As filed with the Securities and Exchange Commission on September 1, 2006.
Registration No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Rosetta Genomics Ltd.
(Exact name of registrant as specified in its charter)
Israel |
|
2834 |
|
Not Applicable |
(State or other jurisdiction of
|
(Primary Standard Industrial
|
(I.R.S. Employer
|
Rosetta Genomics Ltd.
10 Plaut Street, Science Park
Rehovot 76706 POB 4059
Israel
+972-8-948-4755
(Address Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)
Rosetta Genomics Inc.
675 U.S. Highway One,
Suite B119
North Brunswick, New Jersey 08902
(732) 246-9900
Attn: President
(Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Kenneth R. Koch, Esq.
|
Barry P. Levenfeld, Adv.
|
Mitchell S. Bloom, Esq.
|
Adam M. Klein, Adv.
|
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. ¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered |
Amount to
|
|
Proposed
|
|
||||||||
Ordinary shares, par value NIS 0.01 per share |
|
3,450,000 |
|
$13.00 |
|
$44,850,000 |
|
$4,799 |
(1)
Includes 450,000 shares subject to the underwriters overallotment option.
(2)
Calculated pursuant to Rule 457(a).
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 of 1933 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 it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2006 |
3,000,000 Ordinary Shares
$ per share
___________________
This is our initial public offering. We are offering 3,000,000 ordinary shares. We anticipate that the initial public offering price will be between $11.00 and $13.00 per share. Currently, no public market exists for our ordinary shares. We have applied for our ordinary shares to be listed on the Nasdaq Global Market under the symbol ROSG.
The underwriters have an option to purchase a maximum of 450,000 additional ordinary shares from us to cover over-allotments.
___________________
Investing in our ordinary shares involves a high degree of risk.
See Risk Factors beginning on page 9.
Per
|
Total |
|||||
Public offering price |
$ |
|
$ |
|
||
Underwriting discount |
$ |
$ |
||||
Proceeds to us (before expenses) |
$ |
$ |
The underwriters expect to deliver the ordinary shares to purchasers on or about , 2006.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
___________________
C.E. UNTERBERG, TOWBIN |
||
OPPENHEIMER & CO. |
MAXIM GROUP LLC |
|
The date of this Prospectus is , 2006 |
TABLE OF CONTENTS
Page |
|
Page |
||
Summary |
1 |
Principal Shareholders |
86 |
|
Risk Factors |
9 |
Description of Share Capital |
89 |
|
Forward-Looking Statements |
24 |
Shares Eligible for Future Sale |
93 |
|
Use of Proceeds |
25 |
Certain Material U.S. Federal Income Tax |
||
Dividend Policy |
26 |
Considerations for U.S. Holders |
95 |
|
Capitalization |
27 |
Israeli Tax Considerations and |
||
Dilution |
28 |
Governmental Programs |
99 |
|
Selected Consolidated Financial Data |
29 |
Underwriting |
104 |
|
Managements Discussion and Analysis of |
Legal Matters |
106 |
||
Financial Condition and Results of Operations |
30 |
Experts |
106 |
|
Business |
40 |
Enforceability of Civil Liabilities |
106 |
|
Management |
70 |
Where You Can Find More Information |
107 |
|
Certain Relationships and Related Party |
Index to Financial Statements |
F-1 |
||
Transactions |
82 |
__________________________
Unless the context otherwise requires, all references to Rosetta, Rosetta Genomics, we, us, our, the Company and similar designations refer to Rosetta Genomics Ltd. and its wholly-owned subsidiary, Rosetta Genomics Inc.
__________________________
You should only rely on the information contained in this prospectus. We have not authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to distribute or sell securities in any jurisdiction where the distribution or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.
SUMMARY
This summary highlights information that we consider important contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying our ordinary shares. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 9 and our consolidated financial statements and the related notes beginning on page F-1, before making an investment in our ordinary shares.
OUR BUSINESS
Overview
We are seeking to develop and commercialize new diagnostic and therapeutic products based on a recently discovered group of genes known as microRNAs. MicroRNAs are naturally expressed, or produced, using instructions encoded in DNA and are believed to play an important role in regulating protein production. Because proteins control most biological processes, we believe that microRNAs have the potential to form the basis of a novel class of diagnostic tests and therapies for many serious illnesses, including cancer and infectious diseases. We have decided to focus our initial efforts on cancer, as research has indicated that microRNAs play a role in various types of tumors. We developed a discovery process that utilizes proprietary computer-based algorithms, which are procedures for solving complex problems, to scan the entire genome for microRNA candidates. Once microRNA candidates are identified, we conduct one or more biological experiments using tissue or body fluid samples to prove their existence, or expression, a process known as biological validation. To date, we have filed patent applications with claims potentially covering approximately 350 biologically validated human microRNAs and 35 biologically validated viral microRNAs, which constitute more than half of all biologically validated human and viral microRNAs of which we are aware. In addition, our patent applications cover thousands of genomic sequences that we have identified using our discovery process and believe are potential microRNA candidates.
We believe that we are the first commercial enterprise to focus on the emerging microRNA field, and as a result, we have developed an early and strong intellectual property position related to the development and commercialization of research, diagnostic and therapeutic products and other applications based on microRNAs. Our patent strategy is to seek broad coverage on all of our identified microRNA sequences and then file patent applications claiming a novel chemical structure, or composition-of-matter, on individual microRNAs of commercial interest. We have also filed, and will continue to file, patent applications that claim a new and useful process, or method-of-use, for specific diagnostic and therapeutic applications as we or our collaborators develop them. We believe this approach will provide strong and broad patent protection for a large number of microRNAs that we have discovered and may provide us with a competitive advantage over new entrants to the field.
Using our intellectual property, collaborative relationships and expertise in the field of microRNAs, we have initiated programs to develop microRNA-based diagnostic and therapeutic products for various cancers and infectious diseases. We believe that diagnostic tests based on microRNAs can provide patients and physicians more accurate and comprehensive information about a patients condition, allowing for earlier detection and diagnosis of diseases and the ability to make more individualized treatment decisions. Our current programs to develop microRNA-based diagnostic tests are focused on prostate, lung, colorectal, breast and bladder cancers. We are also developing a diagnostic test to identify the origin of the primary tumor in metastatic cancers of unknown primary site, or CUP. In addition, we are collaborating with others on the development of microRNA-based therapeutic products for the treatment of liver cancer and infectious diseases, such as HIV and hepatitis C virus, or HCV. We are currently in the process of identifying the appropriate microRNAs that would be the basis of various diagnostic tests and therapeutic products and have not, as of yet, conducted any clinical studies to determine their effectiveness. Accordingly, our programs are in the early stages of development.
To access the resources and expertise necessary to successfully develop microRNA-based products, we have entered into, and expect to continue to enter into, strategic collaborations and license agreements with leading pharmaceutical, biotechnology and diagnostic companies, as well as prominent academic and medical institutions. In several of our existing collaborations and license agreements, we provide our partners access to our proprietary microRNA sequences and share product development responsibilities. In some of these collaborations, we have received upfront payments and are entitled to receive license fees and royalties on sales of any resulting products or other applications using microRNAs. We have also in-licensed microRNAs and other technologies to use in our
product development. In such arrangements, we generally are required to pay license fees and royalties on sales of resulting products. Our current strategic collaborations and licenses include:
·
a license agreement with Applied Biosystems, Inc. for use of our microRNAs in a variety of research products;
·
a collaboration with Asuragen, Inc. to co-develop diagnostic products for prostate cancer;
·
a collaboration with U.S. Genomics, Inc. to incorporate its microRNA profiling technology in our development of a diagnostic product for early detection of lung cancer;
·
a collaboration with Isis Pharmaceuticals, Inc. to co-develop therapeutics for liver cancer;
·
a license from The Rockefeller University to use its microRNAs, including approximately 50 biologically validated human microRNAs and approximately 30 biologically validated viral microRNAs, for diagnostic applications;
·
a license from Garching Innovation GmbH, the technology transfer agency of the Max Planck Society, to use its microRNAs, including approximately 110 biologically validated human microRNAs, for diagnostic applications;
·
a license from Johns Hopkins University to use approximately 130 biologically validated human microRNAs, which were discovered in collaboration with Rosetta, in any application; and
·
collaborations with the Sloan-Kettering Institute for Cancer Research and Hadassah Medical Organization, among others, to gain access to clinical samples and associated clinical data and to collaborate on the development of microRNA-based products and other applications.
The MicroRNA Opportunity
Proteins control most biological processes and perform many vital functions in the human body, and because of their importance and prevalence, many human diseases are caused by abnormal levels or characteristics of proteins. Because microRNAs are natural regulators of the levels of proteins, we believe that microRNAs that are produced in different amounts, or differentially expressed, in diseased versus healthy cells have the potential to serve as the basis for diagnostic tests for specific diseases, as well as targets against which a drug may be developed to treat diseases.
We believe that microRNAs may offer a number of potential benefits in the development of diagnostic and therapeutic products and other applications, including:
·
Potential for more effective diagnostic and therapeutic products. It is believed that microRNAs play an important role in the events leading to the onset and progression of disease when they regulate the levels of proteins in an abnormal fashion. Many currently available diagnostic tests are based on identifying the level of a single protein or multiple proteins as an indication of disease. Alternatively, microRNA-based tests may be able to identify the genes that regulate the proteins themselves, thus providing more accurate diagnoses of diseases and more information on disease parameters, such as tumor aggressiveness and risk of recurrence. In addition, therapeutic products based on microRNAs have the potential to be more effective than existing classes of drugs because microRNAs are believed to be closer to the biological origin of the disease.
·
Discoveries in diagnostic applications have the potential to be leveraged to develop therapeutic products. MicroRNAs that are overexpressed or underexpressed in diseased cells may also show promise as therapeutic targets to treat that particular disease. Accordingly, we believe that we can take advantage of the knowledge and experience gained in our microRNA diagnostic discovery programs to more rapidly develop microRNA-based therapeutic products using the same microRNAs as a basis.
·
Simplified design of therapeutic products. We believe the design of a drug that targets a microRNA has the potential to be less complex and take less time than the design of other drug classes. Because of the complex structure of protein molecules, traditional drug development requires labor-intensive scanning of large libraries of potential small molecules in order to identify drug candidates that will have the desired biological effect. In contrast, because microRNAs have known sequences, developing a drug to target a specific microRNA would simply require a molecule that is a complementary sequence of that particular microRNA.
2
·
Potentially broader applications than siRNAs. The growing interest in microRNAs is related to another recently developed field of RNA technology that uses synthetically produced molecules known as small interfering RNAs, or siRNAs. A siRNA is designed to bind to and degrade a messenger RNA, thereby decreasing the overall level of the protein produced by that messenger RNA. However, because siRNAs cannot increase protein production, they cannot be used to treat diseases in which increasing the levels of certain proteins would be beneficial. In contrast, microRNAs can potentially be used either to decrease or increase the levels of proteins. Since microRNAs are naturally produced inhibitors of protein production, a synthetic molecule designed to mimic the activity of a microRNA can decrease the level of a protein produced in abnormally high amounts. On the other hand, a synthetic molecule designed to inhibit a microRNA would cause a decrease in the level of the microRNA and, consequently, an increase in the level of a beneficial protein. In addition, since microRNAs are naturally produced by cells, they can be used as indicators, or biomarkers, of disease, whereas siRNAs cannot be used as such since they are synthetically produced molecules.
Our Strategy
Our goal is to become the leader in the development and commercialization of research, diagnostic and therapeutic products and other applications using microRNAs. Our key strategies to achieve this goal are as follows:
·
Build and maintain a strong intellectual property position. We believe we have developed an early and strong intellectual property position in the area of developing and commercializing microRNA-based products. Our patent strategy is to continue to seek broad coverage on all of our identified microRNA sequences and then file patent applications claiming composition-of-matter and method-of-use on microRNAs of commercial interest.
·
Pursue near-term commercial opportunities in research consumables and diagnostic products. As part of our commercial strategy, we are pursuing near-term commercial opportunities with respect to research consumables and diagnostic products using microRNAs.
·
Pursue therapeutic product opportunities. We intend to use our microRNA discoveries and expertise to develop drugs based on microRNAs.
·
Leverage our intellectual property position and microRNA expertise to continue to establish strategic collaborations. We expect to enter into additional strategic collaborations for the development and commercialization of research, diagnostic and therapeutic products and other applications using microRNAs. We believe that our strong intellectual property position and expertise in the field of microRNAs will provide significant advantages in this effort.
Risks Associated With Our Business
Our business and our commercial strategy are subject to numerous risks, including, but not limited to, the following:
·
Our focus on a new and unproven technology. We have focused our research and development efforts on diagnostic and therapeutic products in the new field of microRNAs. The scientific discoveries that form the basis for our efforts are relatively new and the evidence to support the feasibility of developing products based on this technology is both preliminary and limited. To date, no one has applied for or been granted regulatory approval to market diagnostic or therapeutic products based on microRNAs.
·
Our programs are in early stages of development. All of our product programs are in the early stages of development. We are currently in the process of identifying the appropriate microRNAs that may form the basis for diagnostic tests and therapeutic products for specific diseases. None of our diagnostic or therapeutic programs are ready for clinical testing.
·
Our history of operating losses and need for substantial additional capital. We have experienced significant operating losses since inception, and as of June 30, 2006, we had an accumulated deficit of $16.4 million. We do not expect to generate any revenues from the sale of diagnostic or therapeutic products in the near future, and we expect our annual operating losses to increase over the next several years as we expand our efforts to develop and commercialize diagnostic and therapeutic products based on microRNAs. We will require substantial additional funds to complete our research and development efforts and to commercialize any approved products.
3
·
Our ability to obtain and enforce patent protection. Our success depends, in large part, on our ability to obtain and enforce patent protection for our discoveries. As of August 31, 2006, our patent portfolio consisted of 49 pending patent applications worldwide, but we can provide no assurance that any of these applications will result in issued patents. Furthermore, because the field of microRNAs is new and developing, there is significant uncertainty about what microRNA-related patents will be issued and what claims will be covered.
·
Our need to obtain regulatory approval for any products we develop. Before any diagnostic or therapeutic product we develop may be marketed, we must obtain regulatory approval. We have no experience in obtaining such regulatory approvals or in conducting or managing clinical trials necessary for therapeutic product approval or which may be necessary for our diagnostic product candidates and will rely upon third parties to manage these activities, which will reduce our control over these activities.
·
Based on current facts, we believe it is likely that we will be a passive foreign investment company for 2006. Although it is difficult to make an accurate prediction at this time, based on facts and circumstances as they currently exist, we believe we will likely be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the year ended December 31, 2006. If we are a PFIC in 2006, or in any subsequent year, and a U.S. shareholder does not make an election to treat us as a qualified election fund, or QEF, or make a mark-to-market election, the U.S. shareholder would suffer adverse tax consequences.
In addition, we face risks related to our ability to successfully manage our growth and expand our operations and our ability to compete with companies with greater financial and technical resources, among others. For a more complete description of the risks we face, see Risk Factors beginning on page 9.
Our Development Programs
We have initiated, and expect to continue to initiate, a number of programs to develop diagnostic and therapeutic products based on microRNAs.
Diagnostic Products
Prostate Cancer. According to Cancer Facts and Figures 2006 published by the American Cancer Society, which we refer to herein as the 2006 ACS Report, prostate cancer is the most common cancer in men and the third leading cause of cancer-related death among men in the U.S. The current standard for prostate cancer screening, the Prostate Specific Antigen, or PSA, test, suffers from an extremely high false positive rate, as reported in the Journal of the American Board of Family Practice in May 2003, resulting in unnecessary biopsies. In addition, because it is not currently possible to determine with sufficient accuracy whether a prostatectomy (the surgical removal of the prostate gland) is needed, the overwhelming majority of prostatectomies performed provide no survival benefit. To address these issues, we have entered into an exclusive collaboration with Asuragen to co-develop diagnostic tests based on analysis of a panel of microRNA biomarkers. We have obtained samples of healthy and tumorous prostate tissue and have measured and analyzed the microRNA expression profiles of those samples. A comparison between the expression profiles of over 300 biologically validated microRNAs revealed four microRNAs that are differentially expressed in healthy and tumorous prostate tissue samples. We believe these microRNAs can potentially serve as the basis for a diagnostic biomarker panel to detect the disease, and we are currently working on further validating our results and on correlating the microRNA expression profiles with more specific disease parameters, such as tumor aggressiveness.
Lung Cancer. According to the 2006 ACS Report, lung cancer is the leading cause of cancer-related deaths in the U.S. and the average 5-year survival rate is only 15%. Accordingly, there is an urgent need for tests that are able to detect lung cancer at an early and potentially treatable stage. We plan to develop such a test based on sputum or blood samples. We have obtained access to hundreds of clinical samples from cancer and cancer-free patients and have begun examining these samples to identify the appropriate set of microRNAs that may be best suited as a biomarker panel to detect lung cancer. We have also entered into an agreement with U.S. Genomics that allows us to incorporate its microRNA profiling technology in our development of a diagnostic product for early detection of lung cancer. To date, we have identified four microRNAs that are differentially expressed in healthy and tumorous lung tissue samples. We believe these microRNAs can potentially serve as the basis for a diagnostic biomarker panel to detect the disease, and we are currently working on further validating these results in tissue and body fluids.
4
Colorectal Cancer. According to the 2006 ACS Report colorectal cancer is the second leading cause of cancer-related death in the U.S. Early detection of the disease can significantly reduce mortality. However, the current standard screening methods, which include colonoscopy and the fecal occult blood test, suffer from serious disadvantages. In addition, the standard of care for colon cancer includes adjuvant chemotherapy, although only a minor percentage of patients benefit from this treatment. There is currently no effective test that can help patients and their doctors decide whether or not to use chemotherapy after surgery as well as which chemotherapy to use. To address these market needs, we are working to develop a microRNA-based panel of biomarkers. We have obtained samples of healthy and tumorous colon tissue and have measured and analyzed the microRNA expression profiles of those samples. To date, we have identified four microRNAs that are differentially expressed in healthy and tumorous colon tissue samples. We believe these microRNAs can potentially serve as the basis for a diagnostic biomarker panel to detect the disease, and we are currently working on further validating our results and on correlating the microRNA expression profiles with more specific disease parameters, such as survival.
Cancer of Unknown Primary Site (CUP) . According to Diagnostic and Therapeutic Management of Cancer of Unknown Primary , a review published in the European Journal of Cancer , and the 2006 ACS Report, in 2006 approximately 3-5% of the 1,400,000 malignancies which will be diagnosed in the U.S. will be metastases of unknown primary site, or CUP. CUP presents a therapeutic dilemma because the therapeutic regimens of cancer patients are dependent on the origin of the primary tumor. Current diagnostic tools include expensive and uncomfortable procedures like CT and PET scans and gastrointestinal endoscopy, and resolve only 20-30% of CUP cases, according to Diagnostic and Therapeutic Management of Cancer of Unknown Primary . To address this issue, we are developing a microRNA panel to identify the site of the primary tumor. We have obtained samples from six different sites of origin and have measured and analyzed the microRNA expression profiles in those samples. The comparison between these profiles revealed that the expression of six microRNAs can potentially be used to differentiate between the tissues of origin. We believe these microRNAs can potentially serve as the basis for a diagnostic biomarker panel and we are currently working on further validating these results in primary tumors and metastasis, and on finding signatures for additional primary tumor sites.
Other Cancers. We are currently applying our technology to identify microRNA biomarkers in other types of cancer such as breast and bladder cancer. According to the 2006 ACS Report, it is estimated that in 2006, a total of approximately 280,000 new cases of breast and bladder cancers will be diagnosed in the U.S. and approximately 54,000 people will die of these diseases. The current standard diagnostic methods for these diseases have significant disadvantages related to their discomfort or lack of accuracy. We are seeking to address these deficiencies by developing more effective tests based on microRNAs.
Therapeutic Products
Liver Cancer. According to Pharmaceutical & Diagnostic Innovation, 2005, liver cancer, also known as hepatocellular carcinoma, or HCC, is the fifth most common cancer in the world. The best available treatment for liver cancer is to surgically remove the tumor; however, this option is available only to approximately 5% to 10% of HCC patients, as reported by Pharmaceutical & Diagnostic Innovation 2005. We are currently working with Isis Pharmaceuticals to develop novel microRNA-based treatments for HCC. We are in the process of comparing the expression levels of microRNAs in healthy and tumorous liver tissue samples to identify microRNAs that are overexpressed in tumors. To date, we have identified five microRNAs that are overexpressed in tumorous liver tissue. We believe such overexpressed microRNAs are potential targets against which drugs can be developed. We are currently performing expression profiles on more samples to identify additional potential target candidates. We then intend to conduct in vitro and in vivo experiments to test the effect of these microRNAs on liver cancer.
Infectious Diseases. We have entered into agreements with academic and medical institutions to utilize our microRNAs for use in treating infectious diseases. We are collaborating with Hadassah Medical Organization to develop a microRNA-based drug for HCV infection. In addition, we are working with the CBR Institute for Biomedical Research, an academic affiliate of the Harvard Medical School, in a collaboration to identify HIV microRNAs and human microRNAs whose levels are affected by HIV infection. We are also collaborating with Ben-Gurion University of the Negev to examine the role of human and viral microRNAs in order to develop treatments for several infectious diseases, such as influenza A virus (FluA), herpes 1 and 2 virus (HSV1/2), human respiratory syncytial virus (RSV), Epstein-Barr virus (EBV) and several strains of human papilloma virus (HPV).
5
Corporate Information
We were incorporated in Israel on March 9, 2000. Our principal executive office is located at 10 Plaut Street, Science Park, Rehovot 76706 Israel, and our telephone number is + 972-8-948-4755. Our wholly-owned subsidiary, Rosetta Genomics Inc., was incorporated in Delaware on April 21, 2005, is located at 675 U.S. Highway One, Suite B119, North Brunswick, New Jersey 08902, and its telephone number is (732) 246-9900. Our internet address is www.rosettagenomics.com. The information on our web site is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.
6
The Offering
Ordinary shares offered by us |
|
3,000,000 shares |
Ordinary shares to be outstanding
|
10,500,000 shares |
|
Use of proceeds |
We intend to use the net proceeds from this offering to fund product research and development activities, for licensing and protection of our intellectual property rights, for business development and for general corporate purposes, including working capital. See Use of Proceeds on page 25 for a more complete description of our intended use of the proceeds from this offering. |
|
Proposed Nasdaq Global
|
ROSG |
The number of ordinary shares to be outstanding following this offering is based on 7,500,000 ordinary shares outstanding as of August 31, 2006 and excludes:
·
1,018,159 shares issuable upon the exercise of options outstanding as of August 31, 2006 at a weighted average exercise price of $3.20 per share;
·
279,399 ordinary shares available for future grant under our 2006 Global Share Incentive Plan; and
·
107,360 shares issuable upon the exercise of warrants outstanding as of August 31, 2006 at a weighted average price of $6.18 per share.
Except as otherwise noted, all information contained in this prospectus assumes:
·
no exercise by the underwriters of their over-allotment option to purchase an additional 450,000 ordinary shares in this offering;
·
a 1-for-3.9822 reverse split of our capital shares and the recapitalization of our authorized share capital so that each share has a par value of NIS 0.01, each to be effected prior to the effectiveness of this offering;
·
the conversion of all of our outstanding preferred shares into 4,948,604 ordinary shares upon the completion of this offering; and
·
the adoption of our second amended and restated articles of association upon the completion of this offering, which we refer to herein as our articles of association.
7
Summary Consolidated Financial Data
The following tables summarize our consolidated financial and operating data as of the date and for the periods indicated. We have derived the financial data for the years ended December 31, 2003, 2004 and 2005, for the period from March 9, 2000 (date of inception) through December 31, 2005 and as of December 31, 2005 from our audited financial statements which are included elsewhere in this prospectus. We have derived the financial data for the six months ended June 30, 2005 and 2006, for the period from March 9, 2000 (date of inception) through June 30, 2006 and as of June 30, 2006 from our unaudited financial statements which are included elsewhere in this prospectus. You should read this information in conjunction with our consolidated financial statements and related notes, Managements Discussion and Analysis of Financial Condition and Results of Operations and other financial information included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.
Year Ended December 31, |
Period from March 9, 2000 (date of inception) through December 31, 2005 |
|
Period from
|
||||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
|||||||||||||||||
|
(Unaudited) |
(Unaudited) |
|||||||||||||||||||
(In thousands, except share and per share data) |
|||||||||||||||||||||
Consolidated Statements of Operations: |
|
||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||
Research and development |
|
$ |
1,919 |
|
$ |
2,041 |
|
$ |
3,173 |
|
$ |
8,318 |
|
$ |
1,294 |
|
$ |
1,969 |
|
$ |
10,287 |
Marketing and business development |
|
431 |
865 |
1,295 |
432 |
834 |
2,129 |
||||||||||||||
General and administrative |
|
428 |
|
|
512 |
|
|
1,145 |
2,574 |
|
|
530 |
|
|
649 |
|
|
3,223 |
|||
Operating loss |
$ |
2,347 |
$ |
2,984 |
|
$ |
5,183 |
12,187 |
$ |
2,256 |
$ |
3,452 |
$ |
15,639 |
|||||||
Financial expenses (income), net |
|
(42 |
) |
|
(2 |
) |
|
660 |
1,037 |
|
|
154 |
|
(236 |
) |
|
801 |
||||
Net loss |
$ |
2,305 |
$ |
2,982 |
$ |
5,843 |
$ |
13,224 |
$ |
2,410 |
$ |
3,216 |
$ |
16,440 |
|||||||
Basic and diluted net loss per ordinary share |
$ |
0.96 |
|
$ |
1.19 |
|
$ |
2.35 |
|
$ |
0.96 |
|
$ |
1.27 |
|
||||||
Weighted average number of ordinary shares used to compute basic and diluted net loss
|
2,401,300 |
2,462,603 |
2,495,366 |
2,489,319 |
2,550,832 |
||||||||||||||||
Pro forma basic and diluted net loss per share (unaudited)(1) |
$ |
0.80 |
$ |
0.44 |
|||||||||||||||||
Weighted average number of shares used to compute basic and diluted pro forma net loss per share (unaudited) |
7,443,970 |
7,499,436 |
(1)
See Note 2m of the notes to our consolidated financial statements.
The following summary consolidated balance sheet data is presented:
·
on an actual basis; and
·
on an as adjusted basis to reflect (1) the conversion of all of our outstanding preferred shares into an aggregate of 4,948,604 ordinary shares upon the completion of this offering and (2) the sale and issuance of 3,000,000 ordinary shares by us in this offering at an assumed initial public offering price of $12.00 per share, the mid-point of the price range shown on the cover page of this prospectus, after deducting estimated underwriting discounts and estimated offering expenses payable by us.
As of June 30, 2006 |
|||||||
Actual |
As Adjusted |
||||||
(Unaudited) |
|||||||
(In thousands) |
|||||||
Consolidated Balance Sheet Data: |
|
||||||
Cash and cash equivalents |
|
$ |
8,491 |
|
$ |
40,771 |
|
Short-term bank deposits |
7,018 |
7,018 |
|||||
Working capital |
14,377 |
46,487 |
|||||
Total assets |
17,064 |
48,523 |
|||||
Long-term liabilities |
12 |
12 |
|||||
Total shareholders equity |
14,739 |
46,849 |
8
RISK FACTORS
An investment in our ordinary shares involves a high degree of risk. In deciding whether to invest, you should carefully consider the following risk factors, as well as the other information contained in this prospectus, including our consolidated financial statements and the related notes beginning on page F-1. Any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects and cause the value of our ordinary shares to decline, which could cause you to lose all or part of your investment.
Risks Related to Our Business, Our Financial Results and Need for Financing
The approach we are taking to discover and develop novel diagnostic and therapeutic products is new and may never lead to marketable products.
We have concentrated our efforts on diagnostic and therapeutic product research in the new field of microRNAs. To date, no one has applied for, or been granted, regulatory approval to market diagnostic or therapeutic products based on microRNAs. The scientific discoveries that form the basis for our efforts to develop new diagnostic and therapeutic products are relatively new. The scientific evidence to support the feasibility of developing products based on these discoveries is both preliminary and limited. Further, our focus solely on developing microRNA-based diagnostic and therapeutic products as opposed to multiple or more proven technologies for the development of diagnostic and therapeutic products increases the risks associated with the ownership of our ordinary shares. If we or a collaborative partner are not successful in developing microRNA-based product candidates, we may be required to change the scope and direction of our product development activities. In that case, if we are not be able to identify and successfully implement an alternative product development strategy, our business may fail.
Because we have a short operating history, there is a limited amount of information about us upon which you can evaluate our business and prospects.
Our operations began in 2000 and we have only a limited operating history upon which you can evaluate our business and prospects. In addition, as an early-stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biotechnology area. For example, to execute our business plan, we will need to successfully:
·
build and maintain a strong intellectual property portfolio;
·
execute product development activities using an unproven technology;
·
continue to develop and maintain successful strategic relationships;
·
manage our spending while costs and expenses increase as we expand our efforts to discover, develop and commercialize diagnostic and therapeutic products based on microRNAs; and
·
gain regulatory and commercial acceptance of our products.
If we are unsuccessful in accomplishing these objectives, we may not be able to raise capital, develop product candidates, expand our business or continue our operations.
We have a history of losses and may never be profitable.
We have experienced significant operating losses since our inception in 2000, and as of June 30, 2006, we had an accumulated deficit of $16.4 million. We had a net loss of $5.8 million for the year ended December 31, 2005 and $3.2 million for the six months ended June 30, 2006. Furthermore, we do not expect to generate any revenues from the sale of diagnostic or therapeutic products in the near future. We expect our annual operating losses to increase over the next several years as we expand our efforts to discover, develop and commercialize diagnostic and therapeutic products based on microRNAs. We anticipate that the majority of any revenues we generate over the next several years will be from collaborations and licensing arrangements with pharmaceutical, biotechnology or diagnostic companies, as well as from the sale of research consumables and any approved diagnostic products. We cannot be certain, however, that we will be able to secure any collaborations or achieve any milestones that may be required to receive payments or that any research consumable or approved diagnostic products will achieve market acceptance. To date, our collaborations and license agreements have provided us with limited revenues. If we are unable to secure revenues from collaborations and sale of products, we may be unable to continue our efforts to
9
discover, develop and commercialize microRNA-based diagnostic and therapeutic products without raising additional funds from other sources.
We will require substantial additional funds to complete our research and development activities and, if additional funds are not available, we may need to significantly scale back or cease our operations.
We have used substantial funds to discover, develop and protect our microRNA technologies and will require substantial additional funds to conduct further research and development, including preclinical testing and clinical trials of any product candidates, and to manufacture and market any products that are approved for commercial sale. Because the successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to develop them and commercialize them if approved. The timing of our need for additional funds will depend on a number of factors, many of which are difficult to predict or are outside of our control, including:
·
progress in our research and development programs;
·
the resources, time and costs required to initiate and complete development and any required preclinical studies and clinical trials, and obtain regulatory approvals for our product candidates;
·
the timing, receipt, and amount of milestone, royalty and other payments from present and future collaborators, if any;
·
costs necessary to protect our intellectual property; and
·
the timing, receipt and amount of sales, if any, by us of any approved products.
If our estimates and predictions relating to these factors are incorrect, we may need to modify our operating plan. We will be required to seek additional funding in the future and intend to do so through collaborative arrangements and public or private equity offerings and debt financings. However, additional funds may not be available to us when needed on acceptable terms, or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our shareholders. For example, if we raise additional funds by issuing equity securities, further dilution to our then-existing shareholders may result. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise pursue on our own.
Risks Related to Our Intellectual Property
If we are not able to obtain and enforce patent protection for our discoveries, our ability to develop and commercialize our product candidates will be harmed.
Our success depends, in large part, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the U.S., Israel and other countries, so that we can prevent others from unlawfully using our inventions and proprietary information. As of August 31, 2006, our patent portfolio included a total of 49 pending patent applications worldwide, consisting of 42 U.S. patent applications, five PCT applications and two European applications. We cannot assure you, however, that any of these pending patent applications will result in issued patents. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the U.S. Patent and Trademark Office, or PTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly and may change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Furthermore, the field of microRNAs is new and developing, and we are aware of no patent applications relating to human microRNAs that have been procured from any government patent office around the world. Accordingly, there is significant uncertainty about what patents will be issued, and what their claims may cover. It is likely that there will be significant litigation and other proceedings, such as interference proceedings and opposition proceedings, in certain patent offices, relating to patent rights in the microRNA field. Others may attempt to invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Accordingly, we do not know the degree of future
10
protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. Additionally, the mere issuance of a patent does not guarantee that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties.
In addition, we cannot be certain that we hold the rights to the technology covered by our pending patent applications or to other proprietary technology required for us to commercialize our proposed products. Because certain U.S. patent applications are confidential until patents issue, such as applications filed prior to November 29, 2000, or applications filed after this date which will not be filed in foreign countries, third parties may have filed patent applications for technology covered by our pending patent applications without our being aware of those applications, and our patent applications may not have priority over those applications. For this and other reasons, we may be unable to secure desired patent rights, thereby losing desired exclusivity. Thus, it is possible that one or more organizations will hold patent rights to which we will need a license. If those organizations refuse to grant us a license to such patent rights on reasonable terms, we will not be able to market our products.
If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our product development and commercialization efforts.
A third party may sue us for infringing its patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third-party proprietary rights. In addition, a third party may claim that we have improperly obtained or used its confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our managements efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
If we are found to infringe upon intellectual property rights of third parties, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties patent rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license and are unable to design around a patent, we may be unable to effectively market some of our technology and products, which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenues sufficient to sustain our operations. Moreover, we expect that a number of our collaborations will provide that royalties payable to us for licenses to our intellectual property may be offset by amounts paid by our collaborators to third parties who have competing or superior intellectual property positions in the relevant fields, which could result in significant reductions in our revenues from products developed through collaborations.
We license patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.
We are a party to license agreements that give us rights to third-party intellectual property that we believe may be necessary or useful for our business, such as our agreements with The Rockefeller University, U.S. Genomics, Garching Innovation (Max Planck) and Johns Hopkins University. We intend to enter into additional licenses of intellectual property with third parties in the future. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects. Under our license agreements with The Rockefeller University and U.S. Genomics, if our licensors fail to prosecute the patents we licensed, we have the right to prosecute the patents and pursue litigation against any infringement of such patents. Under our license agreement with Garching Innovation, we have the responsibility to assist in the prosecution of any patent infringement actions undertaken by Garching Innovation. Under our agreement with Johns Hopkins University,
11
Johns Hopkins is responsible for prosecution and maintenance of patents, and we have the right but not the obligation to enforce the patents against any infringement by third parties.
If we fail to comply with our obligations under any licenses or related agreements, we could lose license rights that may be necessary for developing our microRNA product candidates.
Our current licenses impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. Our principal obligations under our key license agreements are as follows:
·
Collaboration and License Agreement with U.S. Genomics
funding and management of experiments and research activities
supplying our proprietary materials to U.S. Genomics for its collaboration efforts
responsibility for the costs of regulatory compliance and trademark procurement
royalty payments
co-responsibility for prosecution, maintenance and enforcement of joint patent rights
maintaining insurance coverage
·
License Agreement with The Rockefeller University
–
royalty payments
–
annual maintenance fees
–
providing progress reports
maintaining insurance coverage
·
License Agreement with Garching Innovation (Max Planck)
–
royalty payments
–
annual maintenance fees
–
paying a portion of fees related to prosecution, maintenance and enforcement of patent rights
–
maintaining insurance coverage
·
License Agreement with Johns Hopkins University
–
royalty payments
–
minimum annual payments
–
paying fees related to prosecution, maintenance and enforcement of patent rights
–
performing commercially reasonable diligent efforts to develop and to introduce products into the commercial market as soon as practicable
–
maintaining insurance coverage
If we breach any of these obligations, the licensor may have the right to terminate the license, which could result in our being unable to develop, manufacture and sell products that are covered by the licensed technology or a competitors gaining access to the licensed technology. For additional details regarding our obligations under our current licenses, please see Business ¾ Strategic Alliances and Research and License Collaborations.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be
12
necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
Any diagnostic product candidates we or our collaborators develop may be required to undergo a lengthy, costly and burdensome pre-market approval process.
In the U.S., in vitro diagnostic products are regulated by the U.S. Food and Drug Administration, or FDA, as medical devices. Accordingly, before a diagnostic product can be marketed, we or our collaborators must obtain marketing clearance from the FDA through either a pre-market notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act or the FDAs approval of a pre-market approval application, or PMA. A 510(k) pre-market notification must demonstrate that the device in question is substantially equivalent to another legally marketed device, or predicate device, that does not require pre-market approval. In evaluating the 510(k), the FDA must determine that the device (1) has the same intended use as the predicate device and (2) has the same technological characteristics as the predicate device; or that (1) the device has different technological characteristics, (2) the data submitted establishes that the device is substantially equivalent and contains information, including clinical data if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally marketed device and (3) the device does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance. The PMA process, on the other hand, is more complex, costly and time consuming than the 510(k) clearance procedure. A PMA must be supported by more detailed and comprehensive scientific evidence than a 510(k) notice, including clinical trial data to demonstrate the safety and efficacy of the device. A PMA can take several years to complete and there is no assurance that any submitted PMA will be approved. Even when approved, the FDA may limit the indication for which the medical device may be marketed or to whom it may be sold. Although we intend to seek 510(k) clearance for our diagnostic products, we cannot assure you that FDA will not require us to obtain PMA approval for one or more intended uses of these products. In any event, there can be no assurance that either 510(k) clearance or PMA approval will be obtained for any of our diagnostic product candidates.
We may be unable to obtain regulatory approval of any therapeutic product candidates that we or a collaborator may develop.
Any therapeutic product candidates that we or our collaborators may develop will be subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed in the U.S. and in many foreign jurisdictions before a new therapeutic product can be sold. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. The time required to obtain FDA and other approvals for therapeutic products is unpredictable but typically exceeds several years following the commencement of clinical trials. It is possible that none of the therapeutic product candidates we or our collaborators may develop will obtain the appropriate regulatory approvals necessary for us or our collaborators to begin selling them. Furthermore, because the therapeutic products we are intending to develop may represent a newly discovered class of therapeutic products, the FDA has not yet established any definitive policies, practices or guidelines in relation to these products. The lack of such policies, practices or guidelines may hinder or slow review by the FDA of any regulatory filings that we or our collaborators may submit. Moreover, the FDA may respond to these submissions by defining requirements we may not have anticipated. Such responses could lead to significant delays in the development of our product candidates. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from a particular product candidate. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market for the product. We are also subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Therefore, approval by the FDA does not assure approval by regulatory authorities outside the U.S.
13
We have no experience in conducting and managing clinical trials.
We have no experience in conducting and managing the clinical trials necessary to obtain regulatory approvals for any therapeutic product candidates or which may be necessary for our diagnostic product candidates. Our reliance on third parties for clinical development activities reduces our control over these activities. Accordingly, third-party contractors may not complete activities on schedule, or may not conduct clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we might be required to replace them, which may result in a delay of the affected trial.
Even if we obtain regulatory approvals, our marketed products will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market these products and our business would be seriously harmed.
Following any initial regulatory approval of any diagnostic or therapeutic products we or our collaborators may develop, the approved products will also be subject to continuing regulatory review, including the review of adverse experiences and clinical results that are reported after our products are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we or our collaborators use to make any approved products will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the product, manufacturer or facility may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. The promotion and advertising of any approved products will also be subject to ongoing regulatory requirements and continuing FDA review. If we or our collaborators fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.
If we or our collaborators or service providers, or any third party manufacturers we may enter into agreements with in the future fail to comply with regulatory laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to market and sell our products and may harm our reputation.
If we or our collaborators or service providers, or any third party manufacturers we may enter into agreements with in the future fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell any product candidates successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include:
·
warning letters;
·
recalls, public notification or medical product safety alerts;
·
restrictions on, or prohibitions against, marketing our products;
·
restrictions on importation of our products;
·
suspension of review or refusal to approve new or pending applications;
·
suspension or withdrawal of product approvals;
·
product seizures;
·
injunctions; and
·
civil and criminal penalties and fines.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research and development activities involve the use of hazardous materials, chemicals and various radioactive compounds, and we maintain quantities of various flammable and toxic chemicals in our facilities in Israel and the U.S. We believe our procedures for storing, handling and disposing these materials in our Israel and U.S. facilities comply with the relevant guidelines of the State of Israel and the U.S. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident
14
occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
Risks Related to Competition and Commercialization of Our Product Candidates
The pharmaceutical and biotechnology market is intensely competitive. If we are unable to compete effectively with existing products, new treatment methods and new technologies, we may be unable to commercialize any diagnostic and therapeutic products that we develop.
The biotechnology market is intensely competitive and rapidly changing. Many large diagnostic, pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the research of technologies and development of novel diagnostic and therapeutic products for the same diseases that we are targeting or expect to target. We will face intense competition from products that have already been approved and accepted by the medical community for the diseases for which we may develop products. We also expect to face competition from new products that enter the market. We believe a significant number of products are currently under development, and may become commercially available in the future, for the diseases for which we may try to develop products. In addition to the competition we face from existing products and products in development in general, we also face competition from other companies working to develop novel products using technology that competes more directly with our microRNAs. We are aware of several other companies, including some of our current collaborators, that are working to develop microRNA diagnostic and therapeutic products, including Alnylam Pharmaceuticals, Inc., Asuragen, Celera Genomics Group of Applera Corporation, Invitrogen Corporation, Isis Pharmaceuticals, Merck & Co., Inc., Santaris Pharma A/S, Sirna Therapeutics, Inc., and others. Any of these companies may develop microRNA-based products more rapidly and more effectively than us.
Many of our competitors have:
·
much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization process;
·
more extensive experience in preclinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing and marketing diagnostic and therapeutic products;
·
products that have been approved or are in late stages of development; and
·
collaborative arrangements in our target markets with leading companies and research institutions.
Our competitors may develop or commercialize products with significant advantages over any products we develop. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business.
Even if we receive regulatory approval to market our product candidates, the market may not be receptive to our product candidates upon their commercial introduction, which will prevent us from becoming profitable.
The product candidates that we are developing are based upon new technologies or therapeutic approaches. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors and consumers, may not accept a microRNA-based product. As a result, it may be more difficult for us or our collaborators to convince the medical community and third-party payors to accept and use our products. Other factors that we believe will materially affect market acceptance of our product candidates include:
·
the timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained;
·
the safety, efficacy and ease of administration;
·
the success of physician education programs;
·
the availability of government and third-party payor reimbursement;
·
the pricing of our products, particularly as compared to alternative treatments; and
15
·
the availability of alternative diagnostic and therapeutic products to the product candidates we or our collaborators develop.
Any products we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.
The regulations that govern pricing for new medical products vary widely from country to country. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country. In addition, our ability to commercialize any approved products successfully also will depend in part on the extent to which reimbursement for these products will be available from government health administration authorities, private health insurers and other organizations. Even if we succeed in bringing one or more products to the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis. If the price we are able to charge for any products we develop and for which we obtain regulatory approval is inadequate in light of our development and other costs, our profitability could be adversely affected.
Risks Related to Our Dependence on Third Parties
We may not be able to execute our business strategy if we are unable to enter into collaborations with other companies that can provide capabilities and funds for the development and commercialization of our diagnostic and therapeutic products.
We do not have any capability for sales, marketing or distribution and have limited capabilities for product development including obtaining regulatory approval of, diagnostic and therapeutic products. Accordingly, we may enter into collaborations with major pharmaceutical, biotechnology or diagnostic companies to jointly develop specific product candidates and to jointly commercialize them if they are approved. In such collaborations, we would expect our collaborators to provide substantial capabilities in clinical development, regulatory affairs, marketing and sales. For example, our collaborations and license and agreements with Applied Biosystems, Asuragen and Isis Pharmaceuticals provide us with an opportunity to develop research, diagnostic and therapeutic products, but necessitate a reliance on our collaboration partner in numerous aspects of the research and development, regulation, manufacturing, marketing and sales of products. We may not be successful in entering into any additional collaborations on favorable terms or maintaining any such collaborations that we enter into.
We rely on third parties for tissue samples and other materials required for our research and development activities and if we are unable to reach agreements with these third parties our research and development activities would be delayed.
We rely on third parties, primarily hospitals, health clinics and academic institutions, for the provision of tissue samples and other materials required in our research and development activities. Obtaining these materials requires various approvals as well as reaching a commercial agreement on acceptable terms with the hospital or other provider of the materials. We may not be able to reach such an agreement or to do so on terms acceptable to us. If we are unable to reach acceptable agreements for the supply of research materials, our research and development activities will be delayed and our ability to implement our business plan will be compromised.
If any collaborator terminates or fails to perform its obligations under agreements with us, the development and commercialization of our product candidates could be delayed or terminated.
Our expected dependence on collaborators for capabilities and funding means that our business would be adversely affected if any collaborator terminates its collaboration agreement with us or fails to perform its obligations under that agreement. Our current or future collaborations, if any, may not be scientifically or commercially successful. Disputes may arise in the future with respect to the ownership of rights to technology or products developed with collaborators, which could have an adverse effect on our ability to develop and commercialize any affected product candidate.
Our current collaborations allow, and we expect that any future collaborations will allow, either party to terminate the collaboration for a material breach by the other party. In addition, our collaborations with Applied Biosystems, Asuragen and Isis Pharmaceutical, may be terminated for various other reasons. If a collaborator
16
terminates its collaboration with us, for breach or otherwise, it would be difficult for us to attract new collaborators and it could adversely affect how we are perceived in the business and financial communities. In addition, a collaborator could determine that it is in its financial interest to:
·
pursue alternative technologies or develop alternative products, either on its own or jointly with others, that may be competitive with the products on which it is collaborating with us or which could affect its commitment to the collaboration with us;
·
pursue higher priority programs or change the focus of their development programs, which could affect the collaborators commitment to us; or
·
if it has marketing rights and obligations, choose to devote fewer resources to the marketing of our product candidates, if any are approved for marketing, than they do for product candidates of their own development, or of their co-development with third parties.
If any of these occur, the research, development and commercialization of one or more of our product candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.
We have no manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our products.
We have no manufacturing experience. In order to develop products, apply for regulatory approvals and commercialize our products, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. Manufacturing of our diagnostic and therapeutic product candidates must comply with the Quality System Regulation and the Current Good Manufacturing Practice, respectively, each of which imposes testing, control, documentation and other quality assurance procedures. The manufacturing process for any products that we may develop is an element of the FDA approval process and we will need to contract with manufacturers who can meet the FDA requirements on an ongoing basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third parties, including our collaborators, to produce materials required for commercial production. We may experience difficulty in obtaining adequate manufacturing capacity for our needs. If we are unable to obtain or maintain contract manufacturing for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our products.
We have no sales, marketing or distribution experience and may depend significantly on third parties who may not successfully commercialize our products.
We have no sales, marketing or distribution experience. We will need to rely on our collaborators or other third parties to commercialize any approved products, or we will need to internally develop such capabilities. To the extent that we rely on third parties to launch and market any such products, we may have limited or no control over the sales, marketing and distribution activities, and our future revenues will depend heavily on the success of the efforts of our collaborators and these third parties. To develop internal sales, distribution and marketing capabilities, we will have to invest significant amounts of financial and management resources. For product candidates where we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:
·
we may not be able to attract and build a significant marketing or sales force;
·
the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any particular product; and
·
our direct sales and marketing efforts may not be successful.
If any of these risks were to occur, our business and financial condition could be adversely affected.
17
Risks Related to Our Operations
If we are unable to attract and retain qualified key management and scientists, staff consultants and advisors, our ability to implement our business plan may be adversely affected.
We are highly dependent upon certain of our senior management and scientific staff. The loss of the service of these persons, including our founder and Chief Architect, Dr. Isaac Bentwich, and our Chief Executive Officer and President, Amir Avniel, may significantly delay or prevent our achievement of product development and other business objectives. Our employment agreements with our key personnel are terminable by the employee at any time with notice. We carry key man life insurance on Dr. Bentwich and Mr. Avniel, but we do not carry key man life insurance on any of our other key employees. Additionally, although we have generally been successful in our recruiting efforts, we face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions. We may be unable to attract and retain suitably qualified individuals, and our failure to do so could have an adverse effect on our ability to implement our business plan.
We may have difficulty managing our growth and expanding our operations successfully as we seek to evolve from a company primarily involved in discovery into one that develops and commercializes diagnostic and therapeutic products.
If any product candidates we develop enter and advance through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or enter into strategic collaborations or contract with other organizations to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various collaborators, suppliers and other organizations. Our ability to manage our operations and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures in at least two different countries. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.
There is a substantial risk of product liability claims in our business. If we are unable to obtain sufficient insurance, a product liability claim against us could adversely affect our business.
Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and marketing of diagnostic and therapeutic products. Product liability claims could delay or prevent completion of our clinical development programs. If we succeed in marketing products, such claims could result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities or our marketing programs, and potentially a mandatory or voluntary recall of our products or other significant enforcement action, or limitations on the indications for which they may be used, or suspension or withdrawal of approval. We currently have insurance for a research plan for colorectal cancer covering liability in an amount up to $1 million per incident and up to $3 million in the aggregate, and for a research plan for prostate cancer covering liability in an amount up to $1 million per incident and in the aggregate. We plan to obtain insurance for all research programs at appropriate levels prior to initiating any required clinical trials and at higher levels prior to marketing any of our approved product candidates. Any insurance we obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is 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 product liability claims that could have a material adverse effect on our business.
If we are unable to manage the challenges associated with our international operations, the growth of our business could be limited.
In addition to our operations in Rehovot, Israel, our wholly-owned subsidiary, Rosetta Genomics Inc., operates an office and laboratory in North Brunswick, New Jersey. We are subject to a number of risks and challenges that specifically relate to these international operations. Our international operations may not be successful if we are unable to meet and overcome these challenges, which could limit the growth of our business and may have an adverse effect on our business and operating results. These risks include:
·
fluctuations in foreign currency exchange rates that may increase the U.S. dollar cost of our international operations;
18
·
difficulty managing operations in multiple locations, which could adversely affect the progress of our product candidate development programs and business prospects;
·
local regulations that may restrict or impair our ability to conduct pharmaceutical and biotechnology-based research and development;
·
foreign protectionist laws and business practices that favor local competition;
·
failure of local laws to provide the same degree of protection against infringement of our intellectual property, which could adversely affect our ability to develop product candidates or reduce future product or royalty revenues, if any, from product candidates we may develop;
·
U.S. immigration and entry into the U.S. laws and regulations that may restrict free movement of our employees between Israel and the U.S.; and
·
U.S. immigration and entry into the U.S. laws and regulations that may restrict employment of Israeli citizens in our U.S. facilities.
Risks Related to Israeli Law and Our Operations in Israel
One of our principal shareholders holds securities on behalf of a number of beneficiaries. If each of the beneficiaries is deemed to have been an individual purchaser of our shares with respect to shares sold prior to this offering, we may have offered or sold shares in contravention of the provisions of Israeli securities laws, and we and our officers and directors may be subject to fines and other criminal sanctions under Israeli law.
From December 2002 through April 2006, we issued preferred shares and warrants to Kadima Hi-Tech Ltd., or Kadima, one of our principal shareholders which holds approximately 23% of our issued and outstanding share capital. Kadima holds substantially all of the securities that were issued to it in trust for more than 100 beneficiaries, the substantial majority of whom are resident in Israel. Accordingly, it could be argued that we have offered or sold securities to more than 35 Israeli residents in contravention of the provisions of Israeli securities laws which require the publication of a prospectus for offers and sales of securities to the public in Israel.
In May 2006, shortly after becoming aware of this matter, as a precaution, we sent a letter to all of our shareholders and to all of the beneficiaries of Kadima to solicit a waiver and release for any liability to such shareholders and beneficiaries in connection with our possible failure to comply with Israeli securities laws. As of August 31, 2006, 82 of our 86 shareholders of record and 111 of the 122 Kadima beneficiaries, representing approximately 97.3% of our outstanding share capital in the aggregate, had executed the waiver and release. We believe that the execution of the waiver and release by our shareholders and the Kadima beneficiaries significantly reduces any potential civil exposure in relation to this matter.
We believe that we have strong arguments to refute any potential claim that we have violated the law, although there can be no assurance that we would be successful. If we are not successful, we, and our officers and directors, may be subject to fines and other criminal sanctions under Israeli law, as well as civil claims from our shareholders and Kadima beneficiaries.
We are headquartered in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel.
Our principal offices and research and development facilities and many of our suppliers are located in Israel. Accordingly, 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 its Arab neighbors, as well as incidents of civil unrest. Israel has recently been engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations. Since September 2000, terrorist violence in Israel has increased significantly and negotiations between Israel and Palestinian representatives have effectively ceased. The establishment of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and uncertainty in the region.
We can give no assurance that security and political conditions will have no impact on our business in the future. Hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading
19
partners could adversely affect our operations and could make it more difficult for us to raise capital. Recently, there has been a sharp increase in hostilities along Israels northern border between Israel and Hezbollah armed forces based in Lebanon and to a lesser extent between Israel and the Hamas militia in the Gaza Strip. For example, the recent hostilities between Israel and Hezbollah involved missile strikes against civilian targets in northern Israel that have resulted in economic losses.
Although our main headquarters are located in central Israel, the adverse effects of this conflict have negatively affected business conditions in Israel. Ongoing and revived hostilities or other adverse political or economic developments in Israel or the region could harm our operations and product development and cause sales of any approved products to decrease. In addition, Israel and companies doing business with Israel have, in the past, been subject to economic boycotts. Several countries, principally those in the Middle East, still restrict business with Israel and Israeli companies. These restrictive laws and policies may seriously limit our ability to sell any approved products in these countries.
Our business insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers 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. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
Our operations could be disrupted as a result of the obligation of management or key personnel to perform military service in Israel.
Many of our male employees in Israel, including members of senior management, are obligated to perform military reserve duty annually for extended periods of time through the age of 45 (or older for citizens with certain occupations) and, in the event of a military conflict, could be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists, and recently some of our employees have been called up in connection with armed conflicts. It is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of military service of one or more of our key employees.
The government tax benefits that we are currently eligible to receive require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs.
Some of our operations in Israel have been granted approved enterprise status by the Investment Center in the Israeli Ministry of Industry, Trade and Labor that resulted in our currently being eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. These benefits will commence in the first year in which we produce taxable income. Pursuant to these benefits, undistributed income that we generate from our approved enterprise will be tax exempt for two years and, thereafter, will be subject to a tax rate of 10%-25% for an additional five to eight years, depending on the extent of foreign investment in us. The availability of these tax benefits, however, is subject to certain requirements, including, among other things, making specified investments in fixed assets and equipment, financing a percentage of those investments with our capital contributions, compliance with our marketing program which was submitted to the Investment Center, filing of certain reports with the Investment Center and compliance with Israeli intellectual property laws. If we do not meet these requirements in the future, these tax benefits may be cancelled. The tax benefits that we anticipate receiving under our current approved enterprise program may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, which could adversely affect our results of operations. See Israeli Tax Considerations and Government Programs for additional information concerning these tax benefits.
Provisions of Israeli law may delay, prevent or impede an acquisition of us, which could prevent a change of control.
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 these types of transactions. For example, a merger may not be completed unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both
20
merging companies approved the merger. In addition, the approval of a majority of each class of securities of the target company is required to approve a merger.
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 numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares has occurred.
These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders. See Management Approval of Specified Related Party Transactions under Israeli Law, Description of Share Capital Acquisitions under Israeli Law and Anti-Takeover Measures under Israeli Law and Israeli Tax Considerations and Government Programs for additional discussion about some anti-takeover effects of Israeli law.
It may be difficult to enforce a U.S. judgment against us, our officers and directors and some of the experts named in this prospectus or to assert U.S. securities law claims in Israel.
We are incorporated in Israel. Most of our executive officers and directors are not residents of the U.S., and a majority of our assets and the assets of these persons are located outside of the U.S. Therefore, it may be difficult to enforce a judgment obtained in the U.S., against us or any of these persons, in U.S. or Israeli courts based on the civil liability provisions of the U.S. federal securities laws. Additionally, it may be difficult for you to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Israel. Furthermore, if a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency. See Enforceability of Civil Liabilities for additional discussion on your ability to enforce a civil claim against us, our executive officers or directors.
Risks Related to Our Ordinary Shares and This Offering
Prior to this offering there was no trading market for our ordinary shares, and an active trading market may not develop after this offering.
If you purchase our ordinary shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters based upon an assessment of the valuation of our ordinary shares. The public market may not agree with or accept this valuation, in which case you may not be able to sell your shares at or above the initial offering price. After this offering, the market price of our ordinary shares may fluctuate significantly in response to factors that are beyond our control. The stock market in general has recently experienced extreme price and volume fluctuations. The market prices of securities of pharmaceutical and biotechnology companies have been extremely volatile, and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could result in extreme fluctuations in the price of our ordinary shares, which could cause a decline in the value of your investment.
If a substantial number of shares become available for sale after this offering and are sold in a short period of time, the market price of our ordinary shares could decline.
Upon completion of this offering, we will have 10,500,000 ordinary shares outstanding, assuming no exercise of the underwriters option to purchase additional shares, of which our current shareholders will hold 7,500,000 shares. If our existing shareholders or their distributees sell substantial amounts of our ordinary shares in the public market following this offering, the market price of our ordinary shares could decrease significantly. The perception in the public market that our existing shareholders might sell their shares could also depress the trading price of our ordinary shares. Existing shareholders holding an aggregate of 7,168,873 ordinary shares are subject to the lock-up agreements with the underwriters, as described in Underwriting beginning on page 104 and may be subject to other restrictions on resale, as described in Shares Eligible for Future Sale beginning on page 93. Our underwriters may release all or a portion of the shares subject to the lock-up agreements at their discretion. After all of these lock-up agreements are no longer binding, and applicable holding periods have elapsed, these shares will be eligible for
21
sale in the public market. The market price of our ordinary shares may drop significantly when the restrictions on resale by our existing shareholders lapse. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities.
Insiders will continue to have substantial control over us after this offering and could delay or prevent a change in corporate control.
After this offering, our directors and executive officers, together with their affiliates, will beneficially own, in the aggregate, approximately 27.5% of our outstanding ordinary shares. This concentration of ownership may harm the market price of our ordinary shares by:
·
delaying, deferring or preventing a change in control of our company;
·
entrenching our management and/or board of directors;
·
impeding a merger, consolidation, takeover or other business combination involving our company; or
·
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
Investors in this offering will immediately experience substantial dilution in net tangible book value.
The initial public offering price of our ordinary shares is considerably greater than the pro forma net tangible book value per share of our outstanding ordinary shares. Accordingly, investors purchasing ordinary shares in this offering will incur immediate dilution of $7.54 per share, based on an assumed initial public offering price of $12.00 per share, the mid-point of the range shown on the cover of this prospectus. In addition, as of August 31, 2006, we had outstanding options to purchase 1,018,159 ordinary shares at a weighted average exercise price of $3.20 per share and warrants to purchase 107,360 ordinary shares at a weighted average exercise price of $6.18 per share. To the extent these outstanding options or warrants are exercised at a price below net tangible book value per share, there will be dilution to investors.
Based on current facts, we believe it is likely that we will be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, which may result in negative tax consequences for holders of our ordinary shares who are U.S. residents.
We will be a passive foreign investment company, or PFIC, if 75% or more of our gross income in a taxable year, including our pro rata share of the gross income of any company, U.S. or foreign, in which we are considered to own, directly or indirectly, 25% or more of the shares by value, is passive income. Alternatively, we will be considered to be a PFIC if at least 50% of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value, including our pro rata share of the assets of any company in which we are considered to own, directly or indirectly, 25% or more of the shares by value, are held for the production of, or produce, passive income. We believe that we were a PFIC in 2003, but not in 2004 or 2005. Although, it is difficult to make accurate predictions of future income and assets, which are relevant to the determination of PFIC status, based on facts and circumstances as they currently exist, we believe we will likely be a PFIC in 2006. If we were to be a PFIC, and a U.S. shareholder does 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 a U.S. shareholder, and any gain recognized by a U.S. shareholder on a disposition or our ordinary shares, would be taxed in an unfavorable way. Among other consequences, excess distributions would be taxed at the highest rates applicable to ordinary income, rather than the potential 15% maximum rate applicable to certain dividends received by an individual from a qualified foreign corporation. PFIC status is determined annually and cannot be definitively determined until the close of the year in question. In addition, if the U.S. Internal Revenue Service determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it might be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold ordinary shares during a period when we are 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. shareholders who made a timely QEF or mark-to-market election.
We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively.
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes
22
described in the Use of Proceeds section of this prospectus on page 25. Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
We will incur a significant increase in costs as a result of being a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements as well as costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the rules of the Nasdaq Global Market and the provisions of the Companies Law 5759-1999, or the Companies Law, that apply to public companies. For example, as a public company, we will create additional board committees, and we are obligated to retain an internal auditor and nominate two external directors as provided by the Companies Law. We intend to increase our accounting and financial staff. In addition, we expect to incur significant costs in connection with disclosure controls and procedures and the assessment of our internal controls over financial reporting, as required under the Sarbanes-Oxley Act. Furthermore, due to the enhanced liability imposed on directors and officers of a public company, we expect our director and officer liability insurance to be more difficult and more expensive for us to obtain.
Being a foreign private issuer exempts us from certain Securities and Exchange Commission requirements.
We are a foreign private issuer within the meaning of rules promulgated by the Securities and Exchange Commission, or SEC. As such, we are exempt from certain provisions applicable to U.S. public companies including:
·
the rules under the Securities Exchange Act of 1934, as amended, or Exchange Act, requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form 8-K;
·
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
·
the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
·
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any short-swing trading transaction (a purchase and sale, or sale and purchase, of the issuers equity securities within less than six months).
Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the U.S.
23
FORWARD-LOOKING STATEMENTS
Some of the statements under Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and elsewhere in this prospectus constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as may, will, should, could, would, expects, plans, intends, anticipates, believes, estimates, predicts, projects, potential or continue or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, actual events or results may differ materially. All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus. Except as required by applicable law, we undertake no obligation to update or revise any of the forward-looking statements after the date of this prospectus to conform those statements to reflect the occurrence of unanticipated events, new information or otherwise. Forward-looking statements in this prospectus may include statements about:
·
our research and development activities, including development of our product candidates;
·
the advantages of our technology and product candidates as compared to others;
·
our ability to obtain and maintain collaborations for certain of our development programs and the terms of these arrangements;
·
our ability to successfully obtain regulatory approval of any diagnostic or therapeutic product candidates;
·
our ability to establish and maintain intellectual property rights in our product candidates;
·
our ability to obtain licenses relating to any necessary third-party intellectual property;
·
our spending of the proceeds from this offering;
·
our cash needs;
·
the implementation of our corporate strategy; and
·
our financial performance.
Important factors that could cause actual results to differ materially from the forward-looking statements we make in this prospectus are set forth in Risk Factors beginning on page 9 and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements.
You should read this prospectus and the documents that we reference in this prospectus and the exhibits to the registration statement on Form F-1, of which this prospectus is a part, that we have filed with the SEC, completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. All current and subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements and other cautionary statements contained throughout this prospectus.
24
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 3,000,000 ordinary shares in this offering will be approximately $32.1 million, assuming an initial public offering price of $12.00 per share, the mid-point of the price range shown on the cover of this prospectus, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $37.1 million.
We estimate that we will use the proceeds of this offering (assuming no exercise of the underwriters over-allotment option) as follows:
·
approximately $17.0 million to fund product research and development activities, including:
·
approximately $1.5 million to fund the continued development of our prostate cancer diagnostic product, which we expect will fund development through the initiation of clinical validation of the product;
·
approximately $1.5 million to fund the continued development of our lung cancer diagnostic product, which we expect will fund development through the initiation of clinical validation of the product;
·
approximately $3.0 million to fund the continued development of our colorectal cancer diagnostic product, which we expect will fund development through clinical validation of the product;
·
approximately $3.0 million to fund the continued development or our breast cancer diagnostic product, which we expect will fund development through clinical validation of the product;
·
approximately $4.0 million to fund the continued development of our CUP diagnostic product, which we expect will fund development through clinical validation of the product; and
·
approximately $4.0 million to fund the continued development of our liver cancer therapeutic product, which we expect will fund development through the initiation of preclinical studies;
·
approximately $2.5 million to fund licensing and protection of intellectual property rights, including payment of fees associated with the in-licensing of intellectual property and fees associated with the continued prosecution of existing patent applications and the filing and prosecution of new patent applications; and
·
approximately $12.6 million to fund business development, including personnel costs and legal and other administrative fees related to seeking and entering into strategic business collaborations, and for general corporate purposes, including working capital.
We may also use a portion of the proceeds for the potential acquisition of, or investment in, technologies, products or companies that complement our business, although we have no current understandings, commitments or agreements to do so.
As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the proceeds from this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our research, development and commercialization efforts, the progress of our clinical trials, our ability to enter into strategic collaborations and our operating costs and expenditures. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering.
The costs and timing of the development of diagnostic and therapeutic products, particularly conducting required clinical trials and obtaining regulatory approval, are highly uncertain, are subject to substantial risks, and can often change. Accordingly, we cannot assure you that the funds that we have allocated as set forth above will enable us to develop the respective products to the stages that we expect. In addition, we may change the allocation of use of these proceeds as a result of contingencies such as the progress and results of our research and development activities, required clinical trials, the establishment of collaborations, the results of our commercialization efforts, our manufacturing requirements and regulatory or competitive developments.
We will require substantial additional funds to complete the research and development and clinical and regulatory activities necessary to bring our product candidates to market. We believe that the net proceeds from this offering, our existing cash and cash equivalents, and funding we expect to receive under our current collaboration and license agreements will be sufficient to fund our operations for at least the next 18 months. However, our funding requirements may change and will depend upon numerous factors, many of which are currently unknown to us, and we may need additional funds sooner than planned. We cannot assure you that additional funds will be available when we need them on terms that are acceptable to us, or at all.
Pending their ultimate use, we intend to invest the net proceeds from this offering primarily in investment grade, interest-bearing instruments.
25
DIVIDEND POLICY
To date, we have not declared or paid cash dividends on any of our shares, and we have no current intention of paying any cash dividends in the near future.
The Companies Law also restricts our ability to declare dividends. We can only distribute dividends from profits (as defined in the Companies Law), or, if we do not meet the profits test, with court approval provided in each case that there is no reasonable concern that the dividend distribution will prevent the company from meeting its existing and foreseeable obligations as they come due. The payment of dividends may be subject to Israeli withholding taxes. See Israeli Tax Considerations and Government Programs.
26
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2006:
·
on an actual basis; and
·
on an as adjusted basis to reflect (1) the conversion of all of our outstanding preferred shares into an aggregate of 4,948,604 ordinary shares upon the completion of this offering and (2) the sale and issuance of 3,000,000 ordinary shares by us in this offering at an assumed initial public offering price of $12.00 per share, the mid-point of the price range shown on the cover page of this prospectus, after deducting estimated underwriting discounts and estimated offering expenses payable by us.
You should read the information below with our consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
As of June 30, 2006 |
|||||||
Actual |
As Adjusted |
||||||
(In thousands, except per share data) |
|||||||
Shareholders equity: |
|||||||
Ordinary shares: no par value, 12,304,859 shares authorized,
|
$ |
|
$ |
24 |
|||
Preferred A shares, no par value: 1,381,158 shares authorized,
|
|
|
|||||
Preferred B shares, no par value: 1,883,397 shares authorized,
|
|
|
|||||
Preferred C shares, no par value: 2,008,957 shares authorized,
|
|||||||
Additional paid-in capital |
31,255 |
63,341 |
|||||
Deferred stock-based compensation |
(76 |
) |
(76 |
) |
|||
Deficit accumulated during the development stage |
(16,440 |
) |
(16,440 |
) |
|||
Total shareholders equity |
14,739 |
46,849 |
|||||
Total capitalization |
$ |
14,739 |
|
$ |
46,849 |
(1)
Does not include 523,758 ordinary shares issuable upon exercise of options outstanding as of June 30, 2006 at a weighted average exercise price of $1.35 per share, actual and as adjusted; 34,115 ordinary shares issuable upon the exercise of warrants outstanding as of June 30, 2006 at a weighted average exercise price of $5.09 per share, actual and as adjusted; and an additional 33,585 ordinary shares issuable upon the exercise of warrants at a weighted average exercise price of $7.68 per share, actual and as adjusted.
(2)
Does not include 39,660 series B preferred shares issuable upon the exercise of warrants outstanding as of June 30, 2006 at an exercise price of $5.86 per share, actual and as adjusted.
27
DILUTION
If you invest in our ordinary shares, your interest will be immediately diluted to the extent of the difference between the public offering price per share of our ordinary shares and the as adjusted net tangible book value per share of our ordinary shares after this offering. Historical net tangible book value per share represents our total tangible assets less total liabilities divided by the number of ordinary shares outstanding as of June 30, 2006, assuming conversion of all of our preferred shares outstanding as of June 30, 2006 into an aggregate of 4,948,604 ordinary shares. Our historical net tangible book value as of June 30, 2006 was $14.7 million, or approximately $1.95 per share.
After giving effect to the issuance and sale of 3,000,000 ordinary shares in this offering at an assumed offering price of $12.00 per share, the mid-point of the price range shown on the cover page of this prospectus, and after deducting estimated underwriting discounts and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2006 would have been $46.8 million, or $4.46 per share. This represents an immediate increase in net tangible book value to existing shareholders of $2.51 per share. Accordingly, new investors who purchase ordinary shares in this offering will suffer an immediate dilution of their investment of $7.54 per share. The following table illustrates this per share dilution:
Assumed initial public offering price per share |
$ |
12.00 |
||||
Historical net tangible book value per share as of June 30, 2006 |
$ |
1.95 |
||||
Increase per share attributable to new investors |
2.51 |
|||||
As adjusted net tangible book value per share after this offering |
4.46 |
|||||
Dilution per share to new investors |
$ |
7.54 |
If the underwriters exercise their over-allotment option in full, the as adjusted net tangible book value per share after this offering would be $4.73 per share, the increase in net tangible book value per share to existing shareholders would be $2.88 per share and the dilution to new investors purchasing ordinary shares in this offering would be $7.27 per share.
The following table summarizes as of June 30, 2006, assuming conversion of all preferred shares outstanding as of June 30, 2006 into an aggregate of 4,948,604 ordinary shares, the differences between the number of ordinary shares purchased from us, the total consideration paid to us and the average price per share paid by existing shareholders and by new investors. The calculation below is based on an assumed initial public offering price of $12.00 per share, before deduction of estimated underwriting discounts and commissions and estimated offering expenses payable by us:
|
|
Average
|
||||||||||
Number |
Percent |
Amount |
Percent |
|||||||||
|
||||||||||||
Existing shareholders |
7,500,000 |
71.4 |
% |
$ |
30,497,658 |
|
45.9 |
% |
$ |
4.07 |
||
New investors |
3,000,000 |
28.6 |
|
36,000,000 |
54.1 |
|
$ |
12.00 |
||||
Total |
10,500,000 |
100.0 |
% |
$ |
66,497,658 |
100.0 |
% |
The tables above assume no exercise of options or warrants outstanding after June 30, 2006. At June 30, 2006, there were 523,758 ordinary shares issuable upon exercise of outstanding options at a weighted average exercise price of $1.35 per share, 34,115 ordinary shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $5.09 per share, 39,660 series B preferred shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $5.86 per share and 33,585 ordinary shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $7.68 per share. To the extent that outstanding options or warrants are exercised after June 30, 2006, there will be further dilution to new investors.
28
SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data for the years ended December 31, 2003, 2004 and 2005, for the period from March 9, 2000 (date of inception) through December 31, 2005 and as of December 31, 2004 and 2005 have been derived from our audited financial statements which are included elsewhere in this prospectus. The following financial data as of December 31, 2003 have been derived from our audited financial statements which are not included in this prospectus. The following financial data for the six months ended June 30, 2005 and 2006, for the period from March 9, 2000 (date of inception) through June 30, 2006 and as of June 30, 2006 have been derived from our unaudited financial statements which are included elsewhere in this prospectus. You should read this information in conjunction with our consolidated financial statements, including the related notes, and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.
Year Ended December 31, |
Period from March 9, 2000 (date of inception) through December 31, 2005 |
|
Period from
|
||||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
|||||||||||||||||
|
(Unaudited) |
(Unaudited) |
|||||||||||||||||||
(In thousands, except share and per share data) |
|||||||||||||||||||||
Consolidated Statements of Operations: |
|
||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||
Research and development |
|
$ |
1,919 |
|
$ |
2,041 |
|
$ |
3,173 |
|
$ |
8,318 |
|
$ |
1,294 |
|
$ |
1,969 |
|
$ |
10,287 |
Marketing and business development |
|
|
|
|
|
431 |
|
|
865 |
|
1,295 |
|
432 |
|
834 |
|
2,129 |
||||
General and administrative |
|
428 |
|
|
512 |
|
|
1,145 |
2,574 |
|
530 |
|
|
649 |
|
3,223 |
|||||
Operating loss |
$ |
2,347 |
$ |
2,984 |
|
$ |
5,183 |
$ |
12,187 |
$ |
2,256 |
$ |
3,452 |
$ |
15,639 |
||||||
Financial expenses (income), net |
|
(42 |
) |
|
(2 |
) |
|
660 |
1,037 |
|
154 |
(236 |
) |
801 |
|||||||
Net loss |
$ |
2,305 |
$ |
2,982 |
$ |
5,843 |
$ |
13,224 |
$ |
2,410 |
$ |
3,216 |
$ |
16,440 |
|||||||
Basic and diluted net loss per ordinary
|
$ |
0.96 |
|
$ |
1.19 |
|
$ |
2.35 |
|
$ |
0.96 |
|
$ |
1.27 |
|
||||||
Weighted average number of ordinary shares used to compute basic and diluted net loss per ordinary share |
2,401,300 |
2,462,603 |
2,495,366 |
2,489,319 |
2,550,832 |
||||||||||||||||
Pro forma basic and diluted net loss per share (unaudited)(1) |
$ |
0.80 |
$ |
0.44 |
|||||||||||||||||
Weighted average number of shares used to compute basic and diluted pro forma net loss per share (unaudited) |
7,443,970 |
7,499,436 |
(1)
See Note 2m of the notes to our consolidated financial statements.
|
As of
|
||||||||||||
2003 |
2004 |
2005 |
|||||||||||
(Unaudited) |
|||||||||||||
(In thousands) |
|||||||||||||
Consolidated Balance Sheet Data: |
|
|
|
|
|||||||||
Cash and cash equivalents |
|
$ |
1,052 |
|
$ |
1,514 |
|
$ |
4,917 |
$ |
8,491 |
||
Short-term bank deposits |
|
|
|
7,018 |
|||||||||
Marketable securities |
1,529 |
102 |
|
|
|||||||||
Working capital |
2,347 |
969 |
3,645 |
14,377 |
|||||||||
Total assets |
3,136 |
2,081 |
5,369 |
17,064 |
|||||||||
Convertible loan |
|
|
6,230 |
|
|||||||||
Long-term liabilities |
|
|
|
12 |
|||||||||
Total shareholders equity (deficiency) |
2,241 |
1,291 |
(2,323 |
) |
14,739 |
29
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with Selected Consolidated Financial Data, and our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under Risk Factors beginning on page 9 and elsewhere in this prospectus.
Overview
We are seeking to develop and commercialize novel diagnostic and therapeutic products based on a recently discovered group of genes known as microRNAs. We believe we are the first commercial enterprise to focus on the emerging microRNA field, and as a result, we have developed an early and strong intellectual property position related to the development and commercialization of microRNA-based products. In order to discover and validate microRNAs, we developed a discovery process that integrates proprietary computer-based algorithms and customized biological techniques. To date, we have filed patent applications with claims potentially covering approximately 350 biologically validated human microRNAs and 35 biologically validated viral microRNAs, which constitute more than half of all biologically validated human and viral microRNAs of which we are aware. To access the resources and expertise necessary to successfully develop microRNA-based products, we have entered into strategic collaborations and license agreements with leading pharmaceutical, biotechnology and diagnostic companies, as well as academic and medical institutions. Using our collaborative relationships, intellectual property and expertise in the field of microRNAs, we have initiated multiple programs to develop microRNA-based diagnostic and therapeutic products for various cancers and infectious diseases.
Since our inception in March 2000, we have generated significant losses. As of June 30, 2006, we had an accumulated deficit of $16.4 million. We have funded our operations to date primarily through proceeds received from the sale of equity securities to investors in the aggregate amount of $30.5 million. We are a development stage company and, as such, have focused our efforts since inception primarily on research and development, building and maintaining our intellectual property, business planning and raising capital. We have not achieved profitability and we expect to incur significant additional losses over the next several years. We expect our net losses to increase primarily due to research and development activities relating to our internal product development, collaborations, business development and other general corporate activities. We anticipate that our operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods. Our sources of potential funding for the next several years are expected to include proceeds from this offering and possibly additional equity and debt financings, royalties, license and other fees, funded research and development payments, and milestone payments under existing and future collaborative arrangements.
Research and development expenses represented 57% of our total operating expenses for each of the six months ended June 30, 2005 and June 30, 2006 and 82%, 68% and 62% of our total operating expenses for the years ended December 31, 2003, 2004 and 2005, respectively. We have not tracked our historical research and development costs on a project-by-project basis because the majority of our efforts have been focused on the development of capabilities associated with our microRNA discovery process rather than on specific projects. Major components of the $3.2 million in research and development expenses for the year ended December 31, 2005 include payroll and related expenses of $1.9 million, intellectual property costs of $396,000 and research materials and related expenses of $358,000. The $2.0 million in research and development expenses for the six months ended June 30, 2006 included payroll and related expenses of $967,000, research materials and related expenses of $434,000 and intellectual property-related costs of $219,000.
Financial Operations Overview
Revenues
We intend to employ a three-pronged strategy to develop and commercialize (1) research consumables, (2) diagnostic products and (3) therapeutic products. To date, we have not generated any revenues from diagnostic or therapeutic product sales, and we do not expect to generate any such revenues in the near future. In 2006, we expect
30
to generate revenues from royalties we receive on the sale of research products and services using our microRNAs. Prior to its acquisition by Applied Biosystems, we entered into a license agreement with Ambion for use of our microRNAs in commercializing a variety of research products. We are entitled to receive royalties under this agreement. Ambion incorporated our microRNAs into its line of research kits in the fourth quarter of 2005.
Research and Development Expenses
We expense research and development costs as incurred. Our research and development expenses currently include costs of salaries and related expenses, activities related to intellectual property, tissue samples and other research materials, supplies, equipment depreciation, outsourced clinical and other research activities, consultants, utilities, administrative expenses and an allocation of corporate costs. We are currently conducting a number of studies analyzing microRNA expression profiles in healthy and diseased samples and expect that the number of such studies will increase in 2006. As a result, we expect that our expenses related to the purchase of tissue and body fluid samples, as well as other research consumables, will increase in the future. We expect to continue to devote substantial resources to research and development, and as a result, we expect such expenses to increase substantially in the future.
Marketing and Business Development Expenses
Marketing and business development expenses consist primarily of salaries and related expenses, and expenses related to travel, legal and general business development activities. As we continue to explore new collaborations to develop and commercialize diagnostic and therapeutic products based on microRNAs, we anticipate that these expenses will increase.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, professional fees and expenses related to general corporate activities. We anticipate that general and administrative expenses will increase as a result of the expected expansion of our operations (both in Israel and in the U.S.), an increase in legal and other professional fees in connection with general corporate matters and additional costs associated with our operation as a public company.
Financial Expenses (Income)
Financial expenses consist of interest and fees payable on outstanding loans from banks, expenses related to the issuance of and amortization of discount on convertible loans, expenses related to the issuance of warrants and losses on marketable securities. Financial income includes interest income, which is interest earned on deposits we maintain with banks, gains on marketable securities and income related to changes in the fair value of embedded derivatives related to a convertible loan. In addition, financial expenses and income include expenses and income related to the impact of fluctuations in the exchange rate between the New Israel Shekel, or NIS, and the U.S. dollar.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition and the fair value of our ordinary shares, particularly as it relates to stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements included in this prospectus, we believe the following accounting policies to be the most critical in understanding our consolidated financial statements and the assumptions management used.
31
Revenue Recognition
We will recognize revenues, if any, from product sales in accordance with the SECs Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements , or SAB 104. SAB 104 requires recognition of revenues from product sales that require no continuing performance on our part if four basic criteria have been met:
·
there is persuasive evidence of an arrangement;
·
delivery has occurred and title has passed to our customer;
·
the fee is fixed and determinable and no further obligation exists; and
·
collectibility is reasonably assured.
To the extent entitlements to future products are included in a multi-element arrangement, revenue is recognized upon delivery, provided fair value for the elements exists. In multi-element arrangements that include entitlement to a future product, if fair value does not exist for all undelivered elements, revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established according to Emerging Issues Task Force Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables , or EITF 00-21.
We have entered into collaboration and license agreements with a number of parties and expect to enter into additional such agreements. The terms of such agreements may include payment of non-refundable upfront fees, development milestone payments, funding of research and development efforts, and payments based on product sales. Royalties under our collaboration and license agreements will be recognized when earned and we receive written confirmation from the licensee of sales subject to royalties and no future obligation exists. Non-refundable advancements of royalties, which are fully chargeable against royalties, are recorded as deferred revenue until the above mentioned criteria for recognizing revenue are met.
Accounting for Stock-Based Compensation and Fair Value of Our Ordinary Shares
We account for our stock-based employee compensation using the intrinsic-value method of accounting set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , or APB 25. In accordance with APB 25 and related interpretations, compensation expense for options is recognized based on the excess, if any, of the fair value of the underlying shares at the grant date of the award or other measurement date over the amount an employee must pay to acquire the shares. For awards that generate compensation expense, as defined under APB 25, we recognized the expense over the vesting period of the award. In Note 2 to our consolidated financial statements, we disclose the pro forma effects on net loss as if the compensation measured based on the fair value of the options issued in accordance with Financial Accounting Standards Board, or FASB, Statement No. 123, Accounting for Stock-Based Compensation , or SFAS 123, had been expensed.
In December 2004, FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, or SFAS 123(R), which requires companies to expense the fair value of employee stock options and other forms of share-based compensation. SFAS 123(R) requires non-public companies that used the minimum value method in SFAS 123 for either recognition or pro forma disclosures to apply SFAS 123(R) using the prospective-transition method. As such, we will continue to apply APB 25 in future periods to equity awards outstanding at the date of SFAS 123(R) adoption that were measured using the minimum value method for the SFAS 123 pro forma disclosure.
Under SFAS 123(R), we are required to determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We use the minimum value method to value options for pro forma financial statement disclosure purposes.
The adoption of Statement 123(R) on January 1, 2006 had no material effect on our net loss and basic and diluted net loss per ordinary share for the six months ended June 30, 2006, as compared to if we had continued to account for share-based compensation under APB 25. If we had not adopted Statement 123(R), it would have had no material effect on pro forma basic and diluted net loss per ordinary share under the minimum value method for the six months ended June 30, 2006 in comparison to reported basic and diluted net loss per ordinary share.
The fair value of our ordinary shares was determined by our board of directors on each grant date based on consideration of relevant factors, including the consideration paid for our preferred shares and convertible loans, the
32
superior rights and preferences of securities senior to our ordinary shares at the time of each grant, our operating and financial performance and the market trends of comparable public companies. At the time of such grants, we determined that a contemporaneous valuation by an unrelated valuation specialist was neither practical nor necessary.
As part of our preparation for our initial public offering, and in accordance with the valuation approaches set forth in the American Institute of Certified Public Accountants, or AICPA, Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation ,our board of directors reassessed, retrospectively, the fair value of our ordinary shares at key points in time in 2004, 2005 and 2006. In reassessing the fair value of our ordinary shares, we considered numerous objective and subjective factors, including:
·
a third-party independent valuation;
·
the pricing of private sales of our preferred shares;
·
the comparative rights and preferences of our ordinary shares and our preferred shares;
·
the progression of our microRNA research and discovery and product development efforts;
·
significant changes, events and milestones in our business development, including the entry into significant license agreements and collaboration arrangements; and
·
the likelihood of an initial public offering.
The retrospective analysis utilized the following methods outlined in the AICPA Practice Aid:
·
Option Pricing Model . Because the proceeds of any liquidation event are to be divided among the holders of our preferred shares prior to the holders of our ordinary shares, we determined that the ordinary shares have the nature of a stock option, which has a positive value only when our liquidation value exceeds the liquidation preference of our preferred shares. Accordingly, an option pricing model was used to estimate the value of our ordinary shares as the net value of a series of call options representing the present value of the expected future returns to our ordinary shares at various times.
·
Probability Weighted Expected Return Method . We also utilized a probability weighted expected return method to estimate the value of our ordinary shares based upon an analysis of the future enterprise value of the company assuming various future outcomes, such as a liquidation event or an initial public offering, and taking into account recent significant events or milestones we achieved.
A retrospective valuation of our ordinary shares was determined as of December 31, 2004, December 31, 2005 and March 31, 2006. As of December 31, 2004, there was no likelihood of an initial public offering, and accordingly, our valuation analysis included only a liquidation scenario. Based on the foregoing, we determined that the fair value of our ordinary shares as of December 31, 2004 was $1.95 per share. Between December 31, 2004 and December 31, 2005, the following factors contributed to an increase in the valuation of our ordinary shares:
·
the progression of our research and discovery efforts, including an in vitro demonstration in July 2005 that silencing a Rosetta microRNA decreased the growth rate of prostate cancer cells and the completion of sequencing of approximately 200 novel microRNAs and the biological validation of more than 120 Rosetta microRNAs;
·
our entry into our first significant collaboration agreement in April 2005, the license agreement with Ambion (now Applied Biosystems) for use of our microRNAs in commercializing a variety of research products; and
·
an increased likelihood of an initial public offering.
Because there was an increased likelihood of an initial public offering as of December 31, 2005, the valuation analysis as of such date included both a liquidation scenario and an initial public offering scenario. Based on the foregoing, we determined the fair value of the ordinary shares to be $4.253 as of December 31, 2005. Between December 31, 2005 and March 31, 2006, the following factors contributed to an increase in the valuation of our ordinary shares:
·
the progression of our research and discovery efforts, including progress in the development of microRNA profiling technology for identifying microRNA biomarkers for diagnostic and therapeutic development and progress in sequencing and biologically validating additional novel microRNAs;
33
·
our entry into a collaboration and license agreement in January 2006 with Ambion Diagnostics (now Asuragen) to co-develop diagnostic products for prostate cancer;
·
our entry into a collaboration license agreement in January 2006 with Isis Pharmaceuticals to co-develop therapeutics for liver cancer; and
·
a further increase in the likelihood of an initial public offering.
The valuation analysis of our ordinary shares as of March 31, 2006 also included both a liquidation scenario and an initial public offering scenario, with an increased likelihood of an initial public offering as compared to the valuation analysis as of December 31, 2005. Based on the foregoing, we determined the fair value of the ordinary shares to be $5.284 as of March 31, 2006.
The most significant factor contributing to the increased value of our ordinary shares between December 31, 2004 and December 31, 2005 was our entry into the license agreement in April 2005 with Ambion (now Applied Biosystems) for use of our microRNAs in commercializing a variety of research products. Accordingly, we determined that the value of the ordinary shares as of December 31, 2004, determined as set forth above, was appropriate through the first quarter of 2005, and the fair value of the ordinary shares underlying options granted to employees during this time period was deemed to be $1.95 per share. The value of our ordinary shares after this time period and through January 1, 2006 was determined to be $4.253 per share, the fair value as of December 31, 2005 determined as set forth above, and, accordingly, the fair value of the ordinary shares underlying options granted to employees during this time period was deemed to be $4.253 per share.
The most significant factors contributing to the increased value of our ordinary shares between January 1, 2006 and March 31, 2006 were our entry into a collaboration and license agreement with Ambion Diagnostics (now Asuragen) to co-develop diagnostic products for prostate cancer in January 2006 and our entry into a collaboration license agreement with Isis Pharmaceuticals to co-develop therapeutics for liver cancer in January 2006. Accordingly, the value of our ordinary shares after January 1, 2006 through March 31, 2006 was determined to be $5.284 per share, the fair value determined as of March 31, 2006 as set forth above, and the fair value of the ordinary shares underlying options granted to employees during this time period was deemed to be $5.284 per share. Because there were no significant events or milestones in April 2006, we also determined that the value of the ordinary shares as of March 31, 2006, determined as set forth above, was appropriate through April 2006, and the fair value of the ordinary shares underlying options granted to employees in April 2006 was deemed to be $5.284 per share.
