | |||||
| Ilan Arad Keshet(4) | 161,806 | 6.68 | % | |||||
| Amit Biliya(4) | 161,806 | 6.68 | % | |||||
| Shmuel Yelshevich(4) | 161,806 | 6.68 | % | |||||
| (1) | Includes 1,044,435 warrants to purchase shares of Common Stock. |
| (2) | Includes 100,000 warrants to purchase shares of Common Stock. |
| (3) | Includes 70,000 warrants to purchase shares of Common Stock. |
| (4) | Includes 80,903 warrants to purchase shares of Common Stock. |
Certain existing shareholders of the Company who received their shares of Common Stock in connection with the acquisition of Yetsira have agreed to give Mr. Nissenson voting control over their shares.
| -22- |
Exhibit 10.5
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
CREATIONS, INC.
| Warrant Shares: _______ | Initial Exercise Date: |
THIS COMMON STOCK PURCHASE WARRANT (this “Warrant”) certifies that, for value received, ______ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on _____________(the “Termination Date”) but not thereafter, to subscribe for and purchase from CREATIONS, Inc. a Delaware corporation (the “Company”), up to _______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Subscription Agreement (the “Subscription Agreement”), dated _________, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date for a period of three (3) years at the Exercise Price by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within two Business Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within two (2) Business Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $1.00, subject to adjustment hereunder (the “Exercise Price”).
| 1 |
c) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is one (1) Business Day after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares; provided payment of the aggregate Exercise Price is received within two Business Days
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(c)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(c)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
d) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be [4.99%][9.99%] of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
c) Notice to Holder. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 3(e) of the Subscription Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Business Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original issue date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 3(e) of the Subscription Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
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Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(c)(i), except as expressly set forth in Section 3.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Subscription Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
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g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Subscription Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Subscription Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws and the conditions set forth in Section 4(d) hereof and the provisions of Section 3(e) of the Subscription Agreement, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| Creations, INc. | ||
| By: | ||
| Name: | Guy Nissensohn | |
| Title: | Chief Executive Officer | |
| 8 |
NOTICE OF EXERCISE
To: Creations, Inc.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(3) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please Print) | |
| Address: | |
| (Please Print) | |
| Phone Number: | |
| Email Address: | |
| Dated: _______________ __, ______ | |
| Holder’s Signature:________________________ | |
| Holder’s Address:_________________________ |
Exhibit 10.6
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