THE MERGER

 

The following is a discussion of the Merger and the material terms of the Merger Agreement among Senstar-Ontario, Merger Sub and Senstar-Israel.  You are urged to read the Merger Agreement carefully and in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein.

 

 

On the terms and subject to the conditions of the Merger Agreement, and in accordance with the ICL, at the Effective Time, Merger Sub will be merged with and into Senstar-Israel. As a result of the Merger, (a) the separate corporate existence of Merger Sub will cease and Senstar-Israel will continue as the Surviving Company; (b) all the properties, rights, privileges, powers and franchises of Senstar-Israel and Merger Sub will vest in Senstar-Israel (as the Surviving Company); (c) all debts, liabilities and duties of Senstar-Israel and Merger Sub shall become the debts, liabilities and duties of Senstar-Israel (as the Surviving Company); and (d) all the rights, privileges, immunities, powers and franchises of Senstar-Israel (as the Surviving Company) will continue unaffected by the merger in accordance with the ICL.

 

At the Effective Time (as defined in “The Merger Agreement – Closing and Effective Time”), each Senstar-Israel ordinary share issued and outstanding immediately prior to the consummation of the Merger will represent the right to receive, less any applicable withholding taxes, one (1) validly issued, fully paid and nonassessable common share of Senstar-Ontario (the “Merger Consideration”) in each case, upon the terms and subject to the conditions and restrictions set forth in the Merger Agreement.

Also, at the Effective Time, by virtue of the Merger, the one ordinary share, nominal value NIS 1.00 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will be automatically cancelled and shall have no further effect.

 

 

At its meeting on September 26, 2023, the Senstar-Israel Board evaluated the terms of the Redomiciliation Proposal, including the terms and conditions of the Merger Agreement, and unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and fair to, and in the best interests of, Senstar-Israel and its shareholders, (ii) approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, (iii) determined that no reasonable concern exists that Senstar-Israel, as the surviving company in the Merger, will be unable to fulfill its obligations to its creditors as a result of the Merger, (iv) directed Senstar-Israel’s management to call a Special General Meeting of shareholders and to take such other actions as are necessary to complete the Merger and (v) resolved to recommend that the Senstar-Israel shareholders approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and directed that such matters be submitted for consideration of the Senstar-Israel shareholders at the Special General Meeting.

In evaluating the Merger Agreement, including the Redomiciliation, the Merger and the other transactions contemplated by the Merger Agreement, the Senstar-Israel Board consulted with Senstar-Israel’s management and legal, tax, financial and other outside professional advisors and considered various information and factors in connection with the Redomiciliation and the Merger, including the material factors described below. Among the information and material factors considered by the Senstar-Israel Board were the following (which are not listed in any relative order of importance):

 

Risks and Uncertainties

The Senstar-Israel Board also considered a number of uncertainties and risks in its deliberations concerning the Merger Agreement, the Redomiciliation, the Merger and the other transactions contemplated by the Merger Agreement, including the following (which are not listed in any relative order of importance):

 

 

 

 

After taking into account all of the factors set forth above, as well as others, the Senstar-Israel Board unanimously agreed that, overall, the potential benefits of the Redomiciliation and the Merger to Senstar-Israel and its shareholders far outweigh the risks and uncertainties.

 

The foregoing discussion of the factors considered by the Senstar-Israel Board is not intended to be exhaustive, but rather includes the material factors considered by the Senstar-Israel Board. In view of the wide variety of factors considered by the Senstar-Israel Board in connection with its evaluation of the Redomiciliation and the Merger and the complexity of these matters, the Senstar-Israel Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative or specific weights or values to any of the factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Senstar-Israel Board. Rather, the Senstar-Israel Board considered all of these factors as a whole and made its recommendation based on the totality of the information available to the Senstar-Israel Board, including discussions with, and questioning of, Senstar-Israel’s management and discussions with Senstar-Israel’s legal, tax and financial advisors. In considering the factors discussed above, individual members of the Senstar-Israel Board may have given different weights to different factors and the factors are not presented in any order of priority.

 

The Senstar-Israel Board realized that there can be no assurance about future results, including results considered or expected as described in the factors listed above. This explanation of Senstar-Israel Board’s reasoning and all other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Special Note Regarding Forward-Looking Statements.”

The Senstar-Israel Board unanimously recommends that you vote “FOR” the Redomiciliation Proposal.

 

 

In accordance with the terms of the Merger Agreement, at the Effective Time, each option to purchase Senstar-Israel Shares outstanding immediately prior to the Effective Time (each, an “Exchanged Option”), will be assumed by Senstar-Ontario and exchanged into an option to purchase a similar number of Senstar-Ontario Common Shares, with the same terms and conditions, including the same exercise price, vesting schedule and termination date.

As of September 26, 2023, there were options to purchase 377,666 Senstar-Israel Shares outstanding, with a weighted average exercise price of $2.93, of which options to purchase 275,000 Senstar-Israel Shares were granted to current and former Israeli employees of Senstar-Israel under Section 102 of the Israeli Income Tax Ordinance [New Version], 5721-1961 (“Section 102 Options”). None of the Section 102 Options are expected to be outstanding as of the Effective Time.

Following the Effective Time, Senstar-Ontario will prepare and file with the SEC a new registration statement on Form S-8 relating to the of Senstar-Ontario Common Shares issuable with respect to, or underlying, the Exchanged Options.

Procedures for Surrendering Senstar-Israel Shares in the Merger

 

Following the Effective Time,  the Exchange Agent, will mail to each Senstar-Israel shareholder instructions regarding surrendering the Senstar-Israel Shares whether they are certificated or not and making required certifications of the applicability of tax withholding. 