Between May 1, 2006 and June 30, 2006, the following factors contributed to an increase in the valuation of our ordinary shares:
·
the progression of our research and discovery efforts, including completion of the development of microRNA profiling technology for identifying microRNA biomarkers, progress in sequencing and biologically validating additional novel microRNAs and identification of microRNA signatures differentiating between cancerous and healthy tissue samples in lung, prostate, colon and bladder cancers;
·
our entry into an agreement in May 2006 with Hadasit Medical Research Services and Development Ltd., a subsidiary of Hadassah Medical Organization, to collaborate on research on the suppression of HCV using microRNAs;
·
our entry into a collaboration and license agreement in May 2006 with U.S. Genomics for the development of a non-invasive microRNA-based early detection test for lung cancer;
·
our entry into a license agreement in May 2006 with The Rockefeller University to use its microRNAs for diagnostic applications;
·
our entry into a research collaboration in May 2006 with Tel Hashomer Medical Research Infrastructure and Services, Ltd.;
·
our entry into an agreement in June 2006 with Hadasit Medical Research Services and Development Ltd. to collaborate on research in the field of microRNAs;
·
our entry into a license agreement in June 2006 with Garching Innovation GmbH, the technology transfer agency of the Max Planck Society, to use its microRNAs for diagnostic applications;
34
·
the approval in June 2006 of a grant from the Israel-U.S. Binational Industrial Research and Development Foundation, or BIRD Foundation, relating to our joint liver cancer research project with Isis Pharmaceuticals; and
·
a further increase in the likelihood of an initial public offering.
Using the same factors set forth above, including a third-party independent valuation, we also contemporaneously determined the fair value of our ordinary shares as of June 30, 2006 to be $6.59 per share.
For options granted subsequent to June 30, 2006, we valued the underlying ordinary shares using the probability weighted expected return method with an increased likelihood of an initial public offering as of the date of each such grant. Accordingly, we determined the fair value of the ordinary shares underlying the options granted in July 2006 and August 2006 to be $7.467 and $9.231 per share, respectively.
The following summarizes information regarding the options granted by us to employees from January 1, 2005 through the date of this prospectus:
Date of Grant |
Number of
|
Exercise
|
Fair
|
|||||
February 2005 |
|
10,673 |
|
$ |
4.70 |
|
$ |
1.950 |
June 2005 |
7,667 |
|
4.253 |
|||||
June 2005 |
3,465 |
4.70 |
4.253 |
|||||
August 2005 |
6,278 |
4.70 |
4.253 |
|||||
October 2005 |
45,274 |
4.70 |
4.253 |
|||||
January 1, 2006 |
34,922 |
3.50 |
4.253 |
|||||
March 2006 |
7,936 |
3.50 |
5.284 |
|||||
April 2006 |
67,555 |
3.50 |
5.284 |
|||||
July 2006 |
217,857 |
3.50 |
7.467 |
|||||
July 2006 |
71,864 |
6.14 |
7.467 |
|||||
August 2006 |
197,146 |
6.59 |
9.231 |
During the six months ended June 30, 2005 and 2006 we recorded compensation expenses of $80,000 and $67,000 respectively. During 2003, 2004 and 2005, we recorded deferred compensation of $174,000, $239,000 and $32,000, respectively, and related compensation expense of $177,000, $92,000 and $124,000, respectively. The deferred compensation will be recorded as an expense over the vesting period of the underlying options using a straight line method. During the years 2003 through 2004, all the options granted to employees were granted at no exercise price, thereby resulting, under APB 25, in compensation that is equal to the fair value of the ordinary shares at the grant date.
In connection with options granted to non-employees for services during the six months ended June 30, 2005 and 2006, we have recorded stock-based compensation expenses of $51,000 and $137,000 respectively. During the years ended December 31, 2003, 2004 and 2005 and our determination of the fair value of our ordinary shares, we have recorded stock-based compensation expense of approximately $59,000, $28,000 and $124,000, respectively, which represents the fair value of non-employee grants. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option pricing model, was re-measured using the then current fair value of our ordinary shares. Since the fair market value of the ordinary shares to non-employees is subject to change in the future, the compensation expense recognized during the six months ended June 30, 2006 and the years ended December 31, 2003, 2004 and 2005 may not be indicative of future compensation charges.
We have also recorded compensation related to restricted share awards that were issued to several directors in 2004. The compensation will be recorded as an expense over the vesting period of the underlying restricted shares. We recorded non-cash stock-based compensation expense of $19,000 and $43,000 for the six months ended June 30,
35
2005 and 2006, respectively, and $24,000 and $37,000 during the years ended December 31, 2004 and 2005, respectively.
Results of Operations
Six Months Ended June 30, 2005 and 2006
Revenues. We recognized no revenues for the six months ended June 30, 2005 and 2006.
Research and development expenses. Research and development expenses were $2.0 million for the six months ended June 30, 2006, compared to $1.3 million for the six months ended June 30, 2005, an increase of $675,000, or 52%. This increase resulted primarily from an increase of $276,000 in purchasing of tissue samples and other research related materials, an increase of $135,000 in salaries and related expenses for research and development related employees and an increase of $118,000 in expenses relating to our intellectual property.
Marketing and business development expenses. Marketing and business development expenses were $834,000 for the six months ended June 30, 2006, compared to $432,000 for the six months ended June 30, 2005, an increase of $402,000, or 93%. This increase resulted primarily from an increase of $150,000 in our U.S. business development activities, an increase of $132,000 in legal fees related to the negotiation and execution of a number of collaboration agreements that were signed in 2006 and an increase of $79,000 from the hiring of additional staff.
General and administrative expenses. General and administrative expenses were $649,000 for the six months ended June 30, 2006, compared to $530,000 for the six months ended June 30, 2005, an increase of $119,000, or 22%. This increase resulted primarily from an increase of $245,000 in salaries and related expenses from the addition of key members to our management team, including several senior managers in finance and accounting, which was offset in part by a decrease of $83,000 in corporate related legal fees.
Financial income, net. Net financial income was $236,000 for the six months ended June 30, 2006, compared to net financial expenses of $154,000 for the six months ended June 30, 2005, an increase in net financial income of $390,000. Financial income for the six months ended June 30,2006 was derived primarily from interest income on bank deposits. Financial expenses for the six months ended June 30, 2005 included $135,000 in issuance costs related to a convertible loan.
Years Ended December 31, 2003, 2004 and 2005
Revenues. As of December 31, 2005, we had not recognized any revenues. In 2005, we received $228,000 as an advance of future royalty payments in connection with a license agreement. Revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established.
Research and development expenses. Research and development expenses were $3.2 million in 2005, compared to $2.0 million in 2004, an increase of $1.2 million, or 55%. This increase resulted from the addition of research and development related employees and an increase in expenses related to building and maintaining our intellectual property position. Research and development expenses were $2.0 million in 2004, compared to $1.9 million in 2003, an increase of $122,000, or 6%. This increase resulted primarily from an increase in salary and related expenses for research and development related employees.
Marketing and business development expenses. Marketing and business development expenses were $865,000 in 2005, compared to $431,000 in 2004, an increase of $434,000, or 101%. This increase resulted from an increase in legal fees related to the negotiation and execution of a number of collaboration agreements, the hiring of additional staff and the formation of our new subsidiary in the U.S. Marketing and business development-related activities were commenced in 2004, and as such, we did not incur marketing and business development expenses in 2003.
General and administrative expenses. General and administrative expenses were $1.1 million in 2005, compared to $512,000 in 2004, an increase of $633,000, or 124%. This increase resulted from the addition of key members to our management team, including several senior managers in finance and accounting, and an increase in human resource advisory services and related professional fees. General and administrative expenses were $512,000 in 2004, compared to $428,000 in 2003, an increase of $84,000, or 20%.
36
Financial expenses (income), net. Net financial expenses were $660,000 in 2005, compared to net financial income of $2,000 in 2004, an increase in net financial expenses of $662,000. In 2005, financial expenses included issuance costs and amortization of discount related to a convertible loan and compensation expenses related to warrants granted under a finder fee agreement, offset in part by interest income on short term deposits. Financial income in 2004 was $2,000, compared to $42,000 in 2003, a decrease of $40,000, or 95%.
Liquidity and Capital Resources
Since our inception, we have generated significant losses and expect to continue to generate losses for the foreseeable future. As of June 30, 2006, we had an accumulated deficit of $16.4 million. We have funded our operations primarily through the proceeds from the sales of our equity securities in an aggregate gross of $30.5 million, including $14.0 million from our sale of 1,822,422 series C preferred shares in a private placement at a purchase price of $7.68 per share in April 2006.
As of June 30, 2006, we had cash and cash equivalents and short-term bank deposits of $15.5 million. Net cash used in operating activities was $2.8 million for the six months ended June 30, 2006, compared to $1.9 million for the six months ended June 30, 2005, an increase of $956,000, or 51%. This increase resulted primarily from a decrease in non-cash net working capital (defined as marketable securities and accounts receivable less trade payables, deferred revenue, deferred issuance costs and other accounts payable and accruals) for the six months ended June 30, 2006 of $15,000, compared to a decrease in non-cash net working capital for the six months ended June 30, 2005 of $285,000, due to timing differences in certain cash receipts and payments. In addition, operating expenses for the six months ended June 30, 2006 increased $1.2 million, compared to the six months ended June 30, 2005, as a result of an increase in research and development activities, business development and marketing expenses and general and administration expenses. Net cash used in investing activities was $7.2 million for the six months ended June 30, 2006, compared to $39,000 for the six months ended June 30, 2005, an increase of $7.1 million. This increase was due to an increase of $7.0 million in short-term bank deposits and an increase of $129,000 in purchasing of research and general equipment. Net cash provided by financing activities was $13.6 million for the six months ended June 30, 2006, compared to $6.0 million for the six months ended June 30, 2005, an increase of $7.6 million, or 128%. Net cash provided by financing activities for the six months ended June 30, 2006 consisted of net proceeds of $13.8 million from the sale and issuance of series C preferred shares in April 2006 and the issuance of series B preferred shares upon the exercise of warrants in April 2006, offset in part by $181,000 used to repay short-term bank loans and a shareholder loan. Net cash provided by financing activities for the six months ended June 30, 2005 consisted of proceeds of $4.3 million from convertible loans and net proceeds of $1.7 million from the sale and issuance of series B preferred shares.
Net cash used in operating activities was $4.2 million in 2005, compared to $1.2 million in 2004, an increase of $3.0 million, or 261%. This increase was primarily the result of an increase in research and development activities and the hiring of certain senior managers, offset in part by an increase in net working capital. Net cash used in investing activities was $155,000 in 2005, compared to $144,000 in 2004, an increase of $11,000, or 7%. Net cash provided by financing activities was $7.7 million in 2005, compared to $1.8 million in 2004, an increase of $6.0 million, or 339%. This increase was the result of our receipt of gross proceeds of $6.1 million from the issuance of a convertible loan in the third quarter of 2005.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Contractual Obligations and Commitments
Set forth below is a description of our contractual cash obligations as of December 31, 2005. Operating lease obligations consist of rent payable under our existing facility leases and lease payments for company automobiles.
Total |
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
||||||||||||||||
(In thousands) |
||||||||||||||||||||||
Operating lease obligations |
|
$ |
681 |
|
$ |
261 |
|
$ |
253 |
|
$ |
165 |
|
$ |
2 |
|
$ |
|
|
$ |
|
In addition, subsequent to December 31, 2005, we entered into license agreements which include cash obligations. These obligations are set forth below as other long-term obligations:
37
Total |
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
||||||||||||||||
(In thousands) |
||||||||||||||||||||||
Other long-term obligations |
|
$ |
426 |
|
$ |
85 |
|
$ |
93 |
|
$ |
55 |
|
$ |
78 |
|
$ |
115 |
|
$ |
* |
*
Under our current license agreements, we are obligated to pay an aggregate amount of $165,000 annually after 2010. Each of these agreements terminate upon the expiration of all patents relating to such agreement, including patents to be filed and potentially issued at an indeterminable date in the future, and, thus, such termination dates cannot be determined at this time. Accordingly, we are also unable to determine the aggregate amount of such payments due after 2010 at this time. However, based on current facts and circumstances, we estimate that our obligations under these agreements will be through at least 2032. For a more detailed description of the termination provisions of our license agreements, see Business Strategic Alliances and Research and License Collaborations beginning on page 58.
Funding Requirements
We expect to incur continuing and increasing losses from operations for at least the next several years. In particular, as described above, we expect to incur increasing research and development expenses, marketing and business development expenses and general and administrative expenses in the future as we expand our operations and product development efforts. We believe that the net proceeds from this offering, our existing cash and cash equivalents, and funding we expect to receive under our current collaboration and license agreements will be sufficient to fund our operations for at least the next 18 months. However, our funding requirements may change and will depend upon numerous factors, including but not limited to:
·
progress in our research and development programs;
·
the resources, time and costs required to initiate and complete development and any required preclinical studies and clinical trials, and obtain regulatory approvals for our product candidates;
·
the timing, receipt, and amount of milestone, royalty and other payments from present and future collaborators, if any;
·
costs necessary to protect our intellectual property; and
·
the timing, receipt and amount of sales, if any, by us of any approved products.
We anticipate that we will require substantial additional funding and expect to augment our cash balance through financing transactions, including the issuance of debt or equity securities and further strategic collaborations. No arrangements have been entered into for any future financing, and there can be no assurance that we will be able to obtain adequate levels of additional funding on favorable terms, if at all. If adequate funds are not available, we may be required to:
·
delay, reduce the scope of or eliminate certain research and development programs;
·
obtain funds through arrangements with collaborators or others on terms unfavorable to us or that may require us to relinquish rights to certain technologies or product candidates that we might otherwise seek to develop or commercialize independently; or
·
pursue merger or acquisition strategies.
Recently Issued Accounting Pronouncements
On December 16, 2004, FASB issued Statement No. 123 (revised 2004), Share-Based Payment , or SFAS 123(R), which is a revision of SFAS 123. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123 permitted, but did not require, share-based payments to employees to be recognized based on their fair values while SFAS 123(R) requires all share-based payments to employees to be recognized based on their fair values. SFAS 123(R) also revises, clarifies and expands guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods. SFAS 123(R) will be applicable to us in the first fiscal year beginning after January 1, 2006. The adoption of SFAS 123(R) is not expected to have a significant effect on our results of operations. We plan to adopt
38
SFAS 123(R) using the prospective-transition method as required for nonpublic entities that use the minimum value method to account for their pro forma share-based payments disclosures under SFAS 123. As such, we will continue to apply APB 25 in future periods to equity awards outstanding at the date of SFAS 123(R) adoption. All awards granted, modified, or settled after the date of adoption should be accounted for using the measurement, recognition, and attribution provisions of SFAS 123(R).
In March 2005, the SEC released Staff Accounting Bulletin No. 107, Share-Based Payment , or SAB 107. SAB 107 states the SEC staffs position regarding the application of SFAS 123(R) and contains interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. SAB 107 also provides the SEC staffs views regarding the valuation of share-based payment arrangements for public companies. SAB 107 highlights the importance of disclosures made relating to the accounting for share-based payment transactions. We are currently reviewing the effect of SAB 107, however, we do not believe that SAB 107 will have a material effect on our financial position, results of operations or cash flows.
In May 2005, FASB issued Statement No. 154, Accounting Changes and Error Corrections , or SFAS 154, a replacement of APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements . SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. APB No. 20, previously required that most voluntary changes in accounting principles be recognized by including in net income, for the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 requires retroactive application to prior periods financial statements of a voluntary change in accounting principles unless it is impracticable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risk related to changes in interest rates primarily from our investments in certain short-term investments. Our current investment policy is to maintain an investment portfolio through highly rated financial institutions in Israel and the U.S., primarily in money market funds as of June 30, 2006.While our cash and investment balances will increase upon completion of the offering described by this prospectus, we will maintain an investment portfolio consisting mainly of U.S. money markets and government grade securities, directly or through managed funds. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk-sensitive instruments to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.
Exchange Rate Risk
Our foreign currency exposures give rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, against the NIS. We are exposed to the risk of fluctuation in the U.S. dollar/NIS exchange rate. We expect to derive substantially all of our revenues in U.S. dollars. However, the substantial majority of our expenses are denominated in NIS, and we anticipate that a material portion of our expenses will continue to be denominated in NIS. If the U.S. dollar weakens against the NIS, we will experience a negative impact on our profit margins.
39
BUSINESS
Overview
We are seeking to develop and commercialize new diagnostic and therapeutic products based on a recently discovered group of genes known as microRNAs. MicroRNAs are naturally expressed, or produced, using instructions encoded in DNA and are believed to play an important role in regulating protein production. Because proteins control most biological processes, we believe that microRNAs have the potential to form the basis of a novel class of diagnostic tests and therapies for many serious illnesses, including cancer and infectious diseases. We have decided to focus our initial efforts on cancer, as research has indicated that microRNAs play a role in various types of tumors. We developed a discovery process that integrates proprietary computer-based algorithms and customized biological techniques in order to discover and biologically validate microRNAs. To date, we have filed patent applications with claims potentially covering approximately 350 biologically validated human microRNAs and 35 biologically validated viral microRNAs, which constitute more than half of all biologically validated human and viral microRNAs of which we are aware. In addition, our patent applications cover thousands of genomic sequences that we have identified using our discovery process and believe are potential microRNA candidates.
We believe that we are the first commercial enterprise to focus on the emerging microRNA field, and as a result, we have developed an early and strong intellectual property position related to the development and commercialization of research, diagnostic and therapeutic products and other applications based on microRNAs. Using our intellectual property, collaborative relationships with leading commercial enterprises and academic and medical institutions, and expertise in the field of microRNAs, we have initiated programs to develop microRNA-based diagnostic and therapeutic products for various cancers and infectious diseases. Our current programs to develop microRNA-based diagnostic tests are focused on prostate, lung, colorectal, breast and bladder cancers. We are also developing a diagnostic test to identify the origin of the primary tumor in metastatic cancers of unknown primary site, or CUP. In addition, we are collaborating with others on the development of microRNA-based therapeutic products for the treatment of liver cancer and infectious diseases, such as HIV and HCV.
Background
The MicroRNA Opportunity
The Human Genome Project, which began formally in 1990, was a 13-year project coordinated by the U.S. Department of Energy and the National Institutes of Health to identify all genes in human DNA and determine the sequence of the approximately 3 billion chemical base pairs of which it is comprised. The Human Genome Project identified and mapped approximately 25,000 protein-coding genes, a mere 1.9% of human DNA. The remaining DNA has come to be known as dark or junk DNA and was presumed to serve no particular purpose because it does not hold instructions for the production of proteins, a process referred to as coding.
Rosetta Genomics was founded six years ago with a different view regarding junk DNA. We believed that junk DNA actually contains hundreds, possibly thousands, of tiny RNA genes that encode small RNA molecules, later termed microRNAs, which play an important role in the regulation of protein production, and hence the onset and progression of disease. Prior to our formation, there was little scientific interest in microRNAs because they were not thought to exist in humans. The few academic institutions that were searching for human microRNAs were using labor-intensive, biological methods, making the discovery process costly and time consuming.
We set out to discover human microRNAs and to develop a more efficient discovery process using computer-based informatics to scan the entire genome, an approach that, to our knowledge, had not been attempted previously. To accomplish our goal, we constructed a powerful, proprietary informatics platform using state-of-the art components from leading hardware and software companies, such as Microsoft, Dell, Emulex and EMC. The database, which was developed in collaboration with Microsoft, was populated with approximately 20 billion short genomic sequences extracted from junk DNA. We then developed unique algorithms, allowing us to mine the entire human genome for potential microRNAs.
Using our discovery process, we demonstrated that the number of human microRNAs is significantly higher than what was previously believed. In 2005, a study confirming our hypothesis was published by us in Nature Genetics , the premier peer-reviewed journal in genetics. Today, six years after inception, we have discovered and filed extensive patent applications with claims potentially covering approximately 350 biologically validated human microRNAs and 35 biologically validated viral microRNAs. This constitutes more than half of all biologically
40
validated human and viral microRNAs of which we are aware. We believe these microRNAs provide us a basis for the development of diagnostic and therapeutic products and other applications for cancer and other diseases. In addition, our patent applications cover thousands of genomic sequences that we have identified using our discovery process that we believe are potential microRNA candidates.
The interest in microRNAs has grown tremendously over the past five years. In 2001, there were only four published articles in peer-reviewed journals focused on microRNAs. In 2005, there were over 350 such articles. In addition, Science , a leading scientific journal, identified short non-coding RNAs, of which microRNAs are an important subset, as the number one breakthrough in 2002. The scientific community, as well as pharmaceutical, diagnostic and biotech companies, have begun to realize the potential offered by microRNAs for new diagnostic and therapeutic products.
The growing interest in microRNAs is related to another recently developed field of RNA technology that uses synthetically produced molecules known as small interfering RNAs, or siRNAs. A siRNA is designed to bind to and degrade a messenger RNA, or mRNA, thereby decreasing the overall level of the protein produced by that messenger RNA. However, because siRNAs cannot increase protein production, they cannot be used to treat diseases in which increasing the levels of certain proteins would be beneficial. In contrast, microRNAs can potentially be used either to decrease or increase the levels of proteins. Since microRNAs are naturally produced inhibitors of protein production, a synthetic molecule designed to mimic the activity of a microRNA can decrease the level of a protein produced in abnormally high amounts. On the other hand, a synthetic molecule designed to inhibit a microRNA would cause a decrease in the level of the microRNA and, consequently, an increase in the level of a beneficial protein. In addition, since microRNAs are naturally produced by cells, they can be used as indicators, or biomarkers, of disease, whereas siRNAs cannot be used as such since they are synthetically produced molecules.
The Role of MicroRNAs in Protein Production
Proteins are the building blocks of all living cells. The type of cell, its function, and the timing of its death are determined by which proteins are produced in the cell, and at what quantities and time they are produced. However, the proteins are the end product of a complex process which begins with the genetic code present in DNA. Before a protein is expressed, or produced, relevant parts of the DNA are copied into a messenger RNA. Each messenger RNA holds a code with instructions on how to build a specific protein using a process called translation. Although one messenger RNA molecule is capable of translating hundreds of thousands of protein molecules, the number it actually produces is regulated by microRNAs.
MicroRNAs are expressed based on the instructions encoded in DNA. The following diagram describes this process:
The Process of MicroRNA Expression
(a)
The microRNA precursor is first copied, or transcribed, from DNA.
(b)
This precursor folds onto itself to form a molecule which is shaped like a hairpin.
41
(c)
The microRNA is cut out from the precursor molecule.
Once expressed, the microRNA is capable of binding to specific messenger RNAs, ultimately inhibiting the production of the specific proteins produced by these messenger RNAs. The role that microRNAs play in protein production is described in the following diagram:
The Role of MicroRNAs in Protein Production
(a)
The messenger RNA instructs the ribosome to produce its corresponding protein.
(b)
When a microRNA chemically binds to a messenger RNA, protein production is blocked.
There is strong scientific evidence indicating that microRNAs are important regulators of protein production, and as such, play a significant role in cellular processes, including the timing of cellular development, hematopoiesis (the formation of blood cellular components), fat metabolism, organogenesis (the development of internal organs), apoptosis (programmed cell death), cell proliferation and differentiation, and tumorigenesis (the formation of a tumor). As a result, although research in this area is both preliminary and limited, it is believed that microRNAs have a role in the onset and progression of many diseases, including cancer and infectious diseases. Accordingly, it is believed that microRNAs have the potential to form the basis for diagnostic and therapeutic products for such diseases, although no such products have been developed or commercialized to date. There can be no assurance that any such products will ever be successfully developed and commercialized.
Our Strategy
Our goal is to become the leader in the development and commercialization of research, diagnostic and therapeutic products and other applications based on microRNAs. Our key strategies to achieve this goal are as follows:
·
Build and maintain a strong intellectual property position. We believe we are the first commercial enterprise to focus on the emerging field of microRNAs. As a result, we believe we have developed an early and strong intellectual property position in the area of developing and commercializing microRNA-based products. Our patent strategy is to seek broad coverage on all of our identified microRNA sequences and then later file patent applications claiming composition-of-matter on microRNAs of commercial interest. We have also filed, and intend to continue to file, patent applications that claim method-of-use for specific diagnostic and therapeutic applications.
·
Pursue near-term commercial opportunities in research consumables and diagnostic products. We are pursuing near-term commercial opportunities in research consumables and diagnostic products using microRNAs. Prior to its acquisition by Applied Biosystems, we entered into a license agreement with Ambion for use of our microRNAs in commercializing a variety of research products. Ambion had incorporated our microRNAs into its line of microRNA-based research kits by the fourth quarter of 2005.
42
In addition, we are working both internally and in collaborations to develop a variety of diagnostic tests for cancer based on microRNA expression profiles. We have entered into agreements with Asuragen and U.S. Genomics to co-develop diagnostic products for prostate and lung cancer, respectively. We have also entered into collaborations with a number of academic and medical institutions to develop diagnostic products. In addition, as a complement to our own microRNA discovery capabilities, we have in-licensed approximately 130 biologically validated human microRNAs, which were discovered in collaboration with us, from Johns Hopkins University for use in any application. We have also in-licensed microRNAs and microRNA candidates, including approximately 50 biologically validated human microRNAs and approximately 30 biologically validated viral microRNAs from The Rockefeller University, as well as microRNAs and microRNA candidates, including approximately 110 biologically validated human microRNAs from Garching Innovation GmbH, the technology transfer agency of the Max Planck Society, for use in diagnostic products.
·
Pursue therapeutic product opportunities. We believe that we can take advantage of our microRNA discoveries and expertise to develop drugs, which, because of the lengthy FDA approval process, have a longer time horizon for commercial potential. We have entered into collaborations to develop a variety of therapeutic products based on microRNAs in oncology and infectious diseases, including a collaboration with Isis Pharmaceuticals to co-develop a drug for liver cancer. In addition, we believe microRNAs that are identified as biomarkers for a disease may also be used as the basis to develop therapeutic products to treat that disease.
·
Leverage our intellectual property position and microRNA expertise to continue to establish strategic collaborations. We intend to continue to establish strategic collaborations with leading pharmaceutical, biotechnology and diagnostic companies, as well as prominent academic and medical institutions, to further develop and commercialize products based on microRNAs. We believe that our strong intellectual property position and expertise in the field of microRNAs will be key in attracting additional collaboration partners.
Our Proprietary MicroRNA Discovery Process
Typically, researchers attempt to discover microRNAs using a biology-first approach, and have used informatics only to verify that the cloned sequences are part of a hairpin structure. This approach is relatively inefficient in detecting microRNAs that are in low concentrations or are specific to certain tissue types or stages of disease because it requires a vast amount of cloning and sequencing, which are costly and very time-consuming processes.
In contrast to the biology-first approach, our microRNA discovery process combines powerful informatics with high-throughput biological techniques. We first constructed a proprietary computer-based informatics platform in order to mine the entire human genome to identify the maximum number of likely microRNA candidates. Having identified microRNA candidates, we then test those candidates using microarrays. If they are detected by a microarray, we employ sequencing or qRT-PCR to biologically validate them. This funnel approach, illustrated and described in more detail below, allows us to scan many microRNA candidates, and to efficiently isolate and biologically validate the actual microRNAs.
43
Our MicroRNA Discovery Process
·
Identify hairpin structures. MicroRNAs are known to exist in hairpin structures. We mined the entire human genome, over 6 billion DNA bases, for such structures and identified approximately 11 million hairpin structures. In order to accomplish this, we had to model the two-dimensional structure of more than 7 million segments of the genome sequence.
·
Extract microRNA candidates. We developed a proprietary algorithm based on several features that we identified as being characteristics of previously biologically validated microRNAs. Using this algorithm, we selected a set of approximately 10,000 likely microRNA candidates from the 11 million hairpin structures we had previously identified.
·
Detect by microarray. In order to biologically detect the existence of the candidate microRNA, we developed a proprietary microarray technology designed to detect the expression of microRNAs in tissue or body fluid samples. Because the expression patterns of microRNAs are, in many cases, tissue-specific, we have scanned numerous tissue samples using these microarrays and have, to date, detected approximately 1,500 expressed microRNA candidates from the set of 10,000 likely microRNA candidates we had previously selected. As more experiments are performed on additional tissue samples, we believe additional microRNAs will be detected using this technology.
·
Biologically validate by sequencing or qRT-PCR. In order to further confirm their existence, the microRNA candidates that we detect by microarray are biologically validated using either our proprietary sequencing technique or Ambions proprietary qRT-PCR. To date, we have biologically validated approximately 320 microRNAs using these techniques.
We use these approximately 320 biologically validated microRNAs and approximately an additional 30 microRNAs to which we have intellectual property claims, as well as microRNAs that we have in-licensed from third parties, as the basis for launching our efforts in developing diagnostic and therapeutic products. All of our programs to develop diagnostic and therapeutic products based on microRNAs are in the early stages of development, and there can be no assurance that we will successfully develop, receive regulatory approval for or commercialize any products based on this technology.
44
MicroRNAs and Diagnostic Products
Ideally, diagnostic tests provide physicians and their patients with information relating to one or more of the following:
·
the existence or the probability of developing disease;
·
the rate at which the disease will progress;
·
the severity of the disease;
·
the potential efficacy of specific therapies, such as different drugs or therapeutic procedures;
·
the monitoring of success of a chosen therapy; and
·
the likelihood of disease recurrence.
The Role of MicroRNAs in Diagnostic Products
We believe that using microRNAs as diagnostic biomarkers will enable us to develop diagnostic products that can provide more accurate and comprehensive information to doctors and patients. Currently, many diagnostic tests are designed to detect abnormal levels of messenger RNAs or proteins. MicroRNA-based tests may prove superior to these tests because it is believed that microRNAs are closer to the biological origin of disease. A change in the expression level of a single microRNA may affect the activity of dozens of messenger RNA genes, which in turn may affect the concentration of hundreds of proteins. Thus, we expect that by focusing our efforts on microRNAs, we can develop a less complex biomarker panel, resulting in a more specific and sensitive test. Furthermore, extracting microRNAs from tissue and body fluid samples is easier than extracting messenger RNAs because of the greater stability of microRNAs. In addition, amplification technologies, such as PCR, can potentially increase the sensitivity of a microRNA-based diagnostic test by generating millions of copies of a particular microRNA and thereby making it easier for the test to detect the presence of the microRNA. Since amplification technologies cannot be used with proteins, we believe microRNA-based diagnostic tests have the potential to be more sensitive than protein-based diagnostic tests.
The Potential of MicroRNAs in Cancer Diagnostic Products
Cancer is a disease of the genes and can occur when mutated or abnormally regulated genes inappropriately activate or block molecular pathways that are important for normal biological function. The ability to detect a mutation or abnormal regulation, and to understand the process by which it contributes to cancer, is important to understanding the nature of the disease and to developing diagnostic and therapeutic products.
A common form of genomic analysis is the measurement of gene expression, or the presence and amount of one or more RNA sequences in a particular cell or tissue. Mutated or abnormally regulated genes may change the gene expression pattern of a cell. Quantifying the differences in the expression of a single gene or multiple genes has become a common way to study the behavior of altered cells. These expression levels can be correlated with disease and clinical outcomes.
Expression studies comparing healthy and diseased samples have revealed specific differences in microRNA levels between the two in various tumor types, including, prostate, breast, lung, colon, liver, thyroid, stomach and pancreas, as well as leukemia and lymphoma. In addition, several microRNAs have been identified as oncogenes, or microRNAs whose expression above normal levels contributes to cancer development. Several other microRNAs have been indicated as tumor suppressors by virtue of the decrease in the level of their expression in cancer cells. The Broad Institute, a research institute affiliated with MIT and Harvard, has recently demonstrated that microRNA expression profiles reveal more information about the origin of a metastatic tumor than any set of messenger RNAs.
As researchers continue to study the role of genetics in disease processes, it has become increasingly apparent that future diagnostic tests will go beyond correlating a single protein or gene to disease, and instead will look at characteristic gene patterns, or signatures, to diagnose disease and provide information on disease parameters, such as tumor aggressiveness, response to treatment and risk of recurrence. A key to utilizing genomics in cancer is to identify specific sets of genes and gene interactions that are important for diagnosing different subsets of cancers.
In order to develop a test to detect the presence of cancer, we measure the expression levels of all biologically validated microRNAs in samples taken from patients suffering from that type of cancer and compare them to the
45
expression profiles of samples taken from healthy people. We then identify a subset of microRNAs that are differentially expressed between the two groups and develop a biomarker panel based on those specific microRNAs. Once an appropriate biomarker panel is selected, we believe it is possible to develop a test that can measure the expression levels of the chosen panel in a person to determine his or her condition.
The figures below show illustrations of (1) a hypothetical biomarker panel for a cancer consisting of three differentially expressed microRNAs and (2) hypothetical test results using this biomarker panel. The figures below are for illustrative purposes only. All of our diagnostic product programs are in the early stages of development. To date, no one has applied for or been granted approval to market a diagnostic product based on microRNAs. There can be no assurance that we or anyone else will ever be successful in developing, receiving regulatory approval for and commercializing a diagnostic product based on microRNAs.
Hypothetical Cancer Biomarker Panel
Hypothetical Test Results Using a Cancer Biomarker Panel
|
Score = 0.1
|
|
Score = 0.8
|
|
·
The first figure illustrates how a biomarker panel would be developed for a specific cancer type. After analyzing the expression profiles of microRNAs in both healthy and diseased samples, we would identify microRNAs that are differentially expressed. In this illustration, there are three microRNAs that are differentially expressed. The light gray bars in the graph depict the mean expression levels, together with their respective standard error bars, in healthy samples (the non-cancer baseline), while the dark bars reflect these metrics in diseased samples (the cancer signature).
·
The second figure illustrates how this biomarker panel would be used in a diagnostic application. When a patient is tested for the presence of cancer, the levels of the three differentially expressed microRNAs are measured and compared to the cancer signature and the non-cancer baseline, and a score between zero and one is calculated based on the similarity of the tested levels to the cancer signature. If the patients expression profile is similar to the cancer signature, the patient has a high score, and thus a high probability
46
of having cancer, as in the case of patient B. Patient A, on the other hand, has a low score, and thus a low probability of having cancer, based on the expression pattern of his or her sample. Panels which would measure disease parameters, such as tumor aggressiveness, sensitivity to a specific treatment or the risk of recurrence, could be developed in a similar fashion.
We believe that the use of a panel of biomarkers rather than a single biomarker can improve diagnostic results by overcoming noise that may arise from the measurement of a single biomarker.
Our Diagnostic Product Development Process
We are currently developing several diagnostic products in the field of oncology. Our development process for diagnostic products consists of the following important steps:
·
Access to samples. As a prerequisite for clinical validation of diagnostic products, evaluation of clinical samples is critical. Accordingly, we have entered into collaborations with several institutions, including the Sloan-Kettering Institute for Cancer Research, the Medical Research, Infrastructure, and Health Services Fund of the Tel Aviv Medical Center, and the Sheba medical center in Tel Hashomer, and have established relationships with commercial companies focused on obtaining high quality clinical samples. These relationships provide us the opportunity to study thousands of well-characterized samples of prostate, breast, lung, colorectal, liver and bladder cancers. The sample collections include solid tumor samples, healthy tissue samples, and various body fluids such as blood, urine and sputum, as well as high quality tissue samples from archival pathology banks. Samples are accompanied by a database of medical history and clinical information, such as diagnosis, treatment and response to treatment, recurrence and survival, which for the samples from the archival pathology banks can be as long as 20 years.
·
RNA extraction. We utilize both commercial and proprietary technologies to extract relevant RNA from both tissue and body fluid samples.
·
Expression profiling. The identification of microRNA biomarkers requires sensitive measurements of the levels of the microRNAs extracted from the tissue or body fluid samples. We have developed proprietary methods to rapidly perform these measurements. Our methods allow us to perform simultaneous profiling of multiple samples, and we believe result in more accurate measurements of expression levels for each of the analyzed samples.
·
Analysis. We analyze expression profiles to identify microRNA signatures which detect the existence of disease and provide information on certain disease parameters, such as tumor aggressiveness, response to treatment and risk of recurrence. Identifying microRNA signatures is a complex task, and we believe our algorithmic expertise is one of our key advantages.
MicroRNAs and Therapeutic Products
MicroRNAs are important regulators of protein production, and as such, they represent potential targets for the development of drugs. Important information about the role of a microRNA in disease can be deduced by mimicking or inhibiting its activity and examining the impact this has on the behavior of the cell or organism. If mimicking or inhibiting a microRNA leads to improvement in disease symptoms, this implies that the target microRNA plays an important role in the disease.
The pharmaceutical industry has traditionally focused on the development of drugs that inhibit specific protein activity because of the difficulties in developing drugs that enhance protein activity or increase protein levels. Even siRNAs, a novel class of drugs, are limited to the inhibition of protein production. In contrast, because microRNAs are natural regulators of protein production, we believe it is possible to develop microRNA-based therapeutic products which can either increase or decrease the levels of proteins. A drug that mimics a microRNA should result in decreased levels of the proteins naturally regulated by that microRNA, while a drug that inhibits the microRNA should result in increased levels of those proteins. As an example, our expression analysis indicated one of our microRNAs is a possible oncogene in prostate cancer. We have demonstrated in vitro that when this microRNA is inhibited, the growth rate of prostate cancer cells is greatly decreased.
We believe microRNA-based therapeutic products for infectious disease also represent an area of potential development. Since some viruses also encode microRNAs, silencing a viral microRNA may form the basis for a new class of drugs to treat infectious diseases. As an example, we have discovered microRNAs encoded in Epstein-
47
Barr virus, or EBV, and have proven their expression in EBV infected cell lines. As proof of concept, we have demonstrated in vitro that the inhibition of these EBV microRNAs inhibits viral replication. Using our proprietary discovery process, we have predicted, and filed patents on, hundreds of microRNA candidates in dozens of different virus types, most of them pathogenic viruses. To date we have filed patent applications with claims potentially covering approximately 35 biologically validated viral microRNAs, which constitute more than half of all biologically validated viral microRNAs of which we are aware. We believe this gives us additional commercial opportunities in the infectious disease therapeutic market.
Our Commercial Applications
Our commercial strategy is to utilize our position as a leader in the microRNA field to develop and commercialize research consumables, cancer diagnostic products and therapeutic products in a three-pronged approach.
Research Consumables
The discovery of microRNAs has generated interest in a new area of research by academic and medical institutions and pharmaceutical companies. As more research programs focusing on microRNAs are initiated, we believe the need for profiling and manipulation technologies, such as arrays and microRNA vectors, will increase. In addition, since microRNAs are naturally produced inhibitors of proteins, we believe they may be viewed as favorable alternatives to siRNAs in research studies involving the selective inhibition of protein production.
In April 2005, we entered into a license agreement with Ambion, which was acquired by Applied Biosystems in March 2006. Under this agreement, Applied Biosystems has a non-exclusive license to all of our microRNA sequences, both validated and non-validated, for use in products to be used either as research reagents or in the performance of research services. We received upfront payments and are entitled to receive royalties on products sold that incorporate our microRNAs. Prior to the acquisition by Applied Biosystems, Ambion had incorporated our microRNAs into its research products by the fourth quarter of 2005. The research consumables currently offered by Applied Biosystems include assays focused on identifying and measuring concentrations of microRNAs as well as analyzing the impact of changes in their concentrations on cellular processes.
Cancer Diagnostic Products
Our diagnostic development efforts are focused on the unmet needs of the cancer diagnostic market. Although various cancer diagnostic tests exist, they suffer from significant drawbacks, including high false positive and false negative rates, and do not provide sufficient information to guide treatment decisions. We believe that this is due in part to the fact that many existing tests are based on a single biomarker, or on proteins or messenger RNAs.
There are two primary diagnostic objectives in oncology. The first objective is to increase survival rate by enabling physicians to identify high-risk patients and to detect new or recurring cancers at an early stage. The second objective is to optimize treatment for each patient by providing physicians and patients information on disease parameters, such as tumor aggressiveness, risk of recurrence and likely responses to specific therapies, including different types of surgery, radiotherapy, chemotherapy and ablation.
We are currently developing diagnostic products that address both of these objectives, including tests for the early detection of cancer based on non-invasive body fluid tests and tests designed to help physicians and patients make more informed treatment decisions based on the analysis of tumor samples obtained either through biopsies or resections. We are currently focusing on developing such diagnostic products for prostate, lung, breast, colorectal and bladder cancers. We are also developing a diagnostic test to identify the origin of the primary tumor in metastatic cancers of unknown primary site, or CUP. In addition, we expect that our diagnostic tests will be based on a panel of microRNAs, which we believe will provide enhanced sensitivity and specificity relative to currently available tests.
Prostate cancer
Market opportunity . According to the 2006 ACS Report, prostate cancer is the most common cancer in American men and the third leading cause of cancer-related death among men in the U.S. The report estimates that in 2006, approximately 235,000 new cases of prostate cancer will be diagnosed in the U.S., and about 27,000 men will die of this disease.
48
Current diagnostic tests. The current standard for prostate cancer screening is the Prostate Specific Antigen, or PSA, test. The PSA test, however, suffers from an extremely high false positive rate. In the initial screening round of the Prostate, Lung, Colorectal and Ovarian Cancer Screening Trial, as reported in the Journal of the National Cancer Institute in March 2005, less than 20% of the PSA-positive men were subsequently diagnosed with prostate cancer. In addition to the psychological implications associated with these testing errors, invasive, painful and costly biopsy procedures are required for patients that receive positive PSA test results to determine whether cancer is present. This trial also found that between 55% and 70% of prostate biopsies performed had no pathological results. Thus, as a result of the high false positive rate of the PSA test, an estimated 600,000 biopsies are performed annually, most of which have no pathological findings. In fact, the U.S. Preventive Services Task Force of the U.S. Department of Health has found insufficient evidence to recommend routine screening of prostate cancer using PSA or any other currently available test. Despite these limitations, the 2000 National Health Interview Survey published in the February 2004 issue of Preventive Medicine found that approximately 34% of men aged 50 and older with no history of prostate cancer reported having had a screening PSA test during the previous year.
Once a patient is diagnosed with prostate cancer, difficult decisions must be made regarding the appropriate treatment. Since prostate cancer is, in many cases, a slowly progressing, non-aggressive cancer, a prostatectomy may be unnecessary. However, it is not currently possible to determine with sufficient accuracy the aggressiveness of the cancer based on a pathological test of a biopsy and, thus, whether a prostatectomy is necessary. A clinical trial documented in the May 2005 issue of the New England Journal of Medicine found that more than 94% of prostatectomies do not provide a survival benefit as measured after 10 years post-diagnosis. When considering the possible adverse side effects of a prostatectomy, such as erectile dysfunction and urinary incontinence, together with the added economic cost of unnecessary operations, we believe that there is a significant unmet need in the prostate cancer market.
Our strategy. We have entered into an exclusive collaboration with Asuragen to co-develop prostate cancer diagnostic tests based on analysis of a panel of microRNA biomarkers. We have obtained samples of healthy and tumorous prostate tissue and have measured and analyzed the microRNA expression profiles of those samples. The comparison between the expression of microRNAs in 87 samples of healthy and tumorous prostate tissue revealed four microRNAs which have differential expression as illustrated below (PRC1 through PRC4), and can potentially serve as biomarkers of the disease. The dark gray bars in the graph below depict the mean expression level in the tumorous prostate tissue samples, together with their respective standard error bars, while the light gray bars reflect these metrics in the healthy prostate tissue samples.
MicroRNA Expression Profiles of Healthy vs. Tumorous Prostate Tissue Samples
The p-value of this panel of biomarkers is less than 0.002. A p-value indicates the probability that the results obtained in a statistical test are due to chance rather than a true relationship between measures. A small p-value, generally less than 0.05, indicates that it is very unlikely that the results are due to chance. We are currently working on further validating our results and on correlating the microRNA expression levels with more specific disease parameters, such as tumor aggressiveness. This program is still in the early stages of development, and we can provide no assurance that we will be successful in developing, receiving regulatory approval for and commercializing a microRNA-based prostate cancer diagnostic product.
49
Lung cancer
Market opportunity. According to the 2006 ACS Report, lung cancer is the leading cause of cancer-related death in the U.S. The report estimates that in 2006, approximately 174,000 new cases of lung cancer will be diagnosed in the U.S. and about 162,000 people will die of the disease. Lung cancer often spreads before it can be detected by currently available methods. As such, lung cancer has a poor prognosis; the average 5-year survival rate is only 15%, but is higher than 50% for patients with early-stage localized disease. Unfortunately, less than 20% of lung cancers are diagnosed at this early stage, according to the 2006 ACS Report, and these are often diagnosed by chance as part of a test for an unrelated matter. According to Lung Cancer Screening in the New England Journal of Medicine , almost 50% of the adults in the U.S. are present or former smokers and are at a significantly higher risk of developing lung cancer. As such, there is an urgent need for early detection tests.
Current diagnostic tests. Several techniques and modalities have been tested in recent decades for their potential to function as early detection screening tests for lung cancer, including chest X-ray, sputum cytology and low-dose helical CT scan. Despite the ability of these tests to detect some cases of early lung cancer, large-scale clinical trials have so far failed to show a health benefit of screening. At this time, no organization in the U.S. recommends routine screening for lung cancer either among the general adult population or in individuals who are at higher risk because of tobacco use or occupational exposure.
Our strategy. We plan to develop a test for the early detection of lung cancer based on sputum or blood samples. Since tumors often shed cancer cells, we believe that microRNA biomarkers can be detected in sputum or blood samples. We have obtained access to hundreds of clinical samples from cancer and cancer-free patients, and are examining these samples to identify an appropriate set of microRNAs that may be best suited as a biomarker panel to detect lung cancer. To date, we have examined 59 samples and have identified four microRNAs which are differentially expressed in tumorous and healthy lung tissue samples as illustrated below (LUC1 through LUC4), and can potentially serve as biomarkers of disease. The dark gray bars in the graph below depict the mean expression level in the tumorous lung tissue samples, together with their respective standard error bars, while the light gray bars reflect these metrics in healthy lung tissue samples.
MicroRNA Expression Profiles of Healthy vs. Tumorous Lung Tissue Samples
The p-value of this panel of biomarkers is less than 0.002. We are currently working on further validating these results in tissue and body fluid samples. This program is still in the early stages of development, and we can provide no assurance that we will be successful in developing, receiving regulatory approval for and commercializing a microRNA-based lung cancer diagnostic product.
We have recently entered into a collaboration with U.S. Genomics for the development of an early detection test for lung cancer. U.S. Genomics has developed a specialized platform for profiling microRNAs that is potentially more sensitive than current platforms and may be particularly useful for samples that are expected to contain few cancer cells, such as sputum. This collaboration allows us to incorporate this platform for developing the test, without limiting our ability to evaluate or use alternative platforms.
50
Colorectal cancer
Market opportunity. According to the 2006 ACS Report, colorectal cancer is the second leading cause of cancer mortality in the U.S. The report estimates that in 2006, approximately 107,000 new cases of colon cancer and 42,000 new cases of rectal cancer will be diagnosed in the U.S., and about 55,000 people will die of these diseases. Evidence from several studies indicates that screening for, detecting and removing colorectal cancers and pre-cancerous adenomatous polyps can significantly reduce colon cancer incidence and colon cancer-related mortality as reviewed by the U.S. Preventative Services Task Force in their publication in the Annals of Internal Medicine in 2002 . In the U.S., routine tests for the early detection of colon cancer are recommended for every person aged 50 and older according to the 2006 ACS Report.
Current diagnostic tests. The current standard screening methods for colorectal cancer include colonoscopy and the fecal occult blood tests. Both tests, however, suffer from serious disadvantages. The colonoscopy test is highly effective, but many people are hesitant to have this procedure due to its high cost, high discomfort and its potential for more significant side effects. The fecal occult blood test, on the other hand, is a simple and cheap test, but is relatively inaccurate.
Currently the standard of care for colorectal cancer includes adjuvant chemotherapy, although only a minor percentage of patients benefit from this treatment. Early-stage colorectal cancer patients are faced with the decision of whether or not to use chemotherapy after surgery as well as which chemotherapy to use. There is currently no effective test that can help these patients and their doctors make this important decision. Therefore, there is also a significant unmet need to identify patients who will benefit from chemotherapy.
Our strategy. We are currently seeking to address these market needs by identifying a panel of biomarkers based on microRNAs. We have obtained samples of healthy and tumorous colon tissue and have measured and analyzed the microRNA expression profiles of those samples. The comparison between the expression of microRNAs in 47 samples of healthy and tumorous colon tissue revealed four microRNAs which have differential expression as illustrated below (CRC1 through CRC4), and can potentially serve as biomarkers of the disease. The dark gray bars in the graph below depict the mean expression level in the tumorous colon tissue samples, together with their respective standard error bars, while the light gray bars reflect these metrics in the healthy colon tissue samples.
MicroRNA Expression Profiles of Healthy vs. Tumorous Colon Tissue Samples
The p-value of this panel of biomarkers is less than 0.006 We are currently working on further validating these results and on correlating the microRNA expression levels with more specific disease parameters, such as survival. This program is still in the early stages of development, and we can provide no assurance that we will be successful in developing, receiving regulatory approval for and commercializing a microRNA-based colorectal cancer diagnostic product.
Breast cancer
Market opportunity. According to the 2006 ACS Report, breast cancer is the most common cancer in women in the U.S., with an estimated 215,000 new cases and 41,000 deaths in 2006. Breast cancer is a curable disease when detected at an early stage. Nevertheless, physicians and patients are required to make difficult therapeutic decisions during the course of treatment, which would be facilitated by advanced diagnostic techniques.
51
Current diagnostic tests. A mammogram is the standard of care for screening for breast cancer. In the U.S., an annual mammogram for the early detection of breast cancer is recommended for every woman aged 40 and older. According to Breast Cancer Facts and Figures 2005-2006, approximately 54% of women in this age group actually have mammograms performed, resulting in approximately 32 million mammograms per annum in the U.S. However, mammograms have high false negative rates, especially in cases where the cancer is in an early stage and the tumor size is small. Mammograms also have a high false positive rate. In fact, according to An Informational Guide to Breast Cancer 2002 published by HCA Cancer Care, approximately 1.2 million breast biopsies, are performed every year in the U.S., of which 80% yield no form of malignancy, resulting in unnecessary cost and discomfort. Since the early stage detection of breast cancer is crucial to increasing survival rates, there is a significant need for a more sensitive and specific non-invasive diagnostic test for detecting early-stage disease.
In addition, the current standard of care for breast cancer patients also includes adjuvant chemotherapy. However, according to an article entitled Treatment of Lymph-node-negative, Oestrogen-receptor-positive Breast Cancer in The Lancet in 2004, only an estimated 15% of breast cancer patients benefit from such adjuvant chemotherapy. Due to the toxic side effects, required time commitment and significant economic burden associated with chemotherapy, the ability to distinguish between those patients who will benefit from the treatment and those who will not is very important. Based on the National Cancer Institutes SEER Cancer Statistics Review , such decisions will be necessary for an estimated 135,000 patients in the U.S. in 2006.
Our strategy. In order to develop diagnostic tests for breast cancer, we have established relationships with academic and medical institutions, such as the Hadassah Medical Center, and commercial companies, such as Analytical Biological Services, Inc. to obtain access to hundreds of clinical samples and related medical and clinical data. Our initial focus is on developing diagnostic tests to determine risk of recurrence and whether a patient will benefit from adjuvant chemotherapy. We are analyzing samples of breast tumor resections from archival tissue banks to identify microRNAs that are differentially expressed in patients who had a high recurrence rate and those with a low recurrence rate, as well as patients who benefited from adjuvant chemotherapy and those who did not.
In addition, we intend to profile samples of healthy and tumorous breast tissue to identify differentially expressed microRNAs that can potentially serve as biomarkers for early detection of breast cancer. Based on these microRNAs we hope to develop a non-invasive test to diagnose breast cancer based on body fluid samples.
Cancer of unknown primary site (CUP)
Market opportunity . According to Diagnostic and Therapeutic Management of Cancer of Unknown Primary , a review published in the European Journal of Cancer , and the 2006 ACS Report, in 2006 approximately 3-5% of the 1,400,000 malignancies which will be diagnosed in the U.S. will be metastases of unknown primary site, or CUP. According to a literature review on CUP, published in Annals of Oncology, 2003, CUP patients have a very poor prognosis of 3-4 months and an overall 1-year survival rate of less than 25%. This is in part due to the fact that the prognosis and therapeutic regimens of cancer patients are dependent on the origin of the primary tumor. Thus, given the difficulty in determining the primary site, CUP presents a therapeutic dilemma.
Current diagnostic tests . A variety of classical methods are being used today to try to identify the primary tumor. These include physical examination of the patient, histopathology analysis of the biopsy, imaging methods such as chest X-ray, CT and PET scans, and procedures like gastrointestinal endoscopy. These tests are expensive and uncomfortable to the patient. Nevertheless, according to Diagnostic and Therapeutic Management of Cancer of Unknown Primary , the ability to resolve CUP is estimated to be only 20-30%.
Our strategy . We are currently seeking to address this market need by identifying a panel of biomarkers based on microRNAs. Since microRNAs are tissue specific, we believe they are promising potential biomarkers for the primary site. We have obtained 293 tumor samples from six different sites of origin and have measured and analyzed the microRNA expression profiles in those samples. The comparison between these profiles revealed that the expression of six microRNAs as illustrated below (CUP1 through CUP6) can potentially be used to differentiate between the tissues of origin. The graph below represents the mean expression level of these microRNAs in the different tumor samples, together with their respective standard error bars. Using a computer-based algorithm to analyze the expression profiles of these six microRNAs, we were able to identify the origin of the primary tumor in 80% of the tumor samples with 90% accuracy.
52
MicroRNA Expression Levels in Different Tumor Samples
We are currently working on further validating these results in primary tumors and metastasis, and on finding signatures for additional primary tumor sites. This program is still in the early stages of development, and we can provide no assurance that we will be successful in developing, receiving regulatory approval for and commercializing a microRNA-based CUP diagnostic product.
Other cancers
We are currently obtaining tissue samples and conducting expression analyses in other cancers, such as bladder cancer. In addition, we continue to evaluate the market need for microRNA-based diagnostic products in other cancers.
Therapeutic Products
We believe that microRNAs can serve as a basis for a new class of therapeutic products and that we can leverage our microRNA diagnostic capabilities to help develop drugs targeting microRNAs. We currently have a number of programs focused on the development of drugs for the treatment of various cancers and infectious diseases as described below.
Cancer Therapeutic Products
Liver cancer
Market opportunity. According to Pharmaceutical and Diagnostic Innovation, 2005, liver cancer, also known as hepatocellular carcinoma, or HCC, is the fifth most common cancer in the world. The 2006 ACS Report estimates that in 2006, approximately 18,500 new cases will be diagnosed in the U.S. and approximately 16,000 people will die of the disease. The incidence of HCC is rising principally as a result of the spread of chronic hepatitis C infection, or HCV, a chronic viral infection of the liver that can remain asymptomatic for years but can lead to liver cancer if left untreated. The World Health Organization estimates that more than 180 million people in the world, including 3.9 million in the U.S., are infected with HCV.
Current treatment. HCC patients have a very low survival rate, estimated by the 2006 ACS Report to be less than 10% at five years post-diagnosis. Aside from a liver transplant, the best available treatment for liver cancer is to surgically remove the entire tumor with a margin of healthy tissue included. However, according to the Pharmaceutical and Diagnostic Innovation 2005 , this option is available only to between approximately 5% and 10% of HCC patients. The results of the other available medical treatments, including chemotherapy, chemoembolization, ablation, and proton beam therapy, remain disappointing. Unfortunately, there have been no significant new developments in the treatment of liver cancer. As a consequence of the increasing incidence of the disease and the lack of effective treatments, the market for novel HCC drugs represents a large unmet need.
53
Our strategy. In order to develop a microRNA-based treatment for HCC, we entered into a collaboration with Isis Pharmaceuticals. Isis has significant intellectual property rights and expertise relating to technologies for inhibiting RNA molecules, including microRNAs. Isis has demonstrated its ability to inhibit microRNAs by administering to mice a synthetic molecule designed to inhibit a liver-specific microRNA. Isis showed that the synthetic molecule reached the liver and reduced the level of this microRNA with no observable toxicological effects.
The first step in our development program is to identify candidate microRNA targets for inhibition. This is done by profiling the expression levels of all microRNAs in healthy and tumorous liver tissue samples in order to identify microRNAs which are overexpressed in the tumor samples. To date, we have profiled 56 samples and have found five microRNAs which are significantly overexpressed (p-value less than 0.0001) in tumorous liver tissue as illustrated below (HCC1 through HCC5). The dark gray bars in the graph below depict the mean expression level in the tumorous liver tissue samples, together with their respective standard error bars, while the light bars reflect these metrics in the healthy liver tissue samples.
MicroRNAs Overexpressed in Tumorous Liver Tissue Samples
Such overexpressed microRNAs are potential candidate targets for a drug. We are currently performing expression profiles on more tissue samples to arrive at a comprehensive list of candidate targets, which will enter in vitro and in vivo experiments to test their effect on liver cancer. This program is still in the early stages of development, and we can provide no assurance that we will be successful in developing, receiving regulatory approval for and commercializing a microRNA-based therapeutic product for the treatment of liver cancer.
Other cancers
Our strategy is to collaborate with leading academic and medical institutions to provide us with additional research capabilities in the field of microRNAs. For example, we signed an agreement with Yeda Research and Development Company, Ltd., the technology transfer company of the Weizmann Institute of Science, to investigate at the Weizmann Institute the role of microRNAs in a variety of cancers. We have the exclusive right to commercialize the results of this research.
Therapeutic Products for Infectious Diseases
We have entered into agreements with academic and medical institutions to use our microRNAs for research in infectious diseases. Under these agreements, the academic and medical institutions have the right to conduct research and we have either the exclusive right to commercialize or the option to negotiate the rights to an exclusive or non-exclusive license to any intellectual property owned (solely or jointly with us) by such institutions.
54
HIV
Human immunodeficiency virus, commonly known as HIV, is a retrovirus that primarily infects the vital components of the human immune system. Many of the problems faced by people infected with HIV result from failure of the immune system to protect from opportunistic infections and cancers. HIV is a major cause of death worldwide. We are working with the CBR Institute for Biomedical Research, an academic affiliate of the Harvard Medical Center, in a collaboration to identify HIV microRNAs and human microRNAs whose levels are affected by HIV infection. The CBR Institute has provided us the option to acquire an exclusive license to inventions arising out of the collaboration.
HCV
Hepatitis C virus, or HCV, is an RNA virus that can cause liver inflammation, fibrosis, cirrhosis and liver cancer. Many people with HCV infection have no initial symptoms and are unaware of the need to seek treatment. According to data published by the World Health Organization, HCV infects an estimated 180 million people worldwide and is the leading cause of liver transplantation in the developed world. The current standard of care for HCV infection is treatment with interferon alpha (INFα) and ribavirin and is not effective in approximately 50% of the patients, according to the American Journal of Managed Care 2004 . We are collaborating with Hadassah Medical Organization to develop a microRNA-based drug for HCV infection through the discovery of HCV microRNAs and human microRNAs whose levels are affected by HCV infection. We have the exclusive right to commercialize the results of this research.
Other viruses
We are collaborating with Ben-Gurion University of the Negev to find the role of human and viral microRNAs in several infectious diseases for therapeutic uses. The research encompasses FluA, HSV1/2, RSV, EBV and several strains of HPV. All of these viruses are major health concerns worldwide.
Our Intellectual Property Strategy and Position
Our success will depend significantly on our ability to:
·
obtain and maintain patent and other proprietary protection for the technology, inventions and improvements we consider important to our business;
·
defend our patents;
·
preserve the confidentiality of our trade secrets; and
·
operate without infringing the patents and proprietary rights of third parties.
We believe that we were the first commercial enterprise to focus on the emerging microRNA field, and as a result, we have developed an early and strong intellectual property position related to the development and commercialization of research, diagnostic and therapeutic products and other applications based on microRNAs. Our patent strategy is to seek broad coverage on all of our identified microRNA sequences and then later file patent applications claiming composition-of-matter on individual microRNAs of commercial interest. We will also file applications which claim groups of microRNAs which are grouped for example by common functional features, chromosomal locations of the microRNA genes. We have filed, and will continue to file, patent applications that claim method-of-use for specific diagnostic and therapeutic applications as we or our collaborators develop them. We believe this approach will provide strong and broad patent protection for a large number of microRNAs that we have discovered and may provide us with a competitive advantage over new entrants to the field.
As of August 31, 2006, we had 49 pending patent applications in the microRNA field: 42 U.S. applications, five PCT applications, and two European applications. Of these patent applications, 27 claim human microRNAs, 13 claim viral microRNAs, three claim bacterial applications of microRNAs and six contain claims related to our discovery process. Five of these applications contain claims directed to prostate, lung, liver and bladder cancer diagnostic applications and prostate cancer therapeutic applications.
55
Genes and related nucleic acids are patentable under U.S. and international patent law. To date, patent protection for numerous human genes has been obtained in the U.S. and elsewhere. MicroRNAs are derived from naturally occurring genes, and as such, we believe, are similarly patentable under U.S. and international patent law. However, since the field of microRNAs is relatively new, to date, only one patent related to plant microRNAs has been issued to a third party, and none yet have been issued with respect to human microRNAs or microRNAs of other organisms.
The requirements of the PTO for obtaining patent protection on a gene were significantly tightened in 2001. In order to obtain patent protection for microRNAs, it is necessary that our patent applications, among other requirements:
·
provide for utility and function for each microRNA sequence;
·
claim specific microRNA sequences as opposed to general mechanism or concept; and
·
identify the functional fragment of each microRNA sequence.
Our patent applications attempt to address these issues by identifying disease targets for each of our microRNA sequences, claiming specific microRNA sequences and identifying and claiming minimal functional portions of microRNAs. We believe this approach avoids common mistakes made by others in the past with respect to attempts to patent genes and, if patents are issued, will make it more difficult for competitors to design around our patents.
Our intellectual property strategy is closely coordinated with our research and development plan and we have an ongoing three-tier approach to obtaining patent protection, which is illustrated and described below:
Our Discovery Process and Related Intellectual Property Strategy
First Tier: Composition-of-Matter Patents on Informatically Identified MicroRNAs
We have filed a first tier of master patent applications claiming composition-of-matter for microRNAs that we have predicted and identified by nucleotide sequences using our discovery process. Our patent applications claim approximately 10,000 microRNAs that were identified using this approach and that we believe are likely microRNA candidates. For each of the potential microRNAs claimed in these patent applications, a specific function and utility are described based on informatically identified targets of these potential microRNAs that are known to be associated with a disease. Based on our understanding of their sequences and identified targets, we have applied for patent protection on each of the predicted microRNAs and their variants. We have filed 38 patent applications with composition-of-matter claims related to informatically predicted microRNAs and we expect to file additional first tier applications in the future.
56
Second Tier: Composition-of-Matter Patents on Biologically Validated MicroRNAs
We have filed a second tier of patent applications claiming patent coverage for the composition-of-matter of microRNAs that we have either detected by microarray or biologically validated by sequencing or qRT-PCR. In addition to the function and utility based on informatically calculated targets, microRNAs claimed in these patent applications are further described as potential markers of a disease, as supported by differential expression of these microRNAs in healthy versus diseased tissue. We have filed 13 patent applications with composition-of-matter claims related to validated microRNAs and we expect to file additional second tier applications in the future.
Third Tier: Method-of-Use Patents
We have filed a third tier of patent applications claiming patent coverage for the method-of-use of microRNAs, including diagnostic and therapeutic uses for specific diseases. In the future, we expect that this tier of patent applications will include applications which we will file ourselves and those that we will file jointly with academic, medical and commercial partners with whom we collaborate. We have filed five patent applications with method of use claims related to diagnostic and therapeutic uses of microRNAs.
Individual patents extend for varying periods depending on the effective date of filing of the patent application or the date of patent issuance, and the legal term of the patents in the countries in which they are obtained. Generally, patents issued in the U.S. are effective for:
·
the longer of 17 years from the issue date or 20 years from the earliest effective filing date, if the patent application was filed prior to June 8, 1995; and
·
20 years from the earliest effective filing date, if the patent application was filed on or after June 8, 1995.
All of our current patent applications were filed after June 8, 1995.
The term of foreign patents varies in accordance with provisions of applicable local law, but typically is 20 years from the earliest effective filing date. In addition, in some instances, a patent term in the U.S. and outside of the U.S. can be extended to recapture a portion of the term effectively lost as a result of the health authority regulatory review period. These extensions, which may be as long as five years, are directed to the approved product and its approved indications. We intend to seek such extensions as appropriate. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that a related patent may remain in force for a short period following commercialization, thereby reducing the advantage of the patent to our business and products.
The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications will result in the issuance of any patents or if issued will assist our business. Any patents that may issue in the future may be challenged, invalidated or circumvented. This could limit our ability to stop competitors from marketing related products and reduce the length of term of patent protection that we may have for any products. In addition, the rights granted under any patents which may issue may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Our competitors may develop similar technologies, duplicate any technology developed by us, or use their patent rights to block us from taking full advantage of the market.
In addition to patents, we may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect the trade secrets in our proprietary technology and processes, in part, by entering into confidentiality agreements with commercial partners, collaborators, employees, consultants, scientific advisors and other contractors and into invention assignment agreements with our employees and some of our commercial partners and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of the technologies that are developed. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
57
Strategic Alliances and Research and License Collaborations
License Agreement with Applied Biosystems
In April 2005, we entered into a license agreement with Ambion, Inc., which was acquired by Applied Biosystems Group of Applera Corporation in March 2006. Under this agreement, we have granted Applied Biosystems a non-exclusive license to all of our microRNA sequences, both validated and unvalidated, for use in products to be used either as research reagents or in the performance of research services. The license expressly excludes any right to sell for diagnostic use any products or services containing our microRNAs or designed to detect or affect any of our microRNAs. We are obligated to provide Applied Biosystems all microRNA sequences developed or predicted by us for use in research products or services. Applied Biosystems may also carry out validation research on our microRNA sequences, and if it does so, it must provide us with the results.
Under this agreement, we received upfront payments deductible against future royalties. We are also entitled to receive royalty payments based on net sales of products and services in the research field that incorporate or are designed to detect or otherwise affect, one of our microRNAs, for the life of any patent or patent application covering such microRNA in the product or service. If the product or service uses both our microRNAs and non-Rosetta microRNAs, the royalty payable will be reduced by being multiplied by the ratio of our microRNAs to all of the microRNAs in the product or service. To date, we have received $228,000 under this agreement.
Should Applied Biosystems request that we file additional patent applications or expedited applications on certain of our microRNA sequences, we are obligated to do so; however, Applied Biosystems must cover the resulting costs. We have the right, but not the obligation, to enforce our patents relating to our microRNA sequences. Applied Biosystems may request that we take such action with respect to third-party products competing with Applied Biosystems products. If we decline to do so within three months of receiving such a request, Applied Biosystems may undertake such action at its own expense. We are required to indemnify Applied Biosystems for damages payable to third parties in the event that one of our microRNA sequences is determined to infringe a valid patent claim of a third party.
In addition, if we grant a license to a third party in the research field on terms more favorable than those currently in effect with Applied Biosystems, it would have the right to modify the terms of the license to adopt the more favorable terms. Applied Biosystems may terminate the agreement without cause, and we may terminate the agreement for non-payment of amounts due if the non-payment is not cured within sixty days after notice.
Collaboration and License Agreement with Asuragen
In January 2006, we entered into a collaboration and license agreement with Ambion Diagnostics, Inc., now Asuragen, Inc. Under the agreement, Asuragen and we agreed to work together to develop products and services for the diagnosis of prostate cancer using microRNAs. We have granted to Asuragen, a worldwide, exclusive license to commercialize products and services for the diagnosis of prostate cancer using our microRNAs. Under the agreement, diagnosis includes determination of the presence of disease, determination of the stage, progression or severity of the disease, determination of the effect of a particular treatment on the disease and the selection of patients for a particular treatment.
Asuragen and we have agreed to initially work independently during a discovery stage to identify prostate-specific diagnostic opportunities and potential markers for use in the diagnosis of prostate cancer. Each of the parties will also work independently on the development of platform technologies that could be used in the creation of diagnostic assays that can be incorporated into potential products for the diagnosis of prostate cancer. After the discovery stage is completed, we will meet to exchange materials and data resulting from their independent activities during the discovery stage and to determine the indications to be pursued for clinical development of products and services for the diagnosis of prostate cancer. We will then agree upon a development plan reflecting these matters and setting forth the specific responsibilities of each party. Each party will bear its own expenses in both the independent discovery stage activities and in performing its responsibilities under the development plan.
After the discovery stage, we will work together with Asuragen to discover and validate markers that we both believe will be appropriate for a diagnostic assay. Asuragen will then be responsible for developing a diagnostic assay to measure these markers and for obtaining any required regulatory approvals. Asuragen will have the right to commercialize any assay developed, and will pay us royalties at the amount based on net sales of certain products and services. We bear the responsibility for performing certain market development activities in support of the
58
products and services. Under this agreement we are entitled to royalty payments based on net sales of products developed in this collaboration.
Each party is responsible for prosecution and maintenance of its own patent rights. Both parties will cooperate in the prosecution and maintenance of joint patent rights. With regard to third-party infringement of patent rights, we have the first right and option to take action to eliminate such infringement with respect to our patent rights, and Asuragen has first rights and option to take action with respect to its patent rights and with respect to joint patent rights. If Asuragen does not take steps to enforce joint patent rights within three months of notification of infringement, we have the right and option to do so at our expense. Asuragen bears primary responsibility for defense against infringement claims by third parties. The parties have agreed to mutually indemnify one another against liabilities incurred as a result of actions by third parties. Asuragen is obligated to maintain comprehensive insurance coverage and to name us as an additional covered party on all plans.
This agreement will remain in effect for as long as Asuragen continues its development of products and services for the diagnosis of prostate cancer using our microRNAs or if Asuragen is commercializing one or more of such products at the time it ceases development, until the last patent rights associated with such products expire. Either party may terminate the agreement in the event of an uncured material breach by the other party or upon specified bankruptcy or insolvency events involving the other party. Upon termination by us for an uncured material breach by Asuragen, all rights granted by us to Asuragen shall cease. In that event, Asuragen would be required to transfer to us all applicable regulatory filings and will be deemed to have granted to us a worldwide, exclusive license under Asuragens patent rights and interests in any joint patent rights to develop and commercialize prostate cancer diagnostic products and services, subject to the payment of royalties to Asuragen. If the agreement is terminated by Asuragen upon our uncured material breach, Asuragen shall continue to have the licenses and rights contained in the agreement to develop and commercialize products and services for the diagnosis of prostate cancer, subject to continued payment of royalties as required by the agreement.
Research Collaboration Agreement with Isis Pharmaceuticals
In January 2006, we entered into a research collaboration agreement with Isis Pharmaceuticals, Inc., under which we agreed to work together for an initial period of two years to perform specified experiments to discover and develop drugs that regulate microRNAs involved in HCC, the most prevalent type of liver cancer. Each party will fund its own efforts during the initial period. Either party may terminate the agreement during the initial period on 60 days notice to the other party for any reason. At the end of the initial period, we will either agree to jointly develop any resulting products and share the resulting expenses and revenues, or, if one of us does not wish to jointly develop any of those products, that party will grant an exclusive license to the other party to develop those products on pre-agreed financial terms, which shall include development milestone payments up to a maximum aggregate of $27 million and the payment of royalties based on net sales of collaboration products. If neither party wishes to develop a product, we will jointly seek to license it to a third party.
Each party bears expenses for the prosecution and maintenance of its own patents and the parties have agreed to designate primary responsibility to one or other of the parties, for the prosecution and maintenance of any products that the parties have developed through their collaboration and have agreed to pursue. The parties have agreed to mutually indemnify one another for liabilities incurred as a result of actions brought by third parties.
Funding of the HCC Project by BIRD Foundation Grant
In June 2006, a conditional grant of $1.0 million from the Israel-U.S. Binational Industrial Research and Development Foundation, or BIRD Foundation, was approved for the HCC joint research project with Isis Pharmaceuticals. The BIRD Foundation promotes strategic partnerships between Israeli and American companies without receiving any rights in the participating companies or in the project itself. The BIRD foundation works in cooperation with the Chief Scientists Office at the Ministry of Trade, Industry and Employment in Israel, and with the U.S. Commerce Departments National Institute of Standards and Technology. Under the terms of the grant, each party will receive $500,000, but is obligated to repay this amount if there is a submission of an investigational new drug application, or IND, to the FDA within 36 months. Since the foundation shares the risk, if the project fails to reach the IND submission phase during this period, the grant does not need to be repaid. The receipt of the grant is subject to the execution of a definitive funding agreement between us, Isis Pharmaceuticals and the BIRD Foundation.
59
HCV Collaboration with Hadassah Medical Organization
In May 2005, we entered into an agreement with Hadasit Medical Research Services and Development Ltd., a subsidiary of Hadassah Medical Organization, to collaborate on research on the suppression of HCV using microRNAs. Under the agreement, we were granted a perpetual, worldwide, royalty bearing exclusive license to exploit, commercialize and sublicense any newly discovered microRNAs and other research data resulting from this collaboration. Hadasit bears primary responsibility for conducting the research contemplated under the agreement and for certain other tasks. We are responsible for certain specific research tasks and will bear all expenses associated with these tasks. As an example of the parties collaborative responsibilities, currently, the principal investigator from Hadasit working on the collaboration provides us with HCV infected liver cells and tissues from different species. We extract RNA from these samples and perform expression analysis in order to identify HCV-encoded microRNAs and host microRNAs which interact with the virus. The parties retain full rights to their own intellectual property; however, any newly discovered microRNAs and other research data resulting from this collaboration will be jointly owned by us and Hadasit. We have the right, but not the obligation, to commercialize discoveries made pursuant to the agreement.
We are responsible for all expenses related to patent prosecution, maintenance and enforcement of jointly owned intellectual property. To the extent we chose not to pay the costs of such patent prosecution, maintenance and enforcement, Hadasit will have the right to do so at its own expense upon reasonable written notice to us and, we will be required to assign all our rights, title and interest in the joint patent to Hadasit. We have first right, but not the obligation, to enforce joint patent rights against third-party infringement. We are obligated to indemnify Hadasit against any liabilities arising because of our use of the joint patents; excluding patent infringement claims brought by third parties.
We are obligated to pay Hadasit license fees and royalties in amounts based on a percentage of any net revenues arising from the commercialization of any resulting research data covered by a joint patent, and a percentage of any net revenues arising from the commercialization of all other resulting research data. The agreement terminates upon the expiration of any and all related joint patents resulting from the collaboration, or if no patent ever issues, ten years after the first commercial sale of the first licensed product developed under the agreement. At this stage, the agreement has an indeterminate length, since no joint patents have been issued yet. If the collaboration does not generate joint patents or other research data with commercial value, we may terminate the agreement with 60 days prior written notice.
Research Collaboration Agreement with Hadassah Medical Organization
In June 2006, we entered into a research collaboration agreement with Hadasit Medical Research Services and Development Ltd., a subsidiary of Hadassah Medical Organization, to collaborate with Hadasit on research in the field of microRNAs. The research project is to include multiple trials, the terms of which will be agreed upon from time to time by us and Hadasit. Under the agreement, we were granted an exclusive license to all research results and patents generated from the research. In consideration for such license we are obligated to pay Hadasit royalties, and a percentage of any fees and royalties we receive from sublicenses. We have the right, but not the obligation, to commercialize discoveries made pursuant to the agreement.
Intellectual property rights resulting from the research will be jointly owned by us and Hadasit. We are responsible, at our sole expense, for the preparation, filing, prosecution and maintenance of all patent rights subject to the agreement. However, if we wish to cease prosecution or maintenance of the patent rights, we must notify Hadasit, and it may continue prosecution and maintenance at its own expense. In the event that Hadasit chooses to do so, we will lose all rights to any such patent rights and any license we have been granted to such patent rights shall terminate.
We have an obligation to indemnify Hadasit and the Hadassah Medical Organization for any liabilities related to the research or the commercialization of new products based on the research results and to maintain comprehensive insurance. Each trial under the agreement will be terminable as determined by the parties on a trial by trial basis.
Collaboration and License Agreement with U.S. Genomics
In May 2006, we entered into a collaboration and license agreement with U.S. Genomics Inc. for the development of a non-invasive microRNA-based early detection test for lung cancer combining Rosetta Genomics proprietary microRNAs and U.S. Genomics proprietary microRNA expression profiling platform. Under the
60
agreements development plan, each party has agreed to undertake a portion of the experimental work required at various phases, to bear the costs associated with the work and to supply the other party with proprietary materials that party needs to complete its work. Specifically, we are responsible for obtaining all clinical samples required, for undertaking the experimental work in certain early stages of the collaboration as determined by the development plan of the agreement, for providing U.S. Genomics with purified RNA for its work in the early stages of the development plan and for funding and performing Phase III of the development plan. U.S. Genomics is responsible for conducting all experimental work during the clinical phases of the development plan, for funding and supporting any required placement of instruments and reagents during the development plan and for funding and performing any commercially reasonable platform development work necessary for the development of the project. We will bear the costs associated with regulatory compliance and trademark procurement. Under the agreement, any new intellectual property rights generated by the collaboration and solely related to microRNAs will be owned by us, whereas new intellectual property rights generated by the collaboration solely related to the microRNA expression profiling platform will be owned by U.S. Genomics. New intellectual property rights that combine microRNAs and the expression profiling platform will be jointly owned. Intellectual property rights not falling under the previous definitions will be owned by the inventor of such rights, and will be licensed to the other party royalty free for use related to its original intellectual property.
Each party is responsible for the prosecution, maintenance and enforcement of its own patent rights and the parties have agreed to share the expenses of and cooperate in the prosecution, maintenance and enforcement of joint patent rights. The parties have agreed to mutually indemnify one another against liabilities arising from actions brought by third parties. Both parties are obligated to maintain comprehensive product liability insurance.
Under the agreement we were granted a worldwide, non-exclusive license to exploit, use, develop and commercialize any intellectual property rights owned by U.S. Genomics and related to the microRNA expression profiling platform, in the field of early detection of lung cancer, including the right to sublicense. In return U.S. Genomics is entitled to royalty payments based on net sales and a percentage of any sublicense revenues we receive. In addition, U.S. Genomics will provide us with the technological platforms and reagents necessary for the research, development and validation of the early detection test for Lung Cancer.
License Agreement with The Rockefeller University
In May 2006, we signed a royalty-bearing, co-exclusive, worldwide license agreement with The Rockefeller University. Under this agreement, we were granted the right to make, use and sell Rockefellers proprietary microRNAs for diagnostic purposes including a limited right to sublicense. Our right to sublicense is limited to sublicenses we grant as part of a license that includes other technology or patent rights of ours. The agreement covers microRNAs and microRNA candidates, including approximately 50 biologically validated human microRNAs and approximately 30 biologically validated viral microRNAs discovered by researchers at The Rockefeller University and for which it has filed patent applications. These microRNAs can be licensed by Rockefeller in the diagnostics field to three additional parties. In consideration for this license, we paid an initiation fee and will pay a fixed annual license maintenance fee, royalties based on net sales and a percentage of our revenues from any sublicenses. To date, we have paid Rockefeller an aggregate of $70,000 under this agreement, which includes reimbursement of our pro rata share of certain patent-related expenses. Rockefeller is obligated to notify us of any license it grants to a third party at a lower royalty rate and we will have the right to modify the terms of our license to adopt all of the material terms and conditions of that license.
Rockefeller controls prosecution, maintenance and enforcement of all the licensed patent rights; however, we are responsible for a pro rata share of associated costs. Also, if Rockefeller elects not to take action against a claim of infringement of the licensed patent rights, we may undertake such action at our own expense. We are obligated to indemnify Rockefeller against any liabilities arising from our development and use of the licensed microRNAs and any actions brought by third parties or related to clinical trials or studies. We are also required to maintain comprehensive insurance coverage.
The agreement will terminate upon the later of the expiration or abandonment of the last patent to expire or become abandoned. If no patent ever issues, the agreement will terminate ten years after the first commercial sale of the first licensed product. Based on an estimate of the date of expiration of the last patent to expire, we estimate that we will pay a minimum of approximately $920,000 in aggregate annual license maintenance fees over the term of this agreement. Rockefeller has the right to terminate the agreement if we are more than thirty days late in meeting our payment obligations and do not pay in full within ten days of Rockefellers written demand; or upon our uncured
61
material breach. We can terminate the agreement by providing sixty days written notice to Rockefeller, ceasing all use of the licensed products, terminating any sublicenses granted under the agreement and paying all amounts owed to Rockefeller through the date of termination.
License Agreement with Garching Innovation GmbH (Max Planck)
In June 2006, we entered into a royalty-bearing, co-exclusive, worldwide license agreement with Garching Innovation GmbH, the technology transfer agency of the Max Planck Society. Under this agreement, we licensed from Garching the rights to its proprietary microRNAs for diagnostics purposes. The agreement covers microRNAs and microRNA candidates, including approximately 110 biologically validated human microRNAs, discovered by the researchers of the Max-Planck-Institute for Biophysical Chemistry in Goettingen. In consideration for this license, we paid an initiation fee, and are required to pay a fixed annual license maintenance fee, royalties based on net sales and a percentage of our revenues from any sublicenses. To date, we have paid Garching an aggregate of $215,000 under this agreement.
These microRNAs can be licensed by Garching for diagnostics purposes to three other parties. Garching is obligated to notify us of any more favorable license in the diagnostics field it grants for these microRNAs, in which event we shall have the right to adopt all material terms of such license. We have the right to enter sublicenses, only in the event that the granted sublicense includes a license to microRNAs owned by us as well, is reasonably necessary for us in order to further develop and/or commercialize a specific product, and Garching has given its prior consent to such sublicense.
Garching is responsible, in its sole discretion, to apply for, seek issuance of, maintain and prosecute the licensed patent rights, and we have the right to comment on the documents to be filed by the patent office. We are required, however, to pay a pro rata share of associated costs. We are obligated to indemnify Garching against any liabilities arising from any use by us, our affiliates, sublicensees and sales partners of the patent rights, the development and use of any product, process or service under the agreement, and the use by third parties of any products, processes or services sold by us. We are also required to maintain comprehensive insurance coverage.
The agreement terminates upon the expiration or abandonment of all issued and filed licensed patents. Based on an estimate of the date of expiration of the last patent to expire, we estimate that we will pay a minimum of approximately $694,000 in aggregate annual license maintenance fees over the term of this agreement. We have the right to terminate the agreement with three months prior written notice. We have the obligation to use commercially reasonable efforts to develop and commercialize the products and services based on the licensed patents in the field of diagnostics. In the event we cease carrying out our business related to the agreement we must notify Garching and then both parties have the right to terminate the agreement with three months prior notice. Garching also has the right to terminate the agreement if we challenge one of the licensed patents; if we fail to cure a breach within sixty days of receiving notice of such breach; or if we fail to pay within 30 days of a notice requiring a payment. The agreement will terminate automatically upon filing of bankruptcy or insolvency proceedings by or against us, or upon the assignment of all or a substantial portion of our assets for the benefit of creditors.
License Agreement with Johns Hopkins University
In August 2006, we signed a royalty-bearing, exclusive, worldwide license agreement with Johns Hopkins University. Under this agreement, we have exclusively licensed from Johns Hopkins the rights to its proprietary microRNAs for all fields and applications. The agreement covers approximately 130 biologically validated microRNAs. We also have the right to further sublicense these rights, provided that such sublicense is consistent with the terms of our license agreement. In consideration for this license we paid an initiation fee, and are required to pay minimum annual royalties, royalties based on net sales and a percentage of our revenues from any sublicense. To date, we have paid Johns Hopkins an aggregate of $125,000 under this agreement.
We are obligated to perform commercially reasonable diligent efforts in the development of products including or using the licensed microRNAs. In the event that Johns Hopkins has clinical evidence demonstrating the feasibility of a certain use of the microRNAs, and a commercially reasonable offer from a third party for a license for such use, then upon notice from Johns Hopkins, we are obligated to either initiate development of such use, or sublicense such use to a third party. If within six months of the notice, we have neither initiated development nor sublicensed or been working diligently to sublicense such use, Johns Hopkins may terminate the license for such use.
62
Johns Hopkins is responsible to file, prosecute and maintain the licensed patent rights, and we have the right to comment on and advise Johns Hopkins with respect to such matters. We are required to pay all expenses related to filing, prosecution and maintenance of the licensed patent rights, unless we provide Johns Hopkins notice that we elect not to do so. If we so elect, Johns Hopkins may file, prosecute or maintain such patent rights at its own expense and any license we have with respect to such patent rights shall terminate. We have the right but not the obligation to enforce the patent rights against infringement. No patent applications covering these microRNAs have been filed yet.
We are obligated to indemnify Johns Hopkins against any liabilities arising out of use by us, our affiliates or sublicensees of the licensed microRNAs. We are also obligated to establish and maintain product liability or other appropriate insurance prior to initial human testing or first commercial sale of any product incorporating the licensed microRNAs.
The agreement terminates with respect to each country in which a patent has issued upon the expiration of the last to expire patent covered by the terms of the agreement in such country. If no patents ever issue in a country but patent applications are filed in such country, the agreement will expire with respect to such country upon the cancellation, abandonment, withdrawal or disallowance of all claims under all patent applications in that country or at such time as there is no claim that has been pending in such country for less than six years from the date such claim was filed in a non-provisional patent application in that country. Based on an estimate of the date of expiration of the last patent to expire, we estimate that we will pay a minimum of approximately $2,275,000 in aggregate annual royalties over the term of the agreement. In addition, either party may terminate the agreement (1) upon the filing of bankruptcy or insolvency proceedings with respect to the other party or (2) if the other party is in material breach of the agreement and such breach is not cured within 30 days of notice. We also have the right to terminate the agreement for any reason upon 90 days notice.
Research Collaboration Agreement with Tel Hashomer Medical Research Infrastructure and Services, Ltd.
In May 2006, we entered into a research collaboration with Tel Hashomer Medical Research Infrastructure and Services, Ltd., or THM. Under this agreement, THM will provide us with patient samples and related clinical data so that we may research microRNA expression in lung cancer patients. This collaboration will consist of multiple trials and we will oversee the conduct of the trials. The term of each trial and the parties rights to terminate the trial will be specified by the parties on a trial-by-trial basis. We will own all intellectual property rights resulting from the collaboration, and we have the sole discretion to prosecute, maintain and enforce these patient rights. THM shall be permitted to use the results of this research collaboration for research and academic purposes. We have agreed to bear a portion of the costs related to the research.
We are obligated to pay THM a percentage of royalties on net sales of any products we sell based upon or using the results from this research collaboration. Furthermore, we must pay THM a percentage of license fees or milestone payments and royalties that we receive from the grant of any licenses for the use of information, data, technology, or products directly resulting from this research collaboration.
We bear sole responsibility for payment of all costs associated with liabilities to third parties arising as a result of the performance of the trials or the actions of any of our personnel. We are obligated to indemnify THM against liabilities to third parties and to maintain adequate and appropriate insurance coverage.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. All of the products we are developing or may develop in the future, if approved, will compete against existing non-microRNA-based diagnostic tests and therapies. In addition, we believe a significant number of non-microRNA-based diagnostic products and drug candidates are currently under development and may become available for the diseases we are targeting or may target. In addition to the competition we face from non-microRNA-based competing products, we also face competition from other companies working to develop novel products using technology that competes more directly with our microRNAs. We are aware of several other companies, including some of our collaborators, that are working to develop microRNA diagnostic and therapeutic products, including Alnylam Pharamceuticals, Asuragen, Celera, Invitrogen, Isis Pharmaceuticals, Merck, Santaris and others. We believe the key competitive factors affecting the commercial success of our potential products will be:
·
the safety and effectiveness of our products;
63
·
the timing and scope of regulatory approvals for these products;
·
the availability and cost of manufacturing, marketing and sales capabilities;
·
reimbursement coverage; and
·
patent position.
Many of our potential competitors, either alone or with their collaborative partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of diagnostic products and drug candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval and achieving widespread market acceptance. Our competitors products may be more effective, or more effectively marketed and sold, than any product we may commercialize and may render our products obsolete or non competitive before we can recover the expenses of developing and commercializing them. We anticipate that we will face intense and increasing competition as advanced technologies become available.
Manufacturing
We currently intend to rely on contract manufacturers or our collaborative partners to produce materials for diagnostic products and drug substances and drug products required for preclinical studies and clinical trials. We plan to continue to rely upon contract manufacturers and collaboration partners to manufacture these materials if any product candidate is approved for marketing by the FDA or any foreign regulatory authority.
