Polyrizon Ltd F-1, filed Aug 10, 2022
Polyrizon Ltd. (PLRZ)
As filed with the Securities and Exchange Commission on August 10, 2022.
Registration No. 333-
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Polyrizon Ltd.
(Exact name of Registrant as specified in its charter)
Not
Applicable
(Translation of Registrant’s name into English)
| State of Israel | 2834 | Not Applicable | ||
| (State or other jurisdiction
of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
5 Ha-Tidhar Street Raanana, 4366507, Israel Tel: +972-9-93740333 |
Puglisi & Associates 850 Library Ave., Suite 204 Newark, DE 19711 Tel: (302) 738-6680 | |
| (Address, including zip code, and telephone number, | (Name, address, including zip code, and telephone | |
| including area code, of registrant’s principal executive offices) | number, including area code, of agent for service) |
| Copies to: | ||||
| David
Huberman, Esq. McDermott Will & Emery LLP One Vanderbilt Avenue New York, NY 10017-3852 Tel: 312.372.2000 |
Keren
Arad-Leibovitz, Adv. Keren Law Firm 5th Floor, Toyota Tower (A) 65 Yigal Alon Street Tel Aviv, Israel Tel: +972.544.275177 |
Darrin
M. Ocasio, Esq. Avital Perlman, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 31st Floor New York, NY 10036 Tel: 212.930.9700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.
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, check the following box. ☒
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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
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 Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement 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 AUGUST 10, 2022 |
Units
Each Consisting of One Ordinary Share
and Two Warrants, each to Purchase One Ordinary Share
Polyrizon Ltd.
This is the initial public offering of Polyrizon Ltd. We are offering units, or Units, each consisting of one of our ordinary shares, par value NIS 0.04 per share, or Ordinary Shares, and two warrants, each to purchase one of our Ordinary Shares, or each, a Warrant. We anticipate that the initial public offering price per Unit will be between $ and $ , and the assumed exercise price of each Warrant included in the Unit will be $ (based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) per Ordinary Share (100% of the public offering price per Unit). The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares and Warrants are immediately separable and will be issued separately in this offering. The Warrants offered hereby will be immediately exercisable on the date of issuance and will expire five years from the date of issuance.
Additionally, in the event of any adjustment under the Warrants that results in a reduction of the exercise price, in the aggregate, to 50% of the initial exercise price, then, in connection with such adjustment, each holder of Warrants that purchases at least Warrants (based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) as part of the Units in this offering, or a Qualified Holder, shall receive one-half of one additional warrant, or an Additional Warrant, for each one Qualified Warrant (as defined below) held by such holder on the date of adjustment. The term Qualified Warrants means at least Warrants purchased as part of a Unit in connection with this offering by any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/or beneficial holder. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connection with this offering. See “Description of the Securities We are Offering — Warrants Included in the Units” for more information. We are therefore also registering under the registration statement of which this prospectus forms a part the Additional Warrants and the Ordinary Shares issuable upon exercise thereof. Also, all calculations in this prospectus are based on this assumption.
We have applied to list our Ordinary Shares and our Warrants on The Nasdaq Capital Market, or Nasdaq, under the symbol “ ” and “ ”, respectively. It is a condition to the closing of this offering that our Ordinary Shares and Warrants qualify for listing on a national securities exchange.
We are both an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (or the JOBS Act), and a “foreign private issuer,” as defined under the U.S. federal securities law and are subject to reduced public company reporting requirements. See “Prospectus Summary – Implications of Being an Emerging Growth Company and Foreign Private Issuer” for additional information.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11.
Neither the Securities and Exchange Commission (or the SEC) nor any state or other foreign securities commission has approved nor disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Unit | Total | |||||||
| Public offering price | $ | $ | ||||||
| Underwriting discounts and commissions (1) | $ | $ | ||||||
| Proceeds to us (before expenses) (2) | $ | $ | ||||||
| (1) | Does not include a non-accountable expense allowance equal to 1.0% of the initial public offering price payable to the underwriters. In addition, we have agreed to issue warrants to the representative of the underwriters, or the Representative’s Warrants, in an amount equal to 6% of the aggregate number of Ordinary Shares sold in this offering, but excluding the shares sold through the exercise of the over-allotment option). See the section titled “Underwriting” beginning on page 141 of this prospectus for additional disclosure regarding underwriter compensation and offering expenses. |
| (2) | Does not include proceeds from the exercise of the Warrants or Additional Warrants in cash, if any. |
We have granted the representative of the underwriters an option to purchase from us, up to additional Ordinary Shares and/or up to an additional Warrants, within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paid per additional Ordinary Share will be equal to the public offering price of one Unit, less the underwriting discount, and the purchase price to be paid per additional Warrant will be $0.001. If the representative exercises the option in full, the total underwriting discounts and commissions and management fees payable will be $ and the total proceeds to us, before expenses, will be $ .
The underwriters expect to deliver the Ordinary Shares on or about , 2022.
Sole Book-Running Manager
Aegis Capital Corp.
The date of this prospectus is , 2022.
TABLE OF CONTENTS
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Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus, any amendment or supplement to this prospectus, or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell Ordinary Shares and seeking offers to purchase Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of Ordinary Shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
Through and including , 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither we nor any of the underwriters have taken any action to 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. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
Capture and Contain and Trap and Target are trademarks of ours that we use in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus often appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to our trademark and tradenames.
The terms “shekel,” “Israeli shekel” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, and the terms “dollar,” “U.S. dollar” or “$” refer to United States dollars, the lawful currency of the United States of America. All references to “shares” in this prospectus refer to Ordinary Shares of Polyrizon Ltd., par value NIS 0.04 per share.
MARKET, INDUSTRY AND OTHER DATA
This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
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.”
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This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our securities, you should read this entire prospectus carefully, including the sections of this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. Unless the context otherwise requires, references in this prospectus to the “company,” “Polyrizon,” “we,” “us,” “our” and other similar designations refer to Polyrizon Ltd.
Company Overview
We are a development stage biotech company specializing in the development of innovative medical device hydrogels delivered in the form of nasal sprays, which form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. Our proprietary Capture and Contain TM, or C&C, hydrogel technology, comprised of a mixture of naturally occurring building blocks, is delivered in the form of nasal sprays, and potentially functions as a “biological mask” with a thin shield containment barrier in the nasal cavity. We are further developing certain aspects of our C&C hydrogel technology such as the bioadhesion and prolonged retention at the nasal deposition site for intranasal delivery of drugs. We refer to our additional technology, which is in an earlier stage of pre-clinical development, that is focused on nasal delivery of active pharmaceutical ingredients, or APIs, as Trap and Target ™, or T&T.
Our Product Candidates
Our nasal hydrogels have been designed to serve as a non-invasive and fast-acting system. The hydrogels are formulated as an innovative mixture of mucoadhesive polymers (e.g., sodium alginate) which are Generally Recognized as Safe, or GRAS, by the Federal Drug Administration, or the FDA. Our mucoadhesive polymers derived from seaweed polysaccharides possess promising features as they are renewable, biodegradable, biocompatible, and environment friendly. The formulated hydrogel is sprayed into the nose to create a physical barrier with long-lasting adhesion to the mucosal membranes. Our polymers have an atomic mass much higher than the upper cell penetration limit, the polymers will simply lay on top of the cells and act as a physical barrier to viruses and allergens from contacting the nasal epithelial tissue, as opposed to penetrating the cells and causing a chemical reaction. Therefore, the C&C product candidates are not expected to be considered as drugs by the FDA but as medical devices.
Our leading technologies are C&C and T&T. The C&C technology is a containment barrier against a wide range of allergen particulates and viruses.
PL-14 – Nasal Allergies Blocker
| o | We expect our PL-14 C&C technology medical device product candidate, or our PL-14 product candidate, to be regulated as a Class II medical device by the FDA under its 510(k) pathway. |
| o | Our PL-14 product candidate is scheduled to initiate preclinical safety trials in the third quarter of 2022. In addition, pivotal clinical trials on our PL-14 product candidate is expected to commence in the first quarter of 2023, following which we plan to submit a 510(k) application for FDA clearance. |
| o | For our PL-14 technology product candidate, we will pursue the 510(k) pathway which requires a manufacturer to demonstrate substantial equivalence to an FDA-cleared device (i.e., predicate device) to a subject device (i.e., our product candidate). This process for clearing our device with the FDA entails performing a medical device analysis of the product candidates (e.g., PL-14 product candidate) description, operational principle, potential accessories and proposed intended use, for the purpose of identifying a predicate device that has already been cleared by the FDA. Through this review, we found three possible predicate devices for establishing substantial equivalence, Alzair Allergy Blocker (510(k) Number: K170848), or Alzair, NASAL EASE ALLERGY BLOCKER (510(k) Number: K132520), or Nasalease, and Bentrio Allergy Blocker (510(k) Number: K213114), or Bentrio. There is no guarantee that our PL-14 product candidate will advance in the FDA 510(k) process at the same rate as the aforementioned predicate devices or will reach commercialization. |
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| o | The estimated timeline for obtaining 510(k) clearance for our PL-14 product candidate is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) biocompatibility preclinical studies, which usually requires 3-6 months (although these studies may be performed concurrently with the GMP manufacturing mentioned above); (iii) clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzai, Nasalese, and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
PL-15 – COVID-19 and PL-16 – Influenza Blockers
| o | We expect our PL-15 C&C technology medical device product candidate, or our PL-15 product candidate, and our PL-16 C&C technology medical device product candidate, or our PL-16 product candidate, which provide a barrier to COVID-19 and influenza from contacting the nasal epithelial tissue, respectively, to be regulated as a Class II medical device under a De Novo Classification request. |
| o | Our PL-15 and PL-16 product candidates are scheduled to initiate preclinical safety trials in the third quarter of 2022, feasibility clinical trials in the first quarter of 2023 and pivotal clinical trials in the third quarter of 2023. Following these trials, we plan to submit De Novo Classification requests for each product candidate. |
| o | Upon a review similar to the one performed for our PL-14 product candidate, we found that there were no potential predicate devices in the FDA’s database matching the proposed intended uses of our PL-15 and PL-16 product candidates. Because of this, we will pursue a De Novo Classification request for each product candidate. This pathway involves demonstrating that the product candidates provide a reasonable assurance of safety and effectiveness. During the first quarter following the closing of this offering, we intend to submit a Q-submission (Pre-submission) for each product candidate and request a pre-submission meeting with FDA’s Center for Devices and Radiological Health, or CDRH, to confirm the potential for this regulatory path. For more information, please see “Business – Our Product Candidates – The determination process for the C&C product candidates as a Class II medical devices.” |
| o | The estimated timeline for marketing authorization via De Novo Classification grant for our PL-15 and PL-16 product candidates is based on taking similar steps as the steps described above for obtaining 510(k) clearance for our PL-14 product candidate. We estimate a longer period of time for the entire grant process for each of these product candidates due to possibly extended clinical trials requested by the FDA and also due to a longer review timeframe. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
In the event the FDA does not agree with our regulatory assessments regarding the C&C product candidates (510(k) for our PL-14 product candidate, and Class II De Novo pathway for our PL-15 and PL-16 product candidates), it may require us to go through a lengthier, more rigorous examination than we had expected (such as Premarket approval, or PMA, which is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. If we are required to pursue a PMA, the introduction of our product candidates into the market could be delayed significantly. For more information, please see “Risks Related to the Discovery, Development and Clinical Testing of Product Candidates.”
Trap and Target ™ Product Candidates
In contrast to our C&C product candidates, the hydrogel in our T&T product candidates is formulated differently in order to provide for sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulated differently than the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&C product candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalize the different regulatory treatment of our C&C and T&T product candidates.
The T&T platform technology is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeted delivery of medicines. We expect that our T&T platform product candidates will be regulated as a combination-product consisting of a nasal sprayer and formulation consisting of a hydrogel and a generic API, which we intend to pursue under the FDA’s 505(b)(2) pathway. We aim to conduct feasibility studies for our T&T platform product candidates with corticosteroids, benzodiazepines and naloxone, beginning in the second quarter of 2022 through the second quarter of 2023. Pre-clinical studies will follow and are expected to begin in either the second or third quarter of 2023. Phase I clinical trials for each of the three product candidates of the T&T technology are planned for the first quarter of 2025, subject to securing additional financing.
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People
Our leadership team has a vast industry experience. Each of our executive management team has over 15 years (on average) of experience in life science companies, which includes extensive work history in the area of research and development of medical devices, pharmaceutical and other drug compounds. Our board of directors have similar experience in the life sciences industry as well as strong financial background that is derived from their roles as executives of publicly-traded companies and having educational backgrounds in finance, business, tax and accounting. We believe that these aforementioned practical and educational experiences of our group will strongly contribute to a successful path from clinical development, regulatory approvals and commercialization of our product candidates. In addition, our management is supported by our Scientific Advisory Board which is an advisory panel of professors with expertise in drug delivery systems, chemistry and pharmaceuticals.
Market Opportunities
We believe that our technologies have the potential to provide solutions to a broad range of unmet needs in the healthcare market. With our C&C technology, we aim to introduce solutions to address common medical and public health challenges, such as allergic rhinitis and nasal viral infections, including COVID-19.
With our T&T technology, we aim to address challenges in the markets of: allergic and non-allergic rhinitis by local intranasal delivery of corticosteroids; for systemic delivery of central nervous system, or CNS, related drugs for the growing markets of combatting opioid overdose using intranasal naloxone, and benzodiazepines for seizure clusters.
Recent Developments
SciSparc Collaboration
On May 30, 2022, we entered into a collaboration agreement with SciSparc Ltd., or SciSparc (Nasdaq: SPRC), a specialty clinical-stage pharmaceutical company focusing on the development of therapies to treat disorders of the central nervous system. As part of the collaboration, we will work with SciSparc work to develop a unique technology for the treatment of pain, based on SciSparc's SCI-160 platform and our T&T platform technology.
Under the collaboration agreement, SciSparc will pay development fees to us of up to a total of $2,550,000 upon the completion of certain milestones, as well as royalties in the low single digits upon sales of products under the agreement and additional royalties for sales under any sublicense by SciSparc.
NurExone Collaboration
On July 18, 2022, we signed a collaboration agreement with NurExone Biologic Inc., or NurExone, pursuant to which we will use our T&T platform technology to develop formulations, conduct analytical development and produce technical batches of a tailored intranasal delivery system. The intranasal system is being designed for delivery of NurExone’s ExoTherapy to patients with traumatic spinal cord injuries and may also be relevant to other indications through intranasal exosome delivery. Pursuant to the collaboration agreement, NurExone will cover the costs of the formulation development in an estimated amount of $220,000 in three installments upon development success and expects to be able to perform a biological efficacy study of the intranasal system within three quarters. NurExone shall pay development fees to us of up to a total of $3,350,000 upon completion of certain milestones, including the payment of an aggregate of $500,000 upon successful completion of a Phase 2 clinical trial. Moreover, NurExone shall pay royalties based on any product sales resulting from the collaboration agreement. In advanced stages of the collaboration, we may assist NurExone with regulatory submissions for the United States and Europe. Manufacturing and marketing rights for formulations under the collaboration agreement are exclusive to NurExone.
Corporate Information
We are an Israeli corporation based in Israel near Raanana, and were incorporated in January 2005. Our principal executive offices are located at 5 Ha-Tidhar Street, Raanana, 4366507, Israel. Our telephone number is +972-9-93740333. Our website address is www.polyrizon-biotech.com. The information contained on our website and available through our website is not incorporated by reference into and should not be considered a part of this prospectus, and the reference to our website in this prospectus is an inactive textual reference only.
Summary of Risks Associated with our Business
Our business is subject to a number of risks of which you should be aware before a decision to invest in our Ordinary Shares. You should carefully consider all the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the sections titled “Risk Factors” before deciding whether to invest in our Ordinary Shares. Among these important risks are, but not limited to, the following:
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Risks Related to Our Financial Condition and Capital Requirements
| ● | We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product candidates sales and may never be profitable. | |
| ● | We expect that we will need to raise substantial additional funding, which may not be available on acceptable terms, or at all. Failure to obtain funding on acceptable terms and on a timely basis may require us to curtail, delay or discontinue our product candidates development efforts or other operations. |
Risks Related to the Discovery, Development and Clinical Testing of Product Candidates
| ● | We depend on enrollment of patients in our upcoming clinical trials in order to continue development of our product candidates. | |
| ● | We may not receive, or may be delayed in receiving, the necessary clearances or approvals for our product candidates, failure to timely obtain necessary clearances or approvals would adversely affect our ability to grow our business. |
| ● | We do not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device path under a de novo classification request for our PL-15 and PL-16 products until after the completion of this initial public offering. If we are denied submission under the de novo pathway, it may require us to go through a different pathway, such as a PMA pathway, which may result in a lengthier approval process for our devices. |
| ● | Legislative or regulatory reforms in the United States or the European Union may make it more difficult and costly for us to obtain regulatory clearances or approvals for our product candidates or to manufacture, market or distribute our product candidates after clearance or approval is obtained. | |
| ● | We are heavily dependent on the success of our C&C product candidates. |
| ● | Regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, if we are unable to obtain regulatory clearances, grants and approvals, our business may fail. |
| ● | If the FDA does not conclude that our T&T platform product candidate satisfies the requirements under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, or Section 505(b)(2), or if we are unable to utilize the hybrid application pathway in the European Union, or if the requirements are not as we expect, the approval pathway for our T&T platform product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful. | |
| ● | Our C&C and T&T technologies are novel technologies, which makes it difficult to accurately and reliably predict the time and cost of development and regulatory approval. | |
| ● | As an organization, we have not previously conducted pivotal clinical trials, and we may be unable to do so for any product candidates we may develop, including our T&T platform product candidates. | |
| ● | We may find it difficult to enroll patients in our clinical trials due to various reasons, including possible disruption due to the COVID-19 pandemic, which could delay or prevent us from proceeding with such trials. | |
| ● | Our product candidates and the administration of our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval. | |
| ● | We may be subject, directly or indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. | |
| ● | We face intense competition in an environment of rapid technological change, which may adversely affect our financial condition and our ability to successfully market or commercialize our product candidates. | |
| ● | The misuse or off-label use of our product candidates may harm our reputation in the marketplace, result in injuries that lead to product candidates liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business. |
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Risks Related to our Reliance on Third Parties
| ● | We will rely on third parties to conduct certain elements of our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates. |
| ● | Independent clinical investigators and CROs that we will engage to conduct our clinical trials may not devote sufficient time or attention to our clinical trials or be able to repeat their past success. |
| ● | We rely on third parties to manufacture the raw materials that we use to create our product candidates. Our business could be harmed if existing and prospective third parties fail to provide us with sufficient quantities of these materials and product candidates or fail to do so at acceptable quality levels or prices. |
Risks Related to Our Intellectual Property
| ● | If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us. |
| ● | Changes in patent policy and national intellectual property laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents. |
| ● | We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful. |
| ● | We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers, and we may be subject to claims challenging the inventorship of our intellectual property. |
Risks Related to Our Business Operations
| ● | Our business, operations and financial performance have been and may continue to be impacted by the COVID-19 pandemic. |
| ● | We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. |
| ● | Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues. |
| ● | We may not be successful in our efforts to identify, discover or license additional product candidates. |
| ● | Our employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. |
| ● | Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. |
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Risks Related to Commercialization of Our Product Candidates
| ● | We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities, or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any product candidates revenue. |
| ● | We are subject to significant regulatory oversight with respect to manufacturing our product candidates. Delays in establishing and obtaining regulatory approval of our manufacturing process may delay or disrupt our product candidates development and commercialization efforts. |
| ● | If we receive marketing approval for our product candidates, sales will be limited unless the product candidates achieves broad market acceptance. |
| ● | It may be difficult for us to profitably sell our product candidates if coverage and reimbursement for these product candidates is limited by government authorities and/or third-party payor policies. |
| ● | Our business entails a significant risk of clinical trial and/or product candidates liability and our ability to obtain sufficient insurance coverage could have a material effect on our business, financial condition, results of operations or prospects. |
Risks Related to this Offering and Ownership of Our Securities
| ● | Our executive officers, directors and principal shareholders will maintain the ability to exert significant control over matters submitted to our shareholders for approval. |
| ● | We believe that we were likely a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes in 2021, and may likely be a PFIC in the current or any subsequent taxable year. If we are a PFIC in any taxable year during which a U.S. taxpayer holds our Equity Securities (defined below) (including Warrants, which are treated as PFIC stock), such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of our Equity Securities by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for our Equity Securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. A QEF election and a “mark-to-market” election will each be unavailable with respect to our Warrants. For a more detailed explanation please, see the complete risk factor on page 11, and see “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” on page 139. |
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| ● | If a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income tax consequences. |
| ● | As a foreign private issuer, we intend to follow certain home country corporate practices instead of Nasdaq requirements, and we will not be subject to certain U.S. securities laws. |
| ● | We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Ordinary Shares less attractive to investors. |
Risks Related to Israeli Law and Our Operations in Israel
| ● | Our headquarters and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel. |
| ● | It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors in Israel, to assert U.S. securities laws claims in Israel or to serve process on us. |
| ● | Your rights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs from U.S. companies. |
Implications of Being an “Emerging Growth Company” and a Foreign Private Issuer
Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last 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 and other burdens that are otherwise applicable generally to public companies. In particular, as an emerging growth company, we:
| ● | may 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 disclosure in our initial registration statement; |
| ● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”; |
| ● | are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes); |
| ● | will not be required to conduct an evaluation of our internal control over financial reporting; |
| ● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure; and |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002. |
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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of: (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (3) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We may choose to take advantage of some but not all of these reduced burdens, and therefore the information that we provide holders of our Ordinary Shares may be different than the information you might receive from other public companies in which you hold equity. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult. In addition, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests.
Foreign Private Issuer
Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events. |
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Exchange. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.
Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
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THE OFFERING
| Ordinary Shares currently issued and outstanding | 29,367,786 Ordinary Shares | |
| Units offered by us | Units (based on an assumed public offering price of $ per Unit, the midpoint of the range set forth on the cover page of this prospectus), each consisting of one Ordinary Share and two Warrants, each to purchase one Ordinary Share. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares and Warrants are immediately separable and will be issued separately in this offering. | |
| Warrants | Each Warrant will have an exercise price of $ (based on an assumed public offering price of $ per Unit), per Ordinary Share (100% of the public offering price per Unit), will be immediately exercisable and will expire five years from the date of issuance.
Subject to certain exemptions outlined in the Warrant, for a period until the later of: (i) two years from the date of issuance of the Warrant, or (ii) on the date no Qualified Holders hold any Warrants, if the Company shall sell, enter into an agreement to sell, or grant any option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Ordinary Shares or convertible security, at an effective price per share less than the exercise price of the Warrant then in effect, or a Dilutive Issuance, the exercise price of the Warrant shall be reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no event shall the exercise price of the Warrant be reduced to an exercise price lower than 50% of public offering price per Unit in this offering.
On the date that is 90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrants will adjust to be equal to the Reset Price (as defined below), provided that such value is less than the exercise price in effect on that date. The Reset Price means such number equal to the greater of (a) 50% of the initial exercise price (as adjusted for share splits, share dividends, recapitalizations and similar events pursuant to Section 3(a) of the Warrants) of the Warrants on the issuance date or (b) 100% of the lowest volume weighted average price per Ordinary Share occurring during the 90 calendar days following the issuance date of the Warrants.
The lowest Reset Price is $ , which is 50% of offering price, based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units, per Ordinary Share.
Additionally, in the event of any adjustment under the Warrants that results in a reduction of the exercise price, in the aggregate, to 50% of the initial exercise price, then in connection with such adjustment, each holder of Warrants that purchases at least Warrants (based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) in connection with this offering, or a Qualified Holder, shall receive an Additional Warrant for each one Qualified Warrant held by such holder on the date of adjustment.
To better understand the terms of the Warrants, you should carefully read the “Description of the Securities We are Offering” section of this prospectus. You should also read the form of Warrant, which is filed as an exhibit to the registration statement of which this prospectus forms a part. The exercise price adjustments and the grant of Additional Warrants upon a reduction in the exercise price were offered to Warrant holders based on market conditions. |
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| Ordinary Shares to be issued and outstanding after this offering | Ordinary Shares (assuming no exercise of the representative’s warrant and excluding Ordinary Shares issuable upon exercise of the Warrants and Additional Warrants sold in this offering), or Ordinary Shares if the underwriter exercises in full the over-allotment option to purchase additional Ordinary Shares. | |
| Over-allotment option | We have granted the representative of the underwriters an option to purchase from us, up to additional Ordinary Shares, and/or up to an additional Warrants, within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paid per additional Ordinary Share will be equal to the public offering price of one Unit (less $0.001 allocated to each Warrant), as applicable, less the underwriting discount, and the purchase price to be paid per additional Warrant will be $0.001. | |
| Representative’s Warrants | We will issue to the representative of the underwriters Representative’s Warrants to purchase up to Ordinary Shares. The Representative’s Warrants will have an exercise price of 125% of the per Unit public offering price, will be exercisable on the date of issuance and will expire five years from the effective date of the registration statement of which this prospectus forms a part. For additional information regarding our arrangement with the underwriters, please see “Underwriting.” | |
| Lock-Up Agreements | Our directors, executive officers, and any other holder(s) of five percent (5%) or more of the outstanding shares have agreed with the representative not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 180 days from the closing of this offering. |
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| Use of proceeds | We expect to receive approximately $ million in net proceeds from the sale of securities offered by us in this offering (approximately $ million if the underwriter exercises its over-allotment option in full), based upon an assumed public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
We currently expect to use the net proceeds from this offering for the following purposes:
● approximately $ million to complete the preclinical and clinical development and submit a 510(k) application to the FDA for our PL-14, PL-15 and PL-16 product candidates;
● approximately $ million to complete in vitro feasibility as well as preclinical studies of corticosteroid, benzodiazepine, and naloxone for our T&T platform technology product candidates ; and
● the remainder for working capital and general corporate purposes and possible future acquisitions.
The amounts and schedule of our actual expenditures will depend on multiple factors. As a result, our management will have broad discretion in the application of the net proceeds of this offering. |
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| Risk factors | Investing in our securities involves a high degree of risk. You should read the “Risk Factors” section starting on page 11 of this prospectus for a discussion of factors to consider carefully before deciding to invest in the Ordinary Shares. | |
| Nasdaq Capital Market symbol: | We have applied to list the Ordinary Shares and our Warrants on Nasdaq under the symbol “ ” and “ ”, respectively. No assurance can be given that our application will be approved or that a trading market will develop. |
The number of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus. This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
Unless otherwise indicated, all information in this prospectus assumes or gives effect to:
| ● | no exercise of the underwriter’s over-allotment option; |
| ● | no exercise of the Warrants, Additional Warrants or the Representative’s Warrants; |
| ● | the issuance of ordinary shares upon the automatic conversion of a Simple Agreement for Future Equity, or SAFE, investment in the amount of $250, upon the completion of this offering at an assumed conversion price equal to $ , the midpoint of the price range set forth on the cover page of this prospectus; and |
| ● | the issuance of 2,180,201 Ordinary Shares upon the automatic conversion of the 2,180,201 Preferred Shares issued and outstanding as of the date hereof, which will automatically convert upon the completion of this offering. |
See “Description of Share Capital and Governing Documents” for additional information.
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The following table summarizes our financial data. We have derived the following statements of comprehensive loss data for the years ended December 31, 2021 and 2020 and the balance sheet data as of December 31, 2021 from our audited financial statements included elsewhere in this prospectus. Such financial statements have been prepared in accordance with U.S. GAAP. Our historical results are not necessarily indicative of the results that may be expected in the future, and our results for any interim period are not necessarily indicative of results that may be expected for any full year. The following summary financial data should be read in conjunction with “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and related notes included elsewhere in this prospectus.
| (in thousands of USD, except share and per share data) | Year
Ended December 31, | |||||||
| 2021 | 2020 | |||||||
| Statements of Operations Data: | ||||||||
| Research and development expenses | 245 | 38 | ||||||
| General and administrative expenses | 458 | 34 | ||||||
| Operating loss | 703 | 72 | ||||||
| Finance expenses, net | 8 | 1 | ||||||
| Net loss | 711 | 73 | ||||||
| Basic and diluted loss per share | 0.05 | 0.03 | ||||||
| Weighted average number of shares outstanding used in computing basic and diluted loss per share | 14,727,407 | 4,109,443 | ||||||
| (in thousands of USD) | As of December 31, 2021 | |||||||||||
Pro Forma | ||||||||||||
| Actual | Pro Forma (1) | As Adjusted (2) | ||||||||||
| Balance Sheet Data: | ||||||||||||
| Cash and cash equivalents | $ | 523 | $ | $ | ||||||||
| Deferred offering costs | $ | 125 | $ | $ | ||||||||
| Other current assets | $ | 21 | $ | $ | ||||||||
| Property and equipment, net | $ | 18 | $ | $ | ||||||||
| Total assets | $ | 687 | $ | $ | ||||||||
| Employees and payroll related liabilities | $ | 18 | $ | $ | ||||||||
| Accrued expenses | $ | 156 | $ | $ | ||||||||
| Derivative warrant liability | $ | 516 | ||||||||||
| Total current liabilities | 690 | |||||||||||
| Temporary equity | $ | 248 | $ | $ | ||||||||
| Ordinary shares | $ | 326 | $ | $ | ||||||||
| Additional paid-in capital | $ | 1,565 | $ | $ | ||||||||
| Accumulated deficit | $ | (2,142 | ) | $ | $ | |||||||
| Total shareholders’ equity | $ | (251 | ) | $ | $ | |||||||
| Total liabilities, temporary equity and shareholders’ equity | $ | 687 | $ | $ | ||||||||
| (1) | Pro Forma data gives effect to the following events as if each event had occurred on or before December 31, 2021: (i) the conversion of 2,180,201 preferred shares into 2,180,201 Ordinary Shares; and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), based on an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus; |
| (2) | Pro Forma as Adjusted data gives additional effect to the sale of securities in this offering at an initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2021. |
The as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term deposits, total assets and shareholders’ equity (deficiency) by $ million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million Units offered by us at the assumed initial public offering price would increase (decrease) each of cash, cash equivalents and short-term deposits, total assets and shareholders’ equity (deficiency) by $ million.
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Investing in our Securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, in addition to the other information set forth in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before purchasing our Ordinary Shares or Warrants. If any of the following risks actually occurs, our business, financial condition, cash flows and results of operations could be negatively impacted. In that case, the trading price of our Ordinary Shares or Warrants would likely decline and you might lose all or part of your investment.
Risks Related to Our Financial Condition and Capital Requirements
We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability.
We are a development stage biotech company. We have incurred operating losses since our inception, including operating losses of $703,000 and $72,000 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $2.1 million. We have devoted substantially all of our financial resources to designing and developing our C&C product candidates, including preclinical studies and clinical development and providing general and administrative support for these operations. We expect that our expenses and operating losses will increase for the foreseeable future as we continue clinical development of our C&C product candidates to provide a barrier against allergens, influenza and COVID-19 from contacting the nasal epithelial tissue and develop other product candidates using our T&T platform technology for nasal delivery of APIs. Our ability to ultimately achieve revenues and profitability is dependent upon our ability to successfully complete the development of our C&C product candidates and any future product candidates, obtain necessary regulatory approvals for and successfully manufacture, market and commercialize our product candidates.
We anticipate that our expenses will increase substantially based on a number of factors, including to the extent that we:
| ● | Begin our planned clinical trial of our C&C product candidates in the third quarter of 2022; | |
| ● | seek regulatory and marketing approvals for any product candidates that successfully complete clinical trials; | |
| ● | advance our preclinical and research and development programs; | |
| ● | identify, assess, acquire, license and/or develop other product candidates; | |
| ● | manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales; | |
| ● | establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval; | |
| ● | hire personnel and invest in additional infrastructure to support our operations as a public company and expand our product candidates development; | |
| ● | enter into agreements to license intellectual property from third parties; | |
| ● | develop, maintain, protect and expand our intellectual property portfolio; and | |
| ● | experience any delays or encounter issues with respect to any of the above, including, but not limited to, failed trials, complex results, safety issues or other regulatory challenges that require longer follow-up of existing clinical trials, additional major clinical trials or additional supportive studies in order to pursue marketing approval. |
To date, we have financed our operations primarily through the sale of equity securities, convertible loans made by certain of our shareholders, royalty-bearing and non-royalty bearing grants that we received from the Israeli Innovation Authority, or the IIA. The amount of any future operating losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Even if we obtain regulatory approval to market one or more product candidates, our future revenue will depend upon the size of any markets in which such product candidates receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors for such product candidates. Further, the operating losses that we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. Other unanticipated costs may also arise.
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We have never generated any revenue from product candidates sales and may never be profitable.
We have no product approved for marketing in any jurisdiction and we have never generated any revenue from product candidates sales. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize, our product candidates or any future product candidates. We do not anticipate generating revenue from product candidates sales for at least the next year. Our ability to generate future revenue from product candidates sales will depend heavily on our ability to:
| ● | complete research and preclinical and clinical development of our product candidates and any future product candidates in a timely and successful manner, including our C&C product candidates to provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. |
| ● | obtain regulatory and marketing approval for any product candidates for which we complete clinical trials; |
| ● | maintain and enhance a commercially viable, sustainable, scalable, reproducible and transferable manufacturing process for our technology product candidates and any future product candidates that is compliant with cGMPs; |
| ● | establish and maintain supply and, if applicable, manufacturing relationships with third parties that can provide, in both amount and quality, adequate product candidates to support clinical development and the market demand for our technology product candidates and any future product candidates, if and when approved; |
| ● | launch and commercialize any product candidates for which we obtain regulatory and marketing approval, either directly by establishing a sales force, marketing and distribution infrastructure, and/or with collaborators or distributors; |
| ● | expose and educate physicians and other medical professionals to use our product candidates; |
| ● | obtain market acceptance, if and when approved, of our product candidates and any future product candidates from the medical community and third-party payors; |
| ● | ensure our product candidates are approved for reimbursement from governmental agencies, healthcare providers and insurers in jurisdictions where they have been approved for marketing; |
| ● | address any competing technological and market developments that impact our product candidates and any future product candidates or their prospective usage by medical professionals; |
| ● | identify, assess, acquire and/or develop new product candidates; |
| ● | negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter and perform our obligations under such collaborations; |
| ● | maintain, protect and expand our portfolio of intellectual property rights, including patents, patent applications, trade secrets and know-how; |
| ● | avoid and defend against third-party interference or infringement claims; |
| ● | attract, hire and retain qualified personnel; and |
| ● | locate and lease or acquire suitable facilities to support our clinical development, manufacturing facilities and commercial expansion. |
Even if our product candidates or any future product candidates are approved for marketing and sale, we anticipate incurring significant incremental costs associated with commercializing such product candidates. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory agencies, domestic or foreign, or ethical committees in medical centers, to change our manufacturing processes or assays or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. Even if we are successful in obtaining regulatory approvals to market our technology product candidates or any future product candidates, our revenue earned from such product candidates will be dependent in part upon the breadth of the product candidates label, the size of the markets in the territories for which we gain regulatory approval for such product candidates, the accepted price for such product candidates, our ability to obtain reimbursement for such product candidates at any price, whether we own the commercial rights for that territory in which such product candidates have been approved and the expenses associated with manufacturing and marketing such product candidates for such markets. Therefore, we may not generate significant revenue from the sale of such product candidates, even if approved. Further, if we are not able to generate significant revenue from the sale of our approved product candidates, we may be forced to curtail or cease our operations. Due to the numerous risks and uncertainties involved in product candidates development, it is difficult to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability.
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We expect that we will need to raise substantial additional funding, which may not be available on acceptable terms, or at all. Failure to obtain funding on acceptable terms and on a timely basis may require us to curtail, delay or discontinue our product candidates development efforts or other operations.
We are currently advancing our C&C product candidates through pre-clinical and clinical development in multiple indications, in order to obtain regulatory approvals. Developing product candidates is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance product candidates through clinical trials and regulatory approvals. Furthermore, we expect to incur additional ongoing costs associated with operating as a public company.
To date, we have financed our operations primarily through the sale of equity securities. As of December 31, 2021, we had cash, cash equivalents of $523,000. We will require significant additional financing to fund our operations. Our future funding requirements will depend on many factors, including but not limited to:
| ● | the progress, results and costs of our anticipated clinical trials of our C&C product candidate and any future product candidates; |
| ● | the cost, timing and outcomes of regulatory review of our product candidates and any future product candidates; |
| ● | the scope, progress, results and costs of product candidates development, laboratory testing, manufacturing, preclinical development and clinical trials for any other product candidates that we may develop or otherwise obtain in the future; |
| ● | the cost of our future activities, including establishing sales, marketing and distribution capabilities for any product candidates in any particular geography where we receive marketing approval for such product candidates; |
| ● | the terms and timing of any collaborative, licensing and other arrangements that we may establish; |
| ● | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and |
| ● | the level of revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval. |
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product candidates sales. In addition, our product candidates, if and when approved, may not achieve commercial success. Our product candidates revenues, if any, will be derived from or based on sales of product candidates that may not be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.
We cannot guarantee that financing will be available in sufficient amounts or on terms acceptable to us, if at all, and the terms of any financing may adversely affect the interests or rights of our shareholders. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. Further, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.
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To the extent that we raise capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish certain rights to our technologies or our product candidates, or to grant licenses on terms that are not favorable to us.
If we are unable to obtain funding on acceptable terms and on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research, development or manufacturing programs or the commercialization of any approved product candidates, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Our financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Our audited financial statements for the year ended December 31, 2021, contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We have net losses in each year since our inception, including a net loss of approximately $711,000 for the year ended December 31, 2021. These events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The financial statements for 2021 do not include any adjustments that might result from the outcome of this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our product candidates. This may raise substantial doubts about our ability to continue as a going concern.
Risks Related to the Discovery, Development and Clinical Testing of Product Candidates
We depend on enrollment of patients in our upcoming clinical trials in order to continue development of our product candidates.
We intend conduct clinical trials as part of the development of our product candidates. Our anticipated time to data in these trials is subject to our ability to recruit sufficient eligible patients and the number and size of cohorts that will need to be enrolled prior to observing activity, if achieved at all for the dose escalation and expansion arms of the relevant trials. There can be no assurance that we will complete enrollment or have data from the trials when we anticipate or at all. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients that are in line with our inclusions and exclusion criteria and our ability to monitor these patients as required.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. Patient enrollment is affected by many factors including the size and nature of the patient population, the eligibility criteria for the trial, the design of the clinical trial, the size of the patient population required for analysis of the trial’s primary endpoints, the proximity of patients to study sites, our ability to recruit clinical trial investigators with the appropriate competencies and experience, the number of enrolling clinical sites, our ability to obtain and maintain patient consents, the risk that patients enrolled in clinical trials will drop out of the trials before completion, and competing clinical trials (including other clinical trials that we are conducting or will conduct in the future) and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, or competing drugs against the same target as well as any new drugs that may be approved for the indications we are investigating.
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Additionally, we must compete for clinical sites, clinicians and the limited number of patients who fulfill the stringent requirements for participation in clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical trials may be delayed or terminated due to the inability to enroll enough patients. The delay or inability to meet planned patient enrollment may result in increased costs and delay or termination of our trials, which could have a harmful effect on our ability to develop product candidates. While we are only in the early stages of pre-clinical development for our T&T platform, the foregoing and similar regulatory risks may impact our business, results of operations and prospects as we progress with the development of our T&T platform.
We may not receive, or may be delayed in receiving, the necessary clearances or approvals for our C&C product candidates or future product candidates, and failure to timely obtain necessary clearances or approvals for our C&C product candidates or future product candidates would adversely affect our ability to grow our business.
In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product candidates, we must first receive either clearance under Section 510(k) of the FFDCA or approval of a pre-market approval application, or a PMA, from the FDA, unless an exemption applies. In the clearance process for Section 510(k) of the FFDCA, or Section 510(k), before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which is defined as a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics that do not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. For a PMA, the FDA is making a determination that the probable benefits must be determined to outweigh the probable risk of the device for the labeled indication, and there must be a reasonable assurance of safety and effectiveness.
Modifications to product candidates that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to product candidates cleared through a 510(k) may require a new 510(k) clearance. Both the PMA approval and the 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory clearances or approvals could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indications for use of the device or other restrictions or requirements, which may limit the market for the device.
In the United States, we expect to take a multi-step approach to the regulatory clearance process. The review process is an iterative process and may be more costly and time consuming than we expect and we may not ultimately be successful in completing the review process and our 510 (k) application may not be cleared by the FDA in a timely manner or at all. If cleared, any modification to our C&C product candidate that has not been previously cleared may require us to submit a new 510(k) application and obtain clearance, or submit a PMA and obtain FDA approval prior to implementing the change. Specifically, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We may make modifications or add additional features in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to our previously cleared product candidates for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product candidates until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. If the FDA requires us to go through a lengthier, more rigorous examination for future product candidates or modifications to existing product candidates than we had expected, product candidates introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business.
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The FDA can delay, limit or deny clearance or approval of a medical device for many reasons, including:
| ● | our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our product candidates are safe or effective for their intended uses; | |
| ● | the disagreement of the FDA or the applicable foreign regulatory body with the design or the interpretation of data from pre- clinical studies or clinical trials; | |
| ● | serious and unexpected adverse effects experienced by participants in our clinical trials; | |
| ● | the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; | |
| ● | our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; | |
| ● | the manufacturing process or facilities we use may not meet applicable requirements; and | |
| ● | the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval. |
In order to sell our product candidates in member states of the European Union, or the EU, our product candidates must comply with the general safety and performance requirements of the EU Medical Devices Regulation (Regulation (EU) No 2017/745), which repeals and replaces the EU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with these requirements is a prerequisite to be able to affix the European Conformity, or CE, mark to our product candidates, without which they cannot be sold or marketed in the EU. All medical devices placed on the market in the EU must meet the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation including the requirement that a medical device must be designed and manufactured in such a way that, during normal conditions of use, it is suitable for its intended purpose. Medical devices must be safe and effective and must not compromise the clinical condition or safety of patients, or the safety and health of users and – where applicable – other persons, provided that any risks which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and are compatible with a high level of protection of health and safety, taking into account the generally acknowledged state of the art. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the general safety and performance requirements as a practical matter, as it creates a rebuttable presumption that the device satisfies the general safety and performance requirements.
To demonstrate compliance with the general safety and performance requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. As a general rule, demonstration of conformity of medical devices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the product candidates during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its product candidates with the general safety and performance requirements (except for any parts which relate to sterility, metrology or reuse aspects), a conformity assessment procedure requires the intervention of an organization accredited or designated by a member state of the EU to conduct conformity assessments, or a notified body. Depending on the relevant conformity assessment procedure, the notified body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. If satisfied that the relevant product candidates conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable EU laws and regulations, and corresponding EU member state laws, we would be unable to affix the CE mark to our product candidates, which would prevent us from selling them within the EU.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Non-compliance with the above requirements would also prevent us from selling our product candidates in these three countries.
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We do not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device path under a de novo classification request for our PL-15 and PL-16 product candidates until after the completion of this initial public offering. If we are denied submission under the de novo pathway, it may require us to go through a different pathway, such as a PMA pathway, which may result in a lengthier approval process for our devices.
We do not plan to conduct a pre-submission meeting with the FDA’s CDRH to confirm the potential for the Class II medical device path under a de novo classification request for our PL-15 and PL-16 product candidates until after the completion of the initial public offering. In the event the FDA does not agree with our regulatory assessments for our PL-15 and PL-16 product candidates under a Class II De Novo pathway, the FDA may require us to go through a lengthier, more rigorous examination than we had expected. This examination could involve pursuing a PMA, which is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. PMA submissions must comply with far more rigorous standards compared to 510k or De Novo to prove device safety and effectiveness. Typically, Class III devices require both laboratory testing and clinical trials that include human participants. PMA is the most rigorous type of device marketing application required by the FDA. PMA approval is based on a determination by the FDA that the PMA contains sufficient valid scientific evidence to ensure that the device is safe and effective for its intended use(s). A PMA application generally includes extensive information about the device including the results of clinical testing conducted on the device and a detailed description of the manufacturing process. If we are required to pursue a PMA, the introduction of our product candidates into the market could be delayed significantly.
Legislative or regulatory reforms in the United States or the European Union may make it more difficult and costly for us to obtain regulatory clearances or approvals for our product candidates or to manufacture, market or distribute our product candidates after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future product candidates under development or impact our ability to modify our currently cleared product candidates on a timely basis. Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their product candidates. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates devices. These proposals included plans to potentially sunset certain older devices that were used as predicates devices under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. The FDA requested public feedback on whether it should consider certain actions that might require new authority, such as whether to sunset certain older devices that were used as predicates devices under the 510 (k) clearance pathway. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business.
More recently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA intends to develop and maintain a list device types appropriate for the “safety and performance based” pathway and will continue to develop product -specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible. The FDA may establish performance criteria for classes of devices for which we or our competitors seek or currently have received clearance, and it is unclear the extent to which such performance standards, if established, could impact our ability to obtain new 510(k) clearances or otherwise create competition that may negatively affect our business.
In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our product candidates. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future product candidates or make it more difficult to obtain clearance or approval for, manufacture, market or distribute our product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior to obtaining clearance or approval; changes to manufacturing methods; recall, replacement or discontinuance of our product candidates; or additional record keeping.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our future product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval or clearance that we may have obtained and we may not achieve or sustain profitability.
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On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, the regulations would be directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation has become applicable as of May 26, 2021. Among other things, the new Medical Devices Regulation:
| ● | strengthens the rules on placing devices on the market and reinforce surveillance once they are available; | |
| ● | establishes explicit provisions on manufacturers’ responsibilities for follow-up regarding the quality, performance and safety of devices placed on the market; | |
| ● | improves the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; | |
| ● | sets up a central database to provide patients, healthcare professionals and the public with comprehensive information on product available in the EU; and | |
| ● | Provides strengthened rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market. |
These modifications may have an effect on the way we conduct our business in the EEA.
We are heavily dependent on the success of our C&C product candidates, including obtaining regulatory approval to market our C&C product candidates in the United States and the European Union.
To date, we have invested substantially all of our efforts and financial resources to research and develop our C&C technology, including conducting preclinical studies, developing and securing our intellectual property portfolio for our product candidates and technology. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or more of our current and future product candidates. Our product candidates’ marketability is subject to significant risks associated with successfully completing current and future clinical trials, including:
| ● | our ability to initiate our clinical trials; | |
| ● | Success in in-vitro cell culture assays or other non-clinical experiments or animal studies does not ensure that later, clinical trials will be successful nor does it predict final results. | |
| ● | acceptance by the FDA, EMA or other regulatory agencies of our strategies for seeking regulatory approvals for our C&C product candidates and any future product candidates, including our proposed indications, primary and secondary endpoint assessments and measurements, safety evaluations and regulatory pathways; | |
| ● | the acceptance by the FDA, EMA or other regulatory agencies of the number, design, size, conduct and implementation of our clinical trials, our trial protocols and the interpretation of data from preclinical studies or clinical trials; |
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| ● | our ability to successfully initiate and complete clinical trials of our C&C product candidates and any future product candidates, including timely patient enrollment and acceptable safety and efficacy data and our ability to demonstrate the safety and efficacy of the product candidates undergoing such clinical trials; | |
| ● | the willingness of the FDA, EMA or other regulatory agencies to schedule an advisory committee meeting in a timely manner in connection with our regulatory submissions, if such advisory committee meetings are required; | |
| ● | the recommendation of the FDA’s advisory committee to approve our applications to market our C&C product candidates and any future product candidates in the United States, and the EMA’s approval to market our C&C product candidates in the European Union, if such advisory committee reviews are scheduled, without limiting the approved labeling, specifications, distribution or use of the product candidates, or imposing other restrictions; | |
| ● | the satisfaction of the FDA, EMA or other regulatory agencies with the safety and efficacy of C&C product candidates and any future product candidates; | |
| ● | the prevalence and severity of adverse events associated with C&C product candidates and any future product candidates; | |
| ● | the timely and satisfactory performance by third-party contractors, trial sites and principal investigators of their obligations in relation to our clinical trials; | |
| ● | our success in educating medical professionals and patients about the benefits, administration and use of our C&C product candidates and any future product candidates, if approved; | |
| ● | the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing product for the indications addressed by our C&C product candidates and any future product candidates; | |
| ● | the effectiveness of our marketing, sales and distribution strategy, and operations, as well as that of any current and future licensees; | |
| ● | our ability to scale, validate and maintain a commercially viable manufacturing process that is cGMP-compliant; | |
| ● | our ability to obtain, protect and enforce our intellectual property rights with respect to our C&C product candidates, any future product candidates and our C&C technology; and | |
| ● | changes to regulatory guidelines. |
Many of these clinical, regulatory and commercial risks are beyond our control. Accordingly, we cannot assure you that we will be able to advance our C&C product candidates and any future product candidates through clinical development, or to obtain regulatory approval of or commercialize any product candidates. If we fail to achieve these objectives or overcome the challenges presented above, we could experience significant delays or an inability to successfully commercialize our C&C product candidates and any future product candidates. Accordingly, we may not be able to generate sufficient revenues through the sale of our product candidates to enable us to continue our business.
Additionally, approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may never obtain approval outside of the United States, which would limit our market opportunities and adversely affect our business.
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Regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for our current product candidates or any future product candidates, our business may fail.
The research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval monitoring and reporting and export and import of drug product candidates are subject to extensive regulation by the FDA, the EMA and by foreign regulatory authorities in other countries. These regulations differ from country to country. To gain approval to market our T&T platform product candidates and future product candidates, we must provide data from well-controlled clinical trials that adequately demonstrate the safety and efficacy of the product candidates for the intended indication to the satisfaction of the FDA, EMA or other regulatory authority. We have not yet obtained regulatory approval to market any product in the United States or any other jurisdiction. The FDA, EMA or other regulatory agencies can delay, limit or deny approval of our T&T platform product candidates or any future product candidate for many reasons, including:
| ● | regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials; | |
| ● | our inability to demonstrate that a product candidate is safe and effective for the target indication to the satisfaction of the FDA, EMA or other regulatory agencies; | |
| ● | the FDA’s, EMA’s, or other regulatory agencies’ disagreement with our trial protocol, the interpretation of data from preclinical studies or clinical trials, or adequacy of the conduct and control of clinical trials; | |
| ● | clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals; | |
| ● | the population studied in the clinical trial may not be sufficiently broad or representative to assess safety in the patient population for which we seek approval; | |
| ● | unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding safety or efficacy of a product candidate observed in clinical trials; | |
| ● | our inability to demonstrate that clinical or other benefits of a product candidate outweighs any safety or other perceived risks; | |
| ● | any determination that a clinical trial presents unacceptable health risks to subjects; | |
| ● | our inability to obtain approval from institutional review boards, or IRBs, to conduct clinical trials at their respective sites; | |
| ● | the FDA’s determination that the regulatory pathways under FFDCA Section 505(b)(2), or Section 505(b)(2), or Section 510(k) are not available for a product candidate; | |
| ● | the non-approval of the formulation, labeling or the specifications of a product candidate; | |
| ● | the failure to accept the manufacturing processes or facilities at of third-party manufacturers with which we contract; | |
| ● | the potential for approval policies or regulations of the FDA, EMA or other regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval; or | |
| ● | resistance to approval from the advisory committees of the FDA, EMA or other regulatory agencies for any reason including safety or efficacy concerns. |
In the United States, we will be required to submit an NDA to obtain FDA approval before marketing our T&T platform product candidate. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and efficacy for each desired indication. In the case of an NDA covered by Section 505(b)(2), we may rely in part on data not developed by us and for which we have not obtained a right of reference or use, including published scientific literature or the FDA’s findings of safety and/or effectiveness for a previously approved drug. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product candidates. The FDA may further inspect our manufacturing facilities to ensure that the facilities can manufacture any product candidate and any product candidates, if and when approved, in compliance with the applicable regulatory requirements, as well as inspect our clinical trial sites to ensure that our trials are properly conducted. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA must make an initial determination that the application is sufficiently complete to accept the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA, or ultimately be approved. If the application is not accepted for review or approval, the FDA may require that we conduct additional clinical or preclinical trials, or take other actions before it will reconsider our application. If the FDA requires additional trials or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available.
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Regulatory authorities outside of the United States, such as in the European Union, also have requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of a product candidate. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on our ability to obtain approval in a different jurisdiction. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time consuming. Foreign regulatory approval may include all of the risks associated with obtaining FDA approval. For all of these reasons, if we seek foreign regulatory approval for any product candidate, we may not obtain such approvals on a timely basis, if at all.
Even if we eventually complete clinical testing and receive approval of any regulatory filing for a product candidate, the FDA may grant approval contingent on the performance of costly and potentially time-consuming additional post-approval clinical trials or subject to contraindications, black box warnings, restrictive surveillance or Risk Evaluation and Mitigation Strategies, or REMS. Further, the FDA, EMA or other foreign regulatory authorities may also approve a product candidate for a more limited indication or a narrower patient population than we originally requested, and these regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successful commercialization of any product candidate. Following any approval for commercial sale of a product candidate, certain changes to the product candidates, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, will be subject to additional FDA notification, or review and approval. Also, regulatory approval for any product candidate may be withdrawn. To the extent we seek regulatory approval in foreign countries, we may face challenges similar to those described above with regulatory authorities in applicable jurisdictions. Any delay in obtaining, or inability to obtain, applicable regulatory approval for our T&T platform product candidates or any future product candidate would delay or prevent commercialization of such product candidate and would thus negatively impact our business, results of operations and prospects. While we are only in the early stages of pre-clinical development for our T&T platform, the foregoing and similar regulatory risks may impact our business, results of operations and prospects as we progress with the development of our T&T platform.
Clinical drug development is difficult to design and implement and involves a lengthy and expensive process with uncertain outcomes.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Additionally, we are only in the early stages of pre-clinical development for our T&T platform. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. We do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed, suspended or terminated for a variety of reasons, including failure to:
| ● | generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; | |
| ● | obtain regulatory approval, or feedback on trial design, in order to commence a trial; | |
| ● | identify, recruit and train suitable clinical investigators; | |
| ● | reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among CROs and clinical trial sites, and have such CROs and sites effect the proper and timely conduct of our clinical trials; | |
| ● | obtain and maintain IRB approval at each clinical trial site; | |
| ● | identify, recruit and enroll suitable patients to participate in a trial; | |
| ● | have a sufficient number of patients complete a trial or return for post-treatment follow-up; | |
| ● | ensure clinical investigators and clinical trial sites observe trial protocol or continue to participate in a trial; | |
| ● | address any patient safety concerns that arise during the course of a trial; | |
| ● | address any conflicts with new or existing laws or regulations; | |
| ● | add a sufficient number of clinical trial sites; | |
| ● | manufacture sufficient quantities at the required quality of product candidate for use in clinical trials; or | |
| ● | raise sufficient capital to fund a trial. |
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We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidate, including:
| ● | we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials; | |
| ● | clinical trials of a product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs; | |
| ● | the number of patients required for clinical trials of a product candidate may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; | |
| ● | our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; | |
| ● | regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or amend a trial protocol; | |
| ● | we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and CROs; | |
| ● | we or our investigators might have to suspend or terminate clinical trials of a product candidate for various reasons, including non- compliance with regulatory requirements, a finding that a product candidate have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks; | |
| ● | the cost of clinical trials of a product candidate may be greater than we anticipate; | |
| ● | the supply or quality of a product candidate or other materials necessary to conduct clinical trials of such product candidate may be insufficient or inadequate; | |
| ● | there may be changes in government regulations or administrative actions; | |
| ● | a product candidate may have undesirable adverse effects or other unexpected characteristics; | |
| ● | we may not be able to demonstrate that a produce candidate’s clinical and other benefits outweigh its safety risks; | |
| ● | we may not be able to demonstrate that a product candidate provides an advantage over current standards of care of future competitive therapies in development; | |
| ● | regulators may revise the requirements for approving a product candidate, or such requirements may not be as we anticipate; and | |
| ● | any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us. |
In addition, disruptions caused by the COVID-19 pandemic has caused and may continue to increase the likelihood that we encounter such difficulties in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. We may also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the trial’s data safety monitoring board, by the FDA, EMA or other regulatory agencies. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or site by the FDA, EMA or other regulatory agencies resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials outside of the United States, as we plan to do for our product candidates and any future product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in the countries outside of the United States to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
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If we experience delays in completing any clinical trial of a product candidate or successfully obtaining regulatory approval, the commercial prospects of such product candidate may be harmed, and our ability to generate product candidates revenues from such product candidate will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product candidates sales and generate revenues. Any of these occurrences may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
If the FDA does not conclude that our T&T platform product candidate satisfies the requirements under Section 505(b)(2) of the FFDCA, or Section 505(b)(2), or if we are unable to utilize the hybrid application pathway in the European Union, or if the requirements are not as we expect, the approval pathway for our T&T platform product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
While we are only in the early stages of pre-clinical development for our T&T platform product candidates, we intend to utilize the FDA’s Section 505(b)(2) regulatory pathway, and the hybrid application pathway in the European Union, which is analogous to the Section 505(b)(2) pathway, to seek approval of our T&T platform product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from trials or studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference or use from the person by or for whom the investigations were conducted, which we believe could expedite the development program for our T&T platform product candidates by potentially decreasing the amount of preclinical and clinical data that we would need to generate in order to obtain FDA approval. However, while we believe that our T&T platform product candidates is a reformulation of an already-approved drug and, therefore, will be eligible for submission of an NDA under Section 505(b)(2), the FDA may disagree and determine that our T&T platform product candidates is not eligible for review under such regulatory pathway.
If we are unable to pursue these regulatory pathways as anticipated, we may need to conduct additional preclinical experiments and clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for T&T platform product candidates, and complications and risks associated with T&T platform product candidates, would likely increase significantly. Moreover, inability to pursue the Section 505(b)(2) or similar regulatory pathway could result in new competitive productsreaching the market more quickly than T&T platform product candidates or any future product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) or similar regulatory pathway, T&T platform product candidates may not receive the requisite approvals for commercialization, and there is no guarantee the 505(b)(2) or similar pathway would ultimately lead to faster product candidates development or earlier approval.
In addition, notwithstanding the approval of a number of productsby the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our potential future NDAs for up to 30 months depending on the outcome of any litigation. It is also not uncommon for a manufacturer of an approved productto file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing product candidates. If successful, such petitions can significantly delay, or even prevent, the approval of the new product candidates. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.
Moreover, even if our T&T platform product candidates or any future product candidates are approved under the Section 505(b)(2) pathway, as the case may be, the approval may be subject to limitations on the indicated uses for which the product candidates may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product candidates.
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Our C&C and T&T technologies are novel technologies, which makes it difficult to accurately and reliably predict the time and cost of development and of subsequently obtaining regulatory approval of our C&C and T&T technologies product candidates or any future product candidates.
We have concentrated our efforts and product candidates research on our technologies, and our future success depends on the successful development of these technologies and product candidates based on them. There can be no assurance that any development problems we experience in the future related to our product candidates will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may be unable to maintain and further develop sustainable, reproducible and scalable manufacturing processes, or transfer these processes to collaborators, which may prevent us from completing our clinical studies or commercializing our product candidates on a timely or profitable basis, if at all. To our knowledge, no regulatory authority has granted approval to any person or entity, including us, to market and commercialize therapeutics using our novel delivery system. We may never receive approval to market and commercialize any product candidates that utilize our technologies.
As an organization, we have not previously conducted pivotal clinical trials, and we may be unable to do so for any product candidates we may develop, including our T&T platform product candidates.
We will need to successfully complete pivotal clinical trials in order to obtain the approval of the FDA, EMA or other regulatory agencies to market our T&T platform product candidates or any future product candidates. Carrying out later-stage clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not previously conducted any later stage or pivotal clinical trials and have limited experience in preparing, submitting and prosecuting regulatory filings. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials, including our ongoing Phase 3 trials, in a way that leads to marketing approval of our T&T platform product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our T&T platform product candidates, which are in early stages of pre-clinical development. See “Risks Related to Our Reliance on Third Parties.” We rely on third parties to conduct certain elements of our preclinical and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We may find it difficult to enroll patients in our clinical trials due to various reasons, including possible disruption due to the COVID-19 pandemic, which could delay or prevent us from proceeding with such trials.
Identifying and qualifying patients to participate in our clinical trials is critical to our success. The timing of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, our ability to recruit clinical trial investigators with the appropriate competencies and experience, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing product candidates and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites, clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any drugs that may be approved for the indications we are investigating, the eligibility criteria for the trials, our ability to obtain and maintain patient consents and the risk that patients enrolled in clinical trials will drop out of the trials before completion. We may experience disruptions in patient enrollment due to the COVID-19 pandemic for our planned clinical trials during 2023 for our C&C product candidates, including difficulties in initiating clinical sites and enrolling and retaining participants, the diversion of healthcare resources away from clinical trials and challenges related to travel or quarantine policies that may be implemented.
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We may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical trials because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective patients and the patient referral practices of physicians. We may also face challenges in identifying trial sites and enrolling patients in global trials such as our ongoing and planned clinical trials in the third quarter of 2022 for our C&C product candidates. If patients are unwilling to participate in our trials for any reason, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential product candidates will be delayed.
Our product candidates and the administration of our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
Undesirable side effects, including toxicology, caused by product candidates or any future product candidates, or the drugs encapsulated by such product candidates, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or other regulatory agencies. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our clinical studies could be suspended or terminated, and the FDA, EMA or other regulatory agencies could order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications. Moreover, during the conduct of clinical trials, patients report changes in their health, including illnesses, injuries and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions.
Drug-related, formulation-related and administration-related side effects could affect patient recruitment, the ability of enrolled patients to complete the clinical trials or result in potential product candidates liability claims, which could exceed our clinical trial insurance coverage. We do not currently have product candidates liability insurance and do not anticipate obtaining product candidates liability insurance until such time as we have received FDA, EMA or other comparable foreign authority marketing approval for one of our product candidates and such product candidates is being provided to patients outside of clinical trials.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product candidates, a number of potentially significant negative consequences could result, including but not limited to:
| ● | regulatory authorities may suspend or withdraw approvals of such product candidates; | |
| ● | regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication; | |
| ● | additional restrictions may be imposed on the marketing of the particular product candidates or the manufacturing processes for the product candidates or any component thereof; | |
| ● | we may be required to create a REMS, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use; | |
| ● | we may be required to recall a product candidates, change the way a product candidate is administered or conduct additional clinical trials; | |
| ● | we could be sued and held liable for harm caused to patients; | |
| ● | the product candidates may become less competitive; and | |
| ● | our reputation may suffer. |
While we are only in the early stages of pre-clinical development for our T&T platform, any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
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Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize any of our product candidates, and the approval may be for a more narrow indication than we seek or be subject to other limitations or restrictions that limit its commercial profile.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our current or future product candidates meet safety and efficacy endpoints in pivotal clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. This may include approval of a product candidate for more limited indications than requested or they may impose significant limitations in the form of warnings. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product candidates development, clinical trials and the review process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of warnings or a REMS. These regulatory authorities may require precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of any of our product candidates. While we are only in the early stages of pre-clinical development for our T&T platform, the foregoing and similar regulatory risks may impact our business, results of operations and prospects as we progress with the development of our T&T platform.
Even if we obtain regulatory approval for a product candidate, our product candidates and business will remain subject to ongoing regulatory obligations and review.