If you are a Senstar-Israel shareholder with Senstar-Israel Shares held in “street name,” which means your Senstar-Israel Shares are held in an account at a broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee.  For further information, see “The Merger Agreement – Exchange Agent; Letter of Transmittal.”

          THE MERGER AGREEMENT

 

The following discussion summarizes material provisions of the Merger Agreement entered into by Senstar-Ontario, Merger Sub and Senstar-Israel. This summary does not propose to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the Merger Agreement and not by this summary. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information provided elsewhere in this proxy statement/prospectus, including the annexes and the documents incorporated by reference into this proxy statement/prospectus, before making any decisions regarding the Merger.

The Merger Agreement is described in this proxy statement/prospectus only to provide you with information regarding its terms and conditions and is not intended to provide any factual information about Senstar-Ontario, Senstar-Israel or their respective businesses. The representations, warranties and covenants contained in the Merger Agreement have been made solely for the benefit of the parties to the Merger Agreement. In addition, such representations, warranties and covenants: (1) have been made only for purposes of the Merger Agreement; (2) may be subject to materiality qualifications contained in the Merger Agreement which may differ from what may be viewed as material by you; (3) were made only as of September 26, 2023 or dates specified in the Merger Agreement; and (4) have been included in the Merger Agreement for the purpose of allocating risk rather than establishing matters as facts. Accordingly, the summary of the Merger Agreement is included in this proxy statement/prospectus only to provide you with information regarding the terms of the Merger and not to provide you with any other factual information regarding Senstar-Ontario, Senstar-Israel or their respective businesses. Moreover, information concerning the subject matter of the representations, warranties and covenants, which do not purport to be accurate as of the date of this proxy statement/prospectus, may have changed since the date of the Merger Agreement. Accordingly, the representations and warranties in the Merger Agreement should not be relied upon by any persons as characterizations of the actual state of facts about Senstar-Ontario or Senstar-Israel at the time they were made or otherwise.

 

 

On September 26, 2023, Senstar-Ontario, Senstar-Israel and Merger Sub entered into the Merger Agreement, pursuant to which Senstar-Ontario will become the parent company of Senstar-Israel as a result of a merger of Merger Sub with and into Senstar-Israel, with Senstar-Israel surviving the Merger as a wholly-owned subsidiary of Senstar-Ontario (the “Surviving Company”). The Surviving Company shall (i) continue to be governed by the laws of the State of Israel; (ii) maintain a registered office in the State of Israel; and (iii) succeed to and assume all of the rights, properties and obligations of Merger Sub and Senstar-Israel in accordance with the ICL.

 

 

The Merger Agreement provides for the Merger, in which Merger Sub will be merged with and into Senstar-Israel, with Senstar-Israel surviving the Merger as a wholly-owned subsidiary of Senstar-Ontario. After the completion of the Merger, the Memorandum of Association of Senstar-Israel as in effect immediately prior to the Effective Time will be the Memorandum of Association of the Surviving Company, until duly amended, and Merger Sub’s Articles of Association, as in effect immediately prior to the Effective Time will be the Articles of Association of the Surviving Company except that references to the name of Merger Sub will be replaced by references to the name of the Surviving Company, until duly amended. The individuals holding positions as directors of Merger Sub immediately prior to the Effective Time will become the initial directors of the Surviving Company until their respective successors are duly elected and qualified, or until their resignation or removal. The individuals holding positions as officers of Senstar-Israel as of the Effective Time will continue to be the officers of the Surviving Company until their respective successors are duly elected, appointed or qualified, or until their resignation or removal.

 

 

At the Effective Time, each Senstar-Israel ordinary share issued and outstanding immediately prior to the consummation of the Merger will represent the right to receive, less any applicable withholding taxes, one (1) validly issued, fully paid and nonassessable common share of Senstar-Ontario (the “Merger Consideration”), upon the terms and subject to the conditions and restrictions set forth in the Merger Agreement.

 

 

Unless the Merger Agreement is terminated, the consummation of the Merger will take place on a date to be agreed upon by Senstar-Ontario, Merger Sub and Senstar-Israel, which will be no later than the third business day following the satisfaction or waiver (to the extent permitted in the Merger Agreement) of the last to be satisfied or waived of the conditions to Closing (other than those conditions that by their nature can only be satisfied at Closing, but subject to the satisfaction or waiver, of those conditions), or on such other date as Senstar-Ontario, Merger Sub and Senstar-Israel may mutually agree in writing.

 

As soon as practicable after the determination of the date on which the Closing is to take place in accordance with the Merger Agreement, each of Senstar-Israel and Merger Sub will, in coordination with each other, deliver to the Israeli Companies Registrar a notice of the contemplated Merger and the proposed date of the Closing, in which notice the parties will request that the Israeli Companies Registrar issue a certificate evidencing the Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”) on the date that the parties will provide further notice to the Israeli Companies Registrar that the Closing has occurred, and the parties will deliver such further notice to the Israeli Companies Registrar on the Closing Date. The Merger will become effective upon the issuance by the Israeli Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (the “Effective Time”).