Regulatory Matters
Governmental authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. Failure to obtain approval to market our products under development and to meet the ongoing requirements of these regulatory authorities could prevent us from marketing our products.
Diagnostic Products
In the U.S., in vitro diagnostic products are regulated by the FDA as medical devices. The information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, including labeling, pre-market notification and adherence to QSRs, which are device-specific good manufacturing practices. Class II devices are subject to general controls and special controls, including performance standards and postmarket surveillance. Class III devices are subject to most of the previously identified requirements as well as to pre-market approval.
Before a new device can be marketed, its manufacturer must obtain marketing clearance from the FDA through either a pre-market notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act or the FDAs approval of a pre-market approval application, or PMA. User fees, which increase each year and which are specific for the type of submission that is made, must be paid to the FDA at the time that the 510(k) or PMA is submitted.
A 510(k) pre-market notification must demonstrate that the device in question is substantially equivalent to another legally marketed device, or predicate device, that does not require pre-market approval. Class I devices and some Class II devices are exempt from the 510(k) pre-market notification requirement. In evaluating the 510(k), the FDA must determine that the device (1) has the same intended use as the predicate device and (2) has the same technological characteristics as the predicate device; or that (1) the device has different technological characteristics, (2) the data submitted establishes that the device is substantially equivalent and contains information, including clinical data if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally marketed device and (3) the device does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance. The FDA is required to issue a decision letter within 90 days if it has no additional questions or send a first action letter requesting additional information within 75 days. The FDA may not meet the applicable performance goal review time. In addition, requests for additional data, including clinical information, will increase the time necessary to review the notice. If the FDA does
64
not inform the manufacturer that a 510(k) is not required or agree that a new device is substantially equivalent to a predicate device, the new device will be classified in Class III, and the manufacturer must submit a PMA or, may, depending on the nature of the device, petition the FDA to make a risk-based determination of the new device and reclassify the new device as a Class I or II device. Modifications to 510(k)-cleared medical devices may or may not require the submission of another 510(k) or a PMA depending on whether the changes will affect the safety or effectiveness of the device.
The PMA process is more complex, costly and time consuming than the 510(k) clearance procedure. A PMA must be supported by more detailed and comprehensive scientific evidence than a 510(k) notice, including clinical data to demonstrate the safety and efficacy of the device. If the device is determined to present a significant risk, the manufacturer may not begin a clinical trial until it submits an investigational device exemption, or IDE, to the FDA and obtains approval from the FDA. Such clinical trials are also subject to the review, approval and oversight of an institutional review board at each institution at which the clinical trial will be performed. The clinical trials must be conducted in accordance with applicable regulations, including but not limited to the FDAs good clinical practice regulations. Upon completion of the clinical trials, and assuming that the results indicate that the product is safe and effective for its intended purpose, the manufacturer will then submit a PMA. The FDA has 45 days after a PMA is submitted to determine whether it is sufficiently complete to permit a substantive review. If the PMA is complete, the FDA will file the PMA. The FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first action on a PMA within 180 days of filing, but if it has questions, it will likely issue a first major deficiency letter within 150 days. It may also refer the PMA to an FDA advisory committee for additional review, and will conduct a preapproval inspection of the manufacturing facility to ensure compliance with the QSRs. While the FDAs ability to meet its performance goal review times has generally improved during the past few years, it may not meet these goals in the future. A PMA can take several years to complete and there is no assurance that any submitted PMA will ever be approved. Even when approved, the FDA may limit the indication for which the medical device may be marketed or to whom it may be sold. In addition, the FDA may request additional information or request the performance of additional clinical studies as a condition of approval or after the PMA is approved. Changes to the device may require the submission and approval of a supplemental PMA before the modified device may be sold.
Some reference clinical laboratories develop and validate tests and market testing services directly to customers. These tests are known as home brew tests. Home brew tests are not subject to pre-market review or approval by the FDA although the FDA regulates the sale of certain types of reagents, including our potential reagents, used by reference laboratories in their home brew tests. The FDA refers to these reagents as analyte specific reagents, or ASRs. ASRs are considered restricted devices by the FDA and may be sold only to (1) in vitro diagnostic manufacturers, (2) clinical laboratories qualified under the Clinical Laboratory Improvement Amendments of 1988 to perform high complexity testing and (3) organizations that use the reagents to make tests for purposes other than providing diagnostic information to patients and practitioners. The FDA imposes specific labeling requirements on ASRs including a prohibition against making analytical or clinical performance claims. A laboratory that develops an in-house test using the ASR must inform the ordering person that the performance characteristics were determined by the laboratory and that the test has not been cleared or approved by the FDA.
Therapeutic Products
In the U.S., the FDA regulates drugs and biologics under the Federal Food, Drug, and Cosmetic Act, and, in the case of biologics, also under the Public Health Service Act, and implementing regulations. The steps required before a drug or biologic may be marketed in the U.S. include:
·
completion of preclinical laboratory tests, animal studies and formulation studies under the FDAs current good laboratory practices;
·
submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin and must include independent Institutional Review Board, or IRB, approval at each clinical site before the trial is initiated;
·
performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each indication;
·
submission to the FDA of a new drug application, or NDA, or biologics license application, or BLA;
·
satisfactory completion of an FDA Advisory Committee review, if applicable;
65
·
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practices, or cGMPs, to assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity or to meet standards designed to ensure the biologics continued safety, purity and potency; and
·
FDA review and approval of the NDA or BLA.
Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND.
In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational product to human subjects under specific protocols and the supervision of qualified investigators. Each clinical protocol must be submitted to the FDA as part of the IND, and an IRB at each site where the study is conducted must also approve the study.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase I trials usually involve the initial introduction of the investigational drug into humans to evaluate the products safety, dosage tolerance and pharmacodynamics and, if possible, to gain an early indication of its effectiveness. Phase II trials usually involve controlled trials in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks and evaluate the preliminary efficacy of the drug for specific indications. Phase III trials usually further evaluate clinical efficacy and test further for safety in an expanded patient population. Phase I, Phase II and Phase III testing may not be completed successfully within any specified period, if at all. Furthermore, the FDA or we 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.
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the chemistry, manufacture and control criteria of the product, are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the products identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the products continued safety, purity and potency. The FDA may refuse to accept and review insufficiently complete applications.
Before approving an NDA or BLA, the FDA will inspect the facility or the facilities at which the product is manufactured. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The testing and approval process requires substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the products. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval.
Post-Approval Requirements
After regulatory approval of a product is obtained, we are required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA or BLA, PMA or cleared 510(k), the FDA may require post-marketing testing and surveillance to monitor the products safety or efficacy. In addition, holders of an approved NDA, BLA, or PMA or cleared 510(k) are required to report certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information and to comply with requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing
66
procedures must continue to conform to QSRs or cGMPs after approval. The FDA periodically inspects manufacturing facilities to assess compliance with QSRs/cGMPs, which imposes certain procedural, substantive and recordkeeping requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with QSRs/cGMPs and other aspects of regulatory compliance.
Discovery of problems with a product or failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include a clinical hold on or termination of studies, the FDAs refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, restriction on marketing, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development.
Foreign Regulation
In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Scientific Advisors
We seek advice from our scientific advisory board, which consists of a number of leading scientists and physicians, on scientific and medical matters. Our scientific advisory board meets regularly to assess:
·
our research and development programs;
·
our patent and publication strategies;
·
new technologies relevant to our research and development programs; and
·
specific scientific and technical issues relevant to our business.
The current members of our scientific advisory board are:
Name |
|
Position/Institutional Affiliation |
Prof. J. Aaron Ciechanover, M.D., D.Sc.
|
Prof. Ciechanover is a Nobel Prize laureate in Chemistry (2004) and a recipient of the prestigious Lasker Award (2000) for the discovery and recognition of the significance of the ubiquitin system of regulated protein degradation. Prof. Ciechanover is the Director of the Rappaport Family Institute for Research in the medical sciences and professor of biochemistry at the Technion Israel Institute of Technology. |
|
Prof. Zvi Bentwich, M.D.,
|
Prof. Bentwich has served as our Chief Scientist since June 2002 and as Chairman and Deputy Chairman of our Scientific Advisory Board since 2003. He is a world-renowned authority in AIDS research and is considered one of the leaders and founders of the discipline of Clinical Immunology. Prof. Bentwich founded and headed Israels largest AIDS center. He is the author of more than 250 scientific publications and has been a member of leading editorial boards and professional bodies, including Chair of the Clinical Immunology Committee of the International Union of Immunological Societies, President of the Israeli Society of Clinical Immunology and Allergy and of the Israel Society of STD. He has been a professor of medicine at the Hebrew University since 1981, and a professor of virology and head of a new center for Infectious Diseases and AIDS at Ben-Gurion University of the Negev since 2004. Prof. Bentwich is the father of our founder, board member and Chief Architect, Dr. Isaac Bentwich. |
67
68
Prof. Michael Sela, Ph.D. |
Prof. Sela, an Israel Prize laureate, was the President of the Weizmann Institute of Science from 1975 to 1985 and has served as Deputy Chairman of the Board of Governors of the Weizmann Institute since 1985. Prof. Sela is a member of Teva Pharmaceuticals board of directors and led the development efforts for Copaxone, Tevas multiple sclerosis drug. He is a professor of immunology at the Weizmann Institute of Science and is the author of 19 patents. He has published more than 450 articles in leading scientific journals including abstracts and book reviews. |
Employees
As of August 31, 2006, we had 51 full-time employees, 30 of whom were engaged in research and development and 21 of whom were engaged in management, administration, business development, marketing and finance. Of our employees, 15 hold M.D. or Ph.D. degrees.
The Israeli labor law governs the length of the workday, minimum daily wages for workers, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days and other conditions of employment. Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment without cause (as defined in the law). Severance pay may be funded by Managers Insurance described below. The payments to Managers Insurance on account of severance pay amount to approximately 8.3% of the employees wages. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for national health insurance. The total payments to the National Insurance Institute are equal to approximately 17.7% of the wages (up to a specified amount), of which the employee contributes approximately 12% and the employer contributes approximately 5.7%.
We contribute funds on behalf of all our employees (typically following a trial period of three months) to a fund known as Managers Insurance. This fund provides a combination of savings plan, insurance and severance pay benefits to the employee, giving the employee payments upon retirement or death and securing the payment of severance pay, if legally required, upon termination of employment. We decide whether each employee is entitled to participate in the plan, and each employee who agrees to participate contributes an amount equal to 5% of his or her salary and we, the employer, contribute between 13.3% and 15.8% of his or her salary.
We have never experienced labor-related work stoppages and believe that our relations with our employees are good.
Facilities
We currently rent approximately 13,000 square feet of office and laboratory space in Rehovot, Israel, under a lease that expires on December 31, 2008. Our wholly-owned subsidiary, Rosetta Genomics Inc., rents 1,100 square feet of office and laboratory space in North Brunswick, New Jersey, under a lease that expires in April 2007, with renewal options for an additional 36 months. The remaining payments due under these leases are as follows:
Period |
Rehovot, Israel |
North Brunswick, NJ |
Total |
||||||
|
|||||||||
2006 |
|
$ |
46,120 |
|
$ |
10,000 |
|
$ |
56,120 |
2007 |
138,359 |
9,272 |
147,631 |
||||||
2008 |
138,359 |
|
138,359 |
||||||
Total |
$ |
322,838 |
$ |
19,272 |
$ |
342,110 |
We believe that we will require additional space as our business grows, but expect that alternate facilities will be available on reasonable terms as and when needed.
Legal Proceedings
We are currently not a party to any legal proceedings.
69
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of August 31, 2006:
Name |
Age |
Position |
||
Amir Avniel |
33 |
Chief Executive Officer and President |
||
Tamir Kazaz, CPA |
36 |
Chief Financial Officer |
||
Shlomo Dagan, Ph.D. |
55 |
Chief Scientific Officer |
||
Yael Karov |
38 |
Chief Technology Officer |
||
Ranit Aharonov, Ph.D. |
37 |
Executive Vice President, Research and Product Strategy |
||
Dalia Cohen, Ph.D. |
54 |
Executive Vice President, U.S. Research and Development |
||
Peter Tolias, Ph.D. |
46 |
Vice President of Corporate Development |
||
Yoav Chelouche(2)(3) |
53 |
Chairman of the Board |
||
Isaac Bentwich, M.D. |
45 |
Director and Chief Architect |
||
Nathan Hod |
60 |
Director |
||
Prof. Moshe Many, M.D.(1) |
78 |
Director |
||
Leon Recanati |
58 |
Director |
||
Joshua Rosensweig. |
54 |
Director |
||
Gerald Dogon(1)(2)(3)(4) |
66 |
Director |
||
Tali Yaron-Eldar(1)(4) |
42 |
Director |
(1)
Member of our Audit Committee
(2)
Member of our Compensation Committee
(3)
Member of our Nominating and Corporate Governance Committee
(4)
To be elected to the board of directors effective upon completion of this offering in order to serve as an external director
Amir Avniel has served as our Chief Executive Officer since April 2006 and as President since May 2005. Mr. Avniel joined us in May 2001 and previously held other senior management positions, including Chief Technology Officer and Chief Operating Officer. Mr. Avniel is responsible for the overall planning and execution of our operations, business development, technology and research and development efforts. He also coordinates the development of agreements and collaborations between us and other industry leaders. He has been named co-author of 20 patent applications. Mr. Avniel studied computer science at the Academic College of Tel Aviv Jaffa, Israel. Prior to his academic studies, he served as an officer in the Israel Defense Force, where he was awarded four commendations for excellence.
Tamir Kazaz has served as our Chief Financial Officer since November 2005. Prior to joining us, from November 1999 to October 2005 Mr. Kazaz served in a number of key positions at Disc-o-Tech Medical Technologies Ltd., a medical device company, including Chief Financial Officer from November 1999 to May 2002. From May 2002 to October 2005, Mr. Kazaz served as General Manager of Disc Orthopedic Technologies, Inc, a wholly-owned U.S. subsidiary of Disc-o-Tech Medical Technologies Ltd. where he managed the strategic planning, financial and marketing affairs in North America. From 1996 to October 1999, he worked for KPMG Israel. Mr. Kazaz has a bachelors degree in business from The College of Management, Tel Aviv and is a Certified Public Accountant. Mr. Kazaz has also been an adjunct lecturer of the Faculty of Management in Tel Aviv University for four years.
Shlomo Dagan, Ph.D. has served as our Chief Scientific Officer since July 2006. Prior to joining us, from May 1994 until June 2006, Dr. Dagan served as the Chief Scientific Officer of XTL Biopharmaceuticals, a leading biotechnology company in Israel. Dr. Dagan also served as a member of the board of directors of XTL Biopharmaceuticals from 2000 to 2005. From August 1989 to May 1994, he served as the Acting Director of Molecular Biology of ImClone Systems Incorporated. Dr. Dagan is the co-author of 37 articles published in leading bioscience and medical journals. He is the inventor of four issued patents and a number of patent applications. Dr. Dagan is a member of several scientific associations, including the American Association of the Study of Liver Disease, the American Gastroenterology Association, the European Association of the Study of Liver Disease and
70
the Scientific Committee of the Israel Immunology Society. Dr. Dagan received his Ph.D. from the Weizmann Institute of Science in Israel.
Yael Karov has served as our Chief Technology Officer since June 2005. Ms. Karov joined us in June 2003 and served as Vice President, Research & Development. Ms. Karov co-founded and served as Chief Technology Officer of Agentics, a company specializing in free text classification based on natural language processing, from 1996 through December 2000, when Agentics Ltd. was acquired by Mercado Software Inc. From January 2001 to April 2003, Ms. Karov served as Director of Research and Development at Mercado Software. She is the co-author of 18 patent applications and inventor of two U.S. issued patents. Ms. Karov is author of a number of publications in leading genomics and computer science journals. She received her Master of Science in Mathematics and Computer Science from the Weizmann Institute of Science.
Ranit Aharonov, Ph.D. has served as our Executive Vice President of Research and Product Strategy since January 2006. Dr. Aharonov joined us in March 2003 and previously held other positions, including Vice President, Research and Director, Algorithms. Prior to joining us, from October 1998 until September 2002, Dr. Aharonov taught Neural Computation-related courses at the Hebrew University of Jerusalem. She is the author of seven papers published in peer reviewed journals and the co-author of 18 patent applications, and is an adjunct lecturer in Neural Network Theory and Applications at the Brain Science Institute of Bar-Ilan University. Dr. Aharonov earned her Ph.D. in Neural Computation from the Hebrew University in Jerusalem.
Dalia Cohen, Ph.D. has served as our Executive Vice President, U.S. Research and Development since August 2006. Prior to joining us, Dr. Cohen served in several executive positions at Novartis. From May 2005 to June 2006, Dr. Cohen served as Vice President and Global Head for Strategic and Enabling Technologies and Molecular Medicine, at the Novartis Institute for Biomedical Research. From October 1998 to April 2005, Dr. Cohen established and served as Vice President and Global Head of the Functional Genomics Department at the Novartis Institute for Biomedical Research. From 1997 to 1998, Dr. Cohen served as Executive Director and Senior Expert of Molecular and Cellular Biology at Novartis Pharma Research. From 1992 to 1996, Dr. Cohen was a Research Fellow in the Oncology Department at Sandoz Pharmaceutical Corporation, and from 1986 to 1992, Dr. Cohen was a Research Associate in the Department of Molecular Pharmacology at the Albert Einstein College of Medicine. In addition, Dr. Cohen is an Adjunct Professor at the University of Medicine and Dentistry of New Jersey-Robert Wood Johnson Medical School. Dr. Cohen received her Ph.D. in Cell Biology from the Faculty of Medicine at Technion, Israel Institution of Technology and has published more than 70 scientific articles.
Peter Tolias, Ph.D. has served as our Vice President of Corporate Development since August 2006. Prior to joining us, from March 2003 to January 2006, Dr. Tolias served as Vice President of Worldwide Advanced Research, at Ortho-Clinical Diagnostics a Johnson & Johnson company. From January 2000 to March 2003, Dr. Tolias founded and served as Executive Director of the New Jersey Medical School Public Health Research Institutes Center for Applied Genomics. He served as an Associate Member at the Public Health Research Institute from 1996 to 2003 and as an Assistant Member from 1991 to 1996. Dr. Tolias served as an Associate in the Department of Cellular & Developmental Biology at Harvard University from 1990 to 1991 where he was a Post-Doctoral Fellow from 1987 to 1990. He is also an Adjunct Professor of Molecular Genetics at the University of Medicine and Dentistry of New Jersey. Dr. Tolias is the founder of three biotechnology companies as well as a consulting and capital sourcing firm specializing in the biotechnology sector. Dr. Tolias received his Ph.D. from McGill University in Canada and is the author of over 40 scientific publications.
Yoav Chelouche has served as Chairman of our board of directors since April 2006, and as a member of our board of directors since 2003. Mr. Chelouche has over 20 years of experience in leadership and management within the high technology sector. Since 2001, Mr. Chelouche has been a managing partner of Aviv Venture, an Israel-based technology venture capital fund. From 1995 to 2001, he served as President and Chief Executive Officer of Scitex Corp., a leader in digital imaging and printing systems. From 1980 to 1995, he held several management positions at Scitex, including Vice President, Strategy and Business Development, Vice President Marketing and Vice President, Finance Europe. Mr. Chelouche holds an MBA from INSEAD, Fontainebleau, France and a B.A. in Economics and Statistics from Tel Aviv University, Israel.
Isaac Bentwich, M.D. , our founder and Chief Architect, has been a member of our board of directors since our inception in 2000. He also served as our Chief Executive Officer from inception to May 2005, and as the Chairman of our board of directors from inception to April 2006. Dr. Bentwich is a physician by training and an entrepreneur. Prior to founding Rosetta Genomics, Dr. Bentwich was Executive Vice President of Physicians Solutions at HBOC,
71
now a part of McKesson Corporation, a healthcare services company. Dr. Bentwich joined HBOC in 1995, when it acquired Pegasus Medical Ltd., an Israeli medical-informatics company he founded and led. He is the co-author of 45 patent applications. Dr. Bentwich holds an M.D. from Ben-Gurion University of the Negev.
Nathan Hod has served as a member of our board of directors since April 2006. Mr. Hod co-founded Nogatech Inc., a provider of computer chips that compress video images, in 1993. He served as Chairman and Chief Executive Officer until the company was sold to Zoran Inc. in 2000. In 1987, Mr. Hod also co-founded and served as Chairman and CEO of DSPC Inc., a provider of chip-sets to the wireless industry, that was sold to Intel Corporation in 1999. Prior to founding DSPC, Mr. Hod served in several executive positions in Scitex Corporation Ltd., the last of which was General Manager of Scitex Japan & Pacific. Mr. Hod holds an MS in Management Sciences from the University of Massachusetts, Amherst.
Prof. Moshe Many, M.D., Ph.D. has served as a member of our board of directors since December 2003. A surgeon by training, Prof. Many has served as Chairman of the Research and Development Committee of Teva Pharmaceuticals board of directors since 1991. He formerly served as Chairman of Surgery and Chief of Urology at the Sheba Medical Center, after which he was appointed to serve as President of Tel Aviv University from 1983 through 1991. He now serves as President of Ashkelon Academic College. Prof. Many holds an M.D. from the Geneva University, and a Ph.D. from Tufts University.
Leon Recanati has served as a member of our board of directors since November 2004. Since 2003, Mr. Recanati has headed Glenrock Israel, a private equity investment company. From 1997 to 2003, Mr. Recanati was Chief Executive Officer and Chairman of IDB Holding Corporation, one of the largest investment groups in Israel. From 1997 to 2003, Mr. Recanati served as Chairman of Clal Industries and Investment Ltd., and from 2000 to 2003 he served as Chairman of Azorim Investment Development and Construction Ltd. Mr. Recanati holds an MBA from Hebrew University.
Joshua Rosensweig has served as a member of our board of directors since May 2004. Since September 2003, Dr. Rosensweig has served as the Chairman of the board of directors of the First International Bank of Israel. Since 2003, he has also served as member of the board of directors of Plastro Irrigation Systems Ltd. From 1998 to July 2005, Dr. Rosensweig was a senior partner at Gornitzky and Co., a law firm where he specialized in international transactions and taxation, and where he now serves as of counsel. Dr. Rosensweig lectured at Bar-Ilan University, Law School from 1980 to 1995 and at Tel Aviv University, School of Business from 1983 to 1995. Dr. Rosensweig received his J.S.D. (International Taxation), and LL.M. (Taxation) from New York University Law School.
Gerald Dogon has agreed to serve as a member of our board of directors effective upon completion of this offering in order to serve as an external director in accordance with the Companies Law. Since December 2004, Mr. Dogon has served as a director and a member of the audit, investment and nomination committees of Scailex Corporation (previously Scitex Corporation). From October 2005 until it was acquired by PMC-Sierra, Inc. in May 2006, he served as member of the board of directors of Passave, Inc., a semiconductor company. From 1999 to 2000, he served as a director and as chairman of the audit committee of Nogatech, Inc. From 1994 to 1998, Mr. Dogon served as a director and as Executive Vice President and Chief Financial Officer of DSPC Inc. Mr. Dogon holds a B.A. in Economics from the University of Cape Town and an MBA from Columbia University.
Tali Yaron-Eldar has agreed to serve as a member of our board of directors effective upon completion of this offering in order to serve as an external director in accordance with the Companies Law. Since January 2004, Ms. Yaron-Eldar has served as the Chief Executive Officer of Arazim Investment Company and a partner with the Law Firm of Cohen, Cohen, Yaron-Eldar & Co. She has also served in a variety of public positions, including as the Chief Legal Advisor of the Customs and V.A.T department of the Finance Ministry of the State of Israel from 1998 to 2001 and as the Commissioner of Income Tax and Real Property Tax Authority of the State of Israel from 2002 to 2004. Ms. Yaron-Eldar holds an MBA specializing in finance and an LL.M. from Tel-Aviv University and is a member of the Israeli Bar Association.
Corporate Governance Practices
We are incorporated in Israel, and, therefore, subject to various corporate governance practices under Israeli law relating to such matters as independent directors, the audit committee and the internal auditor. These matters are in addition to the requirements of the Nasdaq Global Market and other relevant provisions of U.S. securities laws. Under the Nasdaq Global Market rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq Global Market requirements, except for certain matters such
72
as composition and responsibilities of the audit committee and the independence of its members. For U.S. domestic companies, Nasdaq Global Market rules specify that the board of directors must contain a majority of independent directors within 12 months of its initial public offering. We intend to comply with this requirement as well as the committee composition and responsibility requirements with respect to our audit committee and our other committees. In addition, under the Companies Law, we are required to appoint at least two external directors, and this appointment must be confirmed by our shareholders no later than three months after the closing of this offering. We intend that the persons we appoint as external directors will also be independent under the rules of the Nasdaq Global Market.
Board of Directors and Officers
Our board of directors currently consists of six directors. We intend to appoint two new directors effective upon completion of this offering who will qualify as external directors under the Companies Law. Certain of our current directors were appointed by certain of our shareholders or by our founding shareholders pursuant to board appointment rights granted to such shareholders in connection with their purchase of our shares. These rights will terminate after this offering, and thereafter, our directors, apart from external directors, will be elected by a vote of the holders of a majority of the voting power represented at a meeting of our shareholders and voting on the election of directors. Our articles of association to be effective upon the consummation of this offering provide that we may have no less than two and up to 11 directors. See Certain Relationships and Related Party Transactions Rights of Appointment.
Each director will hold office until the annual general meeting of our shareholders for the year in which his or her term expires or until his or her successor shall be elected and qualified. The approval of at least 75% of the voting rights represented at a general meeting is generally required to remove any of our directors from office. A simple majority of our shareholders at a general meeting may elect directors in their stead or fill any vacancy, however created, in our board of directors. In addition, vacancies on the board of directors, other than vacancies created by an external director, may be filled by a vote of a majority of the directors then in office. Our board of directors may also appoint additional directors up to the maximum number permitted under our articles of association. A director so chosen or appointed will hold office until the next general meeting of our shareholders. See External Directors for a description of the procedure for election of external directors.
Each of our executive officers serves at the discretion of the board of directors and holds office until his or her successor is elected or until his or her earlier resignation or removal. Prof. Zvi Bentwich, our Chief Scientist, is the father of Dr. Isaac Bentwich, our founder, Chief Architect and a member of our board of directors. There are no other family relationships among any of our directors or executive officers.
Our articles of association provide, as allowed by Israeli law, that any director may, by written notice to us, appoint another person to serve as an alternate director (subject to the approval of a majority of the other directors in a written resolution or at the next meeting of the board of directors) and may cancel such appointment. The term of appointment of an alternate director may be for one meeting of the Board of Directors, or for a specified period, or until notice is given of the termination of the appointment. No director currently intends to appoint any other person as an alternate director. The Companies Law stipulates that a person not qualified to be appointed as a director, shall not be appointed and shall not serve as alternate director. In addition, a person who serves as a director or alternate director shall not be appointed and shall not serve as an alternate director except under very limited circumstances. An alternate director has the same responsibility as a director.
External Directors
Qualifications of External Directors
Companies incorporated under the laws of the State of Israel whose shares are listed on a stock exchange, including the Nasdaq Global Market, are required to appoint at least two external directors. Gerald Dogon and Tali Yaron-Eldar, who qualify as external directors under the Companies Law, have agreed to serve as directors effective upon completion of this offering. The appointment of our external directors must be confirmed by a general meeting of the companys shareholders no later than three months from the date of this offering. The Companies Law provides that a person may not be appointed as an external director if the person, or the persons relative, partner, employer or any entity under the persons control, has or had during the two years preceding the date of appointment
73
any affiliation with the company or any entity controlling, controlled by or under common control with the company.
The term affiliation includes:
·
an employment relationship;
·
a business or professional relationship maintained on a regular basis;
·
control; and
·
service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an external director following the public offering.
The term office holder is defined as a director, general manager, chief business manager, deputy general manager, vice general manager, executive vice president, vice president, any other manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such persons title. Each person listed above under Executive Officers, Key Employees and Directors is an office holder.
No person can serve as an external director if the persons position or other business creates, or may create, a conflict of interest with the persons responsibilities as an external director or may otherwise interfere with the persons ability to serve as an external director. If at the time an external director is appointed all current members of the board of directors are of the same gender, then that external director must be of the other gender.
Our external directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. In addition, our board of directors must determine the minimum number of directors having financial and accounting expertise as set out in the regulations. In determining the number directors required to have such expertise, the members of the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. The board of directors has determined that our company requires at least one director with the requisite financial and accounting expertise, who is Mr. Dogon, and that both of our external directors possess the requisite professional qualifications.
Until the lapse of two years from termination of office, a company may not appoint an external director as an office holder and cannot employ or receive services from that person for pay, either directly or indirectly, including through a corporation controlled by that person.
Election of External Directors
External directors are elected by a majority vote at a shareholders meeting, provided that either:
·
at least one-third of the shares of non-controlling shareholders voted at the meeting, vote in favor of the election of the external director (disregarding abstentions); or
·
the total number of shares of non-controlling shareholders voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company.
The initial term of an external director is three years and he or she may be reelected to one additional term of three years. Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each, in each case provided that the audit committee and the board of directors confirm that, in light of the external directors expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to the company. An external director may only be removed by the same percentage of shareholders as is required for his or her election, or by a court, and then only if the external director ceases to meet the statutory requirements for his or her appointment or if the external director violates his or her duty of loyalty to the company. If an external directorship becomes vacant, a companys board of directors is required under the Companies Law to call a shareholders meeting immediately to appoint a new external director.
Each committee of a companys board of directors that has the right to exercise a power delegated by the board of directors is required to include at least one external director and our audit committee is required to include all of the external directors. An external director is entitled to compensation as provided in regulations adopted under the
74
Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an external director.
Board Committees
Our board of directors will establish an audit committee, a compensation committee and a nominating and corporate governance committee, effective upon completion of this offering.
Audit Committee
Under the listing requirements of the Nasdaq Global Market, a foreign private issuer is required to maintain an audit committee that operates under a formal written charter and has certain responsibilities and authority, including being directly responsible for the appointment, compensation, retention and oversight of the work of the issuers independent auditors. The members of the audit committee are required to meet the independence requirements established by the SEC in accordance with the requirements of the Sarbanes-Oxley Act. The rules of the Nasdaq Global Market also require that at least one member of the audit committee be a financial expert. Our audit committee, to be established effective upon completion of this offering, will be comprised of three members and meet the listing requirements of the Nasdaq Global Market and the SEC.
Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit committee must consist of at least three directors and must include all of the companys external directors. The audit committee may not include the chairman of the board, any director employed by the company or providing services to the company on an ongoing basis, a controlling shareholder or any of a controlling shareholders relatives.
Our audit committee will provide assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. The audit committee will also oversee the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee will also be required to identify deficiencies in the administration of the company, including by consulting with the internal auditor, and recommending remedial actions with respect to such deficiencies, and will be responsible for reviewing and approving related party transactions.
The approval of the audit committee will be required to effect certain specified actions and transactions with office holders and controlling shareholders. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company. The audit committee may not approve an action or a transaction with a controlling shareholder or with an office holder unless at the time of approval the two external directors were serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.
Our audit committee charter that will be effective upon completion of this offering states that in fulfilling this role, the committee is entitled to rely on interviews and consultations with our management, our internal auditor and our independent public accountant. However, it is not obligated to conduct any independent investigation or verification.
Our audit committee will consist of Gerald Dogon (Chairman), Prof. Moshe Many and Tali Yaron-Eldar. Our board of directors has determined that Mr. Dogon qualifies as an audit committee financial expert as defined under the rules and regulations of the SEC, applicable Nasdaq Global Market rules and the Companies Regulations (Conditions and Criteria for Directors with Accounting and Financial Expertise and with Professional Qualifications) 2005.
Compensation Committee
Our compensation committee will review and recommend policies relating to compensation and benefits of our officers and employees. The compensation committee will review corporate goals and objectives set by our board
75
that are relevant to compensation of the Chief Executive Officer and other executive officers, evaluate the performance of these officers in light of those goals and objectives, and set the compensation of these officers based on such evaluations. The compensation committee will also administer the issuance of options and other awards under our stock plans. The compensation committee will review and evaluate, at least annually, the goals and objectives of our incentive compensation plans and monitor the results against the approved goals and objectives. The members of our compensation committee will be Yoav Chelouche (Chairman) and Gerald Dogon. Our board of directors has determined that both members of our compensation committee are independent under the applicable Nasdaq Global Market rules.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee will be responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of our board. In addition, the nominating and corporate governance committee will be responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning governance matters. The members of our nominating and corporate governance committee will be Yoav Chelouche (Chairman) and Gerald Dogon. Our board of directors has determined that both members of our nominating and corporate governance committee are independent under the applicable Nasdaq Global Market rules.
Internal Auditor
Under the Companies Law, the board of directors must appoint an internal auditor nominated by the audit committee. The role of the internal auditor is to examine whether a companys actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party or an office holder, or affiliate, or a relative of an interested party or an office holder, nor may the internal auditor be the companys independent accountant or its representative. An interested party is defined in the Companies Law as a 5% or greater shareholder, any person or entity who has the right to designate one director or more or the chief executive officer of the company or any person who serves as a director or as a chief executive officer. We intend to appoint an internal auditor following the closing of this offering.
Code of Conduct
Our board of directors has adopted, effective upon our listing on the Nasdaq Global Market, a code of conduct that is applicable to all of our directors, officers and employees, as required by the Nasdaq Global Market rules, as well as complies with the definition of a code of ethics set out in Section 406(c) of the Sarbanes-Oxley Act.
Approval of Specified Related Party Transactions Under Israeli Law
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, including directors and executive officers. The duty of care requires an office holder to act with the degree of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:
·
information on the appropriateness of a given action brought for his or her approval or performed by virtue of his or her position; and
·
all other important information pertaining to these actions.
The duty of loyalty of an office holder includes a duty to:
·
refrain from any conflict of interest between the performance of his or her duties in the company and his or her personal affairs;
·
refrain from any activity that is competitive with the company;
·
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
76
·
disclose to the company any information or documents relating to a companys affairs which the office holder received as a result of his or her position as an office holder.
Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office holder disclose any 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 promptly and in any event no later than the first meeting of the board of directors at which such transaction is considered. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
·
the office holders spouse, siblings, parents, grandparents, descendants, spouses descendants and the spouses of any of these people; or
·
any corporation in which the office holder is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager.
Under Israeli law, an extraordinary transaction is a transaction:
·
other than in the ordinary course of business;
·
that is not on market terms; or
·
that is likely to have a material impact on the companys profitability, assets or liabilities.
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 that office holder, or a third party in which the office holder has a personal interest. A transaction that is adverse to the companys interest may not be approved. If the transaction is an extraordinary transaction, both the audit committee and the board of directors must approve the transaction. Under certain circumstances, shareholder approval may also be required. A director who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may generally not be present at this meeting or vote on this matter unless a majority of the directors or members of the audit committee have a personal interest in the matter. If a majority of the directors have a personal interest in the matter, a decision regarding the matter also requires approval of the shareholders of the company.
Under the Companies Law, all arrangements as to compensation of office holders who are not directors require approval by the board of directors, and an undertaking to indemnify or insure an office holder who is not a director requires both board and audit committee approval. In general, arrangements regarding the compensation, indemnification and insurance of directors (in their capacity as a director or in any other capacity) require audit committee and shareholder approval in addition to board approval.
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, and the terms of compensation of a controlling shareholder who is an office holder, require the approval of the audit committee, the board of directors and a majority of the shareholders of the company. In addition, the shareholder approval must fulfill one of the following requirements:
·
at least one-third of the shareholders who have no personal interest in the transaction and are present and voting at the meeting, in person, by proxy or by written ballot, must vote in favor of approving the transaction; or
·
the shareholders who have no personal interest in the transaction who vote against the transaction may not represent more than 1% of the voting rights in the company.
Under the Companies Law, a shareholder has a duty to refrain from abusing his or her power in the company and to act in good faith in exercising its rights in, and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:
·
an amendment to the articles of association;
·
an increase in the companys authorized share capital;
77
·
a merger; and
·
approval of related party transactions that require shareholder approval.
In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under the companys articles of association, can appoint or prevent the appointment of an office holder, is required 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, and there is no binding case law that addresses this subject directly
Employment Agreements
We have entered into written employment agreements with all of our office holders. These agreements all contain provisions standard for a company in our industry regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law.
Executive Officer and Director Compensation
The aggregate direct compensation we paid to our officers as a group (four persons) for the year ended December 31, 2005 was approximately $347,325, of which approximately $60,345 was set aside or accrued to provide for pension, retirement, severance or similar benefits. These amounts do not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses, and other benefits commonly reimbursed or paid by companies in Israel. We have approved a one-time bonus of $100,000 payable to Dr. Isaac Bentwich, our Chief Architect and a member of our board of directors, payable upon completion of this offering.
We paid no direct compensation to our directors for their services as directors for the year ended December 31, 2005. We paid $35,000 to Yoav Chelouche in August 2006 for services rendered commencing February 1, 2006 as the Chairman of our board of directors.
As of August 31, 2006, there were outstanding options to purchase 626,283 ordinary shares that were granted to ten of our directors and officers, at a weighted average exercise price of $2.86 per share. We are also obligated to grant to our two external directors options to purchase an aggregate of 25,364 ordinary shares at an exercise price equal to the fair market value of our ordinary shares on the date of grant. In addition, we are obligated to issue to three of our officers options to purchase a total of 81,600 ordinary shares at a weighted average exercise price of $4.74 per share. In May 2004, we issued 42,685 restricted ordinary shares to three of our current directors to be held by a trustee. The restrictions on these shares lapse in equal monthly amounts over a 36-month period for each month in which the director serves on the board.
We have entered into an agreement with Yoav Chelouche to serve as Chairman of our board of directors. Under this agreement, Mr. Chelouche receives a monthly retainer fee of $7,000, as well as options to purchase our ordinary shares. Each of our non-executive directors, other than Mr. Chelouche, receives an annual fee of $10,000, and upon appointment, new directors will be granted options to purchase 12,682 of our ordinary shares under our 2006 Global Share Incentive Plan. An additional annual fee of $10,000 is paid to each such non-executive director for serving on one of our committees.
See also Certain Relationships and Related Party Transactions.
Employee Benefit Plans
2003 Israeli Share Option Plan
In March 2003, we adopted the Rosetta Genomics Ltd. 2003 Israeli Share Option Plan, or the 2003 Plan. The 2003 Plan provided for the grant of options to our directors, employees, consultants and service providers, and to the directors, employees, consultants and service providers of our subsidiaries and affiliates. Upon shareholder approval of the 2006 Global Share Incentive Plan, or 2006 Plan, in July 2006, the 2003 Plan was terminated and the 321,773 ordinary shares that were available for issuance under the 2003 Plan were transferred to the 2006 Plan. However, all
78
outstanding options granted under the 2003 Plan remain outstanding and subject to the terms of the 2003 Plan. As of August 31, 2006, options to purchase 523,758 ordinary shares have been granted and are still outstanding under the 2003 Plan and 121,279 shares have been issued pursuant to the exercise of options granted under the 2003 Plan.
2006 Global Share Incentive Plan
The 2006 Plan was approved in July 2006. As of August 31, 2006, there were 279,399 shares available for issuance under the 2006 Plan and options to purchase 494,398 ordinary shares have been granted and are outstanding under the 2006 Plan. The 2006 Plan, and its corresponding sub-plans for grantees subject to U.S. taxation and grantees subject to Israeli taxation, provides for the grant of options to our directors, employees, consultants and service providers, and to the directors, employees, consultants and service providers of our subsidiaries and affiliates.
Administration of Our Employee Benefit Plans
Our employee benefit plans are administered by our compensation committee, which makes recommendations to our board of directors regarding the grant of options and the terms of the grant, including, exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of these plans. Options granted under the 2003 Plan and the 2006 Plan to eligible employees and office holders who are Israeli residents may be granted under Section 102(b)(2) of the Israel Income Tax Ordinance pursuant to which the options or the ordinary shares issued upon their exercise must be allocated or issued to a trustee and be held in trust for the lesser of (a) 30 months, or (b) two years following the end of the tax year in which the options are granted, provided that options granted after January 1, 2006 are only subject to being held in trust for two years. 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 are subject to a capital gains tax of 25%.
Options to be granted under the 2006 Plan to U.S. residents may qualify as incentive stock options within the meaning of Section 422 of the Code. The exercise price for incentive stock options must not be less than the fair market value on the date the option is granted, unless otherwise approved by our board of directors and shareholders, or 110% of the fair market value if the optionholder holds more than 10% of our share capital.
Options granted under our employee benefit plans generally vest over three or four years, and they expire ten years from the date of grant. If we terminate an employee for cause, all of the employees vested and unvested options expire no later than five days from the time of delivery of the notice of discharge, unless determined otherwise by the compensation committee. Upon termination of employment for any other reason, including due to death or disability of the employee, vested options may be exercised within three months of the date of termination, unless otherwise determined by the compensation committee. Vested options not exercised within the prescribed period and unvested options return to the 2006 plan for reissuance.
In the event of a merger, consolidation, reorganization or similar transaction in which our ordinary shares are exchanged for shares of another corporation, each optionholder will be entitled to purchase the number of shares of the other corporation as it would have received if he or she had exercised its option immediately prior to such transaction. In the event of a change of control, or merger, consolidation, reorganization or similar transaction resulting in the acquisition of at least 50% of our voting power, or the sale of all or substantially all of our assets, each optionholder is required to participate in the transaction and sell or exchange their shares received pursuant to the exercise of an option.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. None of the current members of our compensation committee has ever been an employee of Rosetta.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of the duty of loyalty of the office holder. An Israeli company may exculpate an office holder in advance from liability
79
to the company, in whole or in part, for a breach of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our articles of association include such a provision. An Israeli company may not exculpate a director for liability arising out of a prohibited dividend or distribution to shareholders.
An Israeli company may indemnify an office holder in respect of certain liabilities either in advance of an event or following an event provided a provision authorizing such indemnification is inserted in its articles of association. Our articles of association contain such an authorization. An undertaking provided in advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on or incurred by him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court must be limited to events which in the opinion of the board of directors can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria. In addition, a company may indemnify an office holder against the following liabilities incurred for acts performed as an office holder:
·
reasonable litigation expenses, including attorneys fees, incurred by the office holder 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 (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding 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; and
·
reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for a crime that does not require proof of criminal intent.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder:
·
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
·
a breach of duty of care to the company or to a third party; and
·
a financial liability imposed on the office holder in favor of a third party.
An Israeli company may not indemnify or insure an office holder against any of the following:
·
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
·
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
·
an act or omission committed with intent to derive illegal personal benefit; or
·
a fine levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our shareholders.
Our articles of association allow us to indemnify and insure our office holders to the fullest extent permitted by the Companies Law. Our office holders are currently covered by a directors and officers liability insurance policy. As of the date of this offering, no claims for directors and officers liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
We have entered into agreements with each of our directors and certain executive officers undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification is limited to events determined as foreseeable by the board of directors based on the Companys activities, and to an amount determined by the board of directors as reasonable under the circumstances.
80
The limitation of liability and indemnification provisions in our articles of association may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our shareholders. A shareholders investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. There is no pending litigation or proceeding naming any of our directors or officers for which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
81
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have, from time to time, entered into agreements with our shareholders and affiliates. We describe these related party transactions entered into since January 1, 2003 below:
Agreements with Glenrock Israel
On August 15, 2004, we entered into a one-year consulting agreement with Glenrock Israel Ltd., or Glenrock, an Israeli company controlled by Leon Recanati, a member of our board of directors. In consideration for Glenrocks consulting services, we paid Glenrock a monthly retainer of $5,000 plus VAT in addition to fees of $85,619 related to specific projects and assignments.
On September 8, 2004, we entered into a finder fee agreement with Glenrock. Pursuant to this agreement and in connection with our series B round of financing, in 2005 Glenrock received $30,298 and warrants exercisable for a period of 36 months into 2,560 ordinary shares at an exercise price of $5.86 per share.
On April 7, 2005, we entered into a second finder fee agreement with Glenrock. Pursuant to this agreement and in connection with our July 2005 convertible bridge loan financing, in 2005, Glenrock received $81,161 and warrants exercisable for a period of 36 months into 9,219 of our series B preferred shares at an exercise price of $5.86 per share.
Finder Fee Agreement with Rosenram Business Development Ltd.
On March 22, 2006, we entered into a finder fee agreement with Rosenram Business Development Ltd., or Rosenram, an Israeli company controlled by Dr. Joshua Rosensweig, a member of our board of directors. Pursuant to this agreement, Rosenram received $298,000 in cash and warrants exercisable for a period of 36 months into 19,396 ordinary shares of the Company at an exercise price of $7.68 per share.
Agreements with Kadima Hi-Tech
On May 8, 2002, we entered into a finder fee agreement with Kadima Hi-Tech Ltd., or Kadima, one of our principal shareholders. Kadima holds shares in trust on behalf of over 100 beneficiaries and intends to transfer those shares to the beneficiaries immediately prior to the effectiveness of this offering. Mr. Yossi Ben-Yossef, the managing director of Kadima is currently an observer to our board of directors, and Mr. Yoav Chelouche and Dr. Joshua Rosensweig, both members of our board of directors, are affiliated with Kadima. Pursuant to this agreement, in connection with our 2002 convertible bridge loan financing, Kadima received a fee of $30,750 and warrants exercisable through January 31, 2008 into 8,432 ordinary shares at an exercise price of $3.647 per share.
On March 3, 2003, we entered into a second finder fee agreement with Kadima. Pursuant to this agreement, in connection with our 2003 convertible bridge loan financing and our series A round of financing, Kadima received a fee of $165,819 and warrants exercisable through January 31, 2008 into 13,378 ordinary shares at an exercise price of $5.288 per share.
On April 30, 2004, we entered into a third finder fee agreement with Kadima. Pursuant to this agreement, in connection with our series B round of financing, Kadima received a fee of $146,186 and an additional $10,000 for reimbursement of legal fees and warrants exercisable through January 31, 2008 into 9,745 ordinary shares at an exercise price of $5.86 per share.
On April 4, 2005, we entered into a fourth finder fee agreement with Kadima. Pursuant to this agreement, in connection with our July 2005 convertible bridge loan financing, Kadima received a fee of $179,992 and an additional $10,000 for reimbursement of legal fees and warrants exercisable through July 15, 2008 into 20,322 series B preferred shares at an exercise price of $5.86 per share.
On March 7, 2006, we paid Kadima $50,000 in consulting fees and reimbursed $20,000 in legal fees in connection with our series C preferred financing.
Maimonides Innovative Technologies License Agreement
On June 23, 2003, we entered into a license agreement with Maimonides Innovative Technologies Ltd., or Maimonides, an Israeli company wholly-owned by Dr. Isaac Bentwich, our founder, chief architect and a member of
82
our board of directors. Pursuant to this agreement, Maimonides granted us a 20-year fully-paid, exclusive, irrevocable, worldwide license to use its multi-lingual text generation software technology. In consideration for this license, we will pay Maimonides an aggregate of up to $100,000. As of May 2006, we have paid Maimonides an aggregate of approximately $33,000 in license fees. The balance of $67,000 will be paid in future quarterly royalties equal to 5% of our revenues.
Financing Transactions
Series A Financing
From July 2003 through November 2003, we issued an aggregate of 1,337,769 series A preferred shares and 229,113 warrants to purchase series A preferred shares at a weighted average exercise price of $3.647.
The following table sets forth the number of series A preferred shares and warrants issued to individuals or entities which, as of the date of this prospectus, beneficially own more than 5% of the voting power of our share capital or are affiliated with our directors and officers:
Insight Capital Ltd. is controlled by Mr. Leon Recanati, a member of our board of directors.
Series B Financing
From September 2004 through April 2006, we issued an aggregate of 1,712,018 series B preferred shares and 120,152 warrants to purchase series B preferred shares at a weighted average exercise price of $5.86.
The following table sets forth the number of series B preferred shares and warrants issued to individuals or entities which, as of the date of this prospectus, beneficially own more than 5% of the voting power of our share capital or which are affiliated with our directors or officers:
Aggregate
|
Number of Series B
|
Warrants |
||||||
|
(in thousands) |
|
||||||
Kadima Hi-Tech Ltd. |
|
$ |
4,946 |
|
845,875 |
|
70,623 |
|
Insight Capital Ltd. |
$ |
700 |
119,499 |
34,826 |
(1) |
|||
Isaac Bentwich, M.D. |
$ |
122 |
20,802 |
|
(1)
The warrants were issued to Glenrock Israel, an affiliate of Insight Capital Ltd.
Series C Financing
In April 2006, we issued an aggregate of 1,822,422 series C preferred shares and warrants to purchase 33,585 ordinary shares, at an exercise price $7.68.
The following table sets forth the number of series C preferred shares issued to entities which, as of the date of this prospectus, beneficially own more than 5% of the voting power of our share capital or which are affiliated with our directors or officers:
Aggregate
|
Number of Series C
|
Warrants |
||||||
|
(in thousands) |
|
||||||
Rosenram Trust Co. Ltd. |
|
$ |
1,750 |
|
227,803 |
|
|
|
Instanz Nominees Pty Ltd. |
$ |
3,700 |
481,640 |
|
83
Rosenram Trust Co. Ltd., which invested as a trustee on behalf of a third party, is controlled by Dr. Joshua Rosensweig, a member of our board of directors, and Instanz Nominees Pty Ltd. is one of our principal shareholders.
Rights of Appointment
Our current board of directors consists of six directors, two of whom were appointed by our founders, and three of whom were appointed by the majority interest holders of the series A preferred shares, series B preferred shares and series C preferred shares, respectively. In addition, a sixth director was appointed as an industry expert by the other five directors.
Registration Rights
In connection with our series C financing, our existing shareholders, as well as the series C investors, entered into an investors rights agreement, which contains provisions regarding registration rights as follows:
Demand Registration Rights
Commencing on the date that is twelve months following the effectiveness of this offering, at the request of the holders of a majority of the outstanding registrable securities held by our former preferred shareholders, we must use our best efforts to register any or all of these shareholders ordinary shares as follows:
·
we are required to effect up to two such registrations, but only if the aggregate market value of the shares to be registered in each such registration is at least $5.0 million at the time of the request, and
·
we will not be required to effect a second demand registration within twelve months after the effective date of the first such demand registration or any other registration statement pertaining to our ordinary shares, or such shorter periods if such shorter periods are acceptable to the underwriters of such offering.
Upon receipt of a registration demand, we must also give notice of the registration to all other holders of registrable securities, including certain entities controlled by Dr. Isaac Bentwich, and entities affiliated with our directors, officers and principal shareholders, and include in the registration any ordinary shares that they request be included.
Piggyback Registration Rights
Following this offering, our former preferred shareholders and certain other shareholders who held ordinary shares issued prior to this offering, including entities controlled by Dr. Isaac Bentwich, and entities affiliated with our directors, officers and principal shareholders, will also have the right to request that we include their ordinary shares which were issued upon conversion of our preferred shares in any registration statements filed by us in the future for the purposes of a public offering, subject to specified limitations.
Shelf Registration Rights
At the request of the holders of a majority of the outstanding registrable securities held by our former preferred shareholders, we must use, subject to certain limitations, our best efforts to register any or all of these shareholders ordinary shares on a shelf registration statement under the Securities Act. Upon receipt of such registration request, we must also give notice of the registration to all other holders of registrable securities, including certain entities controlled by Dr. Isaac Bentwich, and entities affiliated with our directors, officers and principal shareholders, and include in the registration any ordinary shares that they request be included.
Commencing on the date that is twelve months following the expiration of the lock-up agreements described in Shares Eligible for Future Sale Lock-up Agreements, at the request of Dr. Isaac Bentwich, or any entity controlled by him, we must use our best efforts to register any or all of his or its registrable securities. However, we will not be required to register such registrable securities during the 90-day period following the effective date of any registration statement pertaining to our ordinary shares and in the event that we have, within the 12 months preceding the date of such request, already registered in excess of 20% of the aggregate number of registrable securities held by Dr. Bentwich and the entities controlled by him as of the date of this offering.
84
Cutback
In connection with demand registrations, the managing underwriters may limit the number of shares offered for marketing reasons. In such case, the managing underwriter must first exclude any shares to be registered by us, and second, any share to be registered by the holders of ordinary shares prior to this offering, and thereafter any shares held by former preferred shareholders prior to this offering.
In connection with piggyback registrations, the managing underwriters of an underwritten offering may limit the number of shares offered for marketing reasons. In such case, the managing underwriter must exclude first any shares to be registered by the holders of ordinary shares prior to this offering, and second, any shares held by former preferred shareholders prior to this offering.
In connection with underwritten shelf registrations, the managing underwriters may limit the number of shares offered for marketing reasons. In such case, the managing underwriters must first exclude any shares to be registered by us or shares to be registered by the holders of ordinary shares prior to this offering, and thereafter, any shares held by former preferred shareholders prior to this offering.
Termination
All registration rights terminate on the fifth anniversary of the closing of this offering and, with respect to any individual shareholder, at such time as all registrable securities of such shareholder may be sold pursuant to Rule 144 under the Securities Act during any 90-day period without restriction.
Expenses
We will pay all expenses incurred in carrying out the above registrations, as well as the reasonable fees and expenses of one legal counsel for the selling shareholders in each registration, provided, however, that each shareholder participating in such registration or sale shall pay its pro rata portion of the customary and standard discounts or commissions payable to any underwriter.
Exculpation, Indemnification and Insurance
Our Articles of Association permit us to exculpate, indemnify and insure our directors and officers to the fullest extent permitted by the Companies Law. We have entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance. We have obtained D&O Insurance for each of our officers and directors. See Management Exculpation, Insurance and Indemnification of Directors and Officers.
85
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership of our shares as of August 31, 2006 by:
·
each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our outstanding shares;
·
each of our directors and executive officers; and
·
all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to shares. Ordinary shares issuable under options or warrants that are exercisable within 60 days after August 31, 2006 are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options or warrants but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Percentage of shares beneficially owned before this offering is based on 7,500,000 shares outstanding on August 31, 2006, which assumes the conversion of all outstanding preferred shares into 4,948,604 ordinary shares and that all outstanding warrants for preferred shares are exercisable for ordinary shares. We have nine holders of record of our equity securities who are, to our knowledge, U.S. persons. In aggregate, these shareholders hold approximately 3.6% of our outstanding capital shares.
The number of ordinary shares deemed outstanding after this offering includes the 3,000,000 ordinary shares being offered for sale in this offering but assumes no exercise of the underwriters over-allotment option.
Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise noted below, each shareholders address is: c/o Rosetta Genomics Ltd., 10 Plaut Street, Science Park, Rehovot, 76706 Israel.
Number of
|
Percentage
|
Percentage
|
|||||
Holders of more than 5% of our voting securities |
|||||||
Isaac Bentwich, M.D. |
2,204,423 |
(1) |
29.4 |
% |
21.0 |
% |
|
Kadima Hi-Tech Ltd.(2) |
|
1,790,691 |
(3) |
23.7 |
|
17.0 |
|
Harmony 2000(4) |
640,606 |
8.5 |
6.1 |
||||
Instanz Nominees Pty Ltd.(5) |
481,640 |
6.4 |
4.6 |
||||
Insight Capital Ltd.(6) |
383,870 |
(7) |
5.1 |
3.7 |
|||
Directors and Executive Officers |
|||||||
Yoav Chelouche
|
40,969 |
(8) |
* |
* |
|||
Joshua Rosensweig. |
79,848 |
(9) |
1.1 |
* |
|||
Prof. Moshe Many |
33,333 |
(10) |
* |
* |
|||
Leon Recanati |
415,294 |
(11) |
5.5 |
3.9 |
|||
Nathan Hod |
37,125 |
(12) |
* |
* |
|||
Gerald Dogon |
|
(13) |
|
|
|||
Tali Yaron-Eldar |
|
(13) |
|
|
|||
Amir Avniel |
740,172 |
(14) |
9.7 |
7.0 |
|||
Tamir Kazaz, CPA |
|
|
|
||||
Shlomo Dagan, Ph.D. |
|
|
|
||||
Yael Karov |
24,454 |
(15) |
* |
* |
|||
Ranit Aharonov, Ph.D. |
8,434 |
(15) |
* |
* |
|||
Dalia Cohen, Ph.D. |
|
|
|
||||
Peter Tolias, Ph.D. |
|
|
|
||||
Directors and executive officers as a group (15 persons)(16) |
2,943,446 |
38.1 |
27.5 |
*
Represents beneficial ownership of less than 1% of ordinary shares.
86
(1)
Consists of (i) 52,077 ordinary shares directly owned by Dr. Bentwich, (ii) 1,306,826 ordinary shares held by Bentwich Innovations Ltd., an Israeli company controlled by Dr. Bentwich, (iii) 204,914 ordinary shares held by Bentwich Holdings Ltd., a holding company controlled by Dr. Bentwich, and (iv) 640,606 ordinary shares held by Harmony 2000, an Israeli non-profit association, of which Dr. Bentwich is one of seven members, and one of three members of its managing board. The members of Harmony 2000s managing board control the securities held by Harmony 2000, and Dr. Bentwich may therefore be deemed to beneficially own the securities owned by Harmony 2000. Dr. Bentwich disclaims any beneficial ownership of the securities owned by Harmony 2000.
(2)
Kadima is an Israeli company that invests in high tech ventures. It holds shares in trust for a number of beneficiaries. Mr. Yosi Ben-Yosef has been authorized by Kadima to vote the shares held of record by Kadima in accordance with the decision of representatives of the beneficial holders of the shares. Kadima is not authorized to enter into agreements regarding the disposition of the shares held by it on behalf of the beneficial holders; each beneficial holder retains the right to enter into such agreements. Kadimas address is 10 Hashonit Street, Suite 1005 Ocean Building, Marine Herzlia Pituah 46555 Israel. We have been informed that Kadima intends to distribute to its beneficiaries the shares it holds on their behalf immediately prior to the completion of this offering. Mr. Ben-Yosef disclaims any beneficial ownership of the shares held by Kadima.
(3)
Consists of (i) 1,738,815 ordinary shares held on behalf of beneficiaries and (ii) warrants currently exercisable into 51,876 ordinary shares held beneficially and of record by Kadima.
(4)
Harmony 2000 is an Israeli non-profit association comprised of seven members, consisting of Dr. Isaac Bentwich, Prof. Zvi Bentwich, the father of Dr. Isaac Bentwich, David Bentwich, a brother of Dr. Bentwich and a son of Prof. Bentwich, Dr. Joshua Rosensweig, a member of our board of directors, Amir Avniel, our Chief Executive Officer and President, Brian Fisher and Dr. Assaf Morog. The managing board of Harmony 2000 is comprised of the following three members: Dr. Isaac Bentwich, Amir Avniel and Brian Fisher. The members of Harmony 2000s managing board have shared voting and dispositive power over all of the securities held by Harmony 2000 and may therefore be deemed to beneficially own the shares owned by Harmony 2000. Each of Dr. Bentwich, Mr. Fisher and Mr. Avniel disclaims any beneficial ownership of the shares held by Harmony 2000. The registered address of Harmony 2000 is c/o Yigal Arnon & Co., 22 Rivlin Street, Jerusalem 94240, Israel.
(5)
Instanz Nominees Pty Ltd. is a privately held Australian company whose registered address is 1A Hume Road Caulfield 316 Australia. The directors of Instanz Nominees, Helen and Michael Abeles, have voting and dispositive power over the shares held by Instanz Nominees.
(6)
Insight Capital Ltd.s chairman and Chief Executive Officer is Mr. Leon Recanati, who serves as a member of our board of directors. Mr. Recanati has sole voting and dispositive power over the securities held by Insight Capital. Insight Capitals address is Herzliya Business Park, 85 Medinat Hayehudim St., Herzliya, Israel.
(7)
Consists of (i) 372,091 ordinary shares and (ii) warrants currently exercisable into 11,779 ordinary shares held by Glenrock Israel Ltd., or Glenrock, an affiliate of Insight Capital.
(8)
Consists of (i) 16,453 ordinary shares held by Yunsan Ltd., a company controlled by Mr. Chelouche, the chairman of our board of directors, (ii) 14,228 restricted ordinary shares issued to a trustee on behalf of Mr. Chelouche the restrictions on these shares lapse in equal monthly amounts over a 36-month period, and (iii) options currently exercisable to purchase 10,288 ordinary shares.
(9)
Consists of (i) warrants currently exercisable into 11,637 ordinary shares, (ii) 47,075 ordinary shares held by Kadima in trust on behalf of Dr. Rosensweig, (iii) options to purchase 6,908 ordinary shares, and (iv) 14,228 restricted ordinary shares which were issued to a trustee on behalf of Dr. Rosensweig the restrictions on these shares lapse in equal monthly amounts over a 36-month period. Does not include 12,682 ordinary shares issuable upon the exercise of options to be granted with respect to service as a board member following the initial public offering of our shares.
(10)
Consists of (i) 12,197 ordinary shares held by Kadima in trust on behalf of Prof. Many, (ii) options to purchase 6,908 ordinary shares, and (iii) 14,228 restricted ordinary shares which were issued to a trustee on behalf of Prof. Many the restrictions on these shares lapse in equal monthly amounts over a 36-month period. Does not include 12,682 ordinary shares issuable upon the exercise of options to be granted with respect to service as a board member following the initial offering of our shares.
(11)
Consists of (i) options to purchase 31,424 ordinary shares, (ii) 372,091 ordinary shares held by Insight Capital and (iii) warrants currently exercisable into 11,779 ordinary shares held by Glenrock, an affiliate of Insight Capital. Mr. Recanati owns both Insight Capital and Glenrock. Does not include 12,682 ordinary shares
87
issuable upon the exercise of options to be granted with respect to service as a board member following the initial offering of our shares.
(12)
Consists of (i) 26,837 ordinary shares, and (ii) options currently exercisable to purchase 10,288 ordinary shares. Does not include 33,818 ordinary shares issuable upon the exercise of options to be granted with respect to service as a board member following the initial offering of our shares.
(13)
Has agreed to become a member of our board of directors effective upon completion of this offering. Shares do not include 12,682 ordinary shares issuable upon the exercise of options to be granted upon election to our board, subject to shareholder approval.
(14)
Consists of (i) options currently exercisable to purchase 99,566 ordinary shares and (ii) 640,606 ordinary shares held by Harmony 2000, an Israeli non-profit association, of which Mr. Avniel is one of seven members, and one of three members of its managing board. The members of Harmony 2000s managing board control the securities held by Harmony 2000 and Mr. Avniel may therefore be deemed to beneficially own the securities owned by Harmony 2000. Mr. Avniel disclaims any beneficial ownership of the securities owned by Harmony 2000.
(15)
Consists of currently exercisable options.
(16)
See notes 1, 8, 9, 10, 11, 12, 13, 14 and 15.
88
DESCRIPTION OF SHARE CAPITAL
The following description of our share capital and provisions of our articles of association are summaries and are qualified by reference to the articles of association that will become effective upon closing of this offering, which have been filed with the SEC as an exhibit to our registration statement, of which this prospectus forms a part.
Ordinary Shares
Upon the closing of this offering, our authorized share capital will consist of 17,578,370 ordinary shares, of which 10,500,000 will be issued and outstanding. As of August 31, 2006, there were 86 shareholders of record of our share capital.
All of our issued and outstanding ordinary shares and preferred shares are duly authorized, validly issued, fully paid and non-assessable. Our ordinary shares are not redeemable and following the closing of this offering will not have preemptive rights. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
Transfer of Shares
Fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited by another instrument, Israeli law, the rules of the SEC, or the rules of a stock exchange on which the shares are traded.
Voting
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Shareholder voting rights may be affected by the grant of special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in the accepted manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the companys registered capital, mergers and approval of related party transactions. A shareholder also has a general duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under the companys articles of association, can appoint or prevent the appointment of an office holder, is required 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 apply also in the event of a breach of the duty to act with fairness, and there is no binding case law that addresses this subject directly. The obligation of a shareholder or controlling shareholder, as the case may be, under any voting agreement is also subject to observance of these duties.
Election of Directors
Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association our directors are elected by the holders of a simple majority of our ordinary shares at a general shareholder meeting. As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented at a shareholder meeting have the power to elect any or all of our directors whose positions are being filled at that meeting, subject to the special approval requirements for external directors described under Management External Directors.
Dividend and Liquidation Rights
Our board of directors may declare a dividend to be paid to the holders of ordinary shares in proportion to the paid up capital attributable to the shares that they hold. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of the end of the most recent fiscal year or as accrued over a period of two years, whichever is higher, or, in the absence of such profits or surplus, with court approval provided that in each case there is no reasonable concern that a payment of a dividend will prevent us from satisfying our
89
existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the paid up capital attributable to the shares that they hold. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future. Our articles of association do not require shareholder approval for the declaration of dividends.
Shareholder Meetings
We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual general meeting. Our board of directors is required to convene a special general meeting of our shareholders at the request of two directors or one quarter of the members of our board of directors or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power or the holder or holders of 5% or more of our voting power. All shareholder meetings require prior notice of at least 21 days, or up to 35 days if required by applicable law or regulation. The chairperson of our board of directors presides over our general meetings. 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 40 days prior to the date of the meeting.
Quorum
As allowed by the rules of the Nasdaq Global Market, we intend to follow our home country practices with respect to quorums required for shareholder meetings. Accordingly, our articles of association provide that the quorum required for any meeting of shareholders shall consist of at least two shareholders present, in person or by proxy, who hold or represent between them at least 25% of the voting power of our issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of at least two shareholders present, in person or by proxy, unless the meeting was called pursuant to a request by our shareholders in which case the quorum required is the number of shareholders required to call the meeting as described under Shareholder Meetings.
Legal Objective
Our articles of association state that our objectives are to carry on any business and perform any act which is not prohibited by law.
Resolutions
An ordinary resolution requires approval by the holders of a simple majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution.
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by holders of 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
Access to Corporate Records
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our shareholder register, our articles of association and any document we are required by law to file publicly with the Israeli Companies Registrar. Any shareholder who specifies the purpose of its request may request to review any document in our possession that relates to any action or transaction with a related party which requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the documents disclosure may otherwise harm our interests.
90
Registration Rights
For a discussion of registration rights we have granted to shareholders, please see the section of this prospectus entitled Certain Relationships and Related Party Transactions Registration Rights.
Modification of Class Rights
The rights attached to any class, such as voting, liquidation and dividend rights, may be amended by written consent of holders of a majority of the issued shares of that class, or by adoption of a resolution by the holders of a majority of the shares of that class present at a separate class meeting.
Acquisitions under Israeli Law
Tender Offer
A person wishing to acquire shares or any class of shares of a publicly traded Israeli company and who would as a result hold over 90% of the companys issued and outstanding share capital or of a class of shares is required by the Companies Law to make a tender offer to all of the companys shareholders for the purchase of all of the issued and outstanding shares of the company. If the shareholders who respond negatively or who do not respond to the offer hold less than 5% of the issued share capital of the company, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, the shareholders may, at any time within three months of the tender offer, petition the court to alter the consideration for the acquisition. If the dissenting and non-responsive shareholders hold more than 5% of the issued and outstanding share capital of the company, the acquirer may not acquire additional shares of the company from shareholders who accepted the tender offer if following such acquisition the acquirer would then own over 90% of the companys issued and outstanding share capital.
The Companies Law provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become the holder of 25% or more of the voting rights of the company, unless one of the exemptions described in the Companies Law is met. This rule does not apply if there is already another holder of 25% or more of the voting rights of the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become the holder of 45% or more of the voting rights of the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, unless one of the exemptions described in the Companies Law is met.
Merger
The Companies Law permits mergers if approved by each merging partys board of directors and, unless certain requirements described under the Companies Law are met, the majority of each merging partys shares vote in favor of the proposed merger at a shareholders meeting. Under the Companies Law, if the approval of a general meeting of the shareholders is required, merger transactions may be approved by holders of a simple majority of our shares voting on the transaction. In determining whether the required majority has approved the merger, if shares of one party to the merger are held by the other party to the merger, or by any person holding at least 25% of the outstanding voting shares or 25% of the means of appointing directors of the other party to the merger, then a vote against the merger by holders of the majority of the shares present and voting, excluding shares held by the other party or by such person, or anyone acting on behalf of either of them, is sufficient to reject the merger transaction. If the transaction would have been approved but for the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court finds 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. Upon the request of a creditor of either party to the 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. In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each merging company with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.
91
Israeli tax law treats some acquisitions, particularly stock-for-stock swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Israeli tax law may, for example, subject a shareholder who exchanges our shares for shares in a foreign corporation to immediate Israeli taxation.
Anti-Takeover Measures under Israeli Law
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. Following the closing of this offering, we will not have any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of the holders of a majority of our shares at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Companies Law described above in Voting.
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is American Stock Transfer.
Nasdaq Global Market
We have applied for our ordinary shares to be quoted on the Nasdaq Global Market under the symbol ROSG.
92
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our ordinary shares in the public market could adversely affect prevailing market prices of our ordinary shares. Furthermore, since some ordinary shares will not be available for sale shortly after this offering because of the contractual and legal restrictions on resale described below, sales of substantial amounts of ordinary shares in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.
Prior to this offering, there has been no public market for our ordinary shares. Upon completion of this offering, we will have outstanding an aggregate of 10,500,000 ordinary shares assuming no exercise of outstanding options or warrants. Of these shares, the 3,000,000 shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless those shares are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. The remaining 7,500,000 ordinary shares held by existing shareholders become eligible for resale in the public market at various dates on and after the date of this prospectus. The table below sets forth the approximate number of shares eligible for future sale (assuming the underwriters do not exercise the over-allotment option):
Days after Date of this Prospectus |
Approximate Additional Number
|
Comment |
||
Date of this prospectus |
|
331,127 |
|
Shares salable under Regulation S
|
180 days* |
7,155,856 |
Lock-up released; outstanding shares
|
||
Thereafter |
13,017 |
Restricted securities held for 1 year or less |
*
180 days corresponds to the lock-up period described below in Lock-up Agreements. This lock-up period may be extended or shortened under certain circumstances as described in that section.
Regulation S
Shares offered and sold outside the U.S. without registration under the Securities Act may be resold into the U.S. or to a U.S. person if the holder is not an affiliate of ours or an underwriter or dealer in securities.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our ordinary shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
·
1% of the number of ordinary shares then outstanding, which will equal approximately 105,000 shares immediately after this offering; or
·
the average weekly trading volume of the ordinary shares on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 144(k)
Ordinary shares eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering. In general, under Rule 144(k), a person may sell ordinary shares acquired from us immediately upon completion of this offering, without regard to manner of sale, the availability of public information or volume, if:
·
the person is not our affiliate and has not been our affiliate at any time during the three months preceding such a sale; and
·
the person has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate.
93
Rule 701
In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors who purchase shares from us in connection with a qualified compensatory stock plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with various restrictions, including the holding period, contained in Rule 144.
Lock-up Agreements
Our officers and directors and shareholders owning an aggregate of 7,168,873 ordinary shares and our option holders have entered into lock-up agreements under which they agreed not to offer, sell, pledge, contract to sell, sell short, grant any option in or otherwise dispose of, or enter into any hedging transaction with respect to, any shares of our ordinary shares or any securities convertible into or exercisable or exchangeable for shares of our ordinary shares beneficially owned by them, for a period ending 180 days after the date of this prospectus. Transfers and dispositions can be made sooner:
·
as a gift; and
·
to any trust for the direct or indirect benefit of the holder or his or her immediately family.
provided in each case that the recipient of those shares agrees to be bound by the foregoing restrictions for the duration of the lock-up period. In addition, transfers or dispositions can be made sooner with the prior written consent of the underwriters.
The 180-day restricted period described in the preceding paragraph will be extended if:
·
during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event relating to us occurs; or
·
prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,
in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
Registration Rights
Upon completion of this offering, the holders of 7,500,000 shares of our ordinary shares, or their transferees, have rights to require or participate in the registration of those shares under the Securities Act. The holders of warrants to purchase 107,360 shares of our ordinary shares will also be entitled to participate in such registration with respect to the ordinary shares issuable upon exercise of such warrants. For a detailed description of these registration rights see Description of Share Capital Registration Rights.
Options
As of August 31, 2006, there were outstanding options to purchase 1,018,159 ordinary shares at a weighted average exercise price of $3.20 per share.
Warrants
As of August 31, 2006, there were warrants outstanding to purchase 107,360 shares at a weighted average exercise price of $6.18 per share. Holders of these warrants have registration rights that are outlined above under the heading Registration Rights.
94
CERTAIN MATERIAL U.S. FEDERAL INCOME
TAX CONSIDERATIONS FOR U.S. HOLDERS
General
The following is a summary of certain material U.S. federal income tax consequences to U.S. persons holding our ordinary shares (referred to herein as U.S. holders) of purchasing, owning, and disposing of such shares. For this purpose, a U.S. person is, in each case as defined for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the U.S.; (b) a corporation or other entity taxable as a corporation under federal income tax laws created or organized in or under the laws of the U.S., any state of the U.S. or the District of Columbia; (c) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (d) a trust that is subject to the primary supervision of a court over its administration and one or more U.S. persons control all substantial decisions, or a trust that has validly elected to be treated as a domestic trust under applicable Treasury Regulations. This summary does not address any tax consequences to persons other than U.S. persons.
This discussion is a general summary and does not address all aspects of U.S. federal income taxation that may be relevant to particular U.S. holders based on their particular investment or tax circumstances. It does not address any tax consequences to certain types of U.S. holders that are subject to special treatment under the U.S. federal income tax laws, such as insurance companies, tax-exempt organizations, financial institutions or broker-dealers, dealers in securities or currencies, traders in securities that elect to use the mark-to-market method of accounting for their securities, partnerships or other pass-through entities for U.S. federal tax purposes, regulated investment companies, real estate investment companies, expatriates, persons liable for alternative minimum tax, persons owning, directly or by attribution, 10% or more, by voting power or value, of our ordinary shares, persons whose functional currency is not the U.S. dollar, or persons holding ordinary shares as part of a hedging, constructive sale or conversion, straddle, or other risk-reducing transaction.
This summary addresses only ordinary shares that (a) are held as capital assets, and (b) were acquired upon original issuance at their initial offering price.
This summary relates only to U.S. federal income taxes. It does not address any other tax, including but not limited to state, local, or foreign taxes, or any other U.S. federal taxes other than income taxes.
The statements in this summary are based on the current U.S. federal income tax laws as contained in the Internal Revenue Code, Treasury Regulations, and relevant judicial decisions and administrative guidance. The U.S. federal tax laws are subject to change, and any such change may materially affect the U.S. federal income tax consequences of purchasing, owning, or disposing of our ordinary shares. We cannot assure you that new laws, interpretations of law or court decisions, any of which may take effect retroactively, will not cause any statement in this summary to be inaccurate. There can be no assurance that the positions we take on our tax returns will be accepted by the Internal Revenue Service.
This section is not a substitute for careful tax planning. Prospective investors are urged to consult their own tax advisors regarding the specific U.S. federal, state, foreign and other tax consequences to them, in light of their own particular circumstances, of the purchase, ownership and disposition of our ordinary shares and the effect of potential changes in applicable tax laws.
Dividends
A U.S. holder will be required to take into account as dividends any distributions with respect to our ordinary shares made out of our current or accumulated earnings and profits. The dividends received deduction will not be available to a U.S. holder that is taxed as a corporation. With certain exceptions (including but not limited to dividends treated as investment income for purposes of investment interest deduction limitations), qualified dividends received by a non-corporate U.S. holder generally will be subject to tax at the maximum tax rate accorded to capital gains, if certain holding period and other conditions are satisfied, through December 31, 2008, after which the rate applicable to dividends is scheduled to return to the tax rate generally applicable to ordinary income. Dividends will generally be from a non-U.S. source and treated as passive income or financial services income for U.S. foreign tax credit purposes.
Although, to the extent we pay dividends in the future, we intend to pay dividends to U.S. holders in U.S. dollars, the amount of any dividend paid in Israeli currency will equal its U.S. dollar value for U.S. federal income
95
tax purposes, calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. holder, regardless of whether the Israeli currency is converted into U.S. dollars. If the Israeli currency is not converted into U.S. dollars on the date of receipt, the U.S. holder will have a basis in the Israeli currency equal to its U.S. dollar value on the date of receipt. Any subsequent gain or loss upon the conversion or other disposition of the Israeli currency will be treated as ordinary income or loss, and generally will be income or loss from U.S. sources.
A U.S. holder will not incur tax on a distribution with respect to our ordinary shares in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis of the U.S. holders ordinary shares. Instead, the distribution will reduce the adjusted basis of the shares. Any such distribution in excess of both our current and accumulated earnings and profits and the U.S. holders adjusted basis will be treated as capital gain, long-term if the U.S. holder has held the shares for more than one year, and generally will be gain or loss from U.S. sources. See Disposition of Ordinary Shares below for a discussion of capital gains tax rates and limitations on deductions for losses.
Disposition of Ordinary Shares
In general, a U.S. holder must treat any gain or loss recognized upon a taxable disposition of our ordinary shares as capital gain or loss, long-term if the U.S. holder has held the shares for more than one year. In general, a U.S. holder will recognize gain or loss in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. holders adjusted tax basis. A U.S. holders adjusted tax basis generally will equal the U.S. holders acquisition cost less any return of capital. Long-term capital gain realized by a non-corporate U.S. holder generally will be subject to a reduced maximum rate of 15% through December 31, 2008, after which the maximum capital gains rate is scheduled to return to 20%. The deduction of capital losses is subject to limitations, as are losses upon a taxable disposition of our ordinary shares if the U.S. holder purchases, or enters into a contract or option to purchase, substantially identical stock or securities within 30 days before or after any disposition. Gain or loss from the disposition of our ordinary shares will generally be from U.S. sources, but such gain or loss may be from a non-U.S. source under some circumstances under the U.S.-Israel Tax Treaty. U.S. holders should consult their own independent tax advisors regarding the sourcing of any gain or loss on the disposition of our ordinary shares, as well as regarding any foreign currency gain or loss in connection with such a disposition.
Credit for Foreign Taxes Withheld
Payments to U.S. holders as dividends or consideration for ordinary shares may in some circumstances be subject to Israeli withholding taxes. See Israeli Tax Considerations and Government Programs below. Generally, such withholding taxes in lieu of Israeli income taxes imposed on such transactions are creditable against the U.S. holders U.S. tax liability, subject to numerous U.S. foreign tax credit limitations, including additional limitations in the case of qualified dividends eligible for the maximum rate accorded to capital gains. A U.S. holder should consult its own independent tax advisor regarding use of the U.S. foreign tax credit and its limitations. A U.S. holder (except an individual who does not itemize deductions) may elect to take a deduction rather than a credit for foreign taxes paid.
Controlled Foreign Corporation
For U.S. federal income tax purposes, a controlled foreign corporation is a foreign corporation in which U.S. holders who own at least 10% of the voting power (directly or by constructive ownership through certain related persons) collectively own more than 50% of the voting power or value. If we are or become a controlled foreign corporation, such 10% U.S. holders must include in their current U.S. taxable income their share of the corporations undistributed Subpart F income (i.e., certain passive income, sales or service income, insurance, shipping, ocean activity, or oil-related income, and income from specified disfavored activities or from ostracized foreign countries) and the amount of the corporations investments in U.S. property. These income inclusions are not eligible for the maximum capital gains tax rate on qualified dividends to individuals. We believe that the corporation is not and has not been, and we expect that the corporation will not become, a controlled foreign corporation. There can be no assurance, however, that the corporation will not become a controlled foreign corporation in the future.
96
Passive Foreign Investment Company
We will be a passive foreign investment company, or PFIC, if 75% or more of our gross income in a taxable year, including the pro rata share of the gross income of any company in which we are considered to own 25% or more of the shares by value, is passive income. Alternatively, we will be a PFIC if at least 50% of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value, including the pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value, are held for the production of, or produce, passive income.
PFIC status is determined annually and cannot be definitively determined until the close of the year in question. We believe that we were a PFIC in 2003, but not in 2004 or 2005. Although, it is difficult to make accurate predictions of future income and assets, which are relevant to the determination of PFIC status, based on facts and circumstances as they currently exist, we believe we will likely be a PFIC in 2006.
If we are a PFIC, each U.S. holder, upon certain excess distributions by us and upon disposition of our ordinary shares at a gain, would be liable to pay tax at the highest then-prevailing income tax rate on ordinary income plus interest on the tax, as if the distribution or gain had been recognized ratably over the holders holding period for the ordinary shares. Additionally, if we are a PFIC, a U.S. holder who acquires ordinary shares from a deceased person who was a U.S. holder would not receive the step-up of the income tax basis to fair market value for such ordinary shares. Instead, such U.S. holder would have a tax basis equal to the deceaseds tax basis, if lower.
If a U.S. holder has made a qualifying electing fund (QEF) election covering all taxable years during which the holder holds ordinary shares and in which we are a PFIC, distributions and gains will not be taxed as described above, nor will denial of a basis step-up at death described above apply. Instead, a U.S. holder that makes a QEF election is required for each taxable year to include in income the holders pro rata share of the ordinary earnings of the QEF as ordinary income and a pro rata share of the net capital gain of the QEF as long-term capital gain, regardless of whether such earnings or gain have in fact been distributed. Undistributed income is subject to a separate election to defer payment of taxes. If deferred, the taxes will be subject to an interest charge.
In order to comply with the requirements of a QEF election, a U.S. holder must receive certain information from us. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621, including the information provided in the PFIC annual information statement, to a timely filed U.S. federal income tax return and by filing a copy of the form with the IRS. There is no assurance that we will provide such information as the IRS may require in order to enable U.S. holders to make the QEF election. Moreover, there is no assurance that we will have timely knowledge of our status as a PFIC in the future. Even if a shareholder in a PFIC does not make a QEF election, if such shareholder is a U.S. holder, such shareholder must annually file with the shareholders tax return and with the IRS a completed Form 8621.
Where a U.S. investor has elected the application of the QEF rules to its shares in a PFIC, and the excess distribution rules do not apply to such shares, any gain realized on the appreciation of such shares is taxable as capital gain (if the shares are a capital asset in the hands of the investor) and no interest charge is imposed. U.S. shareholders of a QEF are currently taxed on their pro rata shares of the funds earnings and profits. Where earnings and profits that were included in income under this rule are later distributed, the distribution is not a dividend. The basis of a U.S. shareholders shares in a QEF is increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules.
Although a determination as to a corporations PFIC status is made annually, an initial determination that a corporation is a PFIC in a given year will generally cause a U.S. holder of shares in the PFIC in that year to continue to be subject to the PFIC rules in subsequent years, whether or not the corporation meets the tests for PFIC status in those subsequent years. A U.S. holder who makes the QEF election discussed above for the first year the U.S. holder holds or is deemed to hold our ordinary shares and for which we are determined to be a PFIC, however, is not subject to the PFIC rules or the QEF regime for the years in which we are not a PFIC.
If our ordinary shares are regularly traded on a qualified exchange or other market, as provided in applicable Treasury Regulations, a U.S. holder of our Shares may elect to mark the Shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference between the shareholders adjusted tax basis in such shares and their fair market value. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election in previous taxable years. As with the QEF
97
election, a U.S. holder who makes a mark-to-market election would not be subject to the general PFIC regime and the denial of basis step-up at death described above.
If we are a PFIC and, at any time, have a non-U.S. subsidiary that is classified as a PFIC, U.S. holders of our ordinary shares generally would be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interests in that lower-tier PFIC. If we are a PFIC and a U.S. holder of our ordinary shares does not make a QEF election in respect of a lower-tier PFIC, the U.S. holder could incur liability for the deferred tax and interest charge described above if either (1) we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or (2) the U.S. holder disposes of all or part of its ordinary shares. There is no assurance that any lower-tier PFIC will provide to a U.S. holder the information that may be required to make a QEF election with respect to the lower-tier PFIC. A mark-to-market election under the PFIC rules with respect to our ordinary shares would not apply to a lower-tier PFIC, and a U.S. holder would not be able to make such a mark-to-market election in respect of its indirect ownership interest in that lower-tier PFIC. Consequently, U.S. holders of our ordinary shares could be subject to the PFIC rules with respect to income of the lower-tier PFIC the value of which already had been taken into account indirectly via mark-to-market adjustments. Similarly, if a U.S. holder made a mark-to-market election under the PFIC rules in respect of our ordinary shares and made a QEF election in respect of a lower-tier PFIC, that U.S. holder could be subject to current taxation in respect of income from the lower-tier PFIC the value of which already had been taken into account indirectly via mark-to-market adjustments. U.S. holders are urged to consult their own tax advisers regarding the issues raised by lower-tier PFICs.
The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above, including our ownership of any non-U.S. subsidiaries. As a result, U.S. holders of ordinary shares are strongly encouraged to consult their tax advisers about the PFIC rules in connection with their purchasing, holding or disposing of ordinary shares.
Backup Withholding and Information Reporting
A non-corporate U.S. holder may, under certain circumstances, be subject to information reporting requirements and backup withholding at a rate of 28% on payments of dividends, interest, and other reportable payments. A non-corporate U.S. holder should consult its own independent tax advisor regarding the possibility of information reporting and backup withholding on payments in connection with the purchase, ownership, or disposition of our ordinary shares.
98
ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS
The following also contains a description of material relevant provisions of the current Israeli income tax structure applicable to companies in Israel, with special 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, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts.
This discussion does not address all of the tax consequences that may be relevant to purchasers of our ordinary shares in light of their particular circumstances or certain types of purchasers of our ordinary shares subject to special tax treatment. Examples of this kind of investor include residents of Israel and traders in securities who are subject to special tax regimes not covered in this discussion. Because individual circumstances may differ, you should consult your tax advisor to determine the applicability of the rules discussed below to you and the particular tax effects of the offer, including the application of Israeli or other tax laws. The discussion below is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Taxation of Companies
General Corporate Tax Structure
Generally, Israeli companies are currently subject to corporate tax at the rate of 31% on taxable income and are generally subject to capital gains tax at a rate of 25% on capital gains derived after January 1, 2003 (other than capital gains from the sale of listed securities, which are subject to tax at the current rate of 31%). However, the effective tax rate payable by a company that derives income from an Approved Enterprise (as discussed below) may be considerably less. In July 2005, an amendment to the corporate tax rates was approved by the Israeli Knesset. Under the amendment, taxes paid by Israeli companies will be gradually reduced to a rate of 29% for the 2007 tax year, 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter.
Tax Benefits for Research and Development
Israeli tax law allows, under specified conditions, a tax deduction for R&D expenditures, including capital expenditures, for the year in which they are incurred. These expenses must relate to scientific research and development projects and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax deduction. However, 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. Expenditures not so approved are deductible over a three-year period.
Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969
Under the Law for the Encouragement of Industry (Taxes), 1969, industrial companies, as defined under the law, are entitled to the following tax benefits, among others:
·
deductions over an eight-year period for purchases of know-how and patents;
·
expenses related to a public offering are deductible over a three-year period in equal amounts;
·
the right to elect, under specified conditions, to file a consolidated tax return with other related Israeli industrial companies; and
·
accelerated depreciation rates on equipment and buildings.
Eligibility for benefits under the Law for the Encouragement of Industry is not subject to receipt of prior approval from any governmental authority. Under the law, an industrial company is defined as a company resident in Israel, at least 90.0% of the income of which, in any tax year, determined in Israeli currency, exclusive of income from government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
99
We believe that we currently qualify as an industrial company within the definition under the Law for the Encouragement of Industry. No assurance can be given that we will continue to qualify as an industrial company or that the benefits described above will be available in the future.
Special Provisions Relating to Taxation Under Inflationary Conditions
The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. The features that are material to us can be described as follows:
·
When the value of a companys equity, as calculated under the Inflationary Adjustments Law, exceeds the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the product of the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, linked to the increase in the consumer price index.
·
If the depreciated cost of a companys fixed assets exceeds its equity, the product of the excess multiplied by the applicable annual rate of inflation is added to taxable income.
·
Subject to certain limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the Israeli consumer price index.
The Minister of Finance may, with the approval of the Knesset Finance Committee, determine by decree, during a certain fiscal year (or until February 28th of the following year) in which the rate of increase of the Israeli consumer price index will not exceed or did not exceed, as applicable, 3%, that some or all of the provisions of the Inflationary Adjustments Law shall not apply with respect to such fiscal year, or, that the rate of increase of the Israeli consumer price index relating to such fiscal year shall be deemed to be 0%, and to make the adjustments required to be made as a result of such determination.