While we are only in the early stages of pre-clinical development for our T&T platform, if our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post- market information, including both federal and state requirements in the United States and comparable requirements outside of the United States. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the cleared intended use(s) for which the product candidates may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, EMA or other regulatory agencies and to comply with requirements concerning advertising and promotion for our product candidates. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product candidates’s approved label. As such, we may not promote our product candidates for indications or uses for which they do not have FDA, EMA or other regulatory agency approval. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product candidates, product candidates labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our product candidates in general or in specific patient subsets. An unsuccessful post-marketing trial or failure to complete such a clinical trial could result in the withdrawal of marketing approval. Furthermore, any new legislation addressing drug safety issues could result in delays in product candidates development or commercialization or increased costs to assure compliance. Foreign regulatory authorities impose similar requirements. If a regulatory agency discovers previously unknown problems with a product candidates, such as adverse events of unanticipated severity or frequency, or disagrees with the promotion, marketing or labeling of a product candidates, such regulatory agency may impose restrictions on that product candidates or us, including requiring withdrawal of the product candidates from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
| ● | issue warning letters asserting that we are in violation of the law; |
| ● | seek an injunction or impose civil or criminal penalties or monetary fines; |
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| ● | suspend or withdraw regulatory approval; | |
| ● | suspend any of our ongoing clinical trials; | |
| ● | refuse to approve pending applications or supplements to approved applications submitted by us or our strategic partners; | |
| ● | restrict the marketing or manufacturing of our product candidates; | |
| ● | seize or detain product candidates, or require a product candidates recall; | |
| ● | refuse to permit the import or export of our product candidates; or | |
| ● | refuse to allow us to enter into government contracts. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified product candidates from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new product candidates can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, in March 2020, the FDA announced the postponement of most foreign and routine surveillance inspections of domestic manufacturing facilities, and only restarted domestic inspections on a risk-based basis in July 2020. Regulatory authorities outside the United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic.
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If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
We may be subject, directly or indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our current and future operations may be directly or indirectly through our relationships with U.S. healthcare providers, patients and other persons and entities, subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain our business or financial arrangements and relationships through which we research, market, sell and distribute our product candidates in the United States. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
| ● | The U.S. Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other U.S. federal healthcare programs. The U.S. Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers, among others, on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection. |
| ● | The U.S. federal false claims laws, including the False Claims Act, or FCA, and civil monetary penalties laws, which prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the U.S. federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the U.S. federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government third-party payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties per false claim or statement. Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free productsto customers with the expectation that the customers would bill federal programs for the products; providing consulting fees and other benefits to physicians to induce them to prescribe products; engaging in promotion for “off-label” uses; and submitting inflated best price information to the Medicaid Rebate Program. | |
| ● | The U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. | |
| ● | The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, imposes, among other things, annual reporting requirements for covered manufacturers for certain payments and “transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding payments and transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists and certified nurse midwives. |
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| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, impose, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, and their business associates, which include individuals or entities that perform services for covered entities that involve the creation, use, maintenance or disclosure of, individually identifiable health information as well as their covered subcontractors. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. | |
| ● | European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers. |
Many states have analogous state laws and regulations, such as state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. In addition, certain states require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government. Certain states and local jurisdictions require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers and register pharmaceutical sales representatives. Additionally, certain states also require pharmaceutical companies to file reports relating to pricing information or marketing expenditures and have laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, the ACA has strengthened these laws. For example, health care reform legislation, has among other things, amended the intent requirement of the U.S. Anti-Kickback statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Ensuring that our internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that governmental authorities will conclude that our business practices, including arrangements we may have with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, possible exclusion from government funded healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and curtailment of our operations, any of which could substantially disrupt our operations. If the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
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Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of our product candidates and to produce, market and distribute our product candidates after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our product candidates. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
| ● | changes to manufacturing methods; |
| ● | change in protocol design; |
| ● | additional treatment arm (control); |
| ● | recall, replacement, or discontinuance of one or more of our product candidates; and |
| ● | additional recordkeeping. |
In addition, in the United States, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates profitably. The pharmaceutical industry in the United States, as an example, has been affected by the passage of the ACA, which, among other things, imposed new fees on entities that manufacture or import certain branded prescription drugs and expanded pharmaceutical manufacturer obligations to provide discounts and rebates to certain government programs. There have been executive, judicial and Congressional challenges to certain aspects of the ACA. Concurrently, Congress considered legislation to repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been enacted. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The United States Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. Although the Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the ACA and our business.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2021.
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Further, there has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practices in recent years, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. There have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the U.S. Department of Health and Human Services, or HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical products pricing, including price or patient reimbursement constraints, discounts, restrictions on certain products access and marketing cost disclosure and transparency measures, and in some cases, designed to encourage importation from other countries and bulk purchasing. In the future, there will likely continue to be proposals relating to the reform of the U.S. healthcare system, some of which could further limit coverage and reimbursement of drug products, including our product candidates. It is possible that additional governmental action is taken in response to the COVID-19 pandemic, but there can be no certainty regarding what, if any, such action may be. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Our results of operations could be adversely affected by the ACA and by other health care reforms that may be enacted or adopted in the future.
We face intense competition in an environment of rapid technological change and the possibility that our competitors may develop products and drug delivery systems that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully market or commercialize our product candidates.
The medical device and pharmaceutical industry in which we operate is intensely competitive and subject to rapid and significant technological change. We are currently aware of various existing therapies in the market and in development that may in the future compete with our product candidates, for drug delivery mechanisms that T&T technology to deliver APIs at the local level. Other approaches may also emerge for the prevention or treatment of any of the indications on which we focus, and new technologies may emerge in localized drug delivery.
We have competitors both in the United States and internationally, including major multinational medical device and pharmaceutical companies. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product candidates commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
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Even if we obtain and maintain approval for our T&T platform product candidates or our other product candidates from the FDA, we may never obtain approval outside of the United States, which would limit our market opportunities and adversely affect our business.
Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, the failure to obtain approval from the FDA or other regulatory authorities may negatively impact our ability to obtain approval in other foreign countries. Sales of our T&T platform product candidates or our other product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product candidates, if approved, is also subject to approval.
We intend to submit a marketing authorization application to the EMA for approval of our C&C product candidates in the European Union, but obtaining such approval from the European Commission following the opinion of the EMA is a lengthy and expensive process. Even if a product candidate is approved, the applicable regulatory agency may limit the indications for which the product candidates may be marketed, require extensive warnings on the product candidates labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and the European Union also have requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain countries.
Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for a product candidate may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our T&T platform product candidates or our other product candidates will be harmed and our business, financial condition, results of operations and prospects will be adversely affected.
The misuse or off-label use of our product candidates may harm our reputation in the marketplace, result in injuries that lead to product candidates liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
Prescription drugs may be promoted only for the approved indications in accordance with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off- label uses may be subject to significant liability. We will train our marketing and sales personnel to not promote our product candidates, if approved, for any off-label uses. We cannot, however, prevent a physician from using our product candidates off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate.
If the FDA, EMA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.
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Risks Related to our Reliance on Third Parties
We will rely on third parties to conduct certain elements of our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We will rely upon third-party vendors, including CROs, to monitor and manage data for our ongoing preclinical studies and clinical trials. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. We will rely on these CROs for execution of our preclinical studies and clinical trials, and we control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the vendors and CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors will be required to comply with good clinical practice, cGMP, the Helsinki Declaration, the International Conference on Harmonization Guideline for Good Clinical Practice, applicable European Commission Directives on Clinical Trials, laws and regulations applicable to clinical trials conducted in other territories, and good laboratory practices, or GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EEA, and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, including Good Clinical Practice, or GCP, and cGMP regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our relationships with these third-party CROs or vendors terminate, we may not be able to enter into arrangements with alternative CROs or vendors or do so on commercially reasonable terms. In addition, our CROs are not our employees, and, except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated, which could adversely affect our results of operations and the commercial prospects for our product candidates, increase our costs and delay our ability to generate revenue.
Replacing or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, we may encounter similar challenges or delays in the future, which could have a material adverse impact on our business, financial condition and prospects.
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Independent clinical investigators and CROs that we will engage to conduct our clinical trials may not devote sufficient time or attention to our clinical trials or be able to repeat their past success.
We will depend on third parties, including independent clinical investigators and CROs, to conduct our clinical trials. CROs may also assist us in the collection and analysis of data. There is a limited number of third-party service providers and vendors that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs.
These investigators and CROs will not be our employees and we will not be able to control, other than through contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. Further, the performance of our CROs may also be interrupted by the ongoing COVID-19 pandemic, including due to travel or quarantine policies, heightened exposure of CRO staff who are healthcare providers to COVID-19 patients or prioritization of resources toward the COVID-19 pandemic.
Investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authorities. The FDA or other regulatory authorities may conclude that a financial relationship between us and an investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or other regulatory authorities may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval or rejection of our marketing applications by the FDA or other regulatory authorities, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA and other regulatory authorities require that we comply with standards, commonly referred to as GCP, for conducting, recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical data, the outcome of the clinical studies or the development of our product candidates and harm our business.
We rely on third parties to manufacture the raw materials that we use to create our product candidates. Our business could be harmed if existing and prospective third parties fail to provide us with sufficient quantities of these materials and product candidates or fail to do so at acceptable quality levels or prices.
We rely on third party suppliers for certain raw materials necessary to manufacture our product candidates for our preclinical studies and clinical trials. We do not have any control over the availability of raw materials. If we or our manufacturers are unable to purchase these raw materials on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the development and commercialization of our product candidates or any future product candidates, would be delayed or there would be a shortage in supply, which would impair our ability to meet our development objectives for our product candidates or generate revenues from the sale of any approved product candidates.
Even following our establishment of our own cGMP-compliant manufacturing capabilities, we intend to continue to rely on third party suppliers for these raw materials, which will continue to expose us to manufacturing risks including:
| ● | reduced control for certain aspects of manufacturing activities; | |
| ● | termination or nonrenewal of manufacturing and service agreements with third parties in a manner or at a time that is costly or damaging to us; and | |
| ● | disruptions to the operations of our third-party manufacturers and service providers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or service provider. |
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Certain of our raw material suppliers will be required to become cGMP-compliant and establish a drug master file for the applicable ingredient before we can submit an NDA for our T&T platform product candidates. If these suppliers do not successfully carry out their contractual duties or manufacture our raw materials in accordance with regulatory requirements, we will not be able to submit our NDA as planned or complete, or may be delayed in completing, the clinical trials required for approval of our T&T platform product candidates. In such instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay or increased expense prior to the approval of our C&C product candidates and would thereby have a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally, we have not yet entered into binding agreements with certain third-party manufacturers to produce the raw materials and products that we use to manufacture our product candidates. Although we intend to rely on third-party manufacturers for the raw materials and products to support the manufacturing of our product candidates for commercialization, we have not yet entered into agreements with certain manufacturers. We may be unable to negotiate binding agreements with the manufacturers to support our commercialization activities at commercially reasonable terms.
Our reliance on third parties requires us to share our intellectual property, including trade secrets, which increases the possibility that a competitor will discover them or that our intellectual property will be misappropriated or disclosed.
Because we rely on third parties to provide us with the materials that we use to develop and, if appropriate in the future, manufacture our product candidates or approved product candidates, we may, at times, share trade secrets and intellectual property with such third parties. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets and intellectual property. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
Despite our efforts to protect our trade secrets and knowhow, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets by third parties. A competitor’s discovery of our trade secrets and knowhow would impair our competitive position and have an adverse impact on our business, financial condition, results of operations and prospects.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
We intend to rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and product candidates. Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and product candidates. This ability depends to a large extent on identifying aspects of the technology that are patentable, that their exposure via patent applications would not provide a third party of engineering around capabilities and on the ability to generate and identify superior data that would present a comparative edge vis-à-vis third party technologies.
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We have sought to protect our proprietary position by filing patent applications in the United States, with respect to our novel technologies and product candidates, which are important to our business. These patent applications will base international and national patent filings in countries of interest to our business, such as the United States, the European Union and Israel. Patent prosecution is expensive and time consuming, and we may not be able to file and prosecute our applications in the United States, the European Union and Israel, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
As of August 10, 2022, our growing portfolio of patent applications consists of two families that disclose our technology. We cannot offer any assurances about which, if any, patents will issue in due time, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
Further, the patent position of medical device and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. This renders the patent prosecution process particularly expensive and time-consuming. There is no assurance that all potentially relevant prior art relating to our patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and any future patents may not adequately protect our intellectual property, provide exclusivity for our product candidates, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively, and our business and results of operations would be harmed.
We may not have sufficient patent lifespan to effectively protect our product candidates and business.
Patents have a limited lifespan. The natural expiration of a patent is generally 20 years counted from its filing date (or PCT filing date in case it is derived from an international application). Although various extensions may be available, they are uncommon and the protection they afford, is limited. Even if any of our patent applications matures into issued patents, if we do not have sufficient patent terms or regulatory exclusivity to protect our product candidates, our business and results of operations will be adversely affected.
Changes in patent policy and national intellectual property laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.
Changes in patent laws or interpretation of patent laws in the United States and other countries may diminish the value of any patents that may issue from our patent applications, or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing. We therefore cannot be certain that we were the first to make the invention claimed in our owned patent or pending applications, or that we were the first to file for patent protection of such inventions.
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If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. If other entities use trademarks similar to ours in different jurisdictions, or have senior rights to ours, it could interfere with our use of our current trademarks throughout the world.
If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded by any patents that may be granted, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining the physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidate. Such litigation or licenses could be costly or not available on commercially reasonable terms.
Our competitive position may suffer if patents issued to third parties or other third party intellectual property rights cover our product candidates or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize our product candidates unless we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may also be pending patent applications that if they result in issued patents, could be alleged to be infringed by our product candidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our product candidates or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
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It is also possible that we have failed to identify relevant third party patents or applications. Patent applications in the U.S. and elsewhere are published approximately 18 months after the earliest filing to which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates or technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates. Third party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing of our product candidates. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our product candidates that are held to be infringing. We might, if possible, also be forced to redesign our product candidates so that we no longer infringe the third party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology, medical device and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the medical device and pharmaceutical industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any materials formed during the manufacturing process or any final product candidates itself, the holders of any such patents may be able to block our ability to commercialize such product candidates unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
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Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing product candidates or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Because our technology may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license, or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities.
For example, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to abandon development of that program and our business and financial condition could suffer.
We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our intellectual property or that of our licensors that we may acquire in the future. If we or a future licensing partner were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Under the AIA, the validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patent or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.
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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our Ordinary Shares.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship of our intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with respect to our patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right to compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue. As a result, we may receive less revenue from future product candidates if such claims are successful which in turn could impact our future profitability.
Changes in United States and international patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Our success is heavily dependent on intellectual property. Obtaining and enforcing patents in the medical device and pharmaceutical industries involve both technological and legal complexity. Therefore, obtaining and enforcing these patents is costly, time consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent United States Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain patents or to enforce patents that we might obtain in the future.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing product candidates to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology productsor methods of treatment, which could make it difficult for us to stop the marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our future patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks Related to Our Business Operations
Our business, operations and financial performance have been and may continue to be impacted by the COVID-19 pandemic.
The global spread of the COVID-19 pandemic and measures introduced by local, state and federal governments to contain the virus and mitigate its public health effects have significantly impacted the global economy. There remains considerable uncertainty around the duration and extent of the COVID-19 pandemic and its ongoing impacts, and we expect the evolving COVID-19 pandemic to continue to impact our business and these impacts may be substantial. In particular, the Company cannot accurately predict the future impact COVID-19 may have on, among others, (i) labor availability and supply lines, (iii) availability of essential supplies, or (iii) ability of the Company to obtain necessary financing. We may also experience limitations on employee resources in the future, including because of sickness of employees or their families. These factors may hamper the Company’s efforts to comply with filing or reporting obligations or requirements under securities laws.
The effects of government actions and our own policies and those of third parties to reduce the spread of COVID-19 have and may continue to negatively impact productivity, slow down our research and development activities, cause disruptions to our supply chain and impair our ability to execute our business development strategy. To the extent our suppliers and service providers are unable to comply with their obligations under our agreements with them or they are otherwise unable to deliver or are delayed in delivering goods and services to us due to the COVID-19 pandemic, our ability to continue meeting demand for or otherwise advancing development of our product candidates may be impaired.
While many jurisdictions have partially or entirely relaxed various “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions, some have not, such as those in much of Europe. Additionally, if there is a resurgence in infections in jurisdictions that have eased restrictions, then such restrictions may be reimplemented. Such orders or restrictions, as well as the perceived need by individuals to continue such practices to avoid infection, among other factors, continue to result in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects. The states and countries in which our product candidates and their components are manufactured, assembled, shipped and distributed are in varying stages of restrictions and re-opening to address the COVID-19 pandemic. Any existing or renewed quarantines, government actions related to the pandemic or shutdowns could disrupt our supply chain, manufacturing or shipping process, or sales channel.
The widespread pandemic has resulted, and may continue to result for an extended period, in significant disruption of global financial markets, reducing our ability to access capital, which would negatively affect our liquidity. In addition, if the COVID-19 pandemic results in a prolonged economic recession, it could harm our future sales, if any, and our ability to continue as a going concern. A prolonged economic contraction or recession may also result in employer layoffs in markets where we conduct business.
Despite global vaccination efforts, it is not possible to reliably estimate the length and severity of these developments and the impact the COVID-19 pandemic will continue to have on the financial results and condition of the Company in the future. To the extent the COVID-19 pandemic adversely affects our financial results and business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
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We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and legal personnel. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced, and we may not be able to implement our business strategy.
Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular product candidates may not lead to the development of viable commercial product candidates and may divert resources away from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain product candidates development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the medical device and pharmaceutical industries, in particular for our lead product candidate, our business, financial condition and results of operations could be materially adversely affected.
We may not be successful in our efforts to identify, discover or license additional product candidates.
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our product candidates, the success of our business also depends upon our ability to identify, discover or license additional product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including: lack of financial or personnel resources to acquire or discover additional product candidates; new product candidates may not succeed in preclinical or clinical testing, or may be shown to have harmful side effects or may have other characteristics that may make them unmarketable or unlikely to receive marketing approval; our competitors may develop alternatives that render our product candidates obsolete or less attractive; the market for a product candidate may change during our development program so that such product candidates may become unprofitable to continue to develop; new product candidates may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and new product candidates may not be accepted as safe and effective by patients, the medical community, or third-party payors.
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We may be forced to abandon our development efforts for a program or programs that are unsuccessful, or we may not be able to identify, license, or discover additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Further, research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
European data collection is governed by restrictive regulations governing the collection, use, processing and cross-border transfer of personal information.
We may collect, process, use or transfer personal information from individuals located in the European Union in connection with our business, including in connection with conducting clinical trials in the European Union. Additionally, we intend to commercialize our product candidates, and any of our product candidates that receive marketing approval, in the European Union. The collection and use of personal health data in the European Union is governed by the provisions of the General Data Protection Regulation ((EU) 2016/679), or the GDPR, along with other European Union and country-specific laws and regulations. The United Kingdom and Switzerland have also adopted data protection laws and regulations. These legislative acts (together with regulations and guidelines) impose requirements relating to having legal bases for processing personal information relating to identifiable individuals and transferring such information outside of the EEA, including to the United States, providing details to those individuals regarding the processing of their personal information, keeping personal information secure, having data processing agreements with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect of their personal information, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments and record-keeping. The GDPR imposes additional responsibilities and liabilities in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. Failure to comply with the requirements of the GDPR and related national data protection laws of the member states of the European Union may result in substantial fines, other administrative penalties and civil claims being brought against us, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
Our research, development and manufacturing activities and our third party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste product candidates. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages, such liability could exceed our resources, and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.
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Our employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of fraud or other misconduct by our employees and independent contractors. Misconduct by these parties could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper use of information obtained in the course of clinical trials, including individually identifiable information, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us.
For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Israel.
Other than our headquarters and other operations which are located in Israel (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates. We plan to retain sales representatives and third party distributors and conduct physician, ENT specialist, hospital pharmacist and patient association outreach activities, as well as clinical trials, outside of the United States, European Union and Israel. Doing business internationally involves a number of risks, including but not limited to:
| ● | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits, and licenses; |
| ● | failure by us to obtain regulatory approvals for the use of our product candidates in various countries; |
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| ● | additional potentially relevant third-party patent rights; | |
| ● | complexities and difficulties in obtaining protection and enforcing our intellectual property; | |
| ● | difficulties in staffing and managing foreign operations; | |
| ● | complexities associated with managing multiple payor reimbursement regimes, government payors, prince controls or patient self-pay systems; | |
| ● | limits in our ability to penetrate international markets; | |
| ● | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our product candidates and exposure to foreign currency exchange rate fluctuations; | |
| ● | an outbreak of a contagious disease, including COVID-19, which may cause us or our distributors, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country; | |
| ● | natural disasters, political and economic instability, including wars, terrorism, and political unrest, boycotts, curtailment of trade, and other business restrictions; | |
| ● | certain expenses including, among others, expenses for travel, translation and insurance; and | |
| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act its books and records provisions, or its anti-bribery provisions. |
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Risks Related to Commercialization of Our Product Candidates
We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities, or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any product candidates revenue.
We have no experience selling and marketing our product candidates, and we currently have no marketing or sales organization. To successfully commercialize any product candidates that may result from our development programs, we will need to develop these capabilities, either on our own or with others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization independently or by utilizing experienced third parties with technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets, all of which will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact our ability to commercialize our product candidates.
Further, given our lack of prior experience in marketing and selling medical device and pharmaceutical products, our initial estimate of the size of the required sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our product candidates. As such, we may be required to hire sales representatives and third party distributors to adequately support the commercialization of our product candidates, or we may incur excess costs if we hire more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. We also may enter into collaborations with large medical device and pharmaceutical companies to develop and commercialize product candidates. If our future collaborators do not commit sufficient resources to develop and commercialize our future product candidates, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product candidates revenue to sustain our business. We may compete with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
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Our efforts to educate the medical community, including physicians, hospital pharmacists and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. If any of our product candidates are approved but fail to achieve market acceptance among physicians, patients or third-party payors, we will not be able to generate significant revenues from such product candidates, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We are subject to significant regulatory oversight with respect to manufacturing our product candidates. Delays in establishing and obtaining regulatory approval of our manufacturing process may delay or disrupt our product candidates development and commercialization efforts.
The preparation of drug products for clinical trials or commercial sale is subject to extensive regulation. Before we can begin to commercially manufacture our product candidates or any product candidate, we must obtain regulatory approvals from the Israeli Ministry of Health, or MOH, the FDA and similar regulatory agencies, as applicable for our manufacturing process and facility. A manufacturing authorization must also be obtained from the appropriate regulatory authorities in the European Union and worldwide. In addition, we must pass a pre-approval inspection of our manufacturing facility by the FDA before our C&C product candidates or any product candidate can obtain marketing approval. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are compliant with cGMP, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers is found to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work with these third parties to remedy the violation or while we work to identify suitable replacement vendors. For example, in the past, a cGMP audit by the MOH of the manufacturing process in the facility of our contract manufacturer for our C&C product candidates resulted in certain critical observations, which have since been resolved. There can be no guarantee, however, that future inspections by regulatory authorities of our manufacturing facilities or those of our contract manufacturers will result in MOH’s agreement that these critical observations have been resolved or that similar inspectional observations will not be identified. If we do not demonstrate to the satisfaction of the applicable regulator that our manufacturing facilities, or those of our contract manufacturers, are in compliance with applicable requirements, we may be materially delayed in the development of our product candidates, which would materially harm our business. The cGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. In complying with cGMP, we will be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product candidates meets applicable specifications and other requirements. If we fail to comply with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any product candidate that we may develop.
Our failure to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products or product candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of any approved products and our product candidates.
If we receive marketing approval for our product candidates, sales will be limited unless the product candidates achieves broad market acceptance by physicians, patients, third-party payors, hospital pharmacists, infectious disease specialists and others in the medical community.
The commercial success of our product candidates will depend upon the acceptance of the product candidates by the medical community, including physicians, patients, healthcare payors, hospital pharmacists and infectious disease specialists. The degree of market acceptance of any approved product candidates will depend on a number of factors, including:
| ● | the demonstration of clinical safety and efficacy of our product candidates in clinical trials; |
| ● | the efficacy, potential and perceived advantages of our product candidates over alternative treatments; |
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| ● | the cost of treatment relative to alternative treatments; | |
| ● | the prevalence and severity of any adverse side effects; | |
| ● | product candidates labeling or product candidates insert requirements of the FDA or other regulatory authorities, including any limitations or warnings contained in a product candidate’s approved labeling; | |
| ● | distribution and use restrictions imposed by the FDA or agreed to by us as part of a mandatory or voluntary risk management plan; | |
| ● | our ability to obtain third-party coverage and adequate reimbursement; | |
| ● | the willingness of patients to pay for drugs out of pocket in the absence of third-party coverage; | |
| ● | the demonstration of the effectiveness of our product candidates in reducing the cost of treatment; | |
| ● | the strength of marketing and distribution support; | |
| ● | the timing of market introduction of competitive products; | |
| ● | the availability of product candidates and their ability to meet market demand; and | |
| ● | publicity concerning our product candidates or competing products and treatments. |
If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, patients, healthcare payors, hospital pharmacists and infectious disease specialists, we may not generate sufficient revenue from the product candidates, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
It may be difficult for us to profitably sell our product candidates if coverage and reimbursement for these product candidates, or the procedures in which they are used, is limited by government authorities and/or third-party payor policies.
In addition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of our product candidates, if approved, will depend on, in part, the extent to which the procedures utilizing our product candidates, performed by health care providers, will be covered by third party payors, such as government health care programs, commercial insurance and managed care organizations. Our product candidates will be purchased or provided by health care providers for utilization in certain surgical procedures. In the event health care providers and patients accept our product candidates as medically useful, cost effective and safe, there is uncertainty regarding whether our product candidates will be directly reimbursed, reimbursed through a bundled payment or if the product candidates will be included in another type of value-based reimbursement program. Third party payors determine the extent to which new product candidates or procedures will be covered as a benefit under their plans and the level of reimbursement for any covered product candidates or procedure which may utilize a covered product candidates.
When used in connection with certain procedures, our product candidates may not be reimbursed separately but their cost may instead be bundled as part of the payment received by the provider for the procedure only. Treating physicians are unlikely to use and order our product candidates unless coverage is provided and the reimbursement is adequate to cover all or a significant portion of the cost of the procedures which utilize our product candidates. A decision by a third-party payor not to cover or adequately reimburse for our product candidates or procedures using our product candidates, could reduce physician utilization of our product candidates once approved. Therefore, coverage and adequate reimbursement for procedures which utilize new product candidates is critical to the acceptance of such new product candidates.
A primary trend in the U.S. healthcare industry and elsewhere has been cost containment, including price controls, restrictions on coverage and reimbursement and requirements for substitution of less expensive products and procedures. Third party payors decide which products and procedures they will pay for and establish reimbursement and co-payment levels. Government and other third-party payors are increasingly challenging the prices charged for healthcare products and procedures, examining the cost effectiveness of procedures, and the products used in such procedures, in addition to their safety and efficacy, and limiting or attempting to limit both coverage and the level of reimbursement. We cannot be sure that coverage will be available for our product candidates, if approved, or, if coverage is available, the level of direct or indirect reimbursement.
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We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new product candidates. Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product candidates.
Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product candidates is:
| ● | a covered benefit or part of a covered benefit under its health plan; | |
| ● | safe, effective and medically necessary; | |
| ● | appropriate for the specific patient; | |
| ● | cost-effective; and | |
| ● | neither experimental nor investigational. |
In the United States, third-party payors, including private and governmental payors such as the Medicare and Medicaid programs, play an important role in determining the extent to which procedures using new product candidates will be covered and reimbursed. The Medicare and Medicaid programs are increasingly used as models for how private payors and other governmental payors develop their coverage and reimbursement policies. It is difficult to predict at this time what third-party payors will decide with respect to reimbursement for fundamentally novel product candidates such as ours, as there is no body of established practices and precedents for these new product candidates.
Obtaining coverage and reimbursement approval for a products from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our product candidates to the payor.
Additionally, we may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidates, if approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future product candidates. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize our product candidates, or achieve profitably at all, even if approved.
Our business entails a significant risk of clinical trial and/or product candidates liability and our ability to obtain sufficient insurance coverage could have a material effect on our business, financial condition, results of operations or prospects.
Our business exposes us to significant clinical trial and/or product candidates liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Clinical trial and/or product candidates liability claims could delay or prevent completion of our development programs. If we succeed in marketing product candidates, product candidates liability claims could result in an FDA investigation of the safety and effectiveness of our product candidates, our manufacturing processes and facilities or our marketing programs and potentially a recall of our product candidates or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our product candidates, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our company valuation. While we currently have clinical trial liability insurance, we do not have product candidates liability insurance and do not anticipate obtaining product candidates liability insurance until such time as we have received FDA or other comparable foreign authority approval for a product candidates and there is a product candidates that is being provided to patients outside of clinical trials. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. In some countries, the institution or the doctors involved do not have sufficient insurance to cover their activities. Furthermore, clinical trial and product candidates liability insurance are becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by clinical trial and product candidates liability claims that could have a material adverse effect on our business.
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Risks Related to this Offering and Ownership of Our Securities
The market price of our securities may be highly volatile, and you may not be able to resell your Ordinary Shares or Warrants at or above the initial public offering price.
Prior to this offering, there has not been a public market for our securities. Although we have applied to list our Ordinary Shares and Warrants on Nasdaq, an active trading market for the Ordinary Shares or Warrants may not develop or be sustained. If an active trading market for our Ordinary Shares or Warrants does not develop following this offering, you may not be able to sell your Ordinary Shares or Warrants quickly or at the market price. The initial public offering price for the Units will be determined by negotiations between us and representative of the underwriters and may not be indicative of prices that will prevail in the trading market.
The trading price of each of our Ordinary Shares and Warrants is likely to be volatile. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of such securities:
| ● | inability to obtain the approvals necessary to commence clinical trials; | |
| ● | unsatisfactory results of clinical trials; | |
| ● | announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process; | |
| ● | announcements of innovations or new product candidates by us or our competitors; | |
| ● | adverse actions taken by regulatory authorities with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; | |
| ● | any adverse changes to our relationship with manufacturers or suppliers; | |
| ● | any intellectual property infringement actions in which we may become involved; | |
| ● | achievement of expected product candidates sales and profitability or our failure to meet expectations; | |
| ● | our commencement of, or involvement in, litigation; | |
| ● | any major changes in our board of directors or management; | |
| ● | our ability to recruit and retain qualified regulatory, research and development personnel; | |
| ● | legislation in the United States relating to the sale or pricing of medical devices; | |
| ● | the depth of the trading market in our securities; |
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| ● | termination of the lock-up agreements or other restrictions limiting our ability or that of any of our existing shareholders to sell our Ordinary Shares (or any other securities that we may issue, if any) after this offering; | |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; | |
| ● | business interruptions resulting from a local or worldwide pandemic, such as COVID-19, geopolitical actions, including war and terrorism, or natural disasters; | |
| ● | the granting or exercise of employee stock options or other equity awards; and | |
| ● | changes in investors’ and securities analysts’ perception of the business risks and conditions of our business. |
In addition, the stock market in general, and the Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negatively affect the market price of our securities, regardless of our actual operating performance. Further, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.
The Warrants are speculative in nature.
Except as otherwise set forth therein, the Warrants offered in this offering do not confer any rights of Ordinary Share ownership on their holders, such as voting rights, but rather merely represent the right to acquire Ordinary Shares at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Ordinary Shares and pay an exercise price of $ (based on an assumed public offering price of $ per Unit, the midpoint of the range set forth on the cover page of this prospectus) per Ordinary Share, 100% of the public offering price per Unit, prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. There can be no assurance that the market price of our Ordinary Shares will continue to equal or exceed the exercise price of the Warrants offered by this prospectus. In the event that our Ordinary Shares price does not exceed the exercise price of such Warrants during the period when such Warrants are exercisable, the Warrants may not have any value.
There is no established market for the Warrants being offered in this offering.
There is no established trading market for the Warrants offered in this offering. Although we have applied to list the Warrants on Nasdaq there can be no assurance that there will be an active trading market for the Warrants. Without an active trading market, the liquidity of the Warrants will be limited.
Future sales of our Ordinary Shares could reduce the market price of our Ordinary Shares.
Substantial sales of our Ordinary Shares on Nasdaq, including following this offering, may cause the market price of our Ordinary Shares to decline. Sales by us or our security holders of substantial amounts of our Ordinary Shares, or the perception that these sales may occur in the future, could cause a reduction in the market price of our Ordinary Shares.
The issuance of any additional Ordinary Shares or any securities that are exercisable for or convertible into Ordinary Shares, may have an adverse effect on the market price of our Ordinary Shares and will have a dilutive effect on our existing shareholders and holders of Ordinary Shares.
Our executive officers, directors and principal shareholders will maintain the ability to exert significant control over matters submitted to our shareholders for approval.
As of August 10, 2022, our executive officers, directors and principal shareholders who own more than 5% of our outstanding Ordinary Shares, in the aggregate, beneficially own shares representing approximately 90% of our share capital. As a result, if these shareholders were to act together, they would be able to exert significant influence over all matters submitted to our shareholders for approval (including a prospective acquisition or other change of control of our company), as well as our management and affairs.
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Management will have broad discretion as to the use of the proceeds from this offering.
Our management will have broad discretion in the allocation of the net proceeds and could use them for purposes other than those contemplated at the time of this offering and as described in the section titled “Use of Proceeds.” Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds.
We may be a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of our Equity Securities if we are or were to become a PFIC.
Based on the projected composition of our income and valuation of our assets, we believe that we were likely a PFIC for 2021, although definitive determination has been made and may likely be a PFIC in the current or any subsequent taxable year, although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on quarterly average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. The tests for determining PFIC status are applied annually and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of our Equity Securities. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year during which a U.S. taxpayer holds our Equity Securities (including Warrants, which are treated as PFIC stock), such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund”, or QEF, or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of our Equity Securities by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for our Equity Securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held our Equity Securities during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold our Equity Securities if we believe we will be treated as a PFIC for any taxable year in order to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. taxpayers annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we are a PFIC. A QEF election and a “mark-to-market” election will each be unavailable with respect to our Warrants. U.S. taxpayers that hold our Equity Securities are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to- market election with respect to our Equity Securities in the event that we are a PFIC. See “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
If a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our Company (if any). A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, whether or not we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. A failure to comply with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether such investors are treated as a United States shareholder with respect to any of such controlled foreign corporations or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult their own advisors regarding the potential application of these rules to its investment in the shares.
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As a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable Nasdaq requirements, and we will not be subject to certain U.S. securities laws including, but not limited to, U.S. proxy rules and the filing of certain Exchange Act reports.
As a foreign private issuer, we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwise required by the Nasdaq Stock Market for domestic U.S. issuers. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on The Nasdaq Global Market may provide less protection to you than what is accorded to investors under the listing rules of Nasdaq applicable to domestic U.S. issuers.
As a foreign private issuer, we will be exempt from the rules and regulations under the Securities Exchange Act of 1934, or the Exchange Act, related to the furnishing and content of proxy statements, including the applicable compensation disclosure requirements. Nevertheless, pursuant to regulations promulgated under the Israeli Companies Law, 5759-1999, or the Israeli Companies Law, we are required to disclose the annual compensation of our five most highly compensated office holders on an individual basis. Such disclosure will not be as extensive as that required of a U.S. domestic issuer. Our officers, directors and principal shareholders will also be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we will be exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we will not be required to comply with Regulation FD, which restricts the selective disclosure of material information, although we intend to voluntarily adopt a corporate disclosure policy substantially similar to Regulation FD. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
We would lose our foreign private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directors or executive officers are U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
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We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Ordinary Shares less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not emerging growth companies.
For as long as we remain an emerging growth company we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include:
| ● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; | |
| ● | Section 107 of the JOBS Act, which provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards. As a result of this adoption, our financial statements may not be comparable to companies that comply with the public company effective date; | |
| ● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
| ● | reduced disclosure obligations regarding executive compensation; and | |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.07 billion; (ii) December 31, 2025; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We have opted out of the extended transition period made available to emerging growth companies to comply with newly adopted public company accounting requirements.
When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our Ordinary Shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.
If you purchase securities in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The offering price of the Ordinary Shares is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore, if you purchase securities in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible book value per Ordinary Share after this offering. To the extent outstanding options or warrants are exercised, you will incur further dilution. Based on an assumed public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per Ordinary Share, representing the difference between our pro forma net tangible book value per Ordinary Share after giving effect to this offering and the offering price. See “Dilution” for further information.
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Risks Related to Israeli Law and Our Operations in Israel
Our headquarters and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
Our executive offices, research and development laboratories are located in Ra’anana, Israel. In addition, the majority of our key employees, officers and directors are residents of Israel. If these or any future facilities in Israel were to be damaged, destroyed or otherwise unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and development is disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved and we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture our product candidates as promptly as our prospective customers will likely expect, or possibly at all. If we experience delays in achieving our development objectives, or if we are unable to manufacture an approved product candidates within a timeframe that meets our prospective customers’ expectations, our business, prospects, financial results and reputation could be harmed.
Political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and groups in its neighboring countries. In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terrorist activities, political instability or violence in the region or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations and the market price of our Ordinary Shares.
Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.
Further, our operations could be disrupted by the obligations of our employees to perform military service. Currently, the three full-time employees and one part-time contractor of the Company are not required to perform reserve military service. However, any future employee and/or contractor of the Company which will reside in Israel may be required to perform reserve militarily reservists, and may be called upon to perform military reserve duty of up to 36 days per year (and in some cases more) until they reach the age of 40 (and in some cases, up to the age of 45 or older). Additionally, they may be called to active duty at any time under emergency circumstances. In response to increased tension and hostilities in the region, there were, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of these employees and/or any future Israeli contractors due to military service. Such disruption could occur and, therefore, harm our business and operating results.
Our operations are subject to currency and interest rate fluctuations.
Although our functional currency is the U.S. dollar, and our financial records are maintained in U.S. dollars, we also incur expenses in Euros and New Israeli Shekels. In the future, we expect that a substantial portion of our revenues will be generated in U.S. dollars, Euros and other foreign currencies, although we currently incur a significant portion of our expenses in currencies other than U.S. dollars, mainly New Israeli Shekels. As a result, we are affected by foreign currency exchange fluctuations through both translation risk and transaction risk, and our financial results may be affected by fluctuations in the exchange rates of currencies in the countries in which our prospective product candidates may be sold.
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We received Israeli government grants for certain of our research and development activities, the terms of which may require us to pay royalties and to satisfy specified conditions in order to manufacture product candidates and transfer technologies outside of Israel. If we fail to satisfy these conditions, we may be required to pay penalties and refund grants previously received.
Our research and development efforts have been financed in part through royalty-bearing grants in an aggregate amount of $620,000 that we received from the IIA during 2007-2010. The last IIA-approved research and development grants ended on December 31, 2018. With respect to the royalty-bearing grants we are committed to pay royalties at a rate between 3% and 4.5% on sales proceeds from our product candidates that were developed under IIA programs up to the total amount of grants received, linked to the U.S. dollar and bearing interest at an annual rate of LIBOR applicable to U.S. dollar deposits. As of August 10, 2022, our contingent liabilities regarding IIA grants received by us were in an aggregate amount of $736,000 (including accumulated interest). We are further required to comply with the requirements of the Israeli Encouragement of Industrial Research, Development and Technological Innovation Law, 5744-1984, as amended, and related regulations, or the Research Law, with respect to those past grants. When a company develops know-how, technology or product candidates using IIA grants, the terms of these grants and the Research Law restrict the transfer or license of such know-how, and the transfer of manufacturing or manufacturing rights of such product candidates, technologies or know-how outside of Israel, without the prior approval of the IIA. Therefore, the discretionary approval of an IIA committee would be required for any transfer or license to third parties inside or outside of Israel of know how or for the transfer outside of Israel of manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development.
The transfer or license of IIA-supported technology or know-how outside of Israel and the transfer of manufacturing of IIA-supported product candidates, technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred or licensed technology or know-how, our research and development expenses, the amount of IIA support, the time of completion of the IIA-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell, license or otherwise transfer our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product candidates or technology outside of Israel. It should be noted that an event of change of control may be considered a transfer of our technology or assets and therefore require the prior approval of the IIA before completing such a transaction. The IIA may also require potential acquirers to execute undertakings to procure our continued adherence to the terms of the IIA grants and/or impose other restrictions on such transactions. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
Provisions of Israeli law and our amended and restated articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, us, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect their fair market value, and petition an Israeli court to alter the consideration for the acquisition accordingly, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published all required information with respect to the tender offer prior to the tender offer’s response date.
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Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
It may be difficult to enforce a judgment of a U.S. court against us and our executive officers and directors in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our executive officers and directors and these experts.
We were incorporated in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
Our amended and restated articles of association to be effective upon the closing this offering will provide that unless the Company consents otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between the Company and its shareholders under the Companies Law and the Israeli Securities Law.
The competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law, 5728-1968 (the “Israeli Securities Law”). This exclusive forum provisions is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which United States federal courts would have exclusive or concurrent jurisdiction. Such exclusive forum provision in our amended and restated articles of association will not relieve the Company of its duties to comply with federal securities laws and the rules and regulations thereunder, and shareholders of the Company will not be deemed to have waived the Company’s compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholders ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors or other employees which may discourage lawsuits against the Company, its directors, officers and employees and may result in increased costs for claims required to be brought before Israeli courts.
Your rights and responsibilities as a shareholder will be governed in key respects by Israeli laws, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our Ordinary Shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S. companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in such company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s amended and restated articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval, as well as a general duty to refrain from discriminating against other shareholders. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. companies.
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General Risk Factors
Our business and operations would suffer in the event of computer system failures, cyber attacks or a deficiency in our cybersecurity.
Despite the implementation of security measures intended to secure our data against impermissible access and to preserve the integrity and confidentiality of our data, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, including under data privacy laws such as the GDPR, damage to our reputation, and the further development of our drug candidates could be delayed.
Our future success depends in part on our ability to retain our senior management team and to attract, retain and motivate other qualified personnel.
We are highly dependent on the members of our senior management team. The loss of their services without a proper replacement may adversely impact the achievement of our objectives. Our employees may leave our employment at any time. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled personnel in our industry, which is likely to continue for the foreseeable future. As a result, competition for skilled personnel is intense, and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous medical device and pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in preclinical studies or clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of any members of our senior management team without proper replacement, may impede the progress of our research, development and commercialization objectives. We do not maintain key man insurance for our senior management team.
We will continue to incur significant increased costs as a result of operating as a public company in the United States, and our management will be required to devote substantial time to new compliance initiatives.
As a public company whose Ordinary Shares are listed in the United States, we are subject to an extensive regulatory regime, requiring us, among other things, to maintain various internal controls and facilities and to prepare and file periodic and current reports and statements, including reports on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Complying with these requirements will be costly and time consuming. We will need to retain additional employees to supplement our current finance staff, and we may not be able to do so in a timely manner, or at all. In the event that we are unable to demonstrate compliance with our obligations as a public company in a timely manner, or are unable to produce timely or accurate financial statements, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or The Nasdaq Global Market, and investors may lose confidence in our operating results and the price of our Ordinary Shares could decline.
Our independent registered public accounting firm was not engaged to perform an audit of our internal control over financial reporting, and as long as we remain an emerging growth company, as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we will be exempt from the requirement to have an independent registered public accounting firm perform such audit. Accordingly, no such opinion was expressed or will be expressed any during any such period. Once we cease to qualify as an emerging growth company our independent registered public accounting firm will be required to attest to our management’s annual assessment of the effectiveness of our internal controls over financial reporting, which will entail additional costs and expenses.
Furthermore, we are only in the early stages of determining formally whether our existing internal control over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. These controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our Ordinary Shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, of our Ordinary Shares will be investors’ sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could decline.
The trading market for our Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share price 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 our share price or trading volume to decline.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
| ● | the ability of our clinical trials to demonstrate safety and efficacy of our future product candidates, and other positive results; | |
| ● | the timing and focus of our future preclinical studies and clinical trials, and the reporting of data from those studies and trials; | |
| ● | the size of the market opportunity for our future product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting; | |
| ● | the success of competing therapies that are or may become available; | |
| ● | the beneficial characteristics, safety, efficacy and therapeutic effects of our future product candidates; | |
| ● | our ability to obtain and maintain regulatory approval of our future product candidates; | |
| ● | our plans relating to the further development of our future product candidates, including additional disease states or indications we may pursue; | |
| ● | existing regulations and regulatory developments in the United States and other jurisdictions; | |
| ● | our plans and ability to obtain or protect intellectual property rights, including extensions of patent terms where available and our ability to avoid infringing the intellectual property rights of others; | |
| ● | the need to hire additional personnel and our ability to attract and retain such personnel; | |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
| ● | our dependence on third parties; | |
| ● | our financial performance; | |
| ● | the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements; | |
| ● | our ability to generate revenue and profit margin under our anticipated contracts which is subject to certain risks; | |
| ● | difficulties in our and our partners’ ability to recruit and retain qualified physicians and other healthcare professionals, and enforce our non-compete agreements with our physicians; and | |
| ● | our ability to restructure our operations to comply with future changes in government regulation. |
Forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions, and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Important factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.
The forward-looking statements included in this prospectus speak only as of the date of this prospectus. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”
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We estimate that the net proceeds from the sale of Securities in this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus. If the underwriters exercise their option to purchase up to an additional Ordinary Shares and warrants in full, we estimate that the net proceeds to us from this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per Unit would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by $ million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of Units we are offering. An increase (decrease) of 1.0 million in the number of Units we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by $ million, assuming the assumed initial public offering price stays the same.
We currently expect to use the net proceeds from this offering for the following purposes:
| ● | approximately $ million to complete the preclinical and clinical development and submit a 510(k) application to the FDA for our PL-14, PL-15 and PL-16 product candidates; | |
| ● | approximately $ million to complete in vitro feasibility as well as preclinical studies of corticosteroid, benzodiazepine, and naloxone for our T&T platform technology product candidates; and | |
| ● | the remainder for working capital and general corporate purposes and possible future acquisitions. |
Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. Due to the uncertainties inherent in the clinical development and regulatory approval process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for any of the above purposes on a stand-alone basis. Amounts and timing of our actual expenditures will depend upon a number of factors, including our sales, marketing and commercialization efforts, regulatory approval and demand for our product candidates, operating costs and other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.
Based on our current plans, we believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through June 2022. We anticipate that these funds, together with the net proceeds of this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through 30 months after the completion of this offering. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources – Financings Requirements”.
Pending our application of the net proceeds from this offering, we plan to invest such proceeds in short-term, investment-grade, interest-bearing securities and depositary institutions.
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We have never declared or paid any cash dividends to our shareholders of our Ordinary Shares, and we do not anticipate or intend to pay cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors in compliance with applicable legal requirements and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.
The Israeli Companies Law imposes further restrictions on our ability to declare and pay dividends. See “Description of Share Capital—Dividend and Liquidation Rights” for additional information.
Payment of dividends may be subject to Israeli withholding taxes. See “Taxation—Material Israeli Tax Considerations” for additional information.
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The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2021:
| ● | on an actual basis. |
| ● | Pro Forma data gives effect to the following events as if each event had occurred on or before December 31, 2021: (i) the conversion of 2,180,201 preferred shares into 2,180,201 Ordinary Shares, and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), based on an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus; |
| ● | on a pro forma as adjusted basis to give effect to the additional issuance of Units in this offering, at an assumed public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses, as if the sale of the securities had occurred on December 31, 2021. |
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
You should read this table in conjunction with the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
| As of December 31, 2021 | ||||||||||||
| U.S. dollars in thousands | Actual | Pro Forma | Pro
Forma As Adjusted (1) | |||||||||
| (Unaudited) | ||||||||||||
| Temporary equity, par value NIS 0.04 per share; 2,180,201 shares authorized, 2,180,201 shares issued and outstanding, actual; and no shares authorized, issued and outstanding pro forma; and pro forma as adjusted | $ | 248 | ||||||||||
| Shareholders’ equity: | ||||||||||||
| Ordinary shares, par value NIS 0.04 per share; 36,000,000 shares authorized, 27,187,585 shares issued and outstanding; 36,000,000 shares authorized and 29,367,786 shares issued and outstanding, pro forma; 36,000,000 shares authorized and shares issued and outstanding, pro forma, as adjusted | $ | 326 | ||||||||||
| Additional paid-in capital | $ | 1,565 | ||||||||||
| Accumulated deficit | $ | (2,142 | ) | |||||||||
| Total shareholders’ equity (deficit) | $ | (251 | ) | |||||||||
| Total capitalization | $ | (3 | ) | |||||||||
| (1) | Each $1.00 increase or decrease in the assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash, cash equivalents and short-term deposits, total shareholders’ (deficiency) equity and total capitalization by $ million, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Units we are offering. An increase or decrease of 1.0 million in the number of Units we are offering would increase or decrease, respectively, the amount of cash, cash equivalents and short-term deposits, total shareholders’ (deficiency) equity and total capitalization by $ million, assuming the assumed initial public offering price per Unit, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. |
The number of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus. This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with an exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
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If you invest in our securities, your interest will be immediately diluted to the extent of the difference between the initial public offering price per ordinary share in this offering and the pro forma as adjusted net tangible book value per ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net tangible book value per ordinary share. As of December 31, 2021, we had a historical net tangible book value of $(251,000), or $(0.01) per ordinary share. Our net tangible book value per share represents total tangible assets less total liabilities, divided by the number of Ordinary Shares outstanding on December 31, 2021.
Our pro forma net tangible book value as of December 31, 2021 was $ million, or $ per ordinary share. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the number of Ordinary Shares outstanding as of December 31, 2021, after giving effect to (i) the conversion of 2,180,201 preferred shares into 2,180,201 Ordinary Shares; and (ii) the issuance of Ordinary Shares pursuant to the 2022 SAFE Agreements (defined below), based on an assumed offering price of $ per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
After giving additional effect to the sale of Units in this offering at an assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value at December 31, 2021 would have been $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing shareholders and immediate dilution of $ per ordinary share to new investors.
The following table illustrates this dilution per ordinary share:
| Assumed initial public offering price per Unit | $ | ||||||||
| Historical net tangible book value per share as of December 31, 2021 | $ | (0.01 | ) | ||||||
| Increase in net tangible book value per share attributable to the pro forma adjustments described above | |||||||||
| Pro forma net tangible book value per share | |||||||||
| Increase in net tangible book value per share attributable to new investors participating in this offering | $ | ||||||||
| Pro forma as adjusted net tangible book value per share after this offering | $ | ||||||||
| Dilution per share to new investors participating in this offering | $ | ||||||||
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The pro forma and pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value as of December 31, 2021 after this offering by approximately $ per ordinary share, and would increase (decrease) dilution to investors in this offering by $ per ordinary share, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Units we are offering. An increase (decrease) of 1.0 million in the number of Units we are offering would increase (decrease) our pro forma as adjusted net tangible book value as of December 31, 2021 after this offering by approximately $ per ordinary share, and would decrease (increase) dilution to investors in this offering by approximately $ per ordinary share, assuming the assumed initial public offering price per ordinary share remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise in full their option to purchase additional Ordinary Shares and Warrants, the pro forma as adjusted net tangible book value will increase to $ per ordinary share, representing an immediate increase in pro forma as adjusted net tangible book value to existing shareholders of $ per ordinary share and an immediate dilution of $ per ordinary share to new investors participating in this offering.
The following table shows, as of December 31, 2021, on a pro forma as adjusted basis, the number of Ordinary Shares purchased from us as part of the Units, the total consideration paid to us and the average price paid per share by existing shareholders and by new investors purchasing Units in this offering at an assumed initial public offering price of $ per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
| Shares | Total Consideration | Average
Price Per Ordinary |
||||||||||||||||||
| Number | Percent | Amount | Percent | Share | ||||||||||||||||
| Existing shareholders | 29,367,786 | % | $ | 2,476,000 | % | $ | ||||||||||||||
| New investors | % | $ | % | $ | ||||||||||||||||
| Total | 100.0 | % | $ | 100 | % | $ | ||||||||||||||
A $1.00 increase (decrease) in the assumed initial public offering price of $ per Unit (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the total consideration paid by investors participating in this offering, total consideration paid by all shareholders and the average price per share paid by all shareholders by approximately $ million, $ million and $ , respectively, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 1.0 million share increase (decrease) in the number of Units offered by us, as set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering, total consideration paid by all shareholders and the average price per share paid by all shareholders by approximately $ million, $ million and $ , respectively, assuming the assumed initial public offering price of $ per Unit (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The number of the Ordinary Shares to be issued and outstanding immediately after this offering as shown above assumes that all of the Ordinary Shares offered hereby are sold, and is based on 29,367,786 Ordinary Shares issued and outstanding as of the date of this prospectus. This number excludes:
| ● | 1,465,289 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our incentive option plan outstanding as of such date, with an exercise price at a range of $0.0326-$0.0544 per share, of which 1,132,766 were vested as of such date (including 533,528 options which vests upon the completion of this offering); and |
| ● | such number of Ordinary Shares issuable upon the exercise of options representing 2.5% of the Company’s post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments which will be granted to Company’s Chief Executive Officer subsequent to the completion of this offering. |
| ● | 3,518,010 Ordinary Shares reserved for future issuance under our incentive option plan. |
To the extent that outstanding options are exercised, new options or warrants are issued or we issue additional Ordinary Shares in the future, there will be further dilution to new investors. We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our equity holders.
In addition, in January 2022 and in June 2022, we signed Simple Agreements for Future Equity, or the 2022 SAFE Agreements, with several existing investors, or the SAFE Investors, of the Company for an aggregate amount of $709,952. Pursuant to the terms of the 2022 SAFE Agreements, upon consummation of a Qualified Equity Financing (which is defined as at least $300,000 aggregate proceeds), we will issue to each SAFE Investor the number of most senior class of shares issued in the Qualified Equity Financing equal to the Investment Amount divided by the discount price (which is defined as the lowest price per SAFE share sold in the Equity Financing discounted by to 20%). Upon the completion of this offering, and based on an assumed conversion price equal to $ , the midpoint of the price range set forth on the cover page of this prospectus, we expect to issue Ordinary Shares upon the automatic conversion of the SAFEs. All share capital information in this prospectus assumes or gives effect to such issuance of shares as if it has already occurred.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our audited financial statements including the related notes thereto, beginning on page F-1 of this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read the sections of this prospectus titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of the factors that could cause our actual results to differ materially from our expectations.
Overview
We are a development stage biotech company specializing in the development of innovative hydrogels delivered in the form of nasal sprays, and form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. Our proprietary C&C hydrogel technology, comprised of a mixture of naturally occurring building blocks, is delivered in the form of nasal sprays, and potentially functions as a “biological mask” with a thin shield containment barrier in the nasal cavity. We are further developing certain aspects of our C&C hydrogel technology such as the bioadhesion and prolonged retention at the nasal deposition site for intranasal delivery of drugs. We refer to our separate platform technology that is focused on nasal delivery of APIs as T&T.
We have experienced net losses since our inception in 2005. We incurred net losses of $711,000 and $73,000 for the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $2.1 million. We anticipate that we will continue to incur significant losses for the foreseeable future as our operating expenses and capital expenditures increase substantially due to our continued investment in our research and development activities and as we hire additional employees over the coming years. Furthermore, upon closing of this offering, we expect to incur additional expenses associated with operating as a U.S. public company, including significant legal, accounting, investor relations and other expenses.
For further information regarding our business and operations, see “Business” below.
Components of Operating Results
Revenues
We have not recognized any revenue to date and we do not expect to generate revenue from the sale of product candidates in the near future.
Research and Development Expenses
Research and development activities related to our product candidates are our primary focus. We do not believe that it is possible at this time to accurately project total expenses required for us to reach the point at which we will be ready to out-license our technologies. Development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast whether and when collaboration arrangements will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase over the next several years as our development program progresses. We would also expect to incur increased research and development expenses if we were to identify and develop additional technologies.
Research and development expenses include the following:
| ● | employee-related expenses, such as salaries and share-based compensation; |
| ● | expenses relating to outsourced and contracted services, such as consulting, research and advisory services; |
| ● | supply and development costs; |
| ● | expenses incurred in operating our small-scale equipment; and |
| ● | costs associated with regulatory compliance. |
We recognize research and development expenses as we incur them.
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General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, related to directors, executive, finance, and human resource functions, facility costs and external professional service costs, including legal, accounting, marketing and audit services and other consulting fees.
We anticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount and infrastructure to support our continued research and development programs and the potential commercialization of our product candidates. We also anticipate that we will incur increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance premiums, director compensation, and other costs associated with being a public company.
Finance Expenses, Net
Our net financing expenses consist primarily of differences in the exchange rate between NIS and the U.S. Dollar.
Income Taxes
We have yet to generate taxable income in Israel. As of December 31, 2021, our operating tax loss carryforwards were approximately NIS 6.8 million ($2.1 million). We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.
Results of Operations
Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Our results of operations for the years ended December 31, 2021 and 2020 were as follows:
| For the Years Ended
December 31, | ||||||||
| (U.S. dollars in thousands except share and per share data) | 2021 | 2020 | ||||||
| Statement of Operations: | ||||||||
| Research and Development Expenses | (245 | ) | (38 | ) | ||||
| General and Administrative Expenses | (458 | ) | (34 | ) | ||||
| Operating Loss | (703 | ) | (72 | ) | ||||
| Financing Expenses | (8 | ) | (1 | ) | ||||
| Net Loss and Comprehensive Loss | (711 | ) | (73 | ) | ||||
| Basic and Diluted Net Loss per Share | (0.05 | ) | (0.03 | ) | ||||
| Weighted average number of shares outstanding used in computing basic and diluted net loss per share | 14,727,407 | 4,109,443 | ||||||
Research and Development Expenses
The following table describes the breakdown of our research and development expenses for the indicated periods:
| For the Years Ended
December 31, | ||||||||
| (U.S. dollars in thousands except share and per share data) | 2021 | 2020 | ||||||
| Subcontractors and consultants | $ | 61 | $ | 25 | ||||
| Payroll and related expenses | 19 | 10 | ||||||
| Share based payment | 162 | - | ||||||
| Patents | 3 | 3 | ||||||
| Total research and development expenses | $ | 245 | $ | 38 | ||||
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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Our research and development expenses for the years ended December 31, 2021 and 2020 were $245,000 and $38,000, respectively. The increase of $207,000, or 544%, is mainly attributed to an increase of $162,000 in share based payment due to options grant during 2021, an increase $36,000 from subcontractors and consultants’ expenses and from $9,000 in payroll and related expenses due to increase in our research activity and increase in number of employees.
General and Administrative Expenses
The following table describes the breakdown of our general and administrative expenses for the indicated periods:
| For
the year ended December 31, | ||||||||
| (U.S. dollars in thousands) | 2021 | 2020 | ||||||
| Payroll and related expenses | $ | 138 | $ | 19 | ||||
| Professional services | 281 | 8 | ||||||
| Share based payment | 22 | - | ||||||
| Others | 17 | $ | 7 | |||||
| $ | 458 | 34 | ||||||
Our general and administrative expenses for the years ended December 31, 2021 and 2020 were $458,000 and $34,000, respectively. The increase of $424,000, or 1,247%, is mainly attributed to an increase in professional services and payroll and related expenses. The increase is mainly related to an increase in the company’s research and development activity, business activity and initial public offering-related activity, which necessitated more administrative expenses.
Financing Expenses
Our financing expenses for the years ended December 31, 2021 and 2020, were immaterial.
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Critical Accounting Policies and Estimates
We describe our significant accounting policies and estimates in Note 2 to our annual financial statements contained elsewhere in this prospectus.
We prepare our financial statements in accordance with U.S. GAAP.
In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of our accounting policies and the reported amounts recognized in the financial statements. On a periodic basis, we evaluate our estimates, including those related to share-based compensation and derivatives. We base our estimates on historical experience, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
For the periods included in the financial statements, we do not believe there are critical accounting estimates that are subject to uncertainty or that have significantly changed during the relevant periods.
Recently-Issued Accounting Pronouncements
Certain recently-issued accounting pronouncements are discussed in Note 2, Significant Accounting Policies, to the financial statements included in elsewhere in this registration statement, regarding the impact of the U.S. GAAP standards as issued by the FASB that we will adopt in future periods in our financial statements.
Emerging Growth Company Status
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 and other burdens that are otherwise applicable generally to public companies. These provisions include:
| ● | a requirement to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
| ● | to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and |
| ● | an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. |
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We may take advantage of these exemptions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; (iii) the date on which we are deemed to be a large accelerated filer under the rules of the SEC; or (iv) the last day of the fiscal year following the fifth anniversary of this offering. We may choose to take advantage of some but not all of these exemptions. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult
Liquidity and Capital Resources
Since our inception, we have incurred losses and negative cash flows from our operations. For the year ended December 31, 2021, we incurred a net loss of $711,000 while net cash of $492,000 was used in our operating activities. As of December 31, 2021, we had working capital of $370,000, and an accumulated deficit of $2,142,000. As of December 31, 2021, our cash and cash equivalents totaled approximately $523,000. We believe that after the completion of this offering our cash and cash equivalents will enable us to fund our operations for at least the next 12 months.
Through December 31, 2021, we have financed our operations primarily through private placements. Total invested capital as of December 31, 2021 was $2.5 million, which included Ordinary Shares, preferred shares and option to purchase Ordinary Shares.
The following table summarizes our statement of cash flows for the years ended December 31, 2021 and 2020:
| For the Years Ended December 31, | ||||||||
| (U.S. dollars in thousands except share and per share data) | 2021 | 2020 | ||||||
| Net cash used in operating activities | $ | (492 | ) | (73 | ) | |||
| Net cash used in investing activities | (19 | ) | (6 | ) | ||||
| Net cash provided by financing activities | 1,024 | 89 | ||||||
| Increase in cash and cash equivalents | $ | 513 | 10 | |||||
Net cash used in operating activities
Net cash used in operating activities was $492,000 and $73,000 for the years ended December 31, 2021 and 2020, respectively. The $419,000 increase was attributable primarily to the increase in our net loss, due to increase in Company’s activity.
Net cash used in investing activities
Net cash provided by financing activities was $1,024,000 and $89,000 for the years ended December 31, 2021 and 2020, respectively. The increase was due to an increase in financing activity related to Share purchase agreements.
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Net cash provided by financing activities
Net cash provided by financing activities was $1,024,000 and $89,000 for the years ended December 31, 2021 and 2020, respectively. The increase was due to an increase in financing activity related to Share purchase agreements.
Funding Requirements
We have incurred losses and cash flow deficits from operations since the inception, resulting in an accumulated deficit at December 31, 2021 of approximately $2.1 million. We anticipate that we will continue to incur net losses for the foreseeable future. We believe that our existing cash and cash equivalents will be sufficient to fund our projected cash needs until June 2022. To meet future capital needs, we would need to raise additional capital through equity or debt financing or other strategic transactions. However, any such financing may not be on favorable terms or even available to us. Our failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate.
Our future capital requirements will depend on many factors, including, but not limited to:
| ● | the progress and costs of our research and development activities; |
| ● | the costs of development and expansion of our operational infrastructure; |
| ● | our ability, or that of our collaborators, to achieve development milestones and other events or developments under potential future licensing agreements; |
| ● | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our technologies; |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
| ● | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves, once our technologies are developed and ready for commercialization; |
| ● | the costs of acquiring or undertaking development and commercialization efforts for any future product candidates or technology; |
| ● | the magnitude of our general and administrative expenses; and |
| ● | any additional costs that we may incur under future in- and out-licensing arrangements relating to our technologies and futures product candidates. |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing and/or co-developing applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available on favorable terms, or at all, we may be required to delay, reduce the scope of or eliminate research or development efforts or plans for commercialization with respect to our technologies and make necessary change to our operations to reduce the level of our expenditures in line with available resources. This may raise substantial doubts about our ability to continue as a going concern.
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We are a development-stage biotech company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are described herein.
Contractual Obligations
As of December 31, 2021, we had the following contractual obligations:
During 2007-2010 we received funding from the IIA (previously known as Officer of Chief Scientist) for its participation in research and development costs, based on budgets approved by the IIA, subject to the fulfillment of specified milestones. The Company is committed to pay royalties to the IIA on proceeds from sale of product candidates in the research and development of which the IIA participates by way of grants. Royalties between 3% and 4.5% are payable on sales of developed product candidates funded, up to 100% of the funding received by the Company, linked to US dollar and bearing LIBOR interest rate. In the case of failure of a financed project, the Company is not obligated to pay any such royalties to the IIA. The total grant amount received from the IIA, including interest, as of December 31, 2020 is $715,000.