 

Following the Effective Time, Senstar-Ontario and the Surviving Company will cause the Exchange Agent to mail to each holder of record, as of immediately prior to the Effective Time, of (x) a certificate or certificates (the “Certificates”) that immediately prior to the Effective Time represented outstanding Senstar-Israel ordinary shares and (y) uncertificated Senstar-Israel ordinary shares (the “Uncertificated Shares”), in each case whose shares were acquired by Senstar-Ontario and represent the right to receive the Merger Consideration pursuant to the Merger Agreement (A) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to such Senstar-Israel ordinary shares shall pass, only upon delivery of (1) the Certificates (or affidavits of loss in lieu thereof) or (2) an acknowledgment of the conversion of such holder’s Uncertificated Shares into the right to receive the Merger Consideration, as the case may be, to the Exchange Agent) (the “Letter of Transmittal”); (B) a declaration in which the beneficial owner of Senstar-Israel ordinary shares provides certain information necessary pursuant to the terms of the ITO (in each case, subject to the provisions of the Merger Agreement), the United States Internal Revenue Code of 1986 (the “Code”), or any applicable provision of state, local, Israeli, U.S. or other law, and (C) instructions for use in effecting the surrender of the Certificates or acknowledging the conversion of the Uncertificated Shares into the right to receive the Merger Consideration payable in respect thereof pursuant to the provisions of the Merger Agreement, including, in the case of the Uncertificated Shares, instructions for identifying the deposit account through which such Uncertificated Shares are held. Upon delivery to the Exchange Agent of the Letter of Transmittal and the declaration for Tax withholding purposes or a valid tax certificate (and such other documents, if any, as the Exchange Agent may reasonably request consistent with customary practice), duly completed and validly executed in accordance with the instructions thereto, and, if applicable, surrender of Certificates (or affidavit of loss in lieu thereof) for cancellation to the Exchange Agent, the holders of such Certificates or Uncertificated Shares, as applicable, will be entitled to receive in exchange therefor the Merger Consideration, and an amount in cash sufficient to pay any dividends or other distributions to which the holder thereof is entitled pursuant to the Merger Agreement. Senstar-Ontario will cause the Exchange Agent to accept such Certificates or acknowledgments of the conversion of the Uncertificated Shares upon compliance with the foregoing exchange procedures.

 

 

The Merger Agreement provides that the Merger Consideration issuable to each Senstar-Israel shareholder shall be delivered to each such Senstar-Israel shareholder only following: (i) the issuance by the ITA of the Tax Ruling (and if such ruling requires the affirmative consent of such Senstar-Israel shareholder, such holder consented in writing to join such ruling); or (ii) delivery by such Senstar-Israel shareholder to Senstar-Ontario and Exchange Agent of a valid tax certificate, and if such valid tax certificate does not provide for full exemption from withholding of Israeli Tax or clarifies that no such obligation exists, delivery by such Senstar-Israel shareholder of  immediately available funds in an amount sufficient in order to fulfil any such withholding Tax liability and any other Tax withholding liability that may apply under any provision of applicable Tax Law (the “Withholding Amount”).

 

With respect to withholding of Israeli Tax, in the event any Senstar-Israel shareholder provides Senstar-Ontario or Exchange Agent with a valid tax certificate at least five (5) Business Days prior to delivery of the Merger Consideration, then the withholding of any amounts under the ITO or any other provision of Israeli Law or requirement, if any, from the Merger Consideration deliverable to such Senstar-Israel shareholder shall be made only in accordance with the provisions of such valid tax certificate (subject, if applicable to delivery by such Senstar-Israel shareholder of the Withholding Amount(. The Withholding Amount so collected shall be paid over to the appropriate governmental entity prior to the last day on which such payment is required to be paid to such governmental entity.

 

With respect to Israeli Taxes, in the event that the Tax Ruling shall not be obtained for any reason whatsoever, the Merger Consideration deliverable to each Senstar-Israel shareholder shall be retained by the Exchange Agent for the benefit of each such Senstar-Israel shareholder for a period of up to 180 days from Closing (the “Withholding Drop Date”) (during which time the Merger Consideration shall not be delivered and no withholding for Israeli Taxes therefrom shall be made, except as provided below and during which time each Senstar-Israel shareholder may obtain a valid tax certificate).  If a Senstar-Israel shareholder delivers, no later than five (5) Business Days prior to the Withholding Drop Date a valid tax certificate to the Exchange Agent, then the Exchange Agent shall act in accordance with such valid tax certificate, subject to delivery by such Senstar-Israel shareholder concurrently with such certificate of the Withholding Amount, if and to the extent required under such valid tax certificate (such Withholding Amount to be increased by interest plus linkage differences, as defined in Section 159A(a) of the ITO, for the period between the 15th day of the calendar month following the month during which the Closing occurs and the time that the Merger Consideration is delivered, as determined by Senstar-Ontario and the Exchange Agent. If any Senstar-Israel shareholder does not provide the Exchange Agent with a valid tax certificate by no later than five Business Days before the Withholding Drop Date or provides by such date with a valid tax certificate that is not providing for full exemption from withholding of Israeli Tax or clarifying that no such obligation exists, and fails to deliver the applicable Withholding Amount by such date, then the Merger Consideration due to it shall be delivered to Senstar-Ontario upon demand, and such holder shall thereafter look only to Senstar-Ontario, as general creditors thereof, for any payment of and claim with respect thereto.

 

The Merger Agreement provides that no dividends or other distributions with a record date after the Effective Time with respect to Senstar-Ontario common shares will be paid to the holder of any Senstar-Israel Shares until such holder properly surrenders his or her shares in accordance with the procedures described in “—Exchange Agent; Letter of Transmittal.” After proper surrender, Senstar-Ontario will cause such holder to be paid, without interest, (1) at the time of the proper surrender or acknowledgment, the amount of dividends or other distributions with a record date after the Effective Time and theretofore paid with respect to such Senstar-Ontario common shares to which such holder is entitled pursuant to the Merger Agreement and (2) at the appropriate payment date, the amount of dividends or other distributions (a) with a record date after the Effective Time but prior to such surrender and (b) with a payment date subsequent to such surrender or acknowledgment, payable with respect to such Senstar-Ontario common shares.