The Income Tax Ordinance, 1961, and regulations promulgated thereunder allow Foreign-Invested Companies, which maintain their accounts in U.S. dollars in compliance with regulations published by the Israeli Minister of Finance, to base their tax returns on their operating results as reflected in their U.S. dollar financial statements or to adjust their tax returns based on exchange rate changes rather than changes in the Israeli consumer price index, in lieu of the principles set forth by the Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is a company (1) more than 25% of whose share capital, in terms of rights to profits, voting and appointment of directors, and (2) more than 25% of whose combined share and loan capital is held by persons who are not residents of Israel. A company that elects to measure its results for tax purposes based on the U.S. dollar exchange rate cannot change such election for a period of three years following the election. We believe that subsequent to this offering we may qualify as a Foreign Investment Company within the meaning of the Inflationary Adjustments Law. We have not yet elected to measure our results for tax purposes based on the U.S. dollar exchange rate, but may do so in the future.
Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959
The Law for the Encouragement of Capital Investment, 1959 (the Investment Law) provides that a proposed capital investment in production facilities or other eligible facilities may be designated as an Approved Enterprise. To obtain Approved Enterprise status, an application to the Investment Center of the Ministry of Industry and Trade (the Investment Center) needs to be submitted. Each instrument of approval for an Approved Enterprise relates to a specific investment program that is defined both by the financial scope of the investment, including sources of funds, and by the physical characteristics of the facility or other assets.
The tax benefits available under any instrument of approval relate only to taxable profits attributable to the specific program and are contingent upon meeting the criteria set out in the instrument of approval. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average of the applicable rates. Subject to certain qualifications, however, if a company with one or more approvals distributes dividends, the dividends are deemed attributable to the entire enterprise. As explained below, following the amendment of the Investment Law which became effective on April, 1, 2005, companies may receive tax benefits under the law without applying for an Approved Enterprise status.
100
Tax Benefits for Income from Approved Enterprises Approved Before April 1, 2005
Before April 1, 2005 an Approved Enterprise was entitled to either receive a grant from the Government of Israel or an alternative package of tax benefits (Alternative Benefits). We have elected to forego the entitlement to grants and have applied for the Alternative Benefits, under which undistributed income that we generate from our Approved Enterprises will be completely tax exempt (a tax exemption) for two years commencing from the year that we first produce taxable income and will be subject to a tax rate of 10%-25% for an additional five to eight years, depending on the extent of foreign investment in the Company.
Alternative Benefits are available until the earlier of (i) seven consecutive years, commencing in the year in which the specific Approved Enterprise first generates taxable income, (ii) 12 years from commencement of production and (iii) 14 years from the date of approval of the Approved Enterprise status.
Dividends paid out of income generated by an Approved Enterprise (or out of dividends received from a company whose income is generated by an Approved Enterprise) are generally subject to withholding tax at the rate of 15%. This withholding tax is deductible at source by the Approved Enterprise. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. Since we elected the Alternative Benefits track, we will be subject to pay corporate tax at the rate of 25% in respect of the gross amount of the dividend that we may distribute out of profits which were exempt from corporate tax in accordance with the provisions of the Alternative Benefits track. If we are also deemed to be a Foreign Investors Company or FIC and if the FIC (as defined below) is at least 49% owned by non-Israeli residents, the corporate tax rate paid by us in respect of the dividend we may distribute from income derived by our Approved Enterprises during the tax exemption period may be taxed at a lower rate.
Since we have elected the Alternative Benefits package, we are not obliged to attribute any part of dividends that we may distribute to exempt profits, and we may decide from which years profits to declare dividends. We currently intend to reinvest any income that we may in the future derive from our Approved Enterprise programs and not to distribute the income as a dividend.
If we qualify as a FIC, our Approved Enterprises will be entitled to additional tax benefits. Subject to certain conditions, a FIC is a company with a level of foreign investment of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. Such a company will be eligible for an extension of the period during which it is entitled to tax benefits under its Approved Enterprise status (so that the benefit periods may be up to ten years) and for further tax benefits if the level of foreign investment exceeds 49%.
The benefits available to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific certificate of approval, as described above. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, together with consumer price index linkage adjustment and interest.
Tax Benefits under an Amendment that Became Effective on April 1, 2005
On April 1, 2005, a significant amendment to the Investment Law became effective (the Amendment). The Investment Law provides that terms and benefits included in any certificate of approval that was granted before the Amendment came into effect will remain subject to the provisions of the Investment Law as they were on the date of such approval.
Under the Amendment, Approved Enterprise status will continue to be granted by the Investment Center to qualifying investments. However, the Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprises income will be derived from export.
The Amendment provides that Approved Enterprise status will only be necessary for receiving grants. As a result, it is no longer necessary for a company to acquire Approved Enterprise status in order to receive the tax benefits previously available under the Alternative Benefits provisions. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax
101
benefits set out by the Amendment. Companies are entitled to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the Amendment.
Tax benefits are available under the Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export. In order to receive the tax benefits, the Amendment states that the company must make an investment which meets all the conditions set out in the Amendment for tax benefits and exceeds a minimum amount specified in the Law. Such investment allows the company to receive a Benefited Enterprise status, and may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to the Benefited Enterprise (the Year of Election). Where the company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a Benefited Enterprise and the companys effective tax rate will be the weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a Benefited Enterprise is required to exceed a certain amount or certain percentage of the value of the companys production assets before the expansion.
The extent of the tax benefits available under the Amendment to qualifying income of a Benefited Enterprise are determined by the geographic location of the Benefited Enterprise. The location will also determine the period for which tax benefits are available.
Dividends paid out of income derived by a Benefited Enterprise will be treated similarly to payment of dividends by an Approved Enterprise under the Alternative Benefits track. Therefore, dividends paid out of income derived by a Benefited Enterprise (or out of dividends received from a company whose income is derived from a Benefited Enterprise) are generally subject to withholding tax at the rate of 15% (deductible at source). The reduced rate of 15% is limited to dividends and distributions out of income derived from a Benefited Enterprise during the benefits period and actually paid at any time up to 12 years thereafter. A company qualifying for tax benefits under the Amendment which pays a dividend out of income derived by its Benefited Enterprise during the tax exemption period will be subject to tax in respect of the gross amount of the dividend at the otherwise applicable rate of 25%, (or lower in the case of a qualified FIC which is at least 49% owned by non-Israeli residents). The dividend recipient would be subject to tax at the rate of 15% on the amount received which tax would be deducted at source.
As a result of the Amendment, tax-exempt income generated under the provisions of the new law will subject us to taxes upon distribution of the tax-exempt income to shareholders or liquidation of the company, and we may be required to record a deferred tax liability with respect to such tax-exempt income.
The Amendment sets a minimal amount of foreign investment required for a company to be regarded a FIC.
Taxation of our Shareholders
Israeli law generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in Israeli resident companies, unless a specific exemption is available or unless a treaty between Israel and the country of the non-resident provides otherwise.
On January 1, 2006, an amendment to the Israeli tax regime became effective (the 2006 Tax Reform). The 2006 Tax Reform significantly changed the tax rates applicable to income derived from shares. According to the 2006 Tax Reform, an individual is subject to a 20% tax rate on real capital gains derived from the sale of shares, unless such shareholder claims a deduction for financing expenses in connection with such shares in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered a substantial shareholder (generally a shareholder who holds directly or indirectly 10% or more of the right to profits, right to nominate a director and voting rights) of the company issuing the shares, the tax rate is 25%.
The determination of whether the individual is a substantial shareholder will be made on the date that the securities are sold. In addition, the individual will be deemed to be a substantial shareholder if at any time during the 12 months preceding this date he had been a substantial shareholder. However, the foregoing tax rates will not apply to dealers in securities.
Corporations are subject to corporate tax rates in respect of capital gains from the sale of shares in Israeli companies. The 2006 Tax Reform provides that the corporate tax rate will be reduced gradually from 31% in 2006 to 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010. However, between 2006 and 2009, corporations whose taxable income was not determined immediately before the 2006 Tax Reform was published, pursuant to part
102
B of the Israeli Income Tax Law (Inflationary Adjustments), 1985 or pursuant to the Income Tax Regulations (Rules on Bookkeeping by Foreign Invested Companies and Certain Partnership and Determination of their Chargeable Income), 1984 (Dollar Regulations) will generally be taxed at a rate of 25% on their capital gains from the sale of their shares.
Non-residents of Israel, including corporations, will generally be exempt from any capital gains tax from the sale of shares traded on a recognized stock exchange outside of Israel (including Nasdaq), provided that such shareholders did not acquire their shares prior to an initial public offering, that the gains are not derived through a permanent establishment that the non-resident maintains in Israel, and that such shareholders are not subject to the Inflationary Adjustment Law. However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In any case, these tax rates are subject to the provisions of any applicable tax treaty.
In addition, pursuant to the Convention Between the U.S. Government and the Government of Israel with Respect to Taxes on Income, as amended (the United States-Israel Tax Treaty), the sale, exchange or disposition of ordinary shares by a person who qualifies as a resident of the U.S. within the meaning of the United States-Israel Tax Treaty and who is entitled to claim the benefits afforded to such person by the United States-Israel Tax Treaty (a Treaty United States Resident) generally will not be subject to the Israeli capital gains tax unless such Treaty United States Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions. However, under the United States-Israel Tax Treaty, such Treaty United States Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to U.S. state or local taxes.
Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income, including dividends, royalties and interest, as well as non-passive income from services rendered in Israel. On distribution of dividends other than bonus shares or stock dividends, income tax is withheld at source, at the rate of 20% for dividends paid to an individual or foreign corporation who is not a substantial shareholder, 25% for dividends paid to a substantial shareholder, and 15% for dividends generated by an Approved Enterprise, unless in each case a different rate is provided in a treaty between Israel and shareholders country of residence. Under the U.S.-Israel tax treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident will be 25%. However, the maximum tax rate on dividends not generated by an approved enterprise paid to a U.S. corporation holding at least 10% of our voting power is 12.5%.
A non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
103
UNDERWRITING
C.E. Unterberg, Towbin, LLC is acting as the lead manager and sole bookrunner for this offering, and, together with Oppenheimer & Co. Inc. and Maxim Group LLC, they are acting as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the number of ordinary shares set forth opposite the underwriters name. The address of C.E. Unterberg, Towbin, LLC is 350 Madison Avenue, New York, New York 10017.
Underwriter |
Number of
|
|
|
||
C.E. Unterberg, Towbin, LLC
|
|
|
Oppenheimer & Co. Inc. |
||
Maxim Group LLC |
||
Total |
The underwriting agreement provides that the obligations of the underwriters to purchase the ordinary shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the ordinary shares (other than those covered by the over-allotment option described below) if they purchase any of the ordinary shares.
The underwriters propose to offer some of the ordinary shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the ordinary shares to dealers at the public offering price less a concession not to exceed $ per share. The underwriters may allow, and dealers may reallow, a concession not to exceed $ per share on sales to other dealers. If all of the ordinary shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend sales to discretionary accounts to exceed five percent of the total number of ordinary shares offered by them.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 450,000 additional ordinary shares at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional ordinary shares approximately proportionate to that underwriters initial purchase commitment.
For a period of 180 days after the date of this prospectus, we have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement (except a registration statement on Form S-8 relating to our stock plans) under the Securities Act relating to, any additional ordinary shares or securities convertible into or exchangeable or exercisable for any ordinary shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of C.E. Unterberg, Towbin, LLC other than:
·
issuances and sales of ordinary shares or options pursuant to the terms of a plan in effect as of the date of this prospectus; or
·
issuances of our ordinary shares pursuant to the exercise of any options or warrants or upon conversion of convertible securities outstanding as of the date of this prospectus.
Our officers and directors, option holders and shareholders have agreed, subject to certain limited exceptions, that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any ordinary shares or securities convertible into or exchangeable or exercisable for any ordinary shares, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our ordinary shares, whether any of these transactions are to be settled by delivery of our ordinary shares or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of C.E. Unterberg, Towbin, LLC for a period of 180 days after the date of this prospectus.
104
The 180-day restricted period described in the preceding two paragraphs will be extended if:
·
during the last 17 days of the 180-day restricted period we issue an earnings release or announce materials news or a material event to us occurs; or
·
prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,
in which case the restrictions described in the preceding paragraphs will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
Prior to this offering, there has been no public market for our ordinary shares. Consequently, the initial public offering price for the ordinary shares was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our record of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the prices at which the ordinary shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our ordinary shares will develop and continue after this offering.
We have applied for our ordinary shares to be listed on the Nasdaq Global Market under the symbol ROSG.
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional ordinary shares.
No Exercise |
Full Exercise |
|||||
|
||||||
Per share |
|
$ |
|
|
$ |
|
Total |
|
$ |
$ |
In connection with the offering, C.E. Unterberg, Towbin, LLC on behalf of the underwriters, may purchase and sell ordinary shares in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of ordinary shares in excess of the number of ordinary shares to be purchased by the underwriters in the offering, which creates a syndicate short position. Covered short sales are sales of ordinary shares made in an amount up to the number of ordinary shares represented by the underwriters over-allotment option. In determining the source of ordinary shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of ordinary shares available for purchase in the open market as compared to the price at which they may purchase ordinary shares through the overallotment option. Transactions to close out the covered syndicate short involve either purchases of the ordinary shares in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make naked short sales of ordinary shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing ordinary shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ordinary shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of ordinary shares in the open market while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when C.E. Unterberg, Towbin, LLC repurchases ordinary shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a decline in the market price of our ordinary shares. They may also cause the price of our ordinary shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq Global Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
105
We estimate that our total expenses of this offering will be approximately $1.37 million.
The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business.
Each underwriter acknowledges and agrees that:
(i) it has not offered or sold and will not offer or sell the shares other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the shares would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (the FSMA) by the Issuer (as defined in the FSMA):
(ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and
(iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters. The representatives may agree to allocate a number of ordinary shares to underwriters for sale to their online brokerage account holders. The representatives will allocate ordinary shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, ordinary shares may be sold by the underwriters to securities dealers who resell ordinary shares to online brokerage account holders.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the ordinary shares offered by this prospectus will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts and Yigal Arnon & Co., Jerusalem, Israel. Certain legal matters in connection with this offering will be passed upon for the underwriters by Goodwin Procter LLP, Boston, Massachusetts, and Goldfarb, Levy, Eran, Meiri & Co., Tel Aviv, Israel.
EXPERTS
The consolidated financial statements of Rosetta Genomics Ltd. at December 31, 2004 and 2005, for the three years in the period ended December 31, 2005 and for the period from March 9, 2000 (date of inception) through December 31, 2005, appearing in this prospectus and registration statement have been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
ENFORCEABILITY 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 prospectus, substantially all of whom reside outside the U.S., may be difficult to obtain within the U.S. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside the U.S., any judgment obtained in the U.S. against us or any of our directors and officers may not be collectible within the U.S.
We have been informed by our legal counsel in Israel, Yigal Arnon & Co., 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 a
106
violation of U.S. securities laws because 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. There is little binding case law in Israel addressing these matters.
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 judgments 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:
·
the judgments are obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment is given and the rules of private international law currently prevailing in Israel;
·
the foreign court is not prohibited by law from enforcing 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 judgments and the enforcement of the civil liabilities are not contrary to the law, public policy, security or sovereignty of the State of Israel;
·
the judgments were not obtained by fraud and do not conflict with any other valid judgment 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 obligations under the judgment are enforceable according to the laws of the State of Israel.
We have irrevocably appointed our wholly-owned U.S. subsidiary, Rosetta Genomics Inc., 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.
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 rate fluctuations.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the ordinary shares that are being offered by this prospectus. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. Refer to the registration statement, exhibits and schedules for further information with respect to the ordinary shares offered by this prospectus. Statements contained in this prospectus regarding the contents of any contract or other documents are only summaries. With respect to any contract or document filed as an exhibit to the registration statement, you should refer to the exhibit for a copy of the contract or document, and each statement in this prospectus regarding that contract or document is qualified by reference to the exhibit. The registration statement, including all exhibits, may be inspected without charge at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our SEC filings also are available to the public from the SECs website at www.sec.gov.
Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and will fulfill the obligations with respect to those requirements by filing
107
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 annual, quarterly and current 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 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent public accounting firm. We also intend to file with the SEC reports on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year.
108
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2006
U.S. DOLLARS IN THOUSANDS
INDEX
Page |
||
Report of Independent Registered Public Accounting Firm |
|
F-2 |
Consolidated Balance Sheets |
F-3 |
|
Consolidated Statements of Operations |
F-4 |
|
Statements of Changes in Shareholders Equity (Deficiency) |
F-5 |
|
Consolidated Statements of Cash Flows |
F-7 |
|
Notes to Consolidated Financial Statements |
F-9 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
ROSETTA GENOMICS LTD.
(A development stage company)
We have audited the accompanying consolidated balance sheets of Rosetta Genomics Ltd. (a development stage company) (the Company) and its subsidiary as of December 31, 2004 and 2005, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 2005 and for the period from March 9, 2000 (date of inception) through December 31, 2005 and the changes in shareholders equity (deficiency) for the period from March 9, 2000 (date of inception) through December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys and its subsidiary's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys and its subsidiarys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2004 and 2005, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 2005 and for the period from March 9, 2000 (date of inception) through December 31, 2005 and the changes in shareholders equity (deficiency) for the period from March 9, 2000 (date of inception) through December 31, 2005, in conformity with accounting principles generally accepted in the United States.
|
|
|
Tel Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
|
|
The foregoing report is in the form that will be signed upon completion of the reverse split described in Note 11a to the consolidated financial statements.
Tel Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
|
F-2
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
CONSOLIDATED BALANCE SHEETS |
||
U.S. dollars in thousands (except share data) |
The accompanying notes are an integral part of the consolidated financial statements.
F-3
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
CONSOLIDATED STATEMENTS OF OPERATIONS |
||
U.S. dollars in thousands (except share and per share data) |
Note |
|
Period from March 9, 2000 (date of inception) through December 31, 2005 |
Six months ended
|
Period from
|
|||||||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
|||||||||||||||||||||
|
|
(Unaudited) |
(Unaudited) |
||||||||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Research and development |
|
|
|
$ |
1,919 |
|
|
$ |
2,041 |
|
|
$ |
3,173 |
|
$ |
8,318 |
|
$ |
1,294 |
|
$ |
1,969 |
|
$ |
10,287 |
Marketing and business
|
|
431 |
865 |
1,295 |
432 |
834 |
2,129 |
||||||||||||||||||
General and administrative |
|
428 |
|
512 |
|
1,145 |
2,574 |
530 |
|
649 |
3,223 |
||||||||||||||
Operating loss |
2,347 |
2,984 |
5,183 |
12,187 |
2,256 |
3,452 |
15,639 |
||||||||||||||||||
Financial expenses (income), net |
14 |
(42 |
) |
(2 |
) |
660 |
1,037 |
154 |
(236 |
) |
801 |
||||||||||||||
Net loss |
$ |
2,305 |
$ |
2,982 |
$ |
5,843 |
$ |
13,224 |
$ |
2,410 |
$ |
3,216 |
$ |
16,440 |
|||||||||||
Basic and diluted net loss per Ordinary share |
13 |
$ |
0.96 |
$ |
1.19 |
$ |
2.35 |
$ |
0.96 |
$ |
1.27 |
||||||||||||||
Weighted average number of Ordinary shares used to compute basic and diluted net loss per Ordinary share |
|
2,401,300 |
|
2,462,603 |
|
2,495,366 |
|
2,489,319 |
|
2,550,832 |
|||||||||||||||
Pro forma basic and diluted net loss per share (unaudited) |
2m |
$ |
0.80 |
$ |
0.44 |
||||||||||||||||||||
Weighted average number of shares used to compute basic and diluted pro forma net loss per share (unaudited) |
|
7,443,970 |
|
7,499,436 |
The accompanying notes are an integral part of the consolidated financial statements.
F-4
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY) |
||
U.S. dollars in thousands (except share data) |
Number of
|
|
Number of
|
Additional
|
Receipts on
|
Deferred
|
Deficit
|
Total |
|||||||||||||
|
|
|
|
|
||||||||||||||||
Balance as of March 9, 2000 (date of inception) |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||
Issuance of shares, net |
2,522,496 |
|
40 |
|
|
|
40 |
|||||||||||||
Net loss |
|
|
|
|
|
(145 |
) |
(145 |
) |
|||||||||||
|
||||||||||||||||||||
Balance as of December 31, 2000 |
2,522,496 |
|
40 |
|
|
(145 |
) |
(105 |
) |
|||||||||||
Issuance of shares, net in July-December, 2001 |
38,421 |
|
153 |
|
|
|
153 |
|||||||||||||
Treasury shares |
(195,371 |
) |
|
|
|
|
|
|
||||||||||||
Net loss |
|
|
|
|
|
(367 |
) |
(367 |
) |
|||||||||||
Balance as of December 31, 2001 |
2,365,546 |
|
193 |
|
|
(512 |
) |
(319) |
||||||||||||
Exercise of stock options |
10,184 |
|
|
|
|
|
|
|||||||||||||
Deferred stock compensation |
|
|
196 |
|
(196 |
) |
|
|
||||||||||||
Amortization of deferred stock compensation |
|
|
|
|
72 |
|
72 |
|||||||||||||
Forfeiture of options granted to employees |
|
|
(6 |
) |
|
6 |
|
|
||||||||||||
Net loss |
|
|
|
|
|
(1,582 |
) |
(1,582 |
) |
|||||||||||
Balance as of December 31, 2002 |
2,375,730 |
|
383 |
|
(118 |
) |
(2,094 |
) |
(1,829 |
) |
||||||||||
Issuance of series A Preferred shares, net in July 2003 |
|
535,084 |
2,653 |
|
|
|
2,653 |
|||||||||||||
Conversion of convertible loan to series A Preferred shares in October 2003 |
|
|
621,835 |
2,691 |
|
|
|
2,691 |
||||||||||||
Exercise of warrants to series A Preferred shares |
|
180,850 |
660 |
|
|
|
660 |
|||||||||||||
Exercise of stock options |
37,816 |
|
|
|
|
|
|
|||||||||||||
Deferred stock compensation |
|
|
174 |
|
(174 |
) |
|
|
||||||||||||
Amortization of deferred stock compensation |
|
|
177 |
|
177 |
|||||||||||||||
Forfeiture of options granted to employees |
(22 |
) |
|
22 |
|
|
||||||||||||||
Expenses related to warrants granted to non-employees |
194 |
|
|
|
194 |
|||||||||||||||
Net loss |
|
|
|
|
|
(2,305 |
) |
(2,305 |
) |
|||||||||||
Balance as of December 31, 2003 |
2,413,546 |
1,337,769 |
6,733 |
|
(93 |
) |
(4,399 |
) |
2,241 |
|||||||||||
Issuance of series B Preferred shares, net in September 2004 |
|
265,747 |
1,395 |
|
|
|
1,395 |
|||||||||||||
Issuance of Ordinary shares in May 2004 |
56,914 |
(*) |
|
|
|
|
|
|
||||||||||||
Exercise of stock options |
17,033 |
|
|
|
|
|
|
|||||||||||||
Deferred stock compensation |
|
|
239 |
|
(239 |
) |
|
|
||||||||||||
Amortization of deferred stock compensation |
|
|
|
|
92 |
|
92 |
|||||||||||||
Forfeiture of options granted to employees |
|
|
(25 |
) |
|
25 |
|
|
||||||||||||
Receipts on account of shares |
|
|
|
493 |
|
|
493 |
|||||||||||||
Expenses related to shares and warrants granted to non-employees |
|
|
52 |
|
|
|
52 |
|||||||||||||
Net loss |
|
|
|
|
|
(2,982 |
) |
(2,982 |
) |
|||||||||||
Balance as of December 31, 2004 |
2,487,493 |
1,603,516 |
8,394 |
493 |
(215 |
) |
(7,381 |
) |
1,291 |
|||||||||||
Issuance of series B Preferred shares, net in February 2005 |
|
392,087 |
2,165 |
(493 |
) |
|
|
1,672 |
||||||||||||
Conversion of shareholders loan to series B Preferred shares |
|
20,802 |
122 |
|
|
|
122 |
|||||||||||||
Exercise of stock options |
55,394 |
|
|
|
|
|
|
|||||||||||||
Deferred stock compensation |
|
|
32 |
|
(32 |
) |
|
|
||||||||||||
Amortization of deferred stock compensation |
|
|
|
|
124 |
|
124 |
|||||||||||||
Forfeiture of options granted to employees |
|
|
(16 |
) |
|
16 |
|
|
||||||||||||
Cost related to shares and warrants granted to non-employees |
|
|
161 |
|
|
|
161 |
|||||||||||||
Cost related to warrants granted as Finder fee |
|
|
138 |
|
|
|
138 |
|||||||||||||
Expenses related to accelerations of vesting of stock options |
|
|
12 |
|
|
|
12 |
|||||||||||||
Net loss |
|
|
|
|
|
(5,843 |
) |
(5,843 |
) |
|||||||||||
|
|
|||||||||||||||||||
Balance as of December 31, 2005 |
2,542,887 |
2,016,405 |
$ |
11,008 |
$ |
|
$ |
(107 |
) |
$ |
(13,224 |
) |
$ |
(2,323 |
) |
(*)
Including restricted shares held by a trustee (see also Note 11(c)5).
The accompanying notes are an integral part of the consolidated financial statements.
F-5
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIENCY) (cont.) |
||
U.S. dollars in thousands (except share data) |
Number of
|
|
Number of
|
Additional
|
Receipts on
|
Deferred
|
Deficit
|
Total |
|||||||||||||
Balance as of December 31, 2005 |
|
2,542,887 |
|
2,016,405 |
|
$ |
11,008 |
|
$ |
|
|
$ |
(107 |
) |
$ |
(13,224 |
) |
$ |
(2,323 |
) |
Conversion of convertible loan into series B Preferred shares |
|
|
1,033,382 |
6,230 |
|
|
|
6,230 |
||||||||||||
Issuance of series C Preferred shares, net |
|
|
1,822,422 |
13,296 |
|
|
|
13,296 |
||||||||||||
Exercise of warrants to purchase series B Preferred shares in April 2006 |
|
|
76,395 |
447 |
|
|
|
447 |
||||||||||||
Exercise of stock options |
|
850 |
|
|
|
|
|
|
||||||||||||
Amortization of deferred stock compensation |
|
|
|
|
|
31 |
|
31 |
||||||||||||
Issuance of shares to non-employee |
|
9,240 |
|
61 |
|
|
|
61 |
||||||||||||
Cancellation of restricted ordinary shares |
|
(1,581 |
) |
|
|
|
|
|
|
|||||||||||
Cost related to shares and warrants granted to non-employees |
|
|
|
77 |
|
|
|
177 |
||||||||||||
Cost related to options granted to employees |
|
|
|
36 |
|
|
|
30 |
||||||||||||
Net loss |
|
|
|
|
|
|
(3,216 |
) |
(3,216 |
) |
||||||||||
|
||||||||||||||||||||
Balance as of June 30, 2006 (unaudited) |
2,551,396 |
4,948,604 |
$ |
31,255 |
$ |
|
$ |
(76 |
) |
$ |
(16,440 |
) |
$ |
14,739 |
The accompanying notes are an integral part of the consolidated financial statements.
F-6
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||
U.S. dollars in thousands |
|
Period from
|
|
Period from
|
|||||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
||||||||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||||||||
Cash flows from operating activities |
|
|||||||||||||||||||||
Net loss |
|
$ |
(2,305 |
) |
$ |
(2,982 |
) |
$ |
(5,843 |
) |
$ |
(13,224 |
) |
$ |
(2,410 |
) |
$ |
(3,216 |
) |
$ |
(16,440 |
) |
Adjustments to reconcile net loss to net
|
||||||||||||||||||||||
Depreciation |
73 |
131 |
151 |
445 |
81 |
79 |
524 |
|||||||||||||||
Foreign currency adjustments |
(22 |
) |
39 |
(12 |
) |
(27 |
) |
(13 |
) |
1 |
(26 |
) |
||||||||||
Amortization of discount on convertible loan |
153 |
|
177 |
405 |
|
|
405 |
|||||||||||||||
Income related to embedded derivative |
(236 |
) |
|
|
(236 |
) |
|
|
(236 |
) |
||||||||||||
Modification of convertible loan |
|
|
|
360 |
|
|
360 |
|||||||||||||||
Capital loss on sale of property and equipment |
1 |
1 |
17 |
29 |
|
|
29 |
|||||||||||||||
Gain on marketable securities |
(16 |
) |
(29 |
) |
|
(45 |
) |
|
|
(45 |
) |
|||||||||||
Accrued severance pay, net |
8 |
2 |
47 |
82 |
31 |
45 |
127 |
|||||||||||||||
Amortization of deferred stock compensation |
177 |
92 |
124 |
465 |
80 |
31 |
496 |
|||||||||||||||
Cost related to options granted to employees |
|
|
|
|
|
36 |
|
36 |
||||||||||||||
Cost related to shares and warrants granted to non-employees and as finders fees |
59 |
52 |
299 |
545 |
70 |
177 |
722 |
|||||||||||||||
Cost related to accelerations of stock options vesting |
|
|
12 |
12 |
|
|
12 |
|||||||||||||||
Decrease (increase) in marketable securities |
(1,483 |
) |
1,423 |
102 |
42 |
102 |
|
42 |
||||||||||||||
Increase in deferred issuance costs |
|
|
|
|
|
(821 |
) |
(821 |
) |
|||||||||||||
Decrease (increase) in other accounts receivable |
(101 |
) |
90 |
33 |
(68 |
) |
(23 |
) |
(97 |
) |
(165 |
) |
||||||||||
Increase (decrease) in trade payables |
158 |
(60 |
) |
200 |
395 |
33 |
511 |
906 |
||||||||||||||
Increase in deferred revenue |
|
|
228 |
228 |
100 |
|
228 |
|||||||||||||||
Increase (decrease) in other accounts payable and accruals |
29 |
87 |
304 |
534 |
73 |
422 |
956 |
|||||||||||||||
Net cash used in operating activities |
(3,505 |
) |
(1,154 |
) |
(4,161 |
) |
(10,058 |
) |
(1,876 |
) |
(2,832 |
) |
(12,890 |
) |
||||||||
Cash flows from investing activities |
||||||||||||||||||||||
Purchase of property and equipment |
(228 |
) |
(150 |
) |
(170 |
) |
(877 |
) |
(39 |
) |
(168 |
) |
(1,045 |
) |
||||||||
Proceeds from sale of property and equipment |
|
6 |
15 |
60 |
|
|
60 |
|||||||||||||||
Increase in bank deposits |
|
|
|
|
|
(7,018 |
) |
(7,018 |
) |
|||||||||||||
Net cash used in investing activities |
(228 |
) |
(144 |
) |
(155 |
) |
(817 |
) |
(39 |
) |
(7,186 |
) |
(8,003 |
) |
||||||||
Cash flows from financing activities |
||||||||||||||||||||||
Short-term bank credit, net |
27 |
(27 |
) |
1 |
1 |
|
|
1 |
||||||||||||||
Repayment of capital lease |
|
|
|
|
(12 |
) |
(12 |
) |
||||||||||||||
Repayment of short-term bank loan |
|
|
(72 |
) |
(72 |
) |
|
(72 |
) |
(144 |
) |
|||||||||||
Proceeds from short-term bank loan |
|
72 |
73 |
146 |
|
|
146 |
|||||||||||||||
Receipt of long-term bank loan |
|
|
|
74 |
|
|
74 |
|||||||||||||||
Repayment of long-term bank loan |
|
(72 |
) |
|
(72 |
) |
|
|
(72 |
) |
||||||||||||
Proceeds from convertible loans |
669 |
|
6,053 |
8,392 |
4,309 |
|
8,392 |
|||||||||||||||
Shareholders loans, net |
(62 |
) |
(101 |
) |
(8 |
) |
257 |
(8 |
) |
(109 |
) |
148 |
||||||||||
Issuance of shares, net |
2,653 |
1,395 |
1,672 |
6,406 |
1,672 |
13,338 |
19,744 |
|||||||||||||||
Exercise of warrants |
660 |
|
|
660 |
|
447 |
1,107 |
|||||||||||||||
Receipts on account of shares and warrants, net |
|
493 |
|
|
|
|
|
|||||||||||||||
Net cash provided by financing activities |
3,947 |
1,760 |
7,719 |
15,792 |
5,973 |
13,592 |
29,384 |
|||||||||||||||
Increase (decrease) in cash and cash equivalents |
214 |
462 |
3,403 |
4,917 |
4,058 |
3,574 |
8,491 |
|||||||||||||||
Cash and cash equivalents at beginning of period |
838 |
1,052 |
1,514 |
|
1,514 |
4,917 |
|
|||||||||||||||
Cash and cash equivalents at end of period |
$ |
1,052 |
$ |
1,514 |
$ |
4,917 |
$ |
4,917 |
$ |
5,572 |
$ |
8,491 |
$ |
8,491 |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
|
||
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.) |
||
U.S. dollars in thousands |
|
Period from March 9,
|
Six months
|
Period from
|
|||||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
||||||||||||||||||
|
|
|
(Unaudited) |
(Unaudited) |
||||||||||||||||||
a. |
Supplemental disclosure of cash flows activities: |
|
|
|
||||||||||||||||||
Net cash paid during the period for: |
||||||||||||||||||||||
Interest |
|
$ |
8 |
|
$ |
7 |
|
$ |
8 |
|
$ |
32 |
|
$ |
3 |
|
$ |
3 |
|
$ |
35 |
|
b. |
Non-cash transactions: |
|||||||||||||||||||||
Conversion of convertible loan |
$ |
2,258 |
$ |
|
$ |
|
$ |
|
$ |
6,230 |
||||||||||||
Issuance of shares from receipts on
|
$ |
|
$ |
|
$ |
493 |
$ |
493 |
$ |
|
||||||||||||
Conversion of shareholders loan |
$ |
|
$ |
|
$ |
122 |
$ |
122 |
$ |
|
||||||||||||
Capital lease |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
69 |
||||||||||||
Issuance of shares |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
61 |
||||||||||||
Accrued issuance expenses of series C Preferred shares |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
12 |
The accompanying notes are an integral part of the consolidated financial statements.
F-8
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 1: GENERAL
a.
Rosetta Genomics Ltd. (the Company) commenced operations on March 9, 2000. The Company develops microRNA-based diagnostic and therapeutic products. The Company is focused on developing and commercializing these products by establishing strategic alliances with leading biotechnology and pharmaceutical companies, establishing and maintaining a strong intellectual property position in the microRNA field and generating revenues through licensing agreements.
b.
On April 21, 2005, the Company established a wholly-owned subsidiary in the U.S., Rosetta Genomics Inc. The principal business activity of the subsidiary is to expand the marketing and the business development of the Company in the U.S.
c.
The Companys accumulated deficit during the development stage totaled $13,224 for the period from March 9, 2000 (date of inception) to December 31, 2005 and $16,440 for the period from March 9, 2000 (date of inception) through June 30, 2006.
The Company is in the development stage and, as such, its ability to continue to operate is dependent on the completion of the development of its products, the ability to market and sell those products and additional financing until profitability is achieved.
d.
License agreement:
In April, 2005, the Company entered into a license agreement (the Agreement) with a biotechnology company in the RNA-based research products industry. Under the Agreement, the Company granted a non-exclusive license to all of its microRNA sequences, including microRNAs that will be sequenced in the future, for use in products to be used either as research reagents or in the performance of research services. The license excludes any right to sell for diagnostic use any products or services containing the Companys microRNAs or designed to detect or affect any of its microRNA.
In addition, according to the Agreement, the amount of the upfront payment will be determined based on the sequences of microRNAs licensed. The Company granted options to convert the license to an exclusive license for each specific sequence for an additional payment. Those options expired in April 2006.
The Company is entitled to upfront payments and future royalty payments based on all sales of products and services in the research field that incorporate or are designed to detect or otherwise affect, one of the Companys microRNAs, for the life of any patent or patent application covering such microRNAs in the product or service.
As of the date of the financial statements, the Company had received an up-front payment in the amount of $228. Revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established.
F-9
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
a.
Unaudited information:
The consolidated balance sheet as of June 30, 2005 and June 30, 2006 and the related consolidated statements of operations and cash flows for the six-month periods ended June 30, 2005 and 2006, and the statement of changes in shareholders equity for the six-month period ended June 30, 2006 are unaudited. The unaudited information has been prepared by the Company on the same basis as the audited annual consolidated financial statements and, in managements opinion, reflects all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles, for interim financial reporting for the periods presented. Results for interim periods are not necessarily indicative of the results to be expected for the entire year.
b.
Use of estimates:
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
c.
Financial statements in U.S. dollars:
The Companys financing activities are incurred in U.S. dollars. A portion of the Companys costs is incurred in U.S. dollars. The Companys management believes that the U.S. dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with Statement No. 52 of the Financial Accounting Standards Board (FASB), Foreign Currency Translation. All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
d.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
e.
Cash equivalents:
Cash equivalents include short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less.
f.
Marketable securities:
The Company accounts for investments in debt and equity securities in accordance with Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Marketable securities are stated at market value. The Company invests in mutual funds. All marketable securities are defined as trading securities under the provisions of SFAS 115, and unrealized holding gains and loss are reflected in the consolidated statements of operations.
F-10
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g.
Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets.
The annual depreciation rates are as follows:
% |
|||
|
Computer equipment |
|
33 |
Office furniture and laboratory equipment |
715 |
||
Leasehold improvements |
Over the shorter of the lease
|
Fixed assets under a finance lease are reflected within the fixed assets in the amount of the present value of future lease payments. The future lease payments are presented net of the interest rate component, as a long-term liability.
h.
Impairment of long-lived assets:
The Companys long-lived assets are reviewed for impairment in accordance with Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long- Lived Assets (SFAS No. 144) 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, 2003, 2004 and 2005, no impairment losses have been identified.
i.
Convertible securities:
Convertible notes are accounted for in accordance with the provisions of Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF 00-19). The Company has also considered EITF No. 05-2, The Meaning of Conventional Convertible Debt Instrument in the adoption of EITF 00-19. Under these pronouncements, the Company, where applicable, recorded an embedded derivative instrument classified as a liability.
j.
Revenue recognition:
Revenues from sales are recognized in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB No. 104), when delivery has occurred, persuasive evidence of an agreement exists, the vendors fee is fixed or determinable, no further obligation exists and collectibility is probable.
To the extent future obligations are included in a multi-element arrangement, revenue is recognized upon delivery, provided fair value for the elements exists. In multi-element arrangements that include future obligations, if fair value does not exist for all undelivered elements, revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established according to EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21).
Royalties from licensing the right to use the Companys products are recognized when earned and when written sales confirmation from the licensee is received and no future obligation exists. Non-refundable, up-front advancements of royalties from licensing the right to use the Companys products which are fully chargeable against royalties, are recorded as deferred revenue until the above mentioned criteria for recognizing revenue are met.
Deferred revenues represent payments received in advance, where not all revenue recognition criteria are met. See also Note 1b.
F-11
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.
Research and development costs:
Research and development expenses include costs of salaries and related expenses, activities related to intellectual property, research materials and supplies and equipment depreciation. All research and development costs are expensed as incurred.
l.
Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (FIN No. 44) in accounting for its employee stock options plans. Under APB No. 25, when the exercise price of the Companys options is less than the market price of the underlying shares on the date of grant, compensation expense is recognized over the options vesting period.
The Company applies SFAS No. 123 and EITF 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services with respect to options issued to non-employees. SFAS No. 123 requires use of an option valuation model to measure the fair value of the options at the measurement date.
Pro forma information regarding the Companys net loss and net loss per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (SFAS No. 123) and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS No. 123.
The following table illustrates the effect on net loss, attributed to Ordinary shares and loss per share, assuming that the Company had applied the fair value recognition provisions of SFAS No. 123.
The Companys pro forma information is as follows:
Year ended December 31, |
|||||||||||
2003 |
2004 |
2005 |
|||||||||
|
Net loss attributable to Ordinary shares as reported |
|
$ |
2,305 |
|
$ |
2,982 |
|
$ |
5,843 |
|
Deduct stock-based employee compensation expenses included in the reported net loss |
177 |
92 |
136 |
||||||||
Add stock-based employee compensation determined under the minimum value method |
177 |
92 |
129 |
||||||||
Pro forma net loss attributable to Ordinary shares |
$ |
2,305 |
$ |
2,982 |
$ |
5,836 |
|||||
Net loss per share: |
|||||||||||
Basic and diluted net loss per Ordinary share as reported |
$ |
0.96 |
$ |
1.19 |
$ |
2.35 |
|||||
Pro forma basic and diluted net loss per Ordinary share |
$ |
0.96 |
$ |
1.19 |
$ |
2.35 |
The fair value for options granted is amortized over their vesting period. All options to employees granted in 2003 and 2004 and the majority granted in 2005 were granted with an exercise price of $0, therefore their fair value was equal to the share price at the date of grant. Fair value of options granted in 2005 with an exercise price other than $0 was estimated at the grant date using the minimum value method options pricing model with weighted average assumptions of dividend yield of 0%, risk free interest rate of 4.22% and expected life of 3 years.
F-12
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (Statement 123(R)), using the prospective transition method for grants where the Company, as a private company, had previously presented the required SFAS 123 pro forma disclosures using the minimum value method. As such, the Company will continue to apply APB 25 in future periods for options granted prior to January 1, 2006.
The adoption of Statement 123(R) on January 1, 2006 had no material effect on the Companys net loss and basic and diluted net loss per Ordinary share for the six months ended June 30, 2006, as compared to if it had continued to account for share-based compensation under APB 25. If the Company had not adopted Statement 123(R), it would have had no material effect on pro forma basic and diluted net loss per Ordinary share under the minimum value method for the six months ended June 30, 2006 in comparison to reported basic and diluted net loss per Ordinary share.
The following table sets forth the total stock-based compensation expense resulting from stock options included in our consolidated statement of operations:
Six months
|
|||||
(Unaudited) |
|||||
|
Research and development cost |
|
$ |
56 |
|
General and administrative expenses |
10 |
||||
Marketing and business development expenses |
1 |
||||
Total stock-based compensation expense |
$ |
67 |
The fair value of stock-based awards was estimated using the Black-Scholes option pricing model starting January 1, 2006 with the following weighted-average assumptions for the six months ended June 30, 2006:
Six months
June 30, 2006 |
|||
(Unaudited ) |
|||
|
Expected life (in years) |
|
66.25 |
Forfeiture rate |
10% |
||
Risk free interest rate |
4.7% |
||
Expected volatility |
90% |
||
Dividend yield |
0% |
The computation of expected volatility is based on realized historical stock price volatility of peer companies. The computation of the forfeiture rate is based on the employees expected exercise and on prior and post vesting termination behavior. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of the stock awards was calculated as the average of the vesting period and contractual life as permitted by Staff Accounting Bulletin No. 107, Share-Based Payment (SAB No. 107).
The following table presents the stock options activity for the six months ended June 30, 2006. The information for the six months ended June 30, 2005 was not presented since options granted through June 2005 were measured using the minimum value method.
F-13
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Number of
|
Weighted-
|
Aggregate
|
|||||||
|
|
||||||||
|
Outstanding at December 31, 2005 |
|
261,473 |
|
$ |
1.15 |
|
||
Granted |
110,409 |
$ |
3.50 |
||||||
Exercised |
(850 |
) |
$ |
|
|||||
Forfeited |
(5,528 |
) |
$ |
4.26 |
|||||
Outstanding at June 30, 2006 (unaudited) |
365,504 |
$ |
1.83 |
$ |
1,791 |
||||
Exercisable at June 30, 2006 (unaudited) |
170,571 |
$ |
0.40 |
$ |
1,058 |
||||
Vested and expected to vest |
346,005 |
$ |
1.08 |
The aggregate intrinsic value in the table above represents the total intrinsic value (i.e., the difference between the Companys estimated value on June 30, 2006 and the exercise price, times the number of options) that would have been received by the option holders had all option holders exercised their options on June 30, 2006. This amount changes based on the fair value of the Companys Ordinary shares. The total intrinsic value of options exercised during the six months ended June 30, 2006 was $6. The total fair value of options vested and forfeited during the six months ended June 30, 2006 was $82. The number of options vested during the six months ended June 30, 2006 was 31,162. The weighted-average remaining contractual term of the outstanding options at June 30, 2006 was 8.4 years.
As of June 30, 2006, $76 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2 years.
m.
Net loss per share:
The Company applies the two-class method as required by EITF No. 03-6, Participating Securities and the Two-Class Method (EITF No. 03-6) under FASB Statement No. 128, Earnings Per Share (SFAS No. 128). EITF No. 03-6 requires the income per share for each class of shares to be calculated assuming that 100% of the Companys earnings are distributed as dividends to each class of shares based on their contractual rights.
In compliance with EITF No. 03-6 the Preferred shares do not participate in losses, and therefore are not included in the computation of net loss per share.
Basic net loss per share is computed using the weighted average number of Ordinary shares outstanding during the period. Diluted net loss per share is computed based on the weighted average number of Ordinary shares outstanding during the period, plus dilutive potential of Ordinary shares is considered outstanding during the period in accordance with SFAS No. 128.
For the years ended December 31, 2003, 2004 and 2005, all outstanding options, warrants and Preferred shares have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.
Basic and diluted pro forma net loss per share (unaudited), as presented in the statements of operations, has been calculated as described above and also gives effect to the subsequent issuance of Preferred shares and the automatic conversion of all Preferred shares on a one-for-one basis as if converted at the beginning of the period presented.
F-14
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table sets forth the computation of pro forma basic and diluted net loss per share:
Year ended December 31, 2005 |
Six months ended June 30,
|
|||||||
(Unaudited) |
||||||||
Numerator for basic and diluted net loss per share net loss available to Ordinary shareholders |
$ |
5,843 |
$ |
3,216 |
||||
Weighted average shares outstanding: |
||||||||
Denominator for basic net loss per share |
2,495,366 |
2,550,832 |
||||||
Effect of potential Ordinary shares assumed from conversion of Preferred shares outstanding and subsequent Preferred shares issued |
4,948,604 |
4,948,604 |
||||||
Denominator for pro forma and diluted net loss per share |
7,443,970 |
7,499,436 |
||||||
Pro forma basic and diluted net loss per share |
$ |
0.80 |
$ |
0.44 |
n.
Income taxes:
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). This Statement prescribes the use of the liability method, whereby deferred tax assets 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. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
o.
Severance pay:
The Companys liability for severance pay is calculated pursuant to Israels Severance Pay Law, based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one months salary for each year of employment or a portion thereof. The Companys liability for all of its Israeli employees is fully provided by monthly deposits with severance pay funds, insurance policies and by an accrual. The value of these policies is recorded as an asset in the Companys balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of the provisions of Israels Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.
Pursuant to Section 14 of the Severance Compensation Act, 1963 (Section 14), certain employees of the Company who elected to be included under this section, are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees therefore a liability is not recorded. Deposits under Section 14 are not recorded as an asset in the Companys balance sheet.
Severance expenses for the years ended December 31, 2003, 2004 and 2005 were $8, $69 and $203, respectively and $310 from March 9, 2000 (date of inception) through December 31, 2005.
p.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.
Cash and cash equivalents are invested in major banks in Israel. Management believes that the financial institutions that hold the Companys investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts or other foreign hedging arrangements.
F-15
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q.
Fair value of financial instruments:
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
The carrying amounts of cash and cash equivalents, accounts receivable, trade payables and other accounts payable and accruals approximate their fair value due to the short-term maturity of such instruments.
r.
Impact of recently issued accounting standards:
On December 16, 2004, FASB issued Statement No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which is a revision of SFAS No. 123. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123 permitted, but did not require, share-based payments to employees to be recognized based on their fair values while SFAS No. 123(R) requires all share-based payments to employees to be recognized based on their fair values. SFAS No. 123(R) also revises, clarifies and expands guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods. SFAS No. 123(R) will be applicable to the Company in the first fiscal year beginning after January 1, 2006. The adoption of SFAS No. 123(R) is not expected to have a significant effect on the Companys results of operations.
The Company plans to adopt SFAS No. 123(R) using the prospective-transition method as required for nonpublic entities that used the minimum value method to account for their pro forma share-based payments disclosures under SFAS No. 123. As such, we will continue to apply APB 25 in future periods to equity awards outstanding at the date of SFAS No. 123(R) adoption. All awards granted, modified, or settled after the date of adoption should be accounted for using the measurement, recognition, and attribution provisions of SFAS No. 123(R).
In March 2005, the SEC released SAB No. 107. SAB No. 107 states the SEC staffs position regarding the application of SFAS No. 123(R) and contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations. SAB No. 107 also provides the SEC staffs views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 highlights the importance of disclosures made relating to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB No. 107, however, it does not believe that SAB No. 107 will have a material effect on its financial position, results of operations or cash flows.
In May 2005, FASB issued Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections (SFAS No. 154), a replacement of APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. APB No. 20 previously required that most voluntary changes in accounting principles be recognized by including in net income for the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires retroactive application to prior periods financial statements of a voluntary change in accounting principles unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
F-16
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 3: MARKETABLE SECURITIES
Marketable securities consist of trust funds. Marketable securities are stated at market value. All marketable securities are defined as trading securities under the provisions of SFAS 115, and holding gains and losses are reflected in the consolidated statement of operations.
Cost |
Gain |
Market
|
|||||||||
|
Trust funds as of December 31, 2004 |
|
$ |
97 |
|
$ |
5 |
|
$ |
102 |
|
During 2005, all of the outstanding marketable securities were sold.
NOTE 4: ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31, |
||||||||
2004 |
2005 |
|||||||
|
Government authorities |
|
$ |
86 |
|
$ |
31 |
|
Prepaid expenses and others |
15 |
37 |
||||||
$ |
101 |
$ |
68 |
|||||
NOTE 5: PROPERTY AND EQUIPMENT
Cost: |
||||||||
Computer equipment |
$ |
451 |
$ |
481 |
||||
Office furniture and laboratory equipment |
158 |
193 |
||||||
Leasehold improvements |
39 |
90 |
||||||
648 |
764 |
|||||||
Accumulated depreciation: |
||||||||
Computer equipment |
236 |
346 |
||||||
Office furniture and laboratory equipment |
46 |
70 |
||||||
Leasehold improvements |
10 |
5 |
||||||
292 |
421 |
|||||||
Depreciated cost |
$ |
356 |
$ |
343 |
Depreciation expenses for the years ended December 31, 2003, 2004 and 2005 were $73, $131 and $151, respectively, and $445 from March 9, 2000 (date of inception) through December 31, 2005.
NOTE 6: SHORT-TERM BANK LOAN
Composed as follows:
Interest rate |
|||||||||||
December 31, |
December 31, |
||||||||||
Currency |
2004 |
2005 |
2004 |
2005 |
|||||||
% |
|||||||||||
|
|
|
|
||||||||
|
NIS |
|
Prime + 2.1 |
|
Prime + 1.8 |
|
$ |
75 |
|
$ |
73 |
The loan was repaid on March 30, 2006.
F-17
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 7: OTHER ACCOUNTS PAYABLE AND ACCRUALS
December 31, |
||||||||
2004 |
2005 |
|||||||
|
Employees salary and payroll accruals |
|
$ |
210 |
|
$ |
330 |
|
Accrued expenses and other |
20 |
204 |
||||||
$ |
230 |
$ |
534 |
NOTE 8: CONVERTIBLE LOANS
a.
2002 convertible loan:
In April 2002, the Company entered into a convertible loan agreement in the amount of $1,670. The loan bears no interest. Pursuant to the agreement, as amended in December 2002, the loan was to be repaid in April 2007 or automatically converted into shares, upon the occurrence of one of the following events: (1) the Companys initial public offering; (2) a transaction for the sale of substantially all of the Companys assets; (3) sale of the control over the Company or (4) an investment of at least $2,000 in the Company (each, a Conversion Event). Upon a Conversion Event, the conversion price per share was to be equal to the lesser of the price per share of the event discounted by 20% or the price per share based on a Company pre-money valuation of $10,000.
In December 2002, as part of an amendment to the agreement from April 2002, the Company issued warrants to the lenders of the convertible loan to lend additional amounts of up to 30%-60% of their original loan (depending on the amount lent), under the terms of the convertible loan agreement. The warrants expire upon the earlier of January 8, 2005, or a Conversion Event.
The fair value of the warrants at the grant date was estimated by management to be $360. In accordance with EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments, the modification was considered substantial and, therefore, the value of the warrants was recorded as a financial expense at the date of the modification.
In October 2003, after the closing of the series A Preferred share financing round, the loan was converted into series A Preferred shares of the Company, at a conversion price of $3.65 per share, 180,850 warrants were exercised into series A Preferred shares at a price per share of $3.65 and the remaining warrants expired.
b.
2003 convertible loan:
In March 2003, the Company entered into an additional convertible loan agreement in the amount of $669. This loan was to be repaid in one installment on March 30, 2008 or automatically converted upon one of the following events: (1) the Companys initial public offering, (2) a transaction for the sale of substantially all of the Companys assets, (3) sale of the control over the Company or (4) an investment of at least $2,000 in the Company. The conversion price per share was to be equal to the price per share of the event, discounted by 30%.
In October 2003, after the closing of the series A Preferred share financing round, the loan was converted into series A Preferred shares at a conversion price of $4.08.
F-18
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 8: CONVERTIBLE LOANS (Cont.)
c.
2005 convertible loan:
On July 15, 2005, the Company received a bridge loan of $6,053, which bears no interest and does not have a stated repayment date. The bridge loan will be converted into shares as follows: If the Company completes the next financing round by January 15, 2006 (the C Round) of at least $10 million of which at least $7 million will be from new investors, then the loan will automatically be converted into Preferred C shares at a 20% discount on the C Round price per share, but at a minimum share price of $5.86 and a maximum share price of $7.29, otherwise the bridge loan will be converted into series B Preferred shares on the terms of the Preferred B round at $5.86 per share. The loan will be repaid in case of a liquidation event or if the Company ceases to conduct business or adopts a decision about a material change in its business.
On January 15, 2006, the loan was converted into 1,033,382 series B Preferred shares at a price per share of $5.86, which were issued in April 2006.
d.
In connection with the convertible loans received in 2002, 2003 and 2005, as detailed above, the Company has considered EITF 05-2, according to which it was determined that the convertible loans were not conventional convertible instruments. The Company has applied SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to determine if bifurcation is required. It was determined that the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the loan, therefore the embedded derivative should be bifurcated. The Company has considered EITF 00-19 according to which it was determined that the share settlement was not in the control of the Company since there was not sufficient authorized shares as of the date the loans were issued. Based on these conclusions, the embedded derivative was bifurcated and recorded as a liability in the amount of $899, $287 and $177, respectively, which was valued by using a benefit valuation model. The fair value of the embedded derivatives was valued at each balance sheet date until the conversion of the loan. Differences in fair value, were recorded as financial income and amounted to $0, $236 and $0 in 2003, 2004 and 2005, respectively.
NOTE 9: SHAREHOLDERS LOAN
In 2001 the Company received a loan from one of its shareholders. This loan is linked to the Israeli Consumer Price Index and bears no interest. The Company is to begin repaying the loan upon the earlier of: (1) January 1, 2007, (2) completion of an investment round of at least $5,000 at a pre-money valuation of at least $20,000 or (3) annual profit before tax of at least $3,000. The loan shall be repaid in twelve equal monthly installments from such repayment date.
Pursuant to the Preferred B investment agreement (addendum signed on January 24, 2005), one half of the shareholders loan was converted into 20,802 series B Preferred shares (see also Note 11c.7).
The Company has the right to repay the loan, in whole or in part, at any time upon seven days prior written notice to the shareholder. Through December 31, 2005, the Company repaid amounts on account of the loan, and the remainder of the loan amounted to $110 as of December 31, 2005.
Any amount due which shall not be paid on its due date shall bear interest at the rate of Libor+4%.
The remaining amount of $110 was fully repaid by the Company in 2006.
F-19
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES
a.
Capital lease (unaudited):
1.
In February 2006, the Company leased laboratory equipment under a capital lease in the amount of $34 to be paid in 24 monthly payments. Under the agreement, the Company has a bargain option to purchase the equipment for 1% of the total cost of the equipment by the end of 24 months.
2.
The Company leased additional laboratory equipment under capital lease in the amount of $42 of which 20% was paid in advance and the additional amount will be paid in 14 monthly payments. The lease transfers ownership to the Company by the end of the lease term.
The commitments under the lease agreements are as follows:
June 30, 2006 |
||||
Unaudited |
|
|||
|
Due on June 30, 2007 |
|
47 |
|
Due on June 30, 2008 |
12 |
|||
59 |
b.
The facilities and motor vehicles of the Company are rented under operating leases that expire in 2008 and 2009, respectively. Aggregate minimum rental commitments under the non-cancelable rent and lease agreements as of December 31, 2005 are as follows:
|
2006 |
|
$ |
261 |
|
2007 |
|
253 |
|||
2008 |
|
165 |
|||
2009 |
|
2 |
|||
Total |
|
$ |
681 |
Total rent and lease expenses for the years ended December 31, 2005, 2004 and 2003, were $98, $51, and $60, respectively, and $225 from the period from March 9, 2000, (date of inception) through December 31, 2005.
c.
As of December 31, 2005, the Company provided a bank guarantee for the fulfillment of its lease commitments in the amount of approximately $10.
d.
In June 2003, the Company entered into a license agreement with a related party to use its intellectual property for a period of 20 years in consideration of up to $100. According to the agreement, the Company is obligated to pay an aggregate consideration of up to $100, of which $20 was paid in cash and $80 shall be paid as quarterly royalties equal to 5% of the net income of the Company.
e.
The Company is committed to issue to an officer of the Company options to purchase 16,272 Ordinary shares at an exercise price of $3.50 per share in the event that the Company completes an initial public offering based on a company valuation of at least $250,000 before November 1, 2007.
f.
The Company is committed to issue to an officer of the Company options to purchase 50,261 Ordinary shares at an exercise price of $4.70 per share in the event that the Company has a valuation of at least $150,000 before December 1, 2008.
F-20
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
g.
In May 2006, the Company signed a royalty-bearing, co-exclusive, worldwide license agreement with a third party. Under this agreement, the Company was granted the right to make, use and sell the third partys proprietary microRNAs for diagnostic purposes including a limited right to sublicense. In consideration for this license the Company paid an initiation fee and will pay a fixed annual license maintenance fee, royalties based on net sales and a percentage of the Companys revenues from any sublicense. The Company estimates that the minimum aggregate annual license maintenance fees over the term of this agreement will be approximately $920. (Unaudited)
h.
In June 2006, the Company signed a royalty-bearing, co-exclusive, worldwide license agreement with a third party. Under this agreement, the Company licensed from this third party the rights to its proprietary microRNAs for diagnostic purposes. In consideration for this license the Company paid an initiation fee and will pay a fixed annual license maintenance fee, royalties based on net sales and a percentage of the Companys revenue from any sublicense. The Company estimates that the minimum aggregate annual license maintenance fees over the term of this agreement will be approximately $694. (Unaudited)
i.
In August 2006, the Company signed a royalty-bearing, exclusive, worldwide license agreement with a third party. Under this agreement, the Company has exclusively licensed from this third party the rights to its proprietary microRNAs for all fields and applications including a limited right to sublicense. In consideration for this license the Company paid an initiation fee and will pay minimum annual royalties, royalties based on net sales and a percentage of the Companys revenues from any sublicense. The Company estimates that the aggregate minimum annual royalties over the term of this agreement will be approximately $2,275. (Unaudited)
NOTE 11: SHARE CAPITAL
a.
General:
On August 31, 2006 the Companys Board of Directors approved, subject to shareholder approval which is expected to occur on September 3, 2006, a 1-for-3.9822 reverse stock split and, accordingly, all shares, options, warrants and earnings (losses) per share amounts have been retroactively adjusted for all periods presented to reflect this reverse stock split. The shareholders are also expected to approve on September 3, 2006 a recapitalization of the Companys authorized share capital so that each share shall have a par value of NIS 0.01 .
b.
1.
Ordinary shares:
Ordinary shares confer upon the holders the right to receive notice to participate and vote in the general meetings of the Company, the right to receive dividends, if declared, after the distribution to the holders of the Preferred shares of a certain preference amount and the right to share in assets available for distribution upon liquidation or deemed liquidation, after the distribution to the holders of the Preferred shares of a certain preference amount.
2.
The rights and preferences of Preferred shares are as follows:
a.
Preferred shares confer the same rights as those conferred by Ordinary shares.
b.
Dividends:
The Preferred shares shall confer upon the holders thereof a preference over holders of Ordinary shares in the event dividends are being distributed such that dividends shall be distributed among the holders of the Companys Ordinary shares and Preferred shares in accordance with the order and preferences that applies to distribution of assets available for distribution upon liquidation and deemed liquidation.
F-21
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 11: SHARE CAPITAL (Cont.)
c.
Liquidation preference:
In the event of a liquidation or deemed liquidation, the assets of the Company or proceeds available for distribution shall be allocated in the following order of preference:
i)
Each holder of series C Preferred shares shall be entitled, prior and in preference to the holders of all other shares of the Company, the original issue price paid therefore, plus annual interest at the rate of 6% compounded annually, less dividends distributed on such shares;
ii)
Thereafter, each holder of series B Preferred shares shall be entitled to receive, prior and in preference to the holders of Preferred A shares and Ordinary shares, the original issue price paid therefore plus annual interest rate at the rate of 6%, compounded annually, less dividends distributed on such shares;
iii)
Thereafter, each holder of series A Preferred shares shall be entitled to receive, prior and in preference to holders of the Ordinary shares, the original issue price paid therefore, plus annual interest rate at the rate of 6%, compounded annually, less dividends distributed on such shares;
iv)
Thereafter, the assets shall be distributed among all of the shareholders of the Company, on an as converted pro rata basis.
v)
In the event that amounts to be paid to holders of Ordinary shares would exceed three times the series A Preferred preference and the series B Preferred preference, each of the Preferred shares shall automatically be converted into Ordinary shares and all assets shall then be distributed pro rata to the holders of Ordinary shares.
d.
Conversion:
Each Preferred share shall be convertible into Ordinary shares by dividing the applicable original issue price of such Preferred share by the applicable conversion price of such Preferred share, as defined in the Amended and Restated Articles of Association of the Company. The original issue prices of series A Preferred shares are $3.65, $4.08 and $5.29, of series B Preferred shares is $5.86 and of series C Preferred shares is $7.68. The initial conversion price of each of the Series A, B and C Preferred Shares is identical to the original issue price of such series, and is subject to adjustment for stock splits and other reclassifications and will also be adjusted in accordance with the standard weighted-average anti-dilution provisions contained in the Companys Amended and Restated Articles of Association in the event of a subsequent issuance of securities, subject to certain exceptions, at a price per share less than the applicable original issue price. As of the date of the financial statements, the conversion ratio for each Preferred share was 1:1.
Preferred shares shall automatically be converted into Ordinary shares upon: (i) consummation of a qualified initial public offering (i.e., an initial public offering yielding at least $10,000 net proceeds to the Company, at a price per share reflecting a pre-money valuation of at least $70,000); or (ii) the election of the holder thereof.
c.
Investment agreements:
1.
During 2000, the Company signed investment agreements and issued 2,522,436 Ordinary shares to investors and founders, in consideration of $40.
2.
During 2001, the Company signed investment agreements and issued 38,421 Ordinary shares of each in consideration of $153.
F-22
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 11: SHARE CAPITAL (Cont.)
3.
In July 2003, the Company signed an investment agreement with existing and new investors, pursuant to which the Company issued 535,084 Preferred A shares, at a price per share of $5.29, for a consideration of $2,653, net of issuance expenses of $177.
4.
In October 2003, The Company issued 457,952 Preferred A shares at a price per share of $3.65 upon conversion of a convertible loan made available in 2002, and an additional 180,850 Preferred A shares were issued to the lenders of the loan upon exercise of warrants (see also Note 8a).
In addition, 163,883 Preferred A shares were issued upon conversion of a convertible loan received by the Company in March 2003 at a price per share of $4.08 (see also Note 8b).
5.
In May 2004, the Company issued 56,914 restricted Ordinary shares to four of its board members at no consideration, to be held by a trustee. Each director is entitled to 1/36 of the shares for each month in which he serves as a board member. In the event that a board member ceases to serve as a board member prior to the end of three years, the shares will remain with the trustee. As of December 31, 2005, three of those board members still serve as directors. Compensation expenses related to this grant amounted to $24 and $37 for the years ended December 31, 2004 and 2005, respectively.
In May 2006, 1,581 restricted Ordinary shares were canceled.
6.
In September 2004, the Company signed an investment agreement with existing and new investors, pursuant to which the Company issued 265,747 Preferred B shares, at a price per share of $5.86, for total consideration of $1,395, net of issuance expenses of $162.
In addition, the Company granted the investors warrants to purchase 80,492 Preferred B shares at an exercise price of 5.86 per share, exercisable upon the earlier of June 30, 2006 or the closing of a financing of at least $5,000 at a pre-money valuation of at least $40,000.
76,395 warrants were exercised into Preferred B shares in 2006. The remaining warrants were cancelled on April 23, 2006.
7.
Pursuant to the investment agreement signed in September 2004, in February 2005, the Company issued 392,087 Preferred B shares, for total consideration of $2,165, net of issuance expenses of $132. In addition, $122 of the shareholders loan was converted into 20,802 Preferred B shares (see Note 9).
8.
In January 2006, the Company paid a finders fee of $31 by issuing to a non-employee 5,335 Ordinary shares at a price of $5.86 per share, for services rendered to the Company. (Unaudited)
9.
In March 2006, the board of directors approved an increase of 9,668,104 shares to the authorized share capital and a recapitalization of the authorized share capital of the Company. The authorized share capital of the Company shall be 17,578,370 shares divided into: (i) 12,304,859 Ordinary shares; (ii) 1,381,158 Preferred A shares; (iii) 1,883,397 Preferred B shares and (iv) 2,008,957 Preferred C shares. (Unaudited)
All of the Companys shares have no par value.
10.
In April 2006, the Company issued 1,822,422 Preferred C shares at a price per share of $7.68 for net proceeds of $14,000 (the Series C Financing). (Unaudited)
11.
In connection with the Series C Financing, the Company issued as finders fees warrants exercisable into 33,585 Ordinary shares at an exercise price of $7.68 per share and paid $30 by issuing 3,905 Ordinary shares at a price of $7.68 per share. The warrants are exercisable through April 23, 2009. (Unaudited)
F-23
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 11: SHARE CAPITAL (Cont.)
d.
Finders fee warrants:
Under finders fee agreements, the following warrants are outstanding as of December 31, 2005:
Issuance date |
Number
|
Exercisable
|
Exercise
|
Exercisable
|
|||||||
|
April 2002 |
|
8,432 |
|
Ordinary |
|
$ |
3.65 |
|
January 31, 2008 |
|
October 2003 |
13,378 |
Ordinary |
$ |
5.29 |
January 31, 2008 |
||||||
December 2004 |
2,560 |
Ordinary |
$ |
5.86 |
January 31, 2008 |
||||||
January 2005 |
9,745 |
Ordinary |
$ |
5.86 |
January 31, 2008 |
||||||
July 2005 |
39,660 |
Preferred B |
$ |
5.86 |
July 15, 2008 |
The fair value of the warrants granted was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions; risk-free interest rates of 4.4%, dividend yields of 0%, volatility factors of the expected market price of the Companys shares of 90%, and a weighted-average expected life of the options of three years. Financial expenses related to the warrants amounted to $138 for the year ended December 31, 2005.
e.
Stock option plans:
1.
During 2001, the Company adopted the 2001 Israeli Share Option Plan (the 2001 Plan), pursuant to which options may be granted to the Companys officers, directors, employees and consultants. Pursuant to the plan, the Company has reserved a total of 376,679 shares for this plan and for any other option plans, which may be adopted by the Company in the future.
In March 2003, the Company adopted the 2003 Israeli Share Option Plan (the 2003 Plan) pursuant to which options may be granted to the Companys officers, directors, employees and consultants. Pursuant to the plan, the Company has reserved an additional 188,340 shares for the 2003 Plan and for any other share option plans that have previously been, or in the future may be, adopted by the Company.
In March 2005, the Companys board of directors approved an increase in the shares available under the 2003 Plan of 401,791 shares to a total of 966,810 shares (including the 376,679 shares reserved under the 2001 Plan).
Options granted under the 2001 and 2003 Plan typically vest, as set forth in each optionees option agreement, over three to five years and are exercisable until ten years from the grant of the option. Any options which are forfeited or unexercised, become available for future grants.
2.
In September 2005, the Companys board of directors approved the acceleration of vesting of 5,274 unvested options, held by a former employee. As a result, the Company recorded additional compensation costs of $12.
3.
A summary of the Companys options activity to its employees under the 2003 Plan is as follows:
|
Six months ended
|
|||||||||||||||||||||
2003 |
2004 |
2005 |
||||||||||||||||||||
Number
|
Weighted
|
Number
|
Weighted
|
Number
|
Weighted
|
Number
|
Weighted
|
|||||||||||||||
|
Outstanding at beginning of period |
|
86,008 |
|
$ |
|
|
125,371 |
|
$ |
|
|
222,183 |
|
$ |
|
|
261,473 |
|
$ |
1.15 |
|
Granted |
88,372 |
$ |
|
122,438 |
$ |
|
73,357 |
$ |
4.22 |
110,409 |
$ |
3.50 |
||||||||||
Exercised |
(37,816 |
) |
$ |
|
(9,499 |
) |
$ |
|
(23,000 |
) |
$ |
|
(850 |
) |
$ |
|
||||||
Forfeited |
(11,193 |
) |
$ |
|
(16,127 |
) |
$ |
|
(11,067 |
) |
$ |
0.40 |
(5,528 |
) |
$ |
4.26 |
||||||
Outstanding at end of period |
125,371 |
$ |
|
222,183 |
$ |
|
261,473 |
$ |
1.15 |
365,504 |
$ |
1.83 |
||||||||||
Exercisable options |
44,218 |
$ |
|
104,634 |
$ |
|
144,444 |
$ |
0.04 |
170,571 |
$ |
0.40 |
||||||||||
Weighted average fair value of options granted during the period |
$ |
1.95 |
$ |
1.95 |
$ |
2.63 |
$ |
4.78 |
F-24
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 11: SHARE CAPITAL (Cont.)
The following table summarizes information about options to employees outstanding at December 31, 2005 under the plans:
Exercise
|
Options
|
Weighted
|
Weighted
|
Options
|
Average
|
|||||||||
|
$ |
|
196,737 |
|
8.48 |
|
$ |
|
|
142,876 |
|
$ |
|
|
$4.70 |
64,736 |
9.25 |
$ |
4.70 |
1,568 |
$ |
4.70 |
|||||||
261,473 |
8.72 |
$ |
1.15 |
144,444 |
$ |
0.04 |
The weighted average fair values and exercise prices of options granted during the years ended December 31, 2003, 2004 and 2005 were:
Exercise price lower
|
Exercise price higher
|
|||||||||||||||||||
Year ended December 31, |
Year ended December 31, |
|||||||||||||||||||
2003 |
2004 |
2005 |
2003 |
2004 |
2005 |
|||||||||||||||
|
Weighted average exercise prices |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
|
|
$ |
|
|
$ |
4.70 |
|
Weighted average fair values on grant date |
$ |
1.97 |
$ |
1.95 |
$ |
4.24 |
$ |
|
$ |
|
$ |
2.42 |
Since January 1, 2005, the Company granted options to its employees under its plans with exercise prices as follows:
Grants made
|
Number of
|
Weighted
|
Weighted
|
Weighted
|
|||||||||
|
February 2005 |
|
10,673 |
|
$ |
4.70 |
|
$ |
0.76 |
|
$ |
|
|
June 2005 |
11,132 |
$ |
1.47 |
$ |
3.66 |
$ |
2.95 |
||||||
August 2005 |
6,278 |
$ |
4.70 |
$ |
2.43 |
$ |
|
||||||
October 2005 |
45,274 |
$ |
4.70 |
$ |
2.43 |
$ |
|
The fair value assigned to the Ordinary shares in order to calculate the compensation resulting from employee options, was determined primarily by management. In determining fair value, management has considered a number of factors.
Deferred compensation with respect to options issued with an exercise price below the fair value of the Ordinary shares, is amortized ratably over the vesting period of the options. Compensation expenses recorded by the Company related to its stock-based employee compensation awards amounted to $177, $92 and $124 for the years ended December 31, 2003, 2004 and 2005, respectively.
F-25
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 11: SHARE CAPITAL (Cont.)
f.
Options issued to non-employees:
1.
The Companys outstanding options to non-employees as of December 31, 2005, are as follows:
Issuance date |
Options for
|
Exercise
|
Options
|
Exercisable
|
|||||||
|
April 2002 |
|
41,151 |
|
$ |
|
|
41,151 |
|
April 2012 |
|
July 2002 |
10,288 |
$ |
|
10,288 |
July 2012 |
||||||
August 2002 |
10,288 |
$ |
|
10,288 |
August 2012 |
||||||
May 2002 |
10,288 |
$ |
|
10,288 |
May 2012 |
||||||
September 2002 |
7,534 |
$ |
|
7,534 |
September 2012 |
||||||
January 2004 |
7,534 |
$ |
|
3,610 |
January 2014 |
||||||
November 2004 |
29,084 |
$ |
|
10,642 |
November 2014 |
||||||
December 2004 |
9,626 |
$ |
4.10 |
9,626 |
December 2009 |
||||||
December 2004 |
2,511 |
$ |
|
628 |
December 2014 |
||||||
March 2005 |
2,511 |
$ |
|
523 |
March 2015 |
||||||
July 2005 |
27,439 |
$ |
|
2,858 |
July 2015 |
||||||
158,254 |
107,436 |
2.
The Company had accounted for its options to non-employees under the fair value method of SFAS No.123 and EITF 96-18. All of the options, apart from one grant, were granted with an exercise price of $0, therefore their fair value was equal to the share price at the date of grant. The fair value of options granted with an exercise price other than $0 was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: risk-free interest rates of 3.6%, dividend yields of 0%, volatility factors of the expected market price of the Companys Ordinary shares of 90%, and a weighted-average expected life of the options of approximately 5 years.
3.
During 2003, 2004 and 2005, the Company recorded $59, $28 and $124 as compensation expenses to non-employees, respectively.
4.
Options to purchase 32,394 and 7,534 Ordinary shares at an exercise price of $0 were granted during 2005 and 2002, respectively, and were exercised during 2005 and 2004, respectively.
NOTE 12: INCOME TAXES
a.
Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:
Results for tax purposes in Israel are measured and reflected in real terms in accordance with the change in the Consumer Price Index (CPI). As explained in Note 2b, the consolidated financial statements are presented in dollars. The differences between the change in the Israeli CPI and in the NIS/dollar exchange rate causes a difference between taxable income or loss and the income or loss before taxes reflected in the consolidated financial statements. In accordance with paragraph 9(f) of SFAS No. 109, Accounting for Income Taxes (SFAS No.109), the Company has not provided deferred income taxes on this difference between the reporting currency and the tax bases of assets and liabilities.
b.
Tax benefits under Israels Law for the Encouragement of Industry (Taxes), 1969 (the Tax Law):
The Company is an industrial company, as defined by the Tax Law, and as such, is entitled to certain tax benefits, mainly amortization of costs relating to know-how and patents over eight years, the right to claim public issuance expenses, and accelerated depreciation.
F-26
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 12: INCOME TAXES (Cont.)
c.
Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the Law):
The Companys facilities in Israel have been granted Approved Enterprise status under the Law, and elected the Alternative Benefits Track. The main benefit arising from such status is the reduction in tax rates on income derived from Approved Enterprises. Consequently, the Company is entitled to a two-year tax exemption and five years of tax at a reduced rate (25%). Additionally, if the Company becomes a foreign investors company, as defined by the Law, as such it will be entitled to an additional tax reduction of 10%-25% (based on the percentage of foreign ownership in each tax year) and an extension of three years for the benefit period. Since the Company has had no taxable income, the benefits have not yet commenced for any of the programs.
The period of tax benefits, detailed above, is subject to a limit of 12 years from the commencement of production, or 14 years from the approval date, whichever is earlier. Given the aforementioned conditions, under the program, the period of benefits for the facilities, which has not yet commenced, will terminate in 2013.
The entitlement to the above benefits is conditional upon the Companys fulfilling the conditions stipulated by the Law, regulations published thereunder and the letters of approval for the specific investments in approved enterprises. In the event of failure to comply with these conditions, the benefits may be canceled. As of December 31, 2005, management believes that the Company will be able to meet all of the aforementioned conditions.
If these retained tax-exempt profits attributable to the Approved Enterprise are distributed in a manner other than in the complete liquidation of the Company, they would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the Alternative Benefits Track, currently between 10%-25% for an Approved Enterprise. As of December 31, 2005, the accumulated deficit of the Company does not include tax-exempt profits earned by the Companys Approved Enterprise.
Income from sources other than the Approved Enterprise during the benefit period will be subject to tax at the regular corporate tax rate.
On April 1, 2005, an amendment to the Investment Law came into effect (the Amendment) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which May be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprises income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.
However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the Law as they were on the date of such approval. Therefore, the Companys existing Approved Enterprise will generally not be subject to the provisions of the Amendment. As a result of the Amendment, tax-exempt income generated under the provisions of the new law will subject the Company to taxes upon distribution or liquidation and the Company may be required to record deferred tax liability with respect to such tax-exempt income. As of December 31, 2005, the Company did not generate income under the provisions of the Amendment.
F-27
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 12: INCOME TAXES (Cont.)
d.
Tax rates applicable to the income of the Company:
Corporate tax in Israel:
Until December 31, 2003, the regular tax rate applicable to income of companies (which are not entitled to benefits as an Approved Enterprise, as described above) was 36%. In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004, was passed by the Knesset (Israeli Parliament), and on July 25, 2005, another law was passed, the Amendment of the Income Tax Ordinance (No. 147), 2005, according to which the corporate tax rate is to be respectively reduced to the following tax rates: 2004 35%, 2005 34%, 2006 31%, 2007 29%, in 2008 27%, in 2009 26% and in 2010 and thereafter 25%.
e.
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 Companys deferred tax assets are as follows:
December 31, |
||||||||
2004 |
2005 |
|||||||
|
Operating loss carryforward and deductions |
|
$ |
1,574 |
|
$ |
3,784 |
|
Reserves, allowances and other |
31 |
73 |
||||||
Net deferred tax asset before valuation allowance |
1,605 |
3,857 |
||||||
Valuation allowance |
(1,605 |
) |
(3,857 |
) |
||||
Net deferred tax asset |
$ |
|
$ |
|
As of December 31, 2005, the Company has provided valuation allowances of $3,857 in respect of deferred tax assets resulting from tax loss carryforwards, other temporary differences and tax withholding. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carryforwards and the other temporary differences will not be realized in the foreseeable future.
f.
The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowances in respect of deferred taxes relating to accumulated net operating losses carried forward among the various subsidiaries worldwide due to the uncertainty of the realization of such deferred taxes and the effect of the Approved Enterprise.
g.
Net operating losses carryforwards:
The Company has accumulated losses and deductions for tax purposes as of December 31, 2005, in the amount of approximately $11 million, which may be carried forward and offset against taxable income in the future for an indefinite period.
h.
Income taxes for the six months ended June 30, 2006:
The Company has not recorded any tax expenses during the six months ended June 30, 2006, as the Companys tax status was not changed.
F-28
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 13: BASIC AND DILUTED NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:
Year ended December 31, |
Six months ended
|
||||||||||||||||
2003 |
2004 |
2005 |
2005 |
2006 |
|||||||||||||
|
Numerator for basic and diluted net loss per share net loss available to Ordinary shareholders |
|
$ |
2,305 |
|
$ |
2,982 |
|
$ |
5,843 |
|
$ |
2,410 |
|
$ |
3,216 |
|
Weighted average shares outstanding: |
|||||||||||||||||
Denominator for basic net loss per share |
2,401,300 |
2,462,603 |
2,495,366 |
2,489,319 |
2,550,832 |
||||||||||||
Effect of dilutive securities |
|
(*) |
|
(*) |
|
(*) |
|
(*) |
|
(*) |
|||||||
Denominator for diluted net loss per share |
2,401,300 |
2,462,603 |
2,495,366 |
2,489,319 |
2,550,832 |
||||||||||||
Basic and diluted net loss per share |
$ |
0.96 |
$ |
1.19 |
$ |
2.35 |
$ |
0.96 |
$ |
1.27 |
(*)
Anti-dilutive.
NOTE 14: FINANCIAL EXPENSES (INCOME)
Year ended December 31, |
|||||||||||
2003 |
2004 |
2005 |
|||||||||
|
Interest expenses on loans |
|
$ |
19 |
|
$ |
15 |
|
$ |
18 |
|
Interest income on short term deposits |
(8 |
) |
(8 |
) |
(97 |
) |
|||||
Foreign currency adjustments, net |
75 |
(12 |
) |
54 |
|||||||
Loss (gain) on marketable securities |
(45 |
) |
3 |
|
|||||||
Expenses related to warrants issued to non-employees(*) |
|
|
138 |
||||||||
Expenses related to convertible loan(**) |
|
|
370 |
||||||||
Amortization of discount on convertible loan(**) |
153 |
|
177 |
||||||||
Income related to embedded derivative(**) |
(236 |
) |
|
|
|||||||
$ |
(42) |
$ |
(2) |
$ |
660 |
(*)
See also Note 11d.
(**)
See also Note 8.
NOTE 15: RELATED PARTY TRANSACTIONS
a.
The Company received a loan from one of its shareholders (see Note 9).
b.
In August 2004, the Company entered into a consulting agreement with a related party for a period of 12 months for a monthly fee of $5. In addition, the Company paid $86 as special consulting fees to this related party. The agreement was terminated in November 2005.
c.
The Company paid a total of $372, $66 and $166 under finder fee agreements with related parties in 2005, 2004 and 2003, respectively. In addition, under those agreements, the Company granted warrants as detailed in Note 11d and recorded an expense of $138 in 2005.
d.
In June 2003, the Company entered into a license agreement with a related party to use its intellectual property for a period of 20 years for consideration of up to $100 (see Note 10d).
F-29
ROSETTA GENOMICS LTD. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
Information pertaining to the six months ended June 30, 2005 and 2006 is unaudited
NOTE 16: SUBSEQUENT EVENTS (UNAUDITED)
a.
Share capital:
1.
In July 2006, the shareholders of the Company approved a grant of options to purchase an aggregate of 289,721 Ordinary shares at an average exercise price of $4.14 per share to the chairman of the board of directors and to several other members of the board of directors.
2.
In August 2006, the board of directors approved a grant of options to purchase an aggregate of 197,146 Ordinary shares at an exercise price of $6.59 per share to several of the Companys employees and options to purchase 7,534 Ordinary shares at an exercise price of $6.59 per share to two non-employees.
F-30
Ordinary Shares
PROSPECTUS
C.E. UNTERBERG, TOWBIN
OPPENHEIMER & CO. |
MAXIM GROUP LLC |
, 2006
Through and including , 2006 (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 is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers.
An Israeli company may indemnify an office holder in respect of certain liabilities either in advance of an event or following an event provided a provision authorizing such indemnification is contained in its articles of association. Our articles of association contain such an authorization. An undertaking provided in advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on or incurred by him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court must be limited to events which in the opinion of the board of directors can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria. In addition, a company may indemnify an office holder against the following liabilities incurred for acts performed as an office holder:
·
reasonable litigation expenses, including attorneys fees, incurred by the office holder 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 (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) either (A) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, (B) if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
·
reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for a crime that does not require proof of criminal intent.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder:
·
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
·
a breach of duty of care to the company or to a third party; and
·
a financial liability imposed on the office holder in favor of a third party.
An Israeli company may not indemnify or insure an office holder against any of the following:
·
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
·
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
·
an act or omission committed with intent to derive illegal personal benefit; or
·
a fine levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our shareholders.
Our articles of association allow us to indemnify and insure our office holders to the fullest extent permitted by the Companies Law. Our office holders are currently covered by a directors and officers liability insurance policy. As of the date of this offering, no claims for directors and officers liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
II-1
We have entered into agreements with each of our directors and certain executive officers undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification will be limited to events determined as foreseeable by the board of directors based on the companys activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances.
Item 7. Recent Sales of Unregistered Securities.
Set forth below is information regarding ordinary shares and preferred shares issued, and options and warrants granted, by the Registrant within the past three years. Also included is the consideration, if any, received by the Registrant for such shares, options and warrants and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission under which exemption from registration was claimed. The share numbers below reflect a 1-for-3.9822 reverse stock split of our ordinary shares to be effected prior to completion of this offering.
Series A Preferred
From July 2003 through November 2003, we issued an aggregate of 1,337,769 of our series A preferred shares and warrants to purchase 229,113 series A preferred shares at a weighted average exercise price of $3.65 per share. The total aggregate consideration for the series A round of financing was $5,828,549.
Series B Preferred
From September 2004 through April 2006 we issued an aggregate of 1,712,018 of our series B preferred shares and warrants to purchase 120,152 series B preferred shares at a weighted average exercise price of $5.86 per share. The total aggregate consideration for the series B round of financing was $10,476,109.
Series C Preferred
In April 2006, we issued an aggregate of 1,822,422 of our series C preferred shares and warrants to purchase 33,585 ordinary shares at an exercise price $7.68 per share. The total aggregate consideration for the series C round of financing was $14,000,000.
No underwriters were involved in the foregoing sales of series A preferred shares, series B preferred shares or series C preferred shares. All of the securities referred to above were sold pursuant to an exemption from registration under Regulation S of the Securities Act relative to sales of securities outside of the U.S., to the extent an exemption from such registration was required, with the exception of the following:
·
an aggregate of 196,321 series B preferred shares issued to four U.S. persons upon the conversion of convertible loans in April 2006 pursuant to an exemption from registration under Section 3(a)(9) of the Securities Act (which loans had been previously issued pursuant to an exemption from registration under Section 4(2) of the Securities Act as not involving a public offering); and
·
13,017 series C preferred shares issued to one U.S. person in April 2006 pursuant to an exemption from registration under Section 4(2) of the Securities Act as not involving a public offering.
Ordinary Shares
From January 1, 2003 through August 31, 2006, we issued an aggregate of 56,914 restricted ordinary shares for no cash consideration to three of our current directors and one of our ex-directors as part of their director compensation and an additional 9,240 ordinary shares to two consultants in respect of services rendered (1,581 of these shares were returned to us prior to vesting).
Pursuant to our 2003 Israeli Share Option Plan, our 2006 Global Share Incentive Plan and agreements with certain non-employees, we have issued options to purchase an aggregate of 1,195,442 ordinary shares. Of these options:
·
options to purchase 56,004 ordinary shares have been canceled without being exercised;
·
options to purchase 121,279 ordinary shares have been exercised; and
II-2
·
options to purchase a total of 1,018,159 ordinary shares are currently outstanding, at a weighted average exercise price of $3.20 per share.
Item 8. Exhibits and Financial Statement Schedules.
See Exhibit Index set forth on page II-6, which is incorporated herein by reference.
Item 9. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
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 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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.