On September 1, 2021, we signed a consulting agreement with its Chief Executive Officer. According to the agreements, the Chief Executive Officer is entitle to receive among other things: (i) a one-time NIS 150,000 (approximately USD 48) bonus upon completion of the Company’s initial public offering, (ii) options representing 0.5% of our pre-initial public offering issued and outstanding shares which will vest upon the completion of our initial public offering and become exercisable for a period of 5 years, and (iv) options representing 2.5% of our post-initial public offering issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments.
Quantitative and Qualitative Disclosures About Market Risk
Liquidity Risk
Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled in cash. Cash flow forecasting is performed in our operating entity level. We monitor forecasts of our liquidity requirements to ensure we have sufficient cash to meet operational needs. We may be reliant on our ability to raise additional investment capital from the issuance of both debt and equity securities to fund our business operating plans and future obligations.
Credit risk
Credit risk is the risk of financial loss to us if a debtor or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from our receivables.
We restrict exposure to credit risk in the course of our operations by investing only in bank deposits.
Equity price risk
As we have not invested in securities riskier than short-term bank deposits, we do not believe that changes in equity prices pose a material risk to our holdings. However, decreases in the market price of our Ordinary Shares could make it more difficult for us to raise additional funds in the future or require us to raise funds at terms unfavorable to us.
Inflation risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations in the reporting period. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations.
Foreign Currency Exchange Risk
Currency fluctuations could affect us through increased or decreased costs, mainly for goods and services acquired outside of Israel. Currency fluctuations did not have a material effect on our results of operations during years ended December 31, 2021 and 2020.
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Overview
We are a development stage biotech company specializing in the development of innovative medical device hydrogels delivered in the form of nasal sprays, which form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergens from contacting the nasal epithelial tissue. Our C&C, hydrogel technology, comprised of a mixture of naturally occurring building blocks, is delivered in the form of nasal sprays, and potentially functions as a “biological mask” with a thin shield containment barrier in the nasal cavity. We are further developing certain aspects of our proprietary C&C hydrogel technology such as the bioadhesion and prolonged retention at the nasal deposition site for intranasal delivery of drugs. We refer to our separate platform technology that is focused on nasal delivery of APIs, as T&T.
Our Product Candidates
Our nasal hydrogels have been designed to serve as a non-invasive and fast-acting system. The hydrogels are formulated as an innovative mixture of mucoadhesive polymers (e.g., sodium alginate) which are GRAS by the FDA. Our mucoadhesive polymers derived from seaweed polysaccharides possess promising features as they are renewable, biodegradable, biocompatible, and environment friendly. The formulated hydrogel is sprayed into the nose to create a physical barrier with long-lasting adhesion to the mucosal membranes. Our polymers have an atomic mass much higher than the upper cell penetration limit, the polymers will simply lay on top of the cells and act as a physical barrier to viruses and allergens from contacting the nasal epithelial tissue, as opposed to penetrating the cells and causing a chemical reaction. Therefore, the C&C product candidates are not expected to be considered as drugs by the FDA but as medical devices.
Our leading technologies are C&C and T&T. The C&C provides a barrier against a wide range of allergen particulates and viruses.
PL-14 – Nasal Allergies Blocker
| o | We expect our PL-14 product candidate to be regulated as a Class II medical device by the FDA under its 510(k) pathway. |
| o | Our PL-14 product candidate is scheduled to initiate preclinical safety trials in the third quarter of 2022. In addition, pivotal clinical trials on our PL-14 product candidate is expected to commence in the first quarter of 2023, following which we plan to submit a 510(k) application for FDA clearance. |
| o | For our PL-14 product candidate, we will pursue the 510(k) pathway which requires a manufacturer to demonstrate substantial equivalence to an FDA-cleared device (i.e., predicate device) to a subject device (i.e., our product candidate). This process for clearing our device with the FDA entails performing a medical device analysis of the product candidates (e.g., PL-14 product candidate) description, operational principle, potential accessories and proposed intended use, for the purpose of identifying a predicate device that has already been cleared by the FDA. Through this review, we found three possible predicate devices for establishing substantial equivalence, Alzair, Nasalease and Bentrio. There is no guarantee that PL-14 product candidate will advance in the FDA 510(k) process at the same rate as the aforementioned predicate devices or will reach commercialization. |
| o | The estimated timeline for obtaining 510(k) clearance for our PL-14 product candidate is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies may be performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
PL-15 – COVID-19 and PL-16 – Influenza Blockers
| o | We expect our PL-15 and PL-16 product candidates, which provide a barrier against COVID-19 and influenza from contacting the nasal epithelial tissue, respectively, to be regulated as a Class II medical device under a De Novo Classification request. |
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| o | Our PL-15 and PL-16 product candidates are scheduled to initiate preclinical safety trials in the third quarter of 2022, feasibility clinical trials in the first quarter of 2023 and pivotal clinical trials in the third quarter of 2023. Following these trials, we plan to submit De Novo Classification requests for each product candidate. |
| o | Upon a review similar to the one performed for our PL-14 product candidate, we found that there were no potential predicate devices in the FDA’s database matching the proposed intended uses of our PL-15 and PL-16 product candidates. Because of this, we will pursue a De Novo Classification request for each product candidate. This pathway involves demonstrating that the product candidates provide a reasonable assurance of safety and effectiveness. During the first quarter following the closing of this offering, we intend to submit a Q-submission (Pre-submission) for each product candidate and request a pre-submission meeting with FDA’s CDRH to confirm the potential for this regulatory path. For more information, please see “Business – Our Product Candidates – The determination process for the C&C product candidates as a Class II medical devices.” |
| o | The estimated timeline for marketing authorization via De Novo Classification grant for our PL-15 & PL-16 product candidates is based on taking similar steps as the steps described above for obtaining 510(k) clearance for ourPL-1 product candidate. We estimate a longer period of time for the entire grant process for each of these product candidates due to possibly extended clinical trials requested by the FDA and also due to a longer review timeframe. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.” |
In the event the FDA does not agree with our regulatory assessments regarding the C&C product candidates 510(k) for our PL-14 product candidate, and Class II De Novo pathway for our PL-15& PL-16 product candidates), the FDA may require us to go through a lengthier, more rigorous examination than we had expected (such as PMA, which is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. If we are required to pursue a PMA, the introduction of our product candidates into the market could be delayed. For more information, please see “Risks Related to the Discovery, Development and Clinical Testing of Product Candidates.”
Trap and Target ™ Product Candidates
In contrast to our C&C product candidates, the hydrogel in the T&T product candidates is formulated differently in order to provide for sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulated differently than the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&C product candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalize the different regulatory treatment of our C&C and T&T product candidates.
The T&T platform technology is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeted delivery of medicines. We expect that our T&T platform product candidates will be regulated as a combination-product consisting of a nasal sprayer and formulation consisting of a hydrogel and a generic API, which we intend to pursue under the FDA’s 505(b)(2) pathway. We aim to conduct feasibility studies for our T&T platform product candidates with corticosteroids, benzodiazepines and naloxone, beginning in the second quarter of 2022 through the second quarter of 2023. Pre-clinical studies will follow and are expected to begin in either the second or third quarter of 2023. Phase I clinical trials for each of the three product candidates of the T&T technology are planned for the first quarter of 2025, subject to securing additional financing.
The determination process for the C&C product candidates as a Class II medical devices
According to the FDA, a product will be considered as a medical device, and subject to FDA regulation, if it meets the following criteria: 1) recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them and 2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or 3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals.
Because the intended use for each of our C&C product candidates is creating a physical barrier and its primary mode of action, or PMOA, is physical, we believe that our C&C product candidates will be regulated as Class II medical devices. We believe that our PL-14 product candidate can utilize the 510(k) pathway for alleviating allergic symptoms, and that our PL-15 and PL-16 product candidates can utilize the De Novo Classification pathway for reducing the risk of nasal infections caused by COVID-19 and influenza, respectively.
Because our C&C product candidates’ mode of action is based on creating a physical barrier that is not associated to chemical action within or on the body, we believe that our C&C product candidates will be classified by the FDA and similar regulatory bodies as a medical device.
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Unless an exemption applies, any medical device that is to be marketed in the United States be cleared via submission of a premarket notification (i.e., 510(k)), for class II devices, or a PMA for class III devices. Alternatively, the device can be marketed following the granting of a De Novo Classification request for devices that do not have a legally marketed predicate device. We performed an FDA medical device analysis based on the PL-14 product candidate description along with potential accessories and the proposed intended use. Based on the abovementioned criteria we believe that our PL-14 product candidate’s regulatory classification is: 21 C.F.R. § 880.5045 “Medical recirculating air cleaner” (under the product code: NUP-Cream, Nasal, Topical, Mechanical Allergen Particle Barrier) which is FDA Class II requiring a 510(k) submission. This means a 510(k) submission for FDA review is required for clearance allowing it to be marketed. To provide the best possible predicate device to establish substantial equivalency within the 510(k) submission, a review of FDA’s 510(k) database for Product Code NUP was performed, which includes several possibilities for a potential predicate device, such as Alzair, Nasalese and Bentrio with intended uses of “promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens.”
Our PL-15 and PL-16 product candidates are intended to provide a barrier against COVID-19 and influenza from contacting the nasal epithelial tissue, respectively. We performed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includes a “nasal mechanical virus blocker” and found that there are no valid predicate devices found in the FDA’s databases matching this intended use. The lack of available predicate devices, combined with the fact that our PL-15 and PL-16 product candidates have similar risk profile as our PL-14 product candidate (due to three product candidates using the same ingredients and method of use), we believe that our PL-15 and PL-16 product candidates may be regulated as a Class II medical device if the FDA agrees and grants a De Novo Classification request. In order to assess the likelihood of approval under a De Novo pathway, during the first quarter following the closing of this offering we intend to schedule a pre-submission meeting with the FDA, but have not yet communicated directly with the FDA regarding any of its C&C product candidates.
The estimated timeline for obtaining 510(k) clearance for our C&C product candidates, is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies are performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. Applicants with outstanding review issues will be notified within 100 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business FDA clearance plan for our C&C product candidates.”
Furthermore, we believe that our PL-15 and PL-16 product candidates would nevertheless still be classified as medical devices (rather than drugs), even in the event the FDA does not agree with our regulatory assessments regarding the Class II De Novo pathway based on our review of the FDA’s September 2017 guidance document entitled “Classification of Products as Drugs and Devices & Additional Product Classification Issues: Guidance for Industry and FDA Staff”. This guidance document notes that a key difference between the statutory definition of drugs and devices is that a device “does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes”. The guidance further clarifies that the term “chemical action” is consistent with “pharmaceutical action” and also provides examples of products which have been determined to be devices, one of which is a polymer that provides a physical barrier (abdominal adhesion barrier).
We believe that our PL-15 and PL-16 product candidates will be regulated as medical device due to the following: (i) the mode of action by which each of the PL-14 and PL-15 product candidates is creating a physical barrier, and achieving this barrier is not dependent on chemical action nor is it dependent on the product being metabolized; and (ii) the polymer used in the PL-15 and PL-16 product candidates have molecular mass that is much higher than the upper cell penetration limit. Therefore, the polymers will simply lay on top of the cells and function as a physical barrier to viruses and allergens.
The determination process for the T&T product candidates as a drug-device combination product
In contrast to our C&C product candidates, the hydrogel in our T&T product candidates is formulated differently in order to provide for sustained release of the API. The content of the hydrogel (quantity and quality) in the T&T product candidates is formulated differently than to the content of C&C product candidates, and therefore enable different functions: physical barrier for the C&C product candidates and API sustained release for the T&T product candidates. It is through these differences that we rationalize the different regulatory treatment of our C&C and T&T product candidates.
The T&T platform technology is designed to allow a long residence time for the API, and an intimate contact with the mucosal tissue for a targeted delivery of medicines. We expect that our T&T platform product candidates will be regulated as a drug-device combination product consisting of a nasal sprayer (the medical device) and a formulation that consists of a hydrogel and a generic API (the drug), which we intend to pursue under the FDA’s 505(b)(2) pathway. We aim to conduct feasibility studies for our T&T platform product candidates with corticosteroids, benzodiazepines and naloxone, beginning in the second quarter of 2022 through the second quarter of 2023. Pre-clinical studies will follow and are expected to begin in either the second or third quarter of 2023. Phase I clinical trials for each of the three product candidates of the T&T technology are planned for the first quarter of 2025, subject to securing additional financing.
Background related to the C&C and T&T technologies
The nasal cavity is a large, air-filled space above and behind the nose in the middle of the face. Each cavity is the continuation of one of the two nostrils. The nasal cavity is the uppermost part of the respiratory system and provides the nasal passage for inhaled air from the nostrils to the nasopharynx and rest of the respiratory tract. The nasal mucosa, also called respiratory mucosa, lines the entire nasal cavity, from the nostrils to the pharynx. A dynamic layer of mucus overlies the nasal epithelium (the outermost layer of cells of the nasal mucosa).
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The nasal sub-mucosa underlies the basement membrane. This layer is made up of glands which secrete watery substances and mucus, nerves, an extensive network of blood vessels and cellular elements like blood plasma. The entire mucosa is highly concentrated with blood vessels and contains large venous-like spaces; bodies which have a vein-like appearance and swell and congest in response to allergy or infection.
Schematic illustrations of the mucosal tissue (left) and nasal cavity anatomy (right)
The nasal mucosa plays an important role in regulating the immune responses to allergens and other airborne pathogens, which enter the nose. Normally, it prevents allergens and pathogens from penetrating the nasal cavity and deleterious infections or allergic reactions. Healthy intact mucus is covering the nasal cavity and provides a physical barrier against biological assaults due to its viscous and adhesive properties. Upon extensive exposure to biological assaults the mucus may fail to provide the necessary defense which results in infection or allergic reaction. For this manner, mucoadhesive polymers can contribute to a better functionality in defense from biological assaults.
The term ‘mucoadhesion’ refers to the adhesion of specific polymers to the surface of the mucosal layer. The mucosal layer is made up of mucus, a viscoelastic fluid, which is secreted by the epithelial cells. A mucoadhesion polymer helps to promote the adhering of a given formulation to the nasal mucosa by physically interacting with the mucosa. Various properties impact the mucoadhesive of polymers, such as: (i) molecular weight; (ii) chain length; (iii) viscosity; (iv) degree of cross-linking; (v) spatial conformation; (vi) flexibility of polymer chains; (vii) concentration; (viii) charge and degree of ionization – anion>cation>non-ionic; (ix) degree of hydration; and (x) pH.
The mechanism of mucoadhesion is characterized by to two steps: contact stage and consolidation stage. The first contact stage is characterized by the initial contact between the polymers and the mucous membrane, with spreading and initiating a deep contact with the mucus layer. In the second consolidation step, the polymers are activated by the presence of moisture and as they hydrate they become mucoadhesive. Our innovative technologies consist of a unique mixture of mucoadhesive polysaccharides polymers creating a 3-dimentional network structure to better interact with mucosal tissues.
Moreover, the highly vascularized nature of the nasal cavity enabled an alternative administration route of drugs and has gained interest among pharmaceutical companies as a means of advanced method to increase residence time in the nasal cavity.
Capture and Contain TM (“C&C”)
We are constantly exposed to airborne contaminations, and as we breathe, these pathogens and allergens may cause serious health issues. Our proprietary C&C is based on natural 3-D polymeric network tailored to optimally adhere to the nasal mucosal surface. The polymeric network creates a physical barrier that captures and contains biological assaults such as particulate allergen or viruses from interacting with the nasal epithelial tissue.
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The C&C technology consist of mucoadhesive polymers mixture optimized for the purposes of coverage and adherence to the nasal cavity as well as capturing and containing the biological assaults based on physical interactions.
Our product candidate is presented in a liquid form, which allows a rapid interaction between the polymers and the mucosa and avoid the irritating effect of powdered based formulations. In addition, our product candidate is negatively charged to allow a high degree of mucoadhesivness. Moreover, its unique structure allows a high degree of capturing and containing of variable types of biological assaults. The product candidates’ pH was adjusted to further decrease the viral viability without damaging the nasal mucosal tissue.
The innovative formulation is expected to provide a barrier against viruses and allergens from contacting the nasal epithelial tissue for approximately six hours after each nasal administration without any adverse side effects. The potential blocking of initial colonization can reduce the viral load, which helps the immune system to better control the infection. The same concept applies for blocking allergens from interacting with epithelial tissue.
As a physical barrier, our lead product candidates have the potential advantages:
| ● | easy to use |
| ● | fast acting |
| ● | non-irritant |
| ● | non-drip |
| ● | optimal coverage of nasal cavity |
| ● | up to 6h of protection after each application |
With respect to COVID-19, the virus tends to become firmly established in the nasal cavity. Then, in some cases, the virus is aspirated into the lungs where it may cause more serious disease, including potentially fatal pneumonia.
With respect to the COVID-19, our C&C product candidates is designed to protect the upper respiratory tract in conjunction with additional preventative measures such as vaccination, wearing masks, keeping social distance and maintaining proper hygiene to decrease the probability of serious disease.
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FDA clearance plan for our C&C product candidates
We performed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includes a “nasal mechanical virus blocker”. There are no regulatory classifications or predicate devices found in the FDA’s databases matching this intended use. We believe the regulatory pathway will be considered a Class II medical device without substantial equivalence, which would require a De Novo Classification request. During the first quarter following the closing of this offering we intend to schedule an FDA Pre-submission meeting for both our PL-15 and PL-16 product candidates to discuss whether both would be considered as Class II medical device and to ensure FDA agreement with the proposed testing plan.
PL-14 – Nasal Allergies
Our PL-14 product candidate is scheduled to initiate its preclinical safety trials in the third quarter of 2022. We expect pivotal clinical trial to commence a few months afterward, in the first quarter 2023, following which we plan to submit a 510(k) application for blocking allergens from contacting the nasal epithelial tissue to the FDA.
PL-15 – COVID-19
Our PL-15 product candidate is scheduled to undergo preclinical safety trials in the third quarter of 2022. We expect feasibility clinical trial to commence in the first quarter 2023. We expect that the pivotal clinical study to commence in the third quarter 2023, following which we plan to submit a De Novo Classification request for blocking SARS-CoV-2 from contacting the nasal epithelial tissue to the FDA.
PL-16 - Influenza
Our PL-16 product candidate is scheduled to undergo preclinical safety trials in the third quarter of 2022. We expect feasibility clinical trial to commence in the first quarter 2023. We expect pivotal clinical trial to commence in the third quarter 2023, following which we plan to submit a De Novo Classification request for blocking Influenza from contacting the nasal epithelial tissue to the FDA.
Study Results
Over the last 12 months our formulations have been tested for their efficacy to block different types of biological assaults from interacting with host cells. For this purpose, we used a validated and well accepted cultured cells in vitro blocking assays, to evaluate the potential of the formulation to block the human coronavirus 229E and Influenza H1N1 virus, as well as the house dust mite Der P1 and the timothy grass Phl P1 allergens. The studies have been conducted mainly by our service partner PharmaSeed Ltd., Israel’s largest GLP-certified pre-clinical CRO specializing in translational and regenerative studies. The main goal of these studies was to evaluate our formulations for their potential to prevent cell mortality as a consequence of viral infection, or to decrease the anti-inflammatory cytokines secretion following allergens encounter. Together with the biological effect of the formulations, we evaluated their cytotoxicity effect using cytotoxic cells assay on variable cell lines (MRC5, MDCK and A549).
The viral or allergen blocking assay was performed by using specific host cells, susceptible to viral infection or allergen interaction. The host cells were treated with our formulation and challenged by viral infection or allergens. The viability of non-treated or treated cells was monitored using 3-(4,5-dimethylthiazol-2-yl)-2,5-diphenyltetrazoliumbromide (MTT) to determine the formulations’ effective concentrations.
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While determinations of safety and efficacy are solely within the authority of the FDA and comparable regulatory bodies, we believe that based on the results of the aforementioned studies, our formulations presented a consistent and significant (p-value < 0.05) barrier effect, as expressed in the viral blocking assays with the preservation of 100% of cell viability compare to significantly lower cell viability of cells infected with human coronavirus 229E and Influenza H1N1 (31% and 5%, respectively). In addition, our formulation presented barrier activity against the house dust mite allergen Der P1 and the timothy grass allergen Phl P1 from interacting with the host cells. This barrier effect was expressed with the inhibition of IL-8 secretion, an important protein related to inflammation, where it plays a key role in the recruitment of neutrophils and other immune cells to the site of infection.
In all tested cell lines (MRC5, MDCK and A549), no significant cytotoxicity was observed when compared to the untreated cells.
The charts below represent six, unique studies performed to demonstrate the reduction of inflammation in various cell lines after application with our C&C product candidates polymers. Our polymers have a mass of around 100,000 Daltons, or 100,000 Da. According to the Scientific Journal of Medicine, molecules above 1,000 Da, cannot penetrate cell lines. Because our polymers have an atomic mass much higher than the upper cell penetration limit, the polymers will simply sit on top of the cells and reduce exposure to allergens and viruses, as opposed to actually penetrating the cells and causing a chemical reaction.
UT – Untreated cells
UT+A – Untreated cells challenged with allergen
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Figure 1 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to dust mite allergen Der P1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)). |
Figure 2 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to timothy grass allergen Phl P1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)) |
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Figure 3 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to European hornbeam allergen Car B1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05) |
Figure 4 - The effect of the C&C technology (PL-14) in reduction the IL-8 secretion in response to European dust mite allergen Der F1. A lower bar indicates lower inflammation (lowercase letters are significantly different from each other (P< 0.05)) |
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Figure 5 - The effect of the C&C technology (PL-15) in protection of the cells against human corona virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05))
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Figure 6 - The effect of the C&C technology (PL-16) in protection of the cells against influenza virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05))
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Figure 7 - The effect of the C&C technology (PL-15) in protection of the cells against SARS-CoV-2 Omicron BA.1 virus. A higher bar indicates higher degree of protection (lowercase letters are significantly different from each other (P< 0.05)) |
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Trap and Target ™ (T&T)
Novel delivery systems are required to address unmet clinical needs. In circumstances where local or systemic administration may not be the best approach, nasal drug delivery may be a viable option. Intranasal administration is an attractive option for local and systemic delivery of many therapeutic agents.
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Advantages of intranasal drugs delivery
The nasal cavity is an important target for local and systemic drug administration as well as targeting the central nervous system. Due to highly vascularization of the nasal mucosa, liquids or particles that attach to this surface can act either locally or be absorbed into the bloodstream. To treat localized diseases including congestion, sinusitis, and allergic reactions, a variety of drugs such as corticosteroids and antihistamines often are administered to the nasal cavity. The first cranial nerve, or olfactory nerve, is the only point where the central nervous system is exposed to the body’s mucosa, and it is one of six nerves that branch into the nose cavity. This means that medications can be absorbed directly into the brain, bypassing the blood-brain barrier.
Although there are many advantages for delivering medicines intranasally, there are also a few drawbacks, such as quick evacuation from the nasal canal, limited bioavailability, and difficulty getting a big enough dosage due to the limited absorption area. Our T&T technology is developed to address the abovementioned drawbacks to further improve the efficiency of intranasal administration. Based on our C&C hydrogel technology, we adjusted specific characteristic parameters and established the T&T drug delivery system for intranasal targeted drugs.
While determinations of safety and efficacy are solely within the authority of the FDA and comparable regulatory bodies, the T&T platform delivery technology consist of a mucoadhesive polymers mixture designed to allow a long residence time and an intimate contact with the mucosal tissue for what we believe to be an effective delivery of medicines. The T&T platform can be tailored for different molecules to address their specific challenges thus believed to induce improved therapeutic effect. The T&T technology has been designed to enable mucoadhesion and prolonged retention at the deposition site by tailoring the physicochemical properties through composition, concentration and crosslinking of the key polymers of the formulation appears pivotal for the potential development as nasal medicinal product candidates.
The T&T platform is optimized into two main applications: local and systemic delivery.
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Locally acting nasal product candidates
Several nasal products are present on the market for the treatment of local ailments of the nose. In general, they are nasal sprays and the principal APIs contained in such products are antihistamines, corticosteroids and vasoconstrictors.
Corticosteroids
Among the locally acting nasal products, intranasal corticosteroids, or INCS, are particularly interesting for their clinical and commercial value, being indicated as primary or adjunct therapy for treating nasal congestion, allergic/non-allergic rhinitis, acute rhinosinusitis, chronic rhinosinusitis with or without nasal polyposis and adenoid hypertrophy.
The efficacy and safety profiles of INCS for adults and pediatric patients is well established. The bioavailability of the CS can be increased due to the bioadhesion and viscosity of our formulations. Patents related to INCS products on the market expired recently in addition to the usage of CS as a promising treatment to COVID-19 symptoms create an opportunity for market penetration.
We aim to conduct feasibility studies for the corticosteroids product candidate of the T&T technology beginning in the second quarter of 2022 through the second quarter of 2023. The feasibility studies may include drug loading capacity, release kinetics profile of the APIs, stability and local toxicity. Based on these feasibility studies we will identify the leading candidates that will be further optimized to be tested in preclinical studies for safety and efficacy evaluation.
Systemically acting nasal product candidates
The high vascularization and high permeability of the nasal mucosa enabling systemic distribution of drugs. Nasal drug products on the market now include several indications such as hormone replacement therapy, osteoporosis, migraine, prostate cancer and vaccination against influenza. Because nasal administration avoids first-pass metabolism and the gastrointestinal tract, it is used for the delivery of APIs with low bioavailability, including peptides and proteins.
We believe that our T&T hydrogel technology can be compatible with drugs related to the central nervous system and significantly improve their bioavailability. We identify a need for improved delivery system for benzodiazepines drugs as well as for the opioid antagonist naloxone. We are currently evaluating the feasibility of these candidates in collaboration with one of the members of our Scientific Advisory Board, Prof. Fabio Sonvico (Pharmaceutical Technology, University of Parma, Italy), and will select our lead candidate to proceed to preclinical and clinical evaluations.
Benzodiazepines
Benzodiazepines, or BZDs, are widely recommended drugs in many countries around the world, as they are used to lessen anxiety, seizures, relax muscles, induce rest, or as sedatives for general anesthesia or sedation before medical procedure. Intranasal administration of benzodiazepines) is advantageous for home treatment of prolonged seizures, for pre-hospital treatment of seizures by emergency medical technicians, and for care of severely cognitively and behaviorally impaired patients when patient cooperation may be restricted.
We are planning to conduct feasibility studies for the BZD product candidates utilizing the T&T technology beginning in the second quarter of 2022 through the second quarter of 2023. We will explore the effect of drug loading, release kinetics profile, stability, and local toxicity. Based on these feasibility studies we will identify two or three leading candidates that will be further optimized and be tested in preclinical studies for safety and efficacy. Based on the pre-clinical studies results we will proceed to conduct Phase I clinical trial.
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Naloxone – an Opioid Antagonist
The current opioid overdose epidemic can be attributed to fentanyl and other super-potent opioids found in substantial numbers of recent overdoses. Providing Naloxone immediately after a person experiences respiratory depression can reverse opioid toxicity. It is possible to administer Naloxone by injection or intranasally. Ampoules and prefilled syringes of Naloxone injectables are available. In comparison with naloxone injectables, naloxone nasal spray provides several advantages to community usage, including ease of administration, minimal training requirements, and no risk of needlestick injuries. In the event of an overdose of opioids in the community, Naloxone nasal spray might be used for emergency rescue treatment. Patients who may witness an opioid overdose or are at risk of opioid overdose are advised to carry naloxone nasal spray for use in the event of an opioid overdose emergency.
We believe that the characteristic of our T&T derived formulations may provide an improved uptake profile and bioavailability of naloxone through intranasal administration due to its mucoadhesive and viscous properties. We aim to conduct feasibility studies for the naloxone product candidate of the T&T technology beginning in the second quarter of 2022 through the second quarter of 2023. The feasibility studies may include drug loading capacity, release kinetics profile of the APIs, stability and local toxicity. Based on these feasibility studies we will identify the leading candidates that will be further optimized to be tested in preclinical studies for safety and efficacy evaluation. Based on the pre-clinical study results we plan to proceed to Phase I clinical trial.
Our Strengths
We believe that our experienced results-oriented management team, promising IP portfolio, scalable robust business model and multiple product candidates validating our technologies gives us a distinct advantage in the marketplace.
| ● | People:
Our leadership team has a vast industry experience. Our management team has over 15 years (on average) of experience in life science companies. Our board of directors have vast experience in the life sciences industry as well as strong financial background. We believe that the holistic knowhow of our group will strongly contribute to a successful path from clinical development, regulatory approvals and commercialization of our product candidates. In addition, our management is supported by our Scientific Advisory Board which is an advisory panel of world-renowned academics and thought leaders with expertise in drug delivery systems, Chemistry and Pharmaceuticals. |
| ● | Process:
We are developing and optimizing set of business processes including pre-clinical and clinical development, quality and regulatory processes. These processes can contribute shortening the time to market of our future product candidates position us with a competitive value in the competition landscape. The regulatory path for the C&C product candidates will be Class II 510 (k). With regards to the T&T platform technology development process our feasibility set of studies is well defined and accepted in the intranasal delivery industry. We focus on already approved APIs (corticosteroids, benzodiazepines and naloxone) to shorten the clinical and regulatory processes time towards 505(b)(2) approval. |
| ● | Adaptable Technology:
Our C&C hydrogel technology is tunable and can provide a solution against a wide range of biological assaults based on its versatile morphological properties. Our T&T drug delivery platform is designed to allow a long residence time and an intimate contact with the mucosal tissue for a targeted delivery of medicines. The T&T platform can be tailored for different drugs to address their specific challenges thus believed to induce improved therapeutic effect. Both technologies are relatively easily adjusted and can potentially provide solutions in a rapid manner to new medicinal challenges. |
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Market Opportunities
We believe that our technologies have the potential to provide solutions to a broad range of unmet needs in the healthcare market. With our C&C technology, we aim to introduce solutions to address common medical and public health challenges, such as allergic rhinitis and nasal viral infections, including COVID-19. Looking towards the future, the COVID-19 pandemic highlighted the need for action at the global level to invest in technologies, tools and solutions that will help overcome the next world health crisis. We believe our technology can play an important role in aiding nations and global organizations to combat viral outbreaks. While people across the world have become accustomed to preventative measures such as vaccination, wearing masks, keeping social distance and maintaining proper hygiene, we believe that there is an obvious need for a broader arsenal of more technologically advanced tools to help protect people as they return to normal routine.
With our T&T technology, we aim to address challenges in the markets of: allergic and non-allergic rhinitis by local intranasal delivery of corticosteroids; for systemic delivery of CNS related drugs for the growing markets of combatting opioid overdose using intranasal naloxone, and benzodiazepines for seizure clusters.
C&C Technology Market Opportunities
The human body is under constant external threats. Allergens, viruses and other toxins commonly penetrate our body’s defenses, first through its mucosal membranes, such as the lining of the mouth, nose, and eyes. While our immune system is typically well-equipped to fend-off or manage such threats, even common colds, influenza, and allergies continue to affect hundreds of millions of people every year.
Nasal gels and nasal sprays have emerged as a promising approach to block viruses and allergens from contacting the nasal epithelial tissue. Nasal spray market is expected to gain market growth in the forecast period of 2020 to 2027. Data Bridge Market Research analyses the market to account to $22.71 billion by 2027 growing at a compound annual growth rate, or CAGR, of 6.12% in the above-mentioned forecast period. The growing cases of allergic rhinitis and infections will help in driving the growth of the nasal spray market.
Changing lifestyle across the globe, improving patient compliance, growing geriatric population, increasing level of pollution, painless way of administrating drug will likely accelerate the growth of the nasal spray market in the forecast period of 2020-2027. On the other hand, adoption of nasal spray as an effective route of drug administration and rising demand for self-administration will further boost various opportunities that will lead to the growth of the nasal spray market in the above-mentioned forecast period.
Market for SARS-CoV-2/COVID-19
As of December 2021, more than 281 million cases of COVID-19 have been reported worldwide, including 5.4 million deaths. COVID-19 is one of the deadliest pandemics in recent history. While global vaccination efforts has curbed new infections, even complete vaccination isn’t a guarantee against further spreading and contracting of the disease. Certain variants of COVID-19 are also considered to cause more infections and spread faster than the original strain of the virus, and the CDC expects that additional variants of the virus will continue to occur. Furthermore, the efficacy of vaccinations is limited by time. For example, with respect to the Pfizer-BioNTech COVID-19 vaccines, booster doses are recommended for certain adults after six months post vaccination. Also, vaccination efforts in emerging and developing countries are lagging significantly, posing the risk of causing new growth of infections and deaths.
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According to various reports by leading research institutes, including MarketsandMarkets and InsightAce, the global COVID-19 therapeutics market size was valued at $5.26 billion in 2020 and it is forecast to reach USD 25.6 billion in 2030, recording a CAGR of 10.7% during the forecasting period.
Market for Influenza and Common Cold Viruses
The World Health Organization, or the WHO, introduced a Global Influenza Strategy in 2019 to combat the 1 billion cases worldwide, 3-5 million of which are typically severe, and 290,000-650,000 influenza-related respiratory deaths. In terms of market size, the cold and flu drug market was valued at $13.16 billion in 2019 and is estimated to reach $24.55 billion by 2027, growing at a CAGR of 8.06% from 2020 to 2027.
Market for Allergic Rhinitis
Allergic rhinitis is another vexing health problem and troubling factor in global health care. It causes discomfort, illness, and even disability to hundreds of millions of people worldwide, with an estimated prevalence ranging from 10% to 20% in the United States and Europe. Accordingly, global per capita healthcare spending has increased exponentially due to the myriads of potential treatments and diagnostic methods. This has resulted in a call for more effective, better quality, and more rapid diagnostic methods, which, in turn, creates significant market and growth opportunities for players offering new effective treatment options. The global therapeutic market for allergic rhinitis was valued at $13.5 billion in 2020 and is projected to reach $18.1 billion by 2028, growing at a CAGR of 2.64% from 2021 to 2028.
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One of the fastest-growing nasal gel sections is an allergen blocker. The global allergen blocker market was valued at $133.5 in 2020 and will reach $170.9 million by the end of 2027, growing at a CAGR of 4.2% during 2021-2027. The nasal gel market is growing because of the increase in allergic rhinitis and infections, which drives the market’s growth. By change in lifestyle, the growth of the elderly population in need of special care, the growing population, and the painless delivery of medication drugs are the factors that boost the growth of the nasal gel market. With the growing demand for self-administration and improved patient compliance, the adoption of nasal sprays also contributes to widening the global nasal get market.
The C&C technology serviceable available market is the segments of nasal blockers derived from the COVID-19, influenza, common cold and nasal allergies markets. It can be estimated that the nasal blockers market including viral blocking blockers is significantly higher than the allergen nasal blocker market.
Prospective studies have demonstrated that a key driver for patients preferring a nasal spray is speed of onset. The ease of administration of the intranasal products plays a vital role in improving their compliance. Several factors driving the growth of intranasal markets. Some of which related to the general intranasal markets while other related to more specific intranasal markets such as the nasal blockers and drug delivery.
Drivers for the general intranasal market
| ● | Ongoing R&D activities as well as private and government investments in the healthcare industry to introduce novel strategies to treat complex allergies and to deliver drug alternatively are expected to positively impact the intranasal market’s revenue growth. |
| ● | In recent years, the disparities in healthcare, medical remedies, and treatments have led to an increasing number of people choosing to self-medicate with over-the-counter drugs rather than see a doctor. |
| ● | According to med health publications, the fear of needles in children and the safe injection of vaccinations into the body by nasal spray stimulate market growth of other intranasal products. For the population of people with a phobia for needles, a gel or sprays is a massive relief for them. Most people prefer other forms of medication or drug delivery rather than injecting. |
| ● | Rising adoption of nasal sprays due to ease of administration. |
Drivers for the Capture and Contain TM related markets
| ● | Driven by rising incidences of influenza, growing awareness and the need for new drugs and treatment across the globe, COVID-19 treatment is still in its introduction phase, but it can be expected to become a significant market given the current global pandemic status. As Described in the markets size and forecast, the allergic rhinitis and influenza preventative markets are expected to sue to this trend. |
| ● | The increasing adoption rate of OTC products is leading to high market penetration and is boosting the growth of the global nasal market. An increasing number of pharmaceuticals companies, supermarkets, drug stores, and retail stores offer many opportunities for the market’s growth. According to Australian Health Direct, more than 200 viruses worldwide can cause cold, and adults are susceptible to these viruses about 2 to 4 times a year. The same source also suggests that cold and influenza symptoms are generally mild to moderate and self-limiting, which propels the demand for prevention approaches, fueling the growth of the nasal barriers market. |
| ● | The debilitating effects of influenza and the effect of the global pandemic have been the major growth factors for effective blockers. The coronavirus pandemic infested fear due to its viral nature, which encouraged people to get vaccinated against influenza to improve their immune system and to seek multiple solutions while facing the challenge of the COVID-19 pandemic. |
| ● | Growing awareness regarding allergy immunotherapy, increased public awareness regarding regular medical check-ups, and increased healthcare expenditure are other key factors contributing to the market’s revenue growth. |
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T&T technology market opportunities
The global market for Intranasal Drug Delivery estimated at $49.5 billion in the year 2020, is projected to reach a revised size of $71.3 Billion by 2026, growing at a CAGR of 6.2%. Increasing patient preference for nasal drug delivery because of easy administration and better efficacy and growing adoption of self-administration practices are some of the major factors driving the growth of the nasal drug delivery technology market. Intranasal drug delivery is one of the most preferred drug delivery routes among patients and healthcare providers. This can be majorly attributed to the non-invasive nature of this route of delivery and the fact that drug absorbability is higher through the nasal route. Intranasal drug delivery is one of the most preferred drug delivery routes among patients and healthcare providers. This can majorly be attributed to the non-invasive nature of this route of delivery and the fact that drug absorbability is higher through the nasal route. In addition, the nasal route offers a less hostile environment as compared to the gastro-intestinal route; this enables better absorption of drugs. Moreover, nasal drug delivery, unlike some other routes of drug delivery, does not require any sterile method for administering drugs into the body. The easy administration of these drugs plays a crucial role in improving compliance to drug therapies among patients, which in turn drives patient outcomes. Considering these factors, the preference for nasal drug delivery is increasing among patients and healthcare providers.
Range of nasal spray products available in the US, the nasal cavity is mainly used for treatment of local diseases of the upper respiratory tract such as nasal congestion, nasal infections and nasal allergic diseases e.g., allergic rhinitis. However, in the last decades the nasal cavity has also been exploited for systemic delivery of small molecular weight drugs, especially where a rapid onset of action is required. Examples of such marketed nasal products are drugs for treatment of migraine such as, zolmatriptan (Zomig®), sumatriptan (Imitrex®) and butorphanol tartrate (Stadol NS), treatment of severe pain such as fentanyl (PecFent®; Instanyl®), for smoking cessation (Nicorette®) and for treatment of menopausal symptoms (Aerodiol®).
The intranasal formulations market is segmented by different types of dosage forms. As can be seen in graph below, the overall market is growing with each segment foreseen to keep its proportion. The T&T technology formulations refer to the nasal gel segment.
Intranasal corticosteroids market opportunities
The topical nasal products market is estimated at a value of $5 billion. More than half of this market is for corticosteroids (as shown above). INCS remain the most effective treatment option for nasal symptoms associated with moderate to severe allergic rhinitis.
The global market of INCS is expected to notably expend in the period 2021-2028. Rising predominance of intra-nasal related complexities counting nasal-polyps, nasal-rhinitis and chronic sinusitis, that require ongoing treatment, are anticipated to be drivers for INCS market. Moreover, additional indications of INCS being approved for different types of nasal problems and elevated autoimmune diseases will stimulate the growth of the market.
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North America holds the largest segment of INCS market in terms of income. Key manufacturers of INCS products are located in North America which allows easier penetration and strong marketing positioning.
Our Serviceable Available Market for local intranasal delivery of corticosteroids is the segments of intranasal gels and nasal corticosteroids markets which we believe to be approximately $700 million.
Intranasal Benzodiazepines market opportunities
The market size for benzodiazepines was estimated at $3.55 billion in 2020 and is expected to reach $4.25 billion by 2028 which reflect a CAGR of 2.27% during this period.
The growing cases related to diseases such as insomnia, muscle spasms and anxiety is driving the growth of the benzodiazepine market. The rising demand for alprazolam (a prescription medication indicated for the treatment of anxiety disorder) also stimulate market growth. Treating of seizure clusters is crucial due to the fact that if left untreated, seizure clusters can elevate the chance of neurological damage, injuries, continuing seizures, and status epilepticus.
These drugs are widely acceptable around the world. The market for BZD is extensively growing as nervousness, seizures, sleep disorders as well as concern of stress and related conditions become more prevalent. In addition, greater number of BZD solutions are being chosen as preferred treatment compared to other psychoactive drugs have stimulate the market for benzodiazepines. According to the WHO, around 50 million people worldwide have epilepsy, making it one of the most common neurological diseases globally. Nearly 80% of people with epilepsy live in low- and middle-income countries. 30% of uncontrolled epilepsy patients also experience seizure clusters. The market for high income countries can be estimated around 10 million patients. The Market for Benzodiazepines for seizure clusters is estimated to be around $700 million.
Intranasal Naloxone market opportunities
Opioid abuse is one of the leading causes of drug overdose and death globally. Naloxone is an opioid antagonist designed to rapidly reverse opioid overdose. The growing need for an effective treatment and rising number of opioid dependent patients driving the growth of naloxone market in the United States. More than 25 million people are being affected annually making it a serious global concern.
The global naloxone market estimated at $3.5 billion in 2020 and expected to grow to $7.3 billion in 2029, at a CAGR of 9.7%.
The largest share in the global naloxone market is within North America due to constant increase in painkillers prescriptions. The United States economic burden due to opioid prescriptions abuse is estimated at $78.5 billion per year. As of today, to our knowledge, naloxone is the solely effective drug available for opioid overdose treatment.
The intranasal naloxone spray is being purchased by emergency service providers, hospitals and other entities such as organizations, sole traders, and partnerships. Naloxone intranasal spray market is estimated in 2021 at around $350 million, its CAGR from 2020-2021 was approximately 23%. The noticeable growth of the market expected to retain a CAGR of 22% to reach $785 million in 2025.
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Drivers for the Trap and Target TM related markets
| ● | Surging interest in controlled and/or sustained release drug delivery systems across many therapeutic areas is a key factor expected to contribute to the intranasal drug delivery market growth. |
| ● | Recent technological developments contribute to the growth of the U.S. intranasal drug delivery market. |
| ● | During the past few years there is a trend towards an increased approvals of intranasal treatment for various disorders, this trend assumed to boost this market growth. |
Drivers for the corticosteroids intranasal market
| ● | Increasing number of people suffering from allergic rhinitis together with inflammation of the nose is a major factor driving the global INCS market. |
| ● | Prevalence of allergic rhinitis in children found to be increased in several regions and is projected to drive the INCS market. |
Drivers for the benzodiazepines intranasal market
| ● | Rise in prevalence of anxiety and seizures is a major driver of the global benzodiazepine drugs market. Current lifestyle and urban life have made peoples’ lives more stressful, which leads to mental disorders such as depression, anxiety, panic, and maniac conditions |
| ● | Increased adoption of generic drugs and comparatively higher prescriptions for benzodiazepines in general, as compared to other psychoactive drugs, also drive the intranasal BZD market. |
Drivers for the naloxone intranasal market
| ● | Growing prevalence of opioid overdoses results in increased number of deaths involving synthetic opioids in recent years. |
| ● | Government campaigns in the U.S. regarding the awareness of opioid dependence and related risks increased during the past years which create a driven force to the intranasal market of naloxone. |
Competition
The pharmaceutical and medical device industries are characterized by constantly introduced new technologies, strong competition and various innovative products that may be similar to ours being developed by several pharmaceutical and medical device companies, public and private universities and research organizations.
Our competitors, either alone or through their strategic partners, have substantially greater name recognition and financial, technical, manufacturing, marketing and human resources than we do and significantly greater experience and infrastructure in the research and development of medical devices, obtaining the FDA and other regulatory clearances of those devices and commercializing those devices around the world.
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Competition related to the C&C TM technology
We face competition at various levels and from various competitors. This includes competition based on different forms of treatment, including vaccination or allergen immunotherapy, protective gear, such as face masks, and remedies that merely treat symptoms. Our main competitors are companies promoting nasal barrier products, which are described in the chart below:
The features described above are translated to product candidates characteristics of non-drip, non-irritate, optimal coverage of the nasal cavity and relatively long retention on the nasal epithelial tissue. We believe that a product candidates with these characteristics will make for an easy-to-use product candidates.
Competition related to the T&T TM technology
Intranasal corticosteroids for allergic/non-allergic rhinitis
The most preferred treatment for allergic rhinitis is the INCS approach. Although all INCSs are considered safe and effective for this indication, different products differ in formulation form (e.g., powder, gel or liquid solution), potency, molecular structure features and physicochemical and pharmacokinetic properties that may result in differences in clinical efficacy and safety. We believe that the T&T technology can bring a value proposition to the selected drugs by improving its bioavailability profile.
Some of the dominant players in the global INCS market include Sanofi, GlaxoSmithKline plc. Merck Sharp Dohme, McNeil Consumer Healthcare, Sunovion Pharmaceuticals Inc, Teva Branded Pharm, Ivax Pharmaceuticals Incorporated, AstraZeneca and more. In addition, presence of small and local manufacturers across the countries will account for competitiveness in intranasal corticosteroids market.
Intranasal benzodiazepines for seizure clusters
The first intransal BZD first product Nayzilam® (midazolam) nasal spray by UCB Biopharma SPRL was approved by the FDA in November 2019 for the acute treatment of intermittent, stereotypic episodes of frequent seizure activity (i.e., seizure clusters, acute repetitive seizures) that are distinct from a patient’s usual seizure pattern in patients with epilepsy aged 12 years or older. Net sales in the United States in the first six months of 2020 were $12.6 million, $17.25 in second quarter of 2020 and 24.15 in first quarter of 2021, representing a growth of ~ 40% between each quarter.
Intranasal naloxone for opioid overdose
The FDA approved on April 2019 the first generic naloxone hydrochloride nasal spray, commonly known as Narcan®, a life-saving medication that can stop or reverse the effects of an opioid overdose. Narcan sales in the US in 2020 was $311 million. In the third quarter of 2021 Narcan® nasal spray sales reached $133 million, 50% increase with regards to the equivalent quarter of 2020.
In April 2021, the FDA have approved an 8 mg dose naloxone hydrochloride nasal spray (Kloxxado®; Hikma Pharmaceuticals) for the emergency treatment of known or suspected opioid overdose in adult and pediatric patients. This product is a higher dosage of naloxone hydrochloride than the 2 mg and 4 mg dosage product previously approved by the FDA (Narcan®).
Bioavailability and rapid onset are among the desirable features for intranasal naloxone and several companies around the globe have nasal naloxone as part of its development pipeline: Emergent BioSolutions, Pfizer, Teva Pharmaceutical Industries Ltd., Opiant Pharmaceuticals, Hikma Pharmaceuticals, Nasus Pharma, Amphastar Pharmaceuticals, Indivior PLC, Samarth Pharma Pvt. Ltd., Troikaa Pharmaceuticals Ltd., and Neon Laboratories Limited.
Manufacturing
We currently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture supplies for clinical trials of our product candidates. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture of our product candidates on a clinical and thereafter on commercial scale, if any of our product candidates receive regulatory approval or clearance.
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Regulation
Government Regulation and Approval Process
According to FDA guidelines, a product will be considered as a medical device, and subject to FDA regulation, if it meets the definition of a medical device per Section 201(h) of the FFDCA
Per Section 201(h) of the FFDCA, a medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:
| ● | recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them; |
| ● | intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or |
| ● | intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals. |
In addition, it must not achieve its primary intended purpose(s) through chemical action within or on the body of humans or other animals. Further, it cannot be dependent upon being metabolized for the achievement of its primary intended purposes.
Because the intended use for each of our C&C product candidates is creating a physical barrier and its PMOA is physical, we believe that our C&C product candidates will be regulated as Class II medical devices. We believe that our PL-14 product candidate can utilize the 510(k) pathway for alleviating allergic symptoms, and that our PL-15 and PL-16 product candidates can utilize the De Novo Classification pathway for reducing the risk of nasal infections caused by COVID-19 and influenza, respectively.
Device Approval Process
Unless an exemption applies, any medical device that is to be marketed in the United States be cleared via submission of a premarket notification (i.e., 510(k)) for Class II devices, or a PMA for Class III devices. Alternatively, the device can be marketed following the granting of a De Novo Classification request for devices that do not have a legally marketed predicate device. We performed an FDA medical device analysis based on our PL-14 product candidate’s description, along with potential accessories and the proposed intended use. We believe our PL-14 product candidate’s classification is: 21 C.F.R. § 880.5045 “Medical recirculating air cleaner” (under the product code: NUP-Cream, Nasal, Topical, Mechanical Allergen Particle Barrier) which is FDA Class II requiring a 510(k) submission. This means a 510(k) submission for FDA review is required for clearance allowing it to be marketed. To provide the best possible predicate device to establish substantial equivalency within the 510(k) submission, a review of FDA’s 510(k) database for Product Code NUP was performed, which includes several possibilities for a potential predicate device, such as Alzair, Nasalese and Bentrio with intended uses of “promoting alleviation of mild allergic symptoms triggered by the inhalation of various airborne allergens”.
To obtain 510(k) clearance, a company must submit a premarket notification demonstrating substantial equivalence between the proposed device, and a legally marketed “predicate” device, which is defined as a legally marketed device, that (i) was legally marketed prior to May 28, 1976, for which the FDA has not yet called for submission of a PMA application; (ii) has been reclassified from Class III to Class II or Class I; (iii) has been cleared through the 510(k) premarket notification process; or (iv) has been previously determined to be exempt from the 510(k) process.
Substantial equivalence means that the proposed device has the same intended use and the same technological characteristics as the predicate device, or if the new device has different technological characteristics, that the device is as safe and effective as the predicate device and does not raise different questions of safety and effectiveness. We have identified three such predicate devices, Alzair, Nasalese and Bentrio, and plan to reference them in our planned 510(k) submission.
Our PL-15 and PL-16 product candidates are intended to provide a barrier against COVID-19 and influenza from contacting the nasal epithelial tissue, respectively. We performed a regulatory assessment review for our PL-15 and PL-16 product candidates where the intended use includes a “nasal mechanical virus blocker” and found that there are no valid predicate devices found in the FDA’s databases matching this intended use. The lack of available predicate devices, combined with the fact that our PL-15 and PL-16 product candidates have similar risk profile as our PL-14 product candidate (due to three product candidates using the same ingredients and method of use), we believe that our PL-15 and PL-16 product candidates may be regulated as a Class II medical device if FDA agrees and grants a De Novo Classification request. In order to assess the likelihood of approval under a De Novo pathway, during the first quarter following the closing of this offering we intend to schedule a pre-submission meeting with the FDA, but have not yet communicated directly with the FDA regarding any of its C&C product candidates.
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The estimated timeline for obtaining 510(k) clearance for our C&C product candidates, is based on the estimated time needed for the following activities: (i) GMP manufacturing of our clinical trial materials, which usually requires 9-12 months; (ii) Biocompatibility preclinical studies, which usually requires 3-6 months (although these studies are performed concurrently with the GMP manufacturing mentioned above); (iii) Clinical trials, which usually requires 6-12 months; and (iv) FDA submission and clearance, which usually requires 3-12 months. Regarding FDA submission and clearance, generally 510(k) applicants can expect submission acceptance review decisions within 15 calendar days, substantive review decisions within 60 days, and final decisions within 90 days. Applicants with outstanding review issues will be notified within 100 days. However, the FDA’s time of review does not include time on “hold”, which includes any time spent by us responding to any FDA information requests, meaning that the total timeframe of the review process could take longer than anticipated. In the case of our predicate devices for our PL-14 product candidate, Alzair, Nasalese and Bentrio, the FDA submission and clearance process took 86 and 140 days, respectively. For additional information, please see “Business – FDA clearance plan for our C&C product candidates.”
Many foreign countries in which we intend to market our PL-14 product candidate have regulatory bodies and restrictions similar to those of the FDA. International sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements may differ.
In order to sell our product candidates in member states of the European Union, or the EU, our product candidates must comply with the general safety and performance requirements of the EU Medical Devices Regulation, or Regulation (EU) No 2017/745), which repeals and replaces the EU Medical Devices Directive (Council Directive 93/42/EEC).
Compliance with these requirements is a prerequisite to be able to affix the CE mark to our product candidates, without which they cannot be sold or marketed in the EU. All medical devices placed on the market in the EU must meet the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation including the requirement that a medical device must be designed and manufactured in such a way that, during normal conditions of use, it is suitable for its intended purpose. Medical devices must be safe and effective and must not compromise the clinical condition or safety of patients, or the safety and health of users and – where applicable – other persons, provided that any risks which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and are compatible with a high level of protection of health and safety, taking into account the generally acknowledged state of the art. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product candidates standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the general safety and performance requirements as a practical matter, as it creates a rebuttable presumption that the device satisfies the general safety and performance requirements.
To demonstrate compliance with the general safety and performance requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. As a general rule, demonstration of conformity of medical devices and their manufacturers with the general safety and performance requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the product candidates during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its product candidates with the general safety and performance requirements (except for any parts which relate to sterility, metrology or reuse aspects), a conformity assessment procedure requires the intervention of an organization accredited or designated by a member state of the EU to conduct conformity assessments, or a notified body. Depending on the relevant conformity assessment procedure, the notified body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. If satisfied that the relevant product candidates conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable EU laws and regulations, and corresponding EU member state laws, we would be unable to affix the CE mark to our product candidates, which would prevent us from selling them within the EU.
The aforementioned EU rules are generally applicable in the EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Non-compliance with the above requirements would also prevent us from selling our product candidates in these three countries.
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Manufacturers must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure. The nature of the assessment depends upon the classification of the device. The classification rules are mainly based on three criteria: the length of time the device is in contact with the body, the degree of invasiveness, and the extent to which the device affects the anatomy. Conformity assessment procedures for all but the lowest risk classification of devices involve a notified body. Notified bodies are often private entities and are authorized or licensed to perform such assessments by government authorities. Manufacturers usually have some flexibility to select a notified body for the conformity assessment procedures for a particular class of device and to reflect their circumstances, e.g., the likelihood that the manufacturer will make frequent modifications to its product candidates. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product candidates, and post-market experience in respect of similar product candidates already marketed. Notified bodies also may review the manufacturer’s quality systems. If satisfied that the product candidates conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity and application of the CE Mark. Application of the CE Mark allows the general commercializing of a product candidates in the EU. The product candidates can also be subjected to local registration requirements, depending on the country.
In May 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect from May 26, 2021. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening of the conformity assessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory review of high-risk devices. The MDR also envisages greater control over notified bodies and their standards, increased transparency, more robust device vigilance requirements, and clarification of the rules for clinical investigations. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021, may continue to be placed on the market for the remaining validity of the certificate, until May 27, 2024, at the latest. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU.
Pharmaceutical Approval Process (nasal delivery)
The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export, and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FFDCA, regulates pharmaceutical products and medical devices in the United States.
The steps required before a drug may be approved for marketing in the United States generally include:
| ● | the completion of pre-clinical laboratory tests and animal tests conducted under GLP regulations; |
| ● | the submission to the FDA of an Investigational New Drug, or IND application for human clinical testing, which must become effective before human clinical trials commence; |
| ● | the performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication and conducted in accordance with current GCPs; |
| ● | the submission to the FDA of a NDA; |
| ● | the FDA’s acceptance of the NDA; |
| ● | satisfactory completion of an FDA inspection of the manufacturing facilities at which the product candidates is made to assess compliance with cGMPs; and |
| ● | the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States. |
The testing and approval process requires substantial time, effort, and financial resources, and the receipt and timing of any approval are uncertain.
Pre-clinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The results of the pre-clinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.
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Clinical trials involve the administration of the product candidates to healthy volunteers or patients with the disease to be treated under the supervision of a qualified principal investigator. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent IRB, either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. The FDA, the IRB, or the clinical trial sponsor may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated checkpoints based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:
| ● | Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion, and pharmacodynamics. |
| ● | Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage, and (3) identify possible adverse effects and safety risks. |
| ● | Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage, and safety within an expanded patient population at geographically dispersed clinical study sites. |
Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.
The results of pre-clinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the manufacture, composition, and quality of the product candidates, are submitted to the FDA in the form of an NDA requesting approval to market the product candidates. The NDA must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for approval and require additional pre-clinical, clinical, or other studies.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product candidates is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. However, if only one indication for a product candidates has orphan designation, a pediatric assessment may still be required for any applications to market that same product candidates for the non-orphan indication(s).
Once the NDA submission has been submitted, the FDA has 60 days after submission of the NDA to conduct an initial review to determine whether it is sufficient to accept for filing. Under the Prescription Drug User Fee Act, the FDA sets a goal date by which it plans to complete its review. This is typically 12 months from the date of submission of the NDA application. The review process is often extended by FDA requests for additional information or clarification. Before approving an NDA, the FDA will inspect the facilities at which the product candidates is manufactured and will not approve the product candidates unless the manufacturing facility complies with cGMPs and may also inspect clinical trial sites for the integrity of data supporting safety and efficacy. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit, and interpretation of clinical trial data. The FDA is not bound by the recommendations of an advisory committee, but generally follows such recommendations in making its decisions. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor the safety or efficacy of a product candidates.
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After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product candidates and/or its API will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical studies, or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product candidate’s safety and effectiveness after commercialization.
FDA Regulation of Combination Product Candidates
The FDA has specified a definition for the term “combination product,” which includes: (1) a product comprised of two or more regulated components, e.g., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (2) two or more separate product packaged together in a single package or as a unit and comprised of drug and device product, device and biological product, or biological and drug product; (3) a drug, device, or biological product candidates packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.
The FDA is divided into various “Centers” by product type such as the Center for Drug Evaluation and Research, or CDER, the Center for Biologics Evaluation and Research, or CBER, or the CDRH. Different Centers review drug, biologic, or device applications.
The FDA is charged with assigning a Center with primary jurisdiction, or a lead Center, for review of a combination product. That determination is based on the primary mode of action, or PMOA, of the combination product. Thus, if the PMOA of a device-biologic combination product is attributable to the biologic product, CBER, which is responsible for premarket review of the biologic product, would have primary jurisdiction for the combination product. If there are two independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which center to assign the product based on consistency with other combination product raising similar types of safety and effectiveness questions or to the center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product.
The FDA has also established an Office of Combination Product to address issues surrounding combination product and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination product, and for assignment of the FDA center that has primary jurisdiction for review of combination product where the jurisdiction is unclear or in dispute.
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After formally establishing the PMOA through an applicant’s Request for Designation, the Center that regulates that portion of the product that generates the PMOA becomes the lead evaluator. When evaluating an application, a lead Center may consult other centers but still retain complete reviewing authority, or it may collaborate with another Center, wherein the lead Center assigns concurrent review of a specific section of the application to another Center, delegating its review authority for that section.
Typically, the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product or orphan drug exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center. When submitting multiple applications, the applicant may be subject to the payment of two user fees, but a waiver of such fees may be obtained under certain limited circumstances.
The FDA may subject a combination product to two or more sets of legal authorities, e.g., drug/device, biologic/device, drug/biologic drug, but it has the authority to deem one set of legal authorities sufficient. FDA’s standard of review for a combination product application and the applicable legal authority or authorities will depend on a case-by-case basis evaluation of the scientific and technical issues and risk profile relevant to a combination product and its constituent parts. Because of the breadth and complexity of this analysis in each case, no single regulatory paradigm is appropriate for all combination product.
After receiving FDA approval or clearance, an approved or cleared product must comply with post-market safety reporting requirements applicable to the product based on the application type under which it received marketing authorization. In the case of current good manufacturing practices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent part, or (2) a streamlined approach specific to combination product, subject to certain limitations.
We believe the FDA will classify the nasal hydrogels used as a drug delivery platform as a combination product subject to the primary jurisdiction of the CDER.
The Hatch-Waxman Amendments
505(b)(2) NDAs
The FDA is authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference from the data owner. The applicant may rely upon the FDA’s findings of safety and efficacy for an approved product that acts as the “listed drug.” The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support the change from the listed drug. The FDA may then approve the new product for all, or some, of the conditions of use for which the branded reference drug has been approved, or for a new condition of use sought by the 505(b)(2) applicant.
Abbreviated New Drug Applications (“ANDAs”)
The Hatch-Waxman amendments to the FDCA established a statutory procedure for submission and FDA review and approval of ANDAs for generic versions of listed drugs. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient (“API\I”), drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data, and quality control procedures. Premarket applications for generic drugs are termed abbreviated because they generally do not include clinical data to demonstrate safety and effectiveness. However, a generic manufacturer is typically required to conduct bioequivalence studies of its test product against the listed drug. Bioequivalence is established when there is an absence of a significant difference in the rate and extent for absorption of the generic product and the reference listed drug. For some drugs, other means of demonstrating bioequivalence may be required by the FDA, especially where the rate or extent of absorption is difficult or impossible to measure. The FDA will approve an ANDA application if it finds that the generic product does not raise new questions of safety and effectiveness as compared to the reference listed drug. A product is not eligible for ANDA approval if the FDA determines that it is not bioequivalent to the reference listed drug if it is intended for a different use or if it is not subject to, and requires an approved Suitability Petition.
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Patent Exclusivity and Orange Book Listing
In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA (i) that there is no patent listed with the FDA as covering the relevant branded product, (ii) that any patent listed as covering the branded product has expired, (iii) that the patent listed as covering.
The branded product will expire prior to the marketing of the generic product, in which case the ANDA will not be finally approved by the FDA until the expiration of such patent or (iv) that any patent listed as covering the branded drug is invalid or will not be infringed by the manufacture, sale or use of the generic product for which the ANDA is submitted. A notice of the Paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA or 505(b)(2) application refers. The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.
If the reference NDA holder and patent owners assert a patent challenge directed to one of the Orange Book listed patents within 45 days of the receipt of the Paragraph IV certification notice, the FDA is prohibited from approving the application until the earlier of 30 months from the receipt of the Paragraph IV certification, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the branded reference drug has expired, as described in further detail below.
Non-Patent Exclusivity
In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent exclusivity, during which the FDA cannot approve an ANDA or 505(b)(2) application that relies on the listed drug.
For example, a drug that is considered a new chemical entity (NCE) at the time of approval may be awarded a five-year period of marketing exclusivity, starting at the time of product approval. An ANDA or 505(b)(2) application referencing that drug may not be approved until the five-year period expires. Also, an ANDA or 505(b)(2) application referencing that drug may not be filed with the FDA until the expiration of five years, unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval.
A drug, including one approved under Section 505(b)(2), may obtain a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant.
Pricing and Reimbursement
Successful commercialization of our product candidates depends, in part, on the availability of governmental and third-party payor reimbursement for the cost of our product candidates. Government authorities and third-party payors increasingly are challenging the price of medical products and services. On the government side, there is a heightened focus, at both the federal and state levels, on decreasing costs and reimbursement rates for Medicaid, Medicare, and other government insurance programs. This has led to an increase in federal and state legislative initiatives related to drug prices, which could significantly influence the purchase of pharmaceutical products, resulting in lower prices and changes in products demand. If enacted, these changes could lead to reduced payments to pharmaceutical manufacturers. Many states have also created preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. If our current product candidates or future drug candidates are not included on these preferred drug lists, physicians may not be inclined to prescribe them to their Medicaid patients, thereby diminishing the potential market for our product candidates.