 

 

The Merger Agreement contains certain limited representations and warranties made by Senstar-Ontario, Merger Sub and Senstar-Israel to, and solely for the benefit of, each other. You should not rely on the representations and warranties in the Merger Agreement as characterizations of the actual state of facts about Senstar-Ontario, Merger Sub or Senstar-Israel and should see “Where You Can Find More Information” for the location of documents that are incorporated by reference into this proxy statement/prospectus for information regarding Senstar-Ontario, Merger Sub and Senstar-Israel and their respective businesses.

 

The Merger Agreement contains certain fundamental representations and warranties made by Senstar-Israel relating to the following:

 

 

 

 

  

           The Merger Agreement contains certain fundamental representations and warranties made by Senstar-Ontario and Merger Sub relating to the following:

 

 

 

  

 

 

 

The representations and warranties in the Merger Agreement of each of Senstar-Israel and Senstar-Ontario do not survive the Effective Time.

 

The representations and warranties by Senstar-Israel and Senstar-Ontario are subject, in some cases, to specified exceptions and qualifications contained in confidential disclosure letters and are also qualified by certain documents filed by the parties with the SEC, excluding in each case, any disclosures set forth in any risk factor or forward-looking statement sections, to the extent such disclosures are predictive, cautionary or forward-looking in nature.

 

 

As soon as reasonably practicable following the date of the Merger Agreement, (i) Senstar-Israel has agreed to prepare a proxy statement to be made available to the shareholders of Senstar-Israel relating to the Senstar-Israel shareholder meeting (together with any amendments or supplements thereto, the “Proxy Statement”) and after this Form F-4 is declared effective under the Securities Act, cause it to be furnished to the SEC on Form 6-K and to be sent or otherwise made available to the shareholders of Senstar-Israel in accordance with applicable law; and (ii) Senstar-Ontario has agreed to prepare and cause to be filed with the SEC this Form F-4, in which the Proxy Statement is included as a prospectus.

 

The parties have agreed to use their respective reasonable best efforts to have this Form F-4 declared effective under the Securities Act as promptly as practicable after such filing and keep this Form F-4 effective for so long as necessary to complete the Merger and ensure it complies in all material respects with applicable law.

 

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, the parties will use their reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party or parties to the Merger Agreement in doing, all things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement (including the Merger).

 

 

For a period of at least seven years after the Effective Time, the Surviving Company and Senstar-Ontario shall indemnify and hold harmless all past and present directors and officers of Senstar-Israel and its subsidiaries (collectively, the “Covered Persons”) to the same extent such persons were indemnified as of the date of the Merger Agreement by Senstar-Israel pursuant to applicable law, the charter documents of Senstar-Israel or its subsidiaries, and indemnification agreements and, any other indemnification agreements between Covered Persons and Parent, if any, in existence on the Effective Time (collectively, the “Indemnification Agreements”) arising out of acts or omissions in their capacity as directors or officers of Senstar-Israel or any of its subsidiaries occurring at or prior to the Effective Time (including in connection with the adoption and approval of the Merger Agreement and the consummation of the transactions contemplated thereby), in each case, to the extent permitted by applicable law. The Surviving Company and Senstar-Ontario must advance expenses (including reasonable legal fees and expenses) incurred in the defense of any legal proceeding with respect to the matters subject to indemnification under the Merger Agreement in accordance with the procedures (if any) set forth in the charter documents of Senstar-Israel or any of its subsidiaries, any Indemnification Agreements and any other requirements under applicable law, in each case, to the extent permitted by applicable law.  Notwithstanding anything contained in the Merger Agreement, Senstar-Ontario and the Surviving Company (i) will not be liable for any settlement effected without their prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), and (ii) will not have any obligation hereunder to any Covered Person if it is ultimately decided in a final, non-appealable judgment by a court of competent jurisdiction that such indemnification is prohibited by applicable law, in which case the Covered Person shall promptly refund to Senstar-Ontario or the Surviving Company the amount of all such expenses theretofore advanced.

 

For a period of seven years from the Effective Time, the Surviving Company will, and Senstar-Ontario will cause the Surviving Company to (and if Surviving Company was dissolved, its successor, including Senstar-Ontario), maintain in effect in its charter documents provisions relating to exculpation, indemnification and advancement of expenses in favor of Covered Persons that are no less favorable than the provisions of the charter documents of Senstar-Israel and any subsidiary in effect immediately prior to the Effective Time with respect to acts or omissions occurring prior to the Effective Time, in each case, to the extent permitted by applicable law.

 

Prior to the Effective Time, Senstar-Israel may, or, if Senstar-Israel is unable to, Senstar-Ontario may cause the Surviving Company as of or after the Effective Time to, purchase a seven-year prepaid “tail” policy or any similar arrangement that provides coverage with respect to matters arising on or before the Effective Time (including in connection with the Merger Agreement and the transactions or actions contemplated by the Merger Agreement) (the “D&O Insurance”), with terms, conditions, retentions and limits of liability that are no less favorable in the aggregate than the coverage provided under Senstar-Israel’s existing policies of directors’ and officers’ liability insurance and fiduciary liability insurance. If prepaid policies have been obtained prior to the Effective Time providing the level of insurance coverage as described in the preceding sentence, the Surviving Company will, and Senstar-Ontario will cause the Surviving Company to maintain such policy in full force and effect, and cause all obligations thereunder to be honored, in each case, to the extent required by the Merger Agreement.