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-3
SIGNATURES
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 the City of Rehovot, State of Israel, on this 1st day of September, 2006.
|
ROSETTA GENOMICS LTD. |
|
By: |
/s/ Amir Avniel |
|
Amir Avniel, Chief Executive Officer and President |
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose signature appears below hereby appoints Amir Avniel and Tamir Kazaz, and each of them acting singly, as his or her true and lawful attorney-in-fact to sign on his or her behalf and individually and in the capacity stated below and to file all amendments (including post-effective amendments) and make such changes and additions to this registration statement, including any subsequent registration statement for the same offering that may be filed under Rule 462(b), and to file the same, with all exhibits thereof, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
|
|
|||
/s/ Amir Avniel |
Chief Executive Officer and President (Principal Executive Officer) |
September 1, 2006 |
||
Amir Avniel |
||||
/s/ Tamir Kazaz |
Chief Financial Officer (Principal Financial and
|
September 1, 2006 |
||
Tamir Kazaz, CPA |
||||
/s/ Yoav Chelouche |
Director |
September 1, 2006 |
||
Yoav Chelouche |
||||
/s/ Isaac Bentwich, M.D. |
Director |
September 1, 2006 |
||
Isaac Bentwich, M.D. |
||||
/s/ Moshe Many, M.D. |
Director |
September 1, 2006 |
||
Prof. Moshe Many, M.D. |
||||
/s/ Joshua Rosensweig |
Director |
September 1, 2006 |
||
Joshua Rosensweig |
||||
/s/ Leon Recanati |
Director |
September 1, 2006 |
||
Leon Recanati |
||||
/s/ Nathan Hod |
Director |
September 1, 2006 |
||
Nathan Hod |
||||
II-4
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, as amended, the undersigned, Rosetta Genomics Inc., the duly authorized representative in the United States of Rosetta Genomics Ltd., has signed this registration statement on September 1, 2006.
|
ROSETTA GENOMICS INC. |
|
|
|
|
By: |
/s/ Amir Avniel |
|
Amir Avniel, Chief Executive Officer and President |
II-5
EXHIBIT INDEX
Exhibit
|
Description |
|
|
||
1.1* |
|
Form of Underwriting Agreement |
3.1 |
Amended and Restated Articles of Association |
|
3.2* |
Form of Second Amended and Restated Articles of Association to become effective upon completion of the Offering |
|
4.1 |
Form of Share Certificate |
|
4.2 |
Investor Rights Agreement dated April 4, 2006 |
|
5.1* |
Opinion of Yigal Arnon & Co. |
|
10.1 |
License Agreement, dated as of April 22, 2005, by and between Rosetta Genomics Ltd. and Ambion, Inc. (assumed by Applied Biosystems, Inc.) |
|
10.2 |
Collaboration and License Agreement, dated as of January 5, 2006, by and between Rosetta Genomics Ltd. and Ambion Diagnostics, Inc. (assumed by Asuragen, Inc.) |
|
10.3 |
Research Collaboration Agreement, dated as of January 31, 2006, by and between Rosetta Genomics Ltd., and Isis Pharmaceuticals, Inc. |
|
10.4 |
Research License Agreement (HCV), dated as of May 30, 2005, by and between Rosetta Genomics Ltd. and Hadasit Medical Research Services and Development Ltd. |
|
10.5 |
Collaboration and License Agreement, dated as of May 12, 2006, by and between Rosetta Genomics Ltd. and U.S. Genomics, Inc. |
|
10.6 |
License Agreement, dated as of May 4, 2006, by and between Rosetta Genomics Ltd. and The Rockefeller University |
|
10.7 |
Consulting Agreement, dated as of August 15, 2004, by and between Rosetta Genomics Ltd. and Glenrock Israel Ltd. |
|
10.8 |
Finder Fee Agreement, dated as of March 22, 2006, by and between Rosenram Business Development, Ltd. |
|
10.9 |
Finder Fee Agreement, dated as of September 8, 2004, by and between Rosetta Genomics Ltd., Rosetta Genomics Ltd. and Glenrock Israel Ltd. |
|
10.10 |
Finder Fee Agreement, dated as of April 7, 2005, by and between Rosetta Genomics Ltd. and Glenrock Israel Ltd. |
|
10.11 |
Finder Fee Agreement, dated as of May 8, 2002, by and between Rosetta Genomics Ltd. and Kadima Hi-Tech Ltd. (as translated from Hebrew) |
|
10.12 |
Finder Fee Agreement, dated as of March 3, 2003, by and between Rosetta Genomics Ltd. and Kadima Hi-Tech Ltd. |
|
10.13 |
Finder Fee Agreement, dated as of April 30, 2004, by and between Rosetta Genomics Ltd. and Kadima Hi-Tech Ltd. |
|
10.14 |
Finder Fee Agreement, dated as of April 4, 2005, by and between Rosetta Genomics Ltd. and Kadima Hi-Tech Ltd. |
|
10.15 |
License Agreement, dated as of June 23, 2003, by and between Rosetta Genomics Ltd. and Maimonides Innovative Technologies Ltd. |
|
10.16 |
Lease Agreement, dated August 4, 2003, by and between Rosetta Genomics Ltd., as tenant, and Rorberg Contracting and Investments (1963) Ltd. and Tazor Development Ltd., as landlords, as amended in April 2004 and as extended on April 9, 2006 (as translated from Hebrew) |
|
10.17 |
Lease Agreement, dated as of March 15, 2006, by and between Rosetta Genomics Ltd. and The New Jersey Economic Development Authority |
|
10.18 |
2003 Israeli Share Option Plan |
|
10.19 |
2006 Employee Incentive Plan |
|
10.20 |
Form of Director and Officer Indemnification Agreement |
|
10.21 |
Research Collaboration Agreement, dated as of May 16, 2006, by and between Rosetta Genomics Ltd. and Tel Hashomer Medical Research Infrastructure and Services Ltd. |
|
10.22 |
License Agreement, dated as of June 28, 2006, by and between Rosetta Genomics Ltd. and Garching Innovation GmbH. |
|
10.23 |
Research Collaboration Agreement, dated June 22, 2006, by and between Rosetta Genomics Ltd. and Hadasit Medical Research Services and Development Ltd. |
|
10.24 |
License Agreement, dated August 2, 2006, by and between The Johns Hopkins University and Rosetta Genomics Ltd. |
|
21.1 |
Subsidiary of the Registrant |
|
23.1 |
Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global |
|
23.2* |
Consent of Yigal Arnon & Co. (included in Exhibit 5.1) |
|
23.3 |
Consent of Gerald Dogon |
|
23.4 |
Consent of Tali Yaron-Eldar |
|
24.1 |
Power of Attorney (included on page II-4) |
*
To be filed by amendment.
Confidential treatment requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.
II-6
1.
|
In
these Articles of Association, unless inconsistent with the subject
matter
or context, the following terms shall bear the meanings assigned
to them
below:
|
TERMS
|
MEANINGS
|
|
Articles/Articles
of Association
|
These
Articles of Association of the Company, as
amended
from time to time, in accordance with the
provisions
set forth herein.
|
|
Company
|
The
Company referred to above.
|
|
Companies
Law/the Law
|
The
Companies Law, 5759 — 1999, as amended from
time
to time, and any other law which shall apply to the
Company,
and which shall be valid at the same time,
according
to the matter.
|
|
Directors/Board
of Directors/Board
|
The
Board of Directors of the Company as it shall be constituted from
time to
time, or, as the case may be —
the
Directors, or in the event that there shall be less than
two
— the Director of the Company, at such time.
|
|
Founding
Shareholders
|
Dr. Isaac
Bentwich (the “Founder”), Bentwich
Innovations
Ltd., Bentwich Holdings Ltd. and Harmony
2000
(association).
|
|
General
Meeting
|
An
Annual Meeting or a Special Meeting of
shareholders,
as defined in the Companies Law.
|
|
IPO
|
The
initial public offering of the Company’s securities.
|
|
Month
|
A
calendar month.
|
Ordinary
Resolution
|
A
resolution adopted in a General Meeting approved by
an
ordinary majority of the Ordinary Shares (on an as—converted basis)
represented at such meeting in person
or
by proxy.
|
|
Ordinary
Shares
|
Ordinary
Shares with no par value of the Company.
|
|
Office
|
The
registered Office of the Company, from time to
time.
|
|
Officer
of the Company
|
A
Director, a General Manager, a vice General Manager, any other manager
who
is directly subordinated to the General Manager, and any other
functionary
in the Company defined by the Law as an
Officer
of the Company, even if his title shall be
different.
|
|
Preferred
A Closing
|
The
initial closing of the Company’s Preferred A
Investment
Agreement, dated July 24, 2003.
|
|
Preferred
B Closing
|
The
closing of the Company’s Preferred B Investment
Agreement,
dated September 23, 2004 (the
“Preferred
B
Investment Agreement”),
the
closing of the
Addendum
to the Preferred B Investment Agreement,
dated
December 30, 2004, and the conversion into
Preferred
B Shares of the principal amount under the Convertible Bridge Loan
Agreement dated July 15,
2005.
|
|
Preferred
C Closing
|
The
initial closing of the Company’s Preferred C
Investment
Agreement, to be dated [ ], 2006.
|
|
Preferred
A Shares
|
Preferred
A Shares with no par value of the Company.
|
|
Preferred
B Shares
|
Preferred
B Shares with no par value of the Company.
|
|
Preferred
C Shares
|
Preferred
C Shares with no par value of the Company.
|
|
Preferred
Shares
|
Preferred
A Shares, Preferred B Shares and Preferred C Shares,
collectively.
|
|
Preferred
Shareholder
|
A
Shareholder holding one or more Preferred Shares.
|
|
Qualified
Holders
|
Shareholders
who either (i) hold more then 0.5% of the
Company’s
outstanding share capital; or (ii) have
invested
more then US$ 25,000 in the Company’s share
capital.
|
|
Qualified
IPO
|
An
IPO yielding at least US$ 10,000,000 net to the
Company,
at a price per share reflecting a pre—money
valuation
of at least US$ 70,000,000.
|
Shareholder
|
A
holder of one or more of the shares of the Company.
|
|
Special
Resolution
|
A
resolution adopted in a General Meeting approved by
a
majority of the voting shares represented at such
meeting
in person or by proxy, which is greater than an ordinary
majority.
|
2. | (a) |
In
these Articles of Association, the term “writing” shall include prints,
lithographs and any other forms of writing, or the imprinting of
words, in
any legible form, including documents that have been transferred
as a
letter, a telegram, via the facsimile or electronic mail or any
other
electronic means of communication, which generate a legible copy
of the
transferred document.
|
(b) |
Words
importing the singular shall be deemed as including the plural,
and vice
versa.
|
(c) |
Words
importing the masculine gender shall be deemed as including the
female
gender, and vice versa; words referring to persons shall be deemed
as
including corporate entities.
|
(d) |
Notwithstanding
the above, words and expressions expressed in these Articles
of
Association shall have the same meaning as specified in the Companies
Law,
unless such meaning shall be inconsistent with the subject matter
or
context of these Articles of
Association.
|
(e) |
The
provisions of the Companies Law, which may be stipulated upon,
shall apply
to the Company, provided that such provisions do not contradict
the
provisions of these Articles of Association. Wherever it is specified
in
there Articles of Association that the provisions thereof shall
apply
subject to the provisions of the Law, the same shall be interpreted
as if
reference is made to such provisions of the Law, which may not
be waived,
unless expressly stated and/or implied to be otherwise from the
relevant
context.
|
(f) |
Sections
2, 4, 7, 8 and 10 of the Interpretation of Statute Law, 5741 -
1981 shall
apply,
mutatis
mutandis
,
with regard to the interpretation of these Articles of
Association.
|
(g) |
The
headings in these Articles of Association are for convenience sake
only,
and shall not be deemed as a part of the Articles of Association,
nor
shall the be used in interpreting the provisions
thereof.
|
(h) |
Reference
to a certain section in the Law shall be to such section as the
same shall
be altered, amended or replaced, if at all, from time to
time.
|
3.
|
The
name of the Company is:
|
4.
|
The
objects for which the Company was established are: to engage in any
and
every legal business.
|
5.
|
The
purposes of the Company are:
|
(a) |
To
operate in accordance with commercial considerations in order to
generate
profits for the Company and its Shareholders. The Company can take
into
account with regard to such considerations, inter alia, the interests
of
the creditors of the Company, its employees and the
public.
|
(b) |
The
Company shall be entitled to contribute a reasonable amount of money
to a
worthy cause, even in the event that the contribution is not with
regard
to the commercial considerations which are specified in Paragraph
(a)
above.
|
(c) |
The
Company believes that promoting ethical genomics-related not-for-profit
goals is beneficial to the business interests of the Company. Accordingly,
the Board shall be authorized in the future, after: (i) each of the
shareholders who invested funds in the Company by such time, has
been paid
dividends at an aggregate amount which exceeds two times (2X) their
respective aggregate investment amount in the Company; or (ii) a
closing
of an IPO, to: (i) allocate up to 5% of the Company’s net profits to
ethical genomics-related not-for- profit goals; and (ii) request
Company
customers to contribute thereto.
|
6.
|
The
liability of each of the Shareholders of the Company is limited to
the
greater amount of the two - either NIS 1.00 per share, or the amount,
which the Shareholder is called to pay to the Company for the
shares,
which have been allocated to him but
have
not yet been paid for by him.
|
7. |
(a)
The
Company shall be a private company.
|
8.
|
The
Board of Directors may direct the Company to deal with any business
or
commercial activity permitted to the Company, whether expressly or
otherwise, according to these Articles of Association, at one time
or at
any time that it deems to be appropriate; and the Board may also
direct
the Company to abandon the business or commercial activity, whether
or not
the Company has begun to deal with such type of business or commercial
activity
.
|
9.
|
Subject
to the provisions of Article 14 and 58 below and subject to the provisions
of the Law, the Company is entitled to amend these Articles of
Association, or any provision therein, by an Ordinary Resolution,
except
for any Article or a provision in these Articles of Association,
in which
it is explicitly provided that the amendment thereof shall be by
a Special
Resolution, and then its amendment shall only be by the majority
determined therein. In such an event, amending another Article or
provision in these Articles of Association, which amendment does
not
require a Special Resolution, shall not indirectly amend such first
Article.
|
10.
|
The
Office shall be situated in the same place as shall be determined
by the
Board of Directors, from time to time
.
|
11.
|
The
authorized share capital of the Company is 70,000,000 shares divided
into:
(i) 49,000,000 Ordinary Shares with no par value each (hereinafter
“Ordinary Shares”); (ii) 5,500,000 Preferred A Shares with no par value
each; (iii) 7,500,000 Preferred B Shares with no par value each,
and (iv)
8,000,000 Preferred C Shares with no par value
each.
|
12.
|
The
Ordinary Shares shall be equally ranked with each other pari passu,
and
shall vest in their holders, subject to the rights of the Preferred
Shares, every and all of the rights which are usually imparted on
the
shareholder of the Company, including the right of participation
in
dividends which the Company shall distribute, the receipt of surplus
property of the Company upon the liquidation thereof, the receipt
of
notices of a general meeting of the Company, participation and to
voting
on every matter that the general meeting is authorized to
resolve.
|
13.
|
The
Preferred Shares shall confer upon the holders thereof all the rights
of
the Ordinary Shares, and in addition, the powers, preferences and
rights
as specifically set forth in these Articles of
Association.
|
14. | (a) |
Until
the consummation of an IPO, and as long as the Preferred Shares constitute
at least 5% of the Company’s issued and outstanding share capital (on an
as-converted basis), the Company shall refrain from taking, and shall
not
be authorized to take, any of the following actions without the consent
of
either: (x) holders of a majority of the Preferred Shares (voting
together
as a
single
class), in the case of a shareholders resolution; or (y) at least
two
directors
appointed by any of the holders of Preferred Shares (or, if only
one
director has been appointed by the holders of Preferred Shares, without
the approval of that director), in case of a Board resolution: (i)
amending the Memorandum, Articles of Association or other governing
documents of the
Company
in a manner which would have then effect, either directly or
indirectly,
of derogating from the rights, preferences or privileges of the
Preferred
Shares; (ii) the issuance of any class of shares or other securities
of
the Company with rights equal to or superior to the rights of the
Preferred C
Shares
for a Company’s pre-money valuation of less than $100,000,000;
(iii)the
merger of the Company or sale of all or substantially all the
Company’s
assets at a Company’s pre-money valuation of less than
$100,000,000;
(iv) declaration or payment of any dividend or other
distribution
of cash, shares, or other assets; (v) interested party transactions
(subject
to the provisions of the Law, the compensation of the Founder and
Prof.
Zvi Bentwich shall be determined by a compensation committee
appointed
by the Board from time to time, in view of the Company’s status and market
conditions and shall also determine the compensation for the
Founder
and Prof. Zvi Bentwich in any of the Company’s subsidiaries (to the
extent
the Company will have any subsidiaries). Such a committee shall
include
a Board member appointed by Preferred Shareholders); (vi) making
any
guarantee not in the ordinary course of Business; (vii) mortgage,
pledge
or
creating
a security interest (“
Pledge
”)
on:
(1) the Company’s intellectual
property;
or (2) any of the other assets of the Company - if the Pledge is
not in
the ordinary course of business; (viii) appointment and removal of
the
CEO;
(ix)
creating a fundamental change in the nature of the Company’s business;
and
(x) filing for bankruptcy.
|
15.
|
Subject
to the provisions of Article 14
above:
|
16.
|
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.
|
17.
|
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.
|
18.
|
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.
|
19.
|
The
joint holders of a share shall be jointly and severally liable to
pay all
calls in
respect
thereof and all interest payable
thereon.
|
20.
|
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.
|
21.
|
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.
|
22.
|
If
any Shareholder fails to pay an amount payable by virtue of a call,
or
interest
thereon
as provided for in these Articles of Association, 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 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, attorney’s 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.
|
23.
|
Upon
the adoption of a resolution as to the forfeiture of a Shareholder’s
shares, 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
14 days
after the
date
such notice is given and which may be extended by the Board), such
shares
shall
ipso
facto be forfeited.
|
24.
|
Without
derogating from any of the provisions of these Articles of Association,
whenever
shares are forfeited as herein provided, all dividends and other
privileges, if any, theretofore declared in respect thereof and not
actually paid or granted, shall be
deemed
to have been forfeited at the same
time.
|
25.
|
Any
share forfeited, as provided herein, shall be transferred to the
Company,
and the same, subject to the provisions of these Articles of Association,
may be cancelled,
sold,
re-allocated or otherwise disposed of as the Board of Directors deems
to
be
appropriate.
From the date of forfeiture until the date such forfeited shares
are sold,
re-allocated
or otherwise disposed of, such forfeited shares shall be deemed “Dormant
Shares”
as defined in Section 308 of the Companies
Law.
|
26.
|
Any
Shareholder whose shares have been forfeited shall cease to be a
Shareholder in
respect
of the forfeited shares, but shall nonetheless and as liquidated
damages
be
liable
to pay, and shall promptly pay, to the Company all calls, interest
and
expenses
owing
upon or in respect of such shares at the time of forfeiture, together
with
interest
thereon
from the time of forfeiture until actual payment at the rate prescribed
in
this
Article
26, and the Board, in its discretion, may enforce the payment of
such
moneys or any part thereof. In the event of such forfeiture, 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 such Shareholder (but not yet due) in respect of
all
shares
owned
by him, solely or jointly with
others.
|
27.
|
The
Board of Directors may, at any time, before any share so forfeited
shall
have been
sold,
re-allocated or otherwise disposed of, nullify the forfeiture on
such
conditions as
it
deems fit, but no such nullification shall stop the Board from
re-exercising its
powers
of forfeiture pursuant to these Articles of
Association.
|
28.
|
If
pursuant to the terms of allotment or issuance of a share, or otherwise,
an amount is
made
payable at a fixed time (whether on account 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
this chapter, and the provisions of these Articles of Association
with
regard to
calls
(and the non-payment thereof) shall be applicable to such amount
(and the
non-
payment
thereof).
|
29.
|
In
the event that a share has been forfeited in accordance with these
Articles of
Association,
a notice of the forfeiture shall immediately be sent to the holder
of the
share
or to the person who purchased a right in the same, as the case may
be,
and the matter of the sending of the notice and the forfeiture, as
well as
the date thereof shall
be
registered in the Register of Shareholders; nevertheless, the provisions
of this
Article
are guiding provisions only and the forfeiture shall not be invalid
because of
the
failure to give notice or make the appropriate registration in the
Register of
Shareholders,
as said.
|
30.
|
A
deposition in writing by one of the Directors of the Company stating
that
the shares
in
the Company have been duly forfeited in accordance with these Articles
of
Association
and designating the date of forfeiture shall be conclusive evidence
of the
facts
therein stated as against all persons claiming a right, which contradicts
the
forfeiture.
Such deposition coupled with the receipt of the Company with regard
to the
consideration
given for the share at the time of the sale or disposition thereof,
and
the
share
certificate given to the person who purchased or received the share
by way
of
transfer,
shall constitute a good title to the share, and such person shall
be
registered
as
the holder of the share and be exempt from making the calls made
before
the same
sale
or transfer, and he shall not be bound to see to the application
of the
money nor
shall
his title to the share be affected by any act or omission or defect
in the
manner of
its
forfeiture, sale, re-allocation or
transfer.
|
31.
|
Nothing
in these Articles of Association regarding forfeiture, lien and mortgage
of
shares
shall derogate from any remedy given to the Company against a Shareholder
or
any
other person in accordance with the Contracts Law (Remedies for the
Breach
of
Agreement)
5731 - 1971 and/or in accordance with any other
Law.
|
32.
|
Except
to the extent that 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 obligations 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 obligation has matured. Such lien
shall
extend to
all
dividends or other moneys payable or property distributable from
time to
time 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 any lien existing on such shares immediately prior to
such
transfer.
|
33.
|
The
Board of Directors may cause the Company to sell a share subject
to such
lien
when
the debt, liability or obligation giving rise to such lien has matured,
in
such
manner
as the Board deems fit, but no such sale shall be made unless such
debt,
liability
or obligation has not been satisfied within 7 days after written
notice of
the
intention
to sell shall have been served on such Shareholder, his executors,
administrators
or assigns.
|
34.
|
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
obligations of such Shareholder in respect of such share (whether
or not
the same have matured), and any residue shall be paid to the Shareholder,
his executors, administrators or
assigns.
|
35.
|
Upon
any sale of a share after forfeiture 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
Shareholder
in respect of such share, the validity of the sale shall not be disputed
by
any
person.
|
36.
|
Each
Preferred Share will be convertible into a number of Ordinary Shares
of
the
Company
at the then applicable Conversion Rate (as defined below) at the
option of
the
holder thereof. All Preferred Shares will automatically convert into
a
number of
Ordinary
Shares equal to the number of Preferred Shares multiplied by the
then
applicable
Conversion Rate of such respective Preferred Shares at the consummation
of
a Qualified IPO. The “
Conversion
Rate
”
of
the Preferred A Shares - effective upon
the
Preferred A Closing, of the Preferred B Shares - effective upon the
Preferred B
Closing,
and of the Preferred C Shares - effective upon the Preferred C Closing,
shall equal to one (1), such that the Preferred Shares shall originally
convert into Ordinary
Shares
on a one-to-one basis.
|
37.
|
The
Conversion Rate of the Preferred Shares will be appropriately adjusted
to
the extent necessary for the holders thereof to maintain its proportionate
equity interest in the Company in the event that, following the Preferred
A Closing (with respect to the
Preferred
A Shares) or the Preferred B Closing (with respect to the Preferred
B
Shares) or the Preferred C Closing (with respect to the Preferred
C
Shares), the Company effects a share divided, share combination or
share
split or otherwise
reclassifies
the outstanding Ordinary Shares into a greater or lesser number of
shares.
|
38.
|
The
holders of Preferred Shares shall be entitled to anti dilution protection
in
accordance
with the following provisions:
|
39.
|
The
Qualified Holders (collectively, the “
Offerees
”)
shall
have pre-emptive rights to purchase, pro-rata, all (or any part)
of New
Securities (as defined below) that the Company may, from time to
time,
propose to sell and issue. The pro rata share of the Offerees shall
be the
ratio of (i) the number of Company’s Ordinary Shares (on an as-converted
basis) held by each of them, as applicable, as of the date of the
Rights
Notice (as defined in Sub-Article (b) below), to (ii) the sum of
the total
number of Ordinary Shares (on an as-converted basis) outstanding
as of
such date. This pre-emptive right shall be subject to the following
provisions:
|
40.
|
A
transfer or pledge of shares in the Company may not be effected without
the approval of the Board, which shall not be unreasonably withheld.
The
Board shall be entitled, at its conclusive and exclusive discretion,
to
refuse any transfer or pledge of shares in the Company performed
in
contrary to the provisions of this
chapter.
|
41.
|
No
transfer of shares shall be registered, unless the Company was provided
with an appropriate deed of transfer, coupled with the certificate
of the
issued shares to be transferred (if such are issued), and such other
evidence (if any) as the Board of Directors may require to prove
the title
of the transferor. The transferor and the transferee shall sign the
deed
of transfer, and the transferor shall be deemed to remain the holder
of
the share until the name of the transferee has been entered in the
Register of Shareholders in respect
thereof.
|
42.
|
The
deed of transfer shall be drafted as set forth below or in the ordinary
or
conventional fashion confirmed by the Board of
Directors:
|
the
Transferor
|
the
Transferee
|
|
witness
to the signature of
the
Transferor
|
witness
to the signature of
the
Transferee
|
43.
|
The
transfer of shares which are not fully paid, or shares on which the
Company has a lien or pledge, shall have no validity unless approved
by
the Board of Directors, which may, in its absolute discretion and
without
giving any reasoning thereto, decline the registration of such transfer.
The Board of Directors may deny a transfer of shares as aforesaid
and may
also impose a condition thereto. The condition shall be in the form
of an
undertaking by the transferee to meet with the obligations of the
transferor with respect to the shares or the obligations for which
the
Company has a lien or pledge regarding the shares. The aforesaid
undertaking shall be signed by the transferee together with the signature
of a witness, authenticating the signature of the
transferee.
|
44.
|
A
share shall not be transferred to a minor, or a person who has
become
bankrupt or is legally incapacitated, unless the unanimous consent
of the
Directors has been given to
that
effect.
|
45.
|
The
transfer of a fraction of a share shall not be
valid.
|
46.
|
The
Company may collect fees for the handling of the transfer of shares,
in an
amount
to
be determined by the Board of Directors, from time to time. The
Company
may
stipulate
that the registration of the transfer shall be executed after the
payment
of the
amount
as above mentioned, by the transferor and/or the transferee, according
to
the
discretion
of the Board of Directors.
|
47.
|
In
the event of a death of a Shareholder, the surviving holders in
the share
(in the
event
that the deceased held such share jointly with others) or the custodians,
administrators
of the estate, or heirs of the deceased (in the event that the
Shareholder
held
the share by himself, or remained alone from among the joint holders
of
the
share),
shall be deemed as the owners of the shares of the deceased, provided,
however,
that the estate of a joint holder in a share shall not be exempt
the from
any
liability
whatsoever with regard to the share jointly held by
him.
|
48.
|
A
person acquiring a right in shares by reason of the death or bankruptcy
of
a
Shareholder
shall be entitled, after furnishing evidence showing eligibility
as the
Board
of Directors may request:
|
49.
|
The
Board of Directors may close the Register of Shareholders during
the
period
which
shall be determined by the Board of Directors, from time to time
(and in
the
absence
of the said determination then for fourteen days) immediately preceding
the
annual
General Meeting of the Company, and provided that the Register
of
Shareholders
shall not be closed for more than thirty days in each
year.
|
50.
|
Right
of First Refusal
.
In the event that any of the Shareholders (in this Article, a
“Selling
Shareholder”)
proposes
to transfer all or any of such Selling Shareholder’s
shares
(in this Article, the
“Offered
Shares”),
such
Selling Shareholder shall first
offer
such Offered Shares to each of the Qualified Holders (other than
the
Selling Shareholder, in this Article,
“Other
Shareholders”)
by
delivering a written notice to
each
thereof of such proposal (in this Article, the
“Offer”).
The
Offer shall state the identity of the Selling Shareholder, the
identity of
the proposed transferee(s) and the
proposed
terms of sale of the Offered Shares. Each of the Other Shareholders
may
accept
the Offer in respect of all of the Offered Shares by giving such
Selling
Shareholder notice to that effect within thirty (30) days after
receiving
the Offer. In
the
event that more than one Other Shareholder accepts the Offer, then
all of
the Other
Shareholders
who accepted the Offer shall acquire the Offered Shares, on the
terms
set
forth in the Offer, and on a pro-rata basis among them (determined
for
each of
them
as the product of the (i) number of Offered Shares multiplied by
(ii) a
fraction, the numerator of which is the number of Ordinary Shares
held by
such holder (on an
as-converted
basis) and the denominator of which is the aggregate number of
all
Ordinary
Shares held by all the Other Shareholders (on an as-converted basis)
who
have
accepted the Offer). In the event that none of the Other Shareholders
accepts the
Offer,
then the Selling Shareholder shall, at the expiration of the
aforementioned
thirty
(30) day period, be entitled to transfer all of the Offered Shares
to the
proposed
transferee(s)
identified in the Offer,
provided
,
however
,
that in no event shall the
Selling
Shareholder transfer any of the Offered Shares to any transferee
other
than the
Other
Shareholders or such proposed transferee(s) or transfer the same
on terms
more
favorable
to the transferee(s) than those stated in the Offer, and provided
further
that any of the Offered Shares not transferred within one hundred
and
twenty (120) days
after
the expiration of such thirty (30) day period shall again be subject
to
the
provisions
of this Article 50. In the event that there is a situation in which
fractional
shares
will need to be transferred, the number of shares will be rounded
up so
that
only
full shares will be transferred. The first refusal rights granted
under
this Article
50
shall terminate upon an IPO and shall not apply to the sale of
shares by
shareholders
in conjunction with the IPO, if
any.
|
51.
|
Co-Sale
Rights
.
Should any of the Founding Shareholders (in this Article, the
“Transferor
Shareholder”)
receive
one or more bona fide offers that the Transferor
Shareholders
intends to accept (in this Article, a
“Purchase
Offer”),
from
any person
or
entity (in this Article, the
“Third
Party”),
to
purchase from such Transferor Shareholder in one or in a number
of
transactions any of his shares in the Company constituting, for
all
Founding Shareholders, the lowest of: (i) either an aggregated
of
3%
or more of the outstanding share capital of the Company; or (ii)
equal to
an aggregated amount of US$ 3,000,000 (the actual amount of shares
offered
to be
purchased:
the
“Co-Sale
Shares”),
the
Qualified Holders shall have the right to
participate
in the Transferor Shareholder’s sale of shares on a pro rata basis, in
accordance
with this Article 51, pursuant to the specified terms and conditions
of
such
Purchase
Offer. Upon receipt of a Purchase Offer, the Transferor Shareholder
shall
promptly
notify the Qualified Holders in writing of the name and address
of the
Third
Party
and the terms and conditions of such Purchase Offer (a
“Co-Sale
Notice”).
Each
of
the Qualified Holders shall be entitled, upon written notice to
such
Transferor
Shareholder
(in this Article, a
“Participation
Notice”)
within
thirty (30) days after receipt of the Co-Sale Notice, to sell to
the Third
Party up to that number of shares in
the
Company owned by such Qualified Holders (in this Article, the
“Equity
Shares”)
determined
by multiplying (i) the total number of Co-Sale Shares by (ii) a
fraction,
the
numerator of which is the number of Ordinary Shares owned by such
Qualified
Holder
(on an as-converted basis) and the denominator of which is the
total
number of
Ordinary
Shares owned by the Transferor Shareholder plus the number of Ordinary
Shares held by all Qualified Holders (on an as-converted basis).
Such
Participation
Notice
shall indicate, subject to the terms of this Article 51, the number
of
Equity
Shares
that the Qualified Holders, as applicable, intend to transfer to
the Third
Party.
At
the closing of the sale of shares to the Third Party, the Transferor
Shareholder shall
transfer
its shares to the Third Party only if the Third Party concurrently
therewith purchases, on the same terms and conditions specified
in the
Co-Sale Notice, all of the
Equity
Shares as to which a Participation Notice has been delivered. A
Qualified
Holder
exercising its right of first refusal (as set forth in Article
50 above)
with
respect
to a specific sale transaction shall not be entitled to exercise
its
co-sale right
(set
forth in this Article 51) with respect to such transaction. The
co-sale
rights
granted
under this Article 51 shall terminate upon an IPO and shall not
apply to
the
sale
of shares by shareholders in conjunction with the IPO, if
any.
|
52.
|
Permitted
Transferees
.
Notwithstanding anything in Articles 50 and 51 to the contrary,
the
foregoing first refusal and co-sale rights shall not apply to the
transfer
of
shares
by a Shareholder to a Permitted Transferee (as defined below).
In these
Articles
of Association,
“Permitted
Transferee”
means
with respect to any
Shareholder:
(i) a transferee by operation of law; (ii) any trust created and
maintained
solely
for the benefit of such Shareholder; (iii) a company or partnership
under
such
Shareholder’s
full control (and as long as it is under such control), or under
common
full
control with such Shareholder (and as long as it is under such
control, or
fully
controlling
such Shareholder (and as long as it is so controlling); (iv) spouse,
parents,
brothers
and sisters, children and children’s children of such Shareholder; (v) in
respect
of each holder of Preferred A Shares - its affiliate, shareholder,
member
or
partner
(including limited partner); and (vi) with respect to Kadima Hi
Tech Ltd.
(“Kadima”),
a transfer from Kadima to any party for whom Kadima holds shares
as a
trustee.
The term “control” in this Article shall have the same meaning as it has
in the Securities Law, 5748 - 1988.
|
53.
|
No
Sale by Founders.
Without derogating from any provision of these Articles, at any
time
prior to the earlier of a Qualified IPO, or two (2) years subsequent
to
the
Preferred
B Closing, each of the Founding Shareholders shall not sell, directly
or
indirectly,
more than 10% of their respective shares in the
Company.
|
54.
|
Bring
Along. P
rior
to an IPO and subject to the provisions of Article 14, in the event
that
shareholders holding more than 75% of the outstanding shares of
the
Company
(on
an as-converted-basis) accept a detailed offer to sell all of their
shares
to a third
party,
and such sale is conditioned upon the sale of all remaining shares
of the
Company
to such third party, all other shareholders shall be required to
approve
such
sale
and sell their shares in such transaction, under the same terms
and
conditions.
The
consideration for the sale shall be distributed among the Shareholders
in
accordance
with the provisions of Articles 159 through 162 below. The terms
and
conditions
of the purchase of the shares and the consideration for each share
offered
and
paid to the Shareholders of the Company in the Offer shall be deemed
to be
equal for purposes of this Article 54 and of Section 341 of the
Law if the
consideration for the shares is distributed pursuant to Articles
159
through 162 below.
|
55.
|
In
the event that two or more persons are registered as the joint
holders of
a share:
|
56.
|
Subject
to the provisions of Article 14, the Company shall be entitled,
at all
times, by
an
Ordinary Resolution -
|
57.
|
Subject
to the provisions of Article 14 above, and without prejudice to
any
special
rights
previously conferred upon the holders of existing shares in the
Company,
the
Company
may, from time to time, by Ordinary Resolution, 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.
|
58.
|
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 of Association,
may
be
modified or abrogated by the Company, by Ordinary Resolution, subject
to
the consent in writing of the holders of the majority of the issued
shares
of such class or the sanction of a Ordinary Resolution passed at
a
separate General Meeting of the holders of the shares of such class.
Notwithstanding the above, but subject to the provisions of Article
14
above, the following shall not be shall not be deemed, for purposes
of
this Article 58, to modify or abrogate the rights attached to previously
issued
shares of such class or of any other class and shall not be subject
to the
approval
of a separate class vote or consent of the holders of the shares
of any
particular
class: (i) the enlargement of an existing authorized class of shares,
or
(2) the
issuance
of additional shares of an existing class of shares out of the
authorized
and
unissued
share capital, or (3) the authorization of a new class of shares
having
rights, preferences or privileges senior to or on par with any
or all of
the classes of Preferred
Shares
and issuance of shares of such new class of
shares.
|
59.
|
Subject
to provisions of Article 14 above, the Company may, from time to
time, by
an
Ordinary
Resolution, whether or not all the shares then authorized have
been
issued, and whether or not all the shares issued have been called
up for
payment, increase its
authorized
share capital. Any such increase shall be in such amount and shall
be
divided
into shares of such nominal amounts, with such rights and preferences
and
subject
to such restrictions, as such Ordinary Resolution shall
provide.
|
60.
|
Except
to the extent otherwise provided in such Ordinary Resolution, any
new
shares included in the authorized share capital increased under
Article
59, shall be subject to all the provisions of these Articles of
Association applicable to shares 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 applicable to shares of such class included in the existing
share capital).
|
61.
|
Subject
to the provisions of these Articles of Association, the General
Meeting
shall have such powers and authorities as prescribed in the Companies
Law.
|
62.
|
The
General Meeting may assume for itself authorities that are given
to other
organs of the Company, in certain matters and for a certain period
of
time.
|
63.
|
The
Company is entitled not to hold an annual General Meeting, unless
the
holding of
the
meeting is necessary in order to appoint an auditor of the Company,
or
upon the
request
of one of the Shareholders of the Company or the
Directors.
|
(ii) |
one
or more Shareholders holding not less than ten percent (10%) of
the
issued share capital and not less than one percent (1%) of the
voting
rights in the Company; or one or more Shareholders holding not
less
than ten percent (10%) of the voting rights in the Company;
or
|
65.
|
A
notice of the General Meeting shall be served, no less than seven
days and
no more than thirty days prior to the date of the meeting. The
notice
shall specify the location, date and hour on which the meeting
shall be
convened and the agenda and a reasonable description of the issues
to be
raised at the meeting. The notice shall be served on the Shareholders
who
are eligible, in accordance with these Articles of Association
to receive
notices from the Company.
|
66.
|
The
agenda of the General Meeting shall be determined by the Board
of
Directors and shall also include issues for which a demand to convene
a
General Meeting was filed, or issues demanded by one or more Shareholders
holding at least one percent of the voting rights in the Company,
provided
that the issues are of such nature that may be dealt with in the
General
Meeting. The General Meeting shall only adopt resolutions on issues,
which
are on its agenda.
|
67.
|
No
discussion shall be held in the General Meeting unless a lawful
quorum is
present. Any two Shareholders, present by themselves or by means
of a
proxy, and holding or representing at least 33
1/3
%
of the voting rights in the Company shall constitute a legal
quorum.
|
68.
|
If
within half an hour from the time set 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 at an alternative date specified
(if,
at all) in the notice to the meeting. If at the adjourned meeting
a quorum
is not present within half an hour from the time set for the meeting,
the
Shareholders present shall constitute a quorum. However, if the
meeting
was convened according to the demand of the Shareholders, as specified
in
Article 64(a)(ii) above, the adjourned meeting shall convene only
if at
least the required number of Shareholders for convening a meeting,
as
specified in the above Article 64(a)(ii) - are
present.
|
69.
|
In
every General Meeting, a chairman for the same General Meeting
shall be
elected at the beginning of the
meeting.
|
70.
|
The
chairman may, with the consent of any meeting at which a legal
quorum is
present, and shall, if so directed by the meeting, adjourn the
meeting
from time to time and from place to place, as the meeting shall
resolve.
In the event that a meeting is adjourned for fourteen (14) days
or more, a
notice of the adjourned meeting shall be given as in the case of
an
original meeting. Save for the aforesaid, a Shareholder shall not
be
entitled to receive any notice of an adjourned meeting or of the
issues to
be discussed at such adjourned meeting. At the adjourned meeting
only
issues, which may have been discussed at the meeting in which it
was
resolved to adjourn the meeting, may be
discussed.
|
71.
|
Notwithstanding
the aforesaid in this chapter, and without derogating from any
other means
of convening a General Meeting which shall be permitted, from time
to
time, pursuant to the Law, the Company shall be entitled to convene
a
General Meeting by utilizing any means of media, so that all of
the
Shareholders who are participating, can hear each other simultaneously.
In
addition, the Company shall be entitled to agree, from time to
time, on
the convening of a General Meeting in any other fashion, and all
provided
that all of the Shareholders entitled to participate at the meeting
have
consented thereto.
|
72.
|
The
provisions of Articles 66 and 71 of these Articles of Association
shall
not apply to the Company if and when it shall have one
Shareholder.
|
73.
|
Except
as provided by the provisions of this Article or by Law, the Preferred
Shares shall vote with the Ordinary Shares on as-converted
basis.
|
74.
|
The
voting shall be made personally or by means of a proxy. A proxy
does not
have to be a Shareholder in the Company. A proposed resolution
shall be
adopted by an Ordinary Resolution, or any other majority of votes
set by
Law or these Articles of Association. In the event of a tie vote,
the
chairman of the meeting shall not be entitled to a second or casting
vote
and the resolution shall be deemed
rejected.
|
75.
|
At
any General Meeting a resolution put to the vote shall be decided
on a
show of hands. A declaration by the chairman that the resolution
has been
adopted, or adopted unanimously, or by a particular majority -
shall be
final and absolute, and this fact and a note recorded in the book
of
proceedings of the Company, shall be conclusive evidence of the
fact,
without proof of the number or portion of the votes recorded in
favor of,
or against, such resolution.
|
76.
|
A
written resolution (including in any other media, provided that
a
resolution was obtained at the General Meeting of the Company approving
in
advance the adoption of resolutions, in general or in certain matters,
in
another medium) signed by all of the Shareholders of the Company
entitled
to participate in the General Meetings of the Company and vote
therein,
shall be regarded as a valid resolution for all purposes, and as
a
resolution adopted at a General Meeting of the Company, which was
duly
convened and held, for the purpose of adopting such a resolution.
Such a
resolution may be stated in several copies of the same document,
each of
them signed by one Shareholder or by several
Shareholders.
|
77.
|
In
the event that a Shareholder is legally incapacitated, he shall
be
entitled to vote by means of a trustee or a legal custodian. Such
trustee
or legal custodian may vote in person, or by means of
proxy.
|
78.
|
A
corporation, which is a Shareholder in the Company, is entitled
to
authorize a person by a resolution of its Board of Directors or
any of its
other managing organs as it deems fit, to act as its representative
in any
meeting of the Company. A person who has been so authorized shall
be
entitled to exercise on behalf of the corporation, represented
by him, the
same powers that the corporation itself could have used had it
been a
flesh and blood Shareholder in the
Company.
|
79.
|
The
letter of appointment of a proxy shall be in writing and duly signed
by
the appointing party or his legal representative who has been appointed
in
writing for that purpose or, if the appointing party is a corporation,
then the document authorizing the proxy has to bear the confirmation
of an
attorney or accountant verifying the validity of the signature
and the
fact that the same legally binds the appointing
corporation.
|
80.
|
A
vote given in accordance with the terms of the letter of appointment
of a
proxy shall be legal even in the event that the appointing party
died or
was declared to be legally incapacitated or cancelled the letter
of
appointment or transferred the share with regard to which he gave
the
letter of appointment, unless a written notice of the appointing
Shareholder’s death or incapacitation, or of the said cancellation or
transfer, was received in the Office prior to the
meeting.
|
81.
|
The
letter of appointment of a proxy and the power of attorney or other
certificate (provided that there are such certificates) or a copy
thereof
authenticated by an attorney shall be deposited at the Office or
at
another place or places in the state of Israel or outside thereof
- as the
Board of Directors shall determine from time to time in general,
or with
regard to a certain case, at least 24 hours before the time scheduled
for
the meeting or the adjourned meeting in which the person designated
in the
said document intends to vote. In the event that the said deposit
was not
duly executed then the person designated in the document shall
not be
entitled to vote by virtue thereof.
|
82.
|
A
document appointing a proxy shall not be valid for longer than
twelve
months from the date of its signature, unless a longer period is
explicitly specified therein.
|
83.
|
A
letter of appointment of a proxy (either for a certain meeting
or
otherwise) may be in the following form or in any other form which
shall
be determined by the Board of Directors:
-
|
84.
|
The
provisions of these Articles of Association with respect to General
Meetings shall apply,
mutatis
mutandis,
to
meetings of a class of Shareholders of the
Company.
|
85.
|
The
Company’s Board of Directors shall be comprised of up to six (6)
directors, which shall be elected as
follows:
|
(i)
|
The
Founder shall be entitled to appoint two (2) members, as long as
the
Founding Shareholders hold in the aggregate at least 20% of the
Company’s
issued and outstanding share capital; and one director as long
the
Founding Shareholders aggregately hold at least 3% of the Company’s issued
and outstanding share capital;
|
85A
|
Additionally,
(A) one representative on behalf of the holders of a majority of
the
Preferred A Shares; and (B) one representative on behalf of the
holders of
a majority of the Preferred B Shares; (C) one representative on
behalf of
the holders of a majority of the Preferred C; and (D) any additional
persons as may be appointed by the Board of Directors from time
to time
shall be entitled to attend all meetings of the Board (and all
committees
thereof) in a nonvoting observer capacity (each, an “
Observer
”;
collectively:
the “
Observers
”),
provided
that such Observers shall sign a customary non-disclosure agreement.
The
Observers may participate in discussions of matters brought before
the
Board. The Company shall provide the Observers with copies of all
notices,
minutes, consents, and other documents or materials provided to
the Board;
provided, however, that the Company reserves the right to exclude
the
Observers from any meeting of the Board or portion thereof and
not to
disclose to them certain information to the extent that a majority
of the
Board determines that there is a conflict of interest, or where
necessary
to preserve attorney client privilege. The right of each of the
groups
shareholders described in (A), (B) and (C) to appoint an Observer
shall
expire once such group holds less than 3% (three percent) of the
issued
and outstanding share capital of the Company, on an as-converted
basis.
|
86. |
A
corporation may serve as a Director in the Company. Such corporation
shall
appoint an individual, qualified to be appointed as a Director
in the
Company, in order to serve on its behalf, either generally or for
a
certain meeting, or for a certain period of time and the said corporation
may also dismiss that individual and appoint another in his
stead.
|
87.
|
Except
for the appointment and removal of the Sixth Member, the appointment,
replacement or removal of a Director shall be effected by the delivery
of
a notice to the Company at its Office, signed by the holders of
the shares
entitled to effect such appointment or removal. Any appointment
or removal
shall become effective on the date fixed in the notice or upon
the
delivery of the notice to the Company, whichever is later. The
Company may
not amend this provision without the approval of holders of a majority
of
the Preferred Shares to such
effect.
|
88.
|
The
tenure of the original Directors of the Company shall be the same
as that
of the other Directors, and their tenure shall end pursuant to
these
Articles of Association.
|
89.
|
A
member of the Board of Directors who ceased to serve in his position
may
be appointed anew.
|
90.
|
Without
derogating from the aforesaid in these Articles of Association
or in the
provisions of the Law, the tenure of a Director shall expire upon
the
occurrence of any one of the following
cases:
|
91.
|
A
Director shall not be disqualified by virtue of his position
from holding
another
position;
or from having relationship of profit with the Company or any
other
company
in which the Company is a shareholder or has another benefit
therein; or
from contracting with the Company in an agreement, as seller,
purchaser or
in any
other
manner, and all subject to the provisions of these Articles of
Association.
|
92.
|
(a)
|
The
Directors shall not be entitled to any remuneration from the
Company
unless the Board of Directors shall so decide. Every Director
shall be
entitled to receive reimbursement for reasonable expenses for
travel and
hotel accommodations and other expenses connected with his participation
in the Board of Directors meetings and the fulfilling of his
duty as a
member of the
Board
of Directors, and all as shall be decided by the Board of Directors.
In
the event that the member of the Board of Directors shall be
requested,
and
shall
be prepared, to render special services or make special efforts
on behalf
of
the Company by traveling abroad or by residing there, or in any
other
manner,
the Company shall pay his wages in the amount which shall be
determined
by the Board of Directors and such wages shall be added to the
permanent
wages (provided that there are permanent wages) or come in its
stead,
and all in accordance with the resolution of the Board of
Directors.
|
93.
|
The
determination of the policy of the business of the Company and
the
supervision
on
the performance of the General Manager of the Company, shall
be vested in
the
Board
of Directors, which may exercise all such powers and do all such
acts and
things
as the Company is authorized to exercise and do, and are not
required by
Law
or
these Articles to be done by the General Meeting. The authority
conferred
on the Board of Directors by this Article shall be subject to
the
provisions of these Articles of Association and any resolution
consistent
therewith adopted from time to time by
the
Company at a General Meeting; provided, however, that no such
regulation
or
resolution
shall invalidate any prior act done pursuant to a decision of
the Board of
Directors
that would have been valid if such regulation or resolution had
not been
adopted.
|
94.
|
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 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.
|
95.
|
A
Director may, by written notice to the Company given in the manner
set
forth in
Article
96 below, appoint any individual as an alternate for himself
(in these
Articles
referred
to as an “
Alternate
Director
”),
remove
such Alternate Director and appoint
another
Alternate Director in his place. 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. The Alternate Director shall
not be
entitled to receive
any
wages or expenses from the Company, provided, however, that if
the
appointing
Director
has provided to the Company a written consent, the Alternate
Director may
receive
instead of the appointing Director, wages or expenses to which
the
appointing Director would have been entitled during the period
of
substitution.
|
96.
|
Any
notice to the Company pursuant to Article 95 shall be given in
person or
by mail
to
the attention of the Chairman of the Board of the Company at
the 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, or
upon
the receipt thereof by the Company at the place specified above,
whichever
is
later.
An Alternate Director shall have all the rights and obligations
of a
director;
provided,
however, that an Alternate Director shall have no standing at
any meeting
of
the Board or any Committee of the Board while the Director for
whom such
Alternate
Director was appointed, is present.
|
97.
|
The
Directors shall be entitled to convene and adjourn meetings and
to
regulate their
activities
and deliberations, at their discretion and in any manner that
they deem
fit,
including
as said in Sections 101 and 103(a) of the Law, and all subject
to the
provisions
of these Articles of Association.
|
98.
|
The
quorum at the meeting of the Board of Directors shall be three
(3) members
of the
Board
of Directors who are serving as Directors at such time. In the
absence of
a
quorum
the meeting shall be adjourned for two days and the quorum necessary
to
convene
the adjourned meeting as said, shall be any number of Directors
serving at
such
time.
|
99.
|
The
Chairman of the Board of Directors shall be entitled to convene
the Board
of
Directors
at any time, and he shall be bound to do so at the request of
one or more
Directors
of the Company, within seven (7) days following the date of such
request.
|
100.
|
Notice
of any such meeting may be given by telephone or by mail, e-mail,
telex,
telegram or facsimile or other form of electronic communication,
at a
reasonable time
before
the meeting and no less than 72 hours before the date that fixed
for the
meeting (taking into account the urgency of the meeting), unless
all of
the Directors agreed to
a
shorter notice. Despite anything to the contrary in these Articles
of
Association,
failure
to deliver notice to a Director of any such meeting may be waived
by such
Director, and a meeting shall be deemed to have been duly convened
despite
such
defective
notice if such failure or defect is waived prior to action being
taken at
such
meeting
by all Directors entitled to participate in such meeting to whom
notice
was
not
duly given.
|
101.
|
The
agenda at a meeting of the Board of Directors shall be determined
by the
Chairman
of the Board, and shall include the following
issues:
|
102.
|
Unless
otherwise designated in these Articles of Association with regard
to a
certain
Article,
issues presented at the meeting of the Board of Directors shall
be decided
by a
majority
of the votes of the Directors present (or participating, in the
case of a
vote
through
a permitted means of communications) and voting. Every Director
shall have
only
one vote.
|
103.
|
The
Board of Directors, by majority vote, shall from time to time
appoint on
of its
members
to serve as the Chairman of the Board and may by a majority vote
replace
the
Chairman of the Board of Directors. The Chairman of the Board
of Directors
shall preside at every meeting of the Board. If at any meeting,
the
Chairman is not present within 15 minutes after the time fixed
for holding
the meeting or is unwilling to act as Chairman, the Directors
present
shall choose someone of their number to be chairman of such meeting.
The
Chairman will not have any casting or additional vote by reason
of his
position as Chairman of the Board.
|
104.
|
Every
meeting of the Board of Directors in which a quorum is present,
shall have
the
authority
to fulfill all of the powers given, at the same time, in accordance
with
the
provisions
of the Law and these Articles of Association, to the Board of
Directors.
|
105.
|
All
acts performed,
bona
fide,
at
any meeting of the Board, or of a Committee of the
Board,
or by any person(s) acting as Director(s), shall, even if it
is
subsequently discovered that there was a 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.
|
106.
|
A
resolution in writing signed by all the Directors then in office
and
lawfully entitled to vote thereon, and to which the majority
of Directors
(or any other special majority,
to
the extent otherwise provided in these Articles of Association)
have given
their
written
consent (by letter, e-mail, telegram, telex, facsimile or otherwise)
shall
be
deemed
to have been lawfully adopted by a meeting of the Board of Directors
duly
convened
and held. Such a resolution may be adopted by signature of only
a portion
of the Directors, if all of the Directors who have not signed
the
resolution were not entitled to participate in the discussion
and to vote
on such resolution in accordance
with
the Law. Such resolution may consist of several counterparts
(including in
identical
form, each signed by one or more Directors (and as the case may
be, one or
more
committee members).
|
107.
|
A
resolution approved by use of a mean of communication by the
Board of
Directors
shall
be deemed to be a resolution lawfully adopted at a meeting of
the Board of
Directors,
provided that the Board of Directors has approved in advance
the adoption
of a resolution by specific means of
communication.
|
108.
|
The
Directors shall cause the drafting of appropriate minutes of
all General
Meetings
of
the Company, and meetings of the Board of Directors, and of the
Committees
of
the
Board (as defined in Article 109 below), in which they shall
specify the
members
or
Shareholders (as the case may be) present, the matters dealt
with in the
same
meetings,
and the resolutions adopted therein, and minutes of any meeting
whatsoever,
signed by the chairman of the meeting shall be conclusive evidence
of all
facts set forth therein, without the need of additional
evidence.
|
109.
|
The
Board of Directors may delegate any or all of its powers, to
committees,
each
consisting
of one or more persons who are directors, of which at least one
shall be a
Preferred
Director, and it may from time to time revoke such delegation
or alter the
composition
of any such committee. Any committee so formed (a “
Committee
of the
Board
”)
shall, in the exercise of the powers so delegated, conform to
any
regulations
imposed
on it by the Board. The provisions of these Articles of Association
regulating
the
meetings of the Board shall
mutatis
mutandis,
govern
the meetings and
proceedings
of any such Committee of the Board. Unless otherwise expressly
provided
by the Board of Directors in delegating powers to a Committee
of the
Board,
such
Committee shall not be empowered to further delegate such
powers.
|
110.
|
Subject
to the powers that shall be delegated to Committees of the Board
by the
Board
of
Directors, any resolution obtained or act taken by the Committees
of the
Board of
Directors,
shall be deemed as a resolution obtained or an act taken by the
Board of
Directors.
|
111.
|
The
Board of Directors may revoke any resolution of any Committee
of the
Board;
provided,
however, that any such revocation shall not derogate from the
validity of
any
act relying upon, which the Company had transacted with a person
that did
not
know
of such revocation.
|
112.
|
The
Board of Directors may from time to time appoint one or more
persons,
whether
or
not directors, as General Manager(s)and may confer upon such
person(s),
and from
time
to time modify, or revoke such title(s) and such duties and authorities
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 the provisions of
the
Companies Law and of any
contract
between any such person and the Company) fix his, her or their
salaries
and
emoluments,
remove or dismiss such persons from office and appoint another
or
others
in his, her or their place.
|
113.
|
Unless
otherwise determined by the Board of Directors, the General Manager
shall
have
the authority with respect to the day-to-day management of the
Company in
the
ordinary
course of business, in the framework of, and subject to, the
policy,
guidelines
and
instructions of the Board of Directors from time to
time.
|
114.
|
The
General Manager shall have all the management and performance
authorities
that were not assigned in the Articles of Association or by the
Companies
Law, to another
organ
of the Company, and will be subject to the supervision of the
Board of
Directors.
|
115.
|
The
General Manager may, with the consent of the Board of Directors,
delegate
certain
of his or her duties to another person who is subject to his
or her
supervision. However, such delegation of authority shall not
release the
General Manager from his
liability.
|
116.
|
The
General Manager shall notify the Chairman of the Board of any
unusual
event,
which
is material to the Company; if the office of Chairman of the
Board is
vacant, or the Chairman of the Board refuses or is unable to
act, such
notification shall be made
to
all the Directors then in office.
|
117.
|
The
General Manager shall periodically furnish the Board of Directors
with
reports in
matters,
times and format determined by the Board of Directors from time
to time.
When
a notification or report of the General Manager requires the
performance
of an
action
by the Board of Directors, then a Board meeting shall be convened
without
delay.
|
118.
|
The
remuneration payable to the General Manager for his or her services
shall
be
fixed
from time to time (subject to any contract between the General
Manager and
the
Company)
by the Board of Directors, and may be fixed as a regular salary,
commission
on dividends, profits or turnover of the Company or of any other
company
in which the Company has an interest, or by participation in
the Company’s
profits, combined or separately.
|
119.
|
The
signatory rights on behalf of the Company shall be as determined,
from
time to
time,
by the Board of Directors. Without derogating from the aforesaid,
the
Board of
Directors
may assign any person or persons (even if they are not members
of the
Board
of Directors) to act and/or sign on behalf of the Company, and
as long as
it has
not
provided otherwise by the Board of Directors, the acts and signatures
of
such
person
or persons, together with the stamp of the Company or its printed
name
shall
bind
the Company, in any matter, if and to the extent that such person
or
persons
acted
and signed within the bounds of their said
powers.
|
120.
|
The
Company may determine a rubber stamp or stamps to be affixed
to
instruments, and the Board of Directors or any other person
authorized by
the Board of Directors for this purpose, shall cause every
such stamp to
be kept in a secure and proper
place.
|
121.
|
The
Company shall manage a Register of Shareholders, as set forth
in the
Companies Law.
|
122.
|
The
Company shall be entitled, according to its discretion, to
manage an
additional register of Shareholders situated outside of Israel
and/or a
register of significant Shareholders, and all as provided in
the Companies
Law.
|
123.
|
The
Register of Shareholders shall be closed immediately prior
to any annual
General Meeting of the Company. The period of closure shall
be determined
by the Board of Directors, in all times, and provided that
the Register of
Shareholders shall not be closed for more than thirty days
in each year.
In the absence of such determination, the Register of Shareholders
shall
be closed for fourteen (14) days.
|
124.
|
Share
certificates shall be issued under the corporate stamp of the
Company and
shall bear the signature of two Directors, or of one Director
and of the
Secretary of the Company, or of any other person specifically
authorized
by the Board of Directors for this
purpose.
|
125.
|
Each
Shareholder shall be entitled to receive from the Company,
free of charge,
within the period of two months after the date of the allocation
or the
registration of the transfer (unless the conditions of allocation
provide
for a different period), to one numbered certificate for all
the shares of
any class registered in his name, and if the Board so approves,
to several
certificates, each for one or more of such
shares.
|
126.
|
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.
|
127.
|
A
share certificate that 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.
|
128.
|
The
Board 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 may think
fit, and may
terminate the service of any such person. The Board 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
|
129.
|
The
Board of Directors shall cause correct books and accounts to
be kept in
accordance with the provisions of the Companies Law. The accounts
shall be
held in the Office, or in any other place or places, as the
Board of
Directors shall deem fit, and be open to the inspection of
the Directors.
A Shareholder who is not a Director shall not have the right
to inspect
any account or document of the Company, except as specifically
permitted
by the Law, by the rights attached to the shares held by it
or authorized
by the Board of Directors or the General
Meeting.
|
130.
|
The
reports of the Company, as defined in Section 172(a) of the
Companies Law,
shall be prepared within nine months from the determining date
(as such
term is defined in the above Section 172(a)), or at a later
date if and to
the extent allowed in accordance with the provisions of the
Law, as the
same may be from time to time.
|
131.
|
In
the event that the Company shall be an inactive corporation,
as such term
is defined in Section 158 of the Companies Law, the Company
shall be
entitled to determine at the General Meeting that it is not
obligated to
prepare the reports as said in the Companies
Law.
|
132.
|
If
and to the extent any of the Shareholders, entitled to receive
a notice of
a General Meeting, shall request the same in writing from the
Company, the
Company shall be obligated to send to the same Shareholder
a copy of the
reports (as defined in the Companies Law), no later than seven
days before
the date of the annual General
Meeting.
|
133.
|
The
Company shall appoint one or more certified public accountant
that will
audit, and provide an opinion on, the annual financial statements
of the
Company
(“Auditors”).
|
134.
|
The
appointment, authorities, duties, responsibilities, rights,
remuneration
and powers of the Auditors shall be fixed by applicable law
and under
these Articles of Association. The General Meeting shall have
the power to
appoint the Auditors to the maximum time period provided under
the
companies Law.
|
135.
|
In
the event that the Company shall be an inactive corporation,
as such term
is defined in Section 158 of the Companies Law, the Company
shall be
entitled to determine at the General Meeting that an Auditor
shall not be
appointed for it.
|
136.
|
RESERVED
|
137.
|
A
Shareholder of the Company shall have the right to receive
dividends or
bonus shares, if the Company so decides in accordance with
Article 141
below, consistent with the rights attached to such
shares.
|
138.
|
Dividends
or bonus shares shall be distributed or allocated to those
who are
registered in the Register of Shareholders on the date of the
resolution
approving the distribution or allocation or upon a later date,
if another
date is determined for this purpose in same resolution (in
this chapter,
the
“Determining
Date”).
|
139.
|
Subject
to Article 161 below, dividend distributions shall be affected
on a
pro-rata and pari passu basis between the Company’s Ordinary and Preferred
Shares (on an as- converted basis).
|
140.
|
Unless
otherwise determined in the conditions applicable to the allocation
of the
shares or in a resolution of the General Meeting, all the dividends
or
bonus shares with respect to shares, not fully paid within
the period in
which the dividends or bonus shares are paid, shall be paid
in proportion
to the amounts actually paid or credited as paid on the nominal
value of
the shares during any part of said period
(pro
rata temporis).
|
141.
|
Subject
to these Articles of Association and the Companies Law, the
Board of
Directors is entitled to make a payment of a dividend (whether
interim or
final) or to distribute bonus shares (whether interim or final),
at a rate
and on dates it deems fit; provided, however, that if the General
Meeting
has determined any restrictions with regard to the distribution
of
dividends or bonus shares, the Board of Directors shall act
in accordance
with the said restrictions. No dividend shall be paid otherwise
than out
of the funds legally available
therefore.
|
142.
|
The
Board of Directors may, in its discretion, allocate to special
funds any
amount whatsoever from the profits of the Company or from the
revaluation
of assets of “branch companies”, and also to determine the designation of
these funds.
|
143.
|
Unless
otherwise provided in the resolution with respect to the distribution
of
the dividend, the Company may pay any dividend with the withholding
of any
tax required by law, by way of a check to the order of the
beneficiary
alone, which should be sent by means of registered mail to
the registered
address of the Shareholder entitled thereto, or by way of a
bank
transfer.
|
144.
|
In
the event of registered joint holders, the check shall be passed
to the
same Shareholder whose name is registered first in the Register
of
Shareholder with respect to the joint
holding.
|
145.
|
The
sending of a check to a person whose name is registered in
the Register of
Shareholder as the holder of the Share upon the Determining
Date or, in
the case of joint holders, to any of the joint holders, shall
serve as
evidence with respect to all the payments made in connection
with same
shares.
|
146.
|
The
Company may decide that a check under a certain amount shall
not be sent
and the amount of the dividend, which was supposed to be paid,
shall be
deemed to be an unclaimed dividend.
|
147.
|
The
Board of Directors may deduct from all dividends or other benefits
due to
any member, any debt or liability owed by such Shareholder
to the Company
in regard to the relevant shares in respect of which such dividend
or
other benefit is payable, whether due for payment or
not.
|
148.
|
The
Board of Directors may retain any dividends or bonus shares
or other
benefits 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.
|
149.
|
The
Board of Directors is entitled to invest the amount of any
unclaimed
dividend for one year after it was declared or to utilize it
in any other
manner to the benefit of the Company until it is claimed. The
Company
shall not be obligated to pay interest or linkage to any index
or rate on
an unclaimed dividend.
|
150.
|
In
the event the Company declares a dividend, as provided in Article
141
above, it may decide that same dividend shall be paid, entirely
or
partially, by way of distribution of certain assets, including
fully paid
shares or bonds of any other company or in any combination
of these
assets.
|
151.
|
In
the event of a capitalization of profits and distribution of
Bonus Shares,
the undistributed profits of the Company or premium on shares,
or funds
derived from the revaluation of the assets of the Company,
or funds
derived on the basis of equity from the profits of “branch companies” and
capital redemption funds shall be capitalized and distributed
among the
Shareholders entitled thereto, as per the provisions of Articles
137 - 139
above, to be held by the Shareholders as capital, and that
this capital,
entirely or partially, shall be used on behalf of same Shareholders
as
full payment, whether according to the nominal value of the
shares or
together with premium decided upon, for shares to be distributed
accordingly, and that this distribution or payment shall be
received by
same Shareholders as full consideration for their portion of
the benefit
in the capitalized amount, as determined by the Board of
Directors.
|
152.
|
The
Board of Directors, in the resolution with respect to the distribution
of
bonus shares, is entitled to decide that the Company shall
transfer to a
special fund, designated for future distribution of bonus shares,
an
amount the capitalization of which shall be sufficient in order
to
allocate to anyone having at such time a right to acquire shares
of the
Company (including a right which can be exercised only upon
a later date),
bonus shares at the nominal value which would have been due
to him had he
exercised the right to acquire the shares shortly before the
Determining
Date, at the price of the right in effect at such time. In
the event that
after the Determining Date the holder of said right shall exercise
his
right to acquire the shares or any part thereof, the Board
of Directors
shall allocate to him fully paid bonus shares at such nominal
value and of
such class, which would have been due to him had he exercised
shortly
before the Determining Date the right to acquire those shares
actually
acquired by him, by way of an appropriate capitalization made
by the Board
of Directors out of the special fund, as aforesaid. For the
purpose of the
determination of the nominal value of the bonus shares which
are to be
distributed, any amount transferred to the special fund, with
respect to a
previous distribution of previous bonus shares shall be viewed
as if it
had already been capitalized and that shares entitling the
holders thereof
the right to acquire shares of the Company were already allocated
as bonus
shares.
|
153.
|
For
the purposes of carrying out any resolution pursuant to the
provisions of
this chapter, the Board of Directors may settle, as it deems
fit, any
difficulty arising with regard to the distribution of bonus
shares, and,
in particular, to issue certificates for fractions of shares
and sell such
fractions of shares in order to pay their consideration to
those entitled
thereto, and also to set the value for the distribution of
certain assets
and to decide that cash payments shall be paid to the Shareholders
on the
basis 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. The Board of Directors may pay cash
or convey these
certain assets to trustees in favor of those persons entitled
to a
dividend or to a capitalized fund, as the Board of Directors
shall deem
beneficial.
|
154.
|
Subject
to the provisions of the Companies Law, including the receipt
of all
approvals as required therein or under any applicable
law:
|
155.
|
Changes
to the Law
.
In the event of any change after the date of adoption these
Articles in
any applicable law, statute or rule which expands the right
of an Israeli
company to indemnify an Office Holder, these Articles shall
automatically
be deemed to enable the Company to so expand the scope of indemnification
that the Company is able to
provide.
|
156.
|
No
Limitations.
The provisions of Article 154 above 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
(i) in
connection with an observer attending meetings of the board
of directors
and/or 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 (ii) in connection with
any Office
Holder to the extent that such insurance and/or indemnification
is not
specifically prohibited under applicable law; provided that
the
procurement of any such insurance and/or the provision of any
such
indemnification shall be approved in accordance with the Companies
Law.
|
157.
|
Reserved.
|
158. |
Reserved.
|
159.
|
A
resolution for the voluntary winding-up of the Company, including
voluntary
winding-up
subject to the supervision of the court, shall be obtained
by a majority
of
75%
of the votes of the shareholders who are taking part and
voting in the
general
meeting
of the Company. In the event that a resolution shall be obtained
for the
winding - up of the Company as aforesaid, then every holder
of convertible
securities
in
the Company, shall be entitled, within ninety (90) days from
the date of
the
resolution,
to inform the Company, in writing, of his desire to be deemed
to be
someone
who utilized his right to realize the convertible securities
that he
holds, immediately upon the obtaining of the resolution,
according to the
exercise price
which
shall be valid at the same time. Should the holder of the
convertible
securities in the Company decide to act as aforesaid, he
shall transfer to
the Company, together
with
the said notice, the entire consideration for every underlying
share that
he wishes
to
be deemed as the purchaser thereof. In this event, the holder
of the said
convertible
securities
shall be eligible to all of the rights on liquidation as
if he had
utilized his
right
immediately before the resolution
for
|
160.
|
“Deemed
Liquidation” shall mean either (i) the merger of the Company with or into
another
entity following which the shareholder of the Company immediately
prior to
the
consolidation, merger or reorganization hold less than 50%
of the voting
power of
such
entity; (ii) the sale of all or substantially all of the
Company’s assets
to a third party, (iii) the sale of all of the Company’s issued and
outstanding share capital to a
third
party; and (iv) distribution of dividend (other than a share
divided)
(collectively, “Deemed
Liquidation”).
|
161 |
Upon
the occurrence of any event of liquidation or a Deemed Liquidation,
all
the
assets
of the Company legally available for distribution among its
shareholders
(or the
proceeds
or consideration from such transaction) shall be distributed
to them in
the following order and preference: (i)
first
,
to
the holders of the Preferred C Shares: the holders of the
Preferred C
Shares shall be entitled to receive an amount equal to the
per share
purchase price paid to the Company for each Preferred C Share
(subject to
adjustment
for stock split, reorganization, capitalization etc.) plus
annual interest
from
the
date of issuance of such shares at the rate of 6% compounded
annually, and
less
any
amounts previously paid to the holders of Preferred C Shares,
prior to any
payments
to the holders of all other shares (the “
Preferred
C Preference
”),
(or if
there
shall be insufficient proceeds from such liquidation to pay
such amount,
the proceeds shall be divided among the holders of the Preferred
C Shares,
in proportion
to
the full Preferred C Preference such holders would otherwise
be entitled
to
receive);
provided,
however
,
that such amount shall be increased by an amount equal to
the
amount of any cash dividends declared by the Company but
not distributed
to the holders of Preferred C Shares prior to the distribution
of the
Preferred C Preference; (ii)
second
,
to
the holders of the Preferred B Shares: the holders of the
Preferred B
Shares shall be entitled to receive an amount equal to the
per share
purchase price paid to the
Company
for each Preferred B Share (subject to adjustment for stock
split,
reorganization,
capitalization etc.) plus annual interest from the date of
issuance of
such
shares at the rate of 6% compounded annually, and less any
amounts
previously
paid
to the holders of Preferred B Shares, prior to any payments
to the holders
of all
other
shares (the “
Preferred
B Preference
”),
(or if there shall be insufficient
proceeds
from such liquidation to pay such amount, the proceeds shall
be divided
among
the holders of the Preferred B Shares, in proportion to the
full Preferred
B
Preference
such holders would otherwise be entitled to receive);
provided,
however
,
that such amount shall be increased by an amount equal to
the amount of
any cash
dividends
declared by the Company but not distributed to the holders
of Preferred B
Shares
prior to the distribution of the Preferred B Preference;
(iii)
third
,
after
payment of
the
Preferred C Preference and the Preferred B Preference, to
the holders of
the
Preferred
A Shares: the holders of the Preferred A Shares shall be
entitled to
receive
an
amount equal to the per share purchase price paid to the
Company for each
Preferred
A Share (subject to adjustment for stock split, reorganization,
capitalization
etc.)
plus annual interest from the date of issuance of such shares
at the rate
of 6%
compounded
annually, and less any amounts previously paid to the holders
of
Preferred
A Shares, prior to any payments to the holders of all other
shares (the
“
Preferred
A Preference
”),
(or if there shall be insufficient proceeds from such
liquidation
to pay such amount, the proceeds shall be divided among the
holders of
the
Preferred A Shares, in proportion to the full Preferred A
Preference such
holders
would
otherwise be entitled to receive);
provided,
however
,
that such amount shall be increased by an amount equal to
the amount of
any cash dividends declared by the
Company
but not distributed to the holders of Preferred A Shares
prior to the
distribution
of
the Preferred A Preference; and (iv)
fourth
,
after
payment of the Preferred C
Preference,
Preferred B Preference and of the Preferred A Preference,
to all holders
of Preferred Shares and Ordinary Shares pro rata (on as-converted
basis),
based upon the
number
of issued and outstanding shares then held by each;
provided,
however
,
that,
in
the event that such amounts paid to the holders of Ordinary
Shares (on
as-converted
basis)
would exceed the Preferred C Preference, Preferred B Preference
and the
Preferred
A Preference by three times, each share of the Preferred
Shares shall
automatically be converted to Ordinary Share and all assets
shall then be
distributed
pro
rata to the holders of Ordinary
Shares.
|
162.
|
Whenever
any distribution provided for in this Article 162 shall be
payable in
securities
or property other than cash, the value of such distribution
shall be the
fair
market
value of such securities or other property as determined
in good faith by
the
Board
of Directors of the Company,
provided,
however
,
that the holders of majority
of
the Preferred Shares (voting together as a single class)
shall have the
right to
request
by a written notice to the Company to appoint an appraiser
- a senior
partner in any one of the “big 4” accounting firms jointly determined
between the Company and such holders - who shall determine
the fair market
value of the securities within
14
days of his appointment.
|
163.
|
Any
written notice or other document may be served by the Company
upon any
Shareholder
either personally or by sending it by prepaid mail addressed
to such
Shareholder’s
address as it appears in the Register of Shareholder or such
other address
as he may have designated in writing for the receipt of notices
and other
documents.
|
164.
|
Any
Shareholder whose address is not listed in the Register of
Shareholders
shall not be entitled to receive any notice from the
Company.
|
165.
|
Any
notice dispatched by mail shall be deemed as if delivered
after 7 business
days from the date on which it was posted, and in order to
prove such a
delivery it shall be sufficient to prove that the notice
suitably bore the
address of the addressee and was
delivered
to the post office. A notice, delivered via facsimile or
via electronic
mail,
shall
be deemed as if delivered on the business day after the date
it was
dispatched or,
if
not dispatched on the next business day, on the business
day immediately
thereafter
(provided
that such e-mail address and fax number are correct and that
the
transmission
was confirmed). A written certificate, signed by the Secretary
or
Director
or other Officer stating the aforesaid, shall serve as conclusive
evidence
thereto.
|
166.
|
In
the event that a person became eligible to a share, whatsoever,
by
operation of law,
transfer
or by any other means, he shall be bound in all notices in
respect of such
share,
duly delivered before his name was registered in the Register
of
Shareholders,
to
the person from whom his right to the share
originated.
|
167.
|
Any
notice or document dispatched to a Shareholder pursuant to
these Articles
of
Association
shall be deemed as if properly delivered at its destination
with regard to
all registered shares (whether held by the same Shareholder,
severely or
jointly with
others),
even if same Shareholder had died by that time or had become
bankrupt or
had
received an order for its liquidation or if a trustee or
a liquidator or a
receiver was
appointed
with respect to his shares (whether the Company was aware
of it or not),
until
another person is registered in the Register of Shareholders
in his place,
as the
holder
thereof, and such delivery shall be deemed, for all purposes
of these
Articles of Association, as sufficient delivery to his personal
representative, and to any person (if
any),
having a right in these shares.
|
168.
|
Failure
to dispatch the notice of the meeting to the Shareholder,
or failure to
receive
such
notice by the Shareholder shall not harm the validity of
any resolution
adopted in
such
meeting.
|
169.
|
Any
Shareholder and any Director may waive his right to receive
notices
generally or
during
a specific time period and may consent that a General Meeting
of the
Company or a meeting of the Board of Directors, as the case
may be, shall
be convened and held
notwithstanding
the fact that the notice was not received by him within the
required
time.
|
NUMBER
|
|
|
SVN
|
|
SHARES
|
|
|
|
INCORPORATED
UNDER THE
LAWS
OF THE STATE OF ISRAEL
|
ROSETTA
GENOMICS LTD.
|
SEE
REVERSE FOR CERTAIN DEFINITIONS
|
|
|
|
|
|
CUSIP
M82183 10 0
|
TEN
COM
|
-
|
as
tenants in common
|
|
UNIF
GIFT MIN ACT -
|
_______
Custodian _______
|
|
TEN
ENT
|
-
|
as
tenants by the entireties
|
|
|
(Cust)
|
(Minor)
|
JT
TEN
|
-
|
as
joint tenants with right of survivorship and not as tenants in
common
|
|
|
under
Uniform Gifts to Minors Act _______________
|
|
|
|
|
|
|
(State)
|
|
|
|
|
|
UNIF
TRF MIN ACT -
|
_______
Custodian (until age ___ ) _______
|
|
|
|
|
|
|
(Cust)
|
(Minor)
|
|
|
|
|
|
_____________under
Uniform Transfers
|
|
|
|
|
|
|
(Cust)
|
|
|
|
|
|
|
to
Minors Act _________
|
|
|
|
|
|
|
|
(State)
|
PLEASE
INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
|
|
|
|
NOTICE:
|
THE
SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
|
|
|
THE
SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM),
PURSUANT
TO S.E.C. RULE 17Ad-15.
|
|
|
(i)
|
Rosetta
Genomics Ltd., an Israeli Company (the “
Company
”);
|
(ii)
|
Dr. Isaac Bentwhich, Bentwich Innovations Ltd., Bentwich Holdings Ltd. and Harmony 2000, a registered amuta (together, the “ Founding Shareholders ”); |
(iii)
|
the holders of Ordinary Shares of the Company, having no par value (" Ordinary Shares ") listed in Schedule 1 hereto (" Ordinary Shareholders "); |
(iv) | the holders of Series A Preferred Shares of the Company, having no par value (" Series A Preferred Shares ") listed in Schedule 2 hereto (" Preferred A Shareholders "); |
(v) | the holders of Series B Preferred Shares of the Company, having no par value (" Series B Preferred Shares ") listed in Schedule 3 hereto (" Preferred B Shareholders "); and |
(vi) | the holders of Series C Preferred Shares of the Company, having no par value (" Series C Preferred Shares " and together with the Series B Preferred Shares and the Series A Preferred Shares, the " Preferred Shares" ) of the Company who will be listed in Schedule 4 hereto upon their execution of this Agreement after the completion of the Company’s Series C financing round (" Preferred C Shareholders " and together with the Preferred B Holders and the Preferred A Holders, the " Preferred Shareholders "). |
1. | Information and Inspection Rights . The Company covenants that: |
1.1 | Delivery of Financial Statements . The Company shall deliver to each Shareholder that holds at least 3% of the issued and outstanding share capital of the Company or to a Shareholder that invested in the Company at least US$ 1,000,000 : |
(a) | As soon as practicable, but in any event within sixty (60) days after the end of each fiscal year of the Company, consolidated financial statements of the Company as of the end of such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, written in English, prepared in accordance with generally accepted accounting principles (" GAAP "), audited by a firm of Independent Certified Public Accountants in the State of Israel who are members or affiliates of an internationally recognized accounting firm, and accompanied by an opinion of such firm which opinion shall state that such financial statements have been prepared in accordance with GAAP applied on a basis consistent with that of the preceding fiscal year, and present fairly and accurately the financial position as of their date, results of operations and changes in cash flows of the Company for the period ended at said date, and that the audit by such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; and |
(b) | As soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, unaudited, but reviewed, financial statements of the Company, written in English, and prepared in accordance with GAAP for such period and, in the case of the first, second and third quarterly periods, for the period from the beginning of the current fiscal year to the end of such quarterly period and the quarter ended as of their date , setting forth in each case in comparative form the figures for the corresponding period of the previous fiscal year, all in reasonable detail, and all reviewed by a firm of Independent Certified Public Accountants in the State of Israel who are members or affiliates of an internationally recognized accounting firm. |
1.2 | Accounting . The Company will maintain and will cause each of its Subsidiaries to maintain a system of accounting in local currency which will enable the Company to issue financial statements in accordance with GAAP, and will set aside on its books and cause each of its operating Subsidiaries to set aside on its books all such proper reserves as shall be required by GAAP. For purposes of this Section 1.2, "Subsidiary" means any corporation or entity controlled by the Company, or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. |
1.3 | Confidentiality of Information . Each Shareholder agrees to keep all information provided hereunder in strict confidence and not to disclose or use such information other than for the purpose of evaluating its investment in the Company. |
1.4 | Termination of Rights . The rights granted in Sections 1.1 and 1.2 above shall terminate and be of no further force and effect upon an IPO. |
2. | Registration . The following provisions govern the registration of the Company's securities: |
2.1 | Definitions . As used herein, the following terms have the following meanings: |
(a) | " Form S-3 " means Form S-3 or Form F-3 under the United States Securities Act of 1933, as amended (the " Securities Act "), as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Securities and Exchange Commission (" SEC ") which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC; |
(b) | " Founding Registrable Securities " means Registrable Securities held by Founding Shareholders; |
(c) | " Holder " means any person owning Registrable Securities; |
(d) | " IPO " shall mean the first registration statement for a public offering of securities of the Company, other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan; |
(e) | " Ordinary Registrable Securities " means Registerable Securities held by Ordinary Shareholders, including Founding Shareholders; |
(f) | " Preferred Registrable Securities " means Registrable Securities held by Preferred Shareholders; |
(g) | " Registrable Securities " means (1) Ordinary Shares now owned or hereafter acquired by the Shareholders, including all Ordinary Shares issuable with respect to Preferred Shares of the Company, and (2) any Ordinary Shares issued in respect of the shares described in clause (1) above (as a result of share splits, share dividends, reclassifications, recapitalizations or similar); provided, however, that Ordinary Shares that are Registrable Securities shall cease to be Registrable Securities upon (i) any sale thereof pursuant to a Registration Statement or Rule 144 under the Securities Act or (ii) any sale thereof in any manner to a person or entity which is not entitled to the rights provided by this Agreement; |
(h) |
"
Register
",
"
registered
"
and "
registration
"
refer to a registration effected by filing a registration statement
in
compliance with the Securities Act and the declaration or ordering
by the
SEC of effectiveness of such registration statement, or the equivalent
actions under the laws of another
jurisdiction;
|
2.2 |
Incidental
Registration
.
|
(a) |
If
the Company at any time proposes to register any of its securities
(other
than in its IPO, a demand registration under Section 2.3, a Form
S-3
registration under Section 2.4, a registration relating to stock
option
plan(s) of the Company, or a registration on Form F-4/S-4 in connection
with a merger, acquisition or other business combination), it shall
give
prompt written notice to all Holders of such intention, together
with a
list of jurisdictions in which the Company intends to attempt to
qualify
such securities under applicable state securities laws. Upon the
written
request of any such Holder given within twenty (20) days after receipt
of
any such notice, the Company shall include in such registration all
of the
Registrable Securities indicated in such request, so as to permit
the
disposition of the shares so registered. The said piggyback right
of the
Holders under this Section, may be exercised for an unlimited number
of
times.
|
(b) | Notwithstanding any other provision of this Section 2.2, if the managing underwriter advises the Company in writing that marketing factors require a limitation of the number of shares to be underwritten (an " Underwriters' Cutback "), then, there shall be excluded from such registration and underwriting, to the extent necessary to satisfy such limitation, first , Ordinary Registrable Securities, to the extent necessary (on a pro rata basis according to the respective holdings of the Holders of Ordinary Registrable Securities at the time of such registration), and second , Preferred Registrable Securities, to the extent necessary (on a pro rata basis according to the respective holdings of the Holders of Preferred Registrable Securities at the time of such registration); provided however, that if the number of Registrable Securities to be registered by the Holders is limited by the underwriter, the Company shall have priority over the Holders in each such registration and the number of Registrable Securities, if any, that may be included in the registration shall be in accordance with the above order and preference. |
2.3 |
Demand
Registration
.
|
(a) |
If
the Company receives, at any time beginning one (1) year after the
effective date of the IPO, from the Holders of a majority of interest
of
the Preferred Registrable Securities then outstanding, a request
in
writing that all or part of the Registrable Securities held by them
shall
be registered for trading under the Securities Act, then, within
seven (7)
days after receipt of any such request, the Company shall give written
notice of such request to the other Holders, and shall include in
such
registration all Registrable Securities held by all such Holders
who wish
to participate in such demand registration and provide the Company
with
written requests for inclusion therein within fifteen (15) days after
the
receipt of the Company's notice. Thereupon, the Company shall use
its best
efforts to effect the registration of all Registrable Securities,
as to
which it has received requests for registration under the Securities
Act.
|
(b) |
Notwithstanding
any other provision of Section 2.3(a), if the managing underwriter
advises
the Company in writing that marketing factors require an Underwriters
Cutback, then there shall be excluded from such registration and
underwriting, to the extent necessary to satisfy such limitation,
first
,
Ordinary Registrable Securities, to the extent necessary (on a pro
rata
basis according to the respective holdings of the Holders of Ordinary
Registrable Securities at the time of such registration), and
second
,
Preferred Registrable Securities, to the extent necessary (on a pro
rata
basis according to the respective holdings of the Holders of Preferred
Registrable Securities' at the time of such registration); provided
however, that in any event all Registrable Securities must be included
in
such registration prior to any other shares of the Company. The Holders
shall not be entitled to request a registration under Section 2.3(a)
if
the Company shall furnish to the Holders a certificate signed by
the CEO
of the Company confirming that in the good faith judgment of the
Board of
Directors of the Company it would be seriously detrimental to the
Company
or its shareholders for such registration statement to be effected
at such
time, in which event the Company shall have the right to defer the
filing
of the registration statement for a period of no more than ninety
(90)
days after the receipt of the request of the Holders under this Section
2.3(a);
provided,
however
,
the Company may not make more than one (1) such deferral in any six
(6)
month period.
|
(c) |
In
addition, the Company shall not be obligated to effect, or to take
any
action to effect, any registration pursuant to Section 2.3(a):
|
(i) |
after
the Company has effected two (2) registrations pursuant to Section
2.3(a);
|
(ii) |
during
the period ending (A) twelve (12) months after the effective date
of a
registration subject to Section 2.3(a) hereof or (B) one year after
the
effective date of any other registration statement pertaining to
Ordinary
Shares of the Company, or such shorter periods if such shorter periods
are
acceptable to the underwriters of such
offering;
|
(iii) |
in
any jurisdiction in which the Company would be required to execute
a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject
to
service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder;
or
|
(iv) |
if
such request does not cover shares representing a market value at
the time
of such request equal to a minimum of $
5,000,000.
|
2.4 |
Form
S-3 Registration
.
|
(a) |
In
case the Company receives from the Holders of a majority of interest
of
the Preferred Registrable Securities then outstanding a written request
that the Company effect a registration on Form S-3, and any related
qualification or compliance, the Company will within seven (7) days
from
receipt of any such request give written notice of the proposed
registration, and any related qualification or compliance, to all
other
Holders, and include in such registration all Registrable Securities
held
by all such Holders, who wish to participate in such registration
and
provide the Company with written requests for inclusion therein within
fifteen (15) days after the receipt of the Company's notice. Thereupon,
the Company shall use its best efforts to effect such registration
of the
Registrable Securities held by the Holders, and all such qualifications
and compliances as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such Registrable
Securities as are specified in such
request.
|
(b) |
Notwithstanding
any other provision of Section 2.4(a), if the registration on Form
S-3 is
an underwritten offering, and if the managing underwriter advises
the
Company in writing that marketing factors require an Underwriters
Cutback,
then there shall be excluded from such registration and underwriting,
to
the extent necessary to satisfy such limitation,
first
,
Ordinary Registrable Securities, to the extent necessary (on a pro
rata
basis according to respective holdings of the Holders of Ordinary
Registrable Securities at the time of such registration), and
second
,
Preferred Registrable Securities, to the extent necessary (on a pro
rata
basis according to the respective holdings of the holders of Preferred
Registrable Securities at the time of such registration); provided
however, that in any event, all Preferred Registrable Securities
must be
included in such registration prior to any other shares of the Company
(including any shares issued by the Company to the public). The Holders
shall not be entitled to request a registration under this Section
2.4 if
the Company shall furnish to the Holders a certificate signed by
the CEO
of the Company confirming that in the good faith judgment of the
Board of
Directors of the Company it would be seriously detrimental to the
Company
or its shareholders for such registration statement to be effected
at such
time, in which event the Company shall have the right to defer the
filing
of the registration statement for a period of no more than ninety
(90)
days after the receipt of the request of the Holders under this Section
2.4; provided, however, the Company may not make more than one (1)
such
deferral in any six (6) month period. There shall be no limit on
the
number of registrations that the Company shall be required to effect
at
the request of the holders of Preferred Registrable Securities under
this
Section 2.4.
|
(c) |
In
addition, the Company shall not be obligated to effect, or to take
any
action to effect, any registration qualification or compliance pursuant
to
Section 2.4(a):
|
(i) |
if
the Company has, within the twelve (12) month period preceding the
date of
such request, already effected two registrations on Form F-3 for
the
Holders pursuant to this Section
2.4;
|
(ii) |
in
any particular jurisdiction in which the Company would be required
to
qualify to do business or to execute a general consent to service
of
process in effecting such registration, qualification or
compliance;
|
(iii) |
during
the period ending 90 days after the effective date of any registration
statement pertaining to Ordinary Shares of the Company (or such shorter
period if such shorter period is acceptable to the underwriters of
such
offering);
|
(iv) |
if
such request does not cover shares representing a market value at
the time
of such request equal to a minimum of $ 1,000,000;
or
|
(v) |
if
Form S-3 is not available for such offering by the
Holders.
|
(d) |
In
case the Company receives from a Holder or Holders of Founding Registrable
Securities at any time 12 months after the expiration of the lock-up
period following IPO a written request that the Company effect a
registration on Form S-3, and any related qualification or compliance,
the
Company shall use its best efforts to effect such registration of
the
Registrable Securities held by the Founding Shareholders, and all
such
qualifications and compliances as may be so requested and as would
permit
or facilitate the sale and distribution of all or such portion of
such
Registrable Securities as are specified in such
request.
|
(e) |
The
Founding Shareholders shall not be entitled to request a registration
under Section 2.4(d) if the Company shall furnish to the Founding
Shareholders a certificate signed by the CEO of the Company confirming
that in the good faith judgment of the Board of Directors of the
Company
it would be seriously detrimental to the Company or its shareholders
for
such registration statement to be effected at such time, in which
event
the Company shall have the right to defer the filing of the registration
statement for a period of no more than ninety (90) days after the
receipt
of the request of the Founding Shareholders under Section 2.4(d);
provided, however, the Company may not make more than one (1) such
deferral in any six (6) month period.
|
(f) |
In
addition, the Company shall not be obligated to effect, or to take
any
action to effect, any registration qualification or compliance pursuant
to
Section 2.4(d):
|
(i) |
if
the Company has, within the twelve (12) month period preceding
the date of
such request, already effected registrations on Form F-3 for the
Founding
Shareholders with respect to Founding Registrable Securites representing
more than twenty percent (20%) of the aggregate number of Founding
Registrable Securities held by the Founding Shareholders at the
time of
the Company’s IPO;
|
(ii) |
in
any particular jurisdiction in which the Company would be required
to
qualify to do business or to execute a general consent to service
of
process in effecting such registration, qualification or
compliance;
|
(iii) |
during
the period ending 90 days after the effective date of any registration
statement pertaining to Ordinary Shares of the Company (or such shorter
period if such shorter period is acceptable to the underwriters of
such
offering); or
|
(iv) |
if
such request does not cover shares representing a market value at
the time
of such request equal to a minimum of $5,000,000.
|
(v) |
if
Form S-3 is not available for such offering by the Holders.
|
2.5 |
Designation
of Underwriter
.
|
(a) |
In
the case of any underwritten registration effected pursuant to Section
2.3
or 2.4, the Company shall appoint an underwriter acceptable to the
holders
of a majority of interest of the Holders of Preferred Registrable
Securities that submitted the request for
registration.
|
(b) |
In
the case of any registration initiated by the Company, the Company
shall
have the right to designate the managing underwriter in any underwritten
offering.
|
2.6 |
Expenses
.