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In addition, third-party payors have been imposing additional requirements and restrictions on coverage and limiting reimbursement levels for pharmaceutical products. Third-party payors may require manufacturers to provide them with predetermined discounts from list prices and limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not include all of the FDA-approved pharmaceutical products for particular indications. Third-party payors may challenge the price and examine the medical necessity and cost-effectiveness of pharmaceutical products in addition to their safety and efficacy. Manufacturers may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of pharmaceutical products in addition to the costs required to obtain the FDA approvals. Adequate third-party reimbursement may not be available to enable manufacturers to maintain price levels sufficient to realize an appropriate return on their investment in drug development.
Healthcare Reform
In the United States, there have been several federal and state proposals during the last several years regarding the pricing of pharmaceutical products, government control, and other changes to the healthcare system of the United States. It is uncertain what other legislative proposals may be adopted or what actions federal, state, or private payors may take in response to any healthcare reform proposals or legislation. We cannot predict the effect such reforms may have on our business, and no assurance can be given that any such reforms will not have a material adverse effect.
By way of example, in March 2010, the ACA was signed into law, which, among other things, includes changes to the coverage and payment for drug products under government health care programs. The law includes measures that (i) significantly increase Medicaid rebates through both the expansion of the program and significant increases in rebates, (ii) substantially expand the Public Health System (340B) program to allow other entities to purchase prescription drugs at substantial discounts, (iii) extend the Medicaid rebate rate to a significant portion of Managed Medicaid enrollees, (iv) assess a rebate on Medicaid Part D spending in the coverage gap for branded and authorized generic prescription drugs, and (v) levy a significant excise tax on the industry to fund the healthcare reform.
In addition to the changes brought about by the ACA, other legislative changes have been proposed and adopted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drug products. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Healthcare Regulations
Pharmaceutical companies are subject to various federal and state laws that are intended to combat health care fraud and abuse and that govern certain of our business practices, especially our interactions with third-party payors, healthcare providers, patients, customers and potential customers through sales and marketing or research and development activities. These include anti-kickback laws, false claims laws, sunshine laws, privacy laws, and FDA regulation of advertising and promotion of pharmaceutical products.
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Anti-kickback laws, including the federal Anti-Kickback Statute, make it a criminal offense knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce or reward the referral of an individual for, or the purchase, order or recommendation of, any good or service reimbursable by, a federal health care program (including our product candidates). The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions, and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Moreover, the government may assert that a claim, including items or services resulting from a violation of the federal Anti-Kickback Statute, constitutes a false or fraudulent claim for purposes of the False Claims Act. The penalties for violating the federal Anti-Kickback Statute include administrative civil money penalties, imprisonment for up to five years, fines of up to $25,000 per violation, and possible exclusion from federal healthcare programs such as Medicare and Medicaid. The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit knowingly presenting, or causing to be presented, claims for payment to the federal government (including Medicare and Medicaid) that are false or fraudulent (and, under the Federal False Claims Act, a claim is deemed false or fraudulent if it is made pursuant to an illegal kickback). Manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in significant monetary penalties, including fines ranging from $11,665 to $22,331 for each false claim assessed after June 19, 2020, and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other improper sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act, in addition to individual criminal convictions under applicable criminal statutes. In addition, companies have been forced to implement extensive corrective action plans and have often become subject to consent decrees or corporate integrity agreements, severely restricting the manner in which they conduct their business. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.
The Federal Civil Monetary Penalties Law prohibits, among other things, the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $20,866 for each wrongful act, assessment of three times the amount claimed for each item or service, and exclusion from the federal healthcare programs.
Federal criminal statutes prohibit, among other actions, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Analogous state and foreign laws and regulations, including state anti-kickback and false claims laws, may apply to products and services reimbursed by non-governmental third-party payors, including commercial payors. Additionally, there are state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or that otherwise restrict payments that may be made to healthcare providers as well as state and foreign laws that require drug manufacturers to report marketing expenditures or pricing information.
Sunshine laws, including the Federal Open Payments law enacted as part of the ACA, require pharmaceutical manufacturers to disclose payments and other transfers of value to physicians and certain other health care providers or professionals, and in the case of some state sunshine laws, restrict or prohibit certain such payments. Pharmaceutical manufacturers are required to submit reports to the government by the 90th day of each calendar year. Failure to submit the required information may result in civil monetary penalties of up to an aggregate of not less than $10,000, but not more than $100,000 per year (or up to an aggregate of $1.150 million per year for “knowing failures”) for all payments, transfers of value or ownership, or investment interests not reported in an annual submission, and may result in liability under other federal laws or regulations. Certain states and foreign governments require the tracking and reporting of gifts, compensation, and other remuneration to physicians.
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Privacy laws, such as the privacy regulations implemented under HIPAA, restrict covered entities from using or disclosing protected health information. Covered entities commonly include physicians, hospitals, and health insurers from which we may seek to acquire data to aid in our research, development, sales and marketing activities. Although pharmaceutical manufacturers are not covered entities under HIPAA, our ability to acquire or use protected health information from covered entities may be affected by privacy laws. Specifically, HIPAA, as amended by HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security, and transmission of individually identifiable health information.
Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates, and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.
The FDA regulates the sale and marketing of prescription drug products and, among other things, prohibits pharmaceutical manufacturers from making false or misleading statements and from promoting products for unapproved uses. There has been an increase in government enforcement efforts at both the federal and state level. Numerous cases have been brought against pharmaceutical manufacturers under the Federal False Claims Act, alleging, among other things, that certain sales or marketing-related practices violate the Anti-Kickback Statute or the FDA’s regulations, and many of these cases have resulted in settlement agreements under which the companies were required to change certain practices, pay substantial fines and operate under the supervision of a federally appointed monitor for a period of years. Due to the breadth of these laws and their implementing regulations and the absence of guidance in some cases, it is possible that our practices might be challenged by government authorities. Violations of fraud and abuse laws may be punishable by civil and criminal sanctions, including fines, civil monetary penalties, as well as the possibility of exclusion of our product candidates from payment by federal health care programs.
Government Price Reporting
Government regulations regarding reporting and payment obligations are complex, and we are continually evaluating the methods we use to calculate and report the amounts owed with respect to Medicaid and other government pricing programs. Our calculations are subject to review and challenge by various government agencies and authorities, and it is possible that any such review could result either in material changes to the method used for calculating the amounts owed to such agency or the amounts themselves. Because the process for making these calculations, and our judgments supporting these calculations, involve subjective decisions, these calculations are subject to audit. In the event that a government authority challenges or finds ambiguity with regard to our report of payments, such authority may impose civil and criminal sanctions, which could have a material adverse effect on our business. From time to time, we conduct routine reviews of our government pricing calculations. These reviews may have an impact on government price reporting and rebate calculations used to comply with various government regulations regarding reporting and payment obligations.
Many governments and third-party payors reimburse the purchase of certain prescription drugs based on a drug’s AWP. In the past several years, state and federal government agencies have conducted ongoing investigations of manufacturers’ reporting practices with respect to AWP, which they have suggested have led to excessive payments by state and federal government agencies for prescription drugs. We and numerous other pharmaceutical companies have been named as defendants in various state and federal court actions alleging improper or fraudulent practices related to the reporting of AWP.
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Drug Pedigree Laws
State and federal governments have proposed or passed various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer to the pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription drug products, beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires the implementation of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend to comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results.
Federal Regulation of Patent Litigation Settlements and Authorized Generic Arrangements
As part of the Medicare Prescription Drug Improvement and Modernization Act of 2003, companies are required to file with the U.S. Federal Trade Commission (“FTC”) and the U.S. Department of Justice (the “DOJ”) certain types of agreements entered into between brand and generic pharmaceutical companies related to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations or proceedings by the FTC or other governmental authorities.
Other
The U.S. federal government, various states and localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements, and inspection by the states and localities in which our operations are located or in which we conduct business.
Certain of our activities are also subject to FTC enforcement actions. The FTC also enforces a variety of antitrust and consumer protection laws designed to ensure that the nation’s markets function competitively, are vigorous, efficient, and free of undue restrictions. Federal, state, local and foreign laws of general applicability, such as laws regulating working conditions, also govern us.
In addition, we are subject to numerous and increasingly stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these permits are subject to modification, renewal, and revocation by the issuing authorities. Our environmental capital expenditures and costs for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental laws, including fines, penalties, third-party claims, and the costs of undertaking a clean-up at a current or former site or at a site to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental impacts from historical operations at sites we have acquired in the past or may acquire in the future.
Intellectual Property
We rely on a combination of intellectual property law and contractual restrictions to establish and protect proprietary technology and data used in the development and realization of our product candidates. Provisional patent applications were filed in the United States and are intended to protect and support current and future developments of our technologies and corresponding product candidates. The existing applications as well as the new applications that will be filed aim to pursue patent protection for formulations, unique properties, modes of administration as well as specific indications that will be developed in corporation with other partners.
A list of our provisional patent applications filed in the United States is described in the table below:
| Filing Date | Application No. | Status | Title | Type | ||||
06/05/2021 |
63/184883 | Submitted | Formulations and methods for preventing viral infections by corona viruses | United States, Provisional | ||||
| 08/31/2021 | 63/260738 | Submitted | Mucoadhesive Polymers for Nasal Drug Delivery | United States, Provisional | ||||
| 11/24/2021 | 63/264539 | Submitted | Mucoadhesive Polymers for Nasal Drug Delivery | United States, Provisional | ||||
| 02/23/2022 | 63/268,384 | Submitted | MUCOADHESIVE POLYMERS FOR NASAL DRUG DELIVERY | United States, Provisional |
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Our success and ability to compete successfully depend on our ability to effectively protect, maintain, and defend our intellectual property and operate without infringing on the proprietary rights of others. As an additional defense mechanism, we seek to limit disclosures about our intellectual property strictly to a need-to-know basis and then, only to the minimum extent possible. In addition, before disclosing any proprietary information to employees, partners, contractors, and regulators, we insist on executing stringent confidentiality and non-disclosure agreements. Employees, who work in research and product candidates development are also required to waive all rights to their work products and execute non-compete agreements.
Grants from the Israeli Innovation Authority
Tax Benefits and Grants for Research and Development
Under the Israeli Encouragement of Research, Development and Industrial Initiative Technology Law, 5744-1984, as amended, and related regulations, or the Research Law, research and development programs which meet specified criteria and are approved by the IIA are eligible for grants of up to 50% of the project’s expenditure, as determined by the research committee, in exchange for the payment of royalties from the revenues generated from the sale of product candidates and related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. The royalties are generally at a range of 3.0% to 5.0% of revenues until the entire IIA grant is repaid, together with an annual interest generally equal to the 12 months London Interbank Offered Rate applicable to dollar deposits that are published on the first business day of each calendar year.
The terms of the Research Law also require that the manufacture of product candidates developed with government grants be performed in Israel. The transfer of manufacturing activity outside Israel may be subject to the prior approval of the IIA. Under the regulations of the Research Law, assuming we receive approval from the Chief Scientist to manufacture our IIA-funded product candidates outside Israel, we may be required to pay increased royalties. The increase in royalties depends upon the manufacturing volume that is performed outside of Israel as follows:
Manufacturing Volume Outside of Israel Royalties to the Chief Scientist as a Percentage of Grant
| Up to 50% | 120% |
| Between 50% and 90% | 150% |
| 90% and more | 300% |
If the manufacturing is performed outside of Israel by us, the rate of royalties payable by us on revenues from the sale of product candidates manufactured outside of Israel will increase by 1% over the regular rates. If the manufacturing is performed outside of Israel by a third party, the rate of royalties payable by us on those revenues will be equal to the ratio obtained by dividing the amount of the grants received from the Office of the Chief Scientist and our total investment in the project that was funded by these grants. The transfer of no more than 10% of the manufacturing capacity in the aggregate outside of Israel is exempt under the Research Law from obtaining the prior approval of the IIA. A company requesting funds from the IIA also has the option of declaring in its IIA grant application an intention to perform part of its manufacturing outside Israel, thus avoiding the need to obtain additional approval. On January 6, 2011, the Research Law was amended to clarify that the potential increased royalties specified in the table above will apply even in those cases where the IIA approval for transfer of manufacturing outside of Israel is not required, namely when the volume of the transferred manufacturing capacity is less than 10% of total capacity or when the company received an advance approval to manufacture abroad in the framework of its IIA grant application.
The know-how developed within the framework of the Chief Scientist plan may not be transferred to third parties outside Israel without the prior approval of a governmental committee charted under the Research Law. The approval, however, is not required for the export of any product candidates developed using grants received from the Chief Scientist. The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration. The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general, on the ratio between the aggregate IIA grants to the total financial investments in the company, multiplied by the transaction consideration. According to the January 2011 amendment, the redemption fee in case of transfer of know-how to a party outside Israel will be based on the ratio between the aggregate IIA grants received by the company and the company’s aggregate R&D expenses, multiplied by the transaction consideration. According to regulations promulgated following the 2011 amendment, the maximum amount payable to the IIA in case of transfer of know-how outside Israel shall not exceed 6 times the value of the grants received plus interest, and in the event that the receiver of the grants ceases to be an Israeli corporation such payment shall not exceed six times the value of the grants received plus interest, with a possibility to reduce such payment to up to three times the value of the grants received plus interest if the R&D activity remains in Israel for a period of three years after payment to the IIA.
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Transfer of know-how within Israel is subject to an undertaking of the recipient Israeli entity to comply with the provisions of the Research Law and related regulations, including the restrictions on the transfer of know-how and the obligation to pay royalties, as further described in the Research Law and related regulations.
These restrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-how outside Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties to the IIA. In particular, any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA in addition to any payment that may be required of us for transfer of manufacturing or know-how outside Israel. If we fail to comply with the Research Law, we may be subject to criminal charges.
Other Tax Benefits
Tax Benefits on Capital Expenditures for Research and Development
Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
| ● | The research and development must be for the promotion of the company; and |
| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction. |
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Income Tax Ordinance, 1961. Expenditures not so approved are deductible in equal amounts over three years.
From time to time, we may apply the Office of the Chief Scientist for approval to allow a tax deduction for all research and development expenses during the year incurred. There can be no assurance that such an application will be accepted.
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets).
Tax Benefits for Preferred Companies
The Investment Law grants tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) The definition of a Preferred Company includes a company incorporated in Israel that is not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 7.5%.
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Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld.
Property and Facilities
Our main business activities are conducted in Israel. Our offices, research and development are located at 5 Ha-Tidhar Street, Raanana, Israel, where we occupy approximately 35 square meters (approximately 378 square feet). Our lease is a month-to-month lease with no current expiration date. Our monthly rent payment as of January 2022, was approximately NIS 4,500 (approximately $1,450).
We consider that our current office space is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.
Employees
As of August 10, 2022, we had five members of senior management (including our Chief Executive Officer), of which one is a full-time employee, three are a part-time contractors and one is full-time contractor (our Chief Executive Officer). None of our employees located in Israel are represented by labor unions or covered by collective bargaining agreements. However, in Israel, we are subject to certain Israeli labor laws, regulations and national labor court precedent rulings, as well as certain provisions of collective bargaining agreements applicable to us by virtue of extension orders issued in accordance with relevant labor laws by the Israeli and Industry of Economy and which apply such agreement provisions to our employees even though they are not part of a union that has signed a collective bargaining agreement.
All of our employment and consulting agreements include employees’ and consultants’ undertakings with respect to non-competition and assignment to us of intellectual property rights developed in the course of employment and confidentiality. The enforceability of such provisions is limited by Israeli law.
Legal Proceedings
We are not currently subject to any legal proceedings
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Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors, including their ages as of August 9, 2022:
| Name | Age | Position | ||
| Tomer Izraeli | 44 | Chief Executive Officer, Director | ||
| Nir Ben Yosef | 47 | Chief Financial Officer | ||
| Dr. Eyal S. Ron | 67 | Chief Technology Officer | ||
| Dr. Tidhar Turgeman | 42 | Chief R&D Officer | ||
| Daphna Avital | 55 | Chief People Officer | ||
| Dr. Roy Borochov | 47 | Director | ||
| Liron Carmel | 38 | Director | ||
| Oz Adler | 35 | Director | ||
| Raul Srugo | 58 | Director | ||
| Liat Sidi | 47 | Director Nominee | ||
| Yehonatan Zalman Vinokur | 44 | Director Nominee |
Tomer Izraeli, Chief Executive Officer, Director
Mr. Tomer Izraeli has served as our Chief Executive Officer since January 2005 and a director since January 2005. Prior to that, Mr. Izraeli served as Department Manager in Lapidot Medical Ltd. from 2013 to 2021. Mr. Izraeli has a BSc in chemical engineering and an MBA from the Ben Gurion University of the Negev.
Nir Ben Yosef, Chief Financial Officer
Nir Ben Yosef, has been our Chief Financial Officer since December 2021. Mr. Ben Yosef serves as our Chief Financial Officer pursuant to an agreement that we have with Shimony Yosef Certified Public Accountant (Isr.), with whom Mr. Ben Yosef is a partner since 2011. Mr. Ben Yosef has served as the Chief Financial Officer of ENvizion Medical Ltd. (TASE: ENVM.TA) from January to October 2021. Mr. Ben Yosef also holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.
Dr. Eyal S. Ron, Chief Technology Officer
Dr. Eyal S. Ron has served as our Chief Technology Officer since March 2020. Dr. Ron has also served as the Chief Technical Officer and Co-Founder of Rich PSC since 2020. Dr. Ron has extensive experience in executive roles for various biomedical companies. This experience includes serving as: Chief Technical Officer and Co-founder for Gelesis Inc. from 2006 to 2019, Chief Technical Officer for Combinent Biomedical Systems from 1994 to 2015, Chief Operating Officer for Oxford Pharmaceutical Services from 2003 to 2007, Chief Technical Officer for Palmetto Pharmaceuticals from 1999 to 2017, Chief Technical Officer and Co-founder for Flo from 2015 to 2019, and Chief Technical Officer and Co-founder for GelMed / Gel Sciences from 1994 to 1997. Dr. Ron has served as a director of Pharmedica Ltd since 2008. Previously, has also served as a director of Acuity Bio from 2009 until 2021, and of GelMed / Gel Sciences from 1994 to 1997. Dr. Ron has a BSc from Tel Aviv University and a Ph.D. from Brandeis University and a post doctorate from MIT.
Dr. Tidhar Turgeman, Chief R&D Officer
Dr. Tidhar Turgeman has served as our Chief R&D Officer since December 2020. Prior to that, Mr. Turgeman served as an Innovative drug delivery technologies products development manager at ADAMA from 2017 to 2020 and as a research leader at Evogene from 2014 to 2017. Mr. Turgeman has a Ph.D degree from Ben-Gurion University of the Negev.
Daphna Avital, Chief People Officer
Ms. Daphna Avital has served as our Chief People Officer since August 2021. Since 2019, Ms. Avital has served as an independent consultant to Allergan and Astellas among other biotechnology companies. Prior to that, Ms. Avital served as Regional Human Resources and Learning& Development Manager in Allergan from 2016 to 2018. From 2008 to 2014, Ms. Avital served as Human Resources Director of AstraZeneca and Allegran. Ms. Avital holds an MA in Organizational Consulting from the College of Management Academic Studies, is a certified Group Facilitator from IDC and a Logotherapy Associate.
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Dr. Roy Borochov, Director
Dr. Roy Borochov has served as our director since September 2021. Prior to that, Dr. Borochov served as Chief Executive Officer of Mercury Investment Fund since 2020. Previously, Dr. Borochov served as Head of Agriculture for Prospera Technologies from 2018 to 2020 and Chief Technology Officer of Forrest Innovations from 2016 until 2017. Dr. Borochov has served as a director of Peas of Bean and Venda Robotics since 2021. Dr. Borochov has a Ph.D. from the Hebrew University of Jerusalem.
Liron Carmel, Director
Mr. Liron Carmel has served as our director since July 2020. Mr. Carmel has served as Chief Executive Officer of Medigus Ltd. (Nasdaq: MDGS) since April 2019. Mr. Carmel has vast experience in business and leadership across multiple industries, including bio pharma, internet technology, oil & gas exploration & production, real estate and financial services. In addition, he serves as chairman of the Israel Tennis Table Association. Mr. Carmel served as the chief executive officer and director of CannaPowder (PINK: CAPD), a bio-pharma company dedicated to developing and applying innovative technology in the cannabinoid field, from 2017 and 2018. Mr. Carmel previously served as a director of Chiron Refineries Ltd. (TASE: CHR), a company engaged in consulting and initiation of transactions in the refineries field, and as a director of Gix (TASE: GIX) which operates in the field of software development, marketing and distribution to internet users. He also served as vice president business development at Yaad Givatayim development, a municipal corporation dedicated to initiate, develop and establish projects of public importance. Prior to Yaad Givatayim, Mr. Carmel served as an investment manager and as a research and strategy analyst at Excellence Nessuah, one of the leading companies in the field of provident and advanced studies funds in Israel.
Oz Adler, Director
Mr. Oz Adler has served as our director since September 2021. Mr. Adler has served as the Chief Financial Officer of SciSparc Ltd. since April 2018, and the Chief Executive Officer of SciSparc, and prior to that, from September 2017, he served as Vice President of Finance at SciSparc. Additionally, Mr. Adler currently serves on the board of directors of Elbit Imaging Ltd (TASE: EMITF.TA, OTC: EMITF), Clearmind Medicine Inc. (CSE: CMND, FSE: CWYO, OTC: CMNDF), Jeff’s Brands Ltd. And Charging Robotics Ltd. Previously, Mr. Adler served as the Chief Financial Officer of Medigus Ltd. from December 2012 and August 2017. Before this, Mr. Adler worked in the audit department of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, from 2012 to 2017. Mr. Adler is a certified public accountant in Israel and holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.
Raul Srugo, Director
Mr. Raul Srugo has served as our director since May 2006. Since December 2019, Mr. Srugo has served the president of the Foundation for the Encouragement and Development of the Construction Industry in Israel. In addition, since February 2019, Mr. Srugo has served as the president of the Contractors Association “Boney-Haaretz”. Since October 2014, Mr. Srugo has served as the chairman of the CICA Safety Committee of the International Contractors Association and as the Chairman of Sufiya Hotels Ltd. Previously, Mr. Srugo served as the chairman of the Maccabi Rishon Lezion Handball Association from June 2016 to June 2019, the chairman of the Contractors Association in Rishon Lezion, Israel from 2014 to2018, and the Vice President of the Builders of the Land from 2006 to 2010. Mr. Srugo holds a Bachelor of Industrial Engineering and Management at Ben Gurion University and an Executive MBA at the Recanati School of Management at Tel Aviv University.
Liat Sidi, Director Nominee
Ms. Liat Sidi will join our Board of Directors upon the consummation of this offering. Ms. Sidi has served as a director at Scisparc Ltd. (OTCMKTS: SPRCF) since June 2020. Ms. Sidi has served as the accountant of Foresight Autonomous Holdings Ltd. (NASDAQ and TASE: FRSX) since September 2016. In addition, Ms. Sidi additionally provides accounting services for various public and private companies such as: Panaxia israel laboratories ltd, Soho real estate ltd, Pure food ltd and others. Ms. Sidi holds a B.A. degree in Tax, finance and accounting studies from the Ramat Gan College of Accounting
Yehonatan Zalman Vinokur, Director Nominee
Mr. Yehonatan Zalman Vinokur will join our Board of Directors upon the consummation of this offering. Mr. Vinokur has served as the Chief Executive Officer and Owner of Danny Zeevi Insurance Agency, LTD. since 2017. In addition, since 2002, Mr. Vinokur has worked as a financial adviser for Topick Finance. Mr. Vinokur has a B.A. in Business Management from The College of Management Academic Studies in Rishon LeTsiyon.
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Scientific Advisory Board
Prof. Smadar Cohen has served as a member of our scientific advisory board since October 2005. Prof. Cohen currently serves as the Claire and Harold Oshry Professor Chair in Biotechnology at Ben-Gurion University, as Founder of the Avram and Stella Goldstein-Goren Department of Biotechnology Engineering at Ben-Gurion University, and as a founder and director of the regenerative medicine and stem cell Research Center of Ben-Gurion University. Professor Cohen’s research focuses on the advancement and development of novel bio-inspired materials as nano-sized delivery systems for therapeutics and as scaffolds in regenerative medicine. Professor Cohen has been invited to given over 100 lectures and seminars, as well as chaired 30 sessions of international scientific conferences in the field of biomaterials and drug delivery systems, has 29 issued U.S. patents, is the author of over 120 papers in peer-reviewed scientific journals, co-authored a book on Cardiac Tissue Engineering and edited two books. She serves as the Associate Editor of the Annals of Biomedical Engineering Journal, is an executive board member of the biomedical journal Tissue Engineering, and is a member of the editorial board of the biomedical journal Biomatter. She is on the scientific advisory board of several bio-nano-technology companies and serves as a member of the Magnet/Magneton/Nofar Committee of the Israel Ministry of Economics.
Prof. Avi Schroeder, has served as a member of our scientific advisory board since July 2021. Prof. Schroeder is a tenured Associate Professor of Chemical Engineering at the Technion – Israel Institute of Technology, he heads the Laboratory for Targeted Drug Delivery and Personalized Medicine Technologies. Prof. Schroeder has years of experience in nanotechnology and personalized medicine, has translational experience with the development of liposome-based clinical systems. He is an author of over 50 research papers, an inventor of 19 patents a co-founder of multiple Technion spin-out startup companies, including PEEL Therapeutics, Barcode Diagnostics and ViAqua Therapeutics, and the recipient of 20 national and international innovation awards. Prof. Schroeder is a member of Israel Young National Academy of Sciences, President of the Israel Institute of Chemical Engineers, and an appointed member of the Israel National Council for Civilian Research and Development.
Prof. Fabio Sonvico has served as a member of our scientific advisory board since November 2021. Prof. Sonvico is an Associate Professor in the Food and Drug Department of the University of Parma, Italy. Prof. Sonvico is highly experienced in the development of intranasal and pulmonary routes and products. He has published more than 75 papers in international journals on advanced drug delivery topics and he is also author of 6 book chapters and 5 patents focusing on innovative drug delivery systems. Prof. Sonvico is appointed as an Invited Professor at the Faculty of Medicine and Pharmacy of the University of Lyon.
Prof. Nancy Agmon-Levin has served as a member of our scientific advisory board since March 2022. Professor Agmon-Levin serves as the Head of the Clinical Immunology, Angioedema and Allergy Unit, at the Lupus and Autoimmune Diseases Clinic. Professor Agmon is a graduate of the Hadassah Medical School at Hebrew University, and completed her fellowship in Clinical Immunology at the German Cancer Research Center (DKFZ), in Heidelberg, Germany. Prof. Agmon- Levin’s major field of interest are autoimmune diseases (lupus, antiphospholipid syndrome), immune system diseases (urticaria, angioedema, immune deficiency, Granulomatous Disease), allergies in children and adults, immunotherapy. Professor Agmon-Levin is the author of 123 published works.
Family Relationships
There are no family relationships between any members of our executive management and our directors.
Arrangements for Election of Directors and Members of Management
Our board of directors consists of directors, each of whom will continue to serve pursuant to their appointment until the annual general meeting of our shareholders in which his or her term expires. We are not a party to, and are not aware of, any voting agreements among our shareholders. In addition, there are no family relationships among our executive officers and directors. See “Related Party Transactions” for additional information.
Compensation
The following table presents in the aggregate all compensation we paid to all of our directors and senior management as a group for the year ended December 31, 2021. The table does not include any amounts we paid to reimburse any of such persons for costs incurred in providing us with services during this period.
All amounts reported in the table below reflect our cost, in thousands of U.S. dollars. Amounts paid in NIS are translated into U.S. dollars at the rate of NIS 3.23 = U.S. $1.00, based on the average representative rate of exchange between the NIS and the U.S. dollar as reported by the Bank of Israel during such period of time.
Salary, bonuses and Related Benefits | Pension, Retirement and Other Similar Benefits | Share Based Compensation | ||||||||||
| All directors and senior management as a group, consisting of four persons as of December 31, 2021. | $ | 194.5 | $ | 25.6 | $ | 127.1 | ||||||
As of December 31, 2021, 1,145,849 options were granted to our directors and executive officers.
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As approved by our board of directors and our shareholders in September 2021, subsequent to the completion of this offering our Chief Executive Officer, Tomer Izraeli, will receive an IPO bonus of options to purchase such number of Ordinary Shares representing 2.5% of the our post-initial public offering issued and outstanding shares, which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments.
For so long as we qualify as a foreign private issuer, we will not be required to comply with the proxy rules applicable to U.S. domestic companies regarding disclosure of the compensation of certain executive officers on an individual basis. Pursuant to the Companies Law, we will be required, after we become a public company, to disclose the annual compensation of our five most highly compensated officers on an individual basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer. We intend to commence providing such disclosure, at the latest, in the annual proxy statement for our first annual meeting of shareholders following the closing of this offering, which will be filed under cover of a report on Form 6-K.
Employment and Consulting Agreements with Executive Officers
We have entered into written employment and consulting agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we intend to enter into indemnification agreements, subject to the listing of our securities on Nasdaq, with each executive officer and director pursuant to which we will indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance.
For a description of the terms of our options and option plans, see “Management—Equity Incentive Plan” below.
Directors’ Service Contracts
Other than with respect to our directors that are also executive officers, we do not have written agreements with any director providing for benefits upon the termination of his employment with our company.
Differences between the Companies Law and Nasdaq Requirements
Corporations incorporated under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on Nasdaq, are considered public companies under Israeli law and are required to comply with various corporate governance requirement under Israeli law relating to such matters as the composition and responsibilities of the audit committee and the compensation committee (subject to certain exceptions we intend to utilize), and a requirement to have an internal auditor. These requirements are in addition to the corporate governance requirements imposed by the rules of the Nasdaq Stock Market and other applicable provisions of the US Securities laws to which we will become subject (as a foreign private issuer) upon the closing of this offering and the listing of our Ordinary Shares and Warrants on Nasdaq. Under those rules, we may elect to follow certain corporate governance practices permitted under the Companies Law in lieu of compliance with corresponding corporate governance requirements otherwise imposed by the Nasdaq Stock Market rules for U.S. domestic issuers.
In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq Stock Market rules, we have elected to follow the provisions of the Companies Law, rather than the Nasdaq Stock Market rules, with respect to the following requirements:
| ● | Quorum. While the Nasdaq Stock Market rules require that the quorum for purposes of any meeting of the holders of a listed company’s ordinary voting stock, as specified in the company’s bylaws, be no less than 33 1/3% of the company’s outstanding ordinary voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our amended and restated articles of association provide that a quorum of two or more shareholders holding at least 25% of the voting rights in person or by proxy is required for commencement of business at a general meeting. However, the quorum set forth in our amended and restated articles of association with respect to an adjourned meeting consists of at least one shareholders present in person or by proxy. |
| ● | Compensation of officers. Israeli law and our amended and restated articles of association do not require that the independent members of our board of directors (or a compensation committee composed solely of independent members of our board of directors) determine an executive officer’s compensation, as is generally required under the Nasdaq Stock Market rules with respect to the chief executive officer and all other executive officers. Instead, compensation of executive officers is determined and approved by our compensation committee and our board of directors, and in certain circumstances by our shareholders, either in consistency with our office holder compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Companies Law. See “Management—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. |
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| ● | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporation actions in accordance with Nasdaq Listing Rule 5635. In particular, under this Nasdaq Stock Market rule, shareholder approval is generally required for: (i) an acquisition of shares/assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption/amendment of equity compensation arrangements (although under the provisions of the Companies Law there is no requirement for shareholder approval for the adoption/amendment of the equity compensation plan); and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (and/or via sales by directors/officers/5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required for, among other things: (i) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (ii) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval, and (iii) terms of employment or other engagement of the controlling shareholder of us or such controlling shareholder’s relative, which require special approval. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
| ● | Approval of Related Party Transactions. All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transaction as set forth in the Companies Law, which requires the approval of the audit committee, or the compensation committee, as the case may be, the board of directors and shareholders, as may be applicable, for specified transactions, rather than approval by the audit committee or other independent body of our board of directors as required under the Nasdaq Stock Market rules. See “Management—Board Practices—Approval of Related Party Transactions under Israeli Law” for additional information. |
| ● | Annual Shareholders Meeting. As opposed to the Nasdaq Stock Market Rule 5620(a), which mandates that a listed company hold its annual shareholders meeting within one year of the company’s fiscal year-end, we are required, under the Companies Law, to hold an annual shareholders meeting each calendar year and within 15 months of the last annual shareholders meeting. |
| ● | Distribution of periodic reports to shareholders; proxy solicitation. As opposed to the Nasdaq Stock Market rules, which require listed issuers to make such reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. In addition to making such reports available on a public website, we currently make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules. |
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Board Practices
Introduction
Upon the consummation of this offering, our board of directors will consist of seven members. We believe that Roy Borochov, Oz Adler, Liat Sidi and Yehonatan Zalman Vinokur are “independent” for purposes of the Nasdaq Stock Market rules. Our amended and restated articles of association provide that the number of board of directors’ members shall be set by the general meeting of the shareholders provided that it will consist of not less than two and not more than nine. Pursuant to the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the consulting agreement that we have entered into with him. All other executive officers are appointed by our Chief Executive Officer. Their terms of employment are subject to the approval of the board of directors’ compensation committee and of the board of directors, and are subject to the terms of any applicable employment or consulting agreements that we may enter into with them.
Each director, except external directors that may be required to be appointed under the Companies Law under certain circumstances, will hold office until the next annual general meeting of our shareholders following his or her appointment, or until he or she resigns or unless he or she is removed by a majority vote of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our amended and restated articles of association.
In addition, under certain circumstances, our amended and restated articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors or in addition to the acting directors (subject to the limitation on the number of directors), until the next annual general meeting or special general meeting in which directors may be appointed or terminated. External directors may be elected for up to two additional three-year terms after their initial three-year term under the circumstances described below, with certain exceptions as described in “External Directors” below. External directors may be removed from office only under the limited circumstances set forth in the Companies Law.
Under the Companies Law, any shareholder holding at least one percent of our outstanding voting power may nominate a director. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination has been given to our board of directors. Any such notice must include certain information, including the consent of the proposed director nominee to serve as our director if elected, and a declaration that the nominee signed declaring that he or she possesses the requisite skills and has the availability to carry out his or her duties. Additionally, the nominee must provide details of such skills, and demonstrate an absence of any limitation under the Companies Law that may prevent his or her election, and affirm that all of the required election-information is provided to us, pursuant to the Companies Law.
Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is two.
The board of directors must elect one director to serve as the chairman of the board of directors to preside at the meetings of the board of directors, and may also remove that director as chairman. Pursuant to the Companies Law, neither the chief executive officer nor any of his or her relatives is permitted to serve as the chairman of the board of directors, and a company may not vest the chairman or any of his or her relatives with the chief executive officer’s authorities. In addition, a person who reports, directly or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman may not be vested with authorities of a person who reports, directly or indirectly, to the chief executive officer; and the chairman may not serve in any other position in the company or a controlled company, but he or she may serve as a director or chairman of a controlled company. However, the Companies Law permits a company’s shareholders to determine, for a period not exceeding three years from each such determination, that the chairman or his or her relative may serve as chief executive officer or be vested with the chief executive officer’s authorities, and that the chief executive officer or his or her relative may serve as chairman or be vested with the chairman’s authorities. Such determination of a company’s shareholders requires either: (1) the approval of at least a majority of the shares of those shareholders present and voting on the matter (other than controlling shareholders and those having a personal interest in the determination) (shares held by abstaining shareholders shall not be considered); or (2) that the total number of shares opposing such determination does not exceed 2% of the total voting power in the company. Currently, we have a separate chairman and chief executive officer.
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The board of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees of the board, and it may, from time to time, revoke such delegation or alter the composition of any such committees, subject to certain limitations. Unless otherwise expressly provided by the board of directors, the committees shall not be empowered to further delegate such powers. The composition and duties of our audit committee, financial statement examination committee and compensation committee are described below.
The board of directors oversees how management monitors compliance with our risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by us. The board of directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to our audit committee.
External Directors
Under the Companies Law, except as provided below, companies incorporated under the laws of the State of Israel that are publicly traded, including Israeli companies with shares listed on the Nasdaq, are required to appoint at least two external directors who meet the qualification requirements set forth in the Companies Law. The definitions of an external director under the Companies Law and independent director under Nasdaq Stock Market rules are similar such that it would generally be expected that our two external directors will also comply with the independence requirement under Nasdaq Stock Market rules.
Pursuant to regulations under the Companies Law, the board of directors of a company such as us is not required to have external directors if: (i) the company does not have a controlling shareholder (as such term is defined in the Companies Law); (ii) a majority of the directors serving on the board of directors are “independent,” as defined under Nasdaq Rule 5605(a)(2); and (iii) the company follows Nasdaq Rule 5605(e)(1), which requires that the nomination of directors be made, or recommended to the board of directors, by a Nominating Committee of the board of directors consisting solely of independent directors, or by a majority of independent directors. The Company meets all these requirements. Our board of directors has resolved to adopt the corporate governance exemption set forth above, and accordingly we will not have external directors as members of our board of directors.
Independent Directors Under the Companies Law
An “independent director” is either an external director or a director who meets the same non-affiliation criteria as an external director (except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for accounting and financial expertise or professional qualifications), as determined by the audit committee, and who has not served as a director of the company for more than nine consecutive years. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
Regulations promulgated pursuant to the Companies Law provide that a director in a public company whose shares are listed for trading on specified exchanges outside of Israel, including Nasdaq, who qualifies as an independent director under the relevant non-Israeli rules and who meets certain non-affiliation criteria, which are less stringent than those applicable to independent directors as set forth above, would be deemed an “independent” director pursuant to the Companies Law provided: (i) he or she has not served as a director for more than nine consecutive years; (ii) he or she has been approved as such by the audit committee; and (iii) his or her remuneration shall be in accordance with the Companies Law and the regulations promulgated thereunder. For these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of such director’s service.
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Furthermore, pursuant to these regulations, such company may reappoint a person as an independent director for additional terms, beyond nine years, which do not exceed three years each, if each of the audit committee and the board of directors determine, in that order, that in light of the independent director’s expertise and special contribution to the board of directors and its committees, the reappointment for an additional term is in the company’s best interest.
Alternate Directors
Our amended and restated articles of association provide, as allowed by the Companies Law, that any director may, subject to the conditions set thereto including approval of the nominee by our board of directors, appoint a person as an alternate to act in his place, to remove the alternate and appoint another in his place and to appoint an alternate in place of an alternate whose office is vacated for any reason whatsoever. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is to replace an external director, he or she is required to be an external director and to have either “financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external director he or she is replacing. A person who does not have the requisite “financial and accounting experience” or the “professional expertise,” depending on the qualifications of the external director he or she is replacing, may not be appointed as an alternate director for an external director. A person who is not qualified to be appointed as an independent director, pursuant to the Companies Law, may not be appointed as an alternate director of an independent director qualified as such under the Companies Law. Unless the appointing director limits the time or scope of the appointment, the appointment is effective for all purposes until the appointing director ceases to be a director or terminates the appointment.
Committees of the Board of Directors
Our board of directors has established two standing committees, the audit committee and the compensation committee.
Audit Committee
Under the Companies Law, we will be required to appoint an audit committee subject to the listing of our Ordinary Shares and Warrants on Nasdaq. The audit committee must be comprised of at least three directors, including all of the external directors, if applicable, (one of whom must serve as chair of the committee). The audit committee may not include the chairman of the board; a controlling shareholder of the company or a relative of a controlling shareholder; a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling shareholder; or a director who derives most of his or her income from a controlling shareholder.
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In addition, a majority of the members of the audit committee of a publicly traded company must be independent directors under the Companies Law. Our audit committee will be comprised of, and.
Under the Companies Law, our audit committee is responsible for:
| (i) | determining whether there are deficiencies in the business management practices of our company, and making recommendations to the board of directors to improve such practices; | |
| (ii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) and establishing the approval process for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”); | |
| (iii) | determining the approval process for transactions that are “non-negligible” (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee; | |
| (iv) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; | |
| (v) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; | |
| (vi) | establishing procedures for the handling of employees’ complaints as to deficiencies in the management of our business and the protection to be provided to such employees; and | |
| (vii) | where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto. |
Our audit committee may not conduct any discussions or approve any actions requiring its approval (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”), unless at the time of the approval a majority of the committee’s members are present, which majority consists of independent directors under the Companies Law.
Our board of directors intends to adopt an audit committee charter to be effective upon the listing of our Ordinary Shares and Warrants on Nasdaq setting forth, among others, the responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq Listing Rules (in addition to the requirements for such committee under the Companies Law), including, among others, the following:
| ● | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; |
| ● | recommending the engagement or termination of the person filling the office of our internal auditor, reviewing the services provided by our internal auditor and reviewing effectiveness of our system of internal control over financial reporting; | |
| ● | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors; and | |
| ● | reviewing and monitoring, if applicable, legal matters with significant impact, finding of regulatory authorities’ findings, receive reports regarding irregularities and legal compliance, acting according to “whistleblower policy” and recommend to our board of directors if so required. |
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Nasdaq Stock Market Requirements for Audit Committee
Under the Nasdaq Stock Market rules, we are required to maintain an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom has accounting or related financial management expertise.
As noted above, the members of our audit committee will include , and . will serve as the chairman of our audit committee. All members of our audit committee meet the requirements for financial literacy under the Nasdaq Stock Market rules. Our board of directors has determined that each member of our audit committee is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Stock Market rules.
Under the Companies Law, our audit committee also carries out the duties of a financial statement examination committee. As such, the audit committee is responsible for: (i) estimations and assessments made in connection with the preparation of financial statements; (ii) internal controls related to the financial statements; (iii) completeness and propriety of the disclosure in the financial statements; (iv) the accounting policies adopted and the accounting treatments implemented in material matters of the company; and (v) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements.
Compensation Committee
Under the Companies Law, the board of directors of any public company must establish a compensation committee. The compensation committee must be comprised of at least three directors, including all of the external directors (if any). The compensation committee is subject to the same Companies Law restrictions as the audit committee as to: (a) who may not be a member of the committee; and (b) who may not be present during committee deliberations as described above.
Our compensation committee, acting pursuant to a written charter, will consist of, and. Our compensation committee complies with the provisions of the Companies Law, the regulations promulgated thereunder, and our amended and restated articles of association, on all aspects referring to its independence, authorities and practice. Our compensation committee follows home country practice as opposed to complying with the compensation committee membership and charter requirements prescribed under the Nasdaq Stock Market rules.
Our compensation committee reviews and recommends to our board of directors: with respect to our executive officers’ and directors’: (1) annual base compensation (2) annual incentive bonus, including the specific goals and amounts; (3) equity compensation; (4) employment agreements, severance arrangements, and change in control agreements and provisions; (5) retirement grants and/or retirement bonuses; and (6) any other benefits, compensation, compensation policies or arrangements.
The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, to which we refer as a compensation policy. Such policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee. The compensation policy is then brought for approval by our shareholders, which requires a special majority (see “Management—Board Practices—Approval of Related Party Transactions under Israeli law”). Under the Companies Law, the board of directors may adopt the compensation policy if it is not approved by the shareholders, provided that after the shareholders oppose the approval of such policy, the compensation committee and the board of directors revisit the matter and determine that adopting the compensation policy would be in the best interests of the company. Under the Companies Law, we are required to adopt an office holder compensation policy no later than 9 months from the consummation of this offering.
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The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of executive officers and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
| ● | the education, skills, expertise and accomplishments of the relevant director or executive; | |
| ● | the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her; | |
| ● | the relationship between the cost of the terms of service of an office holder and the average median compensation of the other employees of the company (including those employed through manpower companies), including the impact of disparities in salary upon work relationships in the company; | |
| ● | the possibility of reducing variable compensation at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable compensation; and | |
| ● | as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
The compensation policy must also include the following principles:
| ● | with the exception of office holders who report directly to the chief executive officer, the link between variable compensation and long-term performance and measurable criteria; | |
| ● | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of its grant; | |
| ● | the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; | |
| ● | the minimum holding or vesting period for variable, equity-based compensation; and | |
| ● | maximum limits for severance compensation. |
The compensation policy must also consider appropriate incentives from a long-term perspective.
The compensation committee is responsible for: (1) recommending the compensation policy to a company’s board of directors for its approval (and subsequent approval by the shareholders); and (2) duties related to the compensation policy and to the compensation of a company’s office holders, including:
| ● | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); | |
| ● | recommending to the board of directors periodic updates to the compensation policy; | |
| ● | assessing implementation of the compensation policy; | |
| ● | determining whether the terms of compensation of certain office holders of the company need not be brought to approval of the shareholders; and | |
| ● | determining whether to approve the terms of compensation of office holders that require the committee’s approval. |
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Our compensation policy will be designed to promote our long-term goals, work plan and policy, retain, motivate and incentivize our directors and executive officers, while considering the risks that our activities involve, our size, the nature and scope of our activities and the contribution of an officer to the achievement of our goals and maximization of profits, and align the interests of our directors and executive officers with our long-term performance. To that end, a portion of an executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy will include measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer and minimum vesting periods for equity-based compensation.
Our compensation policy will also address our executive officer’s individual characteristics (such as his or her respective position, education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation among our executive officers, and considers the internal ratios between compensation of our executive officers and directors and other employees. For example, the compensation that may be granted to an executive officer may include: base salary, annual bonuses, equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executive officer’s base salary. In addition, our compensation policy will provide for maximum permitted ratios between the total variable (cash bonuses and equity-based compensation) and non-variable (base salary) compensation components, in accordance with an officer’s respective position with the company.
An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to executive officers other than our chairman or Chief Executive Officer may be based entirely on a discretionary evaluation. Our Chief Executive Officer will be entitled to recommend performance objectives to such executive officers, and such performance objectives will be approved by our compensation committee (and, if required by law, by our board of directors).
The performance measurable objectives of our chairman and Chief Executive Officer will be determined annually by our compensation committee and board of directors. A less significant portion of the chairman’s and/or the Chief Executive Officer’s annual cash bonus may be based on a discretionary evaluation of the chairman’s or the Chief Executive Officer’s respective overall performance by the compensation committee and the board of directors based on quantitative and qualitative criteria.
The equity-based compensation under our compensation policy for our executive officers (including members of our board of directors) will be designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the executive officers’ interests with our long-term interests and those of our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation policy will provide for executive officer compensation in the form of share options or other equity-based awards, such as restricted shares and phantom, options, in accordance with our equity incentive plan then in place. Share options granted to executive officers shall be subject to vesting periods in order to promote long-term retention of the awarded executive officers. The equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.
In addition, our compensation policy will contain compensation recovery provisions which allows us under certain conditions to recover bonuses paid in excess, will enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer (provided that the changes of the terms of employment are in accordance our compensation policy) and will allow us to exculpate, indemnify and insure our executive officers and directors subject to certain limitations set forth thereto.
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Our compensation policy will also provide for compensation to the members of our board of directors either: (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may be amended from time to time; or (ii) in accordance with the amounts determined in our compensation policy.
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor nominated by the audit committee. We intend to appoint our internal auditor within 90 days following the consummation of this offering. The role of the internal auditor is to examine, among other things, whether a company’s actions comply with the law and proper business procedure. The audit committee is required to oversee the activities, and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. An internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. The Companies Law defines an interested party as a holder of 5% or more of the outstanding shares or voting rights of a company, any person or entity that has the right to appoint at least one director or the general manager of the company or any person who serves as a director or as the general manager of a company.
Remuneration of Directors
Under the Companies Law, remuneration of directors is subject to the approval of the compensation committee, thereafter by the board of directors and thereafter, unless exempted under the regulations promulgated under the Companies Law, by the general meeting of the shareholders. In case the remuneration of the directors is in accordance with regulations applicable to remuneration of the external directors then such remuneration shall be exempt from the approval of the general meeting. Where the director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply.
Fiduciary Duties of Office Holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:
| ● | information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and | |
| ● | all other important information pertaining to these actions. |
The duty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:
| ● | refrain from any conflict of interest between the performance of his duties in the company and his performance of his other duties or personal affairs; | |
| ● | refrain from any action that is competitive with the company’s business; | |
| ● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and | |
| ● | disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder. |
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Insurance
Under the Companies Law, a company may obtain insurance for any of its office holders against the following liabilities incurred due to acts he or she performed as an office holder, if and to the extent provided for in the company’s articles of association:
| ● | breach of his or her duty of care to the company or to another person, to the extent such a breach arises out of the negligent conduct of the office holder; |
| ● | a breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the company’s interests; and | |
| ● | a financial liability imposed upon him or her in favor of another person. |
Prior to the consummation of this offering, we intend to purchase directors’ and officers’ liability insurance, providing total coverage of $10 million for the benefit of all of our directors and officers.
Indemnification
The Companies Law and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court: (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceeding of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and | |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and | |
| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
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We have entered into indemnification agreements with all of our directors and with all members of our senior management. Each such indemnification agreement provides the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.
Exculpation
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.
Limitations
The Companies Law provides that we may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our amended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
The foregoing descriptions summarize the material aspects and practices of our board of directors. For additional details, we also refer you to the full text of the Companies Law, as well as of our amended and restated articles of association, which are exhibits to this registration statement of which this prospectus forms a part, and are incorporated herein by reference.
There are no service contracts between us, on the one hand, and our directors in their capacity as directors, on the other hand, providing for benefits upon termination of service.
Approval of Related Party Transactions under Israeli Law
General
Under the Companies Law, we may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:
| ● | the office holder acts in good faith and the act or its approval does not cause harm to the company; and | |
| ● | the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter. |
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Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
| ● | the office holder’s relatives; or | |
| ● | any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager. |
An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an extraordinary transaction is a transaction:
| ● | not in the ordinary course of business; | |
| ● | not on market terms; or | |
| ● | that is likely to have a material effect on the company’s profitability, assets or liabilities. |
The Companies Law does not specify to whom within us nor the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our board of directors.
Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is in the company’s interest. If the transaction is an extraordinary transaction in which an office holder has a personal interest, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. A director who has a personal interest in a transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majority of members of the board of directors or the audit committee, as the case may be, has a personal interest. If a majority of the board of directors has a personal interest, then shareholder approval is generally also required.
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Disclosure of Personal Interests of a Controlling Shareholder
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, as well as transactions for the provision of services whether directly or indirectly by a controlling shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms of engagement and compensation of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee or the compensation committee, as the case may be, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements or a special majority:
| ● | at least a majority of the shares held by shareholders who are not controlling shareholders and have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or | |
| ● | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company. |
In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.
The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
The term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint 50% or more of the directors of the company or its general manager. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated.
Approval of the Compensation of Directors and Executive Officers
The compensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval of the company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify, insure or exculpate is inconsistent with the company’s stated compensation policy, or if the said office holder is the chief executive officer of the company (subject to a number of specific exceptions), then such arrangement is subject to the approval of our shareholders, subject to a special majority requirement.
Directors. Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the general meeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, shareholder approval by a special majority will be required.
Executive officers other than the chief executive officer. The Companies Law requires the approval of the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) only if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders by a special majority. However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
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Chief executive officer. Under the Companies Law, the compensation of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders by a special majority. However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provides detailed reasons for their decision. In addition, the compensation committee may exempt the engagement terms of a candidate to serve as the chief executive officer from shareholders’ approval, if the compensation committee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjecting the approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s chief executive officer (and provide detailed reasons for the latter).
The approval of each of the compensation committee and the board of directors, with regard to the office holders and directors above, must be in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committee and the board of directors may approve compensation terms of a chief executive officer that are inconsistent with the company’s compensation policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained by a special majority requirement.
Duties of Shareholders
Under the Companies Law, a shareholder has a duty to refrain from abusing his power in the company and to act in good faith and in an acceptable manner in exercising his rights and performing his obligations toward the company and other shareholders, including, among other things, in voting at general meetings of shareholders (and at shareholder class meetings) on the following matters:
| ● | amendment of the articles of association; | |
| ● | increase in the company’s authorized share capital; | |
| ● | merger; and | |
| ● | the approval of related party transactions and acts of office holders that require shareholder approval. |
A shareholder also has a general duty to refrain from oppressing other shareholders. The remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of oppression of other shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
Equity Incentive Plan - 2021 Equity Incentive Plan
We maintain one equity incentive plan – the 2021 Incentive Plan. As of March 30, 2022, the number of options allotted is 1,465,289. In addition. The number of options that have vested and have not yet been exercised or expired are 1,132,766 (including 533,528 option which vests upon this offering).
Our 2021 Incentive Plan was adopted by our board of directors in February 2021 and expires on February 2031. Our employees, directors, officer, consultants, advisors, suppliers and any other person or entity whose services are considered valuable to us are eligible to participate in this plan.
Our 2021 Incentive Plan is administered by our board of directors, regarding the granting of options and the terms of option grants, including exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of these plan. Eligible Israeli employees, officers and directors, would qualify for provisions of Section 102(b)(2) of the Israeli Income Tax Ordinance (New Version), 5721 –1961, or the Tax Ordinance. Pursuant to such Section 102(b)(2), qualifying options and shares issued upon exercise of such options are held in trust and registered in the name of a trustee selected by the board of directors. The trustee may not release these options or shares to the holders thereof for two years from the date of the registration of the options in the name of the trustee. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options or Ordinary Shares by the trustee to the employee or upon the sale of the options or Ordinary Shares, and gains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions (which rate may be increased by an additional 3% surtax depending on the individual income amounts). Our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(9) of the Tax Ordinance, which does not provide for similar tax benefits. The 2021 Incentive Plan also permits the grant to Israeli grantees of options that do not qualify under Section 102(b)(2).
Upon termination of employment without Cause, as defined in the 2021 Incentive Plan, all unvested options will expire, and all vested options will generally be exercisable for three (3) months following termination, or such other period as determined by the plan administrator, subject to the terms of the 2021 Incentive Plan and the governing option agreement.
Upon termination of employment due to death, retirement or absolute disability, all the vested options at the time of termination will be exercisable for 12 months following termination, or such other period as determined by the plan administrator, subject to the terms of the 2021 Incentive Plan and the governing option agreement.
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The following table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of May 3, 2022 by:
| ● | each person or entity known by us to own beneficially 5% or more of our outstanding Ordinary Shares; |
| ● | each of our directors and executive officers individually; and |
| ● | all of our directors and executive officers as a group. |
The beneficial ownership of our Ordinary Shares is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below, we deem Ordinary Shares issuable pursuant to options that are currently exercisable or exercisable within 60 days of August 9, 2022 to be outstanding and to be beneficially owned by the person holding the options for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. Percentage of shares beneficially owned before this offering is based on 29,367,786 Ordinary Shares issued and outstanding as of August 9, 2022. The number of Ordinary Shares deemed issued and outstanding after this offering is based on Ordinary Shares as part of the Units which includes the Ordinary Shares offered hereby but assumes no exercise of the underwriter’s over-allotment option.
As of August 9, 2022 and based on their reported registered office, none of our shareholders were U.S. persons. We have also set forth below information known to us regarding any significant change in the percentage ownership of our Ordinary Shares by any major shareholders during the past three years. Except where otherwise indicated, we believe, based on information furnished to us by such owners, that the beneficial owners of the Ordinary Shares listed below have sole investment and voting power with respect to such shares.
Following the closing of this offering, all of our shareholders, including the shareholders listed below, will have the same voting rights attached to their Ordinary Shares, and neither our principal shareholders nor our directors and executive officers will have different or special voting rights with respect to their Ordinary Shares. See “Description of Share Capital—Voting Rights.” A description of any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the past three years is included under “Certain Relationships and Related Party Transactions.”
Unless otherwise noted below, the address of each shareholder, director and executive officer is c/o Polyrizon Ltd., 5 Ha-Tidhar Street, Raanana, 4366507 Israel.
| Ordinary Shares | Percentage
of Ordinary Shares beneficially owned | |||||||||||
| Name of beneficial owner 5% or greater shareholders: | beneficially owned | Before offering | After offering | |||||||||
| Raul Srugo (1) | 11,911,176 | 40.6 | % | % | ||||||||
| Medigus Ltd. (2) | 10,067,790 | 34.3 | % | |||||||||
| Tomer Izraeli | 2,592,475 | 8.8 | % | |||||||||
| Ofakim Hi-Tech Ventures Ltd. (3) | 1,842,577 | 6.3 | % | |||||||||
| Directors and executive officers Who are not 5% holders: | ||||||||||||
| Eyal S. Ron | 329,891 | 1.1 | % | % | ||||||||
| Tidhar Turgema | 371,871 | 1.3 | % | % | ||||||||
| Daphna Avital | - | - | % | % | ||||||||
| Oz Adler | _ | - | % | % | ||||||||
| Roy Borochov | - | - | ||||||||||
| Liron Carmel | - | - | ||||||||||
| Nir Ben Yosef | 27,250 | * | % | |||||||||
| All directors and executive officers as a group (9 persons) | 27,143,030 | 89.8 | % | % | ||||||||
| * | Indicates beneficial ownership of less than 1% of the total Ordinary Shares outstanding. |
| (1) | Consists of 11,911,176 Ordinary Shares registered in the name of Mr. Srugo’s mother, Sara Srugo. |
| (2) | The address of Medigus Ltd. is Omer Industrial Park No. 7A, P.O. Box 3030, 8496500, Israel. Medigus is a publicly traded company. To the best of our knowledge, Medigus does not have any controlling shareholders. The chief executive officer of Medigus is Liron Carmel. |
| (3) | The address of Ofakim Hi-Tech Ventures Ltd. is 1 Givat Ha Tahmoshet, 6702101, Israel. The controlling shareholder of Ofakim is Capital Point Ltd. The chief executive officer of Capital Point Ltd. is Yossi Tamar. Mr. Tamar may be deemed to have beneficial ownership of the shares held by Ofakim Hi-Tech Ventures by virtue of his position with Capital Point Ltd. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of the material terms of those transactions with related parties to which we, or our subsidiaries, are party.
Private Placements of our Securities
Medigus Ltd. Share Purchase Agreements
On July 15, 2020, we entered into a share purchase agreement with Medigus Ltd., or Medigus, pursuant to which we issued a total of 915,514 of our Ordinary Shares for aggregate gross proceeds of $100,000.
As part of the July 15, 2020 agreement, Medigus was granted with an option, or the Original Option, to purchase 3,107,223 ordinary shares for $1,000,000. The Original Option would become exercisable immediately and expires at the earlier of April 23, 2023 or immediately prior to the consummation by us of equity financing in an amount no less than $500,000 based on a pre-money valuation of at least $10,000,000.
As part of the Share Purchase Agreement executed on July 15, 2020 with Medigus, an exclusive reseller agreement was signed (on the same date) between the Company and Medigus, whereby, Medigus shall have an exclusive, worldwide, sub-licensable right to promote, market and resell certain product candidates of the Company to customers. The license commencement date shall be the date upon which the Company receives FDA approvals with regards to those product candidates and will continue for a period of four years. In consideration of such license, the Company will be entitled to receive annual royalty payments equal to 10% of (i) the proceeds from actual sales (excluding rebates and returns) of the product candidates by Medigus in any calendar year, less (ii) the aggregate price paid for such product candidates and less (iii) Medigus’ operating expenses relating to the sale of such product candidates, as determined in good faith by Medigus.
On March 9, 2021, we entered into the March 2021 Private Placement with certain investors, including Medigus, pursuant to which issued an aggregate of 7,668,712 Ordinary Shares, at a price per share of $0.0326 for aggregate net proceeds of $250,000.
On December 15, 2021, we and Medigus entered into an addendum to the July 15, 2020 purchase agreement, or the Addendum, pursuant to which, Medigus was granted a new option, or the New Option to invest an amount of $2,000,000 at a price per share equal to 125% the price per share at the initial public offering. The New Option is only exercisable subject to the successful completion of an initial public offering and for a period of 3 years thereafter, subsequently, the Original Option will be terminated and become null and void. As part of the Addendum, Medigus undertook not to exercise the Original Option until the earlier of: (i) the consummation of the initial public offering; or (ii) if no initial public offering is consummated, June 30, 2022. If the New Option becomes effective as a result of the consummation of an initial public offering, the Original Option shall terminate.
One of our Directors, Liron Carmel, is the Chief Executive Officer of Medigus. Medigus currently beneficially holds 10,067,790 or 34.3% of our Ordinary Shares.
August 2021 Share Purchase Agreement
On August 25, 2021, we entered into a Share Purchase Agreement with certain investors, including certain of our directors and officers, pursuant to which we issued 14,328,396 Ordinary Shares, at a price per share of $0.0544 for aggregate net proceeds of $779,971.
2022 SAFE Agreements
In January 2022 and in June 2022, we signed the 2022 SAFE Agreements with the SAFE Investors of the Company for an aggregate amount of $709,952. Pursuant to the terms of the January 2022 SAFE Agreements, upon consummation of a Qualified Equity Financing (which is defined as at least $300,000 aggregate proceeds), we will issue to each SAFE Investor the number of most senior class of shares issued in the Qualified Equity Financing equal to the Investment Amount divided by the discount price (which is defined as the lowest price per SAFE share sold in the Equity Financing discounted by to 20%).
The SAFE Investors include, Reuven Srugo Construction Company Ltd., or Reuven Construction, which is owned in part by Raul Srugo, one of our Directors, and also includes Medigus, one of our greater than 5% shareholders.
Loans with Related Parties
Loans with Medigus
On January 12, 2021, we entered into a loan agreement with Medigus, pursuant to which Medigus agreed to loan us NIS 50,000 (approximately $15,432) with an annual interest rate of approximately 4%, or the January Medigus Loan. We agreed to repay the January Medigus Loan from consideration received from a future equity financing or by conversion of the loan to shares of the company in accordance with the terms and conditions of such equity financing, at the discretion of the company. The maturity date of the loan was June 30, 2021.
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On February 2, 2021, we entered into a loan agreement with Medigus, pursuant to which Medigus agreed to loan us NIS 30,000 (approximately $9,259) with an annual interest rate of approximately 4%, or the February Medigus Loan, and with the January Medigus Loan, the Medigus Loans. We agreed to repay the February Medigus Loan from consideration received from da future equity financing or by conversion of the loan to shares of the company in accordance with the terms and conditions of such equity financing, at the discretion of the company. The maturity date of the loan was June 30, 2021.
In association with the March 2021 Private Placement, the Medigus Loans were converted into Ordinary Shares as part of this transaction and were repaid in full by such conversion.
Loan with Reuven Srugo Construction
On March 1, 2021, we entered into a loan agreement with Reuven Construction, pursuant to which Reuven Construction agreed to loan us NIS 30,000 (approximately $9,259) with an annual interest rate of approximately 4%, or the Reuven Construction Loan. We agreed to repay the Reuven Construction Loan from consideration received from a future equity financing or by conversion of the loan to shares of the company in accordance with the terms and conditions of such equity financing, at the discretion of the company. The maturity date of the loan was June 30, 2021.
In association with the March 2021 Private Placement, the Reuven Srugo Construction Loan was converted into Ordinary Shares as part of this transaction and were repaid in full by such conversion.
Reuven Construction is owned in part by Raul Srugo, one of our Directors.
Agreements and Arrangements With, and Compensation of, Directors and Executive Officers
We have entered into written employment and consulting agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them up to a certain amount and to the extent that these liabilities are not covered by directors and officers insurance.
Options
Since our inception, we have granted options to purchase our Ordinary Shares to our officers and certain of our directors. Such option agreements may contain acceleration provisions upon certain merger, acquisition, or change of control transactions. We describe our option plans under “Management—Equity Incentive Plan.” If the relationship between us and an executive officer or a director is terminated, except for cause (as defined in the various option plan agreements), options that are vested will generally remain exercisable for three months after such termination.
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The following descriptions of our share capital and provisions of our amended and restated articles of association which will be effective upon the closing of this offering are summaries and do not purport to be complete. A form of our amended and restated articles of association will be filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part. The description of the Ordinary Shares reflects changes to our capital structure that will occur upon the closing of this offering.