 

Each of the Indemnified Parties or other persons who are beneficiaries under the D&O Insurance (and their heirs and representatives) are third party beneficiaries of the foregoing, with full rights of enforcement as if a party thereto.

 

 

Senstar-Ontario will take all action necessary to (i) cause Merger Sub and the Surviving Company to perform their respective obligations under the Merger Agreement and to consummate the transactions contemplated by the Merger Agreement, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, and (ii) ensure that Merger Sub prior to the Effective Time will not conduct any business, incur or guarantee any indebtedness or any other liabilities or make any investments, other than those activities incidental to its obligations under the Merger Agreement or the transactions contemplated thereby.

 

 

As soon as practicable following the date of the Merger Agreement, Senstar-Israel shall prepare and file with the ITA an application for the Tax Ruling.

 

 

The issuance by Senstar-Ontario of the Merger Consideration to Senstar-Israel’s Israeli shareholders require compliance with the Israel Securities Law, 5728-1968 (the “Israel Securities Law”). Accordingly, Senstar-Ontario has applied for a no-action letter from the Israel Securities Authority (the “ISA No-Action Letter”) that exempts those securities issuances from, and confirms that the Israel Securities Authority will not take action against Senstar-Ontario in respect of, the requirements of the Israel Securities Law that would otherwise require the publication of a prospectus in Israel.

 

Under the Merger Agreement, each party’s obligation to effect the Merger is subject to satisfaction or, to the extent permitted where permissible under applicable law, mutual waiver at the Effective Time of each of the following conditions:

 

 

 

 

 

 

 

Senstar-Ontario’s and Merger Sub’s obligation to effect the Merger is further subject to the satisfaction by Senstar-Israel or waiver by Senstar-Ontario and Merger Sub of the following conditions:

 

 

 

 

 

 

 

The Merger Agreement may be terminated at any time prior to the Effective Time (a) by mutual written agreement of Senstar-Ontario and Senstar-Israel, or (b) by Senstar-Israel, if the Senstar-Israel Board modifies, qualifies or withdraws its recommendation to the Senstar-Israel shareholders to approve the Merger (see “The Merger— Senstar-Israel’s Reasons for the Redomiciliation and the Merger; Recommendation of the Senstar-Israel Board”).

 

 

The Merger Agreement may be amended by the parties at any time by execution of an instrument in writing signed on behalf of each of Senstar-Ontario, Merger Sub and Senstar-Israel, except that if the Merger Agreement has been approved by shareholders of Senstar-Israel in accordance with Israeli law, no amendment shall be made to the Merger Agreement that requires the approval of such shareholders of Senstar-Israel without such approval.

 

At any time and from time to time prior to the Effective Time, any party or parties may, to the extent legally permitted and except as otherwise set forth in the Merger Agreement, (a) extend the time for the performance of any of the obligations or other acts of the other party or parties, as applicable; (b) waive any inaccuracies in the representations and warranties made to such party or parties contained therein or in any document delivered pursuant thereto; or (c) waive compliance with any of the agreements or conditions for the benefit of such party or parties contained therein. Any agreement on the part of a party or parties to any such extension or waiver will be valid only if set forth in an instrument in writing signed on behalf of such party or parties, as applicable.

 

 

Except as otherwise set forth in the Merger Agreement, the Merger Agreement is not intended to confer upon any other Person any rights or remedies thereunder.

 

 

The Merger Agreement and any dispute, controversy or claim arising out of, relating to or in connection with the Merger Agreement, the negotiation, execution, existence, validity, enforceability or performance of the Merger Agreement, or for the breach or alleged breach hereof (whether in contract, in tort or otherwise) will be governed by and construed and enforced solely in accordance with the laws of the State of Israel, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Israel or any other jurisdiction) that would cause application of the law of any jurisdiction other than the State of Israel.

 

          MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

 

This section describes the material United States federal income tax consequences of (i) the Merger to certain beneficial owners of Senstar-Israel ordinary shares  and options who exchange their Senstar-Israel ordinary shares  and options for shares of Senstar-Ontario common shares and options pursuant to the Merger and (ii) the ownership and disposition of Senstar-Ontario common shares received upon the consummation of the Merger.

 

This discussion is based on the provisions of the Code, the U.S. Treasury Regulations promulgated thereunder and judicial and administrative rulings, all as in effect as of the date hereof and all of which are subject to change or varying interpretation, possibly with retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein.

 

This discussion assumes that Senstar-Israel shareholders hold their Senstar-Israel ordinary shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a Senstar-Israel shareholder in light of such holder’s particular circumstances, nor does it discuss the special considerations applicable to Senstar-Israel shareholders subject to special treatment under the U.S. federal income tax laws, such as, for example, financial institutions or broker-dealers, mutual funds, tax-exempt organizations, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, controlled foreign corporations, passive foreign investment companies, U.S. expatriates, holders who acquired their Senstar-Israel ordinary shares through the exercise of options or otherwise as compensation, holders who hold their  shares as part of a hedge, straddle, constructive sale or conversion transaction, U.S. holders whose functional currency is not the U.S. dollar, and holders who own or have owned (directly, indirectly or constructively) 10% or more (by vote or value) of Senstar-Israel’s ordinary shares. This discussion does not address any tax consequences arising under the Medicare contribution tax, nor does it address any aspect of foreign, state, local, alternative minimum, estate, gift or other tax law that may be applicable to a holder.

 

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Senstar-Israel ordinary shares, the tax treatment of a partner in such partnership generally will depend on the status of the partner and activities of the partnership. Holders that are partners of a partnership holding Senstar-Israel ordinary shares  should consult their own tax advisors.