All expenses incurred in connection with any registration or
sale of
shares under Section 2.2, Section 2.3, Section 2.4 or Section
3.3 shall be
borne by the Company (including fees of one counsel for the selling
shareholders);
provided
,
however, that each of the Holders participating in such registration
or
sale shall pay its pro rata portion of the customary and standard
discounts or commissions payable to any underwriter.
|
2.7 |
Indemnities
.
In the event of any registered offering of Ordinary Shares pursuant
to
this Section 2:
|
2.7.1 | The Company will indemnify and hold harmless, to the fullest extent permitted by law, any Holder (including its officers, directors, partners and legal counsel) and any underwriter for such Holder, and each person, if any, who controls the Holder or such underwriter, from and against any and all losses, damages, claims, liabilities, joint or several, costs and expenses (including any amounts paid in any settlement effected with the Company's consent) to which the Holder or any such underwriter or controlling person may become subject under applicable law or otherwise, insofar as such losses, damages, claims, liabilities (or actions or proceedings in respect thereof), costs or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement or included in the prospectus, as amended or supplemented, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they are made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended, any state securities law; or any rule or regulation promulgated under the Securities Act, Securities Exchange Act or any state security law; and the Company will reimburse the Holder, such underwriter and each such controlling person of the Holder or the underwriter, promptly upon demand, for any legal or any other expenses reasonably incurred by them in connection with investigating, preparing to defend or defending against or appearing as a third-party witness in connection with such loss, claim, damage, liability, action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by a Holder, such underwriter or such controlling persons in writing specifically for inclusion therein; provided, further, that the indemnity agreement contained in this subsection 2.7.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the selling shareholder, the underwriter or any controlling person of the selling shareholder or the underwriter, and regardless of any sale in connection with such offering by the selling shareholder. Such indemnity shall survive the transfer of securities by a selling shareholder. |
2.7.2 | Each Holder participating in a registration hereunder will indemnify and hold harmless the Company, any underwriter for the Company, and each person, if any, who controls the Company or such underwriter, from and against any and all losses, damages, claims, liabilities, costs or expenses (including any amounts paid in any settlement effected with the selling shareholder's consent) to which the Company or any such controlling person and/or any such underwriter may become subject under applicable law or otherwise, insofar as such losses, damages, claims, liabilities (or actions or proceedings in respect thereof), costs or expenses arise out of or are based on (i) any untrue or alleged untrue statement of any material fact contained in the registration statement or included in the prospectus, as amended or supplemented, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, and each such Holder will reimburse the Company, any underwriter and each such controlling person of the Company or any underwriter, promptly upon demand, for any reasonable legal or other expenses incurred by them in connection with investigating, preparing to defend or defending against or appearing as a third-party witness in connection with such loss, claim, damage, liability, action or proceeding; in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in strict conformity with written information furnished by such Holder specifically for inclusion therein. The foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus at the time the registration statement becomes effective or in the Final Prospectus, such indemnity agreement shall not inure to the benefit of (i) the Company and (ii) any underwriter, if a copy of the Final Prospectus was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act; provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations; provided, further, that the indemnity agreement contained in this subsection 2.7.2 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Holders, as the case may be, which consent shall not be unreasonably withheld. In no event shall the liability of a Holder exceed the gross proceeds from the offering received by such Holder. |
2.7.3 | Promptly after receipt by an indemnified party pursuant to the provisions of Sections 2.7.1 or 2.7.2 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said Section 2.7.1 or 2.7.2, promptly notify the indemnifying party of the commencement thereof; but the omission to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interests which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select one separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said Sections 2.7.1 or 2.7.2 for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed counsel in accordance with the provision of the preceding sentence, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action and within fifteen (15) days after written notice of the indemnified party's intention to employ separate counsel pursuant to the previous sentence, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. |
2.7.4 | If recovery is not available under the foregoing indemnification provisions, for any reason other than as specified therein, the parties entitled to indemnification by the terms thereof shall be entitled to contribution to liabilities and expenses as more fully set forth in an underwriting agreement to be executed in connection with such registration. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and any other equitable considerations appropriate under the circumstances. |
2.8 |
Obligations
of the Company
.
Whenever required under this Section 2 to effect the registration
of any
Registrable Securities, the Company shall, as expeditiously
as possible:
|
2.8.1 |
Prepare
and file with the SEC a registration statement with respect to
such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the holders
of a
majority of the Registrable Securities registered thereunder, keep
such
registration statement effective for a period of up to nine months
or, if
sooner, until the distribution contemplated in the Registration
Statement
has been completed;
|
2.8.2 | Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement; |
2.8.3 | Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; |
2.8.4 | In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; |
2.8.5 | Notify each holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; |
2.8.6 | Cause all Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; |
2.8.7 | Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; |
2.8.8 | Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 2, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; |
2.9 |
Assignment
of Registration Rights
.
Any of the Holders may assign its rights to cause the Company
to register
Shares pursuant to this Section 2 to any Permitted Transferee
(as defined
in the Company’s Articles of Association) or to a transferee of at least
250,000 of its Registrable Securities;
provided,
however
,
that within ten (10) days subsequent to such transfer,
such transferor
shall furnish the Company with written notice of the name
and address of
such transferee and the securities with respect to which
such registration
rights are being assigned, and the transferee's written
agreement to be
bound by this Section 2.
|
2.10
|
Lock-Up
and Other Requests by the Underwriter
.
Each Holder hereby agrees that such Holder shall not
sell or otherwise
transfer or dispose of any Registrable Securities of
the Company held by
such Holder (other than those included in the registration)
for a period
specified by the representative of the underwriters of
Ordinary Shares (or
other securities) of the Company not to exceed one hundred
eighty (180)
days following the effective date of the IPO, and provided
that each of
the senior officers of the Company (i.e. CEO and CFO)
enters in an
identical undertaking. Each Holder agrees to execute
and deliver such
other agreements as may be reasonably requested by the
Company or the
underwriter which are consistent with the foregoing or
which are necessary
to give further effect thereto. Each Holder shall consider
in good faith
modifications to the rights afforded in this Agreement
as suggested by the
underwriter of the Company’s shares in the IPO. The Company may impose
stop-transfer instructions with respect to the shares
of Ordinary Shares
(or other securities) subject to the foregoing restriction
until the end
of said one hundred eighty (180) day
period;
|
2.11 |
Rule
144 Reporting
.
With a view to making available to the Holders the
benefits of certain
rules and regulations of the SEC which may permit
the sale of the
Registrable Securities to the public without registration,
the Company
agrees to use its best efforts to:
|
(a) |
make
and keep public information available, as those
terms are understood and
defined in SEC Rule 144 or any similar or analogous
rule promulgated under
the Securities Act, at all times after the effective
date of the first
registration filed by the Company for an offering
of its securities to the
general public;
|
(b) |
file
with the SEC, in a timely manner, all reports and
other documents required
of the Company under the Exchange Act; and
|
(c) |
so
long as a Holder owns any Registrable Securities,
furnish to such Holder
forthwith upon request: a written statement by
the Company as to its
compliance with the reporting requirements of said
Rule 144 of the
Securities Act, and of the Exchange Act (at any
time after it has become
subject to such reporting requirements); a copy
of the most recent annual
or quarterly report of the Company; and such other
reports and documents
as a Holder may reasonably request in availing
itself of any rule or
regulation of the SEC allowing it to sell any such
securities without
registration;
|
2.12 |
Termination
of Registration Rights
.
All registration rights granted
under this Section 2, shall terminate
and
be of no further force and effect
five (5) years after the date
of the
IPO. In addition, a Holder's
registration rights shall expire
if all
Registrable Securities held by
and issuable to such Holder may
be sold
under Rule 144 during any ninety
(90) day period.
|
3. |
Share
Capital Confirmation and Waiver by
Shareholders
|
3.1 |
Each
of the Shareholders represents and warrants that: (i)
the capitalization
table attached hereto as
Exhibit
3.1
(the "
Post-Closing
Capitalization Table
")
sets forth an accurate and complete description of
its shareholdings, on
an issued and outstanding basis and on a Fully Diluted
Basis (as defined
below); (ii) it is not entitled to any further issuance
of shares or other
securities of the Company (other than, rights to receive
Ordinary Shares
upon conversion of preferred shares in accordance with
the Company’s
corporate documents (as amended from time to time):
and (iii) it hereby
waives any pre-emptive rights together with its related
over allotment
rights (e.g., under Section 8 of the Series A Investment
Agreement,
Section 9 of the Series B Investment Agreement and
Article 39 of the
Company's Articles of Association) and anti-dilution
rights (e.g., under
Section 10 of the Series A Investment Agreement, Section
11 of the Series
B Investment Agreement and Articles 36 through 38 of
the Company's
Articles of Association), to the extent any such right
was triggered or
existed at the relevant time, that such Shareholder
had (if at all) under
any agreement or under the corporate documents of the
Company, with
respect to any issuance of shares or securities of
the Company.
|
For the purpose of this Agreement, “Fully Diluted Basis” shall mean the issued and outstanding share capital of the Company assuming the conversion of all convertible securities and the exercise of all warrants and options to acquire shares of the Company, including all options to purchase ordinary shares of the Company (the “Ordinary Shares”) granted to employees and/or consultants and including the Company’s existing option pool of 3,850,000 Ordinary Shares granted or reserved for future grant to employees and/or consultants. |
3.2 | Without derogating from the generality of the above, each Shareholder who is entitled to pre-emptive rights, hereby releases and waives any pre-emptive rights whatsoever that it may have in connection with the issuance by the Company of up to 6,800,000 Preferred C Shares, and warrants to purchase up to 200,000 Preferred C Shares issued as finder fees in respect issuance of Preferred C Shares of the Company on or prior to May 31, 2006. |
3.3 | The Company will use best efforts to cause the underwriters of the IPO to enable the holders of pre-emptive rights (“ PE Holders ”) to sell shares, pro rata to their holdings (i) to the public as part of the IPO, and (ii) to the underwriter in the “green shoe” option. Notwithstanding any other provision of this Section 3.3, if the underwriter advises the Company that marketing factors require a limitation of the number of shares that may be sold under this Section 3.3, then, there shall be excluded from such sale, to the extent necessary to satisfy such limitation, first , shares held by Preferred C Shareholders, to the extent necessary (on a pro rata basis according to the respective holdings of such holders at the time of such sale), and second , shares held by other PE Holders who are entitled to sell under this Section 3.3 (on a pro rata basis according to the respective holdings of such holders at the time of such registration). Each Shareholder acknowledges that if the Company (represented by the IPO Subcommittee of the Company’s Board of Directors) determines at its sole discretion, after discussions with the underwriters, that such sales will materially harm the chances of a successful IPO, then such sales shall not take place. |
3.4. | Each Shareholder hereby releases and forever discharges the Company, each of the shareholders and their respective officers, directors and shareholders, from and against any and all actions, claims, demands, damages, of every kind, nature and description whatsoever that it may have by reason of any matter or cause whatsoever against any of the above in relation to or arising out of any action by the shareholders or board of directors of the Company, or any rights offering by the Company, or the provisions of any corporate documents of the Company (as amended from time to time), or any existing or prior shareholders agreements and any agreements for the sale and issuance of shares by the Company to the Shareholders. |
4. | Termination of Existing Rights |
For the sake of good order, and for the removal of any doubt: |
4.1 | Each of the Preferred A Shareholders, hereby agrees that the following sections in the Series A Investment Agreement dated July 24, 2003, as amended (" Series A Investment Agreement ") are hereby terminated and of no further force and effect, and hereby waives any rights under any of such sections of the Series A Investment Agreement: Section 7 (conversion rights), Section 8 (pre-emptive rights), Section 9 (rights of first refusal and co-sale rights), Section 10 (anti-dilution protection), Section 11 (voting rights and negative covenants), Section 12 (dividend and liquidation preferences), Section 13 (bring along rights), Section 15 (Board of Directors composition), Section 17 (Founder Shareholders Sale Restriction). |
4.2 | Each of the Preferred B Shareholders, hereby agrees that the following sections in the Series B Investment Agreement dated September 23, 2004, as amended (" Series B Investment Agreement ") are hereby terminated and of no further force and effect, and hereby waives any rights under any of such sections of the Series B Investment Agreement: Section 8 (conversion rights), Section 9 (pre-emptive rights), Section 10 (rights of first refusal and co-sale rights), Section 11 (anti-dilution protection), Section 12 (voting rights and negative covenants), Section 13 (dividend and liquidation preferences), Section 14 (bring along rights), Section 16 (Board of Directors composition), Section 19 (Founder Shareholders Sale Restriction). |
4.3 | Each of the Shareholders agrees that that all agreements and understanding relating to the rights of Shareholders to appoint directors or observers to the Board of Directors of the Company other than as reflected in the Company’s Amended Articles of Association are hereby terminated and of no further force and effect. |
5. | Miscellaneous . |
5.1 | Further Assurances . Each of the parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby. |
5.2 | Governing Law . This Agreement shall be governed by and construed according to the laws of the State of Israel, without regard to the conflict of laws provisions thereof, except for provisions regarding registration rights, which will be interpreted in accordance with U.S. federal law. |
5.3 | Successors and Assigns . Except as otherwise expressly limited herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. None of the rights, privileges, or obligations set forth in, arising under, or created by this Agreement may be assigned or transferred without the prior consent in writing of each party to this Agreement. |
5.4 | Entire Agreement; Amendment and Waiver . |
(a) |
This
Agreement constitutes the full and entire understanding
and agreement
between the parties, and supersedes any agreement
and understanding
between any of the parties, with regard to the
subject matters hereof and
thereof including without limitation a Memorandum
of Understanding dated
March 7, 2006 and Investors Rights Agreement
dated March 26, 2006. Without
derogating from the generality of the above,
this Agreement restates and
supersedes Sections 14 and 16 of the Series A
Investment Agreement, and
Sections 15 and 17 of the Series B Investment
Agreement..
|
(b) |
Any
term of this Agreement (as amended) may be
amended and the observance of
any term hereof may be waived (either prospectively
or retroactively and
either generally or in a particular instance)
only with the written
consent of: (i) the Company, and (ii) a majority
of interest of the
holders of Registrable Securities; provided
that (x) should such waiver or
amendment adversely affect the rights or privileges
granted hereunder to
the particular Holder or group of Holders,
in a manner which discriminates
such Holder/s against other Holders (a “Discriminated Class”), such waiver
or amendment shall be subject to the written
approval of the Holder/s who
are the owners of record of a majority of the
outstanding shares of such
Discriminated Class, and (y) any right or limitation
provided for the
express benefit of a specifically named party
may not be amended or waived
without the consent of such party. Any amendment
or waiver effected in
accordance with this Section 5.4 shall be binding
upon the Company, the
Shareholders, and each of their respective
successors and
assigns.
|
5.5 |
Notices,
etc.
|
5.5.1 |
All
notices and other communications made pursuant
to this Agreement shall be
in writing and shall be conclusively deemed
to have been duly given: (i)
in the case of hand delivery to the address
shown below, on the next
Business Day after delivery; (ii) in the
case of delivery by an
internationally recognized overnight courier
to the address set forth
below, freight prepaid, on the next Business
Day after delivery; (iii) in
the case of a notice sent by facsimile
transmission or email to the
number, and addressed as, set forth below,
on the next Business Day after
delivery, if facsimile transmission or
email is confirmed; (iv) in the
case of a notice sent by email to any of
the email addresses set forth in
Schedule 1 through 4 hereto, on the date
of written acknowledgment of
receipt of such email by the receiving
party. A "Business Day" means a day
on which the banks are open for business
in the country of receipt of any
notice.
|
5.5.2 | In the event that notices are given pursuant to one of the methods listed in Sub-clauses 3.5.1 (i) to (iii) above, a copy of the notice should also be sent by email to such address set forth in Schedules 1 through 4. |
5.5.3 | A party may change or supplement the contact details for service of any notice pursuant to this Agreement, or designate additional addresses, facsimile numbers and email addresses for the purposes of this Section 3.5 by giving the other party written notice of the new contact details in the manner set forth above. |
5.6 |
Delays
or Omissions
.
No delay or omission to exercise any right, power, or remedy accruing
to
any party upon any breach or default under this Agreement, shall
be deemed
a waiver of any other breach or default therefore or thereafter.
Any
waiver, permit, consent, or approval of any kind or character on
the part
of any party of any breach or default under this Agreement, or
any waiver
on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the
extent
specifically set forth in such writing. All remedies, either under
this
Agreement or by law or otherwise afforded to any of the parties,
shall be
cumulative and not
alternative.
|
5.7 | Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction. |
5.8 | Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument. |
5.8 | Additional Parties. In the event that, after the date hereof, the Company shall issue Series C Preferred Shares to a party which is not currently a party to this Agreement, then such party shall become a party to this Agreement by adding its name and signature to the signature page hereof and to Schedule 4 hereto. |
5.9 | No Third Party Beneficiaries . Except as expressly provided in this Agreement, this Agreement (including the documents and instruments referred to herein) is not intended to confer on any person other than the parties hereto any rights, remedies, obligations or liabilities hereunder. |
Print
or Type Name of Shareholder
|
Signature
|
|
(Title,
if applicable)
|
Typed
or printed name and address of Shareholder:
|
Fax
Number:
|
||
Telephone:
|
|||
Email:
|
Schedule
1
|
|
Ordinary
Shareholders
|
|
Investors
|
Address
|
Bentwich
Innovations
|
|
Harmony
2000 (Association)
|
|
Bentwich
Holdings Ltd.
|
|
Issac
Bentwich
|
|
Zvi
Bentwich
|
|
David
Danino
|
|
Wilfred
Stein
|
|
Shimon
Greenberg (from ESOP)
|
|
Al.MI.NO.
Ltd
|
|
Karni
Getriede
|
|
Doron
Sagi
|
|
LENE
L.P. (from ESOP)
|
|
AxcesNet
Resources (from ESOP)
|
|
Ehud
Zadokya (from ESOP)
|
|
Baruch
Rosensweig
|
|
Haim
Albocher
|
|
Eitan
metuki (from ESOP)
|
Schedule
2
|
|
Preferred
A Shareholders
|
|
Investors
|
Address
|
Kadima
Hi-Tech Ltd.
|
|
Insight
Capital Ltd.
|
|
Teva
Pharmaceutical Industries Ltd.
|
|
Yair
Shamir
|
|
Ilan
Leviteh
|
|
Stream
Capital Ltd.
|
|
Golan
and Liat Hod
|
|
Reuven
Ashkenazi
|
|
Chevrat
Adv. Jonathan Bach Ltd.
|
|
Yunsen
Ltd.
|
|
Arlene
Strelitz
|
|
Yoram
Petruschka
|
|
E.
Arad (Butler) Ltd.
|
|
Al.MI.NO.
Ltd.
|
Schedule
3
|
|
Preferred
B Shareholders
|
|
Investors
|
Address
|
Kadima
Hi-Tech Ltd.
|
|
Insight
Capital Ltd.
|
|
Nissan
Holdings Ltd.
|
|
Teva
Pharmaceutical Industries Ltd.
|
|
Yair
Shamir
|
|
Chevrat
Adv. Jonathan Bach Ltd.
|
|
Alron
Rosetta LLC
|
|
Epione
Bioinvestments L.P
|
|
Oded
Gera
|
|
John
Porter
|
|
Jonathan
Rose
|
|
Marcia
Riklis
|
|
Sami
Friedrich
|
|
Karni
Getriede
|
Schedule
4
|
|
Preferred
C Shareholders
|
|
Investors
|
Address
|
[TO
BE COMPLETED]
|
|
Aviv
Tower 7 Jabotinsky St., Ramat Gan 52520, Israel.
|
|
With
a copy to: Aaron Nahumi, Adv.
|
|
12
Oppenheimer St.
|
|
Tel-Aviv
69395, Israel
|
|
(e-mail:
nahumi@nahumi.com)
|
|
M.
Wertheim (Holdings) Ltd.
|
|
34
B Habarzel St., Ramat Hahayal, Tel Aviv 69710, Israel
|
|
With
a copy to: Aaron Nahumi, Adv.
|
|
12
Oppenheimer St.
|
|
Tel-Aviv
69395, Israel
|
|
(e-mail:
nahumi@nahumi.com)
|
|
Info-Prod
Research (Middle East) Ltd.
|
|
Mrs.
Nira Reichman
|
|
Mr.
Eri Steimatzky
|
|
Rosenram
Trust Co. Ltd.
|
|
Instanz
Nominees Pty Ltd.
|
|
Dolphin
Energies Ltd.
|
|
Computech
Associates Ltd.
|
|
Mr.
Enrique Norberto Friere & Mrs. Irene
Gali
|
|
Joseph
Hachmi
|
|
Mr.
Jose Maximiliano Mammoliti
|
|
Canit
Management Investments and
Financing
Ltd
|
|
Mercantile
Discount Provident Fund
Management
Company Ltd, BMD for
Provident
Funds
|
RELEVANT
CALENDAR YEAR
|
AMOUNT
(US$)
|
2006
|
[***]
|
2007
|
[***]
|
2008
|
[***]
|
2009
|
[***]
|
2010
|
[***]
|
2011
|
[***]
|
2012
|
[***]
|
2013
|
[***]
|
2014
|
[***]
|
2015
|
[***]
|
2016
|
[***]
|
2017
|
[***]
|
2018
|
[***]
|
2019
|
[***]
|
2020
|
[***]
|
(i)
|
any
invention created solely by AMBION without the use of ROSETTA Confidential
Information shall be owned solely by
AMBION;
|
(ii)
|
any
invention created solely by ROSETTA without the use of AMBION Confidential
Information shall be owned solely by ROSETTA
and
|
(iii)
|
any
invention created by (a) at least one AMBION employee and at least
one
ROSETTA employee, (b) at least one AMBION employee with the use of
ROSETTA
Confidential Information, or (e) at least one ROSETTA employee with
the
use of the AMEBION Confidential Information (collectively the “Joint
Inventions”) shall be jointly owned by the Parties. Neither Party may use
or license the Joint Inventions to a third party with out the prior
written consent of the other Party. For sole purposes of determining
the
ownership of an invention according to this Section only, ROSETTA’s
Confidential Information and AMBION’s Confidential Information does not
include sequences that are made available within a LICENSED PRODUCT
and/or
COMBINATION PRODUCT by AMBION to an arm’s length customer within its
marketing activities in the framework of the sales of LICENSED PRODUCTS
and/or COMBINATION PRODUCT under this
Agreement.
|
1.
|
ROSETTA
[***]
|
2.
|
[***]description
of [***] on which the [***]
|
3.
|
[***]
of the [***] in the [***]accordingly, or in any other [***] upon
by the
[***]
|
4.
|
[***]
of the [***] in the [***]accordingly, or in any other [***] upon
by the
[***]
|
5.
|
[***]
to which the [***] like a [***] as is evident from the [***]accordingly,
or in any other [***] upon by the
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|||
[***]
|
||||
[***]
|
||||
[***]
|
||||
[***]
|
[***]
|
|||
[***]
|
||||
[***]
|
||||
[***]
|
1.
|
DEFINITIONS
|
1
|
2.
|
DEVELOPMENT
AND COMMERCIALIZATION OF PRODUCTS AND SERVICES
|
11
|
2.1
|
Development
Programs.
|
11
|
2.2
|
Development
and Commercialization.
|
13
|
2.3
|
Information
Updates.
|
14
|
2.4
|
Joint
Steering Committee.
|
15
|
3.
|
CONSIDERATION
|
16
|
3.1
|
Payment
of Royalties; Royalty Rates; Accounting and Records.
|
16
|
3.2
|
Sublicense
Income
|
19
|
4.
|
TREATMENT
OF CONFIDENTIAL INFORMATION; PUBLICITY NON-SOLICITATION.
|
19
|
4.1
|
Confidentiality.
|
19
|
4.2
|
Publicity
|
20
|
4.3
|
Publications
and Presentations
|
20
|
4.4
|
Prohibition
on Solicitation
|
21
|
5.
|
LICENSE
GRANTS; RESTRICTIONS ON USE
|
21
|
5.1
|
Grant
of Rights to AMBION.
|
21
|
5.2
|
Grant
of Rights to ROSETTA.
|
22
|
6.
|
INTELLECTUAL
PROPERTY R.IGHTS
|
23
|
6.1
|
Disclosure
of Inventions
|
23
|
6.2
|
Patent
Coordinators
|
24
|
6.3
|
Inventorship
|
24
|
7.
|
FILING,
PROSECUTION AND MAINTENANCE OF PATENT RIGHTS
|
24
|
7.1
|
Patent
Filing, Prosecution and Maintenance
|
24
|
7.2
|
Legal
Actions.
|
25
|
8.
|
TERM
AND TERMINATION
|
27
|
8.1
|
Term
|
27
|
8.2
|
Termination
|
27
|
8.3
|
Consequences
of Termination of Agreement
|
28
|
8.4
|
Surviving
Provisions
|
30
|
9.
|
REPRESENTATIONS
AND WARRANTIES
|
30
|
9.1
|
Mutual
Representations and Warranties
|
30
|
9.2
|
Additional
Representations of ROSETTA
|
30
|
10.
|
IDEMNIFICATION
|
31
|
10.1
|
Idemnification
of AMBION by ROSETTA
|
31
|
10.2
|
Indemnification
of ROSETTA by AMBION
|
31
|
10.3
|
Conditions
to Indemnification
|
31
|
10.4
|
Warrant
Disclaimer
|
32
|
10.5
|
No
Warranty of Success
|
32
|
10.6
|
Limited
Liability
|
32
|
10.7
|
Insurance
|
32
|
11.
|
DISPUTE
RESOLUTION
|
32
|
11.1
|
Dispute
Resolution
|
32
|
12.
|
MISCELLANEOUS
|
34
|
12.1
|
Notices
|
34
|
12.2
|
Governing
Law
|
34
|
12.3
|
Binding
Effect
|
35
|
12.4
|
Headings
|
35
|
12.5
|
Counterparts
|
35
|
12.6
|
Amendment;
Waiver
|
35
|
12.7
|
No
Third Party Beneficiaries
|
35
|
12.8
|
Purposes
and Scope
|
35
|
12.9
|
Assignment
and Successors
|
35
|
12.10
|
Force
Majeure
|
35
|
12.11
|
Interpretation
|
36
|
12.12
|
Integration;
Severability
|
36
|
12.13
|
Further
Assurances
|
36
|
ROSETTA
Indemnitees
|
10.2
|
Sequence
Notice
|
2.1.2(b)
|
Sequence
Notification Period
|
2.1.2(b)
|
Term
|
8.1
|
Third
Party Infringement
|
7.2.1.
(a)
|
Third
Party Payments
|
3.1.1(c)
|
Transferring
Party
|
2.1.2(f)
|
Validating
Party
|
1.38
|
Annual
Net Sales
|
Royalty
Rate
|
Up
to and including $[***] million
|
[***]%
|
Above
$[***] million and up to and including $[***] million
|
[***]%
|
Above
$[***] million and up to and including $[***] million
|
[***]%
|
Above
$[***] million and up to and including $[***] million
|
[***]%
|
Above
$[***] million
|
[***]%
|
(1)
|
[***]will
be [***] upon during the [***] that represent the best opportunity
for
[***]
|
(2) |
[***]
from [***]
|
(5)
|
[***]
upon at the [***]
|
(4)
|
[***]within
the [***]
|
(5) |
[***]
[***]
then proceed with [***]
|
Goals. |
[***]
that can be [***]
|
(l)
|
[***]
to measure; [***] associated with each of
the[***]
|
(2) |
[***]
with known [***]
|
(3)
|
[***]
The number of [***] will be decided
[***]
|
(4) |
[***]
from [***]
|
(5)
|
[***]
from the [***] If the [***] appropriate [***] then proceed with the
[***]
with [***] to establish [***]
|
(1) |
[***]
|
(2) |
[***]
with [***]
|
(3) |
[***]
some or all [***]
[***]
|
(4)
|
[***]
appropriate [***] then [***] with [***] with
[***]
|
(1)
|
[***]
with the [***] for the[***]
|
(2)
|
[***]
that can [***] of the [***]
|
(3) |
[***]
into their [***]
|
(4)
|
[***]
of the [***]
|
(5) |
[***]
as an [***]
|
App
No
|
Filed
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
1. |
ROSETTA
will use [***] during the [***] from the
[***]
|
2.
|
Provision
by ROSETTA of [***] established by ROSETTA [***] until such time
as [***]
or other [***] for [***] by AMBION.
|
3. |
[***]
with AMBION [***]
|
ROSETTA
GENOMICS, LTD.
|
ISIS
PHARMACEUTICALS, INC.
|
Per:
/s/ Amir
Avniel
|
Per:
/s/ B. Lynne
Parshall
|
Amir
Avniel, President
|
B.
Lynne Parshall
|
Rosetta
Genomics
|
Executive
Vice President and CFO
|
1. |
[***]
|
· |
[***]
of [***] from [***] and [***] from
[***]
|
2. |
[***]
|
· |
Based
upon [***] during the [***] upon up to [***]each a [***]At least
[***] are
to be [***]
|
· |
[***]using
[***]
|
· |
[***]
of each [***] plus [***]
|
3. |
[***]
|
· |
[***]
in which the [***] will be [***] will [***] on how to [***] will
be [***]
may [***]with [***] that has been
[***]
|
4. |
[***]
|
· |
[***]
will show [***] and to [***] will be [***] to these [***] Examples
of such
[***] that the [***] is being [***] by the[***] and/or [***] that
they are
[***] with the [***] after [***] with the
[***]
|
5. |
[***]
|
· |
[***]
upon the [***] of the[***] up to [***] for [***] for conduct of [***]
to
the[***]
|
Event
|
Payment
|
1.
Initiation (first dosing) of phase I clinical trial
|
$[***]
(U.S.)
|
2.
Initiation of phase II clinical trial
|
$[***]
(U.S.)
|
3.
Initiation of pivotal quality clinical trial (Phase III or
equivalent)
|
$[***]
(U.S.)
|
4.
Filing of new drug application in first major market
|
$[***]
(U.S.)
|
5.
Receipt of regulatory approval in first major market
|
$[***]
(U.S.)
|
6.
Receipt of regulatory approval in second major market
|
$[***]
(U.S.)
|
· |
In
recognition of work contributions performed under Collaboration Stage
1 -
a [***]% royalty on net sales will be payable by the Developing Party
to
the other Party.
|
· |
In
recognition of an ownership interest in patents in a valid claim
covering
a Collaboration Method related to the Collaboration Product to be
exclusively licensed to the Developing Party - a [***]% royalty on
net
sales will be payable by the Developing Party to the other
Party.
|
· |
In
recognition of control of, or license to, patents to be (sub)licensed
to
the Developing Party (other than those included in the bullet point
above
or the licenses described below) with a valid claim covering the
target
Collaboration Micro-RNA or Collaboration Product - a [***]% royalty
on net
sales will be payable by the Developing Party to the other
Party.
|
· |
a
[***]% royalty on net sales to [***] for a Collaboration Product
that is
subject to the [***] License
Agreement.
|
· |
a
[***]% royalty on net sales to [***] for a Collaboration Product
that is
subject to the [***] Agreement.
|
· |
a
[***]% to [***]% royalty on net sales to [***], depending on annual
net
sales of a Collaboration Product (as specified in the [***] license
agreement), for a Collaboration Product that is subject to the [***]
License Agreement
|
· |
a
[***]% to [***]% royalty on net sales to [***], for a Collaboration
Product that is subject to the [***] License
Agreement.
|
If
to Rosetta:
|
10
Plaut Street, Rehovot 76706, Israel
|
Fax:
972-8-9484766
|
|
If
to Hadasit:
|
POB
12000, Jerusalem 91120, Israel
|
Fax:
+972-2-643-7712
|
|
Attention:
CEO, Copy: Legal Counsel
|
HADASIT
RESEARCH SERVICES AND
|
ROSETTA
GENOMICS LTD.
|
|||
DEVELOPMENT
LTD.
|
||||
BY:
|
By:
|
|||
Name:
|
Name:
|
|||
Title:
|
Title
|
1.1. |
“
Affiliate
”
of a Party or other entity shall mean any entity that, directly or
indirectly, is controlled by, controls, or is under common control
with
such Party including (i) any corporation or business entity of which
at
least fifty percent (50%) of the securities or other ownership interests
representing the equity or right to receive profits, the voting stock,
general partnership interest or power to direct the affairs of such
entity, are owned, controlled or held, directly or indirectly, by
a Party
or such entity; (ii) any corporation or business entity which, directly
or
indirectly, owns, controls or holds at least fifty percent (50%)
of the
securities or other ownership interests representing the equity or
right
to receive profits, voting stock, general partnership interest or
power to
direct the affairs of, a Party or such entity; or (iii) any corporation
or
business entity of which a Party or such entity has the right to
acquire,
directly or indirectly, at least fifty percent (50%) of the securities
or
other ownership interests representing the equity or right to receive
profits, voting stock, general partnership interest or power to direct
the
affairs, thereof.
|
1.2. |
“
Business
Day
”
shall mean any day that is not a Saturday or a Sunday or a day on
which
the New York Stock Exchange or the Tel Aviv Stock Exchange is
closed.
|
1.3. |
“
Calendar
Quarter
”
shall mean the respective periods of three (3) consecutive calendar
months
ending on March 31, June 30, September 30 and December
31.
|
1.4. |
“
Calendar
Year
”
shall mean each successive period of twelve (12) months commencing
on
January 1 and ending on December
31.
|
1.5. |
“
Customers
”
shall mean patients, hospitals, physicians, medical institutions,
health
funds, pharmacies and other retailers, provided that they are not
an
Affiliate of Rosetta Genomics and other purchasers of the Products
other
than for resale.
|
1.6. |
“
Development
Plan
”
shall mean the plan to develop the Products and Services attached
hereto
as Exhibit A.
|
1.7. |
“
Early
Detection
”
means the determination of the presence of a disease prior to the
appearance of symptoms.
|
1.8. |
“
Effective
Date
”
shall mean the date first above
written.
|
1.9. |
“
FDA
”
shall mean the United States Food and Drug Administration and any
successor agency having substantially the same functions and any
corresponding or successor regulatory authority in any other jurisdiction
if the context so indicates.
|
1.10. |
“
Field
”
shall mean Early Detection of Lung Cancer based on detection of microRNA
markers of Lung Cancer tumors in sputum and/or
blood.
|
1.11. |
“
First
Commercial Sale
”
shall mean the first for-profit sale of a Product or a Service by
Rosetta
Genomics or its Affiliates in any country in the Territory, for end
use or
consumption (including sales to a distributor or similar agent);
provided,
that, any sale to an Affiliate or Sublicensee will not constitute
a First
Commercial Sale unless the Affiliate or Sublicensee is the last entity
in
the distribution chain of the Product or
Service.
|
1.12. |
“
GAAP
”
means generally accepted accounting principles in the United
States.
|
1.13. |
“
Improvement
”
shall mean any and all improvements and enhancements, patentable
or
otherwise, related to the Product, Services, US Genomics Platform
or US
Genomics proprietary reagents including, without limitation, in the
manufacture, formulation, ingredients, preparation, presentation,
means of
delivery or administration, indication, use or packaging of the Product,
Services, US Genomics Platform or US Genomics proprietary
reagents.
|
1.14. |
“
Information
and Inventions
”
shall mean all discoveries, Improvements, processes, formulas, data,
inventions, know-how and trade secrets, patentable or otherwise arising
from the activities of the Parties under this
Agreement.
|
1.15. |
“
LIBOR
”
shall mean, with respect to any interest period, the rate per annum,
reported by JP Morgan Chase or any successor thereto, at which deposits
in
United States dollars are offered to prime commercial banks in the
London
interbank market at approximately 11:00 a.m., New York City time
on the
Business Day immediately preceding the commencement of such interest
period.
|
1.16. |
“
Lung
Cancer
”
shall mean the development of malignant neoplasia of the lung and
associated disregulation of genes within the lung
tissue.
|
1.17. |
“
Net
Sales
”
shall mean the aggregate gross amount invoiced with respect to Services
or
Products by Rosetta Genomics or its Affiliates or its Sublicensees
to
Customers, after deducting (if not previously deducted from the amount
invoiced):
|
(i) |
quantity
and/or cash discounts directly related to the sale of the
Product;
|
(ii) |
customs
duties, VAT or any other sales taxes or levies to the extent applicable
to
the sale or export of Products or Services and not collected separately
from the counterparty to the sale;
|
(iii) |
recalls,
credits and allowances on account of returned or rejected products,
including, but not limited to, allowance for breakage or
spoilage;
|
(iv) |
payments
paid in connection with transporting, packaging and insuring the
Products
and appearing separately on invoices;
and
|
(v) |
amounts
not actually collected.
|
1.18. |
“
Other
US Genomics Patented Product
”
shall mean any product or service sold for use in the Field whose
composition of matter or use in the Field is covered by one or more
Valid
Claims, where the Early Detection is made using a system other than
the US
Genomics Platform.
|
1.19. |
“
Product
”
shall mean a US Genomics Based Product or an Other US Genomics Patented
Product. For purposes of clarity, (x) Products shall not include
(a) the
US Genomics Platform or any modification or improvement thereof or
(b) any
“next generation” US Genomics Platform and (y) all Products shall be
listed in Schedule 1.18 attached hereto, as updated from time to
time by
Rosetta Genomics and US Genomics during the
Term.
|
1.20. |
“
Proprietary
Information
”
shall mean any and all scientific, clinical, regulatory, marketing,
financial and commercial information or data, whether communicated
in
writing, orally or by any other means, which is provided by one Party
to
the other Party in connection with this Agreement. For clarity, any
microRNA sequence disclosed by Rosetta Genomics to US Genomics shall
be
Proprietary Information of Rosetta Genomics, to the extent the foregoing
do not fall within the exceptions described in clauses (i) through
(iv) of
Section 4.1.
|
1.21. |
“
Proprietary
Materials
”
shall mean any tangible chemical, biological or physical research
materials that are furnished by or on behalf of the Transferring
Party to
the Recipient Party in connection with this Agreement, regardless
of
whether such materials are specifically designated as proprietary
by the
Transferring Party.
|
1.22. |
“
Regulatory
Requirements
”
shall mean current applicable manufacturing and other requirements
for
Products as defined in regulations promulgated by the FDA and, for
Products intended for shipment to any country other than the United
States, as defined in regulations promulgated by the corresponding
regulatory authority in such
country.
|
1.23. |
“
Rosetta
Genomics Know-How
”
shall mean Rosetta Genomics Information and Inventions, and any and
all
other information and materials, including but not limited to,
discoveries, information, improvements, processes, formulas, data,
inventions, know-how and trade secrets, patentable or otherwise,
which in
all cases
|
(i) |
relate
to the Products or the Services;
and
|
(ii) |
are
in Rosetta Genomics’ possession or control as of and after the date hereof
and as to which Rosetta Genomics has the right to license or sublicense
to
third parties, and are necessary or useful to Rosetta Genomics in
connection with the rights granted and activities contemplated under
this
Agreement.
|
1.24. |
“
Rosetta
Genomics Patent Rights
”
shall mean United States and foreign patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention) which as of the Effective
Date
or at any time during the term of this
Agreement
|
(i) |
are
owned by Rosetta Genomics or which Rosetta Genomics through license
or
otherwise has or acquires rights (and is not prohibited from sublicensing
to US Genomics); and
|
(ii) |
relate
in any way to Products, Services or any Improvement or otherwise
relate to
Information and Inventions, including all certificates of invention,
divisions, continuations, continuations-in-part, reissues, renewals,
extensions, supplementary protection certificates or the like of
any such
patents and current and future patent applications, and any counterparts
thereof which may be filed in other countries. Any Rosetta Genomics
Patent
Rights and any subsequent changes thereto shall be attached hereto
as
Exhibit C, provided, however, that the failure to include the then
current
Rosetta Genomics Patent Rights in Exhibit C from time to time shall
not
affect the Parties’ respective rights and obligations under this
Agreement.
|
1.25. |
“
Royalty
Year
”
shall mean (i) for the year in which the First Commercial Sale occurs,
the
period commencing with the date of such First Commercial Sale and
expiring
on the last day of the Calendar Quarter in which the twelfth (12th)
month
following the date of the First Commercial Sale occurs and (ii) for
each
subsequent year, each successive twelve (12) month
period.
|
1.26. |
“
SEC
”
means the United States Securities and Exchange
Commission.
|
1.27. |
“
Services
”
means any service performed using the US Genomics Platform in the
Field.
|
1.28. |
“
Sublicense
”
shall mean a sublicense by Rosetta Genomics to a Third Party granted
in
accordance with Section 2.3 of this
Agreement.
|
1.29. |
“
Sublicense
Income
”
shall mean all license fees and milestone payments and other payments
paid
by a Sublicensee to Rosetta Genomics in consideration of the grant
of a
Sublicense to such Sublicensee, excluding royalties, equity investments
in
Rosetta Genomics at fair market value, research funding paid to Rosetta
Genomics at cost or loans to Rosetta Genomics from the Sublicensee
on
commercial arms length terms.
|
1.30. |
“
Sublicensee
”
shall mean a sublicensee who was granted a Sublicense from Rosetta
Genomics.
|
1.31. |
“
Territory
”
shall mean all the countries in the
world.
|
1.32. |
“
US
Genomics Based Product
”
shall mean any product or service sold for use in the Field whose
manufacture, use or sale in the Field is covered by one or more Valid
Claims, where the Early Detection is made using the US Genomics
Platform.
|
1.33. |
“
US
Genomics Know-How
”
shall mean any and all US Genomics Information and Inventions, and
all
other information and materials, including but not limited to,
discoveries, information, Improvements, processes, formulas, data,
inventions, know-how and trade secrets, patentable or otherwise,
which in
all cases
|
(i) |
relate
to Products, Services or the use of the US Genomics Platform in the
Field;
and
|
(ii) |
are
in US Genomics’ possession or control as of and after the date hereof and
as to which US Genomics has the right to license or sublicense to
third
parties, and are necessary or useful to Rosetta Genomics in connection
with the rights granted and activities contemplated under this
Agreement.
|
1.34. |
“
US
Genomics Patent Rights
”
shall mean United States and foreign patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention) which as of the Effective
Date
or at any time during the term of this
Agreement
|
(i) |
are
owned by US Genomics or jointly owned by US Genomics and Rosetta
Genomics
or which US Genomics through license or otherwise has or acquires
rights
(and is not prohibited from sublicensing to Rosetta Genomics);
and
|
(ii) |
relate
in any way to the Products, Services, the use of the US Genomics
Platform
in the Field and/or any Improvement, or otherwise relate to Information
and Inventions, including all certificates of invention, divisions,
continuations, continuations-in-part, reissues, renewals, extensions,
supplementary protection certificates or the like of any such patents
and
current and future patent applications, and any counterparts thereof
which
may be filed in other countries, and additional patents or patent
applications which arise as a result of research and development
of the
Products and Services under this Agreement. US Genomics Patent Rights,
as
of the Effective Date, consist of the patents and patent applications
listed on Exhibit B hereto. Any subsequent US Genomics Patent Rights
and
any changes to any US Genomics Patent Rights shall be added to Exhibit
B,
provided, however, that the failure to include the then current US
Genomics Patent Rights in Exhibit B from time to time shall not affect
the
Parties’ respective rights and obligations under this
Agreement.
|
1.35. |
“
US
Genomics Platform
”
means the platform developed by US Genomics for the detection and
quantitation of single molecules.
|
1.36. |
“
Third
Party
”
shall mean a person or entity who or which is neither a Party nor
an
Affiliate of a Party.
|
1.37. |
“
Valid
Claim
”
means a claim of an issued and unexpired patent or patent application
included within the US Genomics Patent Rights, which has not been
revoked
or held unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or for
which
an appeal has not been filed within the time allowed for appeal,
and which
has not been disclaimed, denied or admitted to be invalid or unenforceable
through reissue or disclaimer or
otherwise.
|
1.38. |
“
Additional
Definitions
”
In addition, each of the following definitions shall have the respective
meanings set forth in the section of this Agreement indicated
below:
|
2.1. |
License
Grant
.
|
2.1.1 |
US
Genomics hereby grants to Rosetta Genomics a non-exclusive, worldwide
license, under the US Genomics Patent Rights and the US Genomics
Know How,
and the US Genomics Improvements (as such term is defined under Section
3.5.(i)), including the right to grant sublicenses on the terms set
forth
herein, to (a) use the US Genomics Platform for internal research
for the
purpose of developing Products and Services, and (b) to develop,
use,
import, offer for sale, market, commercialize, manufacture, distribute
and
sell the Products and the Services in the Territory, both solely
for the
Field.
|
2.1.2 |
US
Genomics hereby grants to Rosetta Genomics a worldwide, royalty-free,
paid-up, non-exclusive license, without the right to sublicense,
under the
US Genomics Know-How and the US Genomics Patent Rights solely as
required
in order for Rosetta Genomics to carry out its obligations and
responsibilities under the Development
Plan.
|
2.2. |
US
Genomics hereby grants to Rosetta Genomics a worldwide, royalty-free,
paid-up, non-exclusive license, with the right to grant sublicenses,
under
the US Genomics Information and Inventions solely to the extent that
the
US Genomics Information and Inventions constitute an improvement
to or
modification of Rosetta Genomics Know-Flow or Rosetta Genomics Patent
Rights for use by Rosetta Genomics solely in connection with the
practice
of the Rosetta Genomics Know-flow and Rosetta Genomics Patent Rights.
License Grant by Rosetta Genomics
|
2.2.1 |
Rosetta
Genomics hereby grants to US Genomics a worldwide, royalty-free,
paid-up,
non-exclusive license, without the right to sublicense, under the
Rosetta
Genomics Know-How, the Rosetta Genomics Patent Rights and the Rosetta
Genomics Improvement (as such term is defined under section 3.5(ii)),
solely as required in order for US Genomics to carry out its obligations
and responsibilities under the Development
Plan.
|
2.2.2 |
Rosetta
Genomics hereby grants to US Genomics a worldwide, royalty-free,
paid-up,
non-exclusive license, with the right to grant sublicenses, under
the
Rosetta Genomics Information and Inventions solely to the extent
that the
Rosetta Genomics Information and Inventions constitute an improvement
to
or modification of US Genomics Know-How or US Genomics Patent Rights
for
use by US Genomics solely in connection with the practice of the
US
Genomics Know-How and US Genomics Patent
Rights.
|
2.3. |
Retained
Rights
.
Except as specifically set forth herein, Rosetta Genomics is not
granted
any other license by implication or otherwise. US Genomics shall
retain
the right to use the US Genomics Know-How and US Genomics Patent
Rights
for all purposes inside or outside the
Field.
|
2.3.1 |
Except
as specifically set forth herein, US Genomics is not granted any
other
license by implication or otherwise. Rosetta Genomics shall retain
the
right to use the Rosetta Genomics Know-How and Rosetta Genomics Patent
Rights for all purposes inside or outside the
Field.
|
2.4. |
Sublicenses
.
Subject to compliance with the provisions of this Agreement, Rosetta
Genomics shall have the right to grant sublicenses to any Third Party
under the US Genomics Know How and US Genomics Patent Rights in the
Field
in the Territory, with the consent of US Genomics, such consent not
to be
unreasonably withheld. Any grant by Rosetta Genomics of a Sublicense
shall
be consistent with the terms of this
Agreement.
|
3.1. |
Diligence;
Development and
Commercialization
|
(i) |
Mutual
Responsibilities of the Parties
.
The initial Development Plan covering the activities to be carried
out by
the Parties under this Agreement is attached hereto as
Exhibit
A
.
The parties shall use commercially reasonable efforts to complete
the
Development Plan activities on the timelines specified therein. The
Parties may, by mutual agreement, make adjustments and amendments
to the
Development Plan as reasonably required during the term of this Agreement,
which adjustments and amendments shall be attached as an addendum
to
Exhibit
A
.
Each adjustment and amendment to the Development Plan shall be in
writing
and shall: (a) set forth (i) the activities to be performed with
reasonable specificity and the anticipated timeline for such activities,
provided however that such timeline shall not obligate the Parties,
and
(ii) the Party that shall be responsible for performing such activities;
and (b) be consistent with the terms of this Agreement. Each Party
agrees
to use commercially reasonable efforts to perform its respective
activities under the Development Plan, with the goal of developing
Products and Services. Without limiting the foregoing, each Party
shall
(A) commit such scientific resources, including, but not limited
to
consultants, facilities, equipment, and Proprietary Materials, as
are
reasonably necessary to achieve the objectives of the Development
Plan and
(B) perform its obligations under the Development Plan in good scientific
manner and in compliance in all material respects with all applicable
laws.
|
(ii) |
Rosetta
Genomics’ Responsibilities
.
In addition to the other obligations of Rosetta Genomics set forth
in this
Agreement, Rosetta Genomics shall be responsible
to:
|
(1) |
Obtain
all clinical samples required in the course of the Development
Plan;
|
(2) |
Undertake
the experimental work required under Phase Ia, Phase Ib and Phase
II of
the Development Plan, either by itself or, through a sublicensee
or a
sub-contractor;
|
(3) |
Provide
US Genomics with purified RNA for use in Phase Ic and Phase 2 of
the
Development Plan; and
|
(4) |
Fund
and perform Phase III of the Development Plan on the US Genomics
Platform.
Rosetta Genomics may, negotiate third party support for some or all
of
Phase III and any subsequent clinical/regulatory
development.
|
(iii) |
US
Genomics’ Responsibilities
.
In addition to the other obligations of US Genomics set forth in
this
Agreement, US Genomics shall be responsible
to:
|
(1) |
Undertake
associated experimental work during all clinical phases as set forth
in
the Development Plan;
|
(2) |
Fund
and support any required placement of instruments and reagents during
the
Development Plan including the supply and maintenance of [***] US
Genomics
Platform together with reagents necessary for [***] samples in Phases
I
and II, and [***] additional US Genomics Platforms together with
reagents
necessary for [***] samples in Phase III, with all US Genomics Platforms
being provided and supported at a facility mutually agreed upon by
both
Parties ; and
|
(3) |
Fund
and perform any commercially reasonable platform development work
necessary for the development of the
project.
|
(iv) |
Cooperation
.
The Parties acknowledge that the implementation of the Development
Plan
will require cooperation of the Parties and, in connection therewith,
agree to cooperate in the performance of the Development Plan and,
subject
to the terms of this Agreement and any confidentiality obligations
to
Third Parties, shall exchange in a timely fashion such data, information
and materials as are reasonably necessary for the other Party to
perform
its obligations under the Development
Plan.
|
(v) |
Records
.
Each Party shall maintain records of its activities under the Development
Plan in sufficient detail, in good scientific manner and otherwise
in a
manner that reflects all work done and results achieved in the performance
of the Development Plan. Without limiting the generality of this
Section
3.1(iii), each Party agrees to maintain a policy that requires its
employees and consultants to record and maintain all data and information
developed under the Development Plan in a manner designed to enable
the
Parties to use such records to establish the earliest date of invention
or
reduction to practice.
|
(vi) |
Reports
and Data
.
Each Party shall keep the other Party regularly informed of the progress
of the Development Plan. Without limiting the generality of the foregoing,
the Parties shall, not less than once each Calendar Quarter during
the
Term (and more frequently if required to keep the other Party sufficiently
informed), provide to the other Party (i) reports in reasonable detail
regarding the status of each Party’s activities under the Development Plan
and (ii) such supporting data and information as may be reasonably
requested from time to time by the other Party regarding the Development
Plan.
|
(vii) |
Supply
of Proprietary Materials
.
From time to time during the Term, in addition to the supply of reagent
kits as set forth in Section 3.1(iii), each Party (the “Transferring
Party”) shall supply the other Party (the “Recipient Party”), at its sole
expense, with Proprietary Materials of the Transferring Party for
use in
the Development Program as specified in the Development Plan. In
connection therewith, each Recipient Party hereby agrees that (a)
it shall
not use such Proprietary Materials for any purpose other than exercising
its rights or performing its obligations hereunder; (b) it shall
use such
Proprietary Materials only in compliance with all applicable laws;
(c) it
shall not transfer any such Proprietary Materials to any Third Party
without the prior written consent of the Transferring Party, except
as
expressly permitted hereby; (d) the Recipient Party shall not acquire
any
right, title or interest in or to such Proprietary Materials as a
result
of such supply by the Transferring Party except as expressly set
forth
herein; and (e) upon the expiration or termination of the Term, the
Recipient Party shall, if and as instructed by the Party, either
destroy
or return any such Proprietary Materials that are not the subject
of the
grant of a continuing license
hereunder.
|
(viii) |
Expenses
.
Except as expressly set forth herein, each Party shall bear its own
costs
and expenses in the performance of the Development
Plan.
|
3.2. |
Regulatory
Matters
.
Rosetta Genomics shall own, control and retain primary legal
responsibility for the preparation, filing and prosecution of all
filings
and regulatory applications required to obtain and maintain authorization
to develop, sell and use Products and/or Services in the Field in
the
countries throughout the Territory. Rosetta Genomics shall provide
to US
Genomics all filings, material correspondence and other documentation
in
connection with such applications and authorization in sufficiently
timely
fashion to permit US Genomics to review and comment on such materials
and
shall reasonably consider any such comments. The Supply Agreement
to be
negotiated pursuant to Article IX will provide that US Genomics will
comply with all regulatory requirements with respect to the manufacture
of
US Genomics Based Products and the US Genomics Platform, including,
without limitation, the QSR/GMP requirements set forth in 21CFR Part
820.
|
3.3. |
Trademark
.
Rosetta Genomics or any Sublicensee shall, as applicable and determined
by
Rosetta Genomics, select, own and maintain, at its expense, trademarks
for
all Products and Services.
|
3.4. |
Exchange
of Information
|
3.5. |
Information
and Inventions
.
Ownership of Information and Inventions developed or invented, or
which
are discovered or which accrue in the course of or which arise or
stem
from the performance of research and development under this Agreement,
and
all patent and other intellectual property rights relating thereto
shall
be determined as follows:
|
(i) |
such
Information and Inventions that are solely related to, improvements
to or
modifications of US Genomics Know-How or US Genomics Patent Rights
shall
be owned solely by US Genomics, (“US Genomics
Improvements”);
|
(ii) |
such
Information and Inventions that are solely related to, improvements
to or
modifications of Rosetta Genomics Know-How or Rosetta Genomics Patent
Rights shall be owned solely by Rosetta Genomics (“Rosetta Genomics
Improvements”);
|
(iii) |
such
Information and Inventions that are not described in clauses (i)
or (ii)
above and that are developed or invented, or which accrue in the
course of
or which arise or stem from the performance of research and development
under this Agreement solely by employees, agents, or consultants
of US
Genomics shall be owned solely by US Genomics (“US Genomics Information
and Inventions”)
|
(iv) |
such
Information and Inventions that are not described in clauses (i)
or (ii)
above and that are developed or invented, or which accrue in the
course of
or which arise or stem from the performance of research and development
under this Agreement solely by employees, agents, or consultants
of
Rosetta Genomics shall be owned solely by Rosetta Genomics (“Rosetta
Genomics Information and
Inventions”)
|
(v) |
such
Information and Inventions that are not described in clauses (i)
or (ii)
above and that are developed or invented, or which accrue in the
course of
or which arise or stem from the performance of research and development
under this Agreement jointly by employees, agents or consultants
of US
Genomics and Rosetta Genomics shall be owned jointly by US Genomics
and
Rosetta Genomics; (“Joint Information and Inventions”), subject to the
rights of, and the licenses granted to, each Party hereunder.
Notwithstanding anything to the contrary contained herein or under
applicable law, the Parties hereby agree that either Party may use
or
license or sublicense to Affiliates or third parties all or any portion
of
its interest in Joint Information and Inventions for any purposes
outside
the Field without the prior written consent of the other Party, without
restriction and without the obligation to provide compensation to
the
other Party.
|
3.6. |
Negotiation
outside the Field
.
At the request of either Party, both Parties will negotiate in good
faith
with respect to a possible collaboration to develop products and
services
utilizing the US Genomics US Genomics Platform or a modification
thereof
for specific diseases outside the Field. Neither Party shall be obligated
to enter into any such agreement with the
other.
|
4.1. |
Non-Disclosure
and Non-Use Obligations
|
(i) |
is
known by the receiving Party at the time of its receipt, and not
through a
prior disclosure by the disclosing Party, as documented by contemporaneous
written records;
|
(ii) |
is
in the public domain or knowledge;
|
(iii) |
is
subsequently disclosed to a receiving Party by a Third Party who
may
lawfully do so and is not under an obligation of confidentiality
to the
disclosing Party; or
|
(iv) |
is
developed by the receiving Party independently of Proprietary Information
received from the other Party, as documented by contemporaneous research
and development records.
|
4.2. |
Permitted
Disclosure of Proprietary Information
.
|
(i) |
to
governmental or other regulatory agencies in order to obtain patents
on
Products or Services, or to gain approval to conduct clinical trials
or to
market Products and Services to the extent permitted hereunder, but
such
disclosure may be only to the extent reasonably necessary to obtain
such
patents or authorizations;
|
(ii) |
to
its respective agents, consultants, Affiliates, sublicensees and/or
other
Third Parties for the research and development, manufacturing and/or
marketing of Products or Services (or for such parties to determine
their
interests in performing such activities) on the condition that such
Third
Parties agree to be bound by the confidentiality obligations contained
in
this Agreement; or
|
(iii) |
if
required to be disclosed by law or court order, provided that notice
is
promptly delivered to the disclosing Party in order to provide an
opportunity to challenge or limit the disclosure obligations;
provided
,
however
,
without limiting any of the foregoing, it is understood that either
Party
or its Affiliates may make disclosure of this Agreement and the terms
hereof in any filings required by the SEC, may file this Agreement
as an
exhibit to any filing with the SEC and may distribute any such filing
in
the ordinary course of its business. However, to the maximum extent
allowable by SEC rules and regulations, the Parties shall be obligated
to
maintain the confidentiality obligations set forth herein and shall
redact
any confidential information set forth in such filings as may be
reasonably requested by the disclosing
Party.
|
4.3. |
Publication
.
During the term of this Agreement, US Genomics and Rosetta Genomics
each
acknowledge the other Party’s interest in issuing press releases and
publishing its results related to the Products and Services for marketing
purposes and to obtain recognition within the scientific community
and to
advance the state of scientific knowledge. Each Party also recognizes
the
mutual interest in obtaining valid patent protection and in protecting
business interests and trade secret information. Consequently, either
Party, its employees or consultants wishing to make a publication
shall
deliver to the other Party a copy of the proposed written publication
or
an outline of the proposed oral disclosure at least thirty (30) days
prior
to submission for publication or presentation in the case of a publication
or presentation and at least five (5) days prior to release in the
case of
a press release. The other Party shall have the right (a) to propose
modifications to the publication, presentation or press release for
scientific reason, patent reasons, trade secret reasons (including
disclosure of Proprietary Information) or business reasons or (b)
to
request a reasonable delay in publication, presentation or issue
of the
press release in order to protect patentable information. If the
other
Party requests a delay, the publishing Party shall delay submission
or
presentation for a period of thirty (30) days (or five (5) days in
the
case of a press release) to enable patent applications protecting
each
Party’s rights in such information to be filed and the redaction of
Proprietary Information. Upon expiration of such thirty (30) days
or five
(5) days, the publishing Party shall be free to proceed with the
publication, presentation or issue of the press release, but may
not
include Proprietary Information of the other Party unless it is within
an
exception of Section 4.1(i) through 4.1(iv). If the other Party requests
modifications to the publication, presentation or press release,
the
publishing Party shall edit such publication, presentation or press
release to prevent disclosure of trade secret or Proprietary Information
prior to submission of the publication or presentation or issue of
the
press release.
|
5.1. |
Royalties
to US Genomics
|
(i) |
Subject
to the terms and conditions of this Agreement, and in consideration
of the
rights granted by US Genomics hereunder, Rosetta Genomics shall pay
to US
Genomics royalties in an amount equal to the following percentages
of
annual Net Sales by Rosetta Genomics or its Affiliates of any US
Genomics
Based Products and/or Services within the Field in the Territory
in each
Royalty Year:
|
Amount
of Net Sales
|
Royalty
Rate
|
Up
to and including US$[***] million
|
[***]%
|
Above
US$[***] million up to and including US$[***] million
|
[***]%
|
Above
US$[***] million
|
[***]%
|
(ii) |
Subject
to the terms and conditions of this Agreement, and in consideration
of the
rights granted by US Genomics hereunder, Rosetta Genomics shall pay
to US
Genomics royalties in an amount equal to the following percentages
of
annual Net Sales by Rosetta Genomics or its Affiliates of any US
Genomics
Based Products and/or Services within the Field in the Territory
in each
Royalty Year
|
Amount
of Net Sales
|
Royalty
Rate
|
Up
to and including US$[***] million
|
[***]%
|
Above
US$[***] million up to and including US$[***] million
|
[***]%
|
Above
US$[***] million up to and including US$[***] million
|
[***]%
|
Above
US$[***] million
|
[***]%
|
(iii) |
Subject
to the terms and conditions of this Agreement, and in consideration
of the
rights granted by US Genomics hereunder, Rosetta Genomics will pay US
Genomics an amount equal to the following percentages of all royalties
received from Sublicensees with respect to sale of US Genomics Based
Products and/or Services by Sublicensees within the Field in the
Territory
in each Royalty Year:
|
Amount
of Net Sales on which royalties are paid to
|
Percentage
of
|
Rosetta
Genomics by Sublicensees
|
Sublicensee
|
|
Royalty
to
|
|
Be
paid to U.S
|
|
Genomics
|
Up
to and including US$[***] million
|
[***]%
|
Above
US$[***] million up to and including US$[***] million
|
[***]%
|
Above
US$[***] million
|
[***]%
|
(iv) |
Subject
to the terms and conditions of this Agreement, and in consideration
of the
rights granted by US Genomics hereunder, Rosetta Genomics will
pay US
Genomics an amount equal to the following percentages of all royalties
received from Sublicensees with respect to sale of Other US Genomics
Patented Products by Sublicensees within the Field in the Territory
in
each Royalty Year:
|
(v) |
In
the event Rosetta Genomics or any of its Affiliates pays royalties
on Net
Sales in excess of [***] percent ([***]%) in the aggregate to US
Genomics
and one or more Third Parties to obtain rights that are determined
to be
necessary, based on the advice of patent counsel to Rosetta Genomics,
with
respect to the sale of any Product or Service in the Field, Rosetta
Genomics shall have the right to reduce the amount of royalties owing
to
US Genomics under Section 5.1(i), (ii), (iii) or (iv) by [***] percent
([***]%) of the amount by which such aggregate royalties to US Genomics
and such Third Party or Third Parties exceeds [***] percent ([***]%)
of
Net Sales;
provided
,
however
,
that, the royalty paid to US Genomics shall not be reduced by operation
of
this Section 5.1(v) by more than [***] percent ([***]%) of what would
otherwise be owed under Section 5.1(i), (ii), (iii) or (iv). For
example,
if Net Sales by Rosetta Genomics and its Affiliates under Section
5.1(i)
were $[***] million, and Rosetta Genomics paid a royalty equal to
[***]
percent ([***]%) of Net Sales to a Third Party, then the royalty
paid by
Rosetta Genomics to US Genomics on the first $[***] million of Net
Sales
would not be reduced; the royalty paid by Rosetta Genomics to US
Genomics
on the second $[***] million of Net Sales would be reduced by [***]
of
[***] percent ([***]%) and the royalty paid by Rosetta Genomics to
US
Genomics on the last $[***] million of Net Sales would be reduced
by [***]
percent ([***]%).
|
(vi) |
In
the event that as a result of the sale by Rosetta Genomics of any
Product
or Service, US Genomics is required to pay royalties to any Third
Party in
consideration for the license of patent rights then Rosetta Genomics
will
reimburse US Genomics for [***] percent ([***]%) of such payment
so long
as such reimbursement, together with all royalties paid to US Genomics
and
Third Parties (including amounts reimbursed by Rosetta Genomics pursuant
to this Section) by Rosetta Genomics or any of its Affiliates with
respect
to the sale of such Product or Service, does not exceed [***] percent
([***]%) of Net Sales in the aggregate. To the extent such reimbursement
and royalties would exceed [***] percent ([***]%) of Net Sales in
the
aggregate, Rosetta Genomics shall instead reimburse US Genomics for
[***]
percent ([***]%) of such payment by US Genomics to the Third Parties.
Notwithstanding the foregoing, in no event shall the amount payable
by
Rosetta Genomics under this Section 5.1(vi) with respect to the sale
of
any Product or Service exceed [***] percent ([***]%) of the Net Sales
thereof.
|
(vii) |
Royalties
on Net Sales, at the rates set forth above, shall accrue as of the
date of
the applicable First Commercial Sale in any country and shall continue
and
accrue on Net Sales (a) in a country where a Valid Claim included
within
the US Genomics Patent Rights exists, until the later of the date
of
expiry of such patent in such country or the expiry of the period
of
twelve (12) years commencing with the date of the First Commercial
Sale
(b) in any other country, until the expiry of the period of twelve
(12)
years commencing with First Commercial Sale in such
country.
|
(viii) |
Following
the expiration of the last applicable period set forth in subsection
(v)
above, (a) Rosetta Genomics shall have the right under this Agreement
to
directly and indirectly (through sublicensees or otherwise) continue
to
manufacture, use, market, commercialize, distribute and sell and
otherwise
dispose of Products and Services, throughout the world, without having
to
pay royalties or any other consideration to US Genomics and (b) US
Genomics shall not grant any exclusive license to the US Genomics
Know How
to any Third Party for the Field.
|
(ix) |
Rosetta
Genomics shall have the right, at any time and in its sole discretion,
to
terminate its obligation to make any further payment to US Genomics
under
this Article 5 by paying to US Genomics the sum of [***] Dollars
($[***])
less all amounts previously paid to US Genomics
hereunder.
|
(x) |
In
the event that (i) Rosetta Genomics does not commercialize either
any US
Genomics Based Product or any Other US Genomics Patented Product,
and (ii)
Rosetta Genomics commercializes a product or service for Early Detection
of Lung Cancer based on microRNA markers in sputum and/or blood that
is
not a US Genomics Based Product or an Other US Genomics Patented
Product,
then Rosetta Genomics will pay US Genomics [***] percent ([***]%)
of the
direct cost to US Genomics of the US Genomics Platforms and reagent
kits
provided to Rosetta Genomics for use in the Development Program pursuant
to Section 3.1(iii), such payment to be made on the first anniversary
of
the first commercial sale of the first such product or
service.
|
5.2. |
Sublicense
Income
.
Rosetta Genomics will pay US Genomics [***]% of all Sublicense Income
received from Sublicensees in each Calendar
Quarter.
|
5.3. |
Reports;
Payment of Royalty
.
Commencing with the first Calendar Quarter in which royalty or other
payments are due, Rosetta Genomics shall furnish to US Genomics a
quarterly written report for such Calendar Quarter (the “Quarterly
Report”), each showing the sales of all Products and Services subject to
royalty or other payments sold by Rosetta Genomics and its Affiliates
and
all Sublicense Income and royalties received from Sublicensees during
the
reporting period and the royalties or other payments payable under
this
Agreement. Quarterly Reports shall be due on the sixtieth (60th)
day
following the close of each Calendar Quarter. Royalties and other
payments
shown to have accrued by each Quarterly Report, if any, shall be
due and
payable on the date such Quarterly Report is due. Rosetta Genomics
shall
keep (and shall require its Affiliates to keep) complete and accurate
records in sufficient detail to enable Net Sales and the royalties
and
other payments payable hereunder, to be determined, reconciled and
verified.
|
5.4. |
Audits
.
|
5.4.1 |
Upon
the written request of US Genomics and not more than once in each
Calendar
Year, Rosetta Genomics shall permit an independent certified public
accounting firm of recognized standing in the United States or Israel,
selected by US Genomics and reasonably acceptable to Rosetta Genomics,
to
have access during normal business hours at times mutually convenient
to
the Parties and upon reasonable notice to Rosetta Genomics to such
of the
records of Rosetta Genomics as may be reasonably necessary to verify
the
accuracy of the royalty and other payment reports hereunder for any
Royalty Year, for a period of up to three (3) years from the completion
of
such Royalty Year. The accounting firm shall report to US Genomics
only
the results of the work performed as contemplated by this Section
5.4.1
and the details concerning any
discrepancies.
|
5.4.2 |
If
such accounting firm concludes that additional royalties or other
payments
were owed during such Royalty Year , Rosetta Genomics shall pay the
additional royalties or other payments (plus accrued interest at
the LIBOR
rate as in effect on the date that such payment was first due, plus
[***]
([***]%) percent) within ten (10) Business Days of the date US Genomics
delivers to Rosetta Genomics such accounting firm’s written report so
concluding, provided however, that in the event that Rosetta Genomics
shall not be in agreement with the conclusions of such report Rosetta
Genomics shall provide US Genomics with a written notice to such
effect
within such ten (10) Business Day period and such matter shall be
resolved
pursuant to the provisions of Section 11.6. In the event such accounting
firm concludes that Rosetta Genomics overpaid amounts during such
period,
US Genomics shall reimburse Rosetta Genomics the amount of such
overpayment within ten (10) Business Days of receipt of such accounting
firm’s written report, provided however, that, in the event that US
Genomics shall not be in agreement with the conclusions of such report
US
Genomics shall provide Rosetta Genomics with a written notice to
such
effect within such ten (10) Business Day period and such matter shall
be
resolved pursuant to the provisions of Section 11.6. The fees charged
by
such accounting firm shall be paid by US Genomics unless the audit
(or in
the case of a disagreement, the dispute resolution under Section
11.6)
establishes an underpayment by Rosetta Genomics of [***] percent
([***]%)
or more.
|
5.4.3 |
Each
Party reviewing information under this Section 5.4 shall treat all
financial information subject to review under this Section 5.4 in
accordance with the confidentiality provisions of this Agreement
and shall
request a confidentiality agreement to the same effect from any accounting
firm reviewing information under this Section
5.4.
|
5.5. |
Payments
.
All payments to be made under this Agreement shall be made in United
States Dollars and shall be paid by bank wire transfer or by automated
clearinghouse (electronic funds transfer) in immediately available
funds
to such bank account designated in writing by each Party to the other
from
time to time. Bank charges necessary for making the bank transfer
shall be
incurred by the Party making the
transfer.
|
5.6. |
Payment
Exchange Rate
.
In the case of sales outside the United States, the rate of exchange
to be
used in computing the amount of currency equivalent in United States
dollars due any Party shall be calculated quarterly in accordance
with
GAAP and based on the conversion rates for buying United States dollars
on
the last Business Day of each Calendar Quarter published in the Wall
Street Journal, Eastern edition.
|
5.7. |
Tax
Withholding
.
The royalties, milestones and other amounts payable by Rosetta Genomics
to
US Genomics pursuant to this Agreement (“
Payments
”)
shall not be reduced on account of any taxes and are net of all such
taxes. US Genomics alone shall be responsible for paying any and
all taxes
(other than withholding taxes or deduction of tax at source required
by
applicable law to be paid by Rosetta Genomics) levied on it by account
of
its receipt of any Payments it receives under this
Agreement.
|
5.8. |
Interest
on Late Payments
.
Except as otherwise set forth in this Agreement, any payment by Rosetta
Genomics that is not paid on or before the date such payment is due
under
this Agreement shall bear interest, to the extent permitted by applicable
law, at a rate per annum equal to the LIBOR rate as in effect on
the date
that such payment was first due, plus [***] percent ([***]%) calculated
on
the number of days such payment is
delinquent.
|
5.9. |
Blocked
Currencies
.
If by law, regulations or fiscal policy of a particular country in
the
Territory, remittance of royalties in United States Dollars is restricted
or forbidden, written notice thereof shall promptly be given to US
Genomics, and payment of the royalty shall be made by the deposit
thereof
in local currency to the credit of US Genomics in a recognized banking
institute reasonably designated by US Genomics by written notice
to
Rosetta Genomics. When in any country in the Territory the law or
regulations prohibit both the transmittal and the deposit of royalties
on
sales in such country, royalty payments shall be suspended for as
long as
such prohibition is in effect and as soon as such prohibition ceases
to be
in effect, all royalties that Rosetta Genomics would have been under
an
obligation to transmit or deposit but for the prohibition shall forthwith
be deposited or transmitted, to the extent
allowable.
|
6.1. |
US
Genomics Representations and Warranties
.
US Genomics represents and warrants to Rosetta Genomics that, as
of the
date hereof
|
(i) |
US
Genomics has the right to grant Rosetta Genomics the licenses granted
to
Rosetta Genomics in this Agreement;
|
(ii) |
this
Agreement has been duly executed and delivered by US Genomics and
constitutes its legal, valid, and binding obligation, enforceable
against
it in accordance with its terms;
|
(iii) |
no
approval, authorization, consent, or other order or action of or
filing
with any court, administrative agency or other governmental authority
is
required for the execution and delivery by it of this Agreement or
the
consummation by it of the transactions contemplated
hereby;
|
(iv) |
to
its knowledge, it is the sole owner of all rights related to the
US
Genomics Know-How and US Genomics Patent Rights, free and clear of
all
liens, claims and pledges, security interest and restrictions to
the
extent that any of the foregoing would limit the rights granted
hereunder;
|
(v) |
to
its knowledge and except as otherwise disclosed in writing to Rosetta
Genomics, the use of the US Genomics Platform in the Field in the
Territory to the extent contemplated hereunder, will not infringe
any
patent right of any Third Party;
|
(vi) |
except
as otherwise disclosed in writing to Rosetta Genomics, it is under
no
liability or obligation to make any payments by way of royalties,
fees or
otherwise with respect to the use by Rosetta Genomics of US Genomics
Know-How and/or US Genomics Patent Rights, Products and/or
Services;
|
(vii) |
to
its knowledge, in the development of the US Genomics Know-How and/or
the
US Genomics Patent Rights, it did not wrongfully or illegally use
any
intellectual property rights of any entity or person, including any
former
or current employee;
|
(viii) |
it
has the full right, power and authority to enter into and deliver
this
Agreement, to perform and to grant the licenses granted under Article
II
hereof and to consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to be taken to authorize
such execution, delivery, and consummation have been duly and properly
taken and obtained; and
|
(ix) |
there
are no actions, suits, proceedings, claims, judgments or settlements
against or owed by US Genomics or pending or threatened actions,
suits,
proceedings, claims or litigation against US Genomics relating to
the US
Genomics Patent Rights or US Genomics
Know-How.
|
6.2. |
US
Genomics’ Warranty Disclaimer
|
6.3. |
Rosetta
Genomics’ Representations and Warranties
.
Rosetta Genomics represents and warrants to US Genomics that as of
the
date hereof:
|
(i) |
Rosetta
Genomics has the right to grant US Genomics the licenses granted
to US
Genomics in this Agreement;
|
(ii) |
this
Agreement has been duly executed and delivered by Rosetta Genomics
and
constitutes its legal, valid, and binding obligations, enforceable
against
it in accordance with its terms;
|
(iii) |
it
has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
All
corporate acts and other proceedings required to be taken to authorize
such execution, delivery, and consummation have been duly and properly
taken and obtained;
|
(iv) |
no
approval, authorization, consent, or other order or action of or
filing
with any court, administrative agency or other governmental authority
is
required for the execution and delivery by it of this Agreement or
the
consummation by it of the transactions contemplated
hereby;
|
(v) |
to
its knowledge, the use of the Rosetta Genomics Patent Rights in the
Field
in the Territory to the extent contemplated hereunder, will not infringe
any patent right of any Third Party;
and
|
(vi) |
except
as disclosed in writing it is under no liability or obligation to
make any
payments by way of royalties, fees or otherwise with respect to the
use of
the Rosetta Genomics Know-How and/or Rosetta Genomics Patent Rights
in the
development or commercialization of Products and/or
Services.
|
6.4. |
Rosetta
Genomics’ Warranty Disclaimer
|
7.1. |
Filing,
Prosecution and Maintenance of Patent Applications or
Patents
|
7.1.1 |
Rosetta
Genomics Patent Rights
.
Rosetta Genomics, acting through patent counsel of its choice, shall
be
responsible, at its sole expense, for the preparation, filing, prosecution
and maintenance of all Rosetta Genomics Patent Rights and patents
covering
Rosetta Genomics Improvements. At Rosetta Genomics’ request, US Genomics
shall cooperate with Rosetta Genomics in all reasonable respects,
at
Rosetta Genomics’ expense, in connection with such preparation, filing,
prosecution and maintenance of Rosetta Genomics Patent Rights and
Rosetta
Genomics Improvements.
|
7.1.2 |
US
Genomics Patent Rights
.
US Genomics, acting through patent counsel of its choice, shall be
responsible, at its own expense, for the preparation, filing, prosecution
and maintenance of all US Genomics Patent Rights and patents covering
US
Genomics Improvements. At US Genomics’ request, Rosetta Genomics shall
cooperate with and assist US Genomics in all reasonable respects,
at US
Genomics’ expense, in connection with such preparation, filing,
prosecution and maintenance of US Genomics Patent Rights and US Genomics
Improvements.
|
7.1.3 |
Joint
Program Patent Rights
.
The Parties will cooperate to jointly select outside patent counsel
to
handle the filing, prosecution and maintenance of patents and patent
applications claiming Joint Information and Inventions. The Parties
shall
jointly determine which Party shall control the prosecution of patent
applications claiming inventions that are Joint Information and
Inventions. The fees of counsel and the other costs and expenses
related
to patents and patent applications claiming Joint Information and
Inventions shall be shared equally by the Parties. Should one Party
desire
not to share in the cost of any such patent or patent applications,
the
other Party shall gain sole control of the filing, prosecution and
maintenance of such patents or patent applications, which shall be
deemed
to be the Information and Inventions of such Party and such Party
shall
have sole responsibility for filing, prosecution and maintenance
expenses
with respect thereto.
|
7.1.4 |
Right
of Other Party to Prosecute and Maintain Patents
.
Any Party having the first right to file, prosecute and maintain
the
patent applications and patents referred to in this Section 7.1 shall
give
notice to the other Party of any desire to cease prosecution and/or
maintenance of such patent rights and, in such case, shall permit
the
other Party, at its sole discretion, to continue prosecution and/or
maintenance at its own expense in the name of the first
Party.
|
7.2. |
Patent
Office Proceedings
.
Each Party shall reasonably cooperate with the other Party with respect
to
any patent office proceeding.
|
7.3. |
Enforcement
and Defense
.
|
7.3.1 |
Each
Party shall promptly give the other Party notice of any infringement
in
the Territory of any patent application or patent included in the
US
Genomics Patent Rights or Rosetta Genomics Patent Rights that comes
to
such Party’s attention. The Parties will thereafter consult and cooperate
fully to determine a course of action with respect to jointly owned
patent
rights, including, without limitation, the commencement of legal
action by
either Party. Each Party solely owning patent rights hereunder shall
have
the sole right to initiate and prosecute such legal action against
any
such infringer at its own expense in its own name or to control the
defense of any declaratory judgment action relating to such patent
rights.
|
7.3.2 |
For
any such legal action or defense, in the event that any Party is
unable to
initiate, prosecute, or defend such action solely in its own name,
the
other Party shall join such action voluntarily and shall execute
all
documents reasonably necessary for the Party to prosecute, defend
and
maintain such action. In connection with any such action, the Parties
will
cooperate and will provide each other with any information or assistance
that either reasonably may request. Each Party shall keep the other
informed of developments in any such action or proceeding, including,
to
the extent permissible by law, the status of any settlement negotiations
and the terms of any offer related
thereto.
|
7.3.3 |
Any
recovery obtained by Rosetta Genomics or US Genomics in any such
action or
proceeding shall be shared as follows in the following order of
priority:
|
(i) |
the
Party that initiated and prosecuted or maintained the defense of,
the
action, shall recoup all of its costs and expenses incurred in connection
with the action, whether by settlement or
otherwise;
|
(ii) |
the
other Party shall next recoup all of its costs and expenses incurred
in
connection with the action, whether by settlement or
otherwise;
|
(iii) |
if
US Genomics initiated and prosecuted, or maintained the defense of,
the
action, the amount of any recovery remaining then shall be retained
by US
Genomics; and
|
(iv) |
if
Rosetta Genomics initiated and prosecuted, or maintained the defense
of,
the action, the amount of any recovery remaining shall be retained
by
Rosetta Genomics, except that US Genomics shall receive a portion
equivalent to the royalties they would have received on such remaining
amount if such amount were deemed Net
Sales.
|
7.4. |
Patent
Term Extensions and Supplemental Protection Certificates
.
The Parties shall cooperate in obtaining patent term extensions or
supplemental protection certificates or their equivalents in any
country
in the Territory where applicable and where desired by Rosetta Genomics.
If elections with respect to obtaining such extension or supplemental
protection certificates are to be made, Rosetta Genomics shall have
the
first right to make the election, in consultation with US
Genomics.
|
8.1. |
Term
and Expiration
.
This Agreement shall be effective as of the Effective Date and, unless
terminated earlier pursuant to Section 8.2 or Section 8.3 below,
shall
continue in effect with respect to all US Genomics Patent Rights,
US
Genomics Know-How and any other rights licensed to Rosetta Genomics
hereunder, until the expiration of all payment obligations under
Section
5.1 hereof.
|
8.2. |
Termination
by Notice
.
Notwithstanding anything contained herein to the contrary, Rosetta
Genomics shall have the right, in its reasonable business or scientific
judgment, to terminate this Agreement in its entirety at any time
by
giving ninety (90) days advance written notice to US Genomics. Except
as
expressly set forth in this Agreement (including, without limitation,
those rights and obligations respecting confidentiality and indemnity
hereunder), the rights and obligations hereunder of the Parties,
excluding
any payment obligation which has accrued prior to the termination
date or
that is required by Section 5.1(i), (ii), (iii) or (iv), shall terminate
(including Rosetta Genomics’ rights and obligations with respect to the US
Genomics Patent Rights and the US Genomics Know-How); in any event
of
termination by Rosetta Genomics according to this Section 8.2, US
Genomics
shall not be entitled to any compensation or any other payment whatsoever
except as set forth in Section 5.1(i), (ii), (iii) or (iv) and excluding
any obligation which has accrued prior to the termination date, which
shall be promptly paid by Rosetta
Genomics.
|
8.3. |
Termination
for Cause
.
Either Party may terminate this Agreement by notice to the other
Party at
any time during the term of this Agreement as
follows:
|
(i) |
if
the other Party is in breach of its material obligations hereunder
(other
than a breach for failure to make payments covered in Section 8.3(ii))
below), which breach is not cured within ninety (90) days after the
date
of the notice from the non-defaulting Party specifying the breach
in
reasonable detail, provided, however, that if a curable breach is
not
capable of being cured within ninety (90) days of such written notice,
the
Agreement may not be terminated so long as the breaching Party commences
and is taking commercially reasonable actions to cure such breach
as
promptly as practicable. In any event, if a curable breach has not
been
cured within one-hundred eighty (180) days after notice requesting
cure,
then the non-breaching Party may terminate this Agreement effective
upon
expiration of such one-hundred eighty (180) day
period;
|
(ii) |
if
the defaulting Party fails to pay the other Party any amounts due
and
payable to such Party (together with any accrued interest at the
rate set
forth in this Agreement) and has not cured such breach within thirty
(30)
days after notice requesting cure of the breach, the Party entitled
to
receive payment shall have the right to (i) terminate this Agreement
immediately upon expiration of such thirty (30) day period and institute
an action to collect such overdue amounts and to pursue any other
rights
or remedies such Party may have at law or in equity or (ii) institute
an
action to collect such amounts without terminating this Agreement;
or
|
(iii) |
upon
the filing or institution of bankruptcy, reorganization, liquidation
or
receivership proceedings, or upon an assignment of all or substantially
all of the assets for the benefit of creditors by the other Party;
provided
,
however
,
in the case of any involuntary bankruptcy, reorganization, liquidation,
receivership or assignment proceeding such right to terminate shall
only
become effective if the Party consents to the involuntary proceeding
or
such proceeding is not dismissed within ninety (90) days after the
filing
thereof.
|
8.4. |
Effect
of Expiration or Termination
.
|
8.4.1 |
Expiration
or termination of this Agreement shall not relieve the Parties of
any
obligation accruing prior to such expiration or termination. In addition
to any other provisions of this Agreement which by their terms continue
after the expiration of this Agreement, the provisions of Article
IV and
Article X shall survive the expiration or termination of this Agreement.
In addition, any other provision required to interpret and enforce
the
Parties’ rights and obligations under this Agreement shall also survive,
but only to the extent required for the full observation and performance
of this Agreement. Any expiration or early termination of this Agreement
shall be without prejudice to the rights of any Party against the
other
Party accrued or accruing under this Agreement prior to termination,
including the obligation to pay royalties for Product(s) sold prior
to
such termination. Except as expressly set forth herein, the rights
to
terminate as set forth herein shall be in addition to all other rights
and
remedies available under this Agreement, at law, in equity, or
otherwise.
|
8.4.2 |
Except
as otherwise provided in this Section 8, in the event (a) of termination
of this Agreement by Rosetta Genomics in accordance with Section
8.2 or
(b) of termination of this Agreement by US Genomics in accordance
with
Section 8.3(i) or Section 8.3(ii), Rosetta Genomics shall have no
further
rights with respect to the US Genomics Patent Rights and the US Genomics
Know-How, and Rosetta Genomics shall promptly return any and all
US
Genomics Patent Rights and all US Genomics Know-How in its possession
at
the time of termination.
|
8.4.3 |
Rights
in Bankruptcy
.
All rights and licenses granted under or pursuant to this Agreement
by US
Genomics are, and shall otherwise be deemed to be, for purposes of
Section
365(n) of the United States Bankruptcy Code, licenses of rights to
“intellectual property” as defined under Section 101 of the United States
Bankruptcy Code. The Parties agree that Rosetta Genomics, as licensee
of
such rights under this Agreement, shall retain and may fully exercise
all
of its rights and elections under the United States Bankruptcy Code.
The
Parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against US Genomics under the United
States
Bankruptcy Code, Rosetta Genomics shall be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, which,
if not
already in Rosetta Genomics’ possession, shall be promptly delivered to it
(i) upon any such commencement of a bankruptcy proceeding upon Rosetta
Genomics’ written request therefor, unless US Genomics continues to
perform all of its obligations under this Agreement or (ii) if not
delivered under clause (i) above, following the rejection of this
Agreement by or on behalf of US Genomics upon written request therefor
by
Rosetta Genomics.
|
10.1. |
General
.
For purposes of this Article 10 “Indemnified Parties” refers to US
Genomics, its Affiliates and the officers, directors, employees and
agents
of US Genomics and its Affiliates when Rosetta Genomics is the indemnitor,
and “Indemnified Parties” refers to Rosetta Genomics, its Affiliates and
officers, directors, employees and agents of Rosetta Genomics and
its
Affiliates when US Genomics is the
indemnitor.
|
10.1.1 |
Rosetta
Genomics Indemnity
.