General
As of the date of this prospectus, our authorized share capital consisted of 36,000,000 Ordinary Shares, NIS 0.04 par value, of which 29,367,786 Ordinary Shares were issued and outstanding as of such date. All of our outstanding Ordinary Shares have been validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and are not subject to any preemptive right.
Our registration number with the Israeli Registrar of Companies is 513637025.
Since January 2019, we have issued an aggregate of 23,522,088 Ordinary Shares.
In addition to Ordinary Shares, in the last three years, we have granted options to purchase an aggregate of 1,465,289 Ordinary Shares to directors, officers and employees with exercise prices ranging between $0.03 and $0.05 per share under our 2021 Plan. As of the date of this prospectus, the total outstanding amount of options under the 2021 Plan is 1,465,289.
In addition, we currently have 2,180,201 Preferred Shares issued and outstanding, which will automatically convert into 2,180,201 Ordinary Shares upon the completion of this offering. In addition, following the conversion of the foregoing Preferred Shares into Ordinary Shares, and upon the adoption of our amended and restated articles of association to be effective upon the closing of this offering, we will no longer have any authorized preferred shares available for issuance.
All of our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. Our Ordinary Shares are not redeemable and do not have any preemptive rights.
All Ordinary Shares have identical voting and other rights in all respects.
The Powers of the Directors
Our Board of Directors shall direct our policy and shall supervise the performance of our Chief Executive Officer and his actions. Our Board of Directors may exercise all powers that are not required under the Companies Law or under our amended and restated articles of association to be exercised or taken by our shareholders.
Rights Attached to Shares
Our Ordinary Shares shall confer upon the holders thereof:
| ● | equal right to attend and to vote at all of our general meetings, whether regular or special, with each Ordinary Share entitling the holder thereof, which attend the meeting and participate at the voting, either in person or by a proxy or by a written ballot, to one vote; |
| ● | equal right to participate in distribution of dividends, if any, whether payable in cash or in bonus shares, in distribution of assets or in any other distribution, on a per share pro rata basis; and | |
| ● | equal right to participate, upon our dissolution, in the distribution of our assets legally available for distribution, on a per share pro rata basis. |
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Election of Directors
Pursuant to our amended and restated articles of association, our directors are divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors (other than the external directors, to the extent applicable). At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors is for a term of office that expires on the third annual general meeting following such election or re-election, such that at each annual general meeting the term of office of only one class of directors expires. Each director will hold office until the annual general meeting of our shareholders in which his or her term expires, unless they are removed by a vote of 65% of the total voting power of our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our articles. External directors, if applicable, are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Companies Law. See “Management—Board Practices—External Directors.”
Annual and Special Meetings
Under the Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year, at such time and place which shall be determined by our Board of Directors, that must be no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special general meetings. Our Board of Directors may call special meetings whenever it sees fit and upon the request (i) any two of our directors or such number of directions equal to ¼ of the directors then at office (ii) any shareholder or shareholders holding at least five percent (5%) or a higher percent of our outstanding and issued shares and 1% of our outstanding voting rights or (iii) any shareholder or shareholders holding at least five percent (5%) of our outstanding voting rights.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and twenty one days prior to the date of the meeting. Resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our amended and restated articles of association; | |
| ● | the exercise of our Board of Director’s powers by a general meeting if our Board of Directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management; | |
| ● | appointment or termination of our auditors; | |
| ● | appointment of directors, including external directors; | |
| ● | approval of acts and transactions requiring general meeting approval pursuant to the provisions of the Companies Law (mainly certain related party transactions) and any other applicable law; | |
| ● | increases or reductions of our authorized share capital; | |
| ● | a merger (as such term is defined in the Companies Law); and | |
| ● | a dissolution of the company by its shareholders (as such term is defined in the Company’s Law). |
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Notices
The Companies Law and our amended and restated articles of association require that a notice of any annual or special shareholders meeting be published in at least two widely circulated newspapers, in addition to the company’s internet website, at least 21 days prior to the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, approval of the company’s general manager to serve as the chairman of the board of directors or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Quorum
As permitted under the Companies Law, the quorum required for our general meetings consists of at least two shareholders present in person, by proxy, written ballot or voting by means of electronic voting system, who hold or represent between them at least 25% of the total outstanding voting rights. If within half an hour of the time set forth for the general meeting a quorum is not present, the general meeting shall stand adjourned the same day of the following week, at the same hour and in the same place, or to such other date, time and place as prescribed in the notice to the shareholders and in such adjourned meeting, if no quorum is present within half an hour of the time arranged, any number of shareholders participating in the meeting, shall constitute a quorum.
If a special general meeting was summoned following the request of a shareholder, and within half an hour a legal quorum shall not have been formed, the meeting shall be canceled.
Adoption of Resolutions
Our amended and restated articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required under the Companies Law or our amended and restated articles of association. A shareholder may vote in a general meeting in person, by proxy, by a written ballot.
Changing Rights Attached to Shares
Unless otherwise provided by the terms of the shares and subject to any applicable law, any modification of rights attached to any class of shares must be adopted by the holders of a majority of the shares of that class present a general meeting of the affected class or by a written consent of all the shareholders of the affected class.
The enlargement of an existing class of shares or the issuance of additional shares thereof, shall not be deemed to modify the rights attached to the previously issued shares of such class or of any other class, unless otherwise provided by the terms of the shares.
Limitations on the Right to Own Securities in Our Company
There are no limitations on the right to own our securities.
Provisions Restricting Change in Control of Our Company
There are no specific provisions of our amended and restated articles of association that would have an effect of delaying, deferring or preventing a change in control of our company or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or our Subsidiary). However, as described below, certain provisions of the Companies Law may have such effect.
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The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transaction approved by its board of directors and, unless certain requirements described under the Companies Law are met, a vote of the majority of shareholders, and, in the case of the target company, also a majority vote of each class of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, the merger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the other party to the merger (or by any person or group of persons acting in concert who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors. If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court must find that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders. In addition, a merger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the Israeli Registrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.
The Companies Law also provides that, subject to certain exceptions, an acquisition of shares in an Israeli public company must be made by means of a “special” tender offer if as a result of the acquisition (1) the purchaser would become a controlling shareholder if there is no controlling shareholder in the company or (2) the purchaser would become a holder of 45% or more of the voting rights in the company, unless there is already a holder of more than 45% of the voting rights in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholders’ approval, subject to certain conditions, (2) was from a controlling shareholder in the company which resulted in the acquirer becoming a controlling shareholder in the company, or (3) was from a holder of more than 45% of the voting rights in the company which resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. A “special” tender offer must be extended to all shareholders. In general, a “special” tender offer may be consummated only if (1) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (2) the offer is accepted by a majority of the offerees who notified the company of their position in connection with such offer (excluding the offeror, controlling shareholders, holders of 25% or more of the voting rights in the company or anyone on their behalf, or any person having a personal interest in the acceptance of the tender offer). If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
If, as a result of an acquisition of shares, the acquirer will hold more than 90% of an Israeli company’s outstanding shares or of certain class of shares, the acquisition must be made by means of a tender offer for all of the outstanding shares, or for all of the outstanding shares of such class, as applicable. In general, if less than 5% of the outstanding shares, or of applicable class, are not tendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares. Any shareholders that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may request, by petition to an Israeli court, (i) appraisal rights in connection with a full tender offer, and (ii) that the fair value should be paid as determined by the court, for a period of six months following the acceptance thereof. However, the acquirer is entitled to stipulate, under certain conditions, that tendering shareholders will forfeit such appraisal rights.
Lastly, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his Ordinary Shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
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Exclusive Forum
Our articles of association provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions, and accordingly, both state and federal courts have jurisdiction to entertain such claims. While the federal forum provision in our articles of association does not restrict the ability of our shareholders to bring claims under the Securities Act, we recognize that it may limit shareholders’ ability to bring a claim in the judicial forum that they find favorable and may increase certain litigation costs, which may discourage the filing of claims under the Securities Act against the Company, its directors and officers. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provisions in our articles of association. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provision of our articles of association described above. It is clarified that the federal district courts of the United States of America shall be the exclusive forum for suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder.
Our amended and restated articles of association to be effective upon the closing of this offering also provide that unless we consent in writing to the selection of an alternative forum, the competent courts in Tel Aviv, Israel shall be the exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action asserting a breach of a fiduciary duty owed by any of our directors, officers or other employees to the Company or our shareholders or any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law.
Changes in Our Capital
The general meeting may, by a simple majority vote of the shareholders attending the general meeting:
| ● | increase our registered share capital by the creation of new shares from the existing class or a new class, as determined by the general meeting; | |
| ● | cancel any registered share capital which have not been taken or agreed to be taken by any person; | |
| ● | consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares; | |
| ● | subdivide our existing shares or any of them, our share capital or any of it, into shares of smaller nominal value than is fixed; and | |
| ● | reduce our share capital and any fund reserved for capital redemption in any manner, and with and subject to any incident authorized, and consent required, by the Companies Law. |
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DESCRIPTION OF SECURITIES WE ARE OFFERING
Units
We are offering the Units at the initial assumed public offering price of $___ per Unit. Each Unit consists of one share of Ordinary Share and a Warrant to purchase one Ordinary Share at an exercise price equal to $___ (based on an assumed public offering price of $____ per Unit, the midpoint of the range set forth on the cover page of this prospectus), which is 100% of the public offering price of the Units. The Ordinary Shares and Warrants may be transferred separately immediately upon issuance.
Ordinary Shares
The material terms and provisions of our Ordinary Shares are described under the caption “Description of Share Capital” in this prospectus.
Warrants Included in the Units
The following summary of certain terms and provisions of the Warrants offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant agent agreement between us and _______, as warrant agent, and the form of Warrant, both of which are filed as exhibits to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the warrant agent agreement, including the annexes thereto, and 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 five years after their original issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the Ordinary Shares underlying the warrants under the Securities Act is effective and available for the issuance of such shares, by payment in full in immediately available funds for the number of Ordinary Shares purchased upon such exercise. If a registration statement registering the issuance of the Ordinary Shares underlying the Warrants under the Securities Act is not effective or available the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Ordinary Shares determined according to the formula set forth in the Warrant. No fractional shares 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 Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of Ordinary Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days following notice from the holder to us.
Exercise Price. The exercise price per whole Ordinary Share purchasable upon exercise of the Warrants is $ per share, which is 100% of the public offering price of the Units. 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 Ordinary Shares and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Subject to certain exemptions outlined in the Warrant, for a period until the later of: (i) two years from the date of issuance of the Warrant, or (ii) on the date no Qualified Holders hold any Warrants, if the Company shall sell, enter into an agreement to sell, or grant any option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Ordinary Shares or convertible security, at an effective price per share less than the exercise price of the Warrant then in effect, or a Dilutive Issuance, the exercise price of the Warrant shall be reduced to equal the effective price per share in such Dilutive Issuance; provided, however, that in no event shall the exercise price of the Warrant be reduced to an exercise price lower than 50% of public offering price per Unit in this offering. On the date that is 90 calendar days immediately following the initial issuance date of the Warrants, the exercise price of the Warrants will adjust to be equal to the Reset Price, provided that such value is less than the exercise price in effect on that date. The Reset Price is equal to the greater of (a) 50% of the initial exercise price (as adjusted for share splits, share dividends, recapitalizations and similar events pursuant to Section 3(a) of the Warrants) of the Warrants on the issuance date or (b) 100% of the lowest volume weighted average price per Ordinary Share occurring during the 90 calendar days following the issuance date of the Warrants. The lowest Reset Price is $ , which is 50% of the offering price, based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units, per Ordinary Share.
Additional Warrants. Additionally, in the event of any adjustment under the Warrants results in a reduction of the exercise price, in the aggregate, to 50% of the initial exercise price, then, in connection with such adjustment, each Qualified Holder (each holder, including each beneficial holder of Warrants, taken together with all affiliates of such holder and/or beneficial holder that purchased at least Warrants (based on an assumed public offering price of $ per Unit, the midpoint of the price range of the Units) in connection with this offering shall receive one-half of one Additional Warrant for each one Qualified Warrant held by such holder on the date of adjustment. The term Qualified Warrants means at least Warrants purchased as part of a Unit in connection with this offering by any Warrant holder, including each beneficial holder of the Warrants, taken together with all affiliates of such Warrant holder and/or beneficial holder. The maximum number of Warrants subject to such adjustment by a given Qualified Holder will be limited to the number of Warrants purchased by such Qualified Holder in connection with this offering. Such Additional Warrants shall be on substantially the same terms as the as-adjusted Warrant; provided, however, that the term of the Additional Warrants shall be five (5) years from the issuance date and such Additional Warrants will not be tradable warrants.
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Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We have applied to list our Ordinary Shares and Warrants on Nasdaq, under the symbols “ ” and “ ,” respectively. No assurance can be given that our application will be approved or that a trading market will develop.
Warrant Agent. The Warrants will be issued in registered form under a warrant agent agreement between ________, as warrant agent, and us. The Warrants shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
Forced Redemption. If at any time the closing price per share of the Ordinary Shares shall exceed 200% of the exercise price then in effect for ten consecutive trading days on each of which the daily dollar volume of the Ordinary Shares equals or exceeds $3,500,000, the Company, at its option, may redeem the Warrants, in whole or in part, at a price of $0.001 per share (subject to adjustment as provided therein, the “Redemption Price”). The Company may exercise its redemption right by giving a redemption notice to the holder no more than and no less than calendar days before the date fixed specified in the redemption notice for redemption. On and after 5:00 p.m. (New York City time) on the date fixed for redemption, a holder shall have no rights with respect to its Warrant except to receive the Redemption Price.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Ordinary Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Ordinary Shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Ordinary Shares, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction without regard to any limitations on exercised contained in the Warrants.
Rights as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of our Ordinary Shares, the holder of a Warrant does not have the rights or privileges of a holder of our Ordinary Shares, including any voting rights, until the holder exercises the Warrant.
Governing Law. The Warrants and the warrant agent agreement are governed by New York law.
Representative’s Warrants
See “Underwriting — Representative’s Warrants” for a description of the warrants we have agreed to issue to the representative of the underwriters in this offering, subject to the completion of the offering.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, no public market existed for our Ordinary Shares. Sales of substantial amounts of our Ordinary Shares following this offering, or the perception that these sales could occur, could adversely affect prevailing market prices of our Ordinary Shares and could impair our future ability to obtain capital, especially through an offering of equity securities. Assuming that the underwriters do not exercise in full their option to purchase additional Ordinary Shares with respect to this offering and assuming no exercise of options outstanding following this offering, we will have an aggregate of Ordinary Shares outstanding upon the closing of this offering. Of these shares, the Ordinary Shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates” (as that term is defined under Rule 144 of the Securities Act, or Rule 144), who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.
The remaining Ordinary Shares will be held by our existing shareholders and will be deemed to be “restricted securities” under Rule 144. Subject to certain contractual restrictions, including the lock-up agreements described below, restricted securities may only be sold in the public market pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under Rule 144, Rule 701 or Rule 904 under the Securities Act. These rules are summarized below. Sales of these shares in the public market after the restrictions under the lock-up agreements lapse, or the perception that those sales may occur, could cause the prevailing market price of our Ordinary Shares to decrease or to be lower than it might be in the absence of those sales or perceptions.
Eligibility of Restricted Shares for Sale in the Public Market
Approximately 29,367,786 of our Ordinary Shares will be eligible for resale pursuant to Rule 144 after 90 days following the pricing of this offering as follows:
| ● | with respect to non-affiliates of our company who will hold an aggregate of 4,940,237 Ordinary Shares upon the consummation of this offering, following the expiration of a non-affiliate’s six-month holding period and subject to our compliance with the current public information requirements under Rule 144; and | |
| ● | with respect to affiliates of our company who will hold an aggregate of 24,427,549 Ordinary Shares upon the consummation of this offering, following the expiration of an affiliate’s six-month holding period and subject to our compliance with the current public information requirements under Rule 144, and subject to the volume, manner of sale and other limitations under Rule 144 applicable to securities held by affiliates. |
In each case, the shares will also be subject to the contractual restrictions arising under the lock-up agreements described below.
All of the Ordinary Shares sold in this offering will be eligible for immediate sale upon the closing of this offering. Certain of our existing shareholders, including entities affiliated with certain of our directors and beneficial owners of greater than 5% of our share capital, have indicated an interest in purchasing up to an aggregate of $27 million of Ordinary Shares in this offering at the initial public offering price per share. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these shareholders, or any of these shareholders may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these shareholders as they will on any other shares sold to the public in this offering.
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Lock-Up Agreements
We, all of our directors and executive officers and holders of substantially all of our outstanding Ordinary Shares and our Ordinary Shares issuable upon the exercise of options and warrants have signed lock-up agreements. Pursuant to such lock-up agreements, such persons have agreed, subject to certain exceptions, not to sell or otherwise dispose of Ordinary Shares or any securities convertible into or exchangeable for Ordinary Shares for a period of 180 days after the date of this prospectus without the prior written consent of the representative of the underwriters in this offering, which may, in its sole discretion, at any time without prior notice, release all or any portion of the Ordinary Shares from the restrictions in any such agreement.
Rule 144
Shares Held for Six Months
In general, under Rule 144 as currently in effect, and subject to the terms of any lock-up agreement, commencing 90 days after the closing of this offering, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned our Ordinary Shares for six months or more, including the holding period of any prior owner other than one of our affiliates (i.e., commencing when the shares were acquired from our company or from an affiliate of our company as restricted securities), is entitled to sell our shares, subject to the availability of current public information about us. In the case of an affiliate shareholder, the right to sell is also subject to the fulfillment of certain additional conditions, including manner of sale provisions and notice requirements, and to a volume limitation that limits the number of shares to be sold thereby, within any three-month period, to the greater of:
| ● | 1% of the number of Ordinary Shares then outstanding; or | |
| ● | the average weekly trading volume of our Ordinary Shares on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
The six month holding period of Rule 144 does not apply to sales of unrestricted securities. Accordingly, persons who hold unrestricted securities may sell them under the requirements of Rule 144 described above without regard to the six-month holding period, even if they were considered our affiliates at the time of the sale or at any time during the ninety days preceding such date.
Shares Held by Non-Affiliates for One Year
Under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not considered to have been one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates, is entitled to sell his, her or its shares under Rule 144 without complying with the provisions relating to the availability of current public information or with any other conditions under Rule 144. Therefore, unless subject to a lock-up agreement or otherwise restricted, such shares may be sold immediately upon the closing of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who received or purchased Ordinary Shares from us under our incentive option plan or other written agreement before the closing of this offering is entitled to resell these shares.
The SEC has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of these options, including exercises after the closing of this offering. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above (see “Lock-Up Agreements”), may be sold beginning 90 days after the closing of this offering in reliance on Rule 144 by:
| ● | persons other than affiliates, without restriction; and | |
| ● | affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144. |
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The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our Ordinary Shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.
ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS
The following is a description of the material Israeli income tax consequences of the ownership of our Ordinary Shares. The following also contains a description of material relevant provisions of the current Israeli income tax structure applicable to companies in Israel, with reference to its effect on us. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the tax authorities will accept the views expressed in the discussion in question. The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or disposition of our Ordinary Shares. Shareholders should consult their own tax advisors concerning the tax consequences of their particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
General Corporate Tax Structure in Israel
The Company is subject to a corporate tax rate is 23%. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing corporate tax rate.
Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate. Under Israeli tax legislation, a corporation will be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident-company, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
| ● | amortization of the cost of purchased a patent, rights to use a patent, and know-how, which are used for the development or advancement of the company, over an eight-year period, commencing on the year in which such rights were first exercised; | |
| ● | under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and | |
| ● | expenses related to a public offering are deductible in equal amounts over three years. |
Eligibility for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
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Tax Benefits and Grants for Research and Development
Under the Israeli Encouragement of Research, Development and Industrial Initiative Technology Law, 5744-1984, as amended, and related regulations, or the Research Law, research and development programs which meet specified criteria and are approved by the IIA are eligible for grants of up to 50% of the project’s expenditure, as determined by the research committee, in exchange for the payment of royalties from the revenues generated from the sale of products and related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. The royalties are generally at a range of 3.0% to 5.0% of revenues until the entire IIA grant is repaid, together with an annual interest generally equal to the 12 months London Interbank Offered Rate applicable to dollar deposits that is published on the first business day of each calendar year.
The terms of the Research Law also require that the manufacture of products developed with government grants be performed in Israel. The transfer of manufacturing activity outside Israel may be subject to the prior approval of the IIA. Under the regulations of the Research Law, assuming we receive approval from the Chief Scientist to manufacture our IIA-funded products outside Israel, we may be required to pay increased royalties. The increase in royalties depends upon the manufacturing volume that is performed outside of Israel as follows:
| Manufacturing Volume Outside of Israel | Royalties
to the Chief Scientist as a Percentage of Grant | |||
| Up to 50% | 120 | % | ||
| Between 50% and 90% | 150 | % | ||
| 90% and more | 300 | % | ||
If the manufacturing is performed outside of Israel by us, the rate of royalties payable by us on revenues from the sale of product candidates manufactured outside of Israel will increase by 1% over the regular rates. If the manufacturing is performed outside of Israel by a third party, the rate of royalties payable by us on those revenues will be equal to the ratio obtained by dividing the amount of the grants received from the Office of the Chief Scientist and our total investment in the project that was funded by these grants. The transfer of no more than 10% of the manufacturing capacity in the aggregate outside of Israel is exempt under the Research Law from obtaining the prior approval of the IIA. A company requesting funds from the IIA also has the option of declaring in its IIA grant application an intention to perform part of its manufacturing outside Israel, thus avoiding the need to obtain additional approval. On January 6, 2011, the Research Law was amended to clarify that the potential increased royalties specified in the table above will apply even in those cases where the IIA approval for transfer of manufacturing outside of Israel is not required, namely when the volume of the transferred manufacturing capacity is less than 10% of total capacity or when the company received an advance approval to manufacture abroad in the framework of its IIA grant application.
The know-how developed within the framework of the Chief Scientist plan may not be transferred to third parties outside Israel without the prior approval of a governmental committee charted under the Research Law. The approval, however, is not required for the export of any product candidates developed using grants received from the Chief Scientist. The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration. The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general, on the ratio between the aggregate IIA grants to the total financial investments in the company, multiplied by the transaction consideration. According to the January 2011 amendment, the redemption fee in case of transfer of know-how to a party outside Israel will be based on the ratio between the aggregate IIA grants received by the company and the company’s aggregate R&D expenses, multiplied by the transaction consideration. According to regulations promulgated following the 2011 amendment, the maximum amount payable to the IIA in case of transfer of know how outside Israel shall not exceed 6 times the value of the grants received plus interest, and in the event that the receiver of the grants ceases to be an Israeli corporation such payment shall not exceed six times the value of the grants received plus interest, with a possibility to reduce such payment to up to three times the value of the grants received plus interest if the R&D activity remains in Israel for a period of three years after payment to the IIA.
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Transfer of know-how within Israel is subject to an undertaking of the recipient Israeli entity to comply with the provisions of the Research Law and related regulations, including the restrictions on the transfer of know-how and the obligation to pay royalties, as further described in the Research Law and related regulations.
These restrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-how outside Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties to the IIA. In particular, any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA in addition to any payment that may be required of us for transfer of manufacturing or know-how outside Israel. If we fail to comply with the Research Law, we may be subject to criminal charges.
Tax Benefits for Research and Development
Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related to scientific research and development projects, if:
| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; | |
| ● | The research and development must be for the promotion of the company; and | |
| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction. |
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the income Tax Ordinance, 1961. Expenditures not so approved are deductible in equal amounts over three years.
From time to time we may apply the Office of the Chief Scientist for approval to allow a tax deduction for all research and development expenses during the year incurred. There can be no assurance that such application will be accepted.
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets).
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Tax Benefits
The Investment Law grants tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) The definition of a Preferred Company includes a company incorporated in Israel that is not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to its income derived by its Preferred Enterprise, unless the Preferred Enterprise is located in a specified development zone, in which case the rate will be 7.5%.
Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld.
Taxation of our Shareholders
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders. A non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company will be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25% or more in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Additionally, a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under Convention Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended, or the United States-Israel Tax Treaty, the sale, exchange or other disposition of shares by a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset and is entitled to claim the benefits afforded to such a resident by the U.S.-Israel Tax Treaty, or a Treaty U.S. Resident, is generally exempt from Israeli capital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising from the such sale, exchange or disposition is attributed to a permanent establishment in Israel, under certain terms; (iv) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month period preceding the disposition, subject to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israel for 183 days or more during the relevant taxable year.
In some instances where our shareholders may be liable for Israeli tax on the sale of their Ordinary Shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
Taxation of Non-Israeli Shareholders on Receipt of Dividends. Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Ordinary Shares at the rate of 25%, which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. However, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. For example, under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our Ordinary Shares who is a Treaty U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by a Preferred Enterprise, that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Preferred Enterprise are not entitled to such reduction under the tax treaty but are subject to a withholding tax rate of 15% for a shareholder that is a U.S. corporation, provided that the condition related to our gross income for the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from a Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PERSONAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF THE EQUITY SECURITIES OFFERED BY THIS PROSPECTUS, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Subject to the limitations described in the next two paragraphs, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the Ordinary Shares and Warrants being offered by this prospectus, which we collectively refer to as “Equity Securities”. For this purpose, a “U.S. Holder” is a holder of Equity Securities that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; or (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations.
This summary does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase our Equity Securities. This summary generally considers only U.S. Holders that will own our Equity Securities as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the United States-Israel Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis. We will not seek a ruling from the Internal Revenue Service, or the IRS, with regard to the U.S. federal income tax treatment of an investment in our Equity Securities by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder based on such holder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping transfer, state, local, excise or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity;” (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our Equity Securities in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that holds our Equity Securities as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts or grantor trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly, indirectly or constructively, at any time, Ordinary Shares representing 10% or more of the stock (by vote or value) of our Company.
If a partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) holds our Equity Securities, the tax treatment of a person treated as a partner in the partnership for United States federal income tax purposes generally will depend on the status of the partner and the activities of the partnership. Partnerships (and other entities or arrangements so treated for United States federal income tax purposes) and their partners should consult their own tax advisors.
Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our EQUITY securities, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
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Allocation of Purchase Price Between Ordinary Shares and Accompanying Warrants
For U.S. federal income tax purposes, with respect to each Unit, the Ordinary Shares and Warrants acquired in this prospectus will be treated as an “investment unit” consisting of one Ordinary Share and two Warrants, with each Warrant exercisable into one Ordinary Share. The purchase price for each investment unit will be allocated between these two components in proportion to their relative fair market values at the time the Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Unit will establish the U.S. Holder’s initial tax basis for U.S. federal income tax purposes in each security included in each Unit. The separation of components of each Unit should not be a taxable event for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors regarding the allocation of the purchase price for a Unit.
Exercise and Expiration of Warrants
In general, a U.S. Holder will not recognize gain or loss for U.S. federal income tax purposes upon the exercise of Warrants into Ordinary Shares. The U.S. federal income tax treatment of a cashless exercise of Warrants into our Ordinary Shares is unclear. U.S. Holders should consult their tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of Warrants.
The expiration of a Warrant will be treated as if the U.S. Holder sold or exchanged the Warrant and recognized a capital loss equal to the U.S. Holder’s tax basis in the Warrant.
Certain Adjustments to the Warrants
Under Section 305 of the Code, an adjustment to the number of Ordinary Shares issued on the exercise of the Warrants, or an adjustment to the exercise price of the Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in our “earnings and profits” or assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to our shareholders). An adjustment to the Warrants that could result in a constructive distribution to a U.S. Holder would be treated as described under “Taxation of Dividends Paid on Ordinary Shares” below, and the tax treatment of distributions on the Warrants is unclear. Any resulting withholding tax attributable to deemed dividends would be collected from other amounts payable or distributable to the U.S. Holder. U.S. Holders should consult their tax advisors regarding the proper treatment of any adjustments to and distributions on the Warrants.
Taxation of Dividends Paid on Ordinary Shares
We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “Passive Foreign Investment Companies” below and the discussion of “qualified dividend income” below, a U.S. Holder, other than certain U.S. Holders that are U.S. corporations, will be required to include in gross income as ordinary income the amount of any distribution paid on the Ordinary Shares (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the Ordinary Shares to the extent thereof, and then capital gain. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income.
In general, preferential tax rates for “qualified dividend income” and long-term capital gains are applicable for U.S. Holders that are individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the United States-Israel Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
In addition, our dividends will be qualified dividend income if our Ordinary Shares are readily tradable on Nasdaq or another established securities market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a PFIC, as described below under “Passive Foreign Investment Companies.” A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our Ordinary Shares for at least 61 days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments with respect to positions in substantially similar or related property. Any days during which the U.S. Holder has diminished its risk of loss on our Ordinary Shares are not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our Ordinary Shares will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS, if any, will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS into U.S. dollars or otherwise disposes of them, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.
Dividends paid with respect to our Ordinary Shares will be treated as foreign source income, which may be relevant in calculating the holder’s foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if holders do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and U.S. Holders should consult their tax advisor to determine whether and to what extent such holder will be entitled to this credit.
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Taxation of the Sale, Exchange or other Disposition of Equity Securities
Except as provided under the PFIC rules described below under “Passive Foreign Investment Companies,” upon the sale, exchange or other disposition of our Equity Securities, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis for the Equity Securities, determined in U.S. dollars, and the U.S. dollar value of the amount realized on the disposition (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale, exchange or other disposition of Equity Securities will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition. Individuals who recognize long-term capital gains may be taxed on such gains at reduced rates of tax. The deduction of capital losses is subject to various limitations.
Passive Foreign Investment Companies
Based on the projected composition of our income and valuation of our assets, we believe that we were likely a PFIC for 2021, although no definitive determination has been made, and may likely be a PFIC in the current taxable year, although there can be no assurance in this regard. Because PFIC status is based on our income, assets and activities for the entire taxable year, and our market capitalization, it is not possible to determine whether we will be characterized as a PFIC for the December 31, 2022 taxable year until after the close of the taxable year. If we were classified as a PFIC in any taxable year, a U.S. Holder would be subject to special rules with respect to distributions on and sales, exchanges and other dispositions of the Ordinary Shares. We will be treated as a PFIC for any taxable year in which at least 75 percent of our gross income is “passive income” or at least 50 percent of our gross assets during the taxable year, assuming we were not a controlled foreign corporation for the year being tested, based on the average of the fair market values of the assets determined at the end of each quarterly period, are assets that produce or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. However, rents and royalties received from unrelated parties in connection with the active conduct of a trade or business are not considered passive income for purposes of the PFIC test. In determining whether we are a PFIC, a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly, at least a 25% interest (by value) is taken into account.
Excess distribution rules
If we were a PFIC with respect to a U.S. Holder, then unless the holder makes one of the elections described below, a special tax regime would apply to the U.S. Holder with respect to (a) any “excess distribution” (generally, aggregate distributions in any year that are greater than 125% of the average annual distribution received by the holder in the shorter of the three preceding years or the holder’s holding period for the Ordinary Shares) and (b) any gain realized on the sale or other disposition of the Ordinary Shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the U.S. Holder’s holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. A U.S. Holder that is not a corporation will be required to treat any such interest paid as “personal interest,” which is not deductible. In addition, dividend distributions would not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “Taxation of Dividends Paid on Ordinary Shares”.
A U.S. Holder that holds the Ordinary Shares at any time during a taxable year in which we are classified as a PFIC generally will continue to treat such Ordinary Shares as shares in a PFIC, even if we no longer satisfy the income and asset tests described above, unless the U.S. Holder elects to recognize gain, which will be taxed under the excess distribution rules as if such Ordinary Shares had been sold on the last day of the last taxable year for which we were a PFIC.
Certain elections by a U.S. Holder would alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment of the Ordinary Shares, as described below. However, we do not currently intend to provide the information necessary for U.S. Holders to make “QEF elections,” as described below, and the availability of a “mark-to-market election” with respect to the shares is a factual determination that will depend on the manner and quantity of trading of our Ordinary Shares, as described below.
QEF election
If we were a PFIC, the rules above would not apply to a U.S. Holder that makes an election to treat our Ordinary Shares as stock of a “QEF. A U.S. Holder that makes a QEF election is required to include in income its pro rata share of our ordinary earnings and net capital gain as ordinary income and long-term capital gain, respectively, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. A U.S. Holder makes a QEF election generally by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return for the year beginning with which the QEF election is to be effective (taking into account any extensions). A QEF election can be revoked only with the consent of the IRS. In order for a U.S. Holder to make a valid QEF election, we must annually provide or make available to the holder certain information. We do not intend to provide to U.S. Holders the information required to make a valid QEF election and we currently make no undertaking to provide such information.
If we were classified as a PFIC, under Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock of a PFIC (such as the Warrants being offered pursuant to this prospectus), such option, warrant or right is considered to be PFIC stock. However, a U.S. Holder of an option, warrant or right to acquire stock of a PFIC may not make a QEF election that will apply to the option, warrant or other right to acquire PFIC stock. In addition, under Treasury Regulations, if a U.S. Holder holds an option, warrant or other right to acquire stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired on exercise of such option, warrant or other right will include the period that the option, warrant or other right was held. Each U.S. Holder should consult its own tax advisor regarding the application of the PFIC rules to the Warrants.
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Mark-to-market election
If we were a PFIC, the rules above also would not apply to a U.S. Holder that makes a “mark-to-market” election with respect to the Ordinary Shares, but this election will be available with respect to the Ordinary Shares only if they meet certain minimum trading requirements to be considered “marketable stock” for purposes of the PFIC rules. Ordinary Shares will be marketable stock if they are regularly traded on a national securities exchange that is registered with the SEC or on a non-U.S. exchange or market that meets certain requirements under the Treasury regulations. Ordinary Shares generally will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded.
A U.S. Holder that makes a valid mark-to-market election for the first tax year in which the holder holds (or is deemed to hold) our Ordinary Shares and for which we are a PFIC will be required to include each year an amount equal to the excess, if any, of the fair market value of such Ordinary Shares the holder owns as of the close of the taxable year over the holder’s adjusted tax basis in such Ordinary Shares. The U.S. Holder will be entitled to a deduction for the excess, if any, of the holder’s adjusted tax basis in the Ordinary Shares over the fair market value of such Ordinary Shares as of the close of the taxable year, but only to the extent of any net mark-to-market gains with respect to such Ordinary Shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder’s basis in such Ordinary Shares will be adjusted to reflect the amounts included or deducted pursuant to the election. Amounts included in income pursuant to a mark-to-market election, as well as gain on the sale, exchange or other taxable disposition of such Ordinary Shares, will be treated as ordinary income. The deductible portion of any mark-to-market loss, as well as loss on a sale, exchange or other disposition of our Ordinary Shares to the extent that the amount of such loss does not exceed net mark-to-market gains previously included in income, will be treated as ordinary loss.
The mark-to-market election applies to the taxable year for which the election is made and all subsequent taxable years, unless the Ordinary Shares cease to be treated as marketable stock for purposes of the PFIC rules or the IRS consents to its revocation. The excess distribution rules described above generally will not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. However, if we were a PFIC for any year in which the U.S. Holder owns the Ordinary Shares but before a mark-to-market election is made, the interest charge rules described above would apply to any mark-to-market gain recognized in the year the election is made.
A mark-to-market election will be unavailable with respect to our Warrants.
PFIC reporting obligations
A U.S. Holder of PFIC stock must generally file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
U.S. Holders are urged to consult their tax advisors as to our status as a PFIC, and the tax consequences to them if we were a PFIC, including the reporting requirements and the desirability of making, and the availability of, a QEF election or a mark-to-market election with respect to the Equity Securities.
Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment income (including dividends on and gains from the sale or other disposition of our Equity Securities), or in the case of estates and trusts on their net investment income that is not distributed to beneficiaries of the estate or trust. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds. You should consult your own tax advisor regarding the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding in your particular circumstances.
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding at a rate of 24% with respect to cash dividends and proceeds from a disposition of our Equity Securities. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.
Certain U.S. Holders with interests in “specified foreign financial assets” (including, among other assets, our Equity Securities, unless such Equity Securities are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the IRS if the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance); and may be required to file a Report of Foreign Bank and Financial Accounts, or FBAR, if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. You should consult your own tax advisor as to the possible obligation to file such information report.
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Aegis Capital Corp., or Aegis, is acting as the representative of the underwriters and the book-running manager of this offering. Under the terms of an underwriting agreement, which is filed as an exhibit to the registration statement, each of the underwriters named below has severally agreed to purchase from us the respective number of Units shown opposite its name below:
| Underwriter | Number
of Units |
|||
| Aegis Capital Corp. | ||||
The underwriting agreement provides that the underwriters’ obligation to purchase Units depends on the satisfaction of the conditions contained in the underwriting agreement including:
| ● | the representations and warranties made by us to the underwriters are true; | |
| ● | there is no material change in our business or the financial markets; and | |
| ● | we deliver customary closing documents to the underwriters. |
Underwriting Commissions and Discounts and Expenses
The following table shows the per Unit and total underwriting discounts and commissions we will pay to Aegis. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional securities.
| Total | ||||||||||||
| Per Unit | No Exercise | Full Exercise | ||||||||||
| Public offering price | $ | $ | ||||||||||
| Underwriting discounts and commissions to be paid by us (8%): | $ | $ | ||||||||||
| Non-accountable expense allowance (1%) (1) | $ | $ | ||||||||||
| Proceeds, before expenses, to us | $ | $ | ||||||||||
| (1) | We have agreed to pay a non-accountable expense allowance to the representative equal to 1% of the gross proceeds we received in this offering. |
We have also agreed to reimburse the underwriters for certain of their expenses, including “roadshow”, diligence, and reasonable legal fees and disbursements, in an amount not to exceed $150,000 in the aggregate.
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $ .
Over-Allotment Option
We have granted the representative of the underwriters an option to purchase from us, up to additional Ordinary Shares, and/or up to an additional Warrants, within 45 days from the date of this prospectus to cover over-allotments, if any. The purchase price to be paid per additional Ordinary Share will be equal to the public offering price of one Unit (less $0.001 allocated to each Warrant), less the underwriting discount, and the purchase price to be paid per additional Warrant will be $0.001.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, the Company, its executive officers, directors and all holders of the Company’s Ordinary Shares and securities exercisable for or convertible into its Ordinary Shares outstanding immediately prior to the closing of this offering, have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any Ordinary Shares or securities convertible into or exchangeable or exercisable for any Ordinary Shares, whether currently owned or subsequently acquired, without the prior written consent of the underwriters, for a period of 180 days from the closing date of the offering.
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Representative’s Warrants
The Company has agreed to issue to Aegis or its designees Representative’s Warrants to purchase up to a total of 6% of the Ordinary Shares sold in this offering (excluding the shares sold through the exercise of the over-allotment option). The Representative’s Warrants and underlying Ordinary Shares are included in this prospectus. The Representative’s Warrants are exercisable at $ per share (125% of the public offering price) commencing six months from the closing date of the offering and shall expire on a date which is no more than five (5) years from the commencement of sales of the offering in compliance with FINRA Rule 5110. The Representative’s Warrants have been deemed compensation by FINRA and are therefore subject to a 6-month lock-up pursuant to Rule 5110 of FINRA. The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Representative’s Warrants or the underlying securities for a period of 180 days from the commencement of sales of the offering. The Representative’s Warrants will provide for one-time demand registration rights and piggyback registration rights for a period of five years from the offering date, and may be exercised as to all, or a lesser number of Ordinary Shares, and if there is no effective registration statement is available for the warrants, will be exercisable on a cashless basis. The exercise price and number of shares issuable upon exercise of the Representative’s Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of Ordinary Shares at a price below the warrant exercise price.
Security Issuance Standstill
For a period of 18 months after the closing date of the Offering, the Company shall not, without prior written consent of Aegis, issue, enter into any agreement to issue or announce the issuance or proposed issuance of any Ordinary Shares or securities convertible or exercisable into Ordinary Shares and except for offerings with Aegis, for 18 months after the closing date of the Offering, the Company shall not effect or enter into an agreement to effect any issuances of Ordinary Shares or securities convertible or exercisable into Ordinary Shares involving an at-the-market offering or variable rate transaction. In no event shall any transaction within this 18 months period result in the sale of securities at an effective offering price less than that of the public offering price of the Units.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offering and the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
| ● | Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress. | |
| ● | Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market. | |
| ● | Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over- allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
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| ● | Penalty bids permits the underwriters to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the Company’s Ordinary Shares or preventing or retarding a decline in the market price of its Ordinary Shares. As a result, the price of the Company’s Ordinary Shares or warrants in the open market may be higher than it would otherwise be in the absence of these transactions. Neither the Company nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the Company’s Ordinary Shares. These transactions may be effected on Nasdaq,in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in the Company’s Ordinary Shares on Nasdaq in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Other Relationships
The underwriters and their respective affiliates may, in the future provide various investment banking, commercial banking and other financial services for the Company and its affiliates for which they have received, and may in the future receive, customary fees. However, except as disclosed in this prospectus, the Company has no present arrangements with the underwriters for any further services.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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Set forth below is an itemization of the total expenses, excluding underwriting discounts, expected to be incurred in connection with the offer and sale of the securities offered by us. With the exception of the SEC registration fee and the FINRA filing fee, all amounts are estimates:
| SEC registration fee | $ | |||
| Nasdaq listing fee | $ | |||
| FINRA filing fee | $ | |||
| Transfer agent fees and expenses | $ | |||
| Printer fees and expenses | $ | |||
| Legal fees and expenses | $ | |||
| Accounting fees and expenses | $ | |||
| Miscellaneous | $ | |||
| Total | $ |
The validity of the issuance of our Ordinary Shares offered in this prospectus and certain other matters of Israeli law will be passed upon for us by Keren Law Firm. Certain matters of U.S. federal law will be passed upon for us by McDermott Will & Emery LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Sichenzia Ross Ference LLP, with respect to U.S. federal law.
The financial statements of Polyrizon Ltd. as of December 31, 2021 and 2020, and for each of the two years in the period ended December 31, 2021, included in this prospectus have been audited by Brightman Almagor Zohar & Co., a member firm in the Deloitte global network, an independent registered public accounting firm, as stated in their report. Such financial statements are included in reliance upon the report of such firm given their authority as experts in accounting and auditing.
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ENFORCEMENT OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this registration statement, most of whom reside outside of the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside of the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.
We have been informed by our legal counsel in Israel, Keren Law Firm, that it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
We have irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any U.S. federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering. Subject to specified time limitations and legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter which, subject to certain exceptions, is non-appealable, including a judgment based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that among other things:
| ● | the judgment was obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment was given and the rules of private international law currently prevailing in Israel; |
| ● | the prevailing law of the foreign state in which the judgment was rendered allows for the enforcement of judgments of Israeli courts; | |
| ● | adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence; | |
| ● | the judgment is not contrary to public policy of Israel, and the enforcement of the civil liabilities set forth in the judgment is not likely to impair the security or sovereignty of Israel; | |
| ● | the judgment was not obtained by fraud and do not conflict with any other valid judgments in the same matter between the same parties; | |
| ● | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and | |
| ● | the judgment is enforceable according to the laws of Israel and according to the law of the foreign state in which the relief was granted. |
If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non- Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our Ordinary Shares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.
Our SEC filings are available to the public at the SEC’s website at http://www.sec.gov. Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements will file reports with the SEC.
Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements are filing reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information.
We maintain a corporate website at www.polyrizon-biotech.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference. We will post on our website any materials required to be so posted on such website under applicable corporate or securities laws and regulations, including, posting any XBRL interactive financial data required to be filed with the SEC and any notices of general meetings of our shareholders.
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POLYRIZON LTD. FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
U.S. DOLLARS IN THOUSANDS
INDEX
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Polyrizon Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Polyrizon Ltd. (the “Company”) as of December 31, 2021 and 2020, the related statements of comprehensive loss, changes in shareholders’ deficit and cash flows for each of the two years in the period ended December 31, 2021, 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, 2021 and 2020 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the financial statements, the Company’s lack of revenues and accumulated operating losses raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audits. 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 audits 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 audits, 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 audits 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 audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
April 14, 2022
(except for subsequent events described in Note 11b, 11c and 11d as to which the date is August 10, 2022)
We have served as the Company’s auditor since 2022.
F-2
POLYRIZON LTD.
U.S. dollars in thousands (except share and per share data)
| Note | As of December 31, | |||||||||
| 2021 | 2020 | |||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 523 | $ | 10 | ||||||
| Other current assets | 21 | 9 | ||||||||
| Total current assets | 544 | 19 | ||||||||
| Property and equipment, net | 18 | 5 | ||||||||
| Deferred offering costs | 3 | 125 | - | |||||||
| Total assets | $ | 687 | $ | 24 | ||||||
| Liabilities and shareholders’ equity | ||||||||||
| Current liabilities: | ||||||||||
| Employees and payroll-related liabilities | $ | 18 | $ | 8 | ||||||
| Accrued expenses | 156 | - | ||||||||
| Derivative warrant liability | 8 | 516 | - | |||||||
| Total current liabilities | 690 | 8 | ||||||||
| Temporary equity: | 5 | |||||||||
| Preferred shares, NIS 0.04 par value; Authorized: 2,180,201 shares; Issued and outstanding: 2,180,201 shares as of December 31, 2021 and 2020; | 248 | 248 | ||||||||
| Shareholders’ deficit: | 6 | |||||||||
| Ordinary shares, NIS 0.04 par value; Authorized: 36,000,000 and 20,000,000 shares as of December 31, 2021 and 2020, respectively; Issued and outstanding: 27,187,585 and 4,601,011 shares as of December 31, 2021 and 2020, respectively; | 326 | 49 | ||||||||
| Additional paid-in capital | 1,565 | 1,150 | ||||||||
| Accumulated deficit | (2,142 | ) | (1,431 | ) | ||||||
| Total shareholders’ deficit | (251 | ) | (232 | ) | ||||||
| Total liabilities, temporary equity and shareholders’ deficit | $ | 687 | $ | 24 | ||||||
The accompanying notes are an integral part of the financial statements.
F-3
POLYRIZON LTD.
STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share and per share data)
| Note | For
the Year Ended December 31, | |||||||||
| 2021 | 2020 | |||||||||
| Operating expenses: | ||||||||||
| Research and development expenses | 9a | $ | 245 | $ | 38 | |||||
| General and administrative expenses | 9b | 458 | 34 | |||||||
| Operating loss | 703 | 72 | ||||||||
| Financial expense | 9c | 8 | 1 | |||||||
| Net loss and comprehensive loss | $ | 711 | $ | 73 | ||||||
| Basic and diluted net loss per share | 10 | $ | 0.05 | $ | 0.03 | |||||
| Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share | 14,727,407 | 4,109,443 | ||||||||
The accompanying notes are an integral part of the financial statements.
F-4
POLYRIZON LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT
U.S. dollars in thousands (except share data)
| Preferred shares | Ordinary shares | Additional paid-in | Accumulated | Total shareholders’ | ||||||||||||||||||||||||
| Number | Amount | Number | Amount | capital | deficit | deficit | ||||||||||||||||||||||
| Balance as of December 31, 2019 | 2,180,201 | 248 | 3,685,497 | $ | 38 | $ | 1,072 | $ | (1,358 | ) | $ | (248 | ) | |||||||||||||||
| Issuance of shares and options, net of issuance costs | — | — | 915,514 | $ | 11 | $ | 78 | - | 89 | |||||||||||||||||||
| Net loss | — | — | — | — | — | (73 | ) | (73 | ) | |||||||||||||||||||
| Balance as of December 31, 2020 | 2,180,201 | $ | 248 | 4,601,011 | $ | 49 | $ | 1,150 | $ | (1,431 | ) | $ | (232 | ) | ||||||||||||||
| Issuance of shares, net of issuance costs | — | — | 21,997,108 | $ | 270 | $ | 754 | — | 1,024 | |||||||||||||||||||
| Share based payment | — | — | 589,466 | 7 | 177 | — | 184 | |||||||||||||||||||||
| Recognition of derivative warrant liability upon change of warrant terms (see Note 8) | — | — | — | — | (516 | ) | — | (516 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | (711 | ) | (711 | ) | |||||||||||||||||||
| Balance as of December 31, 2021 | 2,180,201 | $ | 248 | 27,187,585 | $ | 326 | $ | 1,565 | $ | (2,142 | ) | $ | (251 | ) | ||||||||||||||
The accompanying notes are an integral part of the financial statements.
F-5
POLYRIZON LTD.
U.S. dollars in thousands
| For
the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (711 | ) | $ | (73 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 6 | 1 | ||||||
| Share based payment | 184 | - | ||||||
| Change in: | ||||||||
| Other current assets | (12 | ) | (9 | ) | ||||
| Deferred offering costs | (125 | ) | - | |||||
| Employees and payroll-related liabilities | 10 | - | ||||||
| Accrued expenses | 156 | 8 | ||||||
| Net cash used in operating activities | (492 | ) | (73 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (19 | ) | (6 | ) | ||||
| Net cash used in investing activities | (19 | ) | (6 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of shares, net of issuance costs | 1,024 | 89 | ||||||
| Net cash provided by financing activities | 1,024 | 89 | ||||||
| Change in cash and cash equivalents | 513 | 10 | ||||||
| Cash and cash equivalents at the beginning of the year | 10 | - | ||||||
| Cash and cash equivalents at the end of the year | $ | 523 | $ | 10 | ||||
| Non-cash financing activities: | ||||||||
| Reduction of additional paid-in capital and recognition of derivative warrant liability (see Note 8) | $ | 516 | $ | - | ||||
The accompanying notes are an integral part of the financial statements.
F-6
POLYRIZON LTD.
U.S. dollars in thousands, except share and per share data
| NOTE 1: | GENERAL |
| a. | Polyrizon Ltd. (the “Company”) was incorporated and commenced its business operations in January 2005. The Company is a development stage biotech company specializing in the development of nasal hydrogels to provide a barrier from the interaction of biological assaults, including a new strain of coronavirus (“COVID-19”) and influenza, as well as allergens and other airborne pathogens with the nasal epithelial tissue. The Company’s proprietary Capture and Contain (“C&C”) hydrogel technology is delivered in the form of nasal sprays, and form a thin hydrogel-based shield containment barrier in the nasal cavity that can provide a barrier against viruses and allergens from contacting the nasal epithelial tissue.
Due to lack of resources, the Company suspended its operations in 2016. In connection with the COVID-19 pandemic, the Company resumed its operations in 2020. |
| b. | Going concern and management plans |
The accompanying financial statements are prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. To date, the Company has not generated revenues from its activities and has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses for the foreseeable future until it completes development of its product candidates and obtains regulatory approvals to market such product candidates.
Such conditions raise substantial doubts about the Company’s ability to continue as a going concern for at least a year after the issuance date of the accompanying financial statements. Management plans to address these conditions by raising funds from its current investors as well as outside potential investors. However, there is no assurance that such funding will be available to the Company or that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount or classification of liabilities that may be required should the Company be unable to continue as a going concern.
| c. | In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets, including in Israel. The pandemic has resulted in authorities implementing numerous measures to try to contain the spread of the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. While the COVID- 19 pandemic did not materially affect the Company’s financial results and business operations for the year ended December 31, 2021, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary. |
F-7
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES |
| a. | Basis of presentation: |
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
| b. | Use of estimate in preparation of financial statements: |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.
| c. | Financial statements in United States dollars: |
The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in currencies other than dollars have been re-measured to dollars and the differences were recorded as foreign exchange gain or loss.
| d. | Cash and cash equivalents: |
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
| e. | 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 at the following rates:
| % | ||||
| Computers and electronic equipment | 33 | |||
F-8
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| f. | Impairment of long-lived assets: |
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2021, no impairment indicators have been identified.
| g. | Research and development expenses: |
Research and development expenses are charged to the statements of comprehensive loss as incurred.
| h. | Fair Value Measurements: |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:
Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 - Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active;
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s derivative warrant liability is measured at fair value at each reporting date and is classified within Level 3 of the fair value hierarchy because its fair values is estimated by utilizing valuation models and significant unobservable inputs.
The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, other current assets, employees and payroll-related liabilities and accrued expenses approximate their fair value due to the short-term maturity of these instruments.
| i. | Income taxes: |
The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
F-9
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. As of December 31, 2021, and 2020, a full valuation allowance was provided by the Company.
The recognition and measurement of a liability for uncertain tax positions contains a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2021, and 2020, no liability for unrecognized tax benefits was recorded.
| j. | Severance pay: |
The Company’s liability for severance pay is pursuant to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section 14”), pursuant to which all the Company’s employees are included under Section 14, and are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee’s name with insurance companies. Under Israeli employment law, payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. The severance pay liabilities and deposits under Section 14 are not reflected in the balance sheets as the severance pay risks have been irrevocably transferred to the severance funds.
| k. | Share-based payment transactions: |
The Company accounts for share-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”), which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option- pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statement of comprehensive loss.
The Company recognizes compensation expenses for the value of its awards granted based on the vesting attribution approach over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the fair value of share options granted using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, including the expected share price volatility, free risk interest rate, dividends and the expected option term. Expected volatility was calculated based upon historical volatility of the Company. The expected option term represents the period that the Company’s share options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. As a result, the dividend rate was zero.
F-10
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| l. | Basic and diluted loss per share: |
Basic loss per share is computed by dividing the net loss by the weighted average number of ordinary shares, par value NIS 0.04 per share (“Ordinary Shares”) outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of Ordinary Shares outstanding together with the number of additional Ordinary Shares that would have been outstanding if all potentially dilutive Ordinary Shares had been issued. Since the Company was in a loss position for the period presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive.
| m. | Recently accounting pronouncements: |
As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
In February 2016, the FASB issued ASU 2016-02 “Leases” (“ASU 2016-02”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. ASU 2016-02 retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU 2016-02 will be effective for the Company beginning January 1, 2022, and interim periods in fiscal years beginning January 1, 2023.
As of December 31, 2021, the Company is not engaged in any lease arrangement, however, the adoption of the standard will result in the Company recognizing an operating lease right-of-use asset and lease liability on its balance sheets with respect to future lease arrangements.
F-11
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 3: | DEFERRED OFFERING COSTS |
The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financings until such financings are consummated, including the Company’s IPO. After the consummation of the equity financing, these costs will be recorded as a reduction of the gross proceeds. As of December 31, 2021, there were $125 of deferred offering costs on the balance sheet. There were no deferred offering costs capitalized as of December 31, 2020.
| NOTE 4: | TAXES ON INCOME |
| a. | Tax rates applicable to the Company: |
| Taxable income of the Company is subject to the Israeli Corporate tax rate which was 23% for the years ended December 31, 2021 and 2020. |
| b. | Net operating loss carry forward: |
As of December 31, 2021 and 2020, the Company had net operating loss carry forwards for Israeli income tax purposes of approximately $2,166 and $1,611, respectively. Net operating loss carry forwards in Israel may be carried forward indefinitely and offset against future taxable income.
| c. | Deferred income taxes: |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forward | $ | 498 | $ | 371 | ||||
| Other temporary differences | 22 | 6 | ||||||
| Deferred tax asset before valuation allowance | 520 | 376 | ||||||
| Valuation allowance | (520 | ) | (376 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance as of December 31, 2021 and 2020.
F-12
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 4: | TAXES ON INCOME (Cont.) |
| d. | Reconciliation of income tax expenses: |
The reconciliation of income tax benefit computed at statutory tax rate to income tax expense is as follows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Income tax benefit computed at statutory tax rate | (163 | ) | (17 | ) | ||||
| Change in valuation allowance | 163 | 17 | ||||||
| Income tax expenses | $ | - | $ | - | ||||
| e. | As of December 31, 2021, the Company had final tax assessments for tax years prior to and including the tax year ended December 31, 2017. |
| NOTE 5: | TEMPORARY EQUITY |
In September 2012, the Company’s Article of Association was amended to reflect the agreement reached between the Company and certain holders of preferred shares issued in November 2008 (the “2008 Preferred Shares”) following an investment of NIS 2,780 (approximately $894) (the “Original Issue Price”), to issue 2,180,201 shares of a new class of preferred shares (the “Preferred Shares”) in exchange for the 2008 Preferred Shares.
Holders of the Preferred Shares are entitled in the event of: (i) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary; or (ii) any Deemed Liquidation Event (as defined in Company’s Article of Association) to receive out of the assets of the Company available for distribution to its shareholders (the “Distributable Assets”), prior to the holders of any class or series of shares of the Company, an amount (in cash, cash equivalents or, if applicable, securities) equal to 15% of the Distributable Assets. Afterwards, the holders of the Preferred Shares are also entitled to participate with all other ordinary shareholders and receive a proportionate amount from the remainder of aforementioned assets available for distribution, provided that the holders of preferred shares are not entitled to receive in the aggregate more than 2.75 times the Original Issue Price (adjusted for certain recapitalization events) plus annual interest on the Original Issue Price, at an annual rate of 4%, compounded annually from the date of the issuance of the 2008 Preferred Shares.
Additionally, prior to and in preference to the distribution of any dividends to the holders of any class or series of shares of the Company, each of the holders of the Preferred Shares are entitled to receive for each preferred share held by them an amount equal to the Original Issue Price, plus annual interest at an annual rate of 6% of the Original Issue Price (adjusted for certain recapitalization events) calculated from the date of issuance of the 2008 Preferred Shares (the “Dividend Preference”). Afterwards, the holders of the Preferred Shares are also entitled to participate with all other holders of Ordinary Shares in the receipt of any additional dividends distributed pro rata in accordance with their respective shareholdings in the Company. No dividends is to be paid on any other class of shares, unless the Dividend Preference has been paid in full.
F-13
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 5: | TEMPORARY EQUITY (Cont.) |
These rights attached to the Preferred Shares expire upon completion of an Initial Public Offering (“IPO”), or earlier, in the event holders of the Preferred Shares have received, in the aggregate, through any distribution (including dividend distribution), amounts equal to the Original Issue Price, adjusted to changes in the Israeli consumer index, plus annual interest at a rate of 5%, compounded annually from the date of the issuance of the 2008 Preferred Shares. Upon successful completion of an IPO, the Preferred Shares are to be converted to 2,180,201 Ordinary Shares. Once so converted, the Preferred Shares are no longer available for issuance.
The Preferred shares only confer upon their holders the rights specified above and do not confer upon their holders the right to participate and vote in general shareholder meetings of the Company.
A Deemed Liquidation Event, as defined in Company’s Article of Association, includes change of controls events in which shareholders of the Company, immediately prior to the event, hold less than 50% of the voting power in the Company (or the surviving entity) after the event, as well as events in which the Company sells substantially all of its assets. In the occurrence of a Deemed Liquidation Event, all of the Distributable Assets legally available for distribution among the shareholders of the Company would be distributed in accordance with the preference described above.
Although the Preferred Shares are not redeemable, in the occurrence of a Deemed Liquidation Event, which may occur not solely within the Company’s control, the holders of the Preferred Shares are entitled to the preference amounts before distribution to other shareholders (as provided above) and hence effectively redeem the preference amount.
As a result of these in-substance contingent redemption rights, the preferred shares are classified outside of Shareholders’ deficit.
The Preferred Shares were recorded at their fair value as of their issuance date (September 2012). The Company did not subsequently adjust the carrying values of the Preferred Shares to the deemed liquidation value of such shares since a Deemed Liquidation Event was not probable of occurring.
F-14
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 6: | SHAREHOLDERS’ DEFICIT |
| a. | Ordinary Shares: |
Ordinary Shares confer upon their holders the right to participate and vote in general shareholder meetings of the Company and the right to receive dividends, if any, declared by the Company, and rights to receive a distribution of assets upon liquidation in the preference order described above.
Shares Issuances:
| 1. | On July 15, 2020, the Company entered into a securities purchase agreement with an investor (the “July 2020 Investor”) pursuant to which the Company issued 915,514 Ordinary Shares for gross proceeds of $100 and incurred issuance expenses of $11. |
As part of the agreement, the July 2020 Investor was granted with a warrant (the “Original Warrant”) to purchase 3,107,223 Ordinary Shares for $1,000. The Original Warrant is exercisable immediately and expires at the earlier of April 23, 2023 or immediately prior to the consummation by the Company of an equity financing in an amount of no less than $500 based on a pre-money valuation of at least $10,000. As of July 15, 2020 and December 31, 2020, the Company concluded the Original Warrant meets the accounting criteria of equity classification, as the exercise price and amount of shares to be issued upon exercise of the Original Warrant are fixed.
On December 15, 2021, the Company and the July 2020 Investor entered into an addendum to the agreement pursuant to which the July 2020 Investor agreed, that the Original Warrant will expire upon the successful completion of an IPO and, for as long as an IPO is not successfully completed, the Original Warrant may not be exercised prior to June 30, 2022. Additionally, pursuant to the addendum, the July 2020 Investor was granted a new warrant (the “New Warrant”), which is only exercisable subject to the successful completion of an IPO, to invest an aggregate amount of up to $2,000 at an exercise price to be determined which shall be equal to 125% of the price per share in an IPO. The New Warrant expires 3 years after the date of a successful completion of an IPO. See also Note 8.
F-15
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 6: | SHAREHOLDERS’ DEFICIT (Cont.) |
| 2. | In March 2021, the Company entered into a securities purchase agreement with certain investors and shareholders (the “March 2021 SPA”) pursuant to which the Company issued 7,688,712 Ordinary Shares in exchange for gross proceeds of $250. |
Additionally, as part of the March 2021 SPA, the Company issued 589,466 Ordinary Shares to the Company’s chief executive officer (“CEO”). The Company recorded a share-based compensation expense of $19 in the statements of comprehensive loss for the year ended December 31, 2021 in respect of the grant issuance.
| 3. | On August 25, 2021, the Company entered into a securities purchase agreement with certain investors and shareholders pursuant to which the Company issued 14,328,396 Ordinary Shares for gross proceeds of $780. |
| b. | Share options: |
On February 19, 2021, the Board of Directors approved the adoption of the 2021 Share Option Plan (the “2021 Plan”). Under the 2021 Plan, the Company may grant share options to its officers, directors, employees and consultants. Each share option granted shall be exercisable at such times and terms and conditions as the Board of Directors may specify in the applicable option agreement (each an “Option Agreement”). Upon the adoption of the 2021 Plan, the Company reserved for issuance 1,428,799 Ordinary Shares. On November 14, 2021, the Board of Directors approved an increase to the Company’s reserved shares for issuance under the 2021 Plan so that the current number of ordinary shares reserved for issuance under the 2021 Plan is 3,500,000 Ordinary Shares.
Between August and December 2021, the Company’s Board of Directors approved a grant of 1,465,289 options to purchase 1,465,289 Ordinary Shares to Company’s employee and officers with an exercise prices ranging between $0.0326 and $0.0544 per share. The vesting period for the options granted range from six months to four years. In addition, certain officers and employees have a clause under their Option Agreement according to which all of the unvested options become fully vested upon successful completion of an IPO and additionally, upon the successful completion of a merger, acquisition or reorganization of the Company with other entity, change in the ownership of more 50%, involuntary termination by the Company, or any other similar event. As such, 611,028 options with exercise prices ranging between $0.0326 and $0.0544 per share will become fully vested upon successful completion of an IPO.