 

All Senstar-Israel shareholders should consult their own tax advisors to determine the particular tax consequences to them in light of their particular circumstances, including the applicability and effect of the alternative minimum tax and any U.S. federal, U.S. state or local, non-U.S. or other tax laws and of potential changes in such laws.

 

U.S. Federal Income Tax Treatment of the Merger

 

For U.S. federal income tax purposes, the Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) and Section 367 of the Code (a “Reorganization”). Unless otherwise noted, the remainder of this discussion assumes that the Merger will be so treated. Neither Senstar-Ontario nor Senstar-Israel has obtained or will obtain a ruling from the IRS regarding the U.S. federal income tax consequences of the Merger. Accordingly, there is no assurance that the IRS will not take a contrary position regarding the tax consequences described in this discussion, or that any such contrary position would not be sustained, nor is the receipt of any tax opinion a condition to the Closing of the Merger.

 

U.S. Federal Income Taxation of U.S. Holders

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Senstar-Israel ordinary shares  that is, for U.S. federal income tax purposes:

 

•          an individual citizen or resident of the United States;

 

•          a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

•          a trust if (a) its administration is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

 

•          an estate the income of which is subject to U.S. federal income tax regardless of its source.

 

The tax treatment of a U.S. holder will depend in part on whether or not Senstar-Israel is or was classified as a PFIC for U.S. federal income tax purposes. Except as discussed below under “Passive Foreign Investment Company Rules”, this discussion assumes that Senstar-Israel is not and has not been classified as a PFIC for U.S. federal income tax purposes.

 

Tax Consequences of the Merger

 

The exchange of Senstar-Israel ordinary shares for Senstar-Ontario common shares will be tax-free to U.S. holders. A U.S. holder’s aggregate tax basis in Senstar-Ontario common shares received in the Merger will equal such U.S. holder’s aggregate adjusted tax basis in the Senstar-Israel ordinary shares exchanged therefor. A U.S. holder’s holding period for Senstar-Ontario common shares received in the Merger will include the U.S. holder’s holding period in respect of the Senstar-Israel ordinary shares exchanged for such Senstar-Ontario common shares.

 

If a U.S. holder of Senstar-Israel ordinary shares acquired different blocks of Senstar-Israel ordinary shares at different times or at different prices, such U.S. holder’s basis and holding period in Senstar-Ontario common shares may be determined separately with reference to each block of Senstar-Israel ordinary shares. Any such U.S. holder should consult its tax advisor regarding the tax bases and holding periods of the particular Senstar-Ontario common shares received in the company Merger.

 

If it is determined that the Merger does not qualify as a Reorganization, the Merger would be a taxable transaction to Senstar-Israel shareholders for U.S. federal income tax purposes. In that case, a U.S. holder would generally recognize capital gain or loss measured by the difference between (a) the fair market value (in U.S. dollars) of Senstar-Ontario common shares received in exchange for such U.S. holder’s Senstar-Israel ordinary shares and (b) such U.S. holder’s basis in the Senstar-Israel ordinary shares  it holds. Such capital gain or loss would be long-term capital gain or loss if, at the time of the exchange, such U.S. holder’s holding period in its Senstar-Israel ordinary shares was greater than one year. A U.S. holder’s tax basis in Senstar-Ontario common shares received in the Merger would be the fair market value (in U.S. dollars) of those shares on the date such U.S. holder received them.

 

Passive Foreign Investment Company Rules

 

The U.S. federal income tax consequences to U.S. holders could differ materially from those described above if, at any relevant time, Senstar-Israel were a PFIC (determined under the rules described below). Senstar-Israel believes that it was not a PFIC for its 2022 taxable year or any prior taxable year, and it does not expect to become a PFIC for any taxable year up to and including the taxable year in which the Merger is completed. However, Senstar-Israel has not conducted and does not expect to conduct a formal study to determine its PFIC status. Moreover, because Senstar-Israel’s PFIC status is based on its income, assets and activities for the entire taxable year, it is not possible to determine whether Senstar-Israel will be characterized as a PFIC for its current taxable year until after the close of the applicable taxable year. As a result, there can be no assurance that Senstar-Israel is not or will not become a PFIC prior to the closing of the Merger.

 

In general, Senstar-Israel will be a PFIC with respect to a U.S. holder if for any taxable year in which such U.S. holder held Senstar-Israel ordinary shares :

 

•          at least 75% of Senstar-Israel’s gross income for the taxable year is passive income; or

 

•          at least 50% of the value, determined on the basis of a quarterly average, of the Senstar-Israel’s assets is attributable to assets that produce or are held for the production of passive income.

 

“Passive income” generally includes dividends, interest, gains from the sale or exchange of investment property, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), and certain other specified categories of income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is, for purposes of the PFIC tests, treated as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.

 

If Senstar-Israel were to be considered a PFIC at any time that a U.S. holder holds Senstar-Israel ordinary shares, any gain recognized by the U.S. holder on a sale or other disposition of the Senstar-Israel shares generally would be allocated ratably over the U.S. holder’s holding period for its Senstar-Israel ordinary shares . The amounts allocated to the taxable year of the sale or other disposition and to any year before Senstar-Israel became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. If Senstar-Israel is treated as a PFIC with respect to a U.S. holder for any taxable year, the U.S. holder will be subject to the PFIC rules with respect to any of Senstar-Israel’s subsidiaries that are also PFICs. Unless a U.S. holder makes a “qualified electing fund” or “mark-to-market” election with respect to the Senstar-Israel ordinary shares , a U.S. holder that holds Senstar-Israel ordinary shares  during a period in which Senstar-Israel is a PFIC will be subject to the PFIC rules for that taxable year and all subsequent taxable years in which the U.S. holder holds Senstar-Israel ordinary shares , even if Senstar-Israel ceases to be a PFIC. Classification as a PFIC may have other adverse tax consequences. If Senstar-Israel is considered a PFIC, a U.S. holder will also be subject to annual information reporting requirements.