Rosetta Genomics shall indemnify and hold harmless the US Genomics
Indemnified Parties and each of them from any and all losses, damages,
liabilities and costs (including reasonable attorneys’ fees and expenses)
(collectively, “Losses”) associated with any claim, complaint, suit,
proceeding or cause of action (collectively, “Claims”) against any US
Genomics Indemnified Party by a third party (i) alleging physical
or other
injury, including death, arising out of, based upon, or resulting
from the
research, development, testing, registration, storage, handling,
packaging, distribution, marketing, sale or use of any Product or
Service
by Rosetta Genomics, its Affiliates, Sublicensees or distributors,
or (ii)
arising out of any breach by Rosetta Genomics of any representation,
warranty or covenant hereunder, except in either case to the extent
such
Losses are determined to have resulted from the negligence or willful
misconduct of any US Genomics Indemnified
Party.
|
10.1.2 |
US
Genomics Indemnity
.
US Genomics shall indemnify and hold harmless the Rosetta Genomics
Indemnified Parties and each of them from any and all Losses, associated
with any Claim against any Rosetta Genomics Indemnified Party by
a third
party (i) alleging physical or other injury, including death arising
out
of, based upon, or resulting from the research, development, testing,
registration, manufacture, storage, handling, packaging, distribution,
marketing, sale or use of any Product or Service by US Genomics,
its
Affiliates, sublicensees or distributors (excluding Rosetta Genomics),
or
(ii) arising out of any breach by US Genomics of any representation,
warranty or covenant hereunder, except in either case to the extent
such
Losses are determined to have resulted from the negligence or willful
misconduct of any Rosetta Genomics Indemnified
Party.
|
10.2. |
Conditions
to Indemnification
.
An Indemnified Party seeking recovery under this Article 10 in respect
of
a Claim shall give prompt notice of such Claim to the Party from
which
recovery is sought (the “Indemnifying Party”) and, provided that the
Indemnifying Party is not contesting its obligation under this Article
10,
shall permit the Indemnifying Party to control any litigation relating
to
such Claim and the disposition of such Claim; provided that the
Indemnifying Party shall (a) act reasonably and in good faith with
respect
to all matters relating to the settlement or disposition of such
Claim as
the settlement or disposition relates to Parties being indemnified
under
this Article 10, (b) not settle or otherwise resolve such Claim without
the prior written consent of the Indemnified Party (which consent
shall
not be unreasonably withheld, conditioned or delayed). The Indemnified
Party shall cooperate with the Indemnifying Party in its defense
of any
such Claim in all reasonable respects and shall have the right to
be
present in person or through counsel at all legal proceedings with
respect
to such Claim.
|
10.3. |
Survival
.
Each Party acknowledges and hereby agrees that the obligations set
forth
in this Article X shall survive the termination or expiration of
this
Agreement until the later of (a) [***] ([***]) years from the date
of
expiration or termination, or (b) the expiration of all applicable
statutes of limitations.
|
10.4. |
Insurance
.
Both Rosetta Genomics and US Genomics shall maintain, at their respective
expense, sufficient product liability insurance and other insurance
insuring against all liability, including product liability, personal
injury, physical injury and property damage in such amounts as are
reasonable and customary for companies of comparable size and activities
in the U.S. diagnostics industry and in relation to their respective
liability/risk exposures under this
Agreement.
|
11.1. |
Force
Majeure
.
Neither Party shall be held liable or responsible to the other Party
nor
be deemed to have defaulted under or breached this Agreement for
failure
or delay in fulfilling or performing any term of this Agreement during
the
period of time when such failure or delay is caused by or results
from
causes beyond the reasonable control of the affected Party including,
but
not limited to, fire, flood, embargo, war, acts of war (whether war
be
declared or not), insurrection, riot, civil commotion, strike, lockout
or
other labor disturbance, act of God or act, omission or delay in
acting by
any governmental authority or the other Party. The affected Party
shall
notify the other Party of such force majeure circumstances as soon
as
reasonably practicable and the affected Party shall use all reasonable
efforts to avoid or remove such causes of non-performance as promptly
as
practicable and shall promptly continue performance whenever such
causes
are removed. When such circumstances arise, the Parties shall discuss
what, if any, modification of the terms of this Agreement may be
required
in order to arrive at an equitable
solution.
|
11.2. |
Assignment
.
This Agreement may not be assigned or otherwise transferred, nor,
except
as expressly provided hereunder, may any right or obligations hereunder
be
assigned or transferred by a Party without the prior written consent
of
the other Party;
provided,
however
,
that either Party may assign this Agreement and its rights and obligations
hereunder without the consent of the other Party hereto to an Affiliate
or
in connection with the transfer or sale of all or substantially all
of its
assets related to the Products or Services or its business or in
the event
of its merger or consolidation or change in control or similar
transaction. Except as otherwise set forth herein, any permitted
assignee
shall assume all obligations of its assignor under this Agreement
(without
releasing the assignor of its obligations hereunder). Any assignment
or
attempted assignment contrary to the provisions hereof shall be null
and
void.
|
11.3. |
Severability
.
In the event that any of the provisions contained in this Agreement
are
held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein
shall not in any way be affected or impaired thereby, unless the
absence
of the invalidated provision(s) adversely affect the substantive
rights of
the Parties. In such event, the Parties shall replace the invalid,
illegal
or unenforceable provision(s) with valid, legal and enforceable
provision(s) which, insofar as practicable, implement the purposes
of this
Agreement.
|
11.4. |
Notices
.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally,
sent
by facsimile (and promptly confirmed by personal delivery, registered
or
certified mail or overnight courier), sent by a nationally-recognized
overnight courier providing evidence of delivery or sent by registered
or
certified mail, postage prepaid, return receipt requested, addressed
as
follows:
|
11.5. |
Applicable
Law
.
The Agreement shall be governed by and construed in accordance with
the
laws of the State of New York (USA) without reference to any rules
of
conflict of laws.
|
11.6. |
Dispute
Resolution
.
In the event of any dispute arising between the Parties in connection
with
this Agreement, the construction thereof, or the rights, duties or
liabilities of either Party (each a “Disputed Matter”), the Disputed
Matter shall be submitted to the Chief Executive Officers of the
Parties
for good faith resolution. In the event the Disputed Matter cannot
be
resolved by the good faith efforts of the Chief Executive Officers
on or
before thirty (30) days from the date such Disputed Matter is first
presented for resolution, then such Disputed Matter shall be resolved
by
binding arbitration in accordance with the following
procedures:
|
(a) |
The
arbitration shall be conducted by a panel of three (3) persons experienced
in the diagnostics industry who are independent of both Parties.
Within
thirty (30) days after initiation of arbitration, each Party shall
select
one person to act as arbitrator and the two Party-selected arbitrators
shall select a third arbitrator within thirty (30) days of their
appointment. If the arbitrators selected by the Parties are unable
or fail
to agree upon the third arbitrator, the third arbitrator shall be
appointed by the American Arbitration Association (“AAA”). The place of
arbitration shall be New York, New York, and all proceedings and
communications shall be in English. Except as provided for differently
herein, the arbitration shall be conducted under the rules of the
AAA
applicable to complex business
disputes.
|
(b) |
Either
Party may apply to the arbitrators for interim injunctive relief
until the
arbitration decision is rendered or the Disputed Matter is otherwise
resolved. Either Party also may, without waiving any right or remedy
under
this Agreement, seek from any court having jurisdiction any injunctive
or
provisional relief necessary to protect the rights or property of
that
Party pending resolution of the Disputed Matter pursuant to this
Section
11.6. The arbitrators shall have no authority to award punitive or
any
other type of damages not measured by a Party’s compensatory damages. Each
Party shall bear its own costs and expenses and attorneys’ fees, and the
Party that does not prevail in the arbitration proceeding shall pay
the
arbitrators’ fees and any administrative fees of
arbitration.
|
(c) |
Except
to the extent necessary to confirm an award or decision or as may
be
required by applicable laws, neither a Party nor an arbitrator may
disclose the existence, content, or results of an arbitration without
the
prior written consent of both Parties. In no event shall an arbitration
be
initiated after the date when commencement of a legal or equitable
proceeding based on the Disputed Matter would be barred by the applicable
New York statute of limitations.
|
(d) |
The
Parties agree that, in the event of a Disputed Matter involving the
alleged breach of this Agreement, neither Party may terminate this
Agreement until resolution of the Disputed Matter pursuant to this
Section
11.6.
|
(e) |
The
Parties hereby agree that any disputed performance or suspended
performance pending the resolution of a Disputed Matter that the
arbitrators determine to be required to be performed by a Party must
be
completed within a reasonable time period following the final decision
of
the arbitrators.
|
(f) |
The
Parties hereby agree that any monetary payment to be made by a Party
pursuant to a decision of the arbitrators shall be made in United
Stales
Dollars, free of any tax or other deduction. The Parties further
agree
that the decision of the arbitrators shall be the sole, exclusive
and
binding remedy between them regarding determination of Disputed Matters
presented.
|
11.7. |
Entire
Agreement
.
This Agreement, including all exhibits hereto, contains the entire
understanding of the Parties with respect to the subject matter hereof.
All express or implied agreements and understandings, either oral
or
written, heretofore made are expressly superseded by this Agreement.
This
Agreement may be amended, or any term hereof modified, only by a
written
instrument duly executed by all Parties
hereto.
|
11.8. |
Independent
Contractors
.
It is expressly agreed that the Parties shall be independent contractors
and that the relationship between the Parties shall not constitute
a
partnership, joint venture or agency. Neither Party shall have the
authority to make any statements, representations or commitments
of any
kind, or to take any action which shall be binding on the other Party,
without the prior consent of such other Party. This Agreement shall
not
impose any obligation on either Party except as expressly set forth
herein.
|
11.9. |
Amendment;
Waiver
.
This Agreement may be amended, modified, superseded or canceled,
and any
of the terms of this Agreement may be waived, only by a written instrument
executed by each Party or, in the case of waiver, by the Party or
Parties
waiving compliance. The delay or failure of any Party at any time
or times
to require performance of any provision shall in no manner affect
the
rights at a later time to enforce the same. The waiver by a Party
hereto
of any right hereunder or the failure to perform or of a breach by
another
Party shall not be deemed a waiver of any other right hereunder or
of any
other breach or failure by said other Party whether of a similar
nature or
otherwise.
|
11.10. |
Headings
.
The captions to the several Articles and Sections hereof are not
a part of
the Agreement, but are merely guides or labels to assist in locating
and
reading the several Articles and Sections
hereof.
|
11.11. |
Counterparts
.
The Agreement may be executed in two or more counterparts, each of
which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
|
11.12. |
Binding
Effect
.
This Agreement shall be binding upon and inure to the benefit of
the
Parties and their respective legal representatives, successors and
permitted assigns.
|
11.13. |
No
Third Party Beneficiaries
.
Except as set forth in Article 10, no Third Party (including, without
limitation, employees of either Party) shall have or acquire any
rights by
reason on this Agreement.
|
11.14. |
Further
Assurances
.
Each of the Parties agrees to duly execute and deliver, or cause
to be
duly executed and delivered, such further instruments and do and
cause to
be done such further acts and things, including, without limitation,
the
filing of such additional assignments, agreements, documents and
instruments, as the other Party may at any time and from time to
time
reasonably request in connection with this Agreement or to carry
out more
effectively the provisions and purposes of, or to better assure and
confirm unto such other Party its rights and remedies under, this
Agreement.
|
Goal:
|
Develop
a [***] for early detection of lung cancer,
[***]
|
1.
|
[***]
and [***]. At this stage the purpose is to[***] lung[***], so [***]
should
be [***] at [***] to get [***]
|
2.
|
[***]
from [***]
|
3.
|
[***]
|
4.
|
[***]
data to [***] a subset of [***] lung[***]These must be [***] lung
[***]
lung [***], based on at [***] will be given to[***] which are [***]
lung
[***] and are not [***] of [***] Rosetta will update USG as [***]
lung[***], this phase may be [***]
|
1.
|
[***]
for [***]
|
2.
|
[***]
for [***]
|
1.
|
[***]
for USG [***]
|
2.
|
[***]
of the [***] for these [***]
|
3.
|
[***]of
suggested [***] lung [***] using USG
[***]
|
1.
|
[***]
lung [***]. At this stage the purpose is to [***]should be [***]
to
approach the [***] should be [***] will be later
[***]
|
2.
|
[***]
from [***]
|
3.
|
[***]
using the USG [***] (USG [***] and the
[***]
|
4.
|
[***]
is expected to be[***]
|
Goal:
|
[***]
of the [***] in the [***]
|
1.
|
[***]
from at [***] of the [***] in the
[***]
|
2.
|
[***]
from [***]
|
3.
|
[***]
on the USG [***]
|
4.
|
[***]
at the [***]
|
Goal:
|
[***]The
details of the [***] will be [***]but it is [***] that this will[***]
of
the USG [***] and the [***]
|
USG
REF. NO.
|
SERIAL
NO.
|
FILING
DATE
|
INVENTORS
|
TITLE
|
STATUS
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|||
[***]
|
[***]
|
[***]
|
[***]
|
||||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
USG
REF. NO.
|
SERIAL
NO.
|
FILING
DATE
|
INVENTORS
|
TITLE
|
STATUS
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
|||||||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
RG
ID
|
Country
|
App
No
|
Filed
|
Inventors
|
Title
|
Earliest
Priority App
|
Earliest
Priority Date
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
By
Electronic Transfer:
|
By
Check:
|
JP
Morgan Chase Bank
|
The
Rockefeller University
|
1166
Avenue of the Americas, 16th Floor
|
Office
of Technology Transfer
|
New
York, NY 10036
|
502
Founders Hall
|
Swift
Code: CHASUS33
|
1230
York Avenue
|
Account
#134-756355
|
New
York, NY 10021
|
Reference:
Technology Transfer/212-327-7116
|
THE
ROCKEFELLER UNIVERSITY
|
ROSETTA
GENOMICS
|
||
By:
|
/s/ John Tooze |
By:
|
/s/
Amir
Avniel
|
Name:
|
John Tooze |
Name:
|
Amir
Avniel
|
Title:
|
Vice President |
Title:
|
President
and COO
|
Scientific
and Facility Operations
|
Rosetta
Genomics, LTD.
|
Address:
|
Address:
|
The
Rockefeller University
|
Rosetta
Genomics Inc.
|
Office
of Technology Transfer
|
675
US Highway One
|
1230
York Avenue, Box 81
|
Suite
B119
|
New
York, NY 10021
|
North
Brunswick, NJ 08902
|
Required
copy to:
|
|
The
Rockefeller University
|
Mintz
Levin Cohn Ferris
|
Office
of General Counsel
|
Glovsky
and Popeo, PC
|
1230
York Avenue, Box 81
|
One
Financial Center
|
New
York, NY 10021
|
Boston,
MA 02111
|
Attn:
Jeffrey Wiesen
|
s |
[***]
|
|||||||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
s |
[***]
|
|||||||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
15 [***] sequences | ||||||||
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
5 [***] sequences | ||||||||
s |
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
||
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
|
s |
[***]
|
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
[***]
|
1. |
Term.
This
Agreement will enter into effect at the initial Closing of the Company's
contemplated
Preferred B Investment Round for aggregate investments of at least
$2,000,000
(the
"Effective
Date")
and
is subject to execution
of
such
initial
Closing. The term of this Agreement is twelve (12) months commencing
on
the Effective Date, unless renewed or
extended
by mutual written consent of both parties (the
"Term").
|
2. |
Compensation.
As
a consideration for Glenrock's consultancy services to the Company
under
the terms of
this
Agreement under
the
terms of this Agreement, the Company will pay Glenrock monthly
consulting
fees of $5,000 plus VAT for each month of consultancy (the "
Consulting
Fees
”). Glenrock shall also be entitled
to
reimbursement of direct expenses relating to the provision
of
the Services, subject to prior approval by the Company. The Consulting
Fees and
reimbursement
will be paid within 10 days of
the
end of each calendar month against a
proper
tax invoice.
|
3. |
Duties.
|
3.1. |
Glenrock
acknowledges and agrees that Glenrock's primary services to the Company
shall include, but not be limited to (the "Services"): (i) help develop
and implement
business
strategies for the Company, (ii) advise the Company with respect
to
various
matters,
including, but not limited to, the growth and development of its
business,
including
the direction of the Company's staffing and financing matters and
(iii)
leverage Glenrock's network of industry contacts by providing the
officers
and other management of the Company with introductions to participants
in
the related industries.
|
3.2. |
Glenrock
agrees to render the Services in
a
professional
manner
by, including, without limitation, providing consultancy services
to the
Company primarily by being available to the officers and other management
of the Company for pre-scheduled meetings or by
telephone
on reasonable “as requested” basis.
|
4. |
Confidentiality
and Nondisclosure.
|
4.1. |
Unless
otherwise agreed to in writing by the Company, Glenrock agrees (i)
to keep
in strict confidence all Confidential Information (as defined herein)
and
not to disclose any Confidential Information, or any portion thereof,
to
any third party, (ii) not to use any Confidential Information (except
within the scope of Glenrock’s duties hereunder). As used in this
Agreement, the term "Confidential Information" refers to all inventions
and all other business, technical and financial information (including,
without limitation, the identity of, and information relating to,
customers or employees) Glenrock develop, learn or obtain during
the term
of this Agreement that relate to any information proprietary to,
used by
or in the possession of the Company or its respective businesses
or
demonstrably anticipated business of any of the Company or that are
received by or for any of the Company in confidence, whether or not
reduced to writing. The foregoing limitations shall not apply to
information that (i) was lawfully known to Glenrock before the receipt
thereof, (ii) is learned by Glenrock from a third party that is entitled
to disclose same, (iii) becomes publicly known other than through
Glenrock's actions or (iv) is required by law or court order to be
disclosed by Glenrock. In the event that Glenrock is requested pursuant
to, or required by, applicable law or regulation or by legal process
to
disclose any Confidential Information, Glenrock shall provide the
Company
with prompt notice of such request(s) so that the Company may seek
an
appropriate protective order.
|
4.2. |
During
the Term and for a period of twelve (12) months thereafter,
Glenrock
agrees (i)
not
to engage in any activity that is in any way directly competitive
with
the
businesses
of
the Company, in the field of microRNAs (the "Field") and not
to
assist or advise any
other
person or organization in
competing
or in preparing
to
compete with the
businesses
of the Company in the Field
|
5. |
Conflicting
Agreements.
|
5.1. |
By
signing this letter Glenrock represent to the Company that Glenrock
has
not entered into any agreement, in conflict with this Agreement or
Glenrock's duties to the Company pursuant to this Agreement. Glenrock
agrees not to violate any agreement with or rights of any third party
or,
except as expressly authorized by Company in writing hereafter, use
or
disclose Glenrock's own or any third party's confidential information
or
intellectual property when acting within the scope of Glenrock's
duties
pursuant to this Agreement or otherwise on behalf of
Company.
|
5.2. |
Glenrock
further understands and acknowledges that Glenrock
is
an independent
contractor
and is responsible for all taxes, withholdings, and other similar
statutory
obligations.
Glenrock will have no power or authority to bind,
enter
into any contract,
incur
any liability, make any representation, direct or act on behalf of
the
Company in
connection
with providing any Services
or
otherwise. Glenrock agrees to defend,
indemnify
and hold the Company harmless from any and all claims made by
any
entity
on
account of an alleged failure by Glenrock to satisfy
any
such tax or withholding
obligations.
|
6. |
General
Conditions
.
|
6.1. |
Entire
Agreement
.
This Agreement represents the entire agreement
of
the parties, and shall supersede any and all previous contracts or
understandings
between
the parties
hereto,
with respect to the subject matter hereof. This Agreement
shall
not be modified, amended or terminated except
in
a writing signed by
the
party against
whom
enforcement
is sought.
|
6.2. |
Governing
Law.
This
Agreement shall he governed by and construed in accordance
with
the laws of the state of Israel, without regard to the conflicts
of
law provisions
thereof,
and the competent courts of Tel Aviv-Jafa shall have exclusive
jurisdiction
over
all
matters arising under or relating to this
Agreement.
|
Sincerely, | ||
Rosetta Genomics Ltd. | ||
|
|
|
By: | /s/ Dr. Isaac Bentwich | |
|
||
Name: Dr. Isaac Bentwich | ||
Title Chairman & CEO |
ACKNOWLEDGED,
ACCEPTED AND
AGREED:
|
|
By: | /s/ Leon Recanati |
|
|
By:
|
Glenrock
Israel
Ltd.
Leon Recanati Title: CEO |
Whereas
|
The
Company is engaged in breakthrough research and development in the
field
of bio-informatic detection, prediction and discovery of microRNA
genes
and their respective functions and utilities, and therapeutic and
diagnostic uses based thereof;
|
Whereas
|
The
Company is seeking to complete a preferred equity round of financing
(the
“
Financing
),
under
which the Company intends to raise up to S13M (the “
Investment
”).
|
Whereas
|
the
Finder has connections with potential investors (“
Investors
”)
that
may have interest in making cash investments in the Company’s equity
(“
Investment
Transactions
”);
|
Whereas
|
the
Company is interested in using the Finder services, on a non exclusive
basis, for the purposes of locating Investors and facilitating such
Investment Transactions with them, subject to the terms and conditions
contained herein.
|
1.
|
Finder
Obligations
.
Finder shall act to locate Finder Contacts (as such term is
defined
herein), present them to the Company and assist the Company in negotiating
and
facilitating Investment Transactions with such Finder
Contacts.
|
2.
|
Finder
Contacts
.
The term “Finder Contact” shall mean all Investors that: (i) Finder
introduced
to the Company and the parties mutually agreed in writing that it
shall be
so considered, and (ii) with which Finder arranged meetings or discussions
and contributed
to
facilitating Investment Transactions with, and (iii) that were
pre-approved by the Company and are listed on
Schedule
A
hereto as amended from time to time by the
parties
in writing. Notwithstanding anything contained herein it is clarified
and
declared that the conclusion of an Investment Transaction, if any,
shall
be at the Company’s sole discretion. The Finder shall not introduce the
Company to any specific Investor without receiving the Company’s prior
consent.
|
3.
|
Success
Fees
.
In the event Company enters into an agreement for an Investment
Transaction with a Finder Contact during the Term (as defined in
Section 6
below) or within 3 months following the date of its expiration or
termination (the “Determining Period”), for an Investment Transaction in
the Financing, the Finder shall be entitled to the following
consideration:
|
3.1.1 |
A
cash commission of 4% of the cash investments made by Finder
Contacts
in the Financing.
|
3.1.2 |
In
addition to the consideration specified in Section 3.1.1 above the
Finder
shall be entitled to an option to purchase an amount of ordinary
shares
of the Company equal to up to 2% of the amount of shares allotted
by the
Company to the Finder Contacts pursuant to the Financing at the
price
per share of the converted shares. The option will be valid for 36
months
following the closing of the
Financing.
|
3.2
|
For
the avoidance of any doubt, the terms of the Success Fee under this
section 3 are relevant and applicable to the Financing
only.
|
4.
|
Payments
and Reports
.
|
4.1 |
All
cash amounts due to Finder hereunder shall be paid in the same currency
in
which
the Company receives the Finder Investments. VAT shall be added to
all
payments
against a proper VAT invoice. For the removal of doubt, it is hereby
agreed that the Finder shall be responsible for all taxes, withholdings,
and other similar statutory obligations. The Finder agrees to defend,
indemnify and hold the Company harmless from any and all claims made
by
any entity on account of an alleged failure by the Finder to satisfy
any
such tax or withholding
obligations.
|
4.2 |
The
Company shall inform Finder of any Financing between the Company
and a
Finder Contact within 30 days of its signing.
|
5.
|
Company
Information
.
The Company shall provide Finder with reasonable information,
as
it may deem necessary, regarding the Company, its products, services,
technology
and
relevant markets for the purpose of Finder performing its duties
hereunder. Subject
to
Section 2 above, the Company hereby authorizes the Finder to provide
such
information
only to prospective Finder Contacts pre-approved by the Company.
Any
and
all information provided by the Company to Finder is subject to the
confidentiality
clause
in this agreement. Confidential information obtained by the Finder
from
the
Company
shall be subject to the terms and conditions of the Company’s
non-disclosure agreement, as detailed in Section 8
below.
|
6.
|
Term
and Termination
.
The term of this Agreement is for a period of 3 months
commencing
at the date hereof (the “Term”).
|
7.
|
Intellectual
Property
.
Finder recognizes and acknowledges that all of the Company’s IP, including
without limitation, all the Company’s patents, patent applications,
copyrights,
trade
names and trade marks, solely belong to the Company which is and
shall
remain its sole owner, and it is hereby expressly agreed that nothing
in
this agreement shall constitute or be considered as constituting
a
transfer or license of the Company’s
intellectual
property rights or any part thereof by the Company to Finder. Finder
shall
adhere to any reasonable instructions given to it in writing by the
Company aimed for the protection of the Company’s trademarks and any other
intellectual properly rights.
|
8.
|
Confidentiality
.
Finder shall, both during the term of this Agreement and after the
expiration
or termination of this Agreement, hold the proprietary and confidential
information of the Company (the “Confidential Information”) in strict
confidence and
will
not disclose or make such Confidential Information available in any
form
to any
third
party or to use such Confidential Information for any purposes other
than
the implementation of this Agreement. Confidential Information shall
mean
any and all information provided to Finder by Company, whether related
lo
business, technology or any other matter relevant to the Company,
excluding information which is in the public domain not as a consequence
of a breach of any confidentiality undertaking by Finder. Without
derogating from the generality of the above, Finder shall sign a
Confidentiality undertaking in the form attached as Schedule B
hereto.
|
9.
|
Independent
Contractors
.
It is hereby expressly declared and agreed that the parties have
entered
this Agreement as independent contractors and this Agreement in no
way
establishes
any principal - agent, employer - employee, or partnership relations
between the parties. Nothing in this Agreement shall be construed
as
granting either party the power or authority to act for or on behalf
of
the other party, to create any undertakings on behalf of the other
party,
or to bind or commit the other party in respect to any such undertakings,
except as set forth herein or as otherwise agreed to in writing between
the parties prior to such act.
|
10.
|
Governing
Law/ Jurisdiction
.
This Agreement shall be governed by the laws of the
State
of Israel, without regard to its conflict of law rules and the competent
courts of Tel
Aviv-Jafa
shall have exclusive jurisdiction over all matters arising under
or
relating to this Agreement.
|
11.
|
Counterparts/Entire
Agreement
.
This Agreement may be executed in several
counterparts,
each of which shall be deemed an original and all of which shall
together
constitute one and the same Agreement. This Agreement constitutes
the
entire agreement between the Parties respecting the subject matter
hereof
and supersedes any
and
all prior agreements or understandings between the Parties with respect
to
the
subject
matter hereof, whether written or oral. Except as set forth herein,
no
addition or
modification
of this Agreement will be effective or binding unless in writing
and
executed
by both of the Parties.
|
ROSETTA
GENOM1CS
LTD.
|
R
OSEN
R
AM
|
||
512921388
__
|
______________
|
||
Rosetta
Genomics Ltd.
|
Rosenram
Business Development Ltd.
|
||
By:
Illegible
|
|
By:
Revital Aviram
|
|
Title:
CEO
|
Title:
Director
|
1.
|
Rosenram
Trustees Ltd. company no. 513767913 - $ 1,750,000 (Rafel Amiel French
resident).
|
2.
|
Instanz
Nominees Pty Ltd - $ 3,700,000
|
3.
|
Dolphin
Energies Ltd. - $1,000,000 / $
2,000,000
|
Whereas |
Rosetta
is engaged in breakthrough research and development in the field
of
bioinformatic
detection, prediction and discovery of micro RNA genes and their
respective functions and utilities, and therapeutic and diagnostic
uses
based thereof;
|
Whereas |
the
Finder
has connections with potential investors (“
Investors
”)
that may have interest in making cash investments in the Company’s equity
(“
Investment
Transactions
”);
|
Whereas |
the
Company is interested in using the Finder services, on a non exclusive
basis, for the purposes of locating Investors and facilitating such
Investment Transactions, subject to the terms and conditions contained
herein.
|
1. |
Finder
Obligations
.
Finder
shall act to locate Finder Contacts (as such term is defined herein),
present them to the Company and assist the Company in negotiating
and
facilitating Investment Transactions with such Finder
Contacts.
|
2. |
Finder
Contacts
.
The term "Finder Contact" shall mean all Investors that: (i) Finder
introduced to the Company and the parties mutually agreed in writing
that
it shall be so considered, and (ii) with which Finder arranged meetings
or
discussions and contributed to facilitating Investment Transactions
with,
and (iii) that were pre-approved by the Company and are listed on
Schedule
A
hereto as amended from time to time by the parties in writing.
Notwithstanding anything contained herein it is clarified and declared
that the conclusion of an Investment Transaction, if any, shall be
at the
Company’s sole discretion. The Finder shall not introduce the Company to
any specific Investor without receiving the Company’s prior consent.
|
3. |
Success
Fees
.
|
3.1. |
In
the event the Company enters into an agreement for an Investment
Transaction with a Finder Contact during the Term (as defined in
Section
6
below) or within 3 months following the date of its expiration or
termination (the “Determining Period”), the Company shall pay the Finder
success fees equal to 4% of the net cash investments actually paid
to the
Company by the Finder Contact (“Finder Investments”) during the
Determining Period.
|
3.2. |
In
addition to the consideration specified in Section 3.1 above the
Finder
shall be entitled to an option to purchase an amount of ordinary
shares of
the Company equal to up to 2% of the amount of shares allotted by
the
Company to the Finder Contacts in accordance with the Investment
Round, at
the price per share of the Investment Round. The option will be valid
for
18 months following the closing of the Investment Round.
|
4. |
Payments
and
Reports
.
|
4.1. |
All
cash amounts due to
Finder
hereunder shall be paid in the same currency in which the Company
receives
the Finder Investments. VAT shall be added to all payments against
a
proper VAT invoice. For the removal of doubt, it is hereby agreed
that the
Finder shall be responsible for all taxes, withholdings, and other
similar
statutory obligations. The Finder agrees to defend, indemnify and
hold the
Company harmless from any and all claims made by any entity on account
of
an alleged failure by the Finder to satisfy any such tax or withholding
obligations.
|
4.2. |
The
Company shall inform
Finder
of
any Investment Agreement between the Company and a
Finder
Contact
within 30 days of its signing.
|
5. |
Company
Information
.
The Company shall provide Finder with all reasonable non-confidential
information, as it may deem necessary, regarding the Company, its
products, services, technology and relevant markets for the purpose
of
Finder performing its duties hereunder. Subject to Section 2 above,
the
Company hereby authorizes the Finder to provide such information
to
prospective Finder Contacts pre-approved by the Company. Notwithstanding,
all information provided by the Company to Finder is subject to the
confidentiality clause in this agreement. Confidential information
obtained by the Finder from the Company shall be subject to the terms
and
conditions of the Company’s non-disclosure agreement, as detailed in
Section 8 below.
|
6. |
Term
and Termination
.
The term of this Agreement is for a period of 4
months
commencing at t
he
date hereof (the “Term”).
|
6.1. |
by
serving the other party a 60 days prior written notice to such effect;
|
6.2. |
forthwith,
by serving the other party a written notice, in the event that the
other
party has breached any of its undertaking hereunder and not cured
such
breach within 14 days of the non-breaching party’s notice to such
effect;
|
6.3. |
forthwith,
without need for a written notice, in the event that the other party
has
entered into any liquidation, insolvency, bankruptcy or similar
proceedings.
|
7. |
Intellectual
Property
.
Finder recognizes and acknowledges that all of the Company’s IP, including
without limitation, all the Company’s patents, patent applications,
copyrights, trade names and trade marks, solely belong to the Company
which is and shall remain its sole owner, and it is hereby expressly
agreed that nothing in this agreement shall constitute or be considered
as
constituting a transfer or license of the Company’s intellectual property
rights or any part thereof by the Company to Finder. Finder shall
adhere
to any reasonable instructions given to it in writing by the Company
aimed
for the protection of the Company’s trademarks and any other intellectual
property rights.
|
8. |
Confidentiality
.
Finder shall, both during the term of this Agreement and after the
expiration or termination of this Agreement, hold the proprietary
and
confidential information of the Company (the "Confidential Information")
in strict confidence and will not to make such Confidential Information
available in any form to any third party or to use such Confidential
Information for any purposes other than the implementation of this
Agreement. The Finder shall sign a Confidentiality undertaking in
the form
attached as
Schedule
B
hereto.
|
9. |
Independent
Contractors
.
It is hereby expressly declared and agreed that the parties have
entered
this Agreement as independent contractors and this Agreement in no
way
establishes any principal - agent, employer - employee, or partnership
relations between the parties. Nothing in this Agreement shall be
construed as granting either party the power or authority to act
for or on
behalf of the other party, to create any undertakings on behalf of
the
other party, or to bind or commit the other party in respect to any
such
undertakings, except as set forth herein or as otherwise agreed to
in
writing between the parties prior to such
act.
|
10. |
Governing
Law/ Jurisdiction
.
This
Agreement shall be governed by the laws of the State of Israel, without
regard to its conflict of law rules and the competent courts of Tel
Aviv-Jaffa shall have exclusive jurisdiction over all matters arising
under or relating to this
Agreement.
|
11. |
Counterparts/Entire
Agreement
.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall together constitute
one
and the same Agreement. This Agreement constitutes the entire agreement
between the Parties respecting the subject matter hereof and supersedes
any and all prior agreements or understandings between the Parties
with
respect to the subject matter hereof, whether written or oral. Except
as
set forth herein, no addition or modification of this Agreement will
be
effective or binding unless in writing and executed by both of the
Parties.
|
Whereas |
The
Company is engaged in breakthrough research and development in
the
field
of bioinformatic detection, prediction and discovery of micro
RNA
genes
and their respective functions and utilities, and therapeutic
and
diagnostic
uses based thereof;
|
Whereas |
The
Company is seeking to complete a convertible bridge loan financing
round
(the
“Bridge
Loan Round
),
under
which the Company intends to raise
up
to $5M (the
“
Bridge
Loan
”).
|
Whereas |
the
Finder has connections with potential investors (“
Investors
”)
that may
have
interest in making cash investments in the Company's equity
(“
Investment
Transactions
,)
;
|
Whereas |
T
he
Company is interested in using the Finder services, on a non
exclusive
basis,
for the purposes of locating Investors and facilitating such
Investment
Transactions with them, subject to the terms and conditions contained
herein.
|
1.
|
Finder
Obligations
.
Finder
shall act to locate Finder Contacts (as such term is
defined
herein), present them to the Company and assist the Company in negotiating
and
facilitating
Investment Transactions with such Finder
Contacts.
|
2.
|
Finder
Contacts
.
The term “Finder Contact” shall mean all Investors that: (i) Finder
introduced
to the Company and the parties mutually agreed in writing thai it
shall be
so
considered,
and (ii) with which Finder arranged meetings or discussions and
contributed to facilitating Investment Transactions with, and (iii)
that
were pre-approved by the Company and are listed on
Schedule A
hereto as amended from lime to time by the parties in writing.
Notwithstanding anything contained herein it is clarified and declared
that the conclusion of
an
Investment Transaction, if any, shall be at the Company's sole discretion.
The Finder shall
not
introduce the Company to any specific Investor without receiving
the
Company's prior
consent.
|
3.
|
Success
Fees
. In the event Company enters into an agreement for an Investment
Transaction
with a Finder Contact during the Term (as defined in Section 7 below)
or
within 3
months
following the date of its expiration or termination (the “Determining
Period”), for an
Investment
Transaction in the Bridge Loan Round, the Finder shall be entitled
to the
following
consideration:
|
3.1. |
If
the Finder Contacts invest an aggregate amount of less than
$5500,000 within the
scope
of the Bridge Loan Round:
|
3.1.1. |
A
cash commission of 5% of the cash investments made by Finder Contacts
in
the Bridge Loan Round.
|
3.1.2. |
In
addition to the consideration specified in Section
3.1.1
above
the Finder
shall
be entitled to an option to purchase an amount of ordinary shares
of the
Company
equal to up to 3% of the amount of shares allotted by the Company
to
the
Finder Contacts upon conversion of the Bridge Loan, at the price
per share
of
the
converted shares. The option will be valid for 36 months following
the
closing
of the Bridge Loan Round.
|
3.2. |
If
the Finder Contacts invest an aggregate amount of at least $500,000
within
the
scope
of the Bridge Loan Round:
|
3.2.1. |
A
cash commission of 6% of the cash investments made by Finder Contacts
in
the Bridge Loan Round.
|
3.2.2. |
In
addition to the consideration specified in Section 3.2.1 above the
Finder
shall be entitled to an option to purchase an amount of ordinary
shares of
the
Company
equal to up to 4% of the amount of shares allotted by the Company
to
the
Finder Contacts upon conversion of the Bridge Loan, at the price
per share
of
the
converted shares. The option will be valid for 36 months following
the
closing
of the Bridge Loan Round.
|
3.3 |
For
the avoidance of any doubt, the terms of the Success Fee under this
section 3 are
relevant
and applicable to the Bridge Loan Round
only.
|
4.
|
Subsequent
Round
.
For any investment made in the Company in a subsequent private
equity
financing round
(“
Subsequent
Round
”)
by
a Finder Contact who invested in the
Bridge
Loan Round, the Finder shall be entitled to consideration as
follows:
|
4.1. |
For
sums up to the Finder Contact's preemptive rights in the Subsequent
Round,
the
Finder
shall be entitled to an amount of 50% of the cash commission and
options
calculated
pertaining to such sums according to the principles and percentages
set
forth
in section 3 above.
|
4.2. |
For
sums beyond the Finder Contact's preemptive rights in the Subsequent
Round,
the
Finder shall be entitled to cash commission and options calculated
pertaining to
such
sums according to the principles and percentages set forth in section 3
above.
|
5.
|
Payments
and Reports
.
|
5.1. |
All
cash amounts due to Finder hereunder shall be paid in the same currency
in
which
the
Company receives the Finder Investments. VAT shall be added to all
payments against a proper VAT invoice. For the removal of doubt,
it is
hereby agreed that the
Finder
shall be responsible for all taxes, withholding;, and other similar
statutory
obligations.
The Finder agrees to defend, indemnify and hold the Company harmless
from
any and all claims made by any entity on account of an alleged failure
by
the
Finder
to satisfy any such tax or withholding
obligations.
|
5.2. |
The
Company shall inform Finder of any Bridge Loan Agreement between
the
Company
and a Finder Contact within 30 days of its
signing.
|
6.
|
Company
Information
.
The Company shall provide Finder with reasonable information, as
it may
deem necessary, regarding the Company, its products, services, technology
and
relevant
markets for the purpose of Finder performing its duties hereunder.
Subject
to Section
2
above, the Company hereby authorizes the Finder to provide such
information only to
prospective
Finder Confacts pre-approved by the Company. Any and all information
provided
by
the Company to Finder is subject to the confidentiality clause in
this
agreement.
Confidential
information obtained by the Finder from the Company shall be subject
to
the terms and conditions of the Company's non-disclosure agreement,
as
detailed in Section 8
below.
|
7.
|
Term
and Termination
.
The term of this Agreement is for a period of 3 months
commencing
at the date hereof (the
“Term”).
|
7.1. |
by
serving the other party a 15 days prior written notice to such
effect;
|
7.2. |
forthwith,
by serving the other party a written notice, in the event that the
other
party
has
breached any of its undertaking hereunder and not cured such breach
within
7
days
of the non-breaching party's notice to such
effect;
|
7.3. |
forthwith,
without need for a written notice, in the event that the other party
has
entered
into any liquidation, insolvency, bankruptcy or similar
proceedings.
|
8.
|
Intellectual
Property
.
Finder recognizes and acknowledges that all of the Company's IP,
including
without limitation, all the Company's patents, patent applications,
copy
rights, trade
names
and trade marks, solely belong to (the Company which is and shall
remain
its sole
owner,
and it is hereby expressly agreed that nothing in this agreement
shall
constitute or be
considered
as constituting a transfer or license of the Company's intellectual
property rights
or
any part thereof by the Company to Finder. Finder shall adhere to
any
reasonable
instructions
given to it in writing by the Company aimed for the protection of
the
Company, strademarks and any other intellectual property
rights.
|
9.
|
Confidentiality
.
Finder shall, both during the term of this Agreement and after the
expiration
or termination of this Agreement, hold the proprietary, and confidential
information
of
the Company (the “Confidential Information”) in strict confidence and will
not disclose or
make
such Confidential Information available in any form to any third
party or
to use such
Confidential
Information for any purposes other than the implementation of this
Agreement.
Confidential
Information shall mean any and all information provided to Finder
by
Company,
whether
related to business, technology or any other matter relevant to the
Company,
excluding
information which is in the public domain not as a consequence of
a breach
of any
confidentiality
undertaking by Finder. Without derogating from the generality of
the
above, Finder shall sign a Confidentiality undertaking in the form
attached as
Schedule R
hereto.
|
10.
|
Independent
Contractors
. It is hereby expressly declared and agreed that the
parties have entered this Agreement as independent contractors and
this
Agreement in no way establishes
any
principal - agent, employer - employee, or partnership relations
between
the parties.
Nothing
in this Agreement shall be construed as granting either party the
power or
authority
to
act for or on behalf of the other party, to create any undertakings
on
behalf of the other
party,
or to bind or commit the other party in respect to any such undertakings,
except as set forth herein or as otherwise agreed to in writing between
the parties prior to such act.
|
11.
|
Governing
Law/ Jurisdiction.
This Agreement shall be governed by the laws of the
State
of Israel, without regard to its conflict of law rules and the competent
courts of Tel
Aviv-Jafa
shall have exclusive jurisdiction over all matters arising under
or
relating to this
Agreement.
|
12.
|
Counterparts/Entire
Agreement
.
This Agreement may be executed in several
counterparts,
each of which shall be deemed an original and all of which shall
together
constitute one and the same Agreement. This Agreement constitutes
the
entire agreement
between
the Parties respecting the subject matter hereof and supersedes any
and
all prior agreements or understandings between the Parties with respect
to
the subject matter hereof,
whether
written or oral. Except as set forth herein, no addition or modification
of this
Agreement
will be effective or binding unless in writing and executed by both
of the
Parties.
|
/s/
ROSETTA GENOMICS LTD.
|
/s/
illegible
GLRNTOVK
ISRAEL LTD.
|
||
Rosetta
Genomics Ltd.
|
Finder
|
||
By: /s/
illegible
|
|||
Title:
V.P. Finance
|
2.6.05
|
1. |
If
an investment is made (hereinafter - “Investment”), then you and / or
whoever on your behalf, shall be entitled to receive from
us:
|
1.1. |
Success
fee amounting 5% of the Investment + VAT (hereinafter - “Commission”).
Commission will be fully paid to you in cash at the signing of the
investment agreement with your investors (or any of them), and as will
be
ordered by the company. Commission will be paid in NIS, or where
Investment is made if foreign currency, in NIS according to official
US$ -
NIS exchange rate know on the day of
payment.
|
1.2. |
For
12 months as of signing of said Investment agreement, you shall have
an
option to purchase shares of the company at an amount equal to 5% of
the
Investment (as defined
supra
)
according to same company valuation as in the Investment (a s defined
supra
).
It is hereby made clear that for the purpose of this article 1.2, all
options allocated to company employees and / or others, will be considered
as if exercised prior to exercising of this option by
you.
|
2. |
Nothing
in the document is to obligate you and / or Kadima and / or members
of the
forum, to execute an investment (and / or any investment) in the
company.
|
1.
|
Rosetta
is contemplating to close a new investment round of $2M from external
investors
at a pre-money valuation of $20M by not later than April 30, 2003
(the
"Investment
Round"). The pre-money valuation may change in the event that the
Investment
Round is closed following the above-mentioned date.
|
2
|
Kadima
will be entitled to organize a group of new external investors to
participate in
the
Investment Round (such investors: the "Kadima Investors"), under
the
following
terms:
|
2.1 |
All
of the Kadima Investors will invest through Kadima, who will be their
sole
representative towards the Company. All of the shares to be allotted
at
the closing of the Investment Round, in consideration for the investment
of the Kadima Investors, will be allotted to Kadima who will be the
sole
Company shareholder representing such Kadima Investors. For such
purposes
Kadima will enter into internal trust agreements with the Kadima
Investors
with respect to the holding of such shares, in the form already existing
in relation to present investors introduced to the Company by Kadima
or
such other form approved in advance and in writing by the
Company.
|
2.2 |
The
terms of the Investment Round will be reflected in an investment
Agreement, which will be drafted by Rosetta's counsels and will be
sent to
Kadima in the upcoming days.
|
2.3 |
Kadima
will appoint one legal counsel who will represent all of the Kadima
Investors in the negotiations with the Company's legal counsels,
with
respect to the terms of the Investment Agreement. The Company will
not
re-negotiate any material terms of the Investment Agreement with
individual Kadima Investors.
|
2.4 |
Kadima
will notify the Company in advance of the identity of the Kadima
Investors,
which will be subject to the Company's
approval.
|
3.
|
Kadima
shall be entitled to the following consideration for the investments
made
by
Kadima
Investors under the Investment Round:
|
3.1 |
A
cash consideration equal to 5% of the cash investments, which will
be made
made
by Kadima. Investors at the closing of the Investment
Round.
|
3.2 |
In
addition to the consideration specified in Section 3.1 above and
taking
into consideration the time and other constraints of the proposed
investment, Kadima shall be entitled to an option to purchase an
amount of
ordinary shares of the Company equal to up to 2.5% of the amount
of shares
allotted by the Company to the Kadima Investors at the closing of
the
Investment Round, at the price per share of the Investment Round.
The
option will be valid for 18 months following the closing of the Investment
Routed.
|
4. |
I
would appreciate if you will confirm your agreement to the terms
set forth
in
this
Agreement
by signing in the signature place
below.
|
Sincerely yours, | ||
|
|
|
By: | /s/ Dr. Isaac B entwich, CEO | |
|
||
Dr.
Isaac B
entwich,
CEO
R
osetta
G
enomics
Ltd.
|
|
|
|
By: | ||
|
||
Yossi
Ben Yossef
Kadima
Hi Tech
|
3.1 |
A
cash consideration equal to 5% of the cash investments, which will
be made
by Kadima Investors at the closing of the Investment Round. VAT shall
be
added to such cash consideration against a proper tax invoice of
Kadima.
|
3.2 |
In
addition to the consideration specified in Section 3.1 above and
taking
into consideration the time and other constraints of the proposed
investment, Kadima shall be entitled to an option to purchase an
amount of
ordinary shares of the Company equal to up to 2.5% of the amount
of shares
allotted by the Company to the Kadima Investors at the closing of
the
Investment Round, at the price per share of the Investment Round.
The
option will be valid for 18 months following the closing of the Investment
Round.
|
4.
|
In
the event that (i) Kadima's part of the $800k which the Company is
currently contemplating to raise under the new 2003 internal bridge
loan
round (as set forth in the Company's letter to its existing shareholders
and lender's dated March 9, 2003) is investment by the Kadima Lenders
in
full (as defined in the amendment letter to the Company’s 2003 bridge loan
agreement, dated December 15, 2002 and (ii) all of the $2M, which
the
Company is contemplating to raise under the Investment Round will
be
invested by Kadima Investors, in accordance with sections 2.1 through
2.3
above then Kadima's existing
option
to
purchase shares of the Company (with respect to investments which
may be
made by Kadima Investors), as set forth in Section 1.2 of the letter
agreement between the Company and Kadima, [dated May-28, 2002) will
be
automatically extended for an additional period of twelve months
(i.e. the
aggregate period of the option will be 24
months).
|
5.
|
I
would appreciate if you will confirm your agreement to the terms
set forth
in this Agreement by signing in the signature place
below.
|
Sincerely yours, | ||
|
|
|
By: | /s/ Dr. Isaac Bentwich, CEO | |
|
||
Dr.
Isaac Bentwich, CEO
Rosetta
Genomics Ltd
|
|
|
|
By: | /s/ Yossi Ben Yossef | |
|
||
Yossi
Ben Yossef
Kadima
Hi-Tech
|
1.
|
Rosetta
is planning to close a new investment round of $3M-$5M
from investors at a pre-money valuation of $50M (the “Investment
Round”) not later than June 30, 2004 (the “Closing Date”).
|
2.
|
Kadima
will be entitled to organize a group of investors to participate
in the
Investment Round (such investors: the “Kadima Investors”), under the
following terms:
|
|
2.1
|
All
of the Kadima Investors will invest through Kadima, who will be their
sole
representative towards the Company. All of the shares to be allotted
at
the closing of the Investment Round, in consideration for the investment
of the Kadima Investors, will be allotted to Kadima who will be the
sole
Company shareholder representing, as a trustee, such Kadima Investors.
For
such purposes Kadima will enter into internal trust agreements with
the Kadima Investors with respect to the holding of such shares,
in the
form already existing in relation to present investors introduced
to the
Company by Kadima or such other form approved in advance and in writing
by
the Company.
|
|
2.2
|
The
terms of the Investment Round will be reflected in an investment
agreement, which will be drafted by Rosetta’s
counsels.
|
|
2.3
|
Kadima
will appoint one legal counsel who will represent all of the Kadima
Investors in the negotiations with the Company’s legal counsels, with
respect to the terms of the Investment Agreement. The Company will
not
re-negotiate any material terms of the Investment Agreement with
individual Kadima Investors.
|
|
2.4
|
Kadima
will notify the Company in advance of the identity of the Kadima
Investors, which will be subject to the Company’s
approval.
|
3.
|
Kadima
shall be entitled to the following consideration for the investments
made
by Kadima Investors under the Investment
Round:
|
|
3.1
|
A
cash consideration equal to 4% of the cash investments, which will
be made
by Kadima Investors in accordance with the Investment Round. VAT
shall be
added to such cash consideration against a proper tax invoice of
Kadima.
|
|
3.2
|
In
addition to the consideration specified in Section 3.1 above Kadima
shall
be entitled to an option to purchase an amount of ordinary shares of
the Company equal to up to 2% of the amount of shares allotted by
the
Company to the Kadima Investors in accordance with the Investment
Round,
at the price per share of the Investment Round. The option will be
valid for 18 months following the closing of the Investment Round.
|
4.
|
The
option to purchase up to 33,577 Ordinary Shares for a price of $0.9158
per
share, as set forth in Section 1.2 of the letter agreement between
the
Company and Kadima, dated May 28, 2002, as extended by the letter
agreement dated March 3, 2003 (the “First Option”) is hereby
extended until the Closing Date.
|
5. |
In
the event that at least $3M are invested by Kadima Investor’s under the
terms of the Investment Round, by not later than the Closing Date,
the
exercise periods of the following existing options of Kadima to purchase
Ordinary Shares of the Company, shall automatically be extended for
an
additional period of eighteen months: (i) the First Option, (ii)
the
option to purchase up to 53,272 Ordinary Shares for a price of $1.3281
per
share, as set forth in Section 3.2 of the letter agreement between
the
Company and Kadima, dated March 3, 2003.
|
6. | Please confirm your agreement to the terms set forth in this Agreement by signing below. |
7. |
For
the avoidance of doubt it is hereby stipulated that this document
deals
only with Kadima’s consent to provide certain services to the Company and
the terms hereof and shall not be considered as a consent (of any
kind or
sort) being given on behalf of the existing investors in the Company
who
are represented by Kadima to the proposed Investment Round or any
of its
terms. Those investors’ rights are fully
reserved.
|
Sincerely yours, | |
/s/
Dr. Isaac Bentwich
|
Dr.
Isaac Bentwich, CEO
Rosetta
Genomics Ltd.
|
/s/ Yossi Ben Yossef |
Kadima
Hi-Tech Ltd.
Yossi
Ben Yossef
|
1. |
The
Company is seeking to complete a convertible bridge loan financing
round
(the
"
Bridge
Loan
")
of
up to $5M
not
later
than June 15, 2005,
|
2. |
Kadima
will be entitled to organize a group of investors to participate
in the
Bridge Loan (such investors: the "
Kadima Investors
"),
under the following terms:
|
2.1 |
All
of the Kadima Investors will invest through Kadima, who will be their
sole
representative
towards the Company. All of the shares to be allotted upon
conversion
of the Bridge Loan, in consideration for the investment of the Kadima
Investors,
will be allotted to Kadima who will be the sole Company shareholder
representing,
as a trustee, such Kadima Investors. For such purposes Kadima will
enter
into internal trust agreements with the Kadima Investors with respect
to
the
holding
of such shares, in the form already existing in relation to present
investors
introduced
to the Company by Kadima or such other form approved in advance
and
in writing by the Company.
|
2.2 |
The
terms of the Bridge Loan will be reflected in a term sheet and bridge
loan
agreement (the
"Agreement"),
which will he drafted by
Rosetta's counsel.
|
2.3 |
Kadima
will appoint one legal counsel who will represent all of the Kadima
Investors
in the negotiations with the Company's legal counsel, with respect
to the
terms
of the Agreement. The Company will not re-negotiate any material
terms of
the
Agreement with individual Kadima
Investors.
|
2.4 |
Kadima
will notify the Company in advance of the identity of the Kadima
Investors,
which will be subject to the Company's
approval.
|
3. |
Consideration:
|
3.1 |
Kadima
Investments: Kadima shall be entitled to the following consideration
for
the investments made by Kadima Investors under the Bridge
Loan:
|
3.1.1 |
If
the Kadima Investors invest an aggregate amount of less than
$500,000
within the scope of the Bridge Loan:
|
3.1.1.1 |
A
cash commission of 5% of the cash investments made by
Kadima
Investors in the Bridge Loan (independently of the actual conversion
of
such loan/s). VAT shall be added to such
cash
consideration against a proper tax invoice of
Kadima
|
3.1.1.2 |
In
addition to the consideration specified in Section 3.1.1.1
above
Kadima shall be entitled to an option to purchase an
amount
of ordinary shares of the Company equal to up to 3% of
the
potential amount of shares allotted by the Company to the
Kadima
Investors upon conversion of the Bridge Loan, at the
price
per share of the converted shares. The option will be valid
for
36 months following the closing of the Bridge
Loan.
|
3.1.2 |
If
the Kadima Investors invest an aggregate amount of at least $500,000
within
the scope of the Bridge Loan:
|
3.1.2.1 |
A
cash commission of 6% of the cash investments made by
Kadima
Investors in the Bridge Loan (independently of the
actual
conversion of such loan/s). VAT shall be added to such
cash
consideration against a proper tax invoice of
Kadima
|
3.1.2.2 |
In
addition to the consideration specified in Section 3.1.2.1
above
Kadima shall be entitled to an option to purchase an
amount
of ordinary shares of the Company equal to up to 4% of
the
potential amount of shares allotted by the Company to the
Kadima
Investors upon conversion of the Bridge Loan, at the
price
per share of the converted shares. The option will be valid
for
36 months following the closing of the Bridge
Loan.
|
3.1.2.3 |
The
Company shall participate in the legal fees and costs
incurred
by Kadima in connection with the Bridge Loan, including in connection
with
the due diligence process and the
negotiations
and preparation of the Agreement, in an aggregate
amount
of up to US$ 10,000 +VAT.
|
3.2 |
Coronis
Investments: Kadima shall be entitled to the following consideration
for
the
investments made by Investors introduced to the Company by Coronis
Partners
and
for which
Coronis Partners receives consideration from the Company under
the
Bridge Loan (the "Coronis Investors"):
|
3.2.1
|
If
the Coronis Investors invest an aggregate amount of less than $500,000
within the scope of the Bridge Loan:
|
3.2.1.1 |
A
cash commission of 1% of the cash investments made by
Coronis
Investors in the Bridge Loan (independently of the
actual
conversion of such loan/s). VAT shall be added to such
cash
consideration against a proper tax invoice of
Kadima
|
3.2.1.2 |
In
addition to the consideration specified in Section 3.2.1.1
above
Kadima shall be entitled to an option to purchase an
amount
of ordinary shares of the Company equal to up to 0.6% of the potential
amount of shares allotted by
the Company to the Coronis Investors upon conversion of the Bridge
Loan,
at the
price
per share of the converted shares. The option will be valid
for
36 months following the closing of the Bridge
Loan.
|
3.2.2 |
If
the Coronis Investors invest an aggregate amount of at least $500,000
within
the scope of the Bridge Loan:
|
3.2.2.1 |
A
cash commission of 1.5% of the cash investments made by Coronis Investors
in the Bridge Loan (independently of the actual conversion of such
loan/s). VAT shall be added to such
cash
consideration against a proper tax invoice of
Kadima.
|
3.2.2.2 |
In
addition to the consideration specified in Section 3.2.2.1
above
Kadima shall be entitled to an option to purchase an
amount
of ordinary shares of the Company equal to up to 1% of
the
potential amount of shares allotted by the Company to the Coronis
Investors upon conversion of the Bridge Loan, at the
price
per share of the converted shares. The option will be valid
for
36 months following the closing of the Bridge
Loan.
|
3.3 |
The
cash commission(s) shall be paid to Kadima no later than 7 business
days
after
the
investments are received by the Company. For the avoidance of doubt,
the
above-mentioned
consideration shall apply solely with respect to the Bridge Loan
under
this agreement.
|
4. |
For
any investment made in the Company in a subsequent private equity
financing round
("
Subsequent
Round
") by
a
Kadima Investor or by a Coronis Investor who invested in
the
Bridge Loan, Kadima will be entitled to consideration as
follows:
|
4.1 |
For
sums
up
to
the Kadima Investor's or Coronis Investor's preemptive rights in
the
Subsequent Round, Kadima will be entitled to an amount of 50% of
the cash
commission
and options calculated pertaining to the such sums according to the
principles
and percentages set forth in section 3
above.
|
4.2 |
For
sums beyond the Kadima Investor's or Coronis Investor's preemptive
rights
in
the Subsequent Round, Kadirna will be entitled to cash commission
and
options
calculated
pertaining to such sums according to the principles and percentages
set
forth in section 3 above.
|
5. |
For
the avoidance of doubt it is hereby stipulated that this document
deals
only with
Kadima's
consent to provide certain services to the Company and the terms
hereof
and
shall
not be considered as a consent (of any kind or sort) being given
on behalf
of the
existing
investors in the Company who are represented by Kadima to the proposed
Bridge
Loan
or any of its terms. Those investors'
rights
are
fully reserved.
|
6. |
Please
confirm your agreement to the terms set forth in this Agreement by
signing
below.
|
Sincerely yours, | ||
|
|
|
By: | /s/ Amir Avniel | |
|
||
Amir Avniel, COO
Rosetta Genomics
Ltd.
|
|
|
|
By: | /s/ Yossi Ben Yossef | |
|
||
Kadima Hi-Tech Ltd.
Yossi Ben Yossef
|
1.
|
Maimonides
hereby grants Rosetta, with a paid-up, exclusive, irrevocable, worldwide
license to use the Licensed Technology, for generation and/or translation
of patents patent-applications of other related documents in the
genomic
field (the “
License
”)
|
2.
|
Rosetta
shall be entitled to use, in the scope of the License free of any
additional charge, any upgrades to the License
Technology.
|
3.
|
The
term of the License granted hereunder is for a period is for 20 Years
from
the Effective Date
|
4.
|
In
consideration for the License Rosetta will pay Mimoinides a aggregate
consideration of up to $100,000 under the following
conditions:
|
4.1
|
An
amount of $10,000 will be paid by Rosetta within 30 days following
signature of the Agreement.
|
4.2
|
An
amount $10,000 will be paid within a period of 30 days following
the date
in which Rosetta will close an investment transaction, pursuant to
which
Rosetta will raise aggregate investments of at least
$2,000,000.
|
4.3
|
An
additional amount of $up to 80,000 will be paid as quarterly royalties
equal to 5% of the net revenues of the Rosetta from sales and licenses
of
its products in each respective calendar quarter (the “Royalties) The
Royalties due for each calendar quarter in which Rosetta accumulated
net
revenues will be paid within 30 days of the end of such calendar
quarter .
Rosetta will not be obligated any Royalties once it had completed
payment
of aggregate royalties of $80,000.
|
5.
|
Rosetta
recognizes and acknowledges that the Licensed Technology solely belongs
to
Maimonides, which subject to the provisions of the License granted
hereunder is and shall remain its sole
owner.
|
6.
|
Maimonides
agrees and acknowledges that Rosetta is the owner of and shall own
any and
all intellectual property, works or documents created, or developed
by
Rosetta with use of the Licensed Technology under the terms of this
Agreement
|
7.
|
Maimonides
hereby agrees and acknowledges that the License granted hereunder
will
also cover any use previously made by Rosetta prior to the Effective
Date,
with respect to generation of genomic patent applications, and waives
any
right to receive any consideration for such
use.
|
8.
|
Each
party shall keep the content of this Agreement and any information
regarding the other party’s technology, business and operations party
secret, and ____ protect and preserve the confidential nature and
secrecy
of such information for the duration of this Agreement and for ten
(10)
years after its termination or
expiry.
|
9.
|
This
Agreement shall be governed by the laws of the state of Israel, and
the
competent courts in Tel Aviv shall have sole jurisdiction in any
dispute
relating to this Agreement.
|
10.
|
This
Agreement constitutes the entire understanding of the parties and
supersedes all oral or written representations or agreements, privileges
or understandings between the
parties.
|
/s/ Illegible | /s/ Illegible | ||
Maimonides
des Innovative Technologies Ltd.
|
|
Rosetta
Genomics Ltd.
|
|
1.
|
Any
capitalized terms used in this Addendum ( including its preamble)
and not
defined herein shall have the meaning assigned to such terms in the
Agreement.
|
2.
|
It
is recorded and agreed that:
|
2.1
|
Maimonides
will deposit, within 7 days of signature of this Addendum, a copy
of the
source code of the Licensed Technology at Rosetta (i.e. the software
of
the Licensed Technology in its original human-readable form and language,
the “
Source
Code
”).
Rosetta will hold the Source Code in safe place during the term of
the
License, in order to ensure Rosetta’s capability to utilize the Licensed
Technology under the terms of the License. The Source Code will be
immediately returned to Maimonides upon expiration of the term of
the
License.
|
2.2
|
Maimonides
shall from time to time deliver to Rosetta any updates/or upgrades,
which
may be developed by Maimonides with respect to the Licensed Technology,
within fourteen (14) days from the date of completion of their development
(such delivery will include an amended Source Code including such
updates
and/or upgrades). Rosetta shall be entitled to use such updates and/or
upgrades in the scope of the License, free of any additional
charge.
|
3.
|
This
Addendum shall form an integral part of the
Agreement.
|
/s/
Illegible
|
/s/
Illegible
|
||
Maimonides
Innovative Technologies Ltd.
|
Rosetta
Genomics Ltd.
|
||
1. |
Rorberg
Contractors and Investors (1963)
Ltd.
|
2. |
Tazor
Development Ltd.
|
A.
|
It
is entitled to be registered as the owner of part of the rights in
the
plot in an area of 5,948 m
2
,
known as plot 1009 in accordance with Town Building Plan RH/2005/A
(hereinafter:
"The
Town Building Plan"
)
located at 10 Flaut street in Rehovot in the area of the T.M.R Park
in the
name of Yitzhak Rabin (then after: "
The
Land
").
|
The
permitted uses of the Land in accordance with the Town Building Plan
are,
inter
alia
,
for office buildings and high tech industrial installations or for
industrial research and development and/or for medical and/or biotechnical
and/or agricultural research and development, and all as specified
in the
Town Building Plan documents.
|
B.
|
It
has constructed a building on the Land known as Madai'im 1 (hereinafter:
"
The
Building"
or
"
The
Project"
).
|
C.
|
Within
the framework of the Building ERES have been included on the
3
rd
floor above the ground and the gallery floors, which are delineated
with a
red line in the plans attached as
Appendix
A1
of
the Contract (hereinafter: "
The
Unit"
)
and also 5 uncovered parking spaces marked as numbers 38 42 in
the plans
attached as
Appendix
A2
of
this Contract. (The Unit and the parking hereinafter be referred
to,
generally as: "
The
Property"
).
|
D.
|
The
Contractor holds the exclusive right to be registered as the
owner of the
Property and it exclusively holds the Property and there is no
legal or
other preclusion on the part of the Contractor preventing it
from taking
upon itself the undertakings as stipulated in this Contract for
the
leasing out of the Property to the Lessee.
|
E.
|
The
Lessee wishes to lease the Property from the Contractor and the
Contractor
wishes to lease out the Property to the Lessee under free and
unprotected
lease.
|
F.
|
The
parties agree that the Unit area for the purpose of this Contract
is 603
m
2
(the area of the unit including walls and in addition of multiplication
of
1.2 for the relative part of the common areas in the
Building).
|
G.
|
And
the parties have reached an agreement on the terms and conditions
of the
undertaken between them.
|
1.
|
The
Preamble, Headings and
Appendices.
|
1.1 |
The
preamble to this Contract and the declarations contained therein
constitute an integral part hereof.
|
1.2 |
The
appendices to this Contract constitute an integral part
hereof.
|
1.3 |
The
headings of this Contract are provided for the sake of convenience
for
reading and orientation only and no use is to be made thereof
for the
interpretation thereof.
|
2.
|
The
Main Principles of the Transaction and the Parties
"Declarations".
|
2.1 |
The
Contractor leases out the Property to the Lessee and the Lessee
leases the
Property from the Contractor and all in accordance with the terms,
conditions and for the consideration as stipulated in this
Contract.
|
2.2 |
The
Lessee hereby confirms that it has not paid and shall not pay
and has not
undertaken to pay any key money whatsoever to the Contractor
in connection
with the leasing of the Property under this Contract but rather
shall pay
Rental Payments to the Contractor for the period of the Lease
Term.
|
2.3 |
It
is hereby expressly agreed and stipulated that the provisions
of the
Protected Tenancy (Consolidated Version), 5732 - 1972 and/or
any other law
replacing it and/or supplementing it and/or amending any of the
said laws
and/or regulations pursuant to those laws shall not apply to
the leasing
of the Property to the Lessee under this Contract and that the
lease under
this Contract shall not be protected pursuant to those provisions
in any
form whatsoever.
|
2.4 |
The
Lessee hereby declares that it has visited the Project area and
that it
has viewed the Land and also that it has examined such and that
it knows
all the details, conditions and circumstances, vis-à-vis the physical,
legal, surrounding, planning and permitted uses, in connection
with the
Land, the Town Building Plan and the Property and that they are
suitable
for its requirements in all aspects and without limitation and
that it has
done so in such a matter that it hereby waves any claim for unsuitability
or any other similar claim with reference
thereto.
|
2.5 |
The
parties hereby agree that the Property shall serve for the purpose
of the
management of the Lessee's business in the biotechnical
field.
|
2.6 |
The
Contractor undertakes to deliver possession in the Property to
the Lessee
and the Lessee undertakes to receive the possession of the Property
and
all in accordance with the terms and conditions of this Contract.
|
3.
|
The
Building
|
3.1 |
The
Contractor shall deliver the Property to the Lessee
As
Is
,
however, such shall not derogate from the undertakings of the
Contractor
to whitewash the walls and to clean the areas in that part of
the Property
marked in yellow in the plans
Appendix
A1
of
the Contract and to do so within 2 working days from the delivery
of
possession in the Property (however, the completion processes
for the
purpose of these works may also be done after the elapse of 2
working days
as stated) and to carry out cleaning of the filters on the air
conditioners in the Property and to check the working order of
the
electricity infrastructure as exists in the Property and to do
so within 7
working days from delivery of possession in the
Property.
|
4.
|
Reserving
of Rights
|
4.1 |
It
is expressly agreed that all the Contractor's rights as stipulated
in
Section 4 below are subject to the realization thereof not preventing
the
Lessee reasonable use of the Property for the lease purposes
and access of
the Lessee to the Property.
|
4.2 |
The
provisions of this Contract do not restrict the Contractor in
its use,
utilization, designation and planning of the Land and do not
vest any
right in the Lessee towards the Contractor and/or towards others
regarding
the nature of the Land, the applicable limitations, utilization,
designation and planning of the Land provided that such does
not prevent
the reasonable use of the Lessee in the Property and the fulfillment
of
the other express obligations of the Contractor towards the Lessee
under
this Contract.
|
4.3 |
The
Lessee holds the right to further build on the additional presently
existing areas in the Building and also to further add in the
presently
existing in the Building, whether such is prior to the delivery
of
possession in the Property to the Lessee or thereafter and all
at the
exclusive discretion of the Contractor and without any limitation
whatsoever on the part of the Lessee regarding the number of
units, the
sort, shape, location, size and use of such units and the Lessee
undertakes not to make any claim in connection with the Building
and/or
non building of any part of the Project in any of its
stages.
|
4.4 |
The
Lessee hereby undertakes not to object to any amendment to the
Town
Building Plan and to refrain from any action and omission which
is likely
to prevent, postpone, delay, interfere and/or disrupt the proceedings
and
processes for the amending of the Town Building Plan and/or the
building
pursuant to the Town Building Plan and/or any amendment to the
Town
Building Plan. The Lessee declares and confirms that it is aware
that the
Contractor has entered into this agreement with it based on its
consent
and it is about consent and undertaking.
|
4.5 |
Without
such prejudicing the generality of the above said, the Lessee
hereby
expressly confirms that it is aware that the Contractor is likely
to build
the Building in a number of stages and that it is aware that
within the
framework of the said building noise, nuisances and/or inconveniences
are
likely to be caused involved with the continued construction
of the
Project and that this may continue even after the delivery of
possession
in the Property to the Lessee.
|
4.6 |
The
Contractor and/or anyone on its part shall be entitled at any
time
whatsoever to install and/or post through any part of the Land,
the
Building and the Property, various installations and systems,
including
water piping, heating, electricity, drainage, sewage, channeling
of water,
gas, telephone and communication cables, air conditioning system
parts
regardless of whether such serve the Property or if it serves
other
properties, provided that such is carried out at reasonable times
and in
cooperation with the Lessee and without such harming the Lessee's
reasonable use of the Property and/or the lessee's equipment
in the
Property.
|
4.7 |
The
Lessee shall enable the Contractor and anyone on its part to
enter into
the Property (even after delivery of such to the Lessee) to carry
out all
works and actions required for the purpose of the construction,
including
maintenance and/or repair works, at one time or in parts or at
different
times, according to need, provided that such is carried out at
reasonable
times and after prior cooperation with the Lessee and without
such harming
the reasonable use of the Lessee in the
Property.
|
4.8 |
The
Contractor may cause the registration of regulations for the
condominium
pursuant to Sections 62 and 63 of the Land Law. The regulations
shall be
drafted by lawyers considering the character of the Building
and the
Project. The Contractor may have included in the regulations,
inter
alia
,
provisions determining the relations between the unit holders,
provisions
regarding contracting in a management agreement as mentioned
in this
Contract below, and regarding the duties and obligations of the
various
holders of position in the properties within the Project regarding
the
passage way arrangements and the use of the Property for the
examining,
repair or replacement of piping and systems which pass through
the
Property or any part thereof, regarding limitations on changes
to the
properties, regarding the division of expenses involved with
the services,
regarding the excision of areas from the common property and
the
attachment thereof to certain properties in the Building, regarding
the
rights in the common property and the nature of the use thereof,
regarding
the securing of the Contractor's rights, the rights of property
holders,
of the Lessee, etc.
|
5.
|
Alterations
and Additions to the
Property.
|
5.1 |
Subject
to that stipulated in subsection 5.2 below, the Lessee undertakes
not to
execute any alterations or additions to the Property or outside
of the
Property to Lease Term and as it has received the prior written
consent of
the Contractor and subject to the obtaining of the permits and
the
licenses required from the competent
authorities.
|
5.2 |
The
parties agree in advance that the Lessee shall be entitled to
carry out
internal works in the Property in order to prepare it for lease
purposes
and that it shall do so at the exclusive expense and responsibility
of the
Lessee provided that it issues the Contractor with the execution
plans for
the works prior to the actual execution thereof and the Contractor
has
approved then for execution. The Contractor undertakes not to
refuse to
approve the execution of the works in accordance with the plans
issued to
it as stated by the Lessee unless such involves works which are
likely to
harm the Building and/or its systems and/or the alter appearance
of the
Building.
|
5.3 |
It
is agreed that the signage in the Property shall be within the
framework
of the general signage for the Building and that the Lessee shall
be
permitted to place signage of the size and shape to be agreed
upon by the
architect on behalf of the Contractor next to or on the entrance
door into
the Unit and all in accordance with and subject to the instructions
of the
Contractor and the management company. The cost for the execution
of
signage should apply to the Lessee.
|
6.
|
The
Lease Term
|
6.1 |
The
Lease Term is hereby determined for the period commencing from
the date of
the signing of this contract and up until 31.7.2005 (hereinafter:
“The
Lease Term”
).
|
6.2 |
The
Lessee shall not be entitled to terminate the lease under this
contract
before the end of the Lease Term. If the Lessee stops using the
Property
and/or if it vacates the Property before the end of the Lease
Term, such
shall not release the Lessee from the fulfillment of its obligations
under
this Contract, including its obligation to pay Rental Payments
to the
Contractor up until the end of the Lease Term.
|
6.3 |
At
the end of the Lease Term, or upon the legal cancellation of
this
Contract, the Lessee undertakes to vacate the Property and to
return
possession thereof to the Contractor with the Property being
clean, tidy
and in a fit state and free of any person and object belonging
to the
Lessee.
|
7.
|
Delivery
Date
|
7.1 |
The
Contract that hereby undertakes to deliver possession in the
Unit to the
Lessee immediately upon fulfillment of all the Lessee’s undertakings which
must be fulfilled before and up to, including, the
delivery.
|
8.
|
Completion
of the Property
|
8.1 |
The
Lessee cannot have any claims against the Contractor whatsoever
regarding
the completion of the building of the Property. The above said
shall not
reduce the Contractor’s duty pursuant to that stipulated in Section 10
below.
|
8.2 |
It
is clarified, in order to alleviate doubt, that the works of
any sort
whatsoever in the Building or in the Project, apart from the
Property, can
continue, without any right of disturbance on the part of the
Lessee
including also after delivery of the Property to the Lessee provided
that
such does not harm reasonable use of the Lessee in the
Property.
|
9.
|
The
Delivery Procedure
|
9.1 |
At
the time of the signing of this Contract the parties shall sign
on the
protocol attached as
Appendix
B
of
this Contract (hereinafter:
“The
Delivery Protocol”
).
|
9.2 |
It
is expressly agreed and stipulated that any fault and/or disparity
in the
Unit at the Delivery Date which has not been detailed and expressly
indicated in the Delivery Protocol and which could have been
discovered by
the examination as stated by a reasonable person (who is not
an expert in
the matter), shall be seen as constituting a waiver by the Lessee
of any
claim, right and suit with respect thereof, and the Lessee shall
not be
entitled to revise thereupon and shall be estopped from claiming
and
receiving any remedy or relief whatsoever from the Contractor
for such.
|
10.
|
Maintenance
of the Property
|
10.1 |
Should
there be a disparity according to the Delivery Protocol, the
Contractor
shall act to repair such within a reasonable time (considering
the nature
of the problem and the season of the year) after the delivery.
|
10.2 |
It
is agreed that the Contractor shall not be liable for the repairs
of
faults which have arisen from and/or have deteriorated due to
the
unreasonable dues and/or due to an action and/or omission of
the Lessee
and/or of a third party who is not acting on behalf of the Contractor
and/or if the Lessee has not acted in accordance with the warnings,
where
such have been given in writing by the Contractor, regarding
the special
properties of the Property and/or where the Lessee has not acted
in
accordance with the maintenance and use instructions for the
Property.
|
10.3 |
It
is agreed that the Contractor shall not be responsible for the
quality of
the additional work executed and/or to be executed in the Property
unless
the Contractor has provided his written consent for the execution
of the
changes regarding the Additional Work and the Additional Work
was carried
out by the Contractor.
|
10.4 |
The
Lessee undertakes to allow the Contractor, its workers and agents,
including contractors and sub-contractors on behalf of the Contractor
to
examine the faults, to carry out the repairs in the Property
and/or other
properties in the Building, and also to enter into the Property
for the
purpose of the installation and/or transfer of equipment to the
holders of
other properties in the Building. The Lessee hereby waives any
claim
and/or demand which it might have in connection with the time
for the
execution of the aforementioned actions or in connection with
the
inconvenience, if any has been caused to it as a result of such,
even if
such relates to another property in the Building and the execution
thereof
is done, fully or partially, from the Property or in the external
walls of
the Property, and provided that the Contractor has executed the
above work
at reasonable times after prior coordination with the Lessee
and without
such harming the Lessee’s reasonable use of the Property and/or the
Lessee’s use of the equipment in the Property and the Contractor shall
act
to the best of its ability in order to limit the inconvenience
which might
be caused to the Lessee due to the execution of the above said
actions.
|
10.5 |
The
Lessee shall not be entitled to rely on a disparity, if any,
if he has not
provided the Contractor with a fair opportunity to examine and
repair
such. Similarly, if the Lessee does not allow the execution of
the
repairs, such shall be considered as an absolute waiver on the
part of the
Lessee for the execution of the repairs and of any other legal
measure
regarding the disparity.
|
10.6 |
The
Lessee undertakes to repair, upon first demand of the Contractor,
any
breakdown or damage caused to the Property as a result of an
action of the
Lessee which exceeds the reasonable and cautious use on the Lessee’s
behalf or an illegal omission on the Lessee’s part (including for that
stipulated in subsection 10.2) but excluding as a result of wear
and tear
which is not due to reasonable use. Where no such claim has been
made,
then such repairs shall be carried out within a reasonable time
before the
vacating date in such a manner so that the repair is completed
by no later
than 7 days before the vacating date. If the repair is of the
sort of
repairs which must be executed urgently, then such shall be done
by the
Lessee immediately.
|
10.7. |
The
Lessee undertakes, throughout the Lease Term, to comply with
all
provisions of any Law relating to the management of the business
in the
Property, not to hold any equipment, material or object in the
Property or
its surroundings which is likely to cause any damage whatsoever
and/or
which may be of tangible danger as well as to fulfill the provisions
of
any Law of any competent authority connected with the fire extinguishing
arrangements and procedures, as well as those of the Home Front
Command,
safety and security procedures as well as hygiene
procedures.
|
10.8. |
The
Lessee shall manage its business and shall make use of the Property
without disturbing the other tenants in the
Project.
|
10.9. |
The
Lessee undertakes to refrain from acting (or allowing others
to act) in
the Property by committing or omitting to commit anything which
might
impose any liability whatsoever on the Contractor for damages
towards a
person and/or property.
|
10.10. |
The
Contractor and his proxies shall have the right, at reasonable
times, to
enter into the Property in order to ascertain that the Lessee
is
fulfilling its obligations pursuant to the terms and conditions
of the
Contract and/or in order to present the Property before potential
tenants
or buyers and/or in order to undertake those actions and those
means as
determined in this Contract or under any other Law and which
require the
said entry into the Property.
|
10.11. |
In
the matter of the room which is marked as a server room, it is
expressly
and explicitly clarified that it includes a communications cabinet,
a
communications equipment and an air conditioner, and it is intended
to
also partially serve other tenants in the neighboring properties
(however
the terminal points in those areas are routed through the aforementioned
communications equipment), and the Lessee agrees to allow them
to have
access to the server room and shall be reasonably required by
them subject
to prior coordination with the Lessee. In consideration, the
Lessee may
make use of the air conditioner and the communications cabinet
as required
by it without damaging that which exists.
|
10.12. |
In
the matter of the area in the unit marked in the plans as the
accompanying
area (in green) it is expressly agreed that the Lessee shall
be entitled
to detract it from the Unit area by filing a written notice of
at least 30
days in advance. In such a case, the sum of NIS 220 plus VAT
shall be
deducted from the Monthly Rental starting from that said deduction
date,
where such amount is linked to the index from the singing date
of the
Contract.
|
11.
|
Insurance
|
11.1. |
The
Lessee undertakes to act in accordance with the provisions of
the
Insurance Appendix -
Appendix
C
-
of this Contract and to provide a required certificate thereunder
by the
Delivery of Possession Date.
|
12.
|
The
Management Agreement
|
12.1. |
The
Lessee undertakes to sign, at the time of the signing of this
Contract or
at any other time to be determined by the Contractor at the exclusive
discretion of the Contractor, on a Management Agreement, in a
wording
according to the principles of the contract attached to this
Contract as
Appendix
D
(hereinafter:
“The
Management Agreement”
)
with the Management Company to be appointed or to be appointed
by the
Contractor (above and below:
“The
Management Company”
)
whose role it shall be to see to the regular maintenance (including
the
execution of improvements and renovations) to the common property,
and the
Building and in the Project in general, and it undertakes to
act in
accordance with the provisions of the Management
Contract.
|
12.2. |
The
Lessee also undertakes towards the Contractor to comply with
the
provisions of the Management Contract. The breach of the Management
Contract shall also constitute a breach of this Contract of Lease.
|
12.3. |
Regarding
the matter of Section 10.3 of the Management Contract, it is
expressly
agreed that if the Lessee is required by the Management Company
to provide
the deposit as defined in the Management Contract, the Contractor
shall
act to cancel the requirement on the part of the Management Company
or to
fulfill it instead of the Lessee.
|
13.
|
Rental
Payment
|
13.1. |
The
monthly Rental Payments for the Lease Term shall be in the amount
of NIS
22,922 (inclusive of VAT) linked to the index from the date of
the signing
of this Contract.
|
13.2 |
“Index”
-
For the purpose of this Contract shall mean the - the price index
known as
the consumer price index published by the Central Bureau of the
Statistics
or any other official index replacing
it.
|
13.3 |
The
Monthly Rental Payments shall be paid in advance, at the following
dates:
|
13.3.1 |
At
the time of the signing of this Contract, the Monthly Rental
shall be paid
for the Lease Term up until
28.02.2004.
|
13.3.2 |
For
the balance of the Lease Term (i.e. commencing from 1.3.2004)
Rental
Payments shall be paid every two months in advance on the first
of the
following months: March, May, July, September, November, and
January -
accordingly, however the last payment shall be for the period
from the
above said payment date and up until the end of the Lease Term.
|
13.4 |
In
order to ease the collection of the Additional Rental Payments,
the Lessee
shall deliver to the Contractor, cheques on account of the future
Additional Rental Payments up until the end of the Lease Term.
The said
cheques shall stipulate the set payment dates as stated in sub
section of
13.3 above. Once every quarter, or for a lengthier period, at
the election
of the Contractor, an account shall be made of the difference
for the
Rental Payments arising from changes to the Consumer Price Index
from
between the delivery date of the cheques as stated above and
the payment
date and the said differences shall be paid to the Contractor
within seven
days of the Contractor’s demand. In order to alleviate doubt it is hereby
clarified that the Contractor shall be entitled to present the
cheques
mentioned at the heading of this sub section for payment by the
due dates,
however only payment of the cheques and the Rental Payment differences
plus VAT, where required, as stipulated in this Contract, shall
be
considered as full payment of the Rental Payments.
|
13.5 |
It
is hereby agreed that until another instruction is given by the
Contractor, every payment under this Contract shall be made in
tow equal
parts:- One - in favour of Rorberg Contracting and Investments
(1963) Ltd.
Into account No. 20767 at Bank Hapoalim Ltd., branch 609 and
the second in
favour of Tazor Development Ltd. Into account 13736 at Bank Hapoalim
Ltd.,
branch 609.
|
13.6 |
The
Rental Payments stipulated above include VAT at the rate of 18%.
It is
expressly agreed that if a change occurs to the VAT rate, the
Rental
Payments shall be updated and paid in accordance with the altered
VAT
rate.
|
14. |
Taxes,
Fees, Expenses and Miscellaneous Payments
|
14.1 |
In
addition to the payment of Rental Payments and the other payments
applicable to the Lessee under this Contract, the Lessee undertakes
to pay
the taxes, expenses and payments as
follows:
|
14.1.1. |
All
taxes, municipal rates and taxes, other obligatory payments and
expenses
applicable to the Property for the use and possession thereof
including
management fees, electricity, water, telephone payments, municipal
rates
and taxes, property improvement levies for exceptional use, if
and where
required, business taxes, etc.
|
14.1.2. |
Revenue
stamp duty for this Contract and the agreements and documents
signed
pursuant to this Contract, if and should such apply.
|
14.2. |
All
other compulsory payments and/or applicable taxes and/or taxes
to be
applied in the future and which apply to and/or shall apply,
in Law, or by
the nature thereof, to the owners shall be paid by the Contractor
whilst
those which apply and/or shall apply, in Law, or by the nature,
to the
holders of possession, shall be paid by the
Lessee.
|
14.3. |
The
payments indicated in this Section above, where no payment date
has been
stipulated, shall be paid to the Contractor within seven days
from the
demand date, to the competent authority, immediately upon first
demand
from that authority and/or at the date as determined under any
Law; and to
any other entity - at the time as demanded by it and/or by the
Contractor
and/or pursuant to that agreed upon between them.
|
15.
|
Breaches
and Remedies
|
15.1. |
Nor
do they derogate from any right, cause, remedy or measure available
to the
injured party due to the breach in
Law.
|
15.2. |
If
the Lessee breaches, does not fulfill or is late in fulfilling
any of the
terms and conditions of this Contract constituting the fundamental
conditions of this Contract, the Contractor may demand the immediate
vacating of the Property and also to collect compensation for
damages
sustained by the Contractor as a result of the breach.
|
15.3. |
Where
the Lease Term has ended, or in any event of the cancellation
of this
Contract in Law, due to the breach thereof by the Lessee and
where the
Lessee has not vacated and/or delivered possession of the Property
to the
Contractor, free of any person and pursuant to the terms and
conditions of
this Contract, then the Lessee shall pay to the Contractor for
each month
of arrears in the said vacating, arrears payments at the rate
of twice
that of the Rental Payments.
|
15.4 |
Should
any disparities be discovered in the Property and the Contractor
has done
nothing to amend such, under the circumstances where under the
provisions
of that stipulated in this Contract, such constitutes a breach
on the part
of the Contractor, then the Lessee shall be entitled to the remedy
of
enforcement, i.e. - the repairing of the disparity, including
by those
means as stipulated in subsection 10.1 above, and in any event
it is
agreed that the Lessee shall not be entitled to a setoff of its
damages
for the faults and/or for the cost of the repair, from the Rental
Payments
which the Lessee must make towards the Contractor, unless the
Lessee has
received the prior written consent of the Contractor for
such.
|
15.5 |
Any
amount which the Lessee owes and which the Lessee has not paid
by the due
date or within 7 days thereafter, shall bear linkage differences
to the
Index and linked interest during the arrears period at the rate
of 4% per
annum or arrears interest at a rate customary at Bank Hapoalim
Ltd. for
approved overdraft facilities in current accounts (for an ordinary
and not
preferred customer) plus 4% per annum at the election of the
Contractor
without prejudicing any other remedy available to the Contractor
pursuant
to the this Contract or under any Law.
|
15.6 |
Where
the Lessee has been late in fulfilling one or more of its obligations
under this Contract, fully or partially, such shall permit the
Contractor
to delay on a parallel basis the fulfillment of its obligations
towards
the Lessee and such a delay on the part of the Contractor shall
not
constitute a breach and shall not entitle the Lessee to any remedy
whatsoever.
|
15.7 |
If
the Lessee has not paid one or more of the payments applicable
to it under
this Contract, fully and/or partially and/or by the due dates,
such shall
be considered as a fundamental breach of the Contract.
|
16.
|
Guarantees
|
16.1 |
In
order to secure and guarantee the fulfillment of the Lessee’s undertakings
under this Contract and to guarantee all the expenses, losses
and damages
applicable in the case of a bridge of the Contract by the Lessee,
it is
agreed that:
|
16.1.1 |
The
Lessee within seven days of the signing of this Contract and
as a
precondition for receiving the keys to the Leased Premises the
Lessee will
provide an autonomous bank guarantee to the Contractor in favor
of Rorberg
Contracting and Investments (1963) Limited, in an amount of NIS
46,000
linked to the consumer price index starting from the date of
the signing
of this Contract and redeemable upon demand in accordance with
the wording
as attached to this Contract in
Appendix
E
.
|
16.1.2 |
A
promissory note in the amount of NIS 250,000, linked to the consumer
price
index at the date of the signing of this contract, signed by
the
Lessee.
|
16.2 |
It
is explicitly agreed between the parties that the exercising
and/or
redemption of the note and/or its submission for execution at
the
execution office or its submission in a claim thereunder and/or
the
exercising of the bank guarantee shall not prejudice the Contractor’s
right to claim and to receive any other additional alternative
relief of
any sort whatsoever against the Lessee, for the collection of
those
amounts in excess of the amount to be realized as
stated.
|
16.3 |
The
Contractor undertakes to give the Lessee a written extension
of 14 days at
least in order to amend the breach for which it intends to exercise
the
guarantees under this section before it does so and if the breach
has been
amended within the above said extension, the Contractor shall
not be
entitled to realize such, however, the above said shall not diminish
in
any manner whatsoever the power of the Contractor to exercise
guarantees
in accordance with law.
|
17.
|
Transfer
of Rights
|
17.1 |
The
Contractor may transfer its rights and/or obligations under this
Contract,
fully or partially, to any other legal person or party, but must
do so
subject to the maintaining of the Lessee’s rights under this
Contract.
|
17.2 |
The
Contractor hereby declares that it has contracted with Bank Hapoalim
Limited in a credit agreement for the financing of the construction
of
Building (Hereinafter: “
The
Financing Agreement
”)
and that it undertakes or is likely to undertake to provide various
guarantees in favor of the bank including,
inter
alia
,
a
pledge on all receipts owing to it from the Lessee (Hereinafter:
“
The
Pledge of the Rental Payments
).