Expenses recognized in the financial statements
| Year
ended December 31, 2021 | Year
ended December 31, 2020 | |||||||
| Research and development expenses | $ | 162 | $ | - | ||||
| General and administrative expenses | 22 | - | ||||||
| Total | 184 | - | ||||||
F-16
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 6: | SHAREHOLDERS’ DEFICIT (Cont.) |
The fair value of the Company’s share options granted was estimated using the black-Scholes option pricing model using the following range assumptions:
| Description | 2021 | |
| Risk-free interest rate | 0.36% - 0.88% | |
| Expected volatility | 88.52% - 94.62% | |
| Dividend yield | 0 | |
| Contractual life | 5-7 | |
| Exercise price | 0.0326 - 0.0544 |
A summary of the status of the Company’s option plan as of December 31, 2021 and changes during the year then ended are presented below:
| 2021 | ||||||||
| Number
of share option | Weighted average exercise price | |||||||
| Options outstanding at beginning of year | - | $ | ||||||
| Granted | 1,465,289 | 0.04 | ||||||
| Options outstanding at beginning of year | 1,465,289 | 0.04 | ||||||
| Options exercisable at year end | 389,288 | $ | 0.04 | |||||
| NOTE 7: | COMMITMENTS AND CONTINGENT LIABILITIES |
From 2007 through 2010, the Company received funding from the Israeli Innovation Authority ("IIA", previously known as Officer of Chief Scientist) for its participation in research and development costs, based on budgets approved by the IIA, subject to the fulfillment of specified milestones. The Company is committed to pay royalties to the IIA on proceeds from sale of product candidates in the research and development of which the IIA participates by way of grants. According to the IIA’s fundings terms, royalties between 3% and 4.5% are payable on sales of developed product candidates funded, up to 100% of the funding received by the Company, linked to US dollar and bearing LIBOR interest rate. In the case of failure of a financed project, the Company is not obligated to pay any such royalties to the IIA. The total funding received from the IIA including interest as of December 31, 2021 is $734.
On September 1, 2021, the Company signed a consulting agreement with its CEO. According to the agreement, the CEO is entitled to receive (i) a monthly salary, (ii) a one-time NIS 150 thousand (approximately $48) bonus upon completion of the Company's IPO, (iii) options representing 0.5% of the Company's pre-IPO issued and outstanding shares which will vest upon the completion of the Company's IPO and become exercisable for a period of 5 years, and (iv) options representing 2.5% of the Company's post-IPO issued and outstanding shares which shall vest and become exercisable over a total period of three years commencing on the grant date on a monthly basis in equal installments.
F-17
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 8: | DERIVATIVE WARRANT LIABILITY |
As discussed in Note 6, on December 15, 2021, the Company and the July 2020 Investor amended the terms of the existing warrant in July 2020.
The amended warrant did not meet the US GAAP criteria for equity classification as the number of shares to be issued upon exercise of the warrant and the exercise price of the warrant depend on the share price in the IPO, as well as on whether the IPO is successfully completed. Accordingly, the amended warrant was initially recognized as a liability at fair value, as of December 15, 2021, with a corresponding reduction in additional paid-in capital. The warrant is subsequently measured at fair value at each reporting date with changes in fair value recognized as finance expenses in the statements of comprehensive loss.
A summary of significant unobservable inputs (Level 3 inputs) used in measuring the warrant issued as of December 15, 2021 and December 31, 2021 are as follows:
| As
at December 31, 2021 and December 15, 2021 | ||||
| Expected volatility | 93.76 | % | ||
| Risk free rate | 0.97 | % | ||
| Expected life (years) | 3.5 | |||
| Dividend yield | 0 | % | ||
The following table presents changes in the fair value of the derivative warrant liability recorded in respect of the warrants:
| Initial recognition of derivative warrant liability upon change in terms | $ | 516 | ||
Changes in fair value |
- | |||
Balance as of December 31, 2021 |
$ |
516 |
| NOTE 9: | SELECTED STATEMENTS OF OPERATIONS DATA |
| a. | Research and development expenses: |
Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Subcontractors and consultants | $ | 61 | $ | 25 | ||||
| Share based payment | 162 | - | ||||||
| Payroll and payroll related | 19 | 10 | ||||||
| Other | 3 | 3 | ||||||
| $ | 245 | $ | 38 | |||||
F-18
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 9: | SELECTED STATEMENTS OF OPERATIONS DATA (Cont.) |
| b. | General and administrative expenses: |
Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Payroll and payroll related | $ | 138 | $ | 19 | ||||
| Professional services | 281 | 8 | ||||||
| Share based payment | 22 | - | ||||||
| Others | 17 | 7 | ||||||
| $ | 458 | $ | 34 | |||||
| c. | Finance expenses: |
Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Exchange rate differences | $ | 6 | $ | 1 | ||||
| Bank fees | 2 | - | ||||||
| $ | 8 | $ | 1 | |||||
F-19
POLYRIZON LTD.
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
| NOTE 10: | LOSS PER SHARE |
The loss and the weighted average number of shares used in computing basic and diluted net loss per share is as follows:
| Year
ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator: | ||||||||
| Net loss applicable to shareholders of Ordinary Shares | $ | 711 | $ | 73 | ||||
| Interest accrued on Preferred Shares | 44 | 44 | ||||||
| Total loss attributed to Ordinary Shares | 755 | 117 | ||||||
| Denominator: | ||||||||
| Number of Ordinary Shares used in computing basic and diluted net loss per share | 14,727,407 | 4,109,443 | ||||||
| Net loss per share of Ordinary Share, basic and diluted | $ | 0.05 | $ | 0.03 | ||||
| NOTE 11: | SUBSEQUENT EVENTS |
| a) | The Company evaluated subsequent events through April 14, 2022, the date these financial statements were available to be issued except for items b, c and d as to which the date is August 10, 2022. |
In January 2022, the Company signed Simple Agreements for Future Equity (each, a “SAFE”) with several existing investors (each, a “SAFE Investor”) of the Company for an aggregate amount of $250 (Investment Amount). Pursuant to the terms of the SAFE Agreements, upon consummation of a Qualified Equity Financing (which is defined as at least $300 aggregate proceeds to the Company), the Company will issue to each SAFE Investor the number of most senior class of shares issued in the Qualified Equity Financing equal to the Investment Amount divided by the discount price (which is defined as the lowest price per SAFE share sold in the Equity Financing discounted by to 20% (the “Discount Rate”).
If there is an equity financing which doesn’t qualify as a Qualified Equity Financing, each SAFE Investor will have the right to optionally convert the outstanding Investment Amount into the number of most senior class of shares issued calculated based on the purchase amount divided by the discount price.
The SAFEs also provides that the investor has the right to automatically receive Ordinary Shares in the case of change of control event (a “Liquidity Event”). In the case of a Liquidity Event the investors are entitled to the number of Ordinary Shares equal to the investment Amount divided by the price per share of the Ordinary Shares sold or registered in a Liquidity Event multiplied by the Discount Rate or the fair market value of the Ordinary Shares at the Liquidity Event multiplied by the Discount Rate.
If an IPO is consummated before the expiration or termination of the SAFEs, the SAFE Investors will automatically receive, immediately prior to and subject to, the unconditional closing of such IPO, from the Company, a number of Ordinary Shares, equal to the investment amount divided by the price per share determined by the underwriter of the IPO.
If the Investment Amount has not been converted prior to July 31, 2023 then on such date, the SAFE will be automatically converted into such number of the most senior class of shares of the Company then outstanding, equal to, the Investment Amount, divided by the lowest price per share actually paid to the Company for such most senior class of shares of the Company then outstanding, discounted by 20%, rounded up to the nearest whole number. The SAFEs may not be repaid in cash.
In the event of a (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors, or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary (the “Dissolution Event), following payment of all senior debt, the investor is entitled to receive an amount equal to the Investment Amount due and payable immediately prior to the occurrence of the Dissolution Event.
| b) | On May 30, 2022, the Company entered into a collaboration agreement with SciSparc Ltd., or SciSparc (Nasdaq: SPRC), a specialty clinical-stage pharmaceutical company focusing on the development of therapies to treat disorders of the central nervous system. As part of the collaboration, the Company will work with SciSparc to develop a unique technology for the treatment of pain, based on SciSparc's SCI-160 platform and Company’s T&T platform technology. |
Under the collaboration agreement, SciSparc will pay development fees to the Company of up to a total of $2,550 upon the completion of certain milestones as set forth in the agreement, as well as royalties in the low single digits upon sales of products under the agreement and additional royalties for sales under any sublicense by SciSparc.
| c) | In June 2022, the Company signed an additional SAFE with several existing investors (each, a “SAFE Investor”) of the Company for an aggregate amount of $459 (Investment Amount) with the same terms as January SAFE (refer to Note 11a above). |
| d) | On July 18, 2022, the Company signed a collaboration agreement with NurExone Biologic Inc., or NurExone, pursuant to which the Company will use its T&T platform technology to develop formulations, conduct analytical development and produce technical batches of a tailored intranasal delivery system. The intranasal system is being designed for delivery of NurExone’s ExoTherapy to patients with traumatic spinal cord injuries and may also be relevant to other indications through intranasal exosome delivery. Pursuant to the collaboration agreement, NurExone will cover the costs of the formulation development in an estimated amount of $220 in three installments upon development success and expects to be able to perform a biological efficacy study of the intranasal system within three quarters. NurExone shall pay development fees to the Company of up to a total of $3,350 upon completion of certain milestones as set forth in the agreement, including the payment of an aggregate of $500 upon successful completion of a Phase 2 clinical trial. Moreover, NurExone shall pay royalties based on any product sales resulting from the collaboration agreement. In advanced stages of the collaboration, the Company may assist NurExone with regulatory submissions for the United States and Europe. Manufacturing and marketing rights for formulations under the collaboration agreement are exclusive to NurExone. |
F-20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors, Officers and Employees.
Indemnification
The Israeli Companies Law 5759-2999, or the Companies Law, and the Israeli Securities Law, 5728-1968, or the Securities Law, provide that a company may indemnify an office holder against the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a financial liability imposed on him or her in favor of another person by any judgment concerning an act performed in his or her capacity as an office holder, including a settlement or arbitrator’s award approved by a court; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder (a) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such office holder as a result of such investigation or proceeding; and (2) no financial liability as a substitute for the criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding, or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; or (b) in connection with a monetary sanction; | |
| ● | reasonable litigation expenses, including attorneys’ fees, expended by the office holder or imposed on him or her by a court (1) in proceedings that the company institutes, or that another person institutes on the company’s behalf, against him or her; (2) in a criminal proceedings of which he or she was acquitted; or (3) as a result of a conviction for a crime that does not require proof of criminal intent; and | |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees. An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law. |
The Companies Law also permits a company to undertake in advance to indemnify an office holder, provided that if such indemnification relates to financial liability imposed on him or her, as described above, then the undertaking should be limited and shall detail the following foreseen events and amount or criterion:
| ● | to events that in the opinion of the board of directors can be foreseen based on the company’s activities at the time that the undertaking to indemnify is made; and | |
| ● | in amount or criterion determined by the board of directors, at the time of the giving of such undertaking to indemnify, to be reasonable under the circumstances. |
We intend to enter, into indemnification agreements with all of our directors and with all members of our senior management subject to the listing of our securities on Nasdaq. Each such indemnification agreement will provide the office holder with indemnification permitted under applicable law and up to a certain amount, and to the extent that these liabilities are not covered by directors and officers insurance.
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Exculpation
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of his or her duty of loyalty, but may exculpate in advance an office holder from his or her liability to the company, in whole or in part, for damages caused to the company as a result of a breach of his or her duty of care (other than in relation to distributions), but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association provide that we may exculpate, in whole or in part, any office holder from liability to us for damages caused to the company as a result of a breach of his or her duty of care, but prohibit an exculpation from liability arising from a company’s transaction in which our controlling shareholder or officer has a personal interest. Subject to the aforesaid limitations, under the indemnification agreements, we exculpate and release our office holders from any and all liability to us related to any breach by them of their duty of care to us to the fullest extent permitted by law.
Limitations
The Companies Law provides that the Company may not exculpate or indemnify an office holder nor enter into an insurance contract that would provide coverage for any liability incurred as a result of any of the following: (1) a breach by the office holder of his or her duty of loyalty unless (in the case of indemnity or insurance only, but not exculpation) the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice us; (2) a breach by the office holder of his or her duty of care if the breach was carried out intentionally or recklessly (as opposed to merely negligently); (3) any act or omission committed with the intent to derive an illegal personal benefit; or (4) any fine, monetary sanction, penalty or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
Our amended and restated articles of association permit us to exculpate (subject to the aforesaid limitation), indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
Item 7. Recent Sales of Unregistered Securities.
Set forth below are the sales of all securities by the Company since the Company’s incorporation in February 2018, which were not registered under the Securities Act. The Company believes that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 and/or Regulation S under the Securities Act.
In January 2022 and in June 2022, we signed the2022 SAFE Agreements with the SAFE Investors of the Company for an aggregate amount of $709,952. Upon the consummation of this offering we will convert the SAFE Agreements into Ordinary Shares at a price per share representing a 20% discount to the price per share in this offering.
Pursuant to a Share Purchase Agreement executed on August 25, 2021, we issued an aggregate of 14,328,396 Ordinary Shares to the certain investors listed thereto, at a price per share of $0.0544 for aggregate net proceeds of $779,971.
Pursuant to a Share Purchase Agreement executed on March 9, 2021, we issued an aggregate of 7,668,712 Ordinary Shares to the certain investors listed thereto, at a price per share of $0.0326 for aggregate net proceeds of $250,000.
Pursuant to a Share Purchase Agreement executed on July 15, 2020, we issued 915,514 Ordinary Shares to the certain investors listed thereto, at a price per share of $0.01026453 for aggregate net proceeds of $10,000.
Additionally, since January 1, 2019, we have granted share options to employees, directors, consultants and service providers under our Equity Incentive Plan 2021 covering an aggregate of 4,928,799 Ordinary Shares, with exercise prices ranging from $0.0326 to $0.0544 per share.
No underwriters were employed in connection with the securities issuances set forth in this Item.
II-2
Item 8. Exhibits and Financial Statement Schedules.
(a) Exhibits. See the Exhibit Index attached to this registration statement, which is incorporated by reference herein.
(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 9. 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; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the 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 the registration statement. Notwithstanding the foregoing, any increase or decrease in 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 Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% 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 the registration statement or any material change to such information in the registration statement. |
2. That, for the purpose of determining any liability under the Securities Act of 1933, each such 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 that time shall be deemed to be the initial bona fide offering thereof.
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. To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.
5. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 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 effective date, 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 effective date.
II-3
6. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv. | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
b. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
c. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 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 Act and will be governed by the final adjudication of such issue.
d. The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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.
II-4
EXHIBIT INDEX
| EXHIBIT NUMBER |
EXHIBIT DESCRIPTION | |
| 1.1** | Form of Underwriting Agreement | |
| 3.1* | Amended and Restated Articles of Association of the Registrant, as currently in effect | |
| 3.2* | Amended and Restated Articles of Association of the Registrant to be in effect upon the consummation of this offering. | |
| 4.1** | Form of Warrant | |
| 4.2** | Form of Representative’s Warrant | |
| 4.3** | Form of Warrant Agent Agreement | |
| 4.4** | Form of Additional Warrant | |
| 5.1** | Opinion of Keren Law Firm, Israeli counsel to the Registrant, as to the validity of the Ordinary Shares | |
| 5.2** | Opinion of McDermott Will & Emery LLP, US counsel to the Registrant | |
| 10.1* | 2021 Equity Incentive Plan | |
| 10.2** | Form of Indemnification Agreement | |
| 10.3* | Compensation Policy | |
| 10.4* | ||
| 10.5** | Collaboration Agreement with Nurexone Biologic Inc. | |
| 10.6** | Collaboration Agreement with SciSparc Ltd. | |
| 23.1* | Consent of Brightman Almagor Zohar & Co., a firm in the Deloitte global network | |
| 23.2** | Consent of Keren Law Firm (included in Exhibit 5.1) | |
| 23.3** | Consent of McDermott Will & Emery LLP (contained in Exhibit 5.2) | |
| 24.1* | Power of Attorney (included in signature pages of Registration Statement) | |
| 99.1* | Consent of Director Nominee | |
| 99.2* | Consent of Director Nominee | |
| 107* | Filing Fee Table |
| * | Filed Herewith. |
| ** | To be filed by amendment. |
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Raanana, Israel on this 10th day of August, 2022.
| POLYRIZON LTD. | ||
| By: | /s/ Tomer Izraeli | |
| Tomer Izraeli, Chief Executive Officer | ||
The undersigned officers and directors of Polyrizon Ltd. hereby constitute and appoint Tomer Izraeli and Nir Ben Yosef with full power of substitution, our true and lawful attorney-in-fact and agent to take any actions to enable the Company to comply with the Securities Act, and any rules, regulations and requirements of the SEC, in connection with this Registration Statement on Form F-1, including the power and authority to sign for us in our names in the capacities indicated below any and all further amendments to this registration statement and any other registration statement filed pursuant to the provisions of Rule 462 under the Securities Act.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Tomer Izraeli | Chief Executive Officer, Director | August 10, 2022 | ||
| Tomer Izraeli | (Principal Executive Officer) | |||
| /s/ Nir Ben Yosef | Chief Financial Officer | August 10, 2022 | ||
| Nir Ben Yosef | (Principal Financial and Accounting Officer) | |||
| /s/ Dr. Roy Borochov | Director | August 10, 2022 | ||
| Dr. Roy Borochov | ||||
| /s/ Liron Carmel | Director | August 10, 2022 | ||
| Liron Carmel | ||||
| /s/ Oz Adler | Director | August 10, 2022 | ||
| Oz Adler | ||||
/s/ Raul Srugo |
Director | August 10, 2022 | ||
| Raul Srugo |
II-6
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Polyrizon Ltd., has signed this Registration Statement on this 10th day of August, 2022.
| Puglisi & Associates | |
| Authorized U.S. Representative | |
| /s/ Donald J. Puglisi | |
| Name: Donald J. Puglisi | |
| Title: Managing Director |
II-7
Exhibit 3.1
Legal Translation
Companies Act – 5760 – 1999
Company’s Articles of Association Duly Adopted on February 28th 2021
Polyrizon Ltd.
| 1. | Company name |
In Hebrew: POLYRIZON LTD.
In English: POLYRIZON LTD.
| 2. | Company purposes |
To engage in any lawful business.
| 3. | registered share capital |
The registered share capital of the Company is NIS 887,208.04, comprised of 20,000,000 (twenty million) ordinary shares of NIS 0.04 par value each (“Ordinary Shares”) and 2,180,201 (two million one hundred and eighty thousand two hundred and one) deferred shares of NIS 0.04 par value each (“Deferred Shares”).
| 4. | liability of the Shareholders |
Each Shareholder’s liability to the Company’s obligations shall be limited to the payment of the par value of the shares held by such Shareholder.
| 5. | Share transfers, offerings shares and security bonds to the public, number of shareholders |
| The Company is a private company, and accordingly: |
| 5.1. | Any transfer of shares shall require the board of directors approval and is subject to other restrictions as detailed in these articles of association; |
| 5.2. | any invitation to the public to subscribe for any shares or debentures of the Company is prohibited. |
| 5.3. | the number of Shareholders (exclusive of persons who are employed by the Company, or of persons who having been formerly in the employment of the Company were, while in such employment, and have continued after the termination of such employment to be, Shareholders of the Company) is limited to 50; for the purpose of this Section 5.3, two or more persons hold one or more shares in the Company jointly they shall, for the purpose of this Article, be treated as a single shareholder; |
| 6. | all other rights of the shareholders as well as additional provisions regarding the of management of the Company, the general meetings, the appointment of the directors and more are detailed in Appendix A attached hereto and form an integral part of these Articles of association. |
- 1 -
Appendix “A”
The companies law - 1999
A company limited by Shares
Amended and restated articles of association
OF
Polyrizon ltd.
Duly Adopted on February 28th 2021
Preliminary
| 1. | Definitions. |
| 1.1. | Capitalized terms used in these Articles shall bear the meanings ascribed to such terms as set forth in this Article, unless inconsistent with the context: |
| Term | Definition | |
| Anti-Trust Law | The Israeli Economic Competition, 5758-1988, as amended from time to time, and any regulations promulgated thereunder; | |
| Articles | These Articles of Association as amended from time to time by a Shareholders’ resolution; | |
| Auditors | The auditors of the Company; | |
| Board of Directors; Board | The Board of Directors of the Company; | |
|
Capital |
Capital Point Ltd. A company incorporated and registered under the laws of the state of Israel, Registration number 51-295032-0 | |
| “CFH” | means Sachsen LB Corporate Finance Holding GmbH | |
| Chairman | The Chairman of the Board of Directors, as may be appointed, from time to time (if appointed); | |
| Company | Polyrizon Ltd. | |
| Companies Law | The Companies Law, 1999, or any statutory re- enactment or modification thereof being in force at the time; and any reference to any section or provision of the Companies Law shall be deemed to include a reference to any statutory re-enactment or modification thereof being in force at the time; | |
| Companies Ordinance | The Companies Ordinance (New Version), 5743- 1983, or any statutory re-enactment or modification thereof being in force at the time; and any reference to any section or provision of the Companies Ordinance shall be deemed to include a reference to any statutory re-enactment or modification thereof being in force at the time; |
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| Deemed Liquidation Event | Any of the following events: (A) Any merger, reorganization or consolidation of the Company with or into another entity, or the acquisition of the Company by means of any transaction or series of related transactions, except any such merger, reorganization, consolidation or other transaction or series of related transactions, in which the issued shares of the Company as of immediately prior to such transaction or series of related transactions continue to represent, or are converted into or exchanged for shares that represent, immediately following such merger, reorganization, consolidation or other transaction or series of related transactions, at least a majority, by voting power, of the outstanding shares of the surviving or acquiring entity (or in case such surviving or acquiring entity is a wholly owned subsidiary – of its parent); (B) a sale or other disposition of all or substantially all of the shares (including without limitation by way of repurchase or redemption by the Company) and/or the assets of the Company (including, for this purpose, the grant of an exclusive license to all or substantially all of the intellectual property rights of the Company covering all the then existing markets of the Company), in a single transaction or a series of related transactions, other than to a wholly-owned subsidiary of the Company; (C) any other transaction or series of related transactions as a result of which any part of the outstanding share capital of the Company following such transaction or series of related transactions is held by a person or entity or group of persons or entities (related contractually or otherwise), other than existing shareholders and other than such change(s) in the holdings of the Company resulting from an investment in the Company’s share capital made solely for financing purposes; (D) any distribution of a dividend or a series of dividends which has the effect or economic impact as the above said. | |
| Director(s) | The member(s) of the Board of Directors appointed in accordance with these Articles holding office at any given time; | |
| Deferred Shares |
“Deferred Shares” means the 2,180,201 shares of NIS 0.04 nominal value each, of the Company, currently (as of the adoption of these Articles) held by Incubator, Capital Point and CFH. | |
| “Incubator” | means Ofakim Hi- Tech Ventures Ltd. registration number 51-312449-5 together with Capital. | |
| Medigus | Medigus Ltd., registration number 51-286697-1 | |
| Medigus Directors | Any director appointed pursuant to Articles 40.3(a)(i) and 40.3(b)(i) | |
| month | Calendar month; | |
| Office | The Registered Office of the Company at any given time; |
| Officer (‘Nosei Misra’) | As defined in the Companies Law; | |
| Option | As defined in the Purchase Agreement; | |
| Purchase Agreement | Share Purchase Agreement between Medigus and the Company dated 15 July 2020; | |
| Recapitalization Event | Any event of share combination or subdivision, share splits, stock dividends, bonus shares or any other reclassification, reorganization or recapitalization of the Company’s share capital and the like; | |
| Register of Shareholders | The Register of Shareholders of the Company administered in accordance to Section 127 of the Companies Law; | |
| Shareholders | The shareholders of the Company, at any given time; | |
| Shareholders Directors | Any director appointed pursuant to Articles 40.3(a)(ii) and 40.3(b)(ii) | |
| in writing | Written, printed, photocopied, typed, sent via facsimile or produced by any visible substitute for writing, or partly one and partly another, and signed shall be construed accordingly. | |
| Year | Calendar year commencing on January 1st and ending on December 31st; |
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| 1.2. | Unless the context shall otherwise require: words in the singular shall also include the plural, and vice versa; any pronoun shall include the corresponding masculine, feminine and neuter forms; the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; the words “herein”, “hereof” and “hereunder” and words of similar import refer to these Articles in its entirety and not to any part hereof; all references herein to Articles, Sections or clauses shall be deemed references to Articles, Sections or clauses of these Articles; any references to any agreement or other instrument or law, statute or regulation are to it as amended, supplemented or restated, from time to time (and, in the case of any law, to any successor provisions or re-enactment or modification thereof being in force at the time); any reference to “law” shall include any supranational, national, federal, state, local, or foreign statute or law and shall be deemed also to refer to all rules and regulations promulgated thereunder; any reference in this Agreement to a “day” or a number of “days” (without any explicit reference otherwise, such as to business days) shall be interpreted as a reference to a calendar day or number of calendar days; reference to month or year means according to the Gregorian calendar; reference to a “company”, “corporate body” or “entity” shall include a, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof, and reference to a “person” shall mean any of the foregoing or an individual.. |
| 1.3. | Save as aforesaid any words or expressions defined in the Companies Law or in the Companies Ordinance (to the extent still in effect according to the provisions of the Companies Law), shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. | |
| 1.4. | The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof. |
| 1.5. | In the event that a Hebrew version of these Articles is filed with any regulatory or governmental agency, including the Israeli Registrar of Companies, then whether or not such Hebrew version contains signatures of Shareholders, such Hebrew version shall be considered solely a convenience translation and shall have no binding effect, as between the Shareholders of the Company and with respect to any third party. The English version shall be the only binding version of these Articles, and in the event of any contradiction or inconsistency between the meaning of the English version and the meaning of the Hebrew version of these Articles, the Hebrew version shall be disregarded, shall have no binding effect and shall have no impact on the interpretation of these Articles or any provision hereof. |
| 2. | Private company. |
The Company is a private company, and accordingly:
| 2.1. | the right to transfer shares is restricted in the manner hereinafter prescribed; |
| 2.2. | the number of Shareholders (exclusive of persons who are in the employment of the Company, or of persons who having been formerly in the employment of the Company were, while in such employment, and have continued after the termination of such employment to be, Shareholders of the Company) is limited to 50; provided that where two or more persons hold one or more shares in the Company jointly they shall, for the purpose of this Article, be treated as a single shareholder; |
| 2.3. | any invitation to the public to subscribe for any shares or debentures of the Company is prohibited. |
Limited liability
| 3. | The Company is a Limited Liability Company and therefore each Shareholder’s obligations to the Company’s obligations shall be limited to the payment of the par value of the shares held by such Shareholder, subject to the provisions of the Companies Law. |
Company’s objectives
| 4. | The Company’s objectives are to carry on any business, and do any act, which is not prohibited by law. |
| 5. | The Company may donate a reasonable amount of money for any purpose that the Board of Directors finds appropriate, even if the donation is not for business considerations for the purpose of achieving profits to the Company. |
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Share Capital
| 6. | Share capital. |
The share capital of the Company is NIS 887,208 (eight hundred and eighty seven thousand two hundred and eight New Israeli Shekels) divided into 20,000,000 Ordinary Shares, par value of NIS 0.04 (four Agorot) each (the “Ordinary Shares”) and 2,180,201 Deferred Shares of NIS 0.04 nominal value each.
The rights attached to the Ordinary Shares shall be all the rights in the Company including, without limitation, the right to receive notices of Shareholders meetings, to attend and vote at Shareholders’ meetings, to participate in distribution of dividends and stock dividends and to participate in distribution of surplus assets and funds in liquidation of the Company. Deferred Shares shall only entitle their holders with the rights explicitly specified in this Articles and shall not entitle their holders with the right to receive notice of, and to participate and vote in, all general meetings of the Company’s shareholders.
| 7. | Increase of share capital. |
| 7.1. | The Company may, from time to time, by a Shareholders resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide. |
| 7.2. | Except to the extent otherwise provided in such resolution, such new shares shall be subject to all the provisions applicable to the shares of the original capital. |
| 8. | Special rights; modifications of rights. |
| 8.1. | Subject to the provisions of these Articles and the Companies Law, the Company may, from time to time, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution. | |
| 8.2. | If at any time, the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, subject to a resolution passed at a separate General Meeting of the holders of the shares of such class. | |
| 8.3. | The provisions of these Articles relating to General Meetings shall apply, in the relevant changes, to any separate General Meeting of the holders of the shares of a particular class. |
| 8.4. | Without prejudice, the increase of the authorized share capital, the creation of a new class of shares, the increase of the authorized share capital of a class of shares, or the issuance of shares of any class out of the authorized and unissued share capital, shall not be deemed to modify or abrogate the rights attached to any class of shares, whether previously issued shares of such class or of any other class. | |
| 9. | Consolidation, subdivision, cancellation and reduction of share capital. |
| 9.1. | The Company may, by Shareholders’ resolution and subject to the Companies Law, from time to time: |
| 9.1.1. | consolidate all or any of its issued or unissued share capital into shares of larger, equal to or smaller nominal value than its existing shares; |
| 9.1.2. | divide its shares (issued or unissued) or any of them, into shares of smaller or the same nominal value than is fixed by these Articles (subject, however, to the provisions of the Companies Law), and the resolution whereby any share is divided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, in contrast to others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company may attach to unissued or new shares; |
| 9.1.3. | cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled, or |
| 9.1.4. | reduce its authorized share capital in any manner. |
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| 9.2. | With respect to any consolidation of issued shares and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, including, inter alia, resort to one or more of the following actions: | |
| 9.2.1. | determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger, equal or smaller nominal value; |
| 9.2.2. | allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings; | |
| 9.2.3. | redeem, in the case of redeemable shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional share holdings; | |
| 9.2.4. | round up, round down or round to the nearest whole number, any fractional shares resulting from the consolidation or from any other action which may result in fractional shares; |
| 9.2.5. | cause the transfer of fractional shares by certain Shareholders to other Shareholders so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board of Directors is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this sub-Article 9.2.5. |
SHARES
| 10. | Issuance of share certificates; replacement of lost certificates. |
| 10.1. | Share certificates shall be issued under the stamp of the Company and shall bear the signatures of a Director and/or of any other person or persons authorized thereto by the Board of Directors. | |
| 10.2. | Each shareholder shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if the Board of Directors so approves, to several certificates, each for one or more of such shares. Each certificate shall specify the serial numbers of the shares represented thereby and may also specify the amount paid up thereon. |
| 10.3. | A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Registrar of Shareholders in respect of such co-ownership. |
| 10.4. | If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors may think fit. | |
| 11. | Registered holder. |
Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or other claim to, or interest in such share on the part of any other person.
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| 12. | Allotment of shares. |
| 12.1. | The shares, other than the issued and outstanding shares, shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 14.6 hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit. Such issuance may be made in cash, cash equivalents or for in kind consideration. |
| 12.2. | Section 290(a) of the Companies Law shall not apply to the Company. |
| 12.3. | Pre-emptive Rights. Prior to an IPO, each share holder holding at least 5% of the company’s Ordinary Shares (the “Offeree”) shall have a right of first refusal to purchase part or all its Pro Rata Share (as defined below) of any New Securities (as defined below) that the Company may, from time to time, propose to sell and issue, as well as all or any part of the Pro Rata Share, of any other Offeree entitled to such rights to the extent that such other Offeree does not elect to purchase its full Pro Rata Share (as defined below). A “Pro Rata Share”, for purposes of this Article 12.3, shall be the ratio of the number of shares of the Company’s Ordinary Shares then held by such Offeree, as of the date of the Rights Notice (as defined below), to the sum of the total number of Ordinary Shares as of such date. |
| 12.4. | “New Securities” shall mean any Securities of the Company, except for: (i) issuance of Securities to employees, consultants and directors under share option plan approved by the Board, (ii) issuance of Securities to the public in an IPO, (iii) issuance of Securities in connection with any Recapitalization Event, (iv) issuance of securities to a lending institution in connection with a loan or credit facility or to a bank, pursuant to a financing agreement, in each case, in a transaction approved by two thirds of the Board, provided that the total number of securities issued under this subsection does not exceed 3% of the Company’s share capital, on a fully diluted basis, (v) issuance of securities pursuant to the exercise or conversion of any options, warrants or convertible rights outstanding as of 15 July 2020, (vi) issuance of Securities as dividend, share splits or as bonus shares, (vii) issuance of securities to a “strategic investor” which prior to or concurrently with such issuance enters into an agreement with the Company for the establishment of a joint venture or into a service, distribution, license or other commercial agreement with the Company such issuance shall be approved by two thirds of the Board, provided further that the total number of securities issued under this subsection does not exceed 5% of the Company’s share capital, on a fully diluted basis. |
| 12.5. | If the Company proposes to issue New Securities, it shall give each Offeree a written notice thereof (the “Rights Notice”) of its intention to do so, describing the New Securities, the price, the general terms upon which the Company proposes to issue them, and the number of New Securities that each Offeree has the right to purchase under this Article 12. Each Offeree shall have seven (7) days from delivery of the Rights Notice to agree to purchase: (i) all or any part of its Pro-Rata Share; and (ii) all or any part of the Pro-Rata Share of any other Offeree entitled to such rights to the extent that such other Offeree does not elect to purchase its full Pro-Rata Share, in each case for the price and upon the general terms specified in the Rights Notice, by giving written notice to the Company setting forth the quantity of New Securities to be purchased. In the event that such issuance of New Securities shall be revoked, then the Company shall not be obligated to sell and issue to the Offerees which elected to purchase its full Pro-Rata Share and such Offeree shall not be obligated to purchase any New Securities. |
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| 12.6. | If the Offerees do not elect to purchase in the aggregate 100% or more of the New Securities, then the Company shall have ninety (90) days after delivery of the Rights Notice to sell the unsubscribed New Securities at a price and upon general terms no more favourable to the purchasers thereof than specified in the Rights Notice. If the Company has not sold the unsubscribed New Securities within said ninety (90) day period, the Company shall not thereafter issue or sell such unsubscribed New Securities without first re-offering them to the Offerees in the manner provided above. |
| 13. | Payment in installments. |
If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share of the person(s) entitled thereto.
| 14. | Calls on shares. |
| 14.1. | The Board of Directors may, from time to time make such calls as it may think fit upon Shareholders in respect of any sum unpaid in respect of shares held by such Shareholders which is not, by the terms of allotment thereof or otherwise, payable at a fixed time, and each shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made. |
| 14.2. | Notice of any call shall be given in writing to the shareholder (s) in question not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom such payment shall be made, provided, however, that before the time for any such payment, the Board of Directors may, by notice in writing to such shareholder (s), revoke such call in whole or in part, extend such time, or alter such person and/or place. In the event of a call payable in installments, only one notice thereof need be given. |
| 14.3. | If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board of Directors and of which due notice had been given, and all the provisions herein contained with respect to such calls shall apply to each such amount. | |
| 14.4. | The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon. | |
| 14.5. | Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board of Directors may prescribe. |
| 14.6. | Upon the allotment of shares, the Board of Directors may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof. |
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| 15. | Prepayment. | |
With the approval of the Board of Directors, any shareholder may pay to the Company any amount not yet payable in respect of his shares, and the Board of Directors may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 15 shall derogate from the right of the Board of Directors to make any call before or after receipt by the Company of any such advance.
| 16. | Forfeiture and surrender. |
| 16.1. | If any shareholder fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board of Directors, and subject to the provisions of Section 181 of the Companies Law, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made. Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys’ fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call. |
| 16.2. | Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such shareholder, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board of Directors may nullify such resolution of forfeiture, but no such nullification shall stop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount. |
| 16.3. | Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time. | |
| 16.4. | The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share. |
| 16.5. | Any share forfeited or surrendered as provided herein shall become dormant shares (as defined in Section 308 of the Companies Law), and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board of Directors thinks fit. |
| 16.6. | Any shareholder whose shares have been forfeited or surrendered shall cease to be a shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 14.5 above, unless such shares were sold by the Company, and the Company shall have received in full the amounts specified above in addition to any additional costs of such sale of shares, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing by the shareholder in question (but not yet due) in respect of all shares owned by such shareholder, solely or jointly with another, and in respect of any other matter or transaction whatsoever. |
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| 16.7. | The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it thinks fit, but no such nullification shall stop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 16.7. |
| 17. | Lien. |
| 17.1. | Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each Shareholder (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for the call on shares made by the Board of Directors, in respect of unpaid sum relating to shares held by such Shareholder. Such lien shall extend to all dividends from time to time declared in respect of such share. Unless otherwise provided, the registration by the Company of a transfer of shares shall not be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer. |
| 17.2. | The Board of Directors may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board of Directors may think fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such shareholder, his executors or administrators. |
| 17.3. | The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such Shareholder (whether or not the same have matured), or any specific part of the same (as the Company may determine), and the residue (if any) shall be paid to the shareholder, his executors, administrators or assigns. |
| 18. | Sale after forfeiture or surrender or in enforcement of lien. |
Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint some person to execute an instrument of transfer of the shares so sold and cause the purchaser’s name to be entered in the Register of Shareholders in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the Register of Shareholders in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.
| 19. | redeemable shares. |
The Company may, subject to applicable law, issue redeemable shares and redeem the same.
Transfer of shares
| 20. | Effectiveness and registration. |
| 20.1. | No transfer of shares in the Company, and no assignment of an option to acquire such shares from the Company, shall be effective unless the transfer or assignment has been approved by the Board of Directors, such approval shall be at the sole discretion of the Board of Directors. The Board of Directors may refuse to approve such transfer or assignment without the need to give any reasons. |
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| 20.2. | No such transfer as described in Article 20.1 shall be registered unless a proper instrument of transfer (in form and substance satisfactory to the Board of Directors) has been submitted to the Company, together with the share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Until the transferee has been registered in the Register of Shareholders in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer. | |
| 21. | suspension of registration. |
The Board of Directors may suspend the registration of transfers during the fourteen (14) days immediately preceding the Annual General Meeting.
Transmission of Shares
| 22. | decedent’s shares. |
| 22.1. | In case of a share registered in the names of two or more holders, the Company shall recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article 22.20 have been effectively invoked. | |
| 22.2. | Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession shall be registered as a shareholder in respect of such share, or may, subject to the regulations as to transfer herein contained, transfer such share. |
| 23. | Receivers and Liquidators. |
| 23.1. | The Company may recognize the receiver or liquidator of any corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, as being entitled to the shares registered in the name of such shareholder. | |
| 23.2. | The receiver or liquidator of a corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, upon producing such evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares. |
General meetings
| 24. | Annual general meeting. |
An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual General Meeting) and at such place either within or without the State of Israel as may be determined by the Board of Directors.
| 25. | Extraordinary general meetings. |
All General Meetings other than the Annual General Meetings shall be called “Extraordinary General Meetings”. The Board of Directors may, whenever it thinks fit, convene an Extraordinary General Meeting at such time and place, within or without the State of Israel, as may be determined by the Board of Directors, and shall be obliged to do so upon a requisition in writing in accordance with Section 63 of the Companies Law.
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| 26. | Notice of general meetings; omission to give notice; record date. | |
| 26.1. | Not less than seven (7) days’ prior notice shall be given of every General Meeting. Each such notice shall specify the place and the day and hour of the meeting and the general nature of each item to be acted upon thereat. Notice shall be given to all Shareholders who would be entitled to attend and vote at such meeting, if it were held on the date when such notice is issued. Anything herein to the contrary notwithstanding, with the consent of all Shareholders entitled to vote thereon, a resolution may be proposed and passed at such meeting although a lesser notice than hereinabove prescribed has been given. | |
| 26.2. | The accidental omission to give notice of a meeting to any shareholder or the non- receipt of notice sent to such shareholder, shall not invalidate the proceedings at such meeting. |
| 26.3. | Unless otherwise specified in these Articles, the Board of Directors shall specify a record date for determining the identity of the Shareholders entitled to receive notices of Shareholders meetings, vote in such meetings and for any other matter with regard to the rights of the Shareholders, including without limitation, the rights with regard to distribution of dividends. |
Proceedings at general meetings
| 27. | Quorum. |
| 27.1. | Shareholder(s) (not in default in payment of any sum referred to in Article 33.1 hereof), present in person, by audio or video conference so long as each Shareholder participating in such call can hear, and be heard by, each other Shareholders participating in such General Meeting, or by proxy and holding shares conferring in the aggregate a majority of the voting power of the Company, shall constitute a quorum at General Meetings. No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business. |
| 27.2. | Shareholders entitled to be present and vote at a General Meeting may participate in a General Meeting by means of audio or video conference or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute attendance in person at the meeting. |
| 27.3. | If within an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition under Sections 63 or 64 of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment. No business shall be transacted at any adjourned meeting except business, which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any two (2) Shareholders (not in default as aforesaid) present in person or by proxy, shall constitute a quorum. |
| 28. | Chairman. |
The Shareholders present shall choose someone of their number to be Chairman of the General Meeting. The office of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).
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| 29. | Adoption of resolutions at general meetings. |
| 29.1. | A Shareholders resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the Shareholders meeting in person or by proxy and voting thereon. |
| 29.2. | Every question submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any shareholder present in person or by proxy and entitled to vote at the meeting, the same shall be decided by such ballot. A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot. The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another shareholder may then demand such written ballot. The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded. |
| 29.3. | A declaration by the Chairman of the meeting that a resolution has been carried unanimously, or carried by a particular majority, or lost, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution. | |
| 30. | Resolutions in Writing. |
A resolution in writing signed by all of the Shareholders then entitled to attend and vote at General Meetings or to which all such Shareholders have given their written consent (by letter, facsimile, telecopier, telegram, telex or otherwise) or their oral consent by telephone or otherwise (provided that a written summary thereof has been approved and signed by the Chairman), shall be deemed to have been unanimously adopted by a General Meeting duly convened and held.
| 31. | Power to adjourn. |
| 31.1. | The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. |
| 31.2. | It shall not be necessary to give any notice of an adjournment, unless the meeting is adjourned for a date which is more than twenty-one (21) days, in which event notice thereof shall be given in the manner required for the meeting as originally called. | |
| 32. | Voting power. |
Subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot or by any other means.
| 33. | Voting rights. |
| 33.1. | No shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid. |
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| 33.2. | A company or other corporate body being a shareholder of the Company may authorize any person to be its representative at any meeting of the Company. Any person so authorized shall be entitled to exercise on behalf of such shareholder all the power, which the latter could have exercised if it were an individual shareholder. Upon the request of the Chairman of the meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him. |
| 33.3. | Any shareholder entitled to vote may vote either personally or by proxy (who need not be a shareholder of the Company), or, if the shareholder is a company or other corporate body, by a representative authorized pursuant to Article 33.2. | |
| 33.4. | If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s); and for this purpose seniority shall be determined by the orders in which the names stand in the Register of Shareholders. |
Proxies
| 34. | Instrument of appointment. |
| 34.1. | The instrument appointing a proxy shall be in writing and shall be substantially in the following form or in any usual or common form or in such other form as may be approved by the Board of Directors. It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate body, under its common seal or stamp by its duly authorized agent(s) or attorney(s): |
| “I, | of | ||
| (Name of Shareholder) | (Address of Shareholder) | ||
| being a shareholder of | (the “Company”), hereby | ||
| appoint(s) | of | ||
| (Name of Proxy) | (Address of Proxy) | ||
| As my proxy, to vote for me and on my behalf at the General Meeting of the Company to be held on the day of , 20 , and at any adjournment(s) thereof. | |||
| Signed this day of , 20 . | |||
| (Signature of Appointer)” | |||
| 34.2. | The instrument appointing a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its Office, or at its principal place of business or at such place as the Board of Directors may specify) not less than forty-eight (48) hours before the time fixed for the meeting at which the person named in the instrument proposes to vote, or presented to the Chairman at such meeting. |
| 35. | Effect of death of appointer or revocation of appointment. |
A vote cast pursuant to an instrument appointing a proxy shall be valid notwithstanding the previous death of the appointing shareholder (or of his attorney-in-fact, if any, who signed such instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written intimation of such death, revocation or transfer shall have been received by the Company or by the Chairman of the meeting before such vote is cast and provided, further, that the appointing shareholder, if present in person at said meeting, may revoke the appointment by means of a writing, oral notification to the Chairman, or otherwise.
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Board of directors
| 36. | Powers of board of directors. |
| 36.1. | In General. In addition to all powers and authorities of the Board of Directors as specified in the Companies Law, the determination of the Company’s policy, and the supervision of the General Manager and the Company’s officers shall be vested in the Board of Directors. In addition, the Board of Directors may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting or by the General Manager or the Chief Executive Officer of the Company (the “General Manager”) under his express or residual authority. The authority conferred on the Board of Directors by this Article 36.1 shall be subject to the provisions of the Companies Law, these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted. |
| 36.2. | Borrowing Power. The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital for the time being. |
| 36.3. | Reserves. The Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall think fit, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or re-designate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit. | |
| 37. | Exercise of powers of directors; written Resolution. |
| 37.1. | A meeting of the Board of Directors at which a quorum is present shall be competent to exercise all the authorities, powers and discretion vested in or exercisable by the Board of Directors. | |
| 37.2. | A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present when such resolution is put to a vote and voting thereon. The office of Chairman of the Board of Director shall not, by itself, entitle the holder thereof to a second or a casting vote. | |
| 37.3. | The Board of Directors may adopt resolutions, without convening a meeting of the Board of Directors, provided that all directors then in office and lawfully entitled to participate in the discussion on the proposed matter and to vote thereon (as conclusively determined by the chairman of the Board of Directors) have given their written consent not to convene a meeting on such matters. Minutes of such resolutions, including the resolution not to convene a meeting, shall be signed by the chairman of the Board of Directors. |
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| 38. | Delegation of Powers; Committees. |
| 38.1. | The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of two or more members, and it may from time to time revoke such delegation or alter the composition of any such committee. Any Committee so formed (in these Articles referred to as a “Committee of the Board of Directors”), shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors. The meeting and proceeding of any such Committee of the Board of Directors shall be governed, in the relevant changes, by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by any regulations adopted by the Board of Directors under this Article. Unless otherwise expressly provided by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall not be empowered to further delegate powers. |
| 38.2. | The Board of Directors may, subject to the provisions of the Companies Law, from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors may think fit, and may terminate the service of any such person. The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and emoluments, of all such persons, and may require security in such cases and in such amounts as it thinks fit. |
| 38.3. | The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purpose(s) and with such powers, authorities and discretion, and for such period and subject to such conditions, as it thinks fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretion vested in him. |
| 39. | Number of Directors. |
The number of members of the Board will be fixed from time to time by resolutions of the General Meeting provided that it will not be less than one (1) director and no more than four (4).
| 40. | Appointment and Removal of Directors. |
| 40.1 | The members of the Board of Directors shall be appointed and removed by resolution of the shareholders of the Company. Each Director shall continue to serve as a Director of the Company (subject to the provisions of Article 43 below) until such time as another Director is appointed as his successor by a Shareholders resolution. | |
| 40.2 | Notwithstanding anything to the contrary herein, the term of directorship of a Director may commence as of a date later than the date of the shareholders’ resolution electing said Director, if so specified in said shareholder resolution. | |
| 40.3 | The Board shall be comprised of three (3) directors, as follows: |
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(a) Prior to the exercise of the Option and in the event that the Option expires without being exercised, (i) one (1) director shall be appointed, dismissed and replaced by Medigus and (ii) up to two (2) directors shall be appointed, dismissed and replaced by the holders of a majority of the Ordinary Shares of the Company held by Shareholders other than Medigus.
(b) In the event that the Option is exercised, then, following the exercise of the Option, (i) two (2) directors shall be appointed, dismissed and replaced by Medigus and (ii) one (1) director shall be appointed, dismissed and replaced by the holders of a majority of the Ordinary Shares of the Company held by Shareholders other than Medigus. The appointment of any director or the dismissal or replacement of any such director appointed by Medigus shall be by written notice given to the Company by Medigus, and shall become valid and effective upon the day on which said written notice was received by the Company, or upon such later date as may be noted in the notice, without the need for any other corporate procedure or action.
| 41. | Qualification of Directors. |
No person shall be disqualified as a Director by reason of his not holding shares in the Company.
| 42. | Continuing Directors in the Event of Vacancies. |
In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, and, pending the filling of any vacancy pursuant to the provisions of Article 43, may temporarily fill any such vacancy, provided, however, that if their number is less than a majority of the number provided for pursuant to Article 39 hereof, they may only act in an emergency, and may call a General Meeting of the Company for the purpose of electing Directors to fill any or all vacancies, so that at least a majority of the number of Directors provided for pursuant to Article 39 hereof are in office as a result of said meeting.
| 43. | Vacation of Office. |
| 43.1. | The office of a Director shall be vacated, ipso facto, upon his death, if he is found to be legally incompetent, if he become bankrupt, if the Director is a company, upon its winding-up, if he is prevented by applicable law from serving as a Director, or if his directorship expires pursuant to these Articles and/or applicable law. |
| 43.2. | The office of the Director shall be vacated by his written resignation. Such resignation shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later. | |
| 44. | Remuneration of Directors. |
A Director may be paid remuneration by the Company for his services as Director, subject to the provisions of the Companies Law.
| 45. | Conflict of Interests. |
Subject to the provisions of the Companies Law and these Articles, the Company may enter into any contract or otherwise transact any business with any Director in which contract or business such Director has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.
| 46. | Alternate Directors. |
| 46.1. | Subject to the provisions of the Companies Law, a Director may, by written notice to the Company, appoint an alternate for himself (in these Articles referred to as “Alternate Director”), remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever. Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, and for all purposes. |
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| 46.2. | Any notice given to the Company pursuant to Article 46.1 shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later. |
| 46.3. | An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided, however, that he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors or any committee thereof while the Director who appointed him is present. |
| 46.4. | Any natural person may act as an Alternate Director. |
| 46.5. | An Alternate Director shall be responsible for his own acts and defaults, as provided in the Companies Law. |
| 46.6. | The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 43 and such office shall ipso facto be vacated if the Director who appointed such Alternate Director ceases to be a Director. |
Proceedings of the Board of Directors
| 47. | Meetings. |
| 47.1. | The Board of Directors may meet and adjourn its meetings at such places either within or without the State of Israel and otherwise regulate such meetings and proceedings as the Directors think fit. Subject to all of the other provisions of these Articles concerning meetings of the Board of Directors, the Board of Directors may meet by audio or video conference so long as each Director participating in such call can hear, and be heard by, each other Director participating in such call. |
| 47.2. | Any Director may at any time, and the Secretary, upon the request of such Director, shall, convene a meeting of the Board of Directors, but not less than three (3) business days’ written notice shall be given of any meeting, unless such notice is waived in writing by all of the Directors as to a particular meeting or unless the matters to be discussed at such meeting is of such urgency and importance that notice ought reasonably to be waived under the circumstances. |
| 48. | Quorum. |
| 48.1. | Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence (in person, via audio or video conference, or by proxy) of the majority of Directors then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the the Chairman of the Board of Directors) as well as the presence of the Medigus Director. |
| 48.2. | If within an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the majority of the Directors present. No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any two (2) members present in person or represented by an Alternate Director shall constitute a quorum, provided that at least one of the members present is the Medigus Director. |
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| 49. | Chairman of the Board of Directors. |
The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in its place. The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the chairman of such meeting. The office of the Chairman shall not, by itself, entitle the holder thereof to a second or casting vote.
| 50. | Validity of Acts Despite Defects. |
Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.
General Manager
| 51. | General Manager. |
| 51.1. | The Board of Directors may from time to time appoint one or more persons, whether or not Directors, as General Manager(s) of the Company and may confer upon such person(s), and from time to time modify or revoke, such title(s) (including Chief Executive Officer, Managing Director, General Manager(s), Director General or any similar or dissimilar title) and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe and subject to the provisions of the Companies Law. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law, and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places. |
| 51.2. | Subject to the resolutions of the Company’s Board of Directors, the management and the operation of the Company’s affairs and business in accordance with the policy determined by the Company’s Board of Directors shall be vested in the General Manager, in addition to all powers and authorities of the General Manager, as specified in the Companies Law. Without derogating from the above, all powers of management and executive authorities which were not vested by the Companies Law or by these Articles in another organ of the Company shall be vested in the General Manager, subject to the resolutions of the Company’s Board of Directors. |
Minutes
| 52. | Minutes. |
| 52.1. | Minutes of each General Meeting and of each meeting of the Board of Directors shall be recorded and duly entered in books provided for that purpose. Such minutes shall set forth the names of the persons present at the meeting and all resolutions adopted thereat. |
| 52.2. | Any minutes as aforesaid, if purporting to be signed by the Chairman of the meeting or by the Chairman of the next succeeding meeting, shall constitute prima facie evidence of the matters recorded therein. |
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Dividends
| 53. | Declaration of Dividends. |
The Board of Directors may from time to time declare and cause the Company to pay dividend, subject to the Companies Law. The Board of Directors shall determine the time for payment of such dividends, and the record date for determining the Shareholders entitled thereto.
| 54. | Funds Available for Payment of Dividends. |
No dividend shall be paid other than out of the profits of the Company.
| 55. | Amount Payable by Way of Dividends. |
Subject to the rights of the holders of shares with special rights as to dividends, any dividend paid by the Company shall be allocated among the Shareholders entitled thereto in proportion to the respective holdings of the shares in respect of which such dividend is being paid, except that the Deferred Shares Max Distribution Limitation shall always apply.
| 56. | Interest. |
No dividend shall carry interest as against the Company.
| 57. | Payment in Specie. |
Upon the declaration of a dividend in accordance with Article 53, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock of the Company or of any other companies, or in any one or more of such ways.
| 58. | Capitalization of Profits, Reserves, etc. |
Upon approval by the Board of Directors, the Company:
| 58.1. | may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the Shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such Shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued share or debentures or debenture stock; and |
| 58.2. | may cause such distribution or payment to be accepted by such Shareholders in full satisfaction of their interest in the said capitalized sum. |
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| 59. | Implementation of Powers Under Articles 57 and 58. |
For the purpose of giving full effect to any resolution under Articles 57 and 58, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any Shareholders upon the footing of the value so fixed, or that fractions of less value than the nominal value of one share may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors. Where requisite under the Companies Law, a proper contract shall be filed, and the Board of Directors may appoint any person to sign such contract on behalf of the persons entitled to the dividend or capitalized fund.
| 60. | Deductions from Dividends. |
The Board of Directors may deduct from any dividend or other moneys payable to any Shareholder in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.
| 61. | Retention of Dividends. |
| 61.1. | The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists. | |
| 61.2. | The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 22 or 23, entitled to become a shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a shareholder in respect of such share or shall transfer the same. |
| 62. | Unclaimed Dividends. |
All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed. The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.
| 63. | MECHANICS OF PAYMENT. |
Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may be writing direct. Every such check or warrant shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check or warrant shall be sent at the risk of the person entitled to the money represented thereby.
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| 64. | Receipt from a Joint Holder. |
If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.
Accounts
| 65. | Books of Account. |
The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law, and of any other applicable law. Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors. The Company shall make copies of its annual financial statements available for inspection by the Shareholders at the principal offices of the Company. The Company shall not be required to send copies of its annual financial statements to Shareholders.
| 66. | Audit. |
At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors.
| 67. | Auditors. |
The appointment, authorities, rights and duties of the Auditor(s) of the Company, shall be regulated by applicable law, provided, however, that in exercising its authority to fix the remuneration of the auditor(s), the Shareholders in General Meeting may act (and in the absence of any action in connection therewith shall be deemed to have so acted) to authorize the Board of Directors to fix such remuneration subject to such criteria or standards, if any, as may be provided in such resolution, and if no such criteria or standards are so provided, such remuneration shall be fixed in an amount commensurate with the volume and nature of the services rendered by such auditor(s).
Branch Registers
| 68. | Branch Registers. |
Subject to and in accordance with the provisions of the Companies Law and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
Rights of Signature and Stamp
| 69. | Rights of Signature and Stamp. |
| 69.1. | The Board of Directors shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority. | |
| 69.2. | The Company shall have at least one official stamp. |
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Notices
| 70. | Notices. |
| 70.1. | Any notice or other document may be served by the Company on any shareholder, by any of the methods set forth below, to such shareholder at his address or other contact details as described in the Register of Shareholders or such other address or other contact details as he may have designated in writing for the receipt of notices and other documents. |
| 70.2. | Any notice or other document may be served by any shareholder upon the Company by tendering the same in person to the Secretary or the General Manager of the Company at the principal office of the Company or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its Office. | |
| 70.3. | Any such notice or other document, shall be deemed to have been served on two (2) business days after it has been posted (seven (7) business days if sent to a place not located on the same continent as the place from where it was posted), or when actually received by the addressee if sooner than two days or seven days, as the case may be, after it has been posted; or when actually tendered in person, to such shareholder (or to the Secretary or the General Manager); or one upon transmission if it has been sent by facsimile, email or other electronic means with electronic confirmation of delivery (or, if transmitted on a non-business day, upon the first business day after such transmission) or when actually received by such shareholder (or by the Company), whichever is earlier. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article. |
| 70.4. | All notices to be given to the Shareholders shall, with respect to any share to which persons are jointly entitled, be given to any one of the joint holders, and any notice so given shall be sufficient notice to the holders of such share. | |
| 70.5. | Any shareholder whose address or other contact details were not provided to the Company to be specified in the Register of Shareholders, or who shall not have designated an address or other contact details for the receipt of notices, shall not be entitled to receive any notice from the Company. |
Insurance and Indemnity
| 71. | Insurance. |
Subject to the provisions of the Companies Law and to the maximum extent permitted under law (including, the Israeli Securities Law and the Anti-Trust Law), and subject further to Article 74, the Company may enter into a contract for the insurance of all or part of the liability of any Officer imposed on him in consequence of an act which he has performed by virtue of being an Officer, including, in respect of one of the following:
| 71.1. | a breach of his duty of care to the Company or to another person; |
| 71.2. | a breach of his fiduciary duty to the Company, provided that the Officer acted in good faith and had reasonable cause to assume that such act would not prejudice the interests of the Company; | |
| 71.3. | a financial obligation imposed on him in favor of another person. |
| 71.4. | any other event, occurrence, matters or circumstances under any law with respect to which the Company may, or will be able to, insure an Officer, and to the extent such law requires the inclusion of a provision permitting such insurance in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Israeli Securities Law 5728-1968 (the “Israeli Securities Law”), if applicable, and Section 50P of the Anti-Trust Law). |
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| 72. | Indemnity. |
| 72.1. | Subject to the provisions of the Companies Law and to the maximum extent permitted under law (including, the Israeli Securities Law and the Anti-Trust Law), and subject further to Article 74, the Company may indemnify an Officer, retroactively, in respect of any liability or expense for which indemnification may be provided under the Companies Law, including the following liabilities or expenses, imposed on such Officer or incurred by him in consequence of an act which he has performed by virtue of being an Officer: |
| 72.1.1. | a financial liability imposed on such Officer in favor of any person pursuant to a judgment, including a judgment rendered in the context of a settlement or an arbitrator’s award approved by a court; the term “person” in this Article 72 shall include, without limitation, a natural person, firm, partnership, joint venture, trust, company, corporation, limited liability entity, unincorporated organization, estate, government, municipality, or any political, governmental, regulatory or similar agency or body; |
| 72.1.2. | reasonable Litigation Expenses (as defined below) expended incurred by an Officer as a result of an investigation or any proceeding instituted against the Officer by an authority that is authorized to conduct an investigation or proceeding, and that was concluded without filing an indictment against the Officer and without imposing on the Officer a financial obligation in lieu of a criminal proceeding, or that was concluded without filing an indictment against the Officer but imposing a financial obligation in lieu of a criminal proceeding in an offence that does not require proof of mens rea, or in connection with a financial sanction. In this section “conclusion of a proceeding without filing an indictment in a matter in which a criminal investigation has been instigated” and “financial liability in lieu of a criminal proceeding” shall have the meaning assigned to such terms under the Companies Law, and the term “financial sanction” shall mean such term as referred to in Section 260(a)(1a) of the Companies Law. The term “Litigation Expenses” in this Article 72 shall include, without limitation, attorneys’ fees and all other costs, expenses and obligations paid or incurred by an Officer in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any claim relating to any matter for which indemnification hereunder may be provided. |
| 72.1.3. | reasonable Litigation Expenses, including attorneys’ fees, incurred by an Officer or charged to him by a court, in a proceeding instituted against him by the Company or on its behalf or by another person, or in a criminal charge from which he was acquitted or in which he was convicted of an offence that does not require proof of mens rea. | |
| 72.1.4. | any other event, occurrence, matter or circumstances under any law with respect to which the Company may, or will be able to, indemnify an Officer, and to the extent such law requires the inclusion of a provision permitting such indemnity in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Israeli Securities Law, if applicable, and Section 50P(b)(2) of the Anti-Trust Law). |
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| 72.2. | Subject to the provisions of the Companies Law and to the maximum extent permitted under law (including, the Israeli Securities Law and the Anti-Trust Law), and subject further to Article 74, the Company may undertake to indemnify an Officer, in advance, in respect of the following liabilities or expenses, imposed on such Officer or incurred by him in consequence of an act which he has performed by virtue of being an Officer: |
| 72.2.1. | As set forth in Article 72.1.1, provided that: |
| 72.2.1.1. | the undertaking to indemnify is limited to such events which the Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made and for such amounts or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances; and |
| 72.2.1.2. | the undertaking to indemnify shall set forth such events which the Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made, and the amounts and/or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances. |
| 72.2.2. | As set forth in Articles 72.1.2 to 72.1.3, and to the extent permitted by law, 72.1.4. |
| 73. | Release. |
Subject to the provisions of the Companies Law and to the maximum extent permitted under law, and subject further to Article 74, the Company may release, in advance, an Officer from all or any part of the liability due to damages arising out of the breach of duty of care towards the Company.
| 74. | General. |
| 74.1. | Notwithstanding anything to the contrary contained herein and subject to applicable law, these Articles are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification: | |
| 74.1.1. | in connection with any person who is not an Officer, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Officer, and/or | |
| 74.1.2. | in connection with any Officer to the extent that such insurance and/or indemnification is not specifically prohibited under law; |
provided that if the Company has an Audit Committee, the procurement of any such insurance and/or the provision of any such indemnification shall be approved by the Audit Committee of the Company.
| 74.2. | Notwithstanding anything to the contrary in these Articles or any other agreement or instrument, the Company shall not insure, indemnify or release the Officer with respect to events or circumstances for which insurance, indemnification or release are not permitted under law. | |
| 75. | Any amendment to the Companies Law or other applicable law adversely affecting the right of any Officer to be indemnified, insured or released pursuant to Articles 71 to 74 above shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify or insure an Officer for any act or omission occurring prior to such amendment, unless otherwise provided by applicable law. |
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Winding Up
| 76. | Winding Up. |
| 76.1. | In the event of: (i) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary; or (ii) any Deemed Liquidation Event, any and all assets and funds of the Company legally available for distribution among the shareholders of the Company (and, in the case of certain reorganizations, mergers or consolidations, the securities received by the Company or its shareholders in such reorganization, merger or consolidation) shall be distributed to the shareholders of the Company in the following order and preferences: |
| 76.1.1. | First, prior and in preference to any distribution to any of the holders of any other classes or series of shares of the Company, the holders of the Deferred Shares shall be entitled to receive out of the assets of the Company available for distribution to its shareholders (the “Distributable Assets”), an amount (in cash, equivalents or, if applicable, securities) equal to 15% (fifteen percent) of the Distributable Assets, provided however that notwithstanding anything in this Articles, in no event shall the holders of Deferred Shares be entitled to receive, in the aggregate, whether in single distribution or in more than one distribution, more than: (i) 2.75x the Original Issue Price of the Deferred Shares (adjusted for Recapitalization Events); plus (ii) an 4% annual interest on the Original Issue Price for such Deferred Shares, compounded annually from the date of the issuance of such Deferred Shares (i.e. the date of issuance of the Ordinary Shares which were in proximity to the adoption of these Articles converted into Deferred Shares) up to the date of distribution (“Deferred Shares Max Distribution Limitation”); |
| 76.1.2. | Second, after the distribution detailed in Articles 76.1.1 above, the assets available for distribution shall be distributed to all Shareholders on a pro rata basis (provided that in any case, the Deferred Shares Max Distribution Limitation shall always apply) |
| 76.2. | If the Company be wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the Shareholders as such shall first be distributed to the Shareholders entitled thereto an amount equal to the paid-up capital attributable to their respective holdings of the shares in respect of which such distribution is being made, provided, however, that if such assets do not suffice to make such distribution in full, such assets shall be distributed to said Shareholders in proportion to the paid-up capital attributable to their respective holdings of such shares. The paid-up capital attributable to any share issued at a premium or at a lawful discount shall be the nominal value of such share, provided, however, that if less than the full issuance price of such share has been paid to the Company, the paid-up capital attributable thereto shall be such proportion of the nominal value as the amount paid to the Company bears to such full issuance price. |
| 76.3. | The assets, if any, remaining after the distribution pursuant to Article 76.1 hereof, shall, subject to applicable law and to the rights of the holders of shares with special rights as aforesaid, be distributed to the Shareholders entitled thereto in proportion to their respective holdings of the shares in respect of which such distribution is being made. |
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| 76.4. | Dividend Preference. |
Prior to and in preference to the distribution of any dividends to the holders of any class or series of shares of the Company (including ordinary shares), each of the holders of Deferred Shares shall be entitled to receive for each Deferred Share held by he/she/it, prior and in preference to any distribution or payment on any other class or series of shares of the Company (including other holders of ordinary shares), an amount equal to the original issue price, plus an amount equal to 6% (six percent) of the original issue price (subject to adjustment for recapitalization events) for such Deferred Share per annum, calculated thereon from the respective original issue date of such share until the date of distribution of such dividends (the “Dividend Preference”). After the Dividend Preference has been paid in full for a given calendar year, those holding Deferred Shares shall participate with all other holders of ordinary shares in the receipt of any additional dividends distributed, pro rata and pari passu in accordance with their respective shareholdings in the Company. No dividends shall be paid on any other class of stock, unless the Dividend Preference has been paid in full.