 

U.S. holders of Senstar-Israel ordinary shares  are urged to consult their tax advisors regarding the application of the PFIC rules to the Merger and Senstar-Israel ordinary shares , including the advisability of making a qualified electing fund or mark-to-market election.

 

Ownership of Senstar-Ontario Common Shares Received in the Merger

 

Distributions on Senstar-Ontario Common Shares

 

Distributions, if any, paid on Senstar-Ontario common shares (other than certain pro rata distributions of our common shares or rights to acquire our common shares) generally will be treated as dividends and may be eligible for qualified dividend treatment.

 

Sale or Other Disposition of Senstar-Ontario Common Shares

 

A U.S. holder that sells or otherwise disposes of Senstar-Ontario common shares in a taxable transaction will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the amount that the U.S. holder realizes and the U.S. holder’s tax basis in those shares. Capital gain of a non-corporate U.S. holder is taxed at preferential rates when the holder has a holding period greater than one year. The deduction of capital losses is subject to limitations.  This is due to the fact that capital gain is sourced to a seller’s country of residence.

 

Backup Withholding and Information Reporting

 

A U.S. holder may, under certain circumstances, be subject to information reporting and backup withholding (at a rate of 24%) with respect to certain amounts that it receives in the Merger, unless such holder properly establishes an exemption or provides its correct tax identification number and otherwise complies with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a payee’s U.S. federal income tax liability, if any, so long as such payee furnishes the required information to the IRS in a timely manner.

 

U.S. Federal Income Taxation of Non-U.S. Holders

 

A “non-U.S. holder” is a beneficial owner of Senstar-Israel ordinary shares that is, for U.S. federal income tax purposes, an individual, corporation, estate or trust and that is not a U.S. holder.

 

The Merger is not expected to result in any material U.S. federal income tax consequences to non-U.S. holders. This is due to the fact that capital gain is sourced to a seller’s country of residence.

          MATERIAL ISRAELI TAX CONSEQUENCES

 

This section describes the material Israeli income tax consequences of the Merger to beneficial owners of Senstar-Israel Shares who exchange their Senstar-Israel Shares for Senstar-Ontario Common Shares pursuant to the Merger .

 

This discussion is not intended to be an authorized interpretation of the provisions of the Israeli Tax Ordinance and corresponding regulations thereof, or an exhaustive description of legal provisions that may be relevant to the Senstar- Israel shareholders and does not replace individual professional and legal advice on the matter. Shareholders of Senstar- Israel are urged to seek individual professional and legal advice from their own tax experts in order to clarify the results that will apply to them, taking into account their specific circumstances. It is clarified that the purpose of the following is only a general overview of the taxation of traded securities for Israeli income tax and it does not cover specific circumstances. This overview is based on the tax laws as they are accurate at the date of this proxy statement/prospectus and is no intended to be an authorized and/or complete interpretation of the provisions of the Israeli Tax Ordinance and the regulations or orders pursuant to it, or an exhaustive description of the instructions concerning the securities contained therein and there is no substitute for legal and professional advice on the matter, which must be obtained for the special data of each investor. Also, a change in the tax laws or in their interpretation may have retroactive application and/or may lead to different results.

 

As a consequence of the Merger, holders of Senstar-Israel Shares will be treated as having sold their Senstar-Israel Shares in the Merger. When shares of an Israeli company are sold, regardless of whether the consideration in the sale is cash or stock, its shareholders are generally subject to Israeli taxation.

 

In accordance with the provisions of Section 91(b)(1) of the Israeli Tax Ordinance, real capital gain from the sale of securities by an individual resident of Israel whose income from the sale of securities does not constitute income from a “business” or “trade” and the individual did not claim the deduction of interest expenses nor the linkage differences due to the security, is generally subject to tax at a rate not exceeding 25%. However, if the sale of the securities is made by an individual who is a “substantial shareholder” in the company (i.e. if such individual holds or is entitled to purchase, directly or indirectly, alone or together with such person’s relatives or another person who collaborates with such person on a permanent basis, one of the following: (i) at least 10% of the issued and outstanding Senstar-Israel Shares, (ii) at least 10% of the voting rights of Senstar-Israel, (iii) the right to receive at least 10% of Senstar-Israel’s profits or its assets upon liquidation, (iv) the right to appoint a manager/director, or (v) the right to instruct any other person to do any of the foregoing the date of sale or on any date falling within the 12-month period preceding that date of sale), the tax rate will not exceed 30%.

 

The tax rates as stated above apply to the real capital gain from which the inflationary component inherent in the gain is neutralized. In this regard, it should be noted that in accordance with the provisions of Section 88 of the Israeli Tax Ordinance, the index on the basis of which the linkage component is calculated is the Consumer Price Index. However, a person who, being a foreign resident, legally purchased the security in a foreign currency, may request that the foreign currency rate be considered as an index for this matter. The inflationary components is generally exempt from tax, provided that the shares being sold were acquired after December 31, 1993.

 

In accordance with the provisions of Section 2(1) of the Israeli Tax Ordinance, the limited tax rates for individuals in respect of real capital gain from the sale of securities as mentioned above will not apply to an individual whose income from the sale of securities is income from a “business” or a “trade” or a “random transaction with a commercial nature”, which in such a case he will be charged at the marginal tax rates as stipulated in Section 121 of the Israeli Tax Ordinance (currently- up to 47%). as well as an additional tax, as applicable.

 

In addition, according to the provisions of section 121b(a) of the Israeli Tax Ordinance, an individual whose overall taxable income from all sources (including capital gain from the sale of the securities) in tax year 2023 exceeds NIS 698,280 (an amount that is adjusted annually), will be liable for an additional tax at a rate of 3% on the part of his or her taxable income that exceeds the said amount.

 

A company will be liable for tax on real capital gain from the sale of securities at the corporate tax rate as stipulated in the provisions of Section 126(a) of the Israeli Tax Ordinance (currently 23%). Certain Israeli institutions who are exempt from tax under Section 9(2) or Section 129(C)(a)(1) of the Israeli Tax Ordinance (such as exempt trust fund, pension fund) may be exempt from capital gains tax from the sale of the shares.

 

In general, a foreign resident (individual or a company), as defined in the Israeli Tax Ordinance, is exempt from tax on capital gain from the sale of securities traded on the stock exchange by virtue of the provisions of section 97(b3) of the Israeli Tax Ordinance, provided that the capital gain is not from its permanent establishment in Israel and in accordance with the conditions and limitations listed in the provisions of section 97(b3) of the Israeli Tax Ordinance. The above shall not apply to a non-resident company, if Israeli residents’ control, benefit or are entitled to 25% or more of the income or profits of the non-resident company, directly or indirectly, in accordance with the provisions of Section 68A of the Israeli Tax Ordinance. It should be noted that in the event that the aforementioned exemption does not apply, other tax reliefs may apply in accordance with the provisions of the tax treaty (if any) between Israel and the foreign resident's country of residence, all in accordance with the provisions of the treaty and subject to the prior issuance of a withholding tax exemption or reduction certificate from the ITA.

 

Withholding Tax from Capital Gain upon Disposal of Shares

 

In accordance with the provisions of Section 164 of the Israeli Tax Ordinance and the provisions of the Income Tax Regulations (deduction from consideration, payment or capital gain in the sale of a security, in the sale of a unit in a mutual fund or in a future transaction), 2002 (the “Capital Gain Deduction Regulations”), an “obligor” (as such term is defined in the Capital Gain Deduction Regulations) who pays the seller who is an individual, consideration for the sale of the securities, should withhold 25% of the real capital gain and in the case of a company, a corporate tax rate determined under the provisions of section 126(a) of the Israeli Tax Ordinance (23% in 2023). All subject to tax rulings or withholding tax exemption or reduction certificates which were issued by the ITA in advance and subject to offsetting losses that the withholding agent may carry out in accordance with the provisions of the Israeli Tax Ordinance relevant, as the case may be. For a description of the Tax Ruling intended to be issued in connection with the Merger, see “The Merger Agreement – Israeli Tax Ruling”.

 

Offsetting Losses from the Capital Gain Generated from the Disposal of Shares

 

As a general rule, capital losses from the sale of the offered securities are offset only in cases where, if capital gain had been generated, they would have been taxable by the shareholder.

 

According to the principles set forth in the provisions of Section 92 of the Israeli Tax Ordinance, a capital loss from the sale of the securities that, if it had been a capital gain, would be taxable, may be offset against the real capital gain resulting from the sale of any asset, in Israel or abroad.

 

In accordance with Regulation 9 of the Capital Gains Deduction Regulations, it is determined that as part of the calculation of the capital gain for the purpose of withholding tax by the payer, the payer shall offset the capital loss resulting from the sale of traded securities that were under his management and subject to the fact that the profit was created in the same tax year in which the loss was created. The tax assessor may, in certain cases and for the purposes of withholding tax, approve the offsetting of losses from a portfolio of securities that is not managed by the payer, all in accordance with the conditions of the aforementioned Regulation 9 provisions.

 

In accordance with the provisions of Section 92(a)(4) of the Israeli Tax Ordinance, a capital loss from the sale of securities may be offset in the same tax year in which it is incurred also both against income from interest or dividends received in that tax year for that security and also against income from interest or dividends from other securities received in the same year tax year, provided that the tax rate applicable to the interest or dividend income from the other security mentioned above does not exceed the corporate tax rate set forth in the provisions of Section 126(a) of the Israeli Tax Ordinance (23% in 2023) if it is a company, and the rate set forth in Sections 125b(1) or 125c(b) (i.e., 25%), as the case may be, if he is an individual. The tax rate that applies on dividends to an individual who is a “substantial shareholder” is 30% (excluding dividends paid by a company that is traded on a stock exchange). Therefore, the capital loss incurred in the tax year from the sale of securities will not be offset against dividend or interest income from other non- traded securities by an individual defined as a “substantial shareholder”.

 

A capital loss that cannot be offset, in whole or in part, in a particular tax year, as stated above, may be offset against real capital gain in the following tax years one after the other, after the year in which the said capital loss occurred, provided that a report was submitted to the tax assessor for the tax year in which the loss occurred.

 

In accordance with the provisions of Section 94C of the Israeli Tax Ordinance, in the sale of securities by a company, the amount of the capital loss resulting from the sale of the securities shall be reduced by the amount of the dividends received from that security during the 24 months period prior to the sale, but not more than the amount of the loss, with the exception of a dividend on which tax has been paid (except for tax paid outside of Israel ) at a rate of 15% or more (but not more than the amount of the loss).

 

Taxation of shareholders on receipt of dividends