This section 76 shall be in effect until the earlier of (i) IPO; (ii) after the holders of the Deferred Shares have received from the Company through any distribution (including divided distribution) amounts equal to the original issue price for any ordinary share issued to them, plus (i) an 5% annual interest on the original issue price for any such ordinary share, compounded annually from the date of the issuance of such ordinary share up to the date of distribution; (ii) any differences due to the linkage of the original issued price to the Israeli Consumer Index as of the date of the Incubator and the founders agreement or after the Deferred Shares Max Distribution Limitation has been reached (as applicable).
Protective Provisions
| 77. | Protective Provisions. |
| 77.1. | Until an IPO, the Company shall not take any action, resolve resolution or decision which constitute or involves a derogation from the rights and privileges ascribed to the Deferred Shares without first obtaining the affirmative votes of a majority of holders of each respective class of shares (as the case may be)(i.e. if the contemplated resolution involves reducing/lessening of the Deferred Shares’ rights (with respect to the Deferred Shares only as set forth in Article 76 here above – it shall require obtaining the prior approval of the majority of both). It being understood that authorizing or issuing additional securities of the Company having rights equal to or senior to those of the existing classes of shares (including, for illustration purposes only, with superior liquidation/dividend preference over the Deferred shares) shall not constitute as a reducing or lessening the rights attached to the Deferred shares. |
| 77.2. | Any right granted to any shareholder or group of shareholders specifically by name, may not be amended or terminated or the observance of any specific term of these Articles granted to such shareholder or group of shareholders specifically may not be waived, without the written consent of such shareholder or group of shareholders. |
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Veto Rights
| 78. | Veto Rights |
| 78.1. | Notwithstanding any provisions of these Articles (regardless of whether or no such other provisions are expressly subordinated to this Article 78), prior to an IPO, the Company shall not either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote or consent required by law or these Articles) the written consent or affirmative vote of at least one of the Medigus Directors and at least one of the Shareholder Directors: |
| 78.1.1. | make any loan or advance to, or acquisition of any share or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company; | |
| 78.1.2. | make any loan or advance to any person, including, any employee or director, except advances and similar expenditures in the ordinary course of business or under the terms of an employee share or option plan approved by the Board; |
| 78.1.3. | guarantee any indebtedness of any other Person other than a wholly owned subsidiary of the Company, except for trade accounts of the Company or any subsidiary arising in the ordinary course of business; | |
| 78.1.4. | incur aggregate indebtedness in excess of $100,000, other than trade credit incurred in the ordinary course of business; |
| 78.1.5. | enter into or become a party to any transaction with any director, officer or employee of the Company or any relative (as defined in the Companies Law) of any such person, except for amendments to employment agreement in the ordinary course of business; | |
| 78.1.6. | establish any new equity incentive plan (or any similar plan) or increase the total number of shares of Ordinary Share reserved for issuance under any such plan; | |
| 78.1.7. | effect a material change in the principal business of the Company. |
| 78.2. | Notwithstanding any provision to the contrary in these Articles, for so long as Ordinary Shares held by Medigus remain outstanding, prior to an IPO, the Company shall not either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote or consent required by law or the Articles) the written consent of Medigus: |
| 78.2.1. | create, or authorize the creation of, issue or obligate itself to issue shares of any existing or additional class or series of share capital that ranks senior to the Ordinary Shares with respect to any rights, preferences or privileges; | |
| 78.2.2. | make any amendment to the Articles that adversely affects the powers, preferences or special privileges of Medigus; | |
| 78.2.3. | liquidate, dissolve or wind-up the affairs of the Company, or effect any merger or consolidation of the Company or any other deemed liquidation event; |
| 78.2.4. | affect a distribution or redeem or pay any dividend on any shares; |
| 78.2.5. | increase or decrease the authorized number of directors constituting the Board. |
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| 78.3. | Notwithstanding any provision to the contrary in these Articles, the Company shall not either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote or consent required by law or the Articles) the written consent of the holders of a majority of the Ordinary Shares of the Company not held by Medigus: |
| 78.3.1. | create, or authorize the creation of, issue or obligate itself to issue shares of any existing or additional class or series of share capital that ranks senior to the Ordinary Shares with respect to any rights, preferences or privileges; |
| 78.3.2. | liquidate, dissolve or wind-up the affairs of the Company, or effect any merger or consolidation of the Company or any other deemed liquidation event; |
| 78.3.3. | affect a distribution or redeem or pay any dividend on any shares; |
| 78.3.4. | increase or decrease the authorized number of directors constituting the Board. |
***************
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Exhibit 3.2
AMENDED ARTICLES
THE COMPANIES LAW, 1999
A LIMITED LIABILITY COMPANY
ARTICLES OF ASSOCIATION
OF
Polyrizon Ltd.
Preliminary
| 1. | Definitions; Interpretation. |
(a) In these Articles, the following terms (whether or not capitalized) shall bear the meanings set forth opposite to them respectively, unless inconsistent with the subject or context.
| “Articles” | shall mean these Articles of Association, as amended from time to time. |
| “Board of Directors” | shall mean the Board of Directors of the Company. |
| “Chairperson” | shall mean the Chairperson of the Board of Directors, or the Chairperson of the General Meeting, as the context provides; |
| “Company” | shall mean Polyrizon Ltd. |
| “Companies Law” | shall mean the Israeli Companies Law, 5759-1999 and the Regulations promulgated thereunder. The Companies Law shall include reference to the Companies Ordinance (New Version), 5743-1983, of the State of Israel, to the extent in effect according to the provisions thereof. |
| “Director(s)” | shall mean the member(s) of the Board of Directors holding office at any given time, including alternate directors. |
| “External Director(s)” | shall mean as defined in the Companies Law. |
| “Economic Competition Law” | shall mean the Israeli Economic Competition Law, 5758-1988, and the Regulations promulgated thereunder. |
| “General Meeting” | shall mean an Annual General Meeting or Special General Meeting of the Shareholders, as the case may be. |
| “NIS” | shall mean New Israeli Shekels. |
| “Office” | shall mean the registered office of the Company at any given time. |
| “Office Holder” or “Officer” |
shall mean as defined in the Companies Law. |
| “Regulations” | means the regulations promulgated under the Companies Law, as shall be in effect from time to time. |
| “Securities Law” | shall mean the Israeli Securities Law, 5728-1968 and the Regulations promulgated thereunder. |
| “Shareholder(s)” | shall mean the shareholder(s) of the Company, at any given time. |
| “in writing” or “writing” | shall mean written, printed, photocopied, photographic, typed, sent via email, facsimile or produced by any visible substitute for writing, or partly one and partly another, and signed shall be construed accordingly. |
(b) Unless otherwise defined in these Articles or required by the context, terms used herein shall have the meaning provided therefor under the Companies Law.
(c) Unless the context shall otherwise require: words in the singular shall also include the plural, and vice versa; any pronoun shall include the corresponding masculine, feminine and neuter forms; the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; the words “herein”, “hereof” and “hereunder” and words of similar import refer to these Articles in its entirety and not to any part hereof; all references herein to Articles, Sections or clauses shall be deemed references to Articles, Sections or clauses of these Articles; any references to any agreement or other instrument or law, statute or regulation are to it as amended, supplemented or restated, from time to time (and, in the case of any law, to any successor provisions or re-enactment or modification thereof being in force at the time); any reference to “law” shall include any supranational, national, federal, state, local, or foreign statute or law and all rules and regulations promulgated thereunder (including, any rules, regulations or forms prescribed by any governmental authority or securities exchange commission or authority, if and to the extent applicable); any reference to a “day” or a number of “days” (without any explicit reference otherwise, such as to business days) shall be interpreted as a reference to a calendar day or number of calendar days; reference to month or year means according to the Gregorian calendar; any reference to a “company”, “corporate body” or “entity” shall include a, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof, and reference to a “person” shall mean any of the foregoing or an individual.
(d) The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision hereof.
(e) The specific provisions of these Articles shall supersede the provisions of the Companies Law, to the extent permitted thereunder.
Limited Liability
2. The Company is a limited liability company and therefore each shareholder’s liabilities for the Company’s debts shall be limited to the payment of the nominal value of the shares held by such shareholder, subject to the provisions of the Companies Law.
Public Company; Company’s Objectives
| 3. | Public Company; Objectives. |
| (a) | The Company is a Public Company as such term is defined in and as long as it so qualifies under the Companies Law. |
| (b) | The Company’s objectives are to carry on any business, and do any act, which is not prohibited by law. |
| 4. | Donations. |
The Company may donate a reasonable amount of money (in cash or in kind, including the Company’s securities) for any purpose that the Board of Directors finds appropriate.
Share Capital
| 5. | Authorized Share Capital. |
(a) The share capital of the Company shall consist of [___] Ordinary Shares, par value NIS [___] each (the “Shares”).
(b) The Shares shall rank pari passu in all respects.
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| 6. | Increase of Authorized Share Capital. |
(a) The Company may, from time to time, by a Shareholders’ resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its authorized share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide.
(b) Except to the extent otherwise provided in such resolution, any new shares included in the authorized share capital increased as aforesaid shall be subject to all the provisions of these Articles which are applicable to shares of such class included in the existing share capital without regard to class (and, if such new shares are of the same class as a class of shares included in the existing share capital, to all of the provisions which are applicable to shares of such class included in the existing share capital).
| 7. | Special or Class Rights; Modification of Rights. |
(a) The Company may, from time to time, by a Shareholders’ resolution, provide for shares with such preferred or deferred rights or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution.
(b) If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class, unless otherwise provided by the Companies Law or these Articles, may be modified or cancelled by the Company by a resolution of the General Meeting of the holders of all shares as one class, without any required separate resolution of any class of shares.
(c) The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class, it being clarified that the requisite quorum at any such separate General Meeting shall be two or more shareholders present in person or by proxy and holding not less than 15 percent of the issued shares of such class.
(d) Unless otherwise provided by these Articles, an increase in the authorized share capital, the creation of a new class of shares, an increase in the authorized share capital of a class of shares, or the issuance of additional shares thereof out of the authorized and unissued share capital, shall not be deemed, for purposes of this Article 7, to modify or derogate or cancel the rights attached to previously issued shares of such class or of any other class.
| 8. | Consolidation, Division, Cancellation and Reduction of Share Capital. |
(a) The Company may, from time to time, by or pursuant to an authorization of a Shareholders’ resolution, and subject to applicable law:
(i) consolidate all or any part of its issued or unissued authorized share capital into shares of a per share nominal value which is larger, equal to or smaller than the per share nominal value of its existing shares;
(ii) divide or sub-divide its shares (issued or unissued) or any of them, into shares of smaller or the same nominal value (subject, however, to the provisions of the Companies Law), and the resolution whereby any share is divided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, in contrast to others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company may attach to unissued or new shares;
(iii) cancel any authorized shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and reduce the amount of its share capital by the amount of the shares so canceled; or
(iv) reduce its share capital in any manner.
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(b) With respect to any consolidation of issued shares and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, and, in connection with any such consolidation or other action which could result in fractional shares, may, without limiting its aforesaid power:
(i) determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into a share of a larger, equal or smaller nominal value per share;
(ii) issue, in contemplation of or subsequent to such consolidation or other action, shares sufficient to preclude or remove fractional share holdings;
(iii) redeem such shares or fractional shares sufficient to preclude or remove fractional share holdings;
(iv) round up, round down or round to the nearest whole number, any fractional shares resulting from the consolidation or from any other action which may result in fractional shares; or
(v) cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees of such fractional shares to pay the transferors thereof the fair value thereof, and the Board of Directors is hereby authorized to act in connection with such transfer, as agent for the transferors and transferees of any such fractional shares, with full power of substitution, for the purposes of implementing the provisions of this sub-Article 8(b)(v).
| 9. | Issuance of Share Certificates, Replacement of Lost Certificates. |
(a) To the extent that the Board of Directors determines that all shares shall be certificated or, if the Board of Directors does not so determine, to the extent that any shareholder requests a share certificate, share certificates shall be issued under the corporate seal of the Company or its written, typed or stamped name and may bear the signature of one Director, the Company’s Chief Executive Officer or of any other person or persons authorized therefor by the Board of Directors. Signatures may be affixed in any mechanical or electronic form, as the Board of Directors may prescribe. For the avoidance of doubt, any transfer agent designated by the Company may issue share certificates on behalf of the Company even if the signatories on the share certificate no longer serve in the relevant capacities at the time of such issuance.
(b) Subject to the Article 9(a), each Shareholder shall be entitled to one numbered certificate for all the shares of any class registered in his name. Each certificate may also specify the amount paid up thereon. The Company (as determined by an officer of the Company to be designated by the Chief Executive Officer) shall not refuse a request by a Shareholder to obtain several certificates in place of one certificate, unless such request is, in the opinion of such officer, unreasonable. Where a Shareholder has sold or transferred some of such Shareholder’s shares, such Shareholder shall be entitled to receive a certificate in respect of such Shareholder’s remaining shares, provided that the previous certificate is delivered to the Company before the issuance of a new certificate.
(c) A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Register of Shareholders in respect of such co-ownership.
(d) A share certificate which has been defaced, lost or destroyed, may be replaced, and the Company shall issue a new certificate to replace such defaced, lost or destroyed certificate upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors in its discretion deems fit.
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| 10. | Registered Holder. |
Except as otherwise provided in these Articles or the Companies Law, the Company shall be entitled to treat the registered holder of each share as the absolute owner thereof, and accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by the Companies Law, be obligated to recognize any equitable or other claim to, or interest in, such share on the part of any other person.
| 11. | Issuance and Repurchase of Shares. |
(a) The unissued shares from time to time shall be under the control of the Board of Directors (and to the full extent permitted by law any Committee thereof), which shall have the power to issue or otherwise dispose of shares and of securities convertible or exercisable into or other rights to acquire from the Company to such persons, on such terms and conditions (including inter alia terms relating to calls set forth in Article 13(f) hereof), and either at par or at a premium, or subject to the provisions of the Companies Law, at a discount and/or with payment of commission, and at such times, as the Board of Directors (or the Committee, as the case may be) deems fit, and the power to give to any person the option to acquire from the Company any shares or securities convertible or exercisable into or other rights to acquire from the Company, either at par or at a premium, or, subject as aforesaid, at a discount and/or with payment of commission, during such time and for such consideration as the Board of Directors (or the Committee, as the case may be) deems fit.
(b) The Company may at any time and from time to time, subject to the Companies Law, repurchase or finance the purchase of any shares or other securities issued by the Company, in such manner and under such terms as the Board of Directors shall determine, whether from any one or more shareholders. Such purchase shall not be deemed as payment of dividends and no shareholder will have the right to require the Company to purchase his shares or offer to purchase shares from any other shareholders.
| 12. | Payment in Installment. |
If pursuant to the terms of issuance of any share, all or any portion of the price thereof shall be payable in installments, every such installment shall be paid to the Company on the due date thereof by the then registered holder(s) of the share or the person(s) then entitled thereto.
| 13. | Calls on Shares. |
(a) The Board of Directors may, from time to time, as it, in its discretion, deems fit, make calls for payment upon shareholders in respect of any sum (including premium) which has not been paid up in respect of shares held by such shareholders and which is not, pursuant to the terms of issuance of such shares or otherwise, payable at a fixed time, and each shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such times may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all the shares in respect of which such call was made.
(b) Notice of any call for payment by a shareholder shall be given in writing to such shareholder not less than fourteen (14) days prior to the time of payment fixed in such notice, and shall specify the time and place of payment, and the person to whom such payment is to be made. Prior to the time for any such payment fixed in a notice of a call given to a shareholder, the Board of Directors may in its absolute discretion, by notice in writing to such shareholder, revoke such call in whole or in part, extend the time fixed for payment thereof, or designate a different place of payment or person to whom payment is to be made. In the event of a call payable in installments, only one notice thereof need be given.
(c) If pursuant to the terms of issuance of a share or otherwise, an amount is made payable at a fixed time (whether on account of such nominal value of such share or by way of premium), such amount shall be payable at such time as if it were payable by virtue of a call made by the Board of Directors and for which notice was given in accordance with paragraphs (a) and (b) of this Article 13, and the provision of these Articles with regard to calls (and the non-payment thereof) shall be applicable to such amount or such installment (and the non-payment thereof).
(d) Joint holders of a share shall be jointly and severally liable to pay all calls for payment in respect of such share and all interest payable thereon.
(e) Any amount called for payment which is not paid when due shall bear interest from the date fixed for payment until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and payable at such time(s) as the Board of Directors may prescribe.
(f) Upon the issuance of shares, the Board of Directors may provide for differences among the holders of such shares as to the amounts and times for payment of calls for payment in respect of such shares.
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| 14. | Prepayment. |
With the approval of the Board of Directors, any shareholder may pay to the Company any amount not yet payable in respect of such shareholder’s shares, and the Board of Directors may approve the payment by the Company of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 14 shall derogate from the right of the Board of Directors to make any call for payment before or after receipt by the Company of any such advance.
| 15. | Forfeiture and Surrender. |
(a) If any shareholder fails to pay an amount payable by virtue of a call, installment or interest thereon as provided for in accordance herewith, on or before the day fixed for payment of the same, the Board of Directors, may at any time after the day fixed for such payment, so long as such amount (or any portion thereof) or interest thereon (or any portion thereof) remains unpaid, forfeit all or any of the shares in respect of which such payment was called for. All expenses incurred by the Company in attempting to collect any such amount or interest thereon, including, without limitation, attorneys’ fees and costs of legal proceedings, shall be added to, and shall, for all purposes (including the accrual of interest thereon) constitute a part of, the amount payable to the Company in respect of such call.
(b) Upon the adoption of a resolution as to the forfeiture of a shareholder’s share, the Board of Directors shall cause notice thereof to be given to such shareholder, which notice shall state that, in the event of the failure to pay the entire amount so payable by a date specified in the notice (which date shall be not less than fourteen (14) days after the date such notice is given and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to such date, the Board of Directors may cancel such resolution of forfeiture, but no such cancellation shall stop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount.
(c) Without derogating from Articles 52 and 56 hereof, whenever shares are forfeited as herein provided, all dividends, if any, theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time.
(d) The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share.
(e) Any share forfeited or surrendered as provided herein, shall become the property of the Company as a dormant share, and the same, subject to the provisions of these Articles, may be sold, re-issued or otherwise disposed of as the Board of Directors deems fit.
(f) Any person whose shares have been forfeited or surrendered shall cease to be a shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 13(e) above, and the Board of Directors, in its discretion, may, but shall not be obligated to, enforce or collect the payment of such amounts, or any part thereof, as it shall deem fit. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing to the Company by the person in question (but not yet due) in respect of all shares owned by such shareholder, solely or jointly with another.
(g) The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-issued or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it deems fit, but no such nullification shall stop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 15.
| 16. | Lien. |
(a) Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each shareholder (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements to the Company arising from any amount payable by such shareholder in respect of any unpaid or partly paid share, whether or not such debt, liability or engagement has matured. Such lien shall extend to all dividends from time to time declared or paid in respect of such share. Unless otherwise provided, the registration by the Company of a transfer of shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer.
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(b) The Board of Directors may cause the Company to sell a share subject to such a lien when the debt, liability or engagement giving rise to such lien has matured, in such manner as the Board of Directors deems fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such shareholder, his executors or administrators.
(c) The net proceeds of any such sale, after payment of the costs and expenses thereof or ancillary thereto, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such shareholder in respect of such share (whether or not the same have matured), and the residue (if any) shall be paid to the shareholder, his executors, administrators or assigns.
| 17. | Sale After Forfeiture of Surrender or in Enforcement of Lien. |
Upon any sale of a share after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint any person to execute an instrument of transfer of the share so sold and cause the purchaser’s name to be entered in the Register of Shareholders in respect of such share. The purchaser shall be registered as the shareholder and shall not be bound to see to the regularity of the sale proceedings, or to the application of the proceeds of such sale, and after his name has been entered in the Register of Shareholders in respect of such share, the validity of the sale shall not be impeached by any person, and person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.
| 18. | Redeemable Shares. |
The Company may, subject to applicable law, issue redeemable shares or other securities and redeem the same upon terms and conditions to be set forth in a written agreement between the Company and the holder of such shares or in their terms of issuance.
Transfer of Shares
| 19. | Registration of Transfer. |
No transfer of shares shall be registered unless a proper writing or instrument of transfer (in any customary form or any other form satisfactory to the Board of Directors) has been submitted to the Company (or its transfer agent), together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Notwithstanding anything to the contrary herein, shares registered in the name of The Depository Trust Company or its nominee shall be transferrable in accordance with the policies and procedures of The Depository Trust Company. Until the transferee has been registered in the Register of Shareholders in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer, and may approve other methods of recognizing the transfer of shares in order to facilitate the trading of the Company’s shares on the Nasdaq or on any other stock exchange on which the Company’s shares are then listed for trading.
| 20. | Suspension of Registration. |
The Board of Directors may, in its discretion to the extent it deems necessary, close the Register of Shareholders of registration of transfers of shares for a period determined by the Board of Directors, and no registrations of transfers of shares shall be made by the Company during any such period during which the Register of Shareholders is so closed.
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Transmission of Shares
| 21. | Decedents’ Shares. |
(a) In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article 21(b) have been effectively invoked.
(b) Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient (or to an officer of the Company to be designated by the Chief Executive Officer)), shall be registered as a shareholder in respect of such share, or may, subject to the provisions as to transfer contained herein, transfer such share.
| 22. | Receivers and Liquidators. |
(a) The Company may recognize any receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate shareholder, and a trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceeding with respect to a shareholder or its properties, as being entitled to the shares registered in the name of such shareholder.
(b) Such receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate shareholder and such trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceedings with respect to a shareholder or its properties, upon producing such evidence as the Board of Directors (or an officer of the Company to be designated by the Chief Executive Officer) may deem sufficient as to his authority to act in such capacity or under this Article, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares.
General Meetings
| 23. | General Meetings. |
(a) An annual General Meeting (“Annual General Meeting”) shall be held at such time and at such place, either within or out of the State of Israel, as may be determined by the Board of Directors, no later than fifteen (15) months after the last Annual General Meeting.
(b) All General Meetings other than Annual General Meetings shall be called “Special General Meetings”. The Board of Directors may, at its sole discretion convene a Special General Meeting at such time and at such place, either within or out of the State of Israel, as may be determined by the Board of Directors.
(c) if so determined by the Board of Directors an Annual General meeting or a Special General Meeting may be held through the use of any means of communication approved by the Board of Directors, provided all participating Shareholders can hear each other simultaneously. A resolution approved by means of communication as aforesaid, shall be deemed to be a resolution lawfully adopted at such General meeting and a Shareholders shall be deemed present in person at such General Meeting, if attending such meeting through the means of communication used at such meeting.
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| 24. | Record Date for General Meeting. |
Notwithstanding any provision of these Articles to the contrary, and to allow the Company to determine the shareholders entitled to notice of or to vote at any General Meeting or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or grant of any rights, or entitled to exercise any rights in respect of or to take or be the subject of any other action, the Board of Directors may fix a record date, which shall not be more than the maximum period and not less than the minimum period permitted by law. A determination of shareholders of record entitled to notice of or to vote at a meeting shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
| 25. | Shareholder Proposal Request. |
(a) Any Shareholder or Shareholders of the Company holding at least one percent (1%) or a higher percent, as may be required by the Companies Law from time to time, of the voting rights of the Company (the “Proposing Shareholder(s)”) may request, subject to the Companies Law, that the Board of Directors include a matter on the agenda of a General Meeting to be held in the future, provided that the Board determines that the matter is appropriate to be considered in a General Meeting (a “Proposal Request”). In order for the Board of Directors to consider a Proposal Request and whether to include the matter stated therein in the agenda of a General Meeting, notice of the Proposal Request must be timely delivered in accordance with applicable laws, and the Proposal Request must comply with the requirement of these Articles (including this Article 25) and any applicable law and stock exchange rules and regulations. The Proposal Request must be in writing, signed by all of the Proposing Shareholder(s) making such request, delivered, either in person or by certified mail, postage prepaid, and received by the Secretary (or, in the absence thereof by the Chief Executive Officer of the Company). To be considered timely, a Proposal Request must be received within the time periods prescribed by applicable law. The announcement of an adjournment or postponement of a General Meeting shall not commence a new time period (or extend any time period) for the delivery of a Proposal Request as described above. In addition to any information required to be included in accordance with applicable law, the Proposal Request must include the following: (i) the name, address, telephone number, fax number and email address of the Proposing Shareholder (or each Proposing Shareholder, as the case may be) and, if an entity, the name(s) of the person(s) that controls or manages such entity; (ii) the number of Shares held by the Proposing Shareholder(s), directly or indirectly (and, if any of such Shares are held indirectly, an explanation of how they are held and by whom), which shall be in such number no less than as is required to qualify as a Proposing Shareholder, accompanied by evidence satisfactory to the Company of the record holding of such Shares by the Proposing Shareholder(s) as of the date of the Proposal Request, and a representation that the Proposing Shareholder(s) intends to appear in person or by proxy at the meeting; (iii) the matter requested to be included on the agenda of a General Meeting, all information related to such matter, the reason that such matter is proposed to be brought before the General Meeting, the complete text of the resolution that the Proposing Shareholder proposes to be voted upon at the General Meeting and, if the Proposing Shareholder wishes to have a position statement in support of the Proposal Request, a copy of such position statement that complies with the requirement of any applicable law (if any), (iv) a description of all arrangements or understandings between the Proposing Shareholders and any other Person(s) (naming such Person or Persons) in connection with the matter that is requested to be included on the agenda and a declaration signed by all Proposing Shareholder(s) of whether any of them has a personal interest in the matter and, if so, a description in reasonable detail of such personal interest; (v) a description of all Derivative Transactions (as defined below) by each Proposing Shareholder(s) during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions; and (vi) a declaration that all of the information that is required under the Companies Law and any other applicable law and stock exchange rules and regulations to be provided to the Company in connection with such matter, if any, has been provided to the Company. The Board of Directors, may, in its discretion, to the extent it deems necessary, request that the Proposing Shareholder(s) provide additional information necessary so as to include a matter in the agenda of a General Meeting, as the Board of Directors may reasonably require.
A “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proposing Shareholder or any of its affiliates or associates, whether of record or beneficial: (1) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the Company, (2) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company, (3) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (4) which provides the right to vote or increase or decrease the voting power of, such Proposing Shareholder, or any of its affiliates or associates, with respect to any shares or other securities of the Company, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proposing Shareholder in the securities of the Company held by any general or limited partnership, or any limited liability company, of which such Proposing Shareholder is, directly or indirectly, a general partner or managing member.
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(b) The information required pursuant to this Article shall be updated as of (i) the record date of the General Meeting, (ii) five business days before the General Meeting, and (iii) as of the General Meeting, and any adjournment or postponement thereof.
(c) The provisions of Articles 25(a) and 25(b) shall apply, mutatis mutandis, on any matter to be included on the agenda of a Special General Meeting which is convened pursuant to a request of a Shareholder duly delivered to the Company in accordance with the Companies Law.
| 26. | Notice of General Meetings; Omission to Give Notice. |
(a) The Company is not required to give notice to the Shareholders of a General Meeting, subject to any mandatory provision of the Companies Law, and any other requirements applicable to the Company.
(b) The accidental omission to give notice of a General Meeting to any Shareholder, or the non-receipt of notice sent to such Shareholder, shall not invalidate the proceedings at such meeting or any resolution adopted thereat.
(c) No Shareholder present, in person or by proxy, at any time during a General Meeting shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such General Meeting on account of any defect in the notice of such meeting relating to the time or the place thereof, or any item acted upon at such meeting.
(d) The Company may add additional places for Shareholders to review the full text of the proposed resolutions to be adopted at a General Meeting, including an internet site.
Proceedings at General Meetings
| 27. | Quorum. |
(a) No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the quorum required under these Articles for such General Meeting or such adjourned meeting, as the case may be, is present when the meeting proceeds to business.
(b) In the absence of contrary provisions in these Articles, two or more shareholders (not in default in payment of any sum referred to in Article 13 hereof), present in person or by proxy and holding shares conferring in the aggregate at least 25 percent of the voting power of the Company, shall constitute a quorum of General Meetings. A proxy may be deemed to be two (2) or more Shareholders pursuant to the number of Shareholders represented by the proxy holder.
(c) If within half an hour from the time appointed for the meeting a quorum is not present, then the meeting shall be canceled if it was convened upon requisition under Section 63 of the Companies Law, and in any other case, without any further notice the meeting shall be adjourned either (i) to the same day in the next week, at the same time and place, (ii) to such day and at such time and place as indicated in the notice to such meeting, or (iii) to such day and at such time and place as the Chairperson of the General Meeting shall determine (which may be earlier or later than the date pursuant to clause (i) above). No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting any shareholder (not in default as aforesaid) present in person or by proxy, shall constitute a quorum.
| 28. | Chairperson of General Meeting. |
The Chairperson of the Board of Directors shall preside as Chairperson of every General Meeting of the Company. If at any meeting the Chairperson is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling to act as Chairperson, any of the following may preside as Chairperson of the meeting (and in the following order): Director, Chief Executive Officer, Chief Financial Officer, Secretary or any person designated by any of the foregoing. If at any such meeting none of the foregoing persons is present or all are unwilling to act as Chairperson, the Shareholders present (in person or by proxy) shall choose a Shareholder or its proxy present at the meeting to be Chairperson. The office of Chairperson shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairperson to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).
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| 29. | Adoption of Resolutions at General Meetings. |
(a) Except as required by the Companies Law or these Articles, including, without limitation, Article 39 below, a resolution of the Shareholders shall be adopted if approved by the holders of a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting. Without limiting the generality of the foregoing, a resolution with respect to a matter or action for which the Companies Law prescribes a higher majority or pursuant to which a provision requiring a higher majority would have been deemed to have been incorporated into these Articles, but resolutions with respect to which the Companies Law allows the Company’s Articles to provide otherwise, shall be adopted by a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting.
(b) Every question submitted to a General Meeting shall be decided by a show of hands, but the Chairperson of the General Meeting may determine that a resolution shall be decided by a written ballot. A written ballot may be implemented before the proposed resolution is voted upon or immediately after the declaration by the Chairperson of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot.
(c) A defect in convening or conducting a General Meeting, including a defect resulting from the non fulfilment of any provision or condition set forth in the Companies Law or these Articles, including with regard to the manner of convening or conducting the General Meeting, shall not disqualify any resolution past at the General Meeting and shall not affect the discussions which took place thereat.
(d) A declaration by the Chairperson of the General Meeting that a resolution has been carried unanimously, or carried by a particular majority, or rejected, and an entry to that effect in the minute book of the Company, shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.
| 30. | Power to Adjourn. |
A General Meeting, the consideration of any matter on its agenda or the resolution on any matter on its agenda, may be postponed or adjourned, from time to time and from place to place: (i) by the Chairperson of a General Meeting at which a quorum is present (and he shall if so directed by the meeting, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment), but no business shall be transacted at any such adjourned meeting except business which might lawfully have been transacted at the meeting as originally called, or a matter on its agenda with respect to which no resolution was adopted at the meeting originally called; or (ii) by the Board (whether prior to or at the General Meeting).
| 31. | Voting Power. |
Subject to the provisions of Article 32(a) and to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot or by any other means.
| 32. | Voting Rights. |
(a) No shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls then payable by him in respect of his shares in the Company have been paid.
(b) A company or other corporate body being a Shareholder of the Company may duly authorize any person to be its representative at any meeting of the Company or to execute or deliver a proxy on its behalf. Any person so authorized shall be entitled to exercise on behalf of such Shareholder all the power which the Shareholder could have exercised if it were an individual. Upon the request of the Chairperson of the General Meeting, written evidence of such authorization (in form acceptable to the Chairperson) shall be delivered to him.
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(c) Any Shareholder entitled to vote may vote either in person or by proxy (who need not be Shareholder of the Company), or, if the Shareholder is a company or other corporate body, by representative authorized pursuant to Article (b) above.
(d) If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s). For the purpose of this Article 32(d), seniority shall be determined by the order of registration of the joint holders in the Register of Shareholder.
(e) A Shareholder who wishes to vote at a General Meeting shall prove his title to a share to the Company as required under the Companies Law and regulations promulgated thereunder. Without prejudice to the aforesaid, the Board of Directors may prescribe regulations and procedures with regard to proof of title to the Company’s shares.
Proxies
| 33. | Instrument of Appointment. |
(a) An instrument appointing a proxy shall be in writing and shall be substantially in the following form:
| “I | of | ||
| (Name of Shareholder) | (Address of Shareholder) | ||
| Being a shareholder of Poliryzon Ltd. hereby appoints | |||
| of | |||
| (Name of Proxy) | (Address of Proxy) | ||
| as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the ___ day of _______, _______ and at any adjournment(s) thereof. | |||
| Signed this ____ day of ___________, ______. | |||
| (Signature of Appointor)” | |||
or in any such form as may be approved by the Board of Directors.
(b) Subject to the Companies Law, the original instrument appointing a proxy or a copy thereof (and the power of attorney or other authority, if any, under which such instrument has been signed) shall be delivered to the Company (at its Office, at its principal place of business, or at the offices of its registrar or transfer agent, or at such place as notice of the meeting may specify) not less than forty eight (48) hours (or such shorter period as the notice shall specify) before the time fixed for such meeting. Notwithstanding the above, the Chairperson shall have the right to waive the time requirement provided above with respect to all instruments of proxies and to accept any and all instruments of proxy until the beginning of a General Meeting. A document appointing a proxy shall be valid for every adjourned meeting of the General Meeting to which the document relates.
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| 34. | Effect of Death of Appointor of Transfer of Share and or Revocation of Appointment. |
(a) A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the prior death or bankruptcy of the appointing shareholder (or of his attorney-in-fact, if any, who signed such instrument), or the transfer of the share in respect of which the vote is cast, unless written notice of such matters shall have been received by the Company or by the Chairperson of such meeting prior to such vote being cast.
(b) Subject to the Companies Law, an instrument appointing a proxy shall be deemed revoked (i) upon receipt by the Company or the Chairperson, subsequent to receipt by the Company of such instrument, of written notice signed by the person signing such instrument or by the Shareholder appointing such proxy canceling the appointment thereunder (or the authority pursuant to which such instrument was signed) or of an instrument appointing a different proxy (and such other documents, if any, required under Article 33(b) for such new appointment), provided such notice of cancellation or instrument appointing a different proxy were so received at the place and within the time for delivery of the instrument revoked thereby as referred to in Article 33(b) hereof, or (ii) if the appointing shareholder is present in person at the meeting for which such instrument of proxy was delivered, upon receipt by the Chairperson of such meeting of written notice from such shareholder of the revocation of such appointment, or if and when such shareholder votes at such meeting. A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the revocation or purported cancellation of the appointment, or the presence in person or vote of the appointing shareholder at a meeting for which it was rendered, unless such instrument of appointment was deemed revoked in accordance with the foregoing provisions of this Article 34(b) at or prior to the time such vote was cast.
Board of Directors
| 35. | Powers of Board of Directors. |
(a) The Board of Directors may exercise all such powers and do all such acts and things as the Board of Directors is authorized by law or as the Company is authorized to exercise and do and are not hereby or by law required to be exercised or done by the General Meeting. The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, these Articles and any regulation or resolution consistent with these Articles adopted from time to time at a General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.
(b) Without limiting the generality of the foregoing, the Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall deem fit, including without limitation, capitalization and distribution of bonus shares, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or re-designate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit.
| 36. | Exercise of Powers of Board of Directors. |
(a) A meeting of the Board of Directors at which a quorum is present shall be competent to exercise all the authorities, powers and discretion vested in or exercisable by the Board of Directors.
(b) A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present, entitled to vote and voting thereon when such resolution is put to a vote.
(c) The Board of Directors may adopt resolutions, without convening a meeting of the Board of Directors, in writing or in any other manner permitted by the Companies Law.
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| 37. | Delegation of Powers. |
(a) The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees (in these Articles referred to as a “Committee of the Board of Directors”, or “Committee”), each consisting of one or more persons (who may or may not be Directors), and it may from time to time revoke such delegation or alter the composition of any such Committee. No regulation imposed by the Board of Directors on any Committee and no resolution of the Board of Directors shall invalidate any prior act done pursuant to a resolution by the Committee which would have been valid if such regulation or resolution of the Board had not been adopted. The meeting and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by any regulations adopted by the Board of Directors or by the Companies Law. Unless otherwise expressly prohibited by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall be empowered to further delegate such powers.
(b) Without derogating from the provisions of Article 49, the Board of Directors may from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors deems fit, and may terminate the service of any such person. The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and compensation, of all such persons.
(c) The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purposes(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it deems fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors deems fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.
| 38. | Number of Directors. |
(a) The Board of Directors shall consist of such number of Directors, not less than three (3) nor more than nine (9), including the External Directors which will be elected if and as required under the Companies Law, as may be fixed from time to time by the Board of Directors.
(b) Notwithstanding anything to the contrary herein, this Article 38 may only be amended or replaced by a resolution adopted at a General Meeting by a majority of 70% of the voting power represented at the General Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital.
| 39. | Election and Removal of Directors. |
(a) The Directors, excluding the External Directors (who shall be elected and serve in office in strict accordance with the provisions of the Companies Law, and any other laws or rules if applicable), shall be classified, with respect to the term for which they each severally hold office, into three classes, as nearly equal in number as practicable, hereby designated as Class I, Class II and Class III.
(i) The term of office of the initial Class I directors shall expire at the first Annual General Meeting to be held in 2023 and when their successors are elected and qualified,
(ii) The term of office of the initial Class II directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (i) above and when their successors are elected and qualified, and
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(iii) The term of office of the initial Class III directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (ii) above and when their successors are elected and qualified.
(b) Directors (other than External Directors), may be elected only in Annual Meetings. At each Annual General Meeting, commencing with the Annual General Meeting to be held in 2023, each of the successors elected to replace the Directors of a Class whose term shall have expired at such Annual General Meeting shall be elected to hold office until the third Annual General Meeting next succeeding his or her election and until his or her respective successor shall have been elected and qualified. Notwithstanding anything to the contrary, each Director shall serve until his or her successor is elected and qualified or until such earlier time as such Director’s office is vacated.
(c) If the number of Directors (excluding External Directors) that constitutes the Board of Directors is hereafter changed, the then-serving Directors shall be redesignated to other Classes and/or any newly created directorships or decrease in directorships shall be apportioned by the Board of Directors among the classes so as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
(d) Prior to every Annual General Meeting of the Company at which Directors are to be elected, and subject to clauses 39(a) and (h) of this Article, the Board of Directors (or a Committee thereof) shall select, by a resolution adopted by a majority of the Board of Directors (or such Committee), a number of Persons to be proposed to the Shareholders for election as Directors at such Annual General Meeting (the “Nominees”).
(e) Any Proposing Shareholder requesting to include on the agenda of an Annual General Meeting a nomination of a Person to be proposed to the Shareholders for election as Director (such person, an “Alternate Nominee”), may so request provided that it complies with this Article 39(e) and Article 25 and applicable law. Unless otherwise determined by the Board, a Proposal Request relating to Alternate Nominee is deemed to be a matter that is appropriate to be considered only in an Annual General Meeting. In addition to any information required to be included in accordance with applicable law, such a Proposal Request shall include information required pursuant to Article 25, and shall also set forth: (i) the name, address, telephone number, fax number and email address of the Alternate Nominee and all citizenships and residencies of the Alternate Nominee; (ii) a description of all arrangements, relations or understandings between the Proposing Shareholder(s) or any of its affiliates and each Alternate Nominee; (iii) a declaration signed by the Alternate Nominee that he consents to be named in the Company’s notices and proxy materials relating to the Annual General Meeting, if provided or published, and, if elected, to serve on the Board of Directors and to be named in the Company’s disclosures and filings, (iv) a declaration signed by each Alternate Nominee as required under the Companies Law and any other applicable law and stock exchange rules and regulations for the appointment of such an Alternate Nominee and an undertaking that all of the information that is required under law and stock exchange rules and regulations to be provided to the Company in connection with such an appointment has been provided (including, information in respect of the Alternate Nominee as would be provided in response to the applicable disclosure requirements under Form 20-F or any other applicable form prescribed by the U.S. Securities and Exchange Commission); (v) a declaration made by the Alternate Nominee of whether he or she meets the criteria for an independent director and/or External Director of the Company under the Companies Law and/or under any applicable law, regulation or stock exchange rules, and if not, then an explanation of why not; and (vi) any other information required at the time of submission of the Proposal Request by applicable law, regulations or stock exchange rules. In addition, the Proposing Shareholder shall promptly provide any other information reasonably requested by the Company. The Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing. The Company shall be entitled to publish any information provided by a Proposing Shareholder pursuant to this Article 39(e) and Article 25, and the Proposing Shareholder shall be responsible for the accuracy and completeness thereof.
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(f) The Nominees or Alternate Nominees shall be elected by a resolution adopted at the Annual General Meeting at which they are subject to election.
(g) Notwithstanding anything to the contrary herein, this Article 39 and Article 42(e) may only be amended, replaced or suspended by a resolution adopted at a General Meeting by a majority of 70% of the voting power represented at the General Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital.
(h) Notwithstanding anything to the contrary in these Articles, the election, qualification, removal or dismissal of External Directors shall be only in accordance with the applicable provisions set forth in the Companies Law, and under any applicable law, regulation or applicable stock exchange rules.
(i) Directors whose terms of office have expired or terminated may be re-elected. The aforesaid will not apply to external directors , whose reappointment shall be in accordance with the provisions of the Companies Law, and the Regulations promulgated thereunder or applicable stock exchange rules.
| 40. | Commencement of Directorship. |
Without derogating from Article 39, the term of office of a Director shall commence as of the date of his appointment or election, or on a later date if so specified in his appointment or election.
| 41. | Continuing Directors in the Event of Vacancies. |
The Board may at any time and from time to time appoint any person as a Director to fill a vacancy (whether such vacancy is due to a Director no longer serving or due to the number of Directors serving being less than the maximum number stated in Article 38 hereof). In the event of one or more such vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, provided, however, that if they number less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency or to fill the office of director which has become vacant up to a number equal to the minimum number provided for pursuant to Article 38 hereof, or in order to call a General Meeting for the purpose of electing Directors to fill any or all vacancies. The office of a Director that was appointed by the Board of Directors to fill any vacancy shall only be for the remaining period of time during which the Director whose service has ended was filled would have held office, or in case of a vacancy due to the number of Directors serving being less than the maximum number stated in Article 38 hereof, the Board shall determine at the time of appointment the class pursuant to Article 39 to which the additional Director shall be assigned. Notwithstanding anything to the contrary herein, this Article 41 may only be amended, replaced or suspended by a resolution adopted at a General Meeting by a majority of 70% of the voting power represented at the General Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital
| 42. | Vacation of Office. |
The office of a Director shall be vacated and he or she shall be dismissed or removed:
(a) ipso facto, upon his or her death;
(b) if he or she is prevented by applicable law from serving as a Director;
(c) if the Board determines that due to his or her mental or physical state he or she is unable to serve as a director;
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(d) if his or her directorship expires pursuant to these Articles and/or applicable law;
(e) by a resolution adopted at an Annual Meeting by a majority of 70% of the voting power represented at the Annual Meeting in person or by proxy and voting thereon, disregarding abstentions from the count of the voting power present and voting, provided that such majority constitutes more than 50% of the Company’s then issued and outstanding share capital. Such removal shall become effective on the date fixed in such resolution;
(f) by his or her written resignation, such resignation becoming effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later; or
(g) with respect to an External Director, and notwithstanding anything to the contrary herein, only pursuant to applicable law and stock exchange rules.
| 43. | Conflict of Interests; Approval of Related Party Transactions. |
Subject to the provisions of the Companies Law and these Articles, no Director shall be disqualified by virtue of his office from holding any office or place of profit in the Company or in any company in which the Company shall be a shareholder or otherwise interested, or from contracting with the Company as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested, be avoided, nor, other than as required under the Companies Law, shall any Director be liable to account to the Company for any profit arising from any such office or place of profit or realized by any such contract or arrangement by reason only of such Director’s holding that office or of the fiduciary relations thereby established, but the nature of his interest, as well as any material fact or document, must be disclosed by him at the meeting of the Board of Directors at which the contract or arrangement is first considered, if his interest then exists, or, in any other case, at no later than the first meeting of the Board of Directors after the acquisition of his interest.
| 44. | Alternate Directors. |
(a) Subject to the provisions of the Companies Law, a Director may, by written notice to the Company, appoint, remove or replace any person as an alternate for himself; provided that the appointment of such person shall have effect only upon and subject to its being approved by the Board (in these Articles, an “Alternate Director”). Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for all purposes, and for a period of time concurrent with the term of the appointing Director.
(b) Any notice to the Company pursuant to Article 44(a) shall be given in person to, or by sending the same in writing to the attention of the Chairperson of the Board of Directors at the principal office of the Company or to such other person or place as the Board of Directors shall have determined for such purpose, and shall become effective on the date fixed therein, upon the receipt thereof by the Company (at the place as aforesaid) or upon the approval of the appointment by the Board, whichever is later.
(c) An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided however, that (i) he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and (ii) an Alternate Director shall have no standing at any meeting of the Board of Directors or any Committee thereof while the Director who appointed him is present.
(d) Any individual, who qualifies to be a member of the Board of Directors, may act as an Alternate Director. One person may not act as Alternate Director for several directors.
(e) The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the office of the Director who appointed such Alternate Director is vacated, for any reason.
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Proceedings of the Board of Directors
| 45. | Meetings. |
(a) The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Directors think fit.
(b) Any Director may at any time, and the Secretary, upon the request of such Director, shall, convene a meeting of the Board of Directors, but not less than forty-eight (48) hours’ notice shall be given of any meeting so convened, unless such notice is waived by all of the Directors as to a particular meeting or unless the matters to be discussed at such meeting are of such urgency and importance, as determined by the Chairperson, that notice ought reasonably to be waived under the circumstances.
(c) Notice of any such meeting shall be given in writing.
(d) Notwithstanding anything to the contrary herein, failure to deliver notice to a director of any such meeting in the manner required hereby may be waived by such Director, and a meeting shall be deemed to have been duly convened notwithstanding such defective notice if such failure or defect is waived prior to action being taken at such meeting, by all Directors entitled to participate at such meeting to whom notice was not duly given as aforesaid. Without derogating from the foregoing, no Director present at any time during a meeting of the Board of Directors shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such meeting on account of any defect in the notice of such meeting relating to the date, time or the place thereof or the convening of the meeting.
| 46. | Quorum. |
Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence in person or by any means of communication of a majority of the Directors then in office who are lawfully entitled to participate and vote in the meeting. No business shall be transacted at a meeting of the Board of Directors unless the requisite quorum is present (in person or by any means of communication) when the meeting proceeds to business.
If within thirty (30) minutes from the time appointed for a meeting of the Board of Directors a quorum is not present, the meeting shall stand adjourned at the same place and time forty-eight (48) hours thereafter unless the Chairperson has determined that there is such urgency and importance that a shorter period is required under the circumstances. If an adjourned meeting is convened in accordance with the foregoing and a quorum is not present within thirty (30) minutes of the announced time, the requisite quorum at such adjourned meeting shall be, any two (2) Directors, if the number of then serving directors is up to five(5), and any three (3) Directors, if the number of then serving directors is more than five (5), in each case who are lawfully entitled to participate in the meeting and who are present at such adjourned meeting. At an adjourned meeting of the Board of Directors the only matters to be considered shall be those matters which might have been lawfully considered at the meeting of the Board of Directors originally called if a requisite quorum had been present, and the only resolutions to be adopted are such types of resolutions which could have been adopted at the meeting of the Board of Directors originally called.
| 47. | Chairperson of the Board of Directors. |
The Board of Directors shall, from time to time, elect one of its members to be the Chairperson of the Board of Directors, remove such Chairperson from office and appoint in his place. The Chairperson of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairperson, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting or if he is unwilling to take the chair, the Directors present shall choose one of the Directors present at the meeting to be the Chairperson of such meeting. The office of Chairperson of the Board of Directors shall not, by itself, entitle the holder to a second or casting vote.
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| 48. | Validity of Acts Despite Defects. |
All acts done or transacted at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meeting or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.
Chief Executive Officer
| 49. | Chief Executive Officer. |
(a) The Board of Directors shall from time to time appoint one or more persons, whether or not Directors, as Chief Executive Officer of the Company and may confer upon such person(s), and from time to time modify or revoke, such titles and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to any additional approvals required under, and the provisions of, the Companies Law and of any contract between any such person and the Company) fix their salaries and compensation, remove or dismiss them from office and appoint another or others in his or their place or places.
(b) Unless otherwise determined by the Board of Directors, the Chief Executive Officer shall have authority with respect to the management and operations of the Company in the ordinary course of business.
Minutes
| 50. | Minutes. |
Any minutes of the General Meeting or the Board of Directors or any committee thereof, if purporting to be signed by the Chairperson of the General Meeting, the Board or a committee thereof, as the case may be, or by the Chairperson of the next succeeding General Meeting, meeting of the Board or meeting of a committee thereof, as the case may be, shall constitute prima facie evidence of the matters recorded therein.
Dividends
| 51. | Declaration of Dividends. |
The Board of Directors may from time declare, and cause the Company to pay, such dividend as may appear to the Board of Directors to be justified by the profits of the Company and as permitted by the Companies Law. The Board of Directors shall determine the time for payment of such dividends and the record date for determining the shareholders entitled thereto.
| 52. | Amount Payable by Way of Dividends. |
(a) Subject to the provisions of these Articles and subject to the rights or conditions attached at that time to any share in the capital of the Company granting preferential, special or deferred rights or not granting any rights with respect to dividends, any dividend paid by the Company shall be allocated among the shareholders (not in default in payment of any sum referred to in Article 13 hereof) entitled thereto in proportion to their respective holdings of the shares in respect of which such dividends are being paid.
(b) Whenever the rights attached to any shares or the terms of issue of the shares do not provide otherwise, shares which are fully paid up or which are credited as fully or partly paid within any period which in respect thereof dividends are paid shall entitle the holders thereof to a dividend in proportion to the amount paid up or credited as paid up in respect of the nominal value of such shares and to the date of payment thereof (pro rata temporis).
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| 53. | Interest. |
No dividend shall carry interest as against the Company.
| 54. | Capitalization of Profits, Reserves, etc. |
The Board of Directors may determine that the Company (i) may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and (ii) may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum.
If so declared by the Board of Directors, a dividend declared in accordance with Article 51 may be paid, in whole or in part, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or other securities of the Company or of any other companies, or in any combination thereof, in each case, the fair value of which shall be determined by the Board of Directors in good faith.
| 55. | Implementation of Powers. |
For the purpose of giving full effect to any resolution under Article 54, and without derogating from the provisions of Article 56 hereof, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may fix the value for distribution of any specific assets and may determine that cash payments shall be made to any shareholders upon the footing of the value so fixed, or that fractions of less value than a certain determined value may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors. Where requisite, a proper contract shall be filed in accordance with Section 291 of the Companies Law, and the Board of Directors may appoint any person to sign such contract on behalf of the persons entitled to the dividend or capitalized fund. The Board of Directors may instruct to pay cash or convey these certain assets to a trustee in favor of those people who are entitled to a dividend, as the Board of Directors shall deem appropriate.
| 56. | Deductions from Dividends. |
The Board of Directors may deduct from any dividend or other moneys payable to any Shareholder in respect of a share any and all sums of money then payable by such Shareholder to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.
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| 57. | Retention of Dividends. |
(a) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.
(b) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22, entitled to become a Shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a Shareholder in respect of such share or shall transfer the same.
| 58. | Unclaimed Dividends. |
All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed. The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company. The principal (and only the principal) of any unclaimed dividend of such other moneys shall be, if claimed, paid to a person entitled thereto.
| 59. | Mechanics of Payment. |
Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to the joint holder whose name is registered first in the Register of Shareholders or his bank account or the person who the Company may then recognize as the owner thereof or entitled thereto under Article 21 or 22 hereof, as applicable, or such person’s bank account), or to such person and at such other address as the person entitled thereto may by writing direct, or in any other manner the Board deems appropriate. Every such check or warrant or other method of payment shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check shall be sent at the risk of the Person entitled to the money represented thereby.
| 60. | Receipt from a Joint Holder. |
If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.
Accounts
| 61. | Books of Account. |
The Company’s books of account shall be kept at the Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors. The Company shall make copies of its annual financial statements available for inspection by the Shareholders at the principal offices of the Company. The Company shall not be required to send copies of its annual financial statements to the Shareholders.
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| 62. | Auditors. |
The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law, provided, however, that in exercising its authority to fix the remuneration of the auditor(s), the shareholders in General Meeting may act (and in the absence of any action in connection therewith shall be deemed to have so acted) to authorize the Board of Directors (with right of delegation to management) to fix such remuneration subject to such criteria or standards, and if no such criteria or standards are so provided, such remuneration shall be fixed in an amount commensurate with the volume and nature of the services rendered by such auditor(s).
| 62A. | Internal auditor. |
To the extent required by the Companies Law the Board of Directors will appoint an internal auditor according to the audit committee’s recommendation (“Internal Auditor”).
The Internal Auditor shall submit, for the approval of the Board of Directors or the audit committee, as determined by the Board of Directors, a proposal for an annual or periodic work plan, and the Board of Directors or the audit committee shall approve such plan with such changes as it deem fit. Unless the Board of Directors determines otherwise, the work plan shall be submitted to the Board of Directors and approved by it.
| 62B | Fiscal Year |
The fiscal year of the Company shall be the 12 months period ending on December 31 of each calendar year.
Supplementary Registers
| 63. | Supplementary Registers. |
Subject to and in accordance with the provisions of Sections 138 and 139 of the Companies Law, the Company may cause supplementary registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
Exemption, Indemnity and Insurance
| 64. | Insurance. |
Subject to the provisions of the Companies Law with regard to such matters, the Company may enter into a contract for the insurance of the liability, in whole or in part, of any of its Office Holders imposed on such Office Holder due to an act performed by or an omission of the Office Holder in the Office Holder’s capacity as an Office Holder of the Company arising from any matter permitted by law, including the following:
(a) a breach of duty of care to the Company or to any other person;
(b) a breach of duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable grounds to assume that the act that resulted in such breach would not prejudice the interests of the Company;
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(c) a financial liability imposed on such Office Holder in favor of any other person; and
(d) any other event, occurrence, matter or circumstance under any law with respect to which the Company may, or will be able to, insure an Office Holder, and to the extent such law requires the inclusion of a provision permitting such insurance in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Securities Law, if and to the extent applicable, and Section 50P of the Economic Competition Law).
| 65. | Indemnity. |
(a) Subject to the provisions of the Companies Law, the Company may retroactively indemnify an Office Holder of the Company with respect to the following liabilities and expenses, provided that such liabilities or expenses were imposed on such Office Holder or incurred by such Office Holder due to an act performed by or an omission of the Office Holder in such Office Holder’s capacity as an Office Holder of the Company:
(i) a financial liability imposed on an Office Holder in favor of another person by any court judgment, including a judgment given as a result of a settlement or an arbitrator’s award which has been confirmed by a court in respect of an act performed by the Office Holder;
(ii) reasonable litigation expenses, including attorneys’ fees, expended by the Office Holder (A) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, or in connection with a financial sanction, provided that (1) no indictment (as defined in the Companies Law) was filed against such Office Holder as a result of such investigation or proceeding; and (2) no financial liability in lieu of a criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding or if such financial liability was imposed, it was imposed with respect to an offence that does not require proof of criminal intent, or (B) in connection with a financial sanction;
(iii) reasonable litigation costs, including attorney’s fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder by the Company or in its name or by any other person or in a criminal charge in respect of which the Office Holder was acquitted or in a criminal charge in respect of which the Office Holder was convicted for an offence which did not require proof of criminal intent; and
(iv) any other event, occurrence, matter or circumstance under any law with respect to which the Company may, or will be able to, indemnify an Office Holder, and to the extent such law requires the inclusion of a provision permitting such indemnity in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Securities Law, if and to the extent applicable, and Section 50P(b)(1) of the Economic Competition Law).
(b) Subject to the provisions of the Companies Law, the Company may undertake to indemnify an Office Holder, in advance, with respect to those liabilities and expenses described in the following Articles:
(i) Sub-Article 65(a)(ii) to 65(a)(iv); and
(ii) Sub-Article 65(a)(i), provided that:
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(1) the undertaking to indemnify is limited to such events which the Board of Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made and for such amounts or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances; and
(2) the undertaking to indemnify shall set forth such events which the Directors shall deem to be likely to occur in light of the operations of the Company at the time that the undertaking to indemnify is made, and the amounts and/or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances.
The maximum amount of indemnification payable by the Company with respect to those liabilities and expenses described in Sub-Article 65(a)(i), for each Office Holder and for all Office Holders together, individually or in aggregate, under all letters of indemnification issued or to be issued by the Company, shall not exceed the greater of $5,000,000 and 25% of the Company’s Determining Equity.
For that purpose, the “Company’s Determining Equity” means its equity according to its most recent audited or reviewed financial statements, as the case may be, as of the date of actual payment of indemnification.
| 66. | Exemption. |
Subject to the provisions of the Companies Law and the Securities Law, the Company may, to the maximum extent permitted by law exempt and release, in advance, any Office Holder from any liability to the Company for damages arising out of a breach of the Office Holder’s duty of care towards the Company.
Notwithstanding the foregoing, the Company may not exempt a Director in advance from his liability for damages with respect to violation of his duty of care to the Company with respect to distributions. In addition, the Company may not exempt an Office Holder from his liability to the Company with regard to a resolution and/or a transaction in which the controlling Shareholder and/or any Office Holder has a personal interest.
| 67. | Subject to the provisions of the Companies Law and the provisions of any other law, the Company may exempt, insure and/or indemnify (whether retroactively or by way of advance indemnity undertaking) a person who has held, holds or will hold office and/or who was employed, is employed or will be employed on the Company’s behalf or in another company in which the Company holds securities, directly or indirectly, or in which the Company has any interest due to liability, payment or cost imposed upon him or expensed by him in consequence of an action made by him in his capacity as an officer or an employee in such company, and Articles 64 through 66 shall apply, mutatis mutandis, in that respect. |
| 68. | The provisions of Articles 64 through 66 shall also apply to an alternate director. |
| 69. |
Forum For Adjudication Of Disputes.
(a) Unless the Company consents in writing to the selection of an alternative forum, with respect to any causes of action arising under the U.S. Securities Act of 1933 as amended, against any person or entity, including such claims brought against the Company, its directors, officers, employees, advisors, attorneys, accountants or underwriters, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act of 1933, as amended; and (b) unless the Company consents in writing to the selection of an alternative forum, the competent courts in Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Securities Law. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company shall be deemed to have notice of and consented to these provisions. |
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| 70. | General. |
(a) Any amendment to the Companies Law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to Articles 64 to 68 and any amendments to Articles 64 to 68 shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by applicable law.
(b) The provisions of Articles 64 to 68 (i) shall apply to the maximum extent permitted by law (including, the Companies Law, the Securities Law and the Economic Competition Law); and (ii) are not intended, and shall not be interpreted so as to restrict the Company, in any manner, in respect of the procurement of insurance and/or in respect of indemnification (whether in advance or retroactively) and/or exemption, in favor of any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder; and/or any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law.
Winding Up
| 71. | Winding Up. |
If the Company is wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the shareholders shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made.
Notices
| 72. | Notices. |
(a) Any written notice or other document may be served by the Company upon any shareholder either personally, by facsimile, email or other electronic transmission, or by sending it by prepaid mail (airmail if sent internationally) addressed to such shareholder at his address as described in the Register of Shareholders or such other address as he may have designated in writing for the receipt of notices and other documents.
(b) Any written notice or other document may be served by any shareholder upon the Company by tendering the same in person to the Secretary or the Chief Executive Officer of the Company at the principal office of the Company, by facsimile transmission, or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its Office.
(c) Any such notice or other document shall be deemed to have been served:
(i) in the case of mailing, forty-eight (48) hours after it has been posted, or when actually received by the addressee if sooner than forty-eight hours after it has been posted;
(ii) in the case of overnight air courier, on the next business day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three business days after it has been sent;
(iii) in the case of personal delivery, when actually tendered in person, to such addressee; or
(iv) in the case of facsimile, email or other electronic transmission, on the first business day (during normal business hours in place of addressee) on which the sender receives automatic electronic confirmation by the addressee’s facsimile machine that such notice was received by the addressee or delivery confirmation from the addressee’s email or other communication server.
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(d) If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some other respect, to comply with the provisions of this Article 72.
(e) All notices to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Shareholders, and any notice so given shall be sufficient notice to the holders of such share.
(f) Any shareholder whose address is not described in the Register of Shareholders, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.
(g) Notwithstanding anything to the contrary contained herein, notice by the Company of a General Meeting, containing the information required by applicable law and these Articles to be set forth therein, which is published, within the time otherwise required for giving notice of such meeting, in either or several of the following manners (as applicable) shall be deemed to be notice of such meeting duly given, for the purposes of these Articles, to any Shareholder whose address as registered in the Register of Shareholders (or as designated in writing for the receipt of notices and other documents) is located either inside or outside the State of Israel:
| (i) | If the Company’s shares are then listed for trading on a national securities exchange in the United States or quoted in an over-the-counter market in the United States, publication of notice of a General Meeting pursuant to a report or a schedule filed with, or furnished to, the SEC pursuant to the Securities Exchange Act of 1934, as amended; and/or |
| (ii) | On the Company’s internet site. |
(h) The mailing or publication date and the record date and/or date of the meeting (as applicable) shall be counted among the days comprising any notice period under the Companies Law and the Regulations thereunder.
Amendment
| 73. | AMENDMENT. |
Any amendment of these Articles shall be approved by the holders of a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting, other than amendments specifically requiring a special majority as detailed in these Articles. .
* * *
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Exhibit 10.1
Polyrizon Ltd., Company Number 513637025 (the “Company”)
Equity incentive plan for the Company - for employees and officers, consultants and service providers
The plan is intended for the issuance of the Company’s options, non-tradable, which can be exercised into ordinary shares of the Company with a par value, for Employees and officers, consultants and service providers of the Company and/or companies in the Company’s Group, in accordance with Section 102 of the Income Tax Ordinance [new edition] 1961 in the capital gains track, all in accordance with the conditions set forth in this Plan below.
| 1. | Introduction and Definitions |
| 1.1. | Any expression in this Plan, which refers to the individual, will also apply in relation to the plural and vice versa, and every expression that relates to one sex will also apply in relation to the opposite sex, unless a different interpretation arises from the content. |
| 1.2. | The definitions set forth below shall have, in this Plan, the meaning set out by their side unless the written content requires otherwise: |
| An option, non-tradable, exercisable into Ordinary Shares of the Company, all in accordance with and subject to the provisions of this Plan; | “Option” - | |
| An Option to be exercised under section 3(i) of the Income Tax Ordinance, which has been allotted to a non-eligible Offeree; | “Option 3(i)”- | |
| As defined in Section 32(9) of the Ordinance; | “Controlling Shareholders of the Company”- | |
| As defined in Section 5.1 of the Plan; | “Option Agreement”- | |
| Income Tax Ordinance [New Edition], 1961 and all Rules and/or regulations and/or orders and/or any other provisions issued or to be issued under it and/or its decision made under it, and all amendments thereto, and in particular the Rules (as defined below), as amended; | “Ordinance” and\or “Income Tax Ordinance”- | |
| The provisions of Section 102 of the Income Tax Ordinance, as may be amended from time to time, including all regulations and/or Rules and/or orders that have been enacted or established pursuant to section 102; | “Section 102” |
| Income Tax Rules (Tax relief in the issuance of shares to employees), 5763- 2003; | “Rules of Section 102” or the “Rules” | |
| A day when most banks in Israel are open and active; | “Business Day”- | |
| The Company’s ordinary shares of par value; | “Share” or “Ordinary Share”- | |
| As defined in Section 11.1 below; | “Exercised Shares”- | |
| The persons entitled to participate in the Plan and receive Options, including Employees, directors, consultants of the Company and any of the Company Group, or any other person, who have been granted Options in accordance with the provisions of this Plan; | “Offeree” | |
| Any of the following: (a) A conviction of a flagrant offense or one that affects the company and/or Affiliated Companies; (b) Refusal of Offeree to comply with a reasonable instruction of his superiors, including the board of directors, CEO and direct manager of the Offeree, in connection with the Company’s business and/or with the business of Affiliated Companies, which could be performed under applicable laws; (c) Embezzlement of Company funds and/or Affiliated Companies’ funds; (d) breach of fiduciary duty towards the Company and/or towards Affiliated Companies, including disclosure of confidential information regarding the company and/or Affiliated Companies; (e) Any act or omission (other than conduct in good faith) which in the opinion of the board of directors is significantly harmful to the Company and/or Affiliated Companies; (f) Circumstances that do not give the offeree the right to receive severance pay in accordance with the provisions of any law; | “Cause” | |
| An employee in accordance with Section 102 is – an employee, director and officer in the Company or Affiliated Company, who has been issued option letters and\or grants in accordance with this Plan; | “Employee” | |
| Any of the following: (1) merger, acquisition, reorganization of the Company with or into another company, when the Company is not the surviving company; (2) the sale of all or a substantial portion of the Company’s assets or Shares; (3) the issuance of the Company’s Shares to the public on the stock exchange (as defined in the Companies Act, 5759-1999); | “Transaction” | |
| Polyrizon Ltd. | “Company” | |
| The Company, the Controlling Shareholders of the Company, and companies controlled by the Company and/or the Controlling Shareholders of the Company, directly and/or indirectly; | “Company Group” or “Affiliate Companies” - | |
| This Plan as may be amended from time to time | “Plan” or “Incentive Plan”- |
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| 2. | The Plan’s Framework - Capital Gains Tax Track; 3(i) Track |
| 2.1. | This Plan shall be subject to, construed and comply with all the requirements of Section 102 of the Ordinance and any written approval by the Israeli tax authorities. |
| 2.2. | This Plan and the issuances by virtue of it, are subject to the provisions of Section 102 and Section 3(i) of the Ordinance - capital gains tax track, as they exist from time to time, and the rules thereunder, and the Offerees are obliged to act in accordance with the provisions of the Ordinance and the Rules. |
| 2.3. | Issuance of Options under this Plan will be made to a trustee who will be appointed by the Company at its sole discretion (hereinafter: the “Trustee”), as a trustee for each Offeree, or any other trustee elected by the Company. The terms of the trust will be as specified in a trust agreement to be signed between the Company and the Trustee (hereinafter: “Trust Agreement”), which will be attached as an appendix to this Plan and the Options Agreement. |
| 2.4. | In order for an Offeree to pay the fixed tax rates for the capital gains tax track, the Offeree may not transfer and/or sell the Exercised Shares held by the Trustee until the elapse of 24 months from the date of issuance of the Options to the Trustee for the Offeree, or any other period approved by the Israeli tax authorities. (Hereinafter: “Blocking Period”). |
| 2.5. | In the event of a distribution of bonus shares and/or Exercised Shares (hereinafter: the “Additional Rights”), all Additional Rights will be issued to the Trustee for the benefit of the Offeree and will be held by the Trustee until the end of the Blocking Period of the Options for which the rights were issued. The provisions of the capital gains tax track will apply to the Additional Rights. |
| 2.6. | In any event where the Offeree transfers and/or sells the Exercised Shares held by the Trustee before the end of the Blocking Period (hereinafter: the “Breach”), the Offeree will pay all taxes required to be paid due to the Breach, in accordance with the provisions of section 7 of the Rules. The Offeree will indemnify The Company for any expenses incurred by the Company due to the said Breach, including payment of the employer’s portion to the National Security Institute. |
| 2.7. | For avoidance of doubt, the provisions of Section 102 of the Ordinance, comes in addition to any other provisions set forth in the Plan and the provisions of Section 102 of the Ordinance shall not derogate from the provisions of this Plan, including provisions regarding Vesting Dates, as defined in section 6 below and/or any other provision limiting the Offeree’s ability to exercise the Options or transfer the shares from the Trustee. |
| 2.8. | It is hereby clarified that, the Company will be entitled under this Plan, to issue Options to other Offerees who do not comply with the rules of Section 102 of the Ordinance (including consultants, etc.) as well as to foreign Offerees, in which case the provisions of this Plan will apply mutatis mutandis, the issuance to Israeli Offerees will be made in accordance with the provisions of Section 3(i) of the Ordinance and/or any other relevant provision of law, the issuance to foreign Offerees shall be subject to the taxation laws applicable to them. |
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| 3. | The Number of Options to be Issued According to the Plan |
Subject to the following, the total number of Options to be issued under this Plan shall be determined by the Company’s Board of Directors, from time to time and in its sole discretion and will relate to the Company’s Options, non-tradable, exercisable into Ordinary Shares of the Company, as set forth below in this Plan. The number of shares that will result from the exercise of the Options will be subject to the issuance of an Exercise Notice and adjustments, as set forth in Sections 7 and 12 below.
| 4. | The Plan’s Administrator |
The Company’s board of directors has full discretion to manage the Plan, make decisions regarding the Plan, interpret and make changes to it, as it sees fit, including suspending or terminating the Plan, changing the exercise price of all or part of the Options, accelerating vesting periods, and all subject to the provisions of any applicable laws. The Company’s board of directors is not obligated to treat all Offerees equally.
| 5. | Issuance of Options |
| 5.1. | The issuance of an Option to an Offeree in accordance with the Plan will be made through a written option agreement between the Company and the Offeree in the form approved by the board of directors (the “Option Agreement(s)”). Each Option Agreement shall specify, inter alia, the number of Shares to be derived from the exercise of the Option, the Vesting Dates, the exercise price, the expiration date of the Option and other terms as determined by the board of directors, subject to the Plan’s provisions and special terms as determined by the board of directors. In the event of an individual arrangement in an Options Agreement that differs from the general arrangement in the Plan, the provisions of the Option Agreement will apply in relation to that specific Offeree and the Options that are the subject of that Option Agreement. |
| 5.2. | Any issuance of Options under the Plan will be made only after compliance with all of the conditions set forth below: |
| (a) | Not before the elapse of 30 days from the date on which the Plan was submitted for approval to the tax authorities in Israel, in accordance with the provisions of Section 102 of the Ordinance (for offerees under Section 102); |
| (b) | Obtaining the necessary approvals for issuances under the Plan by the authorizing bodies of the Company, in accordance with applicable laws. |
| 5.3. | The date of issuance of the Options shall be the date on which the Company decided to issue the Options under the name of the Trustee for each Offeree according to Section 102 or the issuance of Options in the name of an Offeree who does not fall under Section 102, in accordance with the provisions of this Plan. |
| 5.4. | The Options, which will be issued to the Trustee for the Offerees under this Plan, will be Issued for no consideration. |
| 5.5. | The exercise price for each Option issued under this Plan for each convertible Option into an Exercised Share shall be determined in the Option Agreement (hereinafter: the “Exercise Price”). The Exercise Price is not linked to any index or exchange rate, unless otherwise determined by the Company’s board of directors. |
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| 6. | Vesting Period |
| 6.1. | The rights of each Offeree to exercise the Options issued to the Trustee on his behalf, including any possibility of advancing or deferring this right, will be realized at the dates specified in the Option Agreement (hereinafter: the “Vesting Dates”). |
| 6.2. | The Offeree’s rights to exercise the Options, on the Vesting Dates, as set out in the Option Agreement, may be conditional on the continuation of his employment or tenure or the provision of services by the Offeree in a company of the Company’s Group, meeting the Offeree’s targets, all in accordance with section 13 below or the terms of the Option Agreement. |
| 7. | Exercising Options |
| 7.1. | Subject to the provisions of this Plan, an Offeree shall be entitled to exercise the Options, in whole or in part, for which the Vesting Dates have been reached, during the Option Term, as defined in section 8 below, by sending a written exercise notice signed by the Offeree to the Company’s registered office and the Trustee (in the event these are Options under Section 102), which will include, inter alia, the name of the Offeree and his ID number and the number of Options that the Offeree wishes to exercise (hereinafter: the “Exercise Notice”). An Exercise Notice will be delivered to the Company only on a Business Day. |
| 7.2. | Within 14 days from the date of receipt of the Exercise Notice by the Company in addition to the full Exercise Price in cash (hereinafter: the “Exercise Date”), the Company will allot the Exercised Shares. |
| 7.3. | The Company will maintain an Offerees registry in its registered office, in which the Company’s Offerees’ names will be registered, their addresses and the number of Options registered in their name. |
| 8. | Options Term |
All Options issued to the Offeree or the Trustee on behalf of an Offeree under this Plan, but not exercised, shall expire and be revoked at 17:00, Israel time, at the end of ten (10) years from the date of their grant to the Offeree or Trustee on behalf of the Offeree under Section 102 (hereinafter: the “Option Term”), Unless they have expired earlier, in accordance with the provisions of section 10 below.
| 9. | Term of the Plan |
| 9.1. | This Plan will be in effect for a period of ten (10) years from the date of its approval by the Company’s board of directors, unless the Company’s board of directors decides to terminate it earlier. Options granted under this plan shall be valid for a period of ten (10) years unless the board of directors determines otherwise, expressly, in the Option Agreement. An Option that is not exercised within ten (10) years will expire, and all the rights of the participant in relation to the Options will become null and void. |
| 9.2. | Notwithstanding anything to the contrary in the Plan, the board of directors may, at any time, amend, suspend or terminate, retroactively or otherwise, the entire Plan or part thereof (including any change intended to ensure that the Company complies with the law), and provided that other then, amending a written error, amendments required under applicable laws or stated in the Plan, the Offeree’s rights in relation to the Options granted to him before the amendment, suspension or termination, will not be effected without the Offeree’s consent. The board of directors may change the terms of the issuance granted to the Offeree, retroactively or in the future, provided that except for amendments of written errors, amendments arising from the law, accounting rules applicable or explicit in the Plan, the Offeree’s rights with regards to the Options granted to him before the change will not be effected without the Offeree’s Consent. |
| 9.3. | Notwithstanding anything to the contrary in the Plan, the board of directors may carry out the following actions: (a) an increase in the number of shares that may be issued under the Plan; (B) an extension of the term of the Plan; (C) a substantial expansion of the group eligible to participate in the Plan; (D) an expansion of the type of options and/or benefits provided under the Plan. |
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| 10. | Expiration of the Options |
| 10.1. | The Options issued under this Plan will expire in any of the following events: |
| (a) | Exercised Options will expire upon the issuance date of the Exercised Shares in their place. |
| (b) | Options will expire and will not be exercisable upon the elapse of the Option Term; |
| (c) | Options, which the Offeree’s rights to exercise them under Article 13 below has been terminated or unless otherwise stated in the Option Agreement, will expire and will not give that Offeree any right. |
| 10.2. | An Offeree’s Option exercise right that has been terminated, in accordance with the provisions of section 13 below, will return to the options pool held by the Trustee, the Company will be entitled to grant the Option again, in the future, to Offerees, in accordance with the provisions of this Plan. |
| 11. | Exercised Shares |
| 11.1. | The Shares that will be issued as a result of exercising any Options under this Plan (hereinafter: the “Exercised Shares”) will be equal in their rights to the Company’s Shares in all matters immediately upon their issuance, and will be entitled to any dividend or other benefit, whereby the effective date for determining the right to receive them shall apply on the day of their issuance due to the exercise of the Option or thereafter. |
| 11.2. | In any event where the Offeree will be entitled to receive rights and/or bonus shares and/or any other right granted to the Offeree by virtue of the Options and/or the Exercise Shares (hereinafter: the “Rights”) and on the determining date of distribution of rights, the Options and/or Exercised Shares were held by the Trustee, the Rights will be transferred to the Trustee, who will deduct withholding tax in accordance with applicable laws, if and to the extent applicable, and the provisions of section 2.5 above shall apply to any such distribution and/or issuance as aforesaid. |
| 11.3. | In the event the Company distributes a cash dividend and on the determining date for the distribution of the dividend, the Trustee held Exercised Shares for any of the Offerees, the Company will transfer to the Trustee dividend amounts in respect of the Exercised Shares held by the Trustee for each Offeree, the Trustee will deduct withholding tax, if applicable, and thereafter will transfer the dividend amounts (after tax deduction) to the Offeree. |
| 11.4. | As long as the Shares are held for the benefit of Offerees by the Trustee, the voting rights attached to the Exercised Shares are hereby irrevocably assigned to the Company’s representative, to be determined from time to time by the board of directors, whereby the aforementioned representative may, but is not obligated to vote at any general meeting of the Company, In accordance with the existing voting ratio of the other shareholders. The Offeree shall sign a proxy in the form to be determined by the Company that empowers the aforesaid representative to vote at any such general meeting as aforesaid. |
| 11.5. | The Offeree and/or the person acting on his behalf, irrevocably waives any claim against the aforesaid representative and undertakes not to raise any claim in connection with the abovementioned representative’s vote at the shareholders meetings and undertakes to indemnify the abovementioned representative for any damage and or expense incurred by him as a result of voting and/or abstaining from voting on behalf of the Exercised Shares at the meetings. |
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| 12. | Adjustments |
| 12.1. | In the event of a change in the Company’s issued share capital by way of distribution of Bonus shares or of a share split, replacement or reverse split of the Company’s share capital, or any corporate capital event of a substantially similar nature, the Company shall execute, in accordance with the board of directors decision in its sole and final discretion, the necessary changes or adjustments in relation to the number and type of Exercise Shares in respect of the Options not yet exercised by the Offeree and/or the Exercise Price of each Option. The total Exercise Price of all the Options will not change as a result of making the necessary changes and adjustments as aforesaid. |
| 12.2. | upon the occurrence of any of the following events, the right of the Offeree to exercise Options under the Plan shall be subject to the adjustments set forth below: |
| 12.2.1. | In the event of a Transaction (as defined above) when there are Options that have not yet been exercised by virtue of the Plan, the Company will notify all Options holders regarding the Transaction, and each Option holder will have ten (10) days to exercise the vested Options that have not yet been exercised into Shares in accordance with the exercise provisions set out in section 7 above. Upon the elapse of the ten days, all Options that have not yet been exercised into Shares up to that date will expire immediately. |
| 12.2.2. | In the event of a Transaction, unless otherwise stated in the Options Agreement, any Option granted under the Plan that has not yet been exercised because the Vesting Date has not yet occurred will be replaced or converted from Options into Shares, in accordance with the number of unexercised shares under the Options Agreement, or into any other security of the acquiring company (or parent company or subsidiary of the acquiring company), which were distributed to the Company’s shareholders against the Shares in respect of such Transaction, and appropriate adjustments will be made to the Exercise Price per Share, which will reflect such an event, and all other terms of the Option Agreement, including Vesting Dates shall remain in full force and effect, all as determined by the board of directors whose decision shall be exclusive and final. The Company will notify the Offeree of the Transaction in a manner that the Company deems appropriate, at least seven (7) days before the date of completion of the Transaction. on the date of completion of the Transaction, Options that have reached their Vesting Dates and the Company has not received an Exercise Notice for them, will expire. |
| 12.2.3. | Without derogating from the aforesaid and subject to the provisions of any applicable law and the provisions of the Option Agreement, the board of directors has the authority to determine in its sole and final discretion, that upon an occurrence of a Transaction as set forth in clause 12.2.1 above, whereby the acquiring company (or parent company or subsidiary of the acquiring company) does not agree to convert or replace the Options, the Vesting Dates of all or part of the Options, that have not yet been vested, shall accelerate. The Offeree will be entitled to exercise these Options into Shares within ten (10) days before the closing date of the Transaction. |
| 12.2.4. | For the purposes of section 12.2.2 above, the Option will be considered replaced or converted if, following the Transaction, the Option grants the right to purchase or receive, in respect of any Share to be granted under an Option immediately before the Transaction, the consideration (whether shares, options, cash or securities or other property ) which will be received from the Transaction by the shareholders in respect of each Share held at the closing date of the Transaction (and if such holders were given a choice as to the consideration, the type of consideration chosen by the holders of the majority of the Shares); Provided that if such consideration received in the case of a Transaction is not in ordinary shares (or equivalent) of the acquiring company (or its parent company or subsidiary), the board of directors may, after receiving the acquiring company’s consent, determine that the consideration received by exercising the Option will only be ordinary shares (or their equivalent) of the acquiring company (or its parent company or subsidiary), whereby the market price of the shares is equal to the price per share received by the majority of the shareholders in the Transaction; And subject to the board of directors being able to determined, at their discretion, that in such a case of replacement or conversion of an Option against an option of the acquiring company, such option shall be exchanged against any other type of asset, including cash, in a fair manner under the existing circumstances. |
| 12.2.5. | Should it be decided to voluntarily dissolve the Company while there are Options that have not yet been exercised by virtue of the Plan, the Company will notify all Options holders regarding the said decision, and each Option holder will have ten (10) days to exercise the vested Options that have not yet been exercised into Shares, in accordance with provisions set out in section 7 above. Upon the expiration of the ten days, all Options that have not yet been exercised into Shares will expire immediately, whether vested or not. |
| 12.2.6. | The Company’s board of directors may, in its sole discretion, set additional provisions in the Option Agreement of each Offeree under this Plan with regards to adjustments of the Exercise Price. |
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| 13. | Termination of Employment or Appointment |
| 13.1. | Other than the exceptions listed in section 13.3 below, if, before the elapse of the Vesting Dates: |
| (a) | The employee-employer relationship between the Offeree and the Company in which he is employed during the term of this Plan will be terminated for any reason, or the service agreement between the Offeree and the Company will be terminated for any reason; or |
| (b) | The Offeree who serves as a director of the Company will cease to serve as a director of the Company and/or cease to provide services to the Company for any reason; |
Notice of termination of employment or engagement or appointment as aforesaid shall be considered a termination of employment or engagement or appointment and the date of such notice shall be hereinafter referred to as the “Termination Date”.
Then, had it not been determined otherwise in the Option Agreement, on the Termination Date, the Offeree’s entitlement to the Options, which have not yet been vested, shall expire.
| 13.2. | Without derogating from the provisions of section 13.1 above and unless otherwise provided in the Offeree’s Option Agreement, the Offeree may exercise Options after the Termination Date for an additional period after the Termination Date, but only in respect of Options that have been fully vested on the Termination Date, and all as listed below: |
| 1) | In an event of termination of the relationship for no “Cause”, the Offeree will have the right to exercise the Options he was entitled to exercise under the Options Agreement in accordance with the Vesting Dates and provided they have not expired, for a period of ninety (90) days after Termination. |
| 2) | In an event of termination of the relationship due to death or disability of the Offeree, the Offeree or his legal heirs shall have the right to exercise the Options that the Offeree was entitled to exercise under the Option Agreement in accordance with the Vesting Dates and provided they have not yet expired, for a period of twelve (12) months after the termination of the relationship. |
| 3) | The board of directors has approved, prior to the Termination Date, an extension of the terms of the Vesting Dates of the Options that have not yet been exercised beyond the date of termination of the relationship for a period not exceeding the original term set for the exercise of the Options. |
For the avoidance of doubt, in the event that the termination of the relationship is for “Cause”, or in the event that the Offeree appointed as a director of the Company ceases to serve as a director of a company in the Company Group upon the initiative of a company in the Company Group under the circumstances in which restrictions apply to the director’s term as set out in any applicable laws, and as detailed in section 226(a) and 227 of the Companies Act 5759-1999, then the Options will expire for all intents and purposes (whether or not the Offeree at the time of termination of the relationship was entitled to exercise some of the Options), and the Offeree will have no right in connection with the Options.
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| 13.3. | Notwithstanding the provisions of section 13.1 above, in the event of |
| a. | Complete loss of work capacity, as defined below, of the Offeree; or |
| b. | Death of the Offeree (G-d forbid). |
The Offeree, or his heirs in the event of death, shall be entitled to exercise the all the Options issued to the Trustee on behalf of the Offeree, immediately after the event as stated in subsection (a) or (b) above, regardless of completion or in completion of the Vesting Dates applicable to the Offeree, the aforementioned is subject to the provisions of Section 102 of the Ordinance in relation to the capital gains tax track and the Rules, the Vesting Dates, as stated in Section 7 above, and the rest of the provisions of this Plan.
For the purposes of this section 13.3, “complete loss of work capacity” shall be considered a stable physical and/or mental condition, lasting at least six (6) months, caused as a result of an illness or accident, which prevents the Offeree from engaging in a profession and/or occupation which match his educational level, experience and previous skills, all as determined by the absolute and final discretion of the Company’s board of directors.
| 13.4. | Should the Offeree work in another company in the Company Group, the period of work of the Offeree in the other company will be regarded as a period of employment in the company in which he is employed at the time of this Plan, and all subject to obtaining appropriate approvals from the tax authorities, if applicable. |
| 13.5. | For the purposes of this Section 13, retirement in accordance with applicable laws shall not be deemed under the provisions of any law or agreement as terminating the employer-employee relationship, subject to obtaining appropriate approvals from the tax authorities, if applicable. |
| 14. | Taxes and Expenses |
| 14.1. | This Plan shall be subject to, construed and comply with all the requirements of Section 102 of the Ordinance and any written approval by the Israeli tax authorities. All tax consequences under any applicable law, which will arise as a result of the issuance of the Options and/or their designation and/or their exercise and/or their holding and/or sale of the Exercised Shares (or any other security issued under the Plan) by or for the Offeree, shall be borne and paid by the Offeree. The Offeree will indemnify the Company and any company from the Company Group and/or the Trustee and will exempt them from any liability for any payment of tax and/or fine and/or interest and/or linkage as aforesaid. |
| 14.2. | Whenever a payment is required to be made by the Offeree and/or a company from the Company Group and/or the Trustee through deducting withholding tax in connection with Options issued to the Trustee on behalf of the Offeree and/or the Exercised Shares, the company from the Company Group as aforesaid and/or the Trustee, as the case may be, may demand from the Offeree an amount sufficient to cover any deduction of withholding tax as aforesaid. In any event where shares or any other property other than money are transferred following the exercise of Options as aforesaid, the company from the Company Group and/or the Trustee will have the right to demand from the Offeree a sum of money sufficient to meet any deduction of withholding tax requirement, and if this amount is not transferred on time, the company from the Company Group and/or the Trustee, will have the right to hold or offset (subject to applicable laws) the Shares or any such property until the said payment is transferred by the Offeree. |
| 14.3. | Before the tax has been paid as stated in Section 7 of the Rules, the Options or Exercised Shares shall not be transferable, assignable, pledged, foreclosed or otherwise voluntarily encumbered, nor shall any power of attorney or deed of transfer be given in connection with them, either immediate or valid on a future date, except under a will or inheritance by law; If the Options or Exercise Shares have been transferred by virtue of a will or inheritance in accordance with such law, the provisions of Section 102 of the Ordinance and the provisions of the Rules shall apply to the heirs or transferees of the Offeree. |
| 14.4. | Expenses incurred in relation to the management and implementation of this Plan, if and to the extent applicable, shall be borne and paid by the Company. |
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| 15. | Non-Transferability of Options and Shares. |
| 15.1. | The Options or rights of the Offeree in connection with the Options, whether or not a payment has been made on their behalf, are not transferable, assignable, to be given as a guarantee, and no right to them may be granted to a third party, except as expressly stated in the Plan. During the Offeree’s life, all Offeree’s rights to purchase Shares by virtue of the Plan can only be realized by the Offeree. |
Any such action, whether direct or indirect, whether valid immediately or in the future, shall be null and void.
| 15.2. | As long as the Exercise Shares are held by the Trustee for the benefit of the Offeree, then all of the Offeree’s rights are personal and may not b e transferred, assigned, pledged, foreclosed or encumbered, except for transfer by virtue of a will or inheritance law. |
| 16. | No Undertaking for Continuance of Employment or Receiving Services. |
No provision in this Plan and/or in the Options Agreement shall be construed as an obligation and/or consent on the part of the Company and/or a company in the Company Group to continue to employ the Offeree or receive services from him, and any provision in the Option Agreement and/or Plan shall not be construed as granting the Offeree any rights to to continue being employed by the Company and/or a Company in the Company Group or to provide services to any of them, or as limiting the right of the Company and/or a company in the Company Group to terminate the employment of any Offeree or an agreement with any Offeree (in the event of a service provider) at any time. In addition, the Options and/or Exercised Shares will not be taken into account in calculating any social benefits that the Offeree is entitled to by virtue of his employment by the Company.
| 17. | No Third-Party Rights to the Options |
Subject to the provisions of the Plan, no person other than the Offeree will have any rights in relation to the Options issued to the Trustee on behalf of the Offeree under the Plan.
| 18. | Reservation of Sufficient Registered Share Capital |
The Company undertakes to maintain, at all times, a sufficient number of Shares in its registered capital for the purpose of exercising the Options to be issued under this Plan.
| 19. | Governing Law and Jurisdiction. |
This Plan and all accompanying documents submitted or signed by the Company and/or a company from the Company Group in connection with this Plan will be interpreted and will be governed by the laws of the State of Israel. The competent courts of Tel Aviv-Yafo shall have the exclusive jurisdiction with regards to this Plan and all the accompanying documents as aforesaid.
| 20. | Non-Exclusivity of the Plan |
The adoption of this Plan by the board of directors will not be construed as correcting, changing, canceling and/or replacing any prior approved incentive arrangement (insofar as it exists), or as limiting the board of director’s authority to adopt other arrangements to grant incentives to Offerees, including and without derogating from the aforesaid granting option that are not by virtue of the Plan, and the same arrangements may apply in general or in certain cases.
* * *
10
Exhibit 10.3
Compensation Policy
Polyrizon Ltd.
(the “Company”)
Compensation Policy for Executive Officers and Directors
Adopted ________________
| 1. | Background |
Amendment No. 20 to the Israeli Companies Law (the “Companies Law”) became effective on December 12, 2012. This amendment mandates the adoption of a compensation policy for Executive Officers and Directors in publicly traded companies, and defines a special procedure for authorizing employment terms for office holders.
The purpose of the Compensation Policy is to describe Polyrizon’s overall compensation strategy for Executive Officers and Directors and to provide guidelines for setting compensation of its Executive Officers and Directors.
The Compensation Policy is a multi-year policy which initially shall be in effect for a period of five years from the date that the Company becomes a public company, and thereafter will need to be approved by the Company’s shareholders every three years.
The Compensation Committee and the Board of Directors shall review the Compensation Policy from time to time, as required by the Companies Law. The Compensation Policy shall be brought for reconsideration as required by the Companies Law.
For purposes of this Policy, “Officers” shall mean “office holders” as such term is defined in the Companies Law, and “senior office holders” as such term is defined in the Israeli Securities Law- 1968 (the “Israeli Securities Law”), excluding, unless otherwise expressly indicated herein, Polyrizon directors that are not otherwise considered to be office holders under the Companies Law or the Israeli Securities Law.
This Policy is not intended to affect current agreements nor affect obligating customs (if applicable) between the Company and its Executive Officers or Directors as such may exist prior to the approval of this Compensation Policy.
Nothing in this Compensation Policy shall obligate the Company to grant any particular type or amount of compensation to any Officer, unless expressly stated otherwise, nor shall it derogate from approval procedures mandated by the Companies Law.
Any amendment to this Compensation Policy shall require the approvals as set forth in the Companies Law.
The Compensation Policy shall not apply to any compensation approved prior to the date that the Company becomes a public company and paid or received at the Company’s initial public offering or thereafter.
| 2. | Compensation Objectives |
Strong and effective leadership is fundamental to Polyrizon’s continued growth and success. This requires the ability to attract, retain, reward and motivate highly skilled officers in international, competitive labor markets.
The Compensation Policy is intended to align between the need to incentivize officers to succeed in achieving the Company’s Objectives and their assigned goals and the need to assure that the compensation structure meets Polyrizon’s interests and its overall strategic and financial objectives.
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In support of this goal, the compensation elements granted to Polyrizon’s Officers are designed to meet the following objectives:
| ● | Improve business results and strategy implementation, and support the Company’s work-plans, from a long-term perspective. |
| ● | Create a clear correlation between Officers’ compensation, overall Company performance and the individual performance. |
| ● | Align Officers’ interests with those of the Company and its stakeholders (customers, employees, partners, environment, shareholders etc.) and incentivize Officers to create long- term economic value for the Company. |
| ● | Consider the ratio between the Officer’s employment terms and the salary of other Company employees and contractors, and in particular the ratio between the average salary and the median salary of such employees and the effect of differences between such on work relations in the Company (for purposes of this section “contractors” and “salary”- as defined in the Companies Law). |
| ● | Create fair and reasonable incentives, considering the Company’s size, characteristics and type of activity. |
| ● | Create appropriate incentives taking into account; inter alia, the Company’s risk management policy. |
| ● | Create the right balance (a) between fixed and variable compensation components; and (b) between short-term and long-term results, so as to ensure sustained business performance over time. |
| 3. | Compensation Policy |
| 3.1. | Officers’ Compensation Package Components |
Officers’ compensation packages will generally (but not limited to) be comprised of the following elements:
| 3.1.1. | Fixed Compensation |
| a. | Base Salary – a fixed monetary compensation paid on monthly basis or other periodical basis as customary in the place of employment. |
| b. | Benefits and Perquisites – programs designed to supplement cash compensation, based on market practice for comparable positions. |
| 3.1.2. | Variable Compensation |
| a. | Cash Bonus (Short Term Incentive) – variable monetary bonus paid annually, designed to reward Officers based on the Company’s and/or individually defined results. |
| b. | Equity based Compensation (Long Term Incentive) – variable equity-based compensation designed to retain Officers, align Officers’ and shareholders’ interests and incentivize achievement of long term goals. |
| c. | Termination Payments - retirement and termination of service arrangements. |
The combination of the elements that will be provided to each Officer will be structured in order to support the Company’s philosophy of compensating Officers for Company and individual performance and aligning their interests with stakeholders’ interests, while recognizing that the mix may vary from period to period and from Officer to Officer.
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| 3.2. | Ratio between Fixed Compensation and Variable Compensation |
| 3.2.1. | This Policy aims to balance the combination of “Fixed Compensation” (comprised of base salary and benefits) and “Variable Compensation” (comprised of cash bonuses, equity-based compensation and termination payments) in order to, among other things, appropriately incentivize Officers to meet Polyrizon’s short and long-term goals while taking into consideration the Company’s need to manage a variety of business risks. |
| 3.2.2. | The total annual target bonus and equity-based compensation per vesting annum (based on the fair market value at the time of grant calculated on a linear basis) of each Officer shall not exceed 95% of such Executive Officer’s total compensation package for such year. |
| 3.3. | Intra-Company Compensation Ratio |
In the process of composing this policy, the Committee and the Board examined, among other things, the ratio between overall compensation of Officers and the average and median compensation of other employees in Israel, as well as the possible ramifications of such ratio on the work environment in Polyrizon, in order to ensure that levels of Officer compensation will not have a negative impact on the positive work relations in Polyrizon.
The possible ramifications of the ratio in the work environment will continue to be examined from time to time in order to ensure that levels of Officer’s compensation, as compared to that for the other employees, will not have a negative impact on work relations in Polyrizon.
| 3.4. | Base Salary |
Base salary is a fixed compensation element which provides compensation to an Officer for performance of his or her standard duties and responsibilities and reflects the Officer’s role, skills, qualifications, experience and market value (the “Base Salary”).
The Base Salary for newly hired Officers will be set taking the following considerations into account:
| ● | Role and business responsibilities. |
| ● | Professional experience, education, expertise and qualifications. |
| ● | Previous compensation paid to the Officer. |
| ● | Internal comparison: (a) Base Salary and the total compensation package of comparable Polyrizon Officers; (b) The ratio between the Officer’s compensation package and the salaries of the Company’s other employees and specifically the median and average salaries and the effect of such ratio on work relations in the Company. |
| ● | The base salaries paid to Officers in a peer group of other companies operating in technology sectors that are as much as possible similar in their characteristics to Polyrizon, while considering, among other things, such companies’ size and characteristics including their revenues, profitability rate, growth rates, market capitalization, number of employees and area of operations (in Israel or globally). |
When deciding on increasing an Officer’s Base Salary, the following considerations, in addition to the abovementioned, shall be applied: Changes to the Officer’s scope of responsibilities and business challenges, the need to retain the Officer, inflation since the last Base Salary update and updated market rate.
Adjustments to Base Salary may be periodically reviewed, considered and approved in accordance with the law.
In the event that the services of the Officer are provided via a personal management company and not by the Officer directly as an employee of Polyrizon, the fees paid to such personal management company (or unincorporated legal person) shall reflect, to the extent determined by Polyrizon in the applicable service agreement, the Base Salary and the benefits and perquisites (plus possible tax gross up for certain components as approved by the Compensation Committee from time to time), all in accordance with the guidelines of the Compensation Policy.
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| 3.5. | Benefits and perquisites |
The following benefits and perquisites may be granted to the Officers in order, among other things, to comply with legal requirements:
| ● | Pension and savings – subject to applicable law and common practices, Officers can choose between any combinations of executive insurance and a pension fund. |
| ● | Disability insurance – the Company may purchase disability insurance, as allowed by applicable law and/or is common in the applicable employment place. |
| ● | Provident (Educational) fund – Officers are entitled to a providence fund provision at the expense of the Company at a rate of 7.5% of the monthly salary (or the maximum amount recognized as tax benefit under applicable law (as the Company may determine). |
| ● | Convalescence pay - Officers are entitled to convalescence pay according to applicable law and/or common practices. |
| ● | Vacation – in accordance with applicable law and market practice. |
| ● | Sick Days – Officers will be entitled to paid sick days (officers’ or their immediate family members) in accordance with applicable law. However, the Company may cover sick days from the first day up to the officers’ overall annual sick day balance regardless of whether the sick day is for themselves or their immediate family members. |
| ● | Relocation package - in the event of relocation of an Officer to another geographical territory, the benefits provided will include customary benefits associated with such relocation (such as reimbursement of travel for officers and their family, housing and shipping allowances, healthcare and children’s education) all as shall be determined in accordance with Polyrizon’s policies and procedures or per customary market practice in companies with similar business activities and revenues. |
Polyrizon may offer additional benefits and perquisites to the Officers, which will be comparable to customary market practices, such as, but not limited to: company car benefits (including coverage or related tax gross -ups); company cellular phone (including coverage or related tax gross - ups); complementary health insurance; medical check-ups; meals; etc.; provided however, that such additional benefits and perquisites shall be determined in accordance with Polyrizon’s policies and procedures and reviewed by the Compensation Committee from time to time.
Non-Israeli Officers may receive similar, comparable or customary benefits and perquisites as applicable in the jurisdiction in which they are employed.
The compensation derived from the benefits and perquisites set forth in this Section 3.5 shall not be deemed part of the Maximum Monthly Base Salary and shall be added thereto.
| 3.6. | Cash Bonus |
Polyrizon’s short term incentive scheme will be based on a variable monetary bonus paid annually, designed to reward Officers based on the Company and/or their individually defined results (the “Bonus”).
During the first calendar quarter of each calendar year, the Compensation Committee and the Board will determine the following for each Officer as well as the formula for calculating the bonus payment at the end of the year:
Maximum Bonus (cap): The maximum bonus is the maximum amount an Officer will be entitled to receive upon over achievement. The maximum bonus of each Officer shall not exceed the amount of 4 monthly Base Salaries, or with respect to the Chief Executive Officer, 6 monthly Base Salaries.
Objectives: The Company Objectives and Individual Objectives will be determined based on pre-defined measurable and quantified considerations.
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The Bonus may include (but is not limited to) any one or more of the following criteria:
| ● | Financial objectives such as: Revenue, EBITDA, Cash balance, Net profit or outperforming budget objectives |
| ● | Business development objectives such as: new corporate partnerships, project and product acquisitions, licensing agreements, achievement of milestones with partners / licensees, receipt of funds from partners / licensees. |
| ● | Funding objectives such as: private fund raising, public fund raising, receipt of research / development grants, achieving of certain target valuations. |
| ● | Regulatory objectives such as: receipt of clinical study approvals, receipt of product marketing approvals, approval of reimbursement schemes, successful patient recruitment to studies etc. |
| ● | Marketing objectives such as: set up of a sales force, achieving certain sales targets. |
| ● | Intellectual property objectives such as: submission / grant of new patents. |
| ● | R&D objectives such as: attainment of certain prototypes, scientific breakthroughs, succeeding in technology evaluations with partners etc. |
| ● | Operational objectives such as: attainment of operational excellence criteria in purchasing, manufacturing, quality, yields, on-time delivery, ramp-ups and ramp- downs etc. |
Both Company Objectives and Individual Objectives may combine quantitative and qualitative goals, provided that, there is a clear and measurable index for each goal.
The Board may set targets for a period of more than one year, in which case either: (a) the Officer will be entitled to the bonus (per each year included in such multi-year period) only upon achieving such targets at the end of such period; or (b) the Officer shall be entitled to a relative portion/milestone of such bonus, according to the estimated progress to date, in each case, as determined in advance.
Discretionary Component: The Bonus may include a discretionary component of up to 20% of the Officer’s annual cash target Bonus and with respect to the CEO up to 30% of the CEO’s annual cash target Bonus but not more than 3 monthly salaries, based on the evaluation of such Officer’s supervisors, or the Board of Directors in the case of the CEO.
Thresholds: Subject to the last paragraph below, the Compensation Committee and the Board may, with respect to any period or Officer, determine one or more thresholds for the payment of the annual cash bonus or any components thereof, in such manner that if the threshold is not achieved, the annual cash bonus or the particular component thereof, with respect to which the threshold was not achieved, will not be paid.
The Company may determine that with respect to any specific year, all or any particular Officer or Officers shall not be entitled to a Bonus. The Board may determine to pay the Bonus by equity.
Compensation Recovery: The Company shall insert a claw back provision, allowing the recovery of money paid based on incorrect financial statements, which was later corrected in the Company’s financial reports (restatement). A claw back limit will be applied such that the said claw-back provisions shall apply only in respect to restatements, up to three years from the applicable Bonus payment, and will not exceed the net amount received by the Officers. Notwithstanding the aforesaid, the compensation recovery will not be triggered in the event of a financial restatement required due to changes in the applicable financial reporting standards. The Officer shall repay to the Company the balance between the original Bonus and the Bonus due according to the restated financial statements, pursuant to terms that shall be determined by the Board of Directors.
Nothing in this section shall derogate from any other claw back or similar provisions regarding disgorging of profits imposed on Officers by virtue of applicable securities laws or a separate contractual obligation.
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Reduction of Bonus: The Board of Directors according to its professional experience and the circumstances may reduce the Bonus, at its sole discretion prior to the Bonus payment.
Special Bonus: In addition to the Bonus, the Compensation Committee and the Board of Directors may elect upon the recommendation of the Chief Executive Officer (or the Chairperson in the case of a bonus payable to the Chief Executive Officer) to pay certain Officers a special bonus in recognition for their special contribution to key transactions and events in the company’s lifecycle, such as (but not limited to) M&A, public financing, achievement of major corporate goal in R&D, sales, strategic alliances, operations etc.
Such special bonus shall not exceed the amount of three (3) monthly salaries of each applicable Officer.
Annual Bonus for Vice Presidents (VPs)
Notwithstanding the aforesaid in this Section 3.6, if the Company has so determined in the framework of an annual bonus plan, the Company may grant its VPs an annual bonus that is not based, in whole or in part, upon measurable criteria. Such annual bonus (or part thereof) shall be determined according to this Section 3.6, except that the performance level of each such VP may not be determined pursuant to qualitative measurements but rather on non-measurable evaluation of such VPs performance.
| 3.7. | A lump sum sign up bonus |
All Officers, excluding Non-Employee Directors, may be incentivized through lump sum sign up cash bonuses, designed to attract skilled and experienced executives in a competitive industry environment. The lump sum sign-up bonus shall not exceed NIS 100,000 for Israeli based officers and US$50,000 for non-Israel based officers and shall not be calculated as part of the Base salary and/or Cash Bonus compensation.
| 3.8. | Equity based compensation |
Polyrizon’s long term incentive is variable equity-based compensation, designed to retain Officers, align Officers and shareholders’ interests and incentivize achievement of long-term goals.
The Company shall be entitled to grant to Officers (including Employee and Non-Employee Directors) Stock Options, Restricted Stocks, Restricted Stock Units or any other equity-based compensation.
General guidelines for the grant of Stock Options (“Options”):
| ● | The Options shall be granted from time to time and be individually determined and awarded according to the performance, skills, qualifications, experience, role and the personal responsibilities of the Officer. |
| ● | Vesting schedule - the Options will vest and become fully exercisable over a period of at least 2 years. Vesting schedule may be monthly, quarterly, annually, bi-annually, or any other schedule as will appear in the specific grant documentation signed by the Company and the optionee. |
| ● | Exercise price – the exercise price shall be the closing price of the shares on the day before the grant date or the average closing price of the shares in the 30 trading days prior to the grant date, as will be determined by the Compensation Committee and the Board of Directors. |
| ● | Expiry date – this period shall not exceed 10 years from the date of the issuance. |
| ● | Cap on the annual value of the Options - the fair market value (according to acceptable valuation practices at the time of grant) of options so granted, as at grant date, shall not exceed the amount of 350% of the total annual fixed compensation as specified in section 3.1.1., for each Officer per year of vesting, on a linear basis. For the purpose of this section, “grant date” shall mean the date in which the Company’s Board approved the grant. |
| ● | Acceleration and other terms – The Company shall have the discretion to provide, generally or for specific Officers, for the accelerated vesting of equity-based awards. The Company shall provide acceleration terms upon a change of control of the Company or upon termination of service or employment of the Officer, and may extend the exercise period of equity-based awards beyond those generally applicable pursuant to the relevant plan, provided such extension does not extend beyond ten years from the date of grant. |
Any other terms of the equity-based compensation will be determined by the Compensation Committee and the Board of Directors, in accordance with the Company’s equity compensation policies and programs in place from time to time, subject to any applicable law.
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| 3.9. | Retirement and termination of service arrangements |
Advance notice
Pursuant to the Officer’s employment agreement, he or she shall be entitled to an advance notice prior to termination for a period of up to six (6) months (the “Notice Period”).
During the Notice Period, the Officer is required to keep performing his or her duties pursuant to his or her agreement with the Company, unless the compensation committee has released the Officer from such obligation.
During the Notice Period, Officers will be entitled to full payment of compensation.
Adjustment period
Officers may receive an additional transition period during which the Officer will be entitled to up to an additional eight (8) months of continued Base Salary, benefits and perquisites beyond the Advance Notice period described above.
When determining such payments, the Compensation Committee and the Board will generally consider, inter alia, the term of service or employment, Company performance during such term, the contribution of the Officer to the achievement of the Company’s goals, the circumstances of termination and the Officer’s compensation during the term of service or employment.
Officers may receive an adjustment period only if they work in the Company for at least two (2) years.
Adjustment period may be materialized by continued employee-employer relations or by a payment of lump sum equal to the economic value of base salary, benefits and perquisites for the number of adjustment months approved for the specific officer.
| 3.10. | Non-Employee Directors’ Compensation |
| (a) | The following table indicates the directors maximum annual cash compensation: |
| Position | Board | Audit Committee | Compensation, Nominating and Corporate Governance Committee | |||
| Chairperson | US$ 200,000 | US$ N/A | US$ N/A | |||
| Director/Member | US$ 40,000 | US$ N/A | US$ N/A |
| (b) | Each non-employee director of Polyrizon’s Board may be granted equity-based compensation. The total fair market value of a “welcome” or an annual equity-based compensation at the time of grant shall not exceed the higher of (i) $____60,000 or (ii) _0.3_% of the Company’s fair market value at the time of approval of the grant by the Board; and in the case of the chairperson of the Board - the higher of (i) _200% of his or her annual base salary or (ii) _1.2_% of the Company’s fair market value at the time of approval of the grant by the Board. |
| (c) | All other terms of the equity awards shall be in accordance with Polyrizon’s incentive plans and other related practices and policies. Accordingly, the Board may, following approval by the Compensation Committee, make modifications to such awards consistent with the terms of such incentive plans, subject to any additional approval as may be required by the Companies Law. |
| (d) | In addition, directors of Polyrizon’s Board may be entitled to reimbursement of expenses in connection with the performance of their duties. |
| (e) | The compensation (and limitations) stated under Section 3.1 will not apply to directors who serve as Executive Officers. |
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| 3.11. | Insurance, Indemnification and Release |
The Company will release all current and future directors and executive Officers from liability and provide them with indemnification to the fullest extent permitted by law and its Articles of Association.
In addition, until otherwise determined, the Company will purchase and periodically renew, at the Company’s expense, insurance coverage in respect of the liability of its current and future directors and executive Officers to the maximum extent permitted by law and its Articles of Association.
Office holders shall be covered by directors’ and Officers’ liability insurance which the Company shall acquire, from time to time, subject to the approval of the Company’s board of directors and shareholders, to the extent required by law.
The Company awards, and shall continue to award, indemnification undertakings to directors and Officers, subject to the approvals required in accordance with the provisions of the Companies Law.
The Chief Executive Officer, as shall be in office from time to time, and/or any other person designated by him or her, shall have the authority to obtain, renew and keep in force and affect such insurance within the above parameters
Miscellaneous
| 3.12. | Nothing in this Policy shall be deemed to grant to any of Polyrizon’s Officers, employees, directors, or any third party any right or privilege in connection with their employment by or service to the Company, nor deemed to require Polyrizon to provide any compensation or benefits to any person. Such rights and privileges shall be governed by applicable personal employment agreements or other separate compensation arrangements entered into between Polyrizon and the recipient of such compensation or benefits. The Board may determine that none or only part of the payments, benefits and perquisites detailed in this Policy shall be granted, and is authorized to cancel or suspend a compensation package or any part of it. |
| 3.13. | An immaterial change in the terms of employment of an Officer other than the CEO may be approved by the CEO, provided that the amended terms of employment are in accordance with this Policy. An “Immaterial Change in the Terms of Employment” means a change in the terms of employment of an Officer with an annual total cost to the Company not exceeding an amount equal to two (2) monthly Base Salaries of such employee. |
| 3.14. | In the event that new regulations or law amendment in connection with Officers’ and directors’ compensation will be enacted following the adoption of this Policy, Polyrizon may follow such new regulations or law amendments, even if such new regulations are in contradiction to the compensation terms set forth herein. |
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This Policy is designed solely for the benefit of Polyrizon and none of the provisions thereof are intended to provide any rights or remedies to any person other than Polyrizon.
9
Exhibit 10.4
THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE ISRAELI SECURITIES LAW 5728 – 1968, AS AMENDED, OR ANY STATE OR FOREIGN SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM.
POLYRIZON LTD.
SAFE
(Simple Agreement for Future Equity)
THIS CERTIFIES THAT in exchange for the payment by ______ (the “Investor”) of $[_______] (the “Purchase Amount”) on [______], 2022, to Polyrizon Ltd., an Israeli private company (P.C.N. 513637025) (the “Company”), the Company hereby issues to the Investor the right to certain shares of the Company, subject to the terms set forth below in this Simple Agreement for Future Equity (this “SAFE”). Concurrently with the execution of this SAFE, the Company enters into similar Safes (collectively, the “Additional SAFEs”); provided that the aggregate purchase amount of the Additional SAFEs together with the Purchase Amount under this SAFE shall not exceed US$550,000 and based on the allocation listed on Annex A.
| 1. | Events. |
1.1 Automatic Conversion in a Qualified Equity Financing. If there is a Qualified Equity Financing before the expiration or termination of this SAFE, this SAFE will automatically convert into the number of Safe Shares equal to the Purchase Amount, divided by the Discount Price, rounded up to the nearest whole number. In connection with the automatic conversion of this SAFE into SAFE Shares, each Investor will, at the request of the Company in its sole discretion, execute and deliver to the Company all transaction documents related to the Qualified Equity Financing; provided, that such documents (i) are the same documents to be entered into with the purchasers in the Qualified Equity Financing, with appropriate variations for the SAFE Shares, as applicable, and (ii) have customary exceptions to any drag-along applicable to the Investor, including (without limitation) limited representations, warranties, liability and indemnification obligations for the Investor.
1.2 Optional Conversion in a Non-Qualified Financing. If there is an Equity Financing by the Company which does not qualify as a Qualified Equity Financing (“Non-Qualified Financing”), the outstanding Purchase Amount may be converted, at the written request of the Investor made at Investor’s sole discretion within 30 days from the receipt of a written notice from the Company setting forth the terms and conditions of such Non-Qualified Financing, into Safe Shares equal to the Purchase Amount divided by the Discount Price, provided, that such documents are the same documents to be entered into with the investor of the Non-Qualified Financing, with appropriate variations for the SAFE Shares if applicable as aforementioned. Each Investor will, at the request of the Company in its sole discretion, execute and deliver to the Company all transaction documents related to the Non-Qualified Financing; provided, that such documents are the same documents to be entered into with the purchasers in the Non-Qualified Financing, with appropriate variations for the SAFE Shares, as applicable.
1.3 Liquidity Event. If a Liquidity Event is consummated before the expiration or termination of this SAFE, this SAFE will automatically receive immediately prior to, or concurrent with, the consummation of such Liquidity Event, from the Company, a number of Ordinary Shares, equal to the Purchase Amount divided by the Liquidity Price. Each Investor will, at the request of the Company, in its sole discretion, execute and deliver to the Company all documents related to the Liquidity Event, including lock-up undertakings, as may be applicable, provided that such documents are the same documents to be entered into with the other shareholders of the Company with appropriate variations for the SAFE Shares as applicable.
1.4 Public Offering. If an Initial Public Offering is consummated before the expiration or termination of this SAFE, this SAFE will automatically receive, immediately prior to and subject to, the unconditional closing of such Initial Public Offering, from the Company, a number of Ordinary Shares, equal to the Purchase Amount divided by the price per share determined by the Initial Public Offering underwriter. Each Investor will, at the request of the Company and\or the underwriter, execute and deliver to the Company all documents related to the Initial Public Offering, as may be applicable, provided that such documents are the same documents to be entered into with the other shareholders of the Company with appropriate variations for the SAFE Shares as applicable.
1.5 Mandatory Conversion upon Drop Date. If the Purchase Amount has not been converted prior to July 31, 2023 (the “Drop Date”), then on such Drop Date, this SAFE shall be automatically converted into such number of the most senior class of Equity Shares of the Company then outstanding, equal to, the Purchase Amount, divided by the lowest price per share actually paid to the Company for such most senior class of Equity Shares of the Company then outstanding, discounted by the Discount Rate, rounded up to the nearest whole number. The closing of such mandatory conversion for the Investor shall occur within 14 days of the Drop Date.
1.6 Dissolution Event. If there is a Dissolution Event before this instrument expires or terminates, following payment of all senior debt, the Company will pay an amount equal to the Purchase Amount, immediately prior to, or concurrent with, the consummation of the Dissolution Event. The Investor’s right to receive its Purchase Amount is (i) senior and in preference to any Distribution of any of the assets of the Company to holders of outstanding Share Capital by reason of their ownership thereof and (ii) on par with payments for other SAFEs. If the applicable Proceeds or assets of the Company legally available for distribution to the Investor herein or under the Additional SAFEs (the “Dissolving Investors”), as determined in good faith by the Company’s board of directors, are insufficient to permit the payment to the Dissolving Investors of their respective Purchase Amounts, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the Dissolving Investors in proportion to the Purchase Amounts they would otherwise be entitled to receive pursuant to this Section 1.6.
1.7 Termination. This SAFE will automatically expire and terminate upon the earliest to occur of either: (i) the issuance of SAFE Shares to the Investors pursuant to Section 1.1, Section 1.2, Section 1.3, Section 1.4, or Section 1.5, or (ii) the payment, or setting aside for payment, of amounts due the Investors pursuant to Section 1.6.
| 2. | Definitions |
2.1 “Change of Control” means (i) a transaction or series of related transactions as a result of which more than 50% of the shares of the Company are transferred to any third party (ii) any reorganization, merger, consolidation, recapitalization or similar event of the Company other than a single transaction or a series of related transactions as a result of which the shareholders of the Company holding a majority of the voting securities immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving entity (iii) a sale, lease grant of an exclusive license or other disposition of all or substantially all of the assets of the Company, or (iv) a sale of all or substantially all of the shares of the Company.
2.2 “Discount Price” means the lowest price per SAFE Share sold in the Equity Financing discounted by the Discount Rate.
2.3 “Discount Rate” means 20% discount.
2.4 “Distribution” means the transfer to holders of Share Capital by reason of their ownership thereof of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Ordinary Shares payable in Ordinary Shares, or the purchase or redemption of Share Capital by the Company or its subsidiaries for cash or property other than: (i) repurchases of Ordinary Shares held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to an agreement providing, as applicable, a right of first refusal or a right to repurchase shares upon termination of such service provider’s employment or services; or (ii) repurchases of Share Capital in connection with the settlement of disputes with any shareholder.
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2.5 “Dissolution Event” means (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors, or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary.
2.6 “Equity Financing” means a Qualified Equity Financing or a Non-Qualified Financing.
2.7 “Initial Public Offering” means the closing of the Company’s first firm commitment underwritten initial public offering of Ordinary Shares pursuant to a registration statement filed under the Securities Act or of other similar securities law of another jurisdiction. For the sake of this Agreement, the term Public Offering shall also mean a reverse merger or an investment in a Capital Pool Company (CPC).
2.8 “Liquidity Event” means a Change of Control.
2.9 “Liquidity Price” means the price per share of the Ordinary Shares sold or registered in a Liquidity Event multiplied by the Discount Rate or the fair market value of the Ordinary Shares at the Liquidity Event multiplied by the Discount Rate.
2.10 “Ordinary Shares” means the ordinary shares of the Company.
2.11 “Proceeds” means cash and other assets (including, without limitation, consideration in shares) that are proceeds from the Liquidity Event or the Dissolution Event, as applicable, and legally available for distribution.
2.12 “Qualified Equity Financing” means a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which the Company issues and sells shares at a fixed pre-money valuation, in which the aggregate proceeds to the Company are at least US $300,000 (excluding the SAFEs hereunder).
2.13 “SAFEs” means instruments containing future right to shares of the Company’s Share Capital, similar in form and content to this SAFE, purchased by investor for the purpose of funding the Company’s business operations.
2.14 “SAFE Shares” means the then most senior shares issued to the Investor in any Equity Financing, , having the identical rights, privileges, preferences and restrictions as the Equity Shares, including, without limitation, liquidation preference, anti-dilution protection, registration rights, preemptive rights, right of first refusal, voting and veto rights, or other rights, pro-rata to the respective amounts of investment, and the Investor shall otherwise be deemed one of the investors in such Equity Financing for all purposes (including with respect to any other securities, warrants or other or other rights granted to the investor, other than with respect to (if and to the extent applicable): (i) the per share liquidation preference and the initial conversion price for purposes of price-based anti-dilution protection, which will equal the Discount Price; (ii) the basis for any dividend rights, which will be based on the Discount Price; and (iii) any individual rights granted to certain investors based on the size of their investment or number of shares they will receive (subject to the same minimum holding requirements if applicable). The right to receive SAFE Shares shall also include the right to receive warrants or other convertible instruments granted to the investors in the Equity Financing, if granted. For avoidance of doubt it is hereby clarified that if the Company has no preferred class of shares in its share capital the SAFE Shares shall mean Ordinary Shares of the Company.
2.15 “Equity Shares” means the shares of a series of Shares issued to the investor investing new money in the Company in connection with the initial closing of the Equity Financing.
2.16 “Share Capital” means the share capital of the Company, including, without limitation, Ordinary Shares and, if applicable, preferred Shares of the Company.
2.17 “Subsequent Convertible Securities” means convertible securities that the Company may issue after the issuance of this instrument with the principal purpose of raising capital, including but not limited to, other SAFEs, convertible debt instruments and other convertible securities. Subsequent Convertible Securities excludes options issued pursuant to any equity incentive or similar plan of the Company.
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| 3. | Company Representations. |
3.1 The Company is a corporation duly organized and validly existing under the laws of the state of Israel, and has the power and authority to own, lease and operate its properties and carry on its business as now conducted.
3.2 The execution, delivery and performance by the Company of this SAFE is within the power of the Company and has been duly authorized by all necessary actions on the part of the Company. This SAFE constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity. The Company is not in violation of (i) its current articles of association, (ii) any material statute, rule or regulation applicable to the Company or (iii) any material indenture or contract to which the Company is a party or by which it is bound, where, in each case, such violation or default, individually, or together with all such violations or defaults, could reasonably be expected to have a material adverse effect on the Company.
3.3 The performance and consummation of the transactions contemplated by this SAFE do not and will not: (i) violate any material judgment, statute, rule or regulation applicable to the Company; (ii) result in the acceleration of any material indenture or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any lien on any property, asset or revenue of the Company or the suspension, forfeiture, or nonrenewal of any material permit, license or authorization applicable to the Company, its business or operations.
3.4 No consents or approvals are required in connection with the performance of this SAFE, other than: (i) the Company’s corporate approvals; (ii) necessary corporate approvals for the authorization of the Company’s Share Capital issuable pursuant to Section 1.
3.5 To its knowledge and without conducting any specific investigation, the Company owns or possesses (or can obtain on commercially reasonable terms) sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights necessary for its business as now conducted, without any conflict with, or infringement of the rights of, others.
| 4. | Investor Representations. |
4.1 The Investor has full legal capacity, power and authority to execute and deliver this SAFE and to perform its obligations hereunder. This SAFE constitutes valid and binding obligation of the Investor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.
4.2 The Investor had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the offering of the Share Capital with the Company’s management and to consult with its advisors with respect to such matters.
4.3 The Investor understands that no public market now exists for the Share Capital, and that the Company has made no assurances that a public market will ever exist for the Share Capital.
| 5. | Preferable Amendment of Terms. |
If the Company amends the terms of this SAFE to accommodate additional investors' terms or issues any Subsequent Convertible Securities with terms more favorable of this SAFE prior to termination of this instrument, the Company will promptly provide the Investor with written notice thereof, together with a copy of all documentation relating to such amendment or Subsequent Convertible Securities. In the event an Investor determines that the amended terms of this SAFE or terms of the Subsequent Convertible Securities are preferable to the terms of this instrument, such Investor will notify the Company in writing. Promptly after receipt of such written notice from the Investor, the Company agrees to amend and restate this instrument to be identical to the instrument(s) evidencing the amendment or Subsequent Convertible Securities.
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| 6. | Tax; Expenses. |
Each party shall bear its own expenses and taxes arising hereof. Any taxes, levies, charges and other duties or other amounts, that are levied or due in connection with the transfer of the Investor’s portion of the Purchase Amount and/or the issuance of any shares to the Investor, shall be borne by the Investor.
| 7. | Miscellaneous. |
7.1 Any provision of this instrument may be amended, waived or modified only upon the written consent of the Company and the Investor.
7.2 Any notice required or permitted by this SAFE will be deemed sufficient when delivered personally or by overnight courier or sent by email to the relevant address listed on the signature page, or 7 days after being deposited in the mail as certified or registered mail with postage prepaid, addressed to the party to be notified at such party’s address listed on the signature page, as subsequently modified by written notice.
7.3 The Investor is not entitled, as holder of this SAFE, to vote or receive dividends or be deemed a holder of Share Capital for any purpose, nor will anything in this SAFE be construed to confer on the Investor, as such, any rights of a shareholder of the Company or rights to vote for the election of directors or on any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive subscription rights or otherwise until shares have been issued on the terms described herein.
7.4 Neither this SAFE nor the rights contained herein may be assigned, by operation of law or otherwise, by either party without the prior written consent of the other; provided, however, that this instrument and/or the rights contained herein may be assigned without the Company’s consent by the Investor, to any other entity who directly or indirectly, controls, is controlled by or is under common control with such Investor, including, without limitation, any general partner, managing member, officer or director of such Investor, or any venture capital fund now or hereafter existing which is controlled by one or more general partners or managing members of, or shares the same management company with, such Investor, and provided, however, that the Company may assign this SAFE in whole, without the consent of the Investor, in connection with a reincorporation to change the Company’s domicile.
7.5 In the event any one or more of the provisions of this SAFE is for any reason held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this SAFE operate or would prospectively operate to invalidate this SAFE, then and in any such event, such provision(s) only will be deemed null and void and will not affect any other provision of this SAFE and the remaining provisions of this SAFE will remain operative and in full force and effect and will not be affected, prejudiced, or disturbed thereby.
7.6 All rights and obligations hereunder will be governed exclusively by the laws of the State of Israel, without regard to the conflicts of law provisions of such jurisdiction and the competent courts of the city of Tel Aviv, Israel shall have exclusive jurisdiction with respect to all matters arising out of or related to this instrument.
7.7 This SAFE may be executed in any number of counterparts and at one or more times, each of which containing the signature of any of each of the parties shall be deemed an original but all of which together shall constitute one and the same instrument.
[Next Page - Signature Page]
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[Signature Page - Polyrizon Ltd. - 2021 SAFE]
IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed and delivered.
COMPANY:
POLYRIZON LTD.
| By: | ||
| Name: | ||
| Title: |
INVESTOR:
[Name of Investor]
| By: | ||
| Name: | ||
| Title: |
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Annex A
| Name of Shareholder | Address | Purchase Amount (S$) | Signature | |||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form F-1 of our report dated April 14, 2022 (except for subsequent events described in Note 11b, 11c and 11d as to which the date is August 10, 2022) relating to the consolidated financial statements of Polyrizon Ltd. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
Brightman Almagor Zohar & Co.,
Certified Public Accountants
A firm in the Deloitte Global Network
Tel Aviv, Israel
August 10, 2022
Exhibit 99.1
CONSENT OF DIRECTOR
I hereby consent, pursuant to Rule 438 under the Securities Act of 1933, as amended, to being named as a nominee to the board of directors of Polyrizon Ltd. in its Registration Statement on Form F-1, and any amendments or supplements thereto, and to the filing or attachment of this consent with such Registration Statement and any amendment or supplement thereto.
| /s/ Liat Sidi |
| Liat Sidi |
| July 28, 2022 |
Exhibit 99.2
CONSENT OF DIRECTOR
I hereby consent, pursuant to Rule 438 under the Securities Act of 1933, as amended, to being named as a nominee to the board of directors of Polyrizon Ltd. in its Registration Statement on Form F-1, and any amendments or supplements thereto, and to the filing or attachment of this consent with such Registration Statement and any amendment or supplement thereto.
| /s/ Yehonatan Zalman Vinokur |
| Yehonatan Zalman Vinokur |
| July 28, 2022 |