The parties therefore agree and confirm
that:
|
17.2.1 |
They
are aware of the possibility of the existence of a pledge on
the Rental
Payments and the assignment of these Rental Payments by pledged
to the
bank.
|
17.2.2. |
The
Contractor shall be entitled to give an instruction to the
Lessee and/or
an irrevocable instruction/instructions to the Lessee to pay
the Rental
Payments to the credit of a bank account/accounts (Hereinafter:
“
The
Special Instructions
”)
and a Lessee confirms that in such a case it shall act in accordance
with
the Specialty Instructions.
|
17.3 |
The
Lessee shall not be entitled to assign, pledge, sublease or transfer,
by
any other means, its rights and obligations under this contract,
fully or
partially, directly or indirectly, to another, unless with the
prior
written and explicit consent of the
Contractor.
|
18.
|
Non
Waiver of Rights
|
18.1 |
The
non exercising or delay in exercising by a party to this Contract
of any
of its rights under this Contract and/or under law, shall not
be
considered as a waiver on its part of the said
right.
|
18.2 |
A
waiver, discount, change or extension given by a party to this
Contract,
under certain circumstance, shall not serve as a precedent in
another
case, and in any event, all the said actions shall be invalid
unless so
done in writing.
|
19.
|
The
Inclusiveness of the Contract and its
Validity
|
19.1 |
The
parties hereby agree that the terms and conditions of this Contract
reflect that which has been agreed and stipulated upon between
the
parties.
|
19.2 |
Any
change to this Contract must be done in writing and signed by
the parties.
An verbal declaration, presentation or promise, made in the future or by
any person, including employees of the Contractor or its agents,
in any
matter relating to this Contract, shall not find the
Contractor.
|
19.3 |
Until
the signing by the Contractor, through its authorized signatories,
on this
Contract, the terms and conditions hereof shall not bind the
Contractor
and the signature of the Lessee alone on this Contractor shall
not vest
any right whatsoever thereunder. The date at which the Contractor
signs,
as stated, on the Contract shall be considered as the signing
date of the
Contract.
|
20.
|
Lawyers
|
20.1 |
The
Contractor hereby makes notice that it has appointed Advocates
Guy
Hermelekh and Barak Moshe of 10 Flaut Street in Rehovot (above
and below:
“
The
Lawyers
”)
to be, jointly and severely, their attorneys for all intents
and purposes
for the execution of any action requiring legal work in connection
with
this Contract.
|
20.2 |
The
Lessee declares that it has been emphasized before it that the
Lawyers
represent the Contractor alone and that they do not represent
the Lessee
and that the Lessee is entitled and even recommended to appoint
a lawyer
on its behalf in order to represent it for the purposes of this
Contract.
|
21.
|
Judicial
Jurisdiction and Choice of
Law
|
21.1 |
In
any dispute between the parties to this Contract and in connection
therewith, its breach, interpretation, applicability and/or validity,
the
courts in the Tel Aviv and Central Districts shall have sole
judicial
jurisdiction.
|
21.2 |
The
provisions of the Israeli law shall apply to this
Contract.
|
22.
|
Notices
|
22.1 |
The
addresses of the party for the purpose of this Contract and in
connection
therewith are as specified in the headings of this Contract or
at any
other address in Israel to be specified in a notice to be sent
to the
other party in accordance with the provisions of this
clause.
|
22.2 |
Any
notice sent by a party to another party in accordance with the
above
address by registered mail shall be considered as having reached
its
destination three business days after having been sent by registered
mail.
|
A.
|
On
the __day of _____ a Lease Contract (hereinafter: "
the
Lease Contract"
)
was signed between Rorberg Contractors and Investments (1963) Ltd.
and
Tazauer Development Ltd (hereinafter: "
the
developer"
or
:
the
property owner
"),
of the first part and the Lessee of the second part under which
the Lessee
took a lease of the property (as the same is defined in the Lease
Contract) and which forms part of the building and the project
called
"Mada'im 1" and which was erected by it on the plot known as Plot
1009
under Scheme RH/2005/A situated in the Rabin T.M.R. Park in Rehovot
(hereinafter: "
The
Building"
or
"
The
Project")
;
|
B.
|
The
Project includes common areas and facilities that are intended
for common
use of all property owners in the project or some of them and/or
occupiers
of the properties, at the initiative of the property owners in
the project
and/or are to be designated by the developer as common
property;
|
C
|
In
order to facilitate the preservation of a high standard of maintenance
of
the building it is necessary that the services to be common property
are
managed and provided in an organized
manner;
|
D
|
The
Lessee is aware that the property owner has agreed that management
of the
said services shall be performed exclusively by the Management
Company and
the Lessee undertakes to fulfill all the obligations required of
it in
connection with the provision of the management services by the
management
company, and all in accordance with and subject to the provisions
of this
Contract;
|
E
|
This
Contract is intended to govern the mutual obligations between the
parties
in all matters pertaining to management and performance of the
services in
the building and constitutes the Management Contract referred to
in the
Lease Contract;
|
1. |
Treatment
of the Preamble and the Title
Headings
|
1.1 |
The
preamble to this Contract and the declarations contained therein
constitute an integral part
thereof.
|
1.2 |
The
Title Headings in this Contract have been inserted for convenience
of
reading and familiarization, and they shall not be used in its
interpretation.
|
2. |
Definitions
|
"The
Building"-
|
As
defined in Part B of the preamble to this Contract
|
|
"The
Expenses"-
|
As
they are defined in Section 10.1 of this Contract
|
|
"
The
Annual Account"-
|
As
defined in Section 10.5 of this Contract
|
|
"
The
Installations"-
|
The
installations as they are defined hereunder in this
Section.
|
|
"
The
Deposit"-
|
As
defined in Section 10.5 of this Contract
|
|
"
The
Common Property"
|
All
parts of the building that are intended for the use in common of
all the
property owners in the Project or some of them and/or those occupying
properties on behalf of the said owners and/or are designated as
common
property by the developer, including, and without derogating from
the
generality of the foregoing, external walls, roofs, basements,
shelters,
garbage rooms, stairwells, passageways, piazzas, parking lots,
entrances,
elevators, toilets and restrooms; as well as common installations,
such as
air conditioning, heating, electrical and plumbing installations,
any kind
of piping, general signboards, other installations that serve or
are
intended to serve some or all of the property owners in the project
even
if they are situated within the boundaries of units that are in
the
ownership of and/or are for the exclusive use of one of the property
owners in the project, and any other installation in respect of
which the
Management Company agrees to provide services (hereinafter: "
the
installations"
).
|
3. |
The
Services
|
3.1 |
In
this Contract the expression "services" shall be taken to mean
as
including servicing and maintenance works, including day to day
operation,
repairs, cleaning, lighting, gardening, renewals, examination,
insurance
and upkeep of the common property and the
installations.
|
3.2 |
The
Management Company shall from time to time be entitled to determine
the
scope of the services, their type, nature and time and manner of
their
provision, all having regard to the nature and standard of the
building
and the requirements of a majority of the property owners (as per
the
areas of the units) in the
building.
|
3.3 |
The
Management Company may also include within the bounds of the services
included in this Contract, services that are intended to serve
particular
properties only in the project, (hereinafter: "
the
special services"
).
In the event of provision of special services the Management Company
shall
proceed in accordance with Section 10.5.2 with regard to division
of cost
of contribution to such expenses.
|
3.4 |
Subject
to what is stated hereunder the Management Company shall also deal
with
the renewal of the various installations, renovations, and replacements
in
the common property (to the extent that it is necessary) and with
management of the equipment renewal fund in the project as provided
hereunder in Section 10.2
|
3.5 |
As
a precondition for entering into this Contract with the Management
Company, and without derogating from any other exemption in the
Contract,
the Lessee agrees that it will be estopped from claiming any compensation
or other relief for loss, damage or deficiency as a result of a
fault
and/or default and/or cessation and/or delay in supplying any of
the
services, unless it is proved that such fault and/or defect and/or
cessation and/or delay in supplying any of the services was caused
directly and solely as a result of a negligent act or omission
of the
Management Company.
|
3.6 |
For
the avoidance of doubt, although the Management Company might well
be
charged with ensuring the supply of guard services to the building,
the
Management Company shall not be deemed to be a bailee of the building
and/or the unit and/or any part thereof and/or their contents,
as this
term is defined in the Bailee's Law 5727-1967. The Lessee shall
bear
exclusive liability for the safekeeping of its property and the
said law
shall not apply to the relationship between the Management Company
and the
Lessee.
|
4. |
The
Contract
|
4.1 |
The
property owner hereby assigns to the Management Company and the
Management
Company accepts responsibility for management of the services to
the
project and the Lessee agrees to the Management Company performing
the
aforesaid management services in this Contract commencing from
the date of
completion of the building.
|
4.2 |
The
Management Company will be entitled to bring forward and deal with
the
management and performance of the services if in its opinion this
will
bring about an improvement in provision of the services and/or
an
improvement in the preparedness in the deployment of the Management
Company in maintaining them, and including the provision of consulting
services as regards the choice of installations, the examination
thereof
prior to their installation and/or when being installed and the
preparatory work in assimilating
them.
|
4.3 |
Notwithstanding
the provisions in this Contract the Management Company will be
entitled to
postpone the date for performing various services, wholly or partially,
if
in view of the situation of the works in the project or taking
into
account the actual number of purchasers and tenants of the properties
in
the project and/or in light of other considerations, it is in its
opinion
justifiable to postpone the date of performance of the services
or any
part thereof.
|
5. |
Contracts
with Sub-Contractors, Employees and
Others
|
5.1 |
The
Management Company may from time to time contract with Contractors
and/or
sub-contractors including with another Management Company or Management
Companies regarding provision of some of the services and/or all
of the
services for which the Management Company has accepted responsibility
under this Contract, whether such a contract is with regard to
certain
parts of the contract and/or with regard to all or some of the
installations and systems and/or with regard to all and/or some
of the
services.
|
5.2 |
The
Management Company may engage and/or contract in any way it sees
fit on a
fulltime or part time contract of employment, any person or body
including
technical professional and administrative employees, clerks, experts,
lawyers, advisors, laborers and professional tradesmen including
guards.
|
5.3 |
In
order to perform the actions and services for which the Management
Company
has accepted responsibility under this Contract, the Management
Company
may lease and occupy an office and/or offices as well as rooms
and
storerooms as necessary, including all such equipment as is required
for
maintaining and operating such offices and
storerooms,
|
5.4 |
In
the event of the Management Company being engaged in providing
special
services, this shall be done in so far as is possible by the use
of the
same offices, manpower and equipment as are also used for the purpose
of
fulfilling all the functions of the Management Company, the intention
being to effect a saving in the Management Company's expenses as
far as is
possible.
|
5.5 |
The
powers of the Management Company under this Contract shall in so
far as is
necessary be conferred on Bezeq and/or a private communications
company
and/or the Electricity Corporation and/or other bodies of a like
nature in
all matters pertaining to the servicing of the transformer room/s
and the
electricity, communications cables etc, as well as in assuring
other
rights of such bodies.
|
6. |
The
Management Company's Authority with Regard to the Common
Property
|
7. |
Procedures
|
7.1 |
The
Management Company is authorized to prescribe from time to time,
such
procedures and regulations as it sees fit in relation to the use
of the
common property and in connection with performance of the services,
provided that such procedures and regulations shall not conflict
with the
provisions of this Contract and shall not be prejudicial to the
reasonable
use by the Lessee of the property and of the common
property.
|
7.2 |
The
Management Company may from time to time prescribe such rules of
behavior
as shall be binding on all owners and/or occupiers of the properties
in
the project this so as to preserve the standard of the project
and to
prevent disturbance and annoyance to occupiers in the properties,
the
common property and the installations in the
project.
|
7.3 |
The
Management Company may from time to time designate areas that are
part of
the common property, places for use as pathways, passageways, parking
lots, places for the installation of aerials, fuel and gas tanks,
plumbing, cables, garbage facilities and other installations, whether
these serve all the properties in the project or serve only parts
of the
project.
|
7.4 |
Without
prejudice to the foregoing, the Management Company may from time
to time
introduce
inter
alia:
|
7.4.1 |
Regulations
that prohibit the installation or placement outside the property
of any
installations and objects.
|
7.4.2 |
Regulations
regarding noise limitation and/or the creation of other nuisances
in the
project.
|
7.4.3 |
Regulations
as to the means of use of the open and adjacent areas and behavior
therein.
|
7.4.4 |
Regulations
as to signboards and the fixing of signboards, notices and other
marks on
the building, its walls, roof, as well as on parts of the property
that
are visible from outside the property and including the doors and
windows.
|
7.4.5 |
The
Lessee shall not make any changes in the property which could affect
the
external walls or external front or the windows or terraces of
the
property and/or on the common property, including changes that
harm or
that are likely to harm or endanger the common property and/or
the
building and/or the project or any of the parts and/or units thereof,
unless it has obtained the consent of the developer and Management
Company
thereto.
|
8. |
Insurance
|
9. |
The
Lessee's Obligations
|
9.1 |
The
Lessee hereby undertakes that it and its visitors and anybody representing
or acting on its behalf will comply with all the obligations that
arise
either directly/indirectly from this Contract, as well as with
such
regulations and procedures as are prescribed by the Management
Company.
|
9.2 |
In
order to enable the Management Company to fulfill its obligations
in this
Contract, to manage the project and to supply services in an efficient,
complete and orderly manner, the Lessee hereby permits the Management
Company and its representatives, for the purpose of effecting repairs,
maintenance, inspection, mobility of assets and equipment in the
building
and examinations that it is entitled to conduct in accordance with
this
Contract or in accordance with the Lease Contract, to enter the
property
in order to replace and/or repair common systems, piping, channels,
cables
etc. and/or for the installation of assets for property owners
in the
building and to carry out any work that is reasonably necessary
in the
Management Company's opinion for the provisions of the services,
and
including to make openings in walls, floors, ceiling etc. In any
case of
action being taken as aforesaid, the Management Company will ensure
that
the disturbance to the Lessee shall be as little as possible and
that the
property is restored to its previous condition as early as
possible.
|
9.3 |
The
Lessee shall notify the Management Company as soon as possible
of any
fault or breakdown that requires action to be taken on the part
of the
Management Company.
|
10. |
Payments
to the Management
Company
|
10.1 |
All
expenses of the Management Company for providing the services in
accordance with this Contract, including administrative expenses,
bookkeeping, legal advice, technical and professional personnel,
materials, financing, taxes and fees and any other expenses and
payments
that are to be made by the Management Company in connection with
management of the project and/or in connection with the powers
and duties
of the Management Company under this Contract (and including expenses
in
the period that preceded delivery of the units to the owners of
the
properties in the project as well as expenses as stated hereunder
in
Section 10.2; hereinafter inclusively referred to as: "
The
Expenses"
)
shall be on behalf of and at the expense of owners of the properties
in
the project.
|
10.2 |
The
Management Company may also include, separately, in invoices that
are sent
to the Lessee, a demand for amounts that are intended to cover
expenses of
the repair and renewal of installations, equipment and parts of
the
building in the common property and of such equipment and installations
of
the Management Company as are necessary for performing all or part
of the
services, at the sole discretion of the Management Company, and
where
necessary, in consultation with experts in the matter (hereinafter:
"
the
equipment renewal fund")
.
Amounts that are paid to the said fund shall be deemed to be a
deposit
that is to be held by the Management Company in a separate account
as
Trustee of the property owners in the project and shall act as
an
increment for the renewal and replacement of the equipment as well
as for
its renovation, replacement and repair. The Management Company
will not be
entitled to draw monies from the equipment renewal fund other than
after
having obtained the certificate of the Management Company's Auditor
and
signature of the usual duly authorized signatories of the Management
Company.
|
10.3 |
In
addition to the amount of the expenses specified above, the Lessee
is
obligated to pay the Management Company, as a special fee to the
Management Company, a sum that is equivalent to 15% of the amount
of the
Lessee's share of the expenses, with the addition of VAT (hereinafter:
"
the
special fee"
)
and this simultaneously with payment of the
expenses.
|
10.4 |
As
a condition for the delivery of possession of the property to the
Lessee
by the developer and in order to assure performance of the services,
the
Lessee shall make a deposit with the Management Company of the
estimated
amount of the total expenses for three months in respect of its
share in
the maintenance and management expenses, in the equipment renewal
fund and
in the aforesaid special fee (hereinafter: "
the
deposit"
).
|
10.5 |
The
Management Company will take action with regard to the collection
of such
payments as are due from the Lessee under this Contract in accordance
with
the following provisions:
|
10.5.1 |
The
Management Company shall divide the expenses in respect of the
services
that are the subject of this Contract, between owners of the properties,
each according to his share and his rights in the common property,
in
accordance with a uniform formula which shall be prepared by the
Management Company and which shall be based on the area of the
unit in
respect of which the Lessee has contracted in the Lease Contract
pro
rata
to
the total of all areas of the units in the
Project.
|
10.5.2 |
Notwithstanding
the foregoing, in respect of services that are of special benefit
to
owners of certain properties, only those owners or occupiers of
those
properties, as the case may be, will be charged, and this in accordance
with a formula that is prepared by the Management Company and which
shall
be based on the principle of division as aforesaid,
mutatis
mutandis
.
The
Management Company shall decide at its discretion which expenses
shall
apply to all the properties in the project and which of them (or
some of
them) shall apply to certain
properties.
|
10.5.3 |
For
the removal of doubt it is hereby clarified that the Israel Electric
Corporation Ltd. as well as other authorities and other bodies
that occupy
parts of the project for the purpose of supplying services to the
owners
of the properties in the project will not be liable to contribute
to the
Management Expenses.
|
10.5.4 |
The
Management Company may also charge the Lessee for expenses that
were
incurred prior to the delivery of the unit to it provided that
such
expenses were incurred in the establishment of the Management Company's
infrastructure and its offices or were incurred for the purpose
of
providing other appropriate
services.
|
10.5.5 |
The
Management Company's expenses including salaries of its employees
and
workers and/or remuneration of those engaged by it in carrying
out the
works, shall be reasonable and in keeping with what is normal and
acceptable.
|
10.5.6 |
Without
derogating from the other obligations of the Lessee under this
Contract
the Lessee undertakes to make advance payments to the Management
Company
on account of its share of the expenses and the special fee in
accordance
with demands submitted to it by the Management Company. It is hereby
agreed that the first advance payment shall be made on the date
of
delivery of possession of the property, this being in reference
to the
period from receipt of possession of the property and until the
first day
of whichever month is the first of the months of January, April,
July or
October, and as a condition for receipt of possession of the property.
It
is hereby agreed that the first advance payment shall be paid on
the date
of delivery of possession of the property, this being in reference
to the
period from receipt of possession of the property and until the
first day
of whichever is the first of the months of January, April, July
or
October. The other advance payments shall be made for every quarter
in
advance on the 1st of the months of January, April, July and October,
as
the case may be.
|
10.5.7 |
Within
4 months from the end of every year the Management Company shall
prepare a
final account of the expenses of management and performance of
the
services (including payment to the equipment renewal fund and payment
of
the special fee) (hereinafter: "
the
annual account
")
and shall furnish a copy of such account to the Lessee. The annual
account, having been audited and certified by the Management Company's
Auditor, shall constitute evidence as to the amount of the expenses
of
management and performance of the services, as to the payments
to the
equipment renewal fund and as to the amount of the special fee.
|
10.5.8 |
Within
7 days of the date on which the Management Company has submitted
the final
account to the Lessee, the Lessee shall pay the Management Company
such
differences, if any, between the amounts paid on account of its
estimated
share in accordance with the periodical invoices, and the amounts
of the
expenses appearing in the final account. In the event of there
being any
difference in favor of the Lessee his current account will be credited
accordingly.
|
10.5.9 |
The
Management Company may make a charge to the Lessee in respect of
its
estimated share of the annual account differentials even prior
to the
audit having been fully concluded and the certificate of the Company's
auditor having been issued, this being if and when it is necessary
to do
so in the opinion of the Management Company. The Lessee will pay
this
charge within 7 days of the date of demand for payment by the Management
Company and the payment in respect of such interim account shall
be added
to the Lessee's payments on account of his share of the expenses,
up to
the conclusion of preparation of the annual account and its certification
by the Auditor.
|
10.5.10 |
Debts
of owners of properties in the project which the Management Company
has
difficulty in recovering, despite having taken legal steps to recover
them, shall be attributed as an expense to doubtful debts when
preparing
the annual account and shall form part of the expenses incurred
by the
Management Company.
|
10.5.11 |
The
Management Company may invest any surplus funds in its possession,
either
from the deposit moneys or from any other source, in deposits and/or
in
government bonds and the profits or losses, if any, shall be attributed
to
income or to an expense of maintenance of the building.
|
10.5.12 |
In
this Section 10: "
year"
-
means a calendar year commencing on January 1 of a particular year
and
ending on December 31. Notwithstanding the foregoing, the period
from the
date of delivery of possession to the Lessee in accordance with
Lease
Contract to the end of the year, may be added to the subsequent
year.
|
10.5.13 |
All
the accounts referred to in the Management Contract shall be linked,
from
the date of dispatch of the account until its actual payment by
the
Lessee, to the US Dollar or to any other currency or index that
is
stipulated from time to time by the Management Company at its sole
discretion, as shall be specified in the
account.
|
10.5.14 |
The
books and accounts of the Management Company shall at all times
serve as
prima
facie
proof
in all matters pertaining to payments made by the Lessee to the
Management
Company.
|
10.5.15 |
All
such payments as apply to the Lessee under this Contract shall
be made by
it on the payment date by 11 a.m. at the offices of the Management
Company
or shall be deposited by such time in such bank account as the
Management
Company instructs the Lessee from time to
time.
|
10.5.16 |
The
Lessee shall add VAT to any amount that it has to pay under the
Contract
and this according to the legal rate thereof at the time of
payment.
|
10.5.17 |
For
the removal of doubt it is hereby clarified that the Management
Company
may borrow moneys from whatever source it sees fit to finance its
activities that are necessary for management and performance of
the
services in accordance with this Contract, to the extent that the
Management Company does not hold credit balances from the moneys
received
from the property owners in accordance with invoices submitted
to them by
the Management Company. All such expenses as are involved in finance
and
obtaining it (and without derogating from the generality of the
foregoing
- banking commissions, interest, linkage differentials etc.) shall
be
included as part of "the expenses" that are the subject of this
Contract.
|
10.5.18 |
For
the removal of doubt it is hereby clarified that all the obligations
of
the Lessee under this Contract shall apply to the Lessee irrespective
of
whether or not it is occupying and/or using the property and/or
any part
thereof itself, and this - for as long as the Lessee has not transferred
its rights in the property in accordance with the provisions of
the Lease
Contract and this Contract and the recipient of the rights has
not
accepted personal responsibility for all the Lessee's obligations
under
this Contract.
|
10.6 |
Cancelled
|
11. |
Lateness
in Payments
|
11.1 |
In
any case in which the Lessee is late with any payment that is due
from it
or becomes due from it in the future to the Management Company
in
accordance with this Contract and/or if the Lessee has committed
a breach
of one of the provisions of this Contract, the Management Company
shall
also be entitled - in addition to and without derogating from its
right to
claim any sum due to it from the Lessee and to payment from him
- to any
other relief, and at its choice:
|
11.1.1 |
To
completely or partially stop providing the services being provided
to the
Lessee. Stoppage of the services as aforesaid shall not absolve
the Lessee
from the obligations to continue paying its share of the expenses
and the
management charges as if the Management Company had continued providing
the services to it.
|
11.1.2 |
To
add to any payment or expense due from the Lessee who is late with
his
payments, late payment interest at such rate as is usual at that
time in
Bank Hapoalim Ltd. in respect of over drawings on current loan
accounts
and/or linkage differentials and interest as the same are defined
in the
Adjudication of Interest and Linkage Law, 5721-1961, all according
to
whichever is the higher of the two.
|
11.1.3 |
To
demand a mandatory injunction and/or a prohibitory injunction and/or
such
other relief as the Management Company sees
fit.
|
11.2 |
In
any case in which steps are taken by the Management Company against
the
Lessee as a result of a breach of this Contract on its part, the
Lessee
shall indemnify the Management Company for all such expenses as
the
Management Company incurs in connection with the taking of the
aforementioned steps.
|
11.3 |
The
refusal or unwillingness of the Lessee to accept any service and/or
its
wish to terminate and/or rescind this Contract or some of the provisions
stipulated therein, shall not absolve it from the obligation of
contributing to all such payments as are due from it under this
Contract.
|
11.4 |
If
the Lessee fails to make any payment under this Contract in full
and on
the due date thereof, the Management Company may at its discretion,
without derogating from its right from any other relief, use the
deposit
moneys to cover the said payment. In such a case the Lessee shall
replenish the amount of the deposit to the original amount thereof
with
the addition of differentials linked to the Consumer Price Index
up to the
date of such replenishment.
|
12. |
Assignment
of the Lessee's and the Management Company's
Obligations
|
12.1 |
The
Lessee may not assign his rights and obligations under this Contract
to
another party other than with the explicit agreement of the Management
Company, in advance and in writing.
|
12.2 |
The
Lessee is aware that the Management Company may at any time during
the
term of the Contract and at its exclusive discretion, assign and
transfer
all its rights and obligations under this Contract or part of such
rights
and obligations, to another Management Company or to any other
legal body
that exists or that shall be formed for such purpose, irrespective
of
whether or not it is connected to the Management Company and/or
the
Developer and/or is under their control (hereinafter: "
the
New Management Company"
),
and in such a case the following provisions shall
apply:
|
12.2.1 |
The
Management Company shall assign to the New Management Company all
its
rights and obligations under this Contract, or some of them, and
shall
procure the acceptance by the New Management Company of personal
responsibility for such rights and obligations as have been assigned,
instead of the Management Company.
|
12.2.2 |
Where
such an assignment has occurred, the Management Company shall be
released
from such of its obligations under this Contract as have been transferred,
and all its rights and obligations under this Contract commencing
from the
date of such assignment shall automatically be deemed to have been
vested
in the New Management Company.
|
13. |
Term
of the Contract
|
13.1 |
The
Lessee is aware that management of the services in the project
has been
assigned to the Management Company for a term that will terminate
on the
expiration of 10 years from the date of completion of the building
and
that such term will be automatically reviewed for a further term
of 3
years each time unless it is resolved by the holders of 51% of
the
properties in the project (according to areas of the units) not
to renew
it and provided that they have concluded an agreement with another
management company in relation to provision of the services to
the
building. In such a case the Management Company shall be given
written
notice thereof at least 6 months prior to the end of one of the
aforementioned periods. Where such notice has been given this Contract
shall terminate at the end of the contractual term to which such
notice
refers. Termination of the Contract as aforesaid shall not prejudice
any
right to a payment that is due to the Management Company up to
the end of
the contractual term.
|
13.2 |
The
term of the Contract between the Management Company and the Lessee
under
this Contract will come to an end upon the termination of the term
of the
Lease as aforesaid in the Lease Contract and/or upon its
expiration.
|
13.3 |
Notwithstanding
the provisions of this Contract the Management Company may, by
sending
notice in writing to the Lessee and to the other property owners
in the
Project, shorten the period of the validity of this Contract and
terminate
it on such date as it shall stipulate and which shall be prior
to the end
of the Contract term, provided that notice thereof in writing is
given at
least 6 months in advance. The Management Company may also shorten
the
period of validity of this Contract with a shorter period of notice,
and
this if it has reached a situation in which it is unable to function
as a
result of non-payment of the expenses and/or as a result of other
matters
that are outside its control.
|
13.4 |
The
Lessee is aware that notwithstanding anything stated in this Contract,
if
it should be decided by the owners of at least 75% of the properties
in
the project (according to areas of the units) to terminate the
Contract
with the Management Company, this Contract shall terminate on such
date as
is stipulated in such decision but not prior to the expiration
of 3 months
from service of notice of termination of the Contract on the Management
Company.
|
14. |
Non-Exercise
of Rights
|
15. |
Comprehensive
Nature and Validity of the
Contract
|
15.1 |
This
Contract reflects all that has been agreed between the parties,
and no
variation therein shall be valid unless it is made in writing and
is duly
signed by the parties or by whoever is duly authorized to sign
on their
behalf.
|
15.2 |
Where
there are more than one individual comprising the Lessee, as defined
in
this Contract, this Contract shall be binding on such individuals,
jointly
and severally. Each of the individuals comprising the Lessee shall
be
bound under this Contact by any act for which he has signed even
if it has
not been signed by the other party or parties.
|
16. |
Jurisdiction
and Choice of
Law
|
16.1 |
In
any dispute between the parties to this Contract and in relation
thereto,
or to a breach thereof, its interpretation, applicability and/or
its
validity, the Court in Tel-Aviv shall have exclusive jurisdiction.
|
16.2 |
The
provisions of Israeli Law shall apply to this Contract.
|
17. |
Notifications
|
17.1 |
The
addresses of the parties for the purposes of and in connection
with this
Contract are as specified in the title heading of this Contract
or any
other address in Israel that is specified in a notification that
is sent
to the other party in accordance with the provisions of this
section.
|
17.2 |
Any
notification that is sent by one party to the other in accordance
with the
said addresses shall be deemed to have reached its destination
after 3
business days have elapsed since the time of its dispatch by registered
mail.
|
|
|
The
Management Company
|
ROSETTA
GENOMICS LTD.
|
18
Ha'Sela Street, Ein-Karem
|
|
Jerusalem
95742, Israel
|
1.
|
2.
|
3.
|
4.
|
5.
|
6.
|
7.
|
8.
|
1.1
|
Without
derogating from the Lessee’s liabilities under the Contract of Lease
and/or the Management Contract (Hereinafter: “
The
Contract
”)
and/or in law, the Lessee undertakes to procure, before
the date of
receiving the possession in the Property and before the
commencement date
for the execution of any works in the Property by the Lessee
and/or anyone
on its behalf and/or for it (according to the earlier of
the two dates) in
connection with any work executed by it and/or on its behalf
and/or for it
in the Property, including equipment, systems, machinery
which is to be
used by its business as well as any repairs, renovations,
improvements,
alterations and additions to be undertaken in the Property
(except for
works to be carried out by the Contractor in accordance
with the
Contractor’s undertakings, is said to be included in the Contract
of
Lease)
Construction
Work Insurance
,
as follows:
|
The
Construction Work Insurance shall be procured in the name
of the Lessee,
the Contractors and subcontractors, the Contractor and
the Management
Company, with a duly certified and reputable Israeli insurance
company and
shall include the following insurance chapters:
|
1.1.1
|
Chapter
One - Insurance against all risks insuring for the full
value all the
works executed by the Lessee and/or anyone on its behalf
and/or for it as
well as repairs, renovations, improvements, alterations
and additions to
be made to the Property. This chapter shall include a clause
regarding the
waiver of subrogation towards the Contractor and the Management
Company as
well towards all the owners and other holders of possession
(as well as
towards those employed by it as detailed above) where their
insurance
policies regarding the properties in the Project have included
a parallel
clause regarding the waiver of subrogation towards the
Lessee for any
damage whatsoever caused by them provided that that stipulated
regarding
the waiver of the right of subrogation shall not apply
in favor of a
person who has maliciously caused the damage. The Chapter
shall include an
expressed extension regarding property which has been worked
upon and/or
adjacent property, a limit of liability which shall not
be less than
$50,000 (fifty thousand United States Dollars).
|
1.1.2
|
Chapter
Two - Third party liability insurance with a limit of liability
which
shall not be less than $1,000,000 (one million United States
Dollars) this
chapter shall not be subject to any limitation regarding
liability arising
from fire, explosion, panic, hoisting instruments, loading
and offloading,
poisoning, anything damaging in food stuff and in drink,
defective
sanitary installations, shaking and weakening of supports,
strikes and go
slow strikes as well as subrogation claims on the part
of the National
Insurance Institute. The said chapter will include a cross
liability
clause according to which the insurance shall be considered
as if procured
separately for each one of the individuals constituting
the insured party.
It will also be expressly indicated, and for the sake of
alleviating any
doubt, that the property of the Contractor and of the Management
Company
shall be considered as third party property for the purpose
of this
chapter.
|
1.1.3
|
Chapter
Three - Employers’ liability insurance for liability towards all employees
in execution of the works to a limit of liability which
shall not be less
than that acceptable in Israel at the time of the procuring
of the
insurance. This insurance shall not include any limitation
regarding works
executed at heights and at depths, hours of work, baits
and poisons,
contractors, subcontractors and their employees and anything
regarding the
employment of youth in accordance with Law.
|
The
Construction Work Insurance shall include an explicit condition
where
under it takes precedence over any other insurance procured
by the
Contractor and/or by the Management Company and that the
insurer waives
any claims and/or demand regarding insurance participation
by the
Contractor and/or the Management Company.
|
1.2
|
Without
derogating from the Lessee’s liability under the Contractor and/or on any
law, the Lessee undertakes to procure, prior to the delivery
of possession
date in the Property and prior to the date of entry of
any assets
whatsoever into the Property (unless such assets have been
included in the
insured works pursuant to Section 1.1 above) - according
to the earlier of
the two - and throughout the Contract Term to maintain
those insurance
policies as detailed below in this section (which shall
hereinafter be
referred as to: “
The
Property Insurance Policies
”),
and to do so at a reputable duly certified Israeli insurance
company.
|
1.2.1
|
Insurance
for the contents of the Property, the equipment serving
the Property under
the ownership and/or liability of the Lessee and located
outside of the
Property within the confines of the Project as well as
any repair,
alteration, improvement, renovation and addition to the
undertaken and/or
to be undertaken to the Property by the Lessee and/or for
the Lessee as
well as furniture, equipment, operators, appliance and
stocks, of any kind
and sort whatsoever, against loss or damage due to fire,
smoke, lightning,
explosions, earthquakes, tempests, floods, damage from
liquids and
bursting of pipes, impact, damage by aircraft, strikes,
riots, malicious
damage as well as break-in and burglary. The insurance
shall include an
express clause according to which the insurer waives any
right of
subrogation towards the Contractor and towards the Management
Company as
well as towards the other owners and holders of possession
(as well as
towards employees employed as detailed above) whose insurance,
regarding
their properties in the Project, have included a parallel
clause regarding
the waive of the right of subrogation provided that that
which has been
stipulated regarding such waiver of the subrogation does
not apply in
favor of a person who has maliciously caused damage.
|
1.2.2
|
Third
party liability insurance at a limit of liability which
shall not be less
than the total amount equivalent in New Israel Shekels
of $1,000,000 (one
million United States Dollars) per event and on an accumulative
basis
through the course of one insurance year.
|
This
insurance shall not be subject to any limitation regarding
liability
arising from fire, explosion, panic, hoisting equipment,
loading and
offloading, defective sanitary installations, poisoning,
anything damaging
to food stuff or drink, liability towards or due to contractors,
subcontractors and their workers, strikes and go slow strikes
as well as
any subrogation claim on the part of the National Insurance
Institution.
The insurance shall be extended to indemnify the Contractor
and the
Management Company for the liability as owners and/or managers
of the
Property and also for the liability for the acts and/or
omissions of the
Lessee, subject to the cross liability clause under which
the insurance
shall be considered as if procured separately for each
one of the
individuals compromising the insured party.
|
1.2.3.
|
Employers’
liability insurance for liability of the Lessee towards
all its employees
and those acting on its behalf to a limit of liability
which shall not be
less than that which is acceptable in Israel at the time
of the drawing up
of the insurance and/or its renewal. This insurance shall
not include any
limitation regarding works at heights and at depths, hours
of work,
liability towards contractors, subcontractors and employees,
baits, and
poisons as well as employment of youth in accordance with
Law. The said
insurance shall be extended to indemnify the Contractor
and/or the
Management Company should they be considered to be employers
of the
Lessee’s employees and/or any one of them.
|
1.2.4
|
Insurance
for the loss of income (excepting Rental Payments and Management
Fees) due
to the risks insured under Section 1.2.1 above, throughout
the
indemnification period which shall not be less than 12
months. The said
insurance shall include a waiver on the right of subrogation
towards the
Contractor and the Management Company and towards the other
owners and
holders of possession (as well as towards those employed
by the above
specified) whose insurance regarding their properties in
the Project have
included a parallel clause regarding the waiver of the
right of
subrogation towards the Lessee and/or those employed by
the Lessee
provided that the above said regarding the waiver of the
right of
subrogation does not apply in favor of a person who has
maliciously caused
damage.
|
Notwithstanding
the above said it is agreed that the Lessee may not procure
insurance for
loss of income (partially or fully) however, that stated
in Section 1.4
below shall apply regarding any loss of income as stated
above, as if
insurance was procured for such.
|
The
Property Insurance Policies shall include and express clause
according to
which take precedence over any insurance procured by the
Contractor and/or
by the Management Company and that the insurer waives any
claim and demand
regarding the insurance participation of the Contractor
and/or the
Management Company.
|
1.3
|
The
Lessee undertakes to update the insurance amount for the
insurance
policies procured by it, from time to time, in order for
such to
constantly reflect the full value of the property insured
thereunder.
|
1.4
|
The
Lessee declares that it shall have no claim and/or demand
and/or suit
against the Contractor or the Management Company or a property
holders in
the Project and/or other holders of possession, in who
were aware their
contracts of purchase or lease or any other contract vesting
them rights
in the Building have included a parallel exemption towards
the Lessee for
damage to which it is entitled to indemnification under
the insurance
policies which it has undertaken to procure pursuant to
Sections 1.2.1,
1.2.2, 1.2.3 and 1.2.4 above and it hereby exempts the
above specified
from any liability from said damage. The above said regarding
the
exemption of liability shall not apply in favor of a person
who has
maliciously caused damage.
|
1.5
|
The
Lessee undertakes to comply with the terms and conditions
of the policies
to pay the insurance premiums in full and by the due dates
and to see to
it and to ensure that the insurance policies for the Property
are renewed
from time to time according to need and that they will
be valid throughout
the Lease Term. The Lessee also undertakes to provide confirmation
of the
insurer, regarding the fulfillment of the policies and
that, in any event,
the policies shall not be limited and shall not be canceled
unless the
insurer provides written notice of such to the Contractor
and the
Management Company at least 60 days in advance.
|
1.6
|
The
Contractor may examine the insurance policies procured
by the Lessee and
the Lessee undertakes to carry out any change or amendment
required in
order to adapt it to the Lessee’s undertakings. The Lessee declares and
undertakes that the right of review of the Contractor regarding
the
insurance policy and his right to instruct the amending
of the Property
Insurance Policies, as specified above, does not impose
any duty or any
obligation or any liability on the Contractor or anyone
on its behalf
regarding the said policy, its nature, scope and validity,
or with respect
of the lack thereof and such shall not delegate from any
other duty
imposed upon the Lessee under this Contract and under law.
|
1.7
|
The
Contractor undertakes, by itself or through the Management
Company, to
procure the insurance policies as specified below in this
section (which
shall hereinafter be referred to as: “
The
Management Company Insurance Policies
”)
with a duly certified and reputable insurance company in
Israel,
throughout Lease Term.
|
1.7.1
|
Insurance
for the Building and equipment serving the Building, against
loss or
damage due to risks of fire, smoke, lightning, explosion,
earthquakes,
tempests and storms, floods, damage from liquids and bursting
of pipes,
damage from impact, damage by aircraft, rioting, strikes
and malicious
damage as well as against additional damage which is required
in the
opinion of the Management Company.
|
The
said insurance shall include a clause regarding the waiver
of the rights
of subrogation towards the owners and holders of properties
as well as
those employed by them for damage caused by them provided
that that stated
regarding the waiver of the right of subrogation shall
not apply in favor
of a person who has maliciously caused the damage. For
the purpose of this
section, the term “Building” shall include all the systems which
constitute an integral part of the Building and shall expressly
not
include the contents of the properties and any addition,
improvement or
extension carried out in the properties by or for the lessees
(which has
not been done by the Contractor).
|
1.7.2
|
Third
party liability insurance insuring the liability of the
Contractor, the
Management Company and the Lessee for any harm or damage
to a body and/or
property of any person and/or any entity whatsoever within
the confines of
the public areas in the Project, to a limit of liability
which shall not
be less than a total of $5,000,000 (five million United
States Dollars)
per incident and accumulating throughout one insurance
year. This
insurance shall not be subject to any limitation regarding
liability
arising from fire, explosion, panic, hoisting equipment,
loading and
offloading, defective sanitary instruments, poisoning,
any damaging food
stuff or drink, liability towards and due to contractors,
subcontractors
and their employees, strikes and go slow strikes as well
as subrogation
claims on the part of the National Insurance Institute.
The insurance
shall include a cross liability clause according to which
the insurance
shall be considered as procured for each one of the individuals
comprising
the insured parties separately.
|
1.7.3
|
Employers’
liability insurance insuring the Contractor’s liability and the liability
of the Management Company towards those employed by it
for personal injury
or illness due to their employment, to a limit of liability
of $5,000,000
(five million United States Dollars) per claimant per incident
and
accumulative through the course of one insurance year.
This insurance
shall not include any limitation regarding liability towards
contractors,
subcontractors and their employees, guard workers, baits
and poisons and
anything regarding the employment of youth.
|
1.8
|
The
Contractor or the Management Company, accordingly, undertake
to update the
insurance amount for the insurance policies procured by
them, from time to
time, so that such can always fully reflect the value of
the property
insured thereunder.
|
1.9
|
The
Lessee shall bear the relative cost of the insurance premiums
of the
Management Company and shall pay such to the Management
Company once a
year in advance. Notwithstanding that stipulated from subsection
1.7
above, the Contractor or the Management Company, accordingly,
shall be
entitled, in the event of insurance not being procured
by the Management
Company, as defined above, to demand that the Lessee procure
the said
insurance policies for its relative share in the Building.
|
1.10
|
The
Management Company undertakes to insure itself against
loss of Management
Fees (Hereinafter: “
The
Management Fees Insurance
”)
due to damage caused to the Property or due to the destruction
of the
Property due to the risks in Section 1.7. The said insurance
shall include
an express clause regarding the waiver of the right of
subrogation towards
the Lessee and/or those employed by it, provided that that
stated therein
regarding the waiver of the right of subrogation shall
not apply to
someone who has maliciously caused the damage.
|
The
Lessee undertakes to pay the Management Company the relative
share of the
above mentioned Management Fees for the period of up to
one year in
advance, within 30 (thirty) days from the date it is demanded
to do so. In
such a case, where the Lessee has constantly paid its share
of the
premiums in full and by the due dates, the Lessee shall
be exempt from the
payment of the Management Fees in those cases for that
period and to the
same extent the Insurance Company shall pay the Management
Fees.
|
1. |
Rorberg
Contractors and Investors (1963)
Ltd.
|
2. |
Tazor
Development Ltd.
|
A. |
The
Lessee rents, under an unprotected lease, the area
from a Contractor on
the third floor above the ground floor and gallery
of a “building” known
as building “Madiim 1”at the “T.M.R. Yitzhak Rabin Park”, in Rechovot, as
well as five uncovered parking places (hereinafter,
generally:
“
New
Property
”,
and all as specified and detailed in the contract of
Lease signed between
the two parties on 4.8.2003 (hereinafter: “
The
Main Contract
”)
;
|
B. |
The
Lease Period under the Main Contract is expected to
end on
31.7.2005;
|
C. |
The
parties interested in extending the Lease Term for
an additional one year,
up until 31.7.2006 under the pursuant to the terms
and conditions as
specified in this Contract below;
|
D. |
Furthermore,
the Contractor agrees to grant the Lessee an option
to fence off an area
adjacent to the Property and delineated with a red
line in the attached
sketch, attached as
Appendix
A.
(hereinafter: “
the
Additional
Area
”),
pursuant to the terms and conditions in this Contract
below.
|
1.
|
The
preamble to this Contract constitutes an integral and
inseparable part
thereof.
|
2.
|
The
Lease Term between the parties is hereby extended by
one year, that is to
say commencing from the first of August 2005, and ending
on the
31
st
of
July 2006 (hereinafter: “
The
Extended The Lease Term”
)
|
3. | 3.1. |
The
monthly rental payments for the Property for the Extended
Lease Term shall
be in the amount of N.I.S. 22,922 (inclusive of V.A.T.),
linked to the
Index at the date of the signing of the Main
Contract.
|
3.2.
|
The
monthly rental payments as stated in Sub Section 3.1
above shall be paid
in advance at the dates stipulated in Sub Section 3.3.2.
of the Main
Contract.
|
3.3.
|
In
order to ease the collection of the rental payments
as stipulated in Sub
Section 3.1 above, the Lessee shall, at the time of
the signing of the
Contract, deliver cheques to the Contractor on account
of the payment of
future rental payments for the entire Extended Lease
Term. The said
cheques shall be made out to the payment dates as stated
in Sub Section
3.2. above. Once every quarter, or for a lengthier
period, at the election
of the Contractor, the Contractor shall carry out accounting
of the rental
payment differences arising from the changes to the
Consumer Price Index
from the delivery date of the cheques as stated above
and the payment date
and these said differences shall be paid to the Contractor
within seven
days of the Contractor’s demand.
|
4.
|
The
Contractor hereby grants the Lessee and the Lessee
hereby receives from
the Contractor, an option to add to the fencing off
an additional area of
the Property, starting from the date which shall be
no later than
15.8.2004 and up until the end of Extended Lease Term
as stipulated in
Section 2 above, pursuant to the terms and conditions
stipulated
below.
|
5.
|
In
consideration for the option granted to it under this
Contract the Lessee
shall pay the Contractor, at the time of the signing
of this Contract an
amount equivalent of New Israel Shekels to $2,100 plus
V.A.T. which shall
not be returned to the Lessee under any circumstances,
regardless of
whether it decides to exercise the new option or
not.
|
6.
|
The
realization of the option shall by the granting of
written notice which
shall be delivered to the Contractor by the Lessee
by no later than the
15.8.2004, and in which the Lessee has stipulated the
date at which it
shall commence to add to the fencing off of the Additional
Area of the
Property, a date that shall be no later than 15.8.2004
(hereinafter:
“
The
Delivery Date of the additional Area
”).
|
7. | 7.1. |
Where
the option has been realized the Lessee shall pay the
Contractor for the
Lease Term commencing from the Delivery Date of Additional
Property up
until the end of the .Term, additional monthly rental
payments to those as
determined in the Main Contract, and Sub Section 3.1
of this Contract,
accordingly, in the amount of New Israel Shequels equivalent
to $1,561
plus V.A.T. linked to the Consumer Price Index on the
date of the signing
of the main Contract (hereinafter: “
The
Additional Rental Payments
”).
|
7.2.
|
The
Additional Rental Payments shall be paid by the Lessee
in advance, in the
following instalments:
|
7.2.1.
|
The
Additional Rental Payments for the period from the
delivery date for the
realization of the option and up until the 31
st
of
October, 2004 shall be paid at the delivery date of
the said notice for
the realisation of the option.
|
7.2.2.
|
For
the balance of the Lease Term (i.e. for the period
commencing from the
1.11.2004 and up until the 31.7.2006) Additional Rental
Payments shall be
paid for every two months in advance together with
the Rental Payments
pursuant to the Main Contract on the first of the following
months:
November, January, March, May, July and September accordingly.
However,
the last payment shall be for the period from the payment
as said above
and up until the end of the Lease Term.
|
7.3.
|
In
order to ease the collection of the Additional Rental
Payments, the Lessee
shall deliver to the Contractor, together with the
notice of the
realization of the option, cheques on account of the
future Additional
Rental Payments up until the end of the Extended Lease
Terms. The said
cheques shall stipulate the set payment dates as stated
in sub section of
7.2.2. above. Once every quarter, or for a lengthier
period, at the
election of the Contractor, an account shall be made
of the difference for
the Rental Payments arising from changes to the Consumer
Price Index from
between the delivery date of the cheques as stated
above and the payment
date and the said differences shall be paid to the
Contractor within seven
days of the Contractor’s demand.
|
8.
|
The
parties agree in advance that the Lessee shall be entitled
to execute the
internal works Additional Area in order to lease it
out for lease purposes
and that it shall do so at the expense of the Lessee
and the Lessee’s
exclusive liability, provided that it delivers the
execution plans to the
Contractor for those works prior to the actual execution
of the works and
that the Contractor has approved the plans for the
execution. The
Contractor undertakes not to refuse the execution of
the works in
accordance with the plans to be provided to it as stated
by the Lessee
unless this concerns works which are likely to harm
the building and/or
its systems and and/or the outer appearance of the
building.
|
Similarly,
the Contractor undertakes to take into consideration
the Additional Area
in an amount up to the sum of the equivalent of N.I.S.
3,5000 dollars,
pursuant to the written request of the Lessee and against
receipt of a
duly issued tax invoice be issued to be made out to
it under the
responsibility of the Lessee after the execution of
the
works.
|
The
payments will be carried out within fourteen days within
the receiving of
the said invoice.
|
9.
|
The
securities provided by the Lessee to secure its undertakings
under the
Contract also serve as securities for its undertakings
under this
Contract.
|
10.
|
This
Contract shall be interpreted, for all intents and
purposes, as if it was
a part of the Main Contract, save for the necessary
changes vis-à-vis that
stipulated in this Contract, that provisions of the
Main Contract shall
apply to the parties without exception, also
with respect of this Contract.
|
1. |
Rorberg
Contractors and Investors (1963)
Ltd.
|
2. |
Tazor
Development Ltd.
|
And Whereas |
Lease
relations prevail between the parties in connection with areas on
the
third floor above the ground floor and gallery of the building known
as
known
as building “Madiim 1” at the “T.M.R. Yitzhak Rabin Park”, in Rechovot,
(hereinafter: "T
he
Building"
or
"The
Project")
as
well as six parking places
in
the courtyard of the Building leased by the Lessee from the Contractor
and
all pursuant to the following contracts: An agreement of lease signed
between the parties on 4.8.2003; A contract to alter the terms and
conditions of lease signed between the parties in April 2004; A contract
to add areas to the Leased premises on 13.3.2005; and A contract
to
allocate additional parking areas dated 28.3.2005 (hereinafter, generally
and respectively referred to as: "
The
Original properties"
and "
The
Original Contracts");
|
And Whereas |
The
Lessee is interested in leasing an additional area in the Building
from
the Contractor and the Contractor is interested in leasing out Additional
Area, on the second floor above the ground floor and gallery, delineated
in a red line in the plans attached to this Contract as
Appendix
A1
(hereinafter: “
The
Unit
”)
and also an additional parking area in the courtyard of the Building
marked with the number 55 in the plans attached to this Contract
as
Appendix
2A
(hereinafter:"
The
Parking")
;
|
And Whereas |
The
area of the Unit for the purposes of this Contract is 435m
2
and
it shall be measured by the parties shortly after the erection of
the
divider (As stipulated in section 3.2 below) in accordance with the
following measurement principles: The Unit area for this purpose
is the
net area of the Unit multiplied by a factor of 1.2 for the public
areas.
The net Unit area is the floor area of the Unit, including beneath
the
pillars and walls included within the Unit, including the external
walls
bordering the Unit; Notwithstanding the above said, only half the
area
beneath the separating dividers between the Unit and the neighbouring
units is taken into account;
|
And Whereas |
The
parties are interested in defining the terms and conditions of undertaking
between them in connection with the property and all in accordance
with
the terms and conditions of this
Contract.
|
1.
|
The
preamble to this Contract constitutes an integral and inseparable
part
thereof.
|
2.
|
The
Lease Term
|
2.1 |
The
Lease Term of the Unit is hereby determined for period commencing
from the
date of the end of the Works as stated in Section 3 below and up
until
31.12.2008 (Hereinafter: “
The
Lease Term
”).
Notwithstanding the above said, the Lease Term for the parking shall
commence already a the signing date of this
Contract.
|
2.2 |
The
Lessee shall not be entitled to terminate the lease under this contract
before the end of the Lease Term. If the Lessee stops using the Unit
and/or if it vacates the Unit before the end of the Lease Term, such
shall
not release the Lessee from the fulfillment of its obligations under
this
Contract, including its obligation to pay Rental Payments to the
Contractor up until the end of the Lease Term.
|
2.3 |
At
the end of the Lease Term, or upon the legal cancellation of this
Contract, the Lessee undertakes to vacate the Unit and to return
possession thereof to the Contractor with the Unit being clean, tidy
and
in a fit state and free of any person and object belonging to the
Lessee.
|
3.
|
Delivery
of Possession and execution of Works to Adapt the Leased Premises
to the
lessee's Needs
|
3.1 |
The
Contractor hereby undertakes to deliver position of the Unit to the
Lessee
immediately after the providing of the checks on account of the Rental
Payments as stated in subsection 4.3 and subsection 4.4 below and
the
providing of the guarantees as stipulated in subsection 5.2 below,
As
Is
at
the time of the signing of this Contract (Hereinafter: “
The
Delivery Date
”).
|
3.2 |
The
Contractor undertakes to execute the following works (hereinafter:
"
The
Works")
in
the Property and to do so by the Delivery
Date:
|
(a) |
To
erect a divider outlining the Unit a specified in the plans - Appendix
A -
because of the location of the systems in the Unit and in the adjacent
area to the Unit and marked in the plans attached as Appendix A1
of this
Contract (hereinafter: "
The
Additional Unit")
the divider must be erected at a location different to that as marked
in
the plans, the Contractor shall be entitled to erect the divider
according
to the requirements on the ground, provided that such does not alter
the
overall area of he Unit in an extent exceeding 10 m
2
.
Where change is required exceeding 10 m
2
,
the Contractor shall co-ordinate such change with the
Lessee;
|
(b) |
To
replace the PVC, wherever located in the Property with carpets in
accordance with the accepted standards of the Contractor, in all
those
areas in the Unit where the carpet (sic) is not fit, with carpets
acceptable with the accepted standards of the
contractor.
|
(c) |
To
separate between the electricity, water and piping systems of the
Unit,
from that of the additional Unit.
It
is clarified that the separation of the electricity system may
possibly be
done by the installation of a secondary electricity
meter.
|
3.3 |
The
Contractor undertakes to attend to the problem of the radiation in
the
Original Property by the erecting of plaster walls, containing therein
lead sheeting, and glass wool insulation or by any other accepted
means
and all within thirty 30) days from the date of the signing of this
Contract. Should it transpire that notwithstanding the above said,
the
radiation problem has not been solved, to the Lessee's satisfaction,
the
area marked in the plans attached to this Contract as Appendix B
shall be
deducted from the Unit area and the Lessee shall stop using it. Where
this
area has been deducted from the Original unit and the Lessee has
stopped
using it, the original Rental Payment shall be deducted commencing
from
that date in an amount equivalent to the multiplication of the Rental
Payment for the original unit by the proportion of the said deducted
area,
divided by the area of the Original
Unit.
|
3.4 |
Should
the Lessee notify the Contractor that there is a radiation problem
in the
Unit, the provisions of Section 3.3 above shall apply,
mutatis
mutandis
vis-à-vis the Unit, from the date of the filing of the written notice
by
the Lessee.
|
3.5 |
Lessee
shall be entitled to execute internal works in the Unit in order
to
prepare such for lease and shall do so at its expense and exclusive
responsibility, provided that it issues the Contractor with the work
plans
prior to the execution of the said woks and the Contractor has approved
them for execution. The Contractor undertakes not to refuse to approve
the
execution of the works in accordance with the plans submitted to
it by the
Lessee, as stated, unless this concerns works which may harm the
Building
and/or its systems and/or the Building
façade.
|
4.
|
Rental
Payments
|
4.1 |
The
monthly Rental Payments for the Unit are hereby set in the amount
of the
multiplication of 41.43 of the Unit area, plus VAT as required by
law
linked to the Index at the date of the signing of this Contract.
|
4.2 |
“Index”
-
For the purpose of this Contract shall mean the - the price index
known as
the consumer price index published by the Central Bureau of the Statistics
or any other official index replacing
it.
|
4.3 |
The
monthly Rental Payments shall e paid in advance at the following
dates:
|
4.3.1 |
Within
seven (7) days of the date of the signing of this Contract the Rental
Payments for the Parking shall be paid for the lease Term up until
30.6.2006
.
|
4.3.2 |
Within
seven (7) days of the date of the Delivery of Possession in the Unit
the
Rental Payments for the Unit shall be paid for the lease Term up
until
30.6.2006
|
4.3.3 |
For
the balance of the Lease term (i.e. for the period from 1.7.2006)
Rental
Payments shall be made for every two months in advance on the
1
st
of: January, March, May, July, September and November every year,
accordingly, however the last payment shall be for the period from
the
above said payment date until the end of the lease
Term.
|
4.4 |
In
order to ease the collection of the Rental Payments, the Lessee shall
deposit, within seven (7) days of the Delivery of Possession, cheques
with
the Contractor on account of the future Rental Payments to be paid
up
until the end of the following calendar year (2007) and shall redeposit
such by no later than the 1st of November of every year (starting
from
1.11.2007) for the following calendar
year.
|
4.5 |
It
is hereby agreed that until another instruction is given by the
Contractor, every payment under this Contract shall be made in tow
equal
parts:- One - in favour of Rorberg Contracting and Investments (1963)
Ltd.
Into account No. 20767 at Bank Hapoalim Ltd., branch 609 and the
second in
favour of Tazor Development Ltd. Into account 13736 at Bank Hapoalim
Ltd.,
branch 609.
|
4.6 |
The
Rental Payments stipulated above include VAT at the rate of 16.5%.
It is
expressly agreed that if a change occurs to the VAT rate, the Rental
Payments shall be updated and paid in accordance with the altered
VAT
rate.
|
5.
|
Guarantees
|
5.1 |
It
is agreed that the guarantees given by the Lessee in order to guarantee
its undertakings under the Original Contracts shall also serve for
the
securing of its undertakings under this
Contract.
|
5.2 |
In
addition, the Lessee undertakes, within 7 days of the signing of
this
contract and for the securing of the fulfillment of its undertakings
and
obligations under this Contract and under the Original Contracts,
to
provide the Contractor with the following additional
guarantees:
|
5.2.1 |
An
autonomous bank guarantee in favour of Rorberg Contracting and Investments
(1963) Ltd., in an amount of NIS 43,000, linked to the consumer price
index, commencing from the date of the signing of this Contract,
and
redeemable upon demand, similar in wording to the wording of the
bank
guarantee delivered to the Contractor under the Original
Contracts.
|
5.2.2 |
A
promissory note in the amount of NIS 232,000, linked to the consumer
price
index at the date of the signing of this contract, signed by the
Lessee.
|
6.
|
Possibilities
of Expanding into Additional
Unit
|
6.1 |
The
Contractor hereby declares that it intends to prepare an additional
Unit,
for a third party.
|
6.2 |
The
Contractor hereby agrees that should it receive, at any time during
the
course of the Lease term, a notice from the Lessee of the Additional
Unit
that it is about to vacate the Additional unit, or that the Contractor
becomes aware of such by other means, that the additional unit s
about to
be vacated, the Contractor shall provide notice of such t the Lessee
shortly thereafter.
|
6.3 |
Upon
receipt of the notice as stated, the Lessee shall notify the Contractor
whether it is interested in leasing the Additional Unit and should
an
affirmative notice be sent, the parties shall conduct negotiations
in good
faith and by accepted practices for the leasing of the Additional
Unit to
the Lessee before the Contractor conducts negotiations for the leasing
out
of the Additional unit with any other third
party.
|
7.
|
General
provisions
|
7.1 |
Save
for those changes required due to the said changes in this contract,
all
the provisions of the original Contracts, without exception, as
determining the lease relations between the parties in connection
with the
Original properties, including, but not limited to, the matter of
the
lease aims;-and in the matter of insuring the property; and in the
matter
of the Management Agreement and the payment of Management Fees and
expenses and additional expenses; shall apply, accordingly, to the
lease
relations between the parties to this contact in connection with
the Unit
as defined in this Contract.
|
7.2 |
In
order to alleviate doubt, the provisions of this Contract, are in
addition
to the provisions of the Original Contracts, save for the required
changes
due o that as stipulated in this Contract, such shall not change
any of
the parties' obligations in connection with the Original properties
under
the Original Contracts.
|
For
the period of one (1) Year starting on the RENT COMMENCEMENT DATE,
$30,000
($2,500 per unit per month)
|
To
TENANT:
|
Rosetta
Genomics, Inc.
Amir
Avniel
23
Franklin Street
Tenafly,
NJ 07670
|
To
LANDLORD:
|
Director
of Real Estate Development
New
Jersey Economic Development Authority
PO
Box 990
Trenton,
NJ 08625-0990
|
New
Jersey Division of Law,
Treasury
Section
Hughes
Justice Complex
PO
Box 106
Trenton,
NJ 08625
Attn:
Edward Pillsbury, DAG
|
NEW
JERSEY ECONOMIC DEVELOPMENT AUTHORITY,
LANDLORD
|
||
WITNESS
|
SIGNATURE
NAME:
TITLE:
Rosetta
Genomics, Inc.
TENANT
|
WITNESS
|
SIGNATURE
NAME:
TITLE:
|
Graduation
from Commercialization Center*
|
Milestone
Rent
|
|
Percentage
|
||
Move
to a Targeted NJ Municipality
|
0%
|
|
Move
to a Non-Targeted NJ Municipality
|
50%
|
Move
Out of State
|
||
100%
|
||
Capital
raising
|
Milestone
Rent
|
|
Percentage
|
Venture
Capital or Private equity raise greater than $1 MM but less than
$5
million:
|
25
|
%
|
||
Venture
Capital or Private equity raise of $5.0 million or more:
|
50
|
%
|
||
Public
offering
|
100
|
%
|
Class
II having flash points at or above 37.8
°
C
(100
°
F),
and below 60
°
C
(140
°
F).
|
|
Class
IIIA having flash points at or above 60
°
C
(140
°
F)
and below 93
°
C
(200
°
F).
|
Class
I liquids in use or not in approved safety cans or storage
cabinets:
|
_________
gal.
|
|
Class
I liquids stored in approved safety cans or storage
cabinets:
|
_________
gal.
|
Class
I liquids in use or not in approved safety cans or storage
cabinets:
|
_________
gal.
|
|
Class
I liquids stored in approved safety cans or storage
cabinets:
|
_________
gal.
|
Cyl.
Size
Code
1
|
Dimensions,
Dia.
x Length, in.
|
Internal
Volume
Liters
Cu. In.
|
Service
Pressure
PSIG
|
|
5
|
12x49
(acetylene)
|
71.75
|
4375
|
250
|
4
|
8x41
(acetylene)
|
24.9
|
1516
|
250
|
3
|
7x31
(acetylene)
|
13.4
|
819
|
250
|
425
|
14.5x49
(LPG)
|
110.2
|
6616
|
240
|
410
|
12.2x42.6
(LPG)
|
65.9
|
3958
|
240
|
405
|
12x24
|
33
|
1983
|
240
|
200
|
9x56
|
43.5
|
2640
|
2015-2265
|
80
|
7x32
|
16
|
960
|
2015
|
30
|
6x24
|
8
|
490
|
2015
|
L.B.
|
2x13
|
0.44
|
27
|
1800
|
Compressed
Gas Type
|
Cylinder
Size
Code
1
|
Number
of Cylinders
|
||
Cryogenic
Gas Type
|
Amount,
Liters
|
|
Waste
Category
(see
above)
|
Amount
(gallons)
|
|
Radioactive
Material
|
Activity
Level, mCi
|
Half-Life
|
||
1
.
|
PURPOSE
OF THE ISOP
|
3
|
2.
|
DEFINITIONS
|
3
|
3.
|
ADMINISTRATION
OF THE ISOP
|
6
|
4.
|
DESIGNATION
OF
PARTICIPANTS
|
7
|
5.
|
DESIG
NATION
OF OPTIONS PURSUANT TO SECTION 102
|
8
|
6
.
|
TRUSTEE
|
9
|
7.
|
SHARES
RESERVED FOR THE ISOP
|
9
|
8.
|
PURCHASE
PRICE
|
10
|
9.
|
ADJUSTMENTS
|
10
|
10.
|
TERM
AND EXERCISE
OF
OPTIONS
|
12
|
11.
|
VESTING
OF OPTIONS
|
13
|
12.
|
SHARES
SUBJECT TO RIGHT OF FIRST REFUSAL
|
14
|
13.
|
DIVIDENDS
|
14
|
14.
|
RESTRICTIONS
ON ASSIGNABILITY
A
ND
SALE OF OPTIONS
|
15
|
15.
|
EFFECTIVE
DATE AND DURATION OF THE ISOP
|
15
|
16.
|
AMENDMENTS
OR TERMI
NATION
|
15
|
17.
|
GOVERNMENT
REGULATIONS
|
16
|
18.
|
CONTINUANCE
OF EMPLOYMENT
|
16
|
19.
|
GOVERNING
LAW & JURISDICTION
|
16
|
20.
|
TAX
CONSEQUENCES
|
16
|
21.
|
NON-EXCLUSIVITY
OF THE ISOP
|
16
|
22.
|
MULTIPLE
AGREEMENTS
|
17
|
2.1 | "A ffiliate" means any " employing company" within the meaning of Section 102(a) of the Ordinance. |
2.2
|
"Approved
1
02
Option"
means
an
Option granted pursuant to Section 102(b) of
the
Ordinance and held in trust by a Trustee for the benefit
of
the
Optionee.
|
2.3 | "Board" means the Board of Directors of the Company. |
2.4 | "Capital Gain Option (CGO)" as defined in Section 5.4 below. |
2.5 |
"Cause"
means,
(i)
conviction of any felony involving moral
turpitude
or
affecting
the
Company;
(ii)
any
refusal
to
carry
out a reasonable
directive
of the chief
executive
officer, the Board or the Optionee's direct
supervisor,
which involves the
business
of
the
Company
or its
Affiliates
and was capable of being lawfully performed; (iii)
embezzlement
of
funds
of
the Company or its
Affiliates;
(iv) any breach
of
the
Optionee's
fiduciary duties
or
duties of care
of
the
Company;
including without limitation
disclosure
of
confidential
information of the Company; and (v)
any
conduct (other than conduct in good
faith)
reasonably determined by the
Board
to
be
materially
detrimental
to the Company.
|
2.6 | "Chairman" means the chairman of the Committee. |
2.7 |
"Committee"
means
a share option compensation committee
appointed
by
the
Board,
which
shall
consist of no
fewer
than two
members
of
the
Board.
|
2.8 | "Company" means Rosetta Genomics Ltd, an Israeli company. |
2.9 | "Companies Law" means the Israeli Companies Law 5759-1999. |
2.10 | "Controlling Shareholder" shall have the meaning ascribed to it in Section 32(9) of the Ordinance. |
2.11 |
"Date
of
Grant"
means,
the date of grant of an Option, as determined by the Board and
set
forth in the
Optionee's
Option
Agreement.
|
2.12 |
"Employee"
means
a person who is employed by the
Company
or
its
Affiliates, including
an
individual w
-
ho
is serving as a director or
an
office
holder, but excluding Controlling
Shareholder.
|
2.13 |
"Expiration
date"
means
the
date
upon which an Option shall expire, as set forth in
Section
10.2 of the ISOP.
|
2.14 | "Fair Market Value" means as of any date, the value of a Share determined as follows: |
(i) If the Shares are listed
on any
established
stock
exchange
or a
national
market
system,
including
without limitation the NASDAQ National Market system, or the NASDAQ
S
mallCap
Market
of
the
NASDAQ Stock Market, the
Fair
Market
Value
shall be the
closing
sales
price
for
such
Shares
(or the
closing
bid, if no sales were reported), as quoted
on
such exchange
or
system
for
the
last
market
trading day
prior
to time of determination,
as
reported in the Wall Street Journal, or
such
other
source
as
the Board deems
reliable.
Without
derogating from
the
above, solely for the purpose of
determining
the tax
liability
pursuant
to
Section
102(b)(3) of the Ordinance, if at
the
Date of Grant the Company's shares are listed on any established
stock
exchange or a national
market
system
or
if the
Company's
shares
will
be
registered for trading within ninety
(90)
days following
the
Date
of
Grant,
the
Fair Market Value of
a
Share
at the Date of Grant
shall
be
determined
in
accordance
with the average value of the Company's s
hares
on
the thirty (30) trading
days
preceding
the
Date
of Grant or on the thirty
(30)
trading days
following
the
date
of
registration
for trading,
as
the
case
may be;
(ii)
If the Shares are
regularly
quoted by a recognized
securities
dealer but
selling
prices
are
not
reported, the Fair Market Value shall be
the
mean
between
the
high bid and
low
asked
prices
for
the
Shares on
the
last
market
trading day prior to the day of
determination,
or;
(iii)
In
the
absence
of
an
established
market for the Shares,
the
Fair
Market
Value thereof
shall
be determined in good
faith
by the Board.
|
2.15 |
"IPO"
means the initial public
offering
of the Company's
shares.
|
2.16 |
"IS
OP"
means this 2003 Israeli Share Option
Plan.
|
2.17 |
"ITA"
means the Israeli Tax Authorities.
|
2.18 |
"Non-Employee"
means a consultant adviser, service provider, Controlling Shareholder
or
any
other
person
who is not an Employee.
|
2.19 |
"Ordinary
Income Option (OIO)"
as
defined in Section 5.5 below.
|
2.20 |
"Option"
means
an option to purchase one or more Shares of the Company pursuant
to
the
ISOP.
|
2.21 |
"102
Option"
means
any Option granted to Employees
pursuant
to
Section
102
of
the
Ordinance.
|
2.22 |
"3(i)
Option
"
means
an Option
granted
pursuant to Section 3(i) of the Ordinance to any
person
who is Non-
Employee.
|
2.23 |
"Optionee
"
means
a person
who
receives or holds an Option under the
ISOP.
|
2.24 |
"Option
Agreement"
mean
s
the share option agreement between the Company and an
Optionee
that
sets
out
the
terms and
conditions
of an Option.
|
2.25 |
"Ordinance"
means
the 1961
Israeli
Income
Tax Ordinance [New
Version]
1961 as
now
in
effect or as hereafter amended.
|
2.26 |
"Purchase
Price"
means
the price for each Share subject to an
Option.
|
2.27 |
"Section
102"
means section 102 of the Ordinance as now in effect or as hereafter
amended.
|
2.28 | "Share" means the Ordinary Shares, non par value each, of the Company. |
2.29 |
"Successor
Company"
means
any entity the Company
is
merged to or is acquired
b
y,
in
which
the
Company is not the
surviving
entity.
|
2.30 |
"Transaction"
means (i) merger, acquisition or reorganization of the Company
with one or more other entities in which the Company is not the surviving
entity, (ii) a sale of all or substantially all of the assets of
the
Company.
|
2 . 31 |
"Trustee"
means
any
individual appointed by the Company to serve as a trustee and
approved
by
the
ITA,
all
in
accordance
with
the
provisions
of
Section
102(a)
of
the
Ordinance.
|
2.32 |
"
Unapproved
102
Option"
means
an Option granted pursuant
to
Section
102(c)
of the
Ordinance
and not
held
in trust by a Trustee.
|
2.33 |
"Vested
Option"
means
any
Option,
which
has
already
been
vested
according
to
the Vesting Dates.
|
2.34 |
"Vesting
Dates"
means,
as determined
by
the Board or by the Committee, the date as
of
which
the
Optionee
shall be entitled to exercise the Options or part of the Options,
as set
forth
in section 11
of
the ISOP.
|
3.1 |
The
Board
shall
have the power to administer the ISOP
either
directly or
upon
the
recommendation
of
the
Committee, all
as
provided by applicable law and in
the
Company's
Articles
of
Association. Notwithstanding
the
above
,
the
Board shall
automatically
have residual authority if
no
Committee
shall be constituted or
if
such
Committee
shall cease to operate
for
any reason.
|
3.2 |
The
C
ommittee
small
select
one
of
its
members as
its
Chairman
and
shall hold its
meetings
at
such
times and places as the Chairman shall determine. The Committee
shall
keep
records
of its meetings and
shall
make such rules and regulations for the
conduct
of
its
business
as it shall deem advisable.
|
3.3 |
The
Committee
shall
have the power to recommend to the Board and the
Board
shall
have
the
full
power
and authority to: (i) designate participants;
(ii)
determine
the
terms
and
provisions
of the respective Option Agreements, including, but not limited
to,
the number
of
Options
to be granted to each
Optionee,
the
number
of
Shares
to
be covered by each
Option,
provisions concerning the time and the extent to
which
the Options may be
exercised
and
the
nature
and duration of restrictions
as
to the transferability or
restrictions
constituting substantial risk of forfeiture and
to
cancel or suspend awards, as necessary;
(iii)
determine
the
Fair
Market
Value
of the Shares
covered
by each
Option;
(iv)
make
an
election
as to the
type
of
Approved
102
Option;
and
(v)
designate
the
type of
Options.
The
Committee shall have full power and
authority
to: (i) alter
any
restrictions
and
conditions
of any Options or Shares subject to
any
Options (ii)
interpret
the provisions and
supervise
the
administration
of the
ISOP;
(iii) accelerate the right
of
an
Optionee
to
exercise
in whole or in
part,
any
previously
granted
Option;
(iv)
determine
the
Purchase
Price
of the Option; (v) prescribe, amend
and
rescind rules
and
regulations
relating
to
the
ISOP;
and
(vi)
make
all
other
determinations
deemed
necessary or
advisable
for
the
administration
of the ISOP.
|
3.4 |
Notwithstanding
the
above,
the Committee shall
not
be entitled to
grant
Options
to
the
Optionees,
however, it will be authorized to
issue
Shares
underlying
Options
which
have
been
granted by the Board and
duly
exercised pursuant
to
the provisions
herein
in
accordance
with section 112(a)(5) of the Companies
Law.
|
3.5 |
The
Board
shall
have the authority to grant, at its discretion,
to
the holder of an
outstanding
Option, in exchange for the surrender and cancellation of such
Option,
a
new
Option
having a purchase price equal to, lower than or higher than the
Purchase
Price
of
the
original
Option
so surrendered and canceled and containing such other
terms
and
conditions
as the Committee may prescribe in accordance with the provisions
of the
ISOP.
|
3.6 |
Subject
to the Company's
Articles
of
Association, all decisions and selections made by the
Board
or the Committee pursuant to the provisions of the ISOP
shall
be made by a
majority
of its members except that no member of the Board or the Committee
shall
vote on, or be counted for quorum purposes, with respect to any proposed
action of the Board
or
the Committee relating to any Option to be granted to that
member.
Any decision
reduced
to writing shall be executed in accordance with the provisions of
the
Company's
Articles
of Association, as the same may be in effect from time to
time.
|
3.7 |
The
interpretation and construction by the Committee of any provision
of the
IS
OP
or
of
any
Option Agreement thereunder
shall
be final and conclusive
unless
otherwise
determined
by the Board.
|
3.8 |
Subject
to the Company's Articles of Association and the Company's decision,
and
to all
approvals
legally required, including, but not limited to the provisions
of
the Companies
Law,
each member of the Board or the
Commi
ttee
shall be indemnified and held harmless
by
the Company against any cost or expense (including counsel fees)
reasonably incurred
by
him, or any liability (including any sum paid in settlement of a
claim
with the approval
of
the Company) arising out of any act or omission to act
in
connection
with the ISOP
unless
arising out of such member's own fraud
or
bad
faith, to the extent permitted by
applicable
law, such indemnification shall be in addition to any rights
of
indemnification
the
member may have as a director or otherwise under the Company's Articles
of
Association,
any agreement, any vote of shareholders or disinterested directors,
insurance
policy
or otherwise.
|
4.1 |
The
persons eligible for participation in
the
ISOP as Optionees shall include any
Employees
and/or
N
on-Employees
of the Company or of any Affiliate; provided,
however,
that
(i) Employees may only be granted 102 Options; (ii) Non-Employees
may
only be
granted
3(i) Options; and (iii) Controlling Shareholders may only be
granted
3(i) Options.
|
4.2 | The grant of an Option hereunder shall neither entitle the Optionee to participate nor disqualify the O pitonee from participating in, any other grant of Options pursuant to the ISOP or any other option or share plan of the Company or any of its Affiliates. |
4.3 |
Anything
in the ISOP to the contrary notwithstanding, all grants
of
Options to
directors
and
office holders shall be authorized and
implemented
in
accordance with the provisions
of
the Companies Law or
any
successor act or regulation, as in
effect
from
time
to time.
|
5.1 |
The
Company may designate Options granted to Employees pursuant to
Section
102 as
Unapproved
102 Options or Approved 102 Options.
|
5.2
|
The
grant of Approved 102 Options shall be made under this ISOP adopted
by the
Board
as
described in Section 15 below, and shall be conditioned upon the
approval
of
this
ISOP
by
the ITA.
|
5.3 |
Approved
102 Option may either be classified as Capital Gain
Option
("
CGO
")
or
Ordinary
Income Option
("
OIO
").
|
5.4
|
Approved
102 Option elected and designated by the Company to qualify under
the
capital
gain
tax treatment in accordance with the provisions of Section 102(b)(2)
shall
be
referred
to
herein as
CGO
.
|
5.5 |
Approved
102 Option elected and designated by the Company
to
qualify under the
ordinary
income
tax
treatment in accordance with the provisions of Section 102(b)(1)
shall
be
referred
to
herein
as OIO.
|
5.6
|
The
Company's
election of the type of Approved 102 Options
as
CGO or OI
O
granted to
Employees
(the
"Election"),
shall
be appropriately filled with the ITA before the Date of
Grant
of
an
Approved 102
Option.
Such Election shall become effective beginning the
first
Date of Grant of
an
Approved
102 Option under this ISOP and shall remain in effect
for
the minimum time required under Section 102, as me amended from time
to
time
(which
is currently until the end of the year following the year during
which the
Company
first
granted Approved 102 Options). The Election shall obligate the Company
to
grant
only
the type of Approved 102 Option
it
has
elected, and shall apply to all Optionees who
were
granted Approved 102 Options during the period indicated herein,
all in
accordance with the provisions of Section 102(g) of the Ordinance,
as may
be amended from time
to
time.
For the avoidance of doubt, such Election shall not prevent
the
Company from
granting
Unproved 102 Options simultaneously.
|
5.7 |
All
Approved 102 Options must be held in trust by a Trustee, as
described in
Section
6
below.
|
5.8
|
For
the avoidance of doubt, the designation of U
napproved
102 Options and Approved
102
Options shall be subject to the terms and conditions set forth in
Section
102
of the
Ordinance
and the regulations promulgated
thereunder.
|
5.9
|
With
regards to
Approved
102 Options, the provisions of the ISOP and/or the Option
Agreement
shall be
subject
to
the
provisions of Section 102 and the Tax Assessing
Officer's
permit, and the said provisions and permit
shall
be
deemed
an integral part of the ISOP and of the Option Agreement. Any provision
of
Section 102 and/or
the
said permit
which
is necessary it order to receive and/or to keep any tax benefit pursuant
to
Section
102, which is not expressly specified in the ISOP or the Option Agreement,
shall be considered binding upon the Company and the
Optionees.
|
6.1 |
Approved 102 Options with shall
be granted
under the ISOP and/or any Shares allocated or issued upon exercise
of such
Approved 102 Options and/or other shares received subsequently following
any realization of rights, including without limitation bonus shares,
shall be allocated or issued to the Trustee and held for the benefit
of
the Optionees for such period of time as required by Section 102
or any
regulations, rules or orders or procedures promulgated thereunder
(the
"Holding
Period"
).
In
the case the requirements for Approved 102 Options are not met, then
the
Approved 102 Options may be treated as Unproved 102 Options, all
in
accordance with the provisions of Section 102 and regulations promulgated
thereunder.
|
6.2
|
Notwithstanding
anything to the contrary, the Trustee shall not release any Shares
allocated or issued upon exercise of Approved 102 Options
prior
to
the full payment of the Optionee's tax liabilities arising from Approved
102 Options which were granted to him and/or any Shares allocated
or
issued upon exercise of such
Options.
|
6.3
|
With
respect to any Approved 102 Option, subject to the provisions of
Section
102 and any rules or regulation or orders or procedures promulgated
thereunder, an Optionee shall not be entitled to sell or release
from
trust any Share received upon the exercise of an Approved 102 Option
and/or any share received subsequently following any realization
of
rights, including without limitation, bonus shares, until the lapse
of the
Holding Period required under Section 102 of the
Ordinance.
|
6.4
|
Upon
receipt of Approved 102 Option, the Optionee will sign an undertaking
to
release the Trustee from any liability in respect of any action or
decision duly taken and bona fide executed in relation with the ISOP,
or
any Approved 102 Option or Share granted to him
thereunder.
|
7.1
|
The
Company
has
reserved
_____________ (__________ ) authorized but unissued Shares, for the
purposes of the ISOP and for the purposes of any other share option
plans
which may be adopted by the Company in the future, subject to adjustment
as set forth in Section 9 below. Any Shares which remain unissued
and
which are not subject to the outstanding Options at the termination
of the
ISOP shall cease to be reserved for the purpose of the ISOP, but
until
termination of the ISOP the Company shall at all times reserve sufficient
number of Shares to meet the requirements of the ISOP. Should any
Option
for any reason expire or be canceled prior to
its
exercise
or relinquishment in full, the Shares subject to such Option may
again be
subjected to an Option under the ISOP or under the Company's other
share
option plans.
|
7.2
|
Each
Option granted pursuant to the ISOP, shall be evidenced by a written
Option Agreement between the Company and the Optionee, in such
form as the
Board or the Committee shall from time to time approve. Each Option
Agreement shall state, among other matters, the number of Shares
to which
the Option relates, the type of Option granted thereunder (whether a
CGO, OIO
,
Unapproved 102 Option or a 3(i) Option), the
Vesting Dates, the Purchase Price per share, the Expiration Date
and such
other terms and conditions as the Committee or the Board in its
discretion
may prescribe, provided that they are consistent with this
ISOP.
|
7.3 |
Until the consummation of an
IPO, such
Shares shall be voted by an irrevocable proxy (the
"Proxy"
)
pursuant
to the directions of the Board, such Proxy to be assigned to the
person or
persons designated by the Board. Such person or persons designated
by the
Board shall be indemnified and held
harmless
by the Company against any
cost
or expense (including counsel fees) reasonably incurred by him/her,
or any
liability (including any sum paid in settlement of a claim with the
approval of the Company) arising out of any act or
omission
to
act in
connection
wit
h
the voting of such Proxy unless arising out of such member's own
fraud or
bad
faith, to the extent permitted by
applicable
law. Such indemnification shall
be
in addition to any rights of
indemnification
the person(s) may have
as
a
director
or
otherwise
under the Company's Articles of Association, any agreement, any
vote
of
shareholders
or disinterested directors, insurance policy or otherwise.
Without
derogating
from the above, with respect to Approved
102
Options, such shares shall be
voted
in
accordance
with the provisions
of
Section 102 and any rules,
regulations
or orders promulgated
thereunder.
|
8.1 |
The
Purchase price of each Share subject to an Option shall be determined
by
the Committee in its sole and absolute discretion in accordance
with
applicable law, subject to any guidelines as may be determined
by the
Board from time to time. Each Option Agreement will contain the
Purchase
Price determined for each
Optionee.
|
8.2 |
The Purchase
Price
shall
be payable
upon
the exercise
of
the
Option
in a form
satisfactory
to
the
Committee, including without
limitation,
by cash or
check.
The Committee shall have the authority to postpone the date of payment
on
such terms as it may
determine.
|
8.3
|
The
Purchase Price shall be denominated
in
the
currency of the
primary
economic
environment
of,
either
the
Company
or
the
Optionee
(that is the functional
currency
of
the
Company
or the currency in which the Opt
ionee
is paid) as determined by the
Company.
|
9.1
|
In
the event of Transaction, the unexercised Options
then
outstanding
under the ISOP
shall
be assumed or substituted for an appropriate
number
of
shares of each class of
shares
or
other
securities
of the Successor Company (or a parent or subsidiary of the Successor
Company)
as were distributed to
the
shareholders
of
the
Company in connection and with
respect
to
the Transaction. In the case of such assumption and/or substitution
of
Options,
appropriate
adjustments
shall be made to the
Purchase
Price
so
as to reflect such
action
and
all other terms and conditions of
the
Option Agreements
shall
remain
unchanged,
including
but
not limited to the
vesting
schedule,
all
subject
to
the
determination
of
the
Committee or the
Board,
which
determination
shall
be
in their
sole
discretion
and final.
The
Company shall
notify
the Optionee of the
Transaction
in such form and method as it
deems
applicable at
least
ten (10) days prior to the
effective
date
of
such
Transaction.
|
9.2
|
Notwithstanding
the
above and subject
to
any applicable law, the Board
or
the
Commitee
shall
have full
power
and
authority
to determine that
in
certain
Option Agreements there
shall
be a clause instructing
that,
if in any
such
Transaction
as
described in section 9.1
above,
the
Successor
Company
(or parent
or
subsidiary
of
the
Successor
Company)
does
not
agree to assume
or
substitute for the
Options,
the
Vesting
Dates shall be accelerated
so
that any
unvested
Option or any portion thereof
shall
be immediately vested as of
the
date
which is ten (10) days prior
to
the effective
date
of
the Transaction.
|
9.3
|
For
the purposes
of
section 9.1 above, an Option shall be considered assumed or
substituted
if,
following
the Transaction, the Option confers the right to purchase
or
receive,
for each Share underlying an Option
immediately
prior
to
the
Transaction,
the
consideration
(whether
shares
,
options,
cash, or other securities or property) received
in
the
Transaction
by holders of
shares
held on the
effective
date of the
Transaction
(and
if
such
holders
were
offered
a
choice
of
consideration,
the
type
of
consideration chosen by
the
holders of a majority of the outstanding shares); provided,
however,
that
if
such
consideration
received
in
the
Transaction is not solely ordinary shares (or their
equivalent)
of
the
Successor
Company or
its
parent
or subsidiary, the
Committee
may, with
the
consent
of the Successor Company, provide for the consideration
to
be
received
upon
the
exercise
of
the Option
to
be solely
ordinary
shares
(or their equivalent) of
the
Successor
Company
or its parent or subsidiary equal in Fair
Market
Value
to
the
per
Share
consideration
received by holders of a majority of
the
outstanding
shares
in
the
Transaction;
and provided
further
that
the
Committee
may determine,
in
its
discretion,
that
in
lieu of such assumption
or
substitution of Options for options of
the
Successor
Company
or its parent or subsidiary, such
Options
will
be
substituted
for any
other
type of
asset
or
property
including cash which is fair under
the
circumstances.
|
9.4 |
If
the Company
is
voluntarily
liquidated or
dissolved
while unexercised
Options
remain
outstanding
under
the
ISOP,
the
Company shall
immediately
notify all unexercised Option
holders
of such liquidation, and the Option holders shall
then
have ten (10)
days
to
exercise
any unexercised Vested Option held by
them
at that time, in
accordance
with the
exercise
procedure set
forth
herein. Upon the
expiration
of such ten-days
period,
all
remaining
outstanding Options
will
terminate immediately.
|
9.5 |
If
the outstanding shares of the Company shall
at
any
time be changed or exchanged by
declaration
of a share dividend (bonus shares), share split, combination or
exchange
of shares, recapitalization, or any other like event by or of the
Company,
and as often as the s
ame
shall occur, then the number, class and kind of the
S
hares
subject to the ISOP or
subject
to any Options therefore granted, and the Purchase Prices, shall
be
appropriately
and
equitably adjusted so as to
maintain
the proportionate number of Shares without
changing
the aggregate Purchase Price, provided, however, that no adjustment
shall
be
made
by reason of the distribution of subscription rights (rights offering)
on
outstanding
shares.
Upon happening of any of the foregoing, the class and aggregate
number of
Shares
issuable
pursuant to the ISOP (as set forth in Section 7 hereof), in respect
of
which
Options
have not yet been exercised
?
shall
be appropriately adjusted, all as will be
determined
by the Board whose determination shall be
final.
|
9.6 |
Anything
herein to the contrary notwithstanding, if prior to the completion
of the
IPO all
or
substantially all of the shares of the Company are to be sold, or
in case
of a Transaction,
all
or substantially all of the shares of the Company are to be exchanged
for
securities of another Company, then each Optionee shall be obliged
to
sell
or exchange, as the case
may
be, any Shares such Optionee purchased under the ISOP, in accordance
with
the
instructions
issued by the Board in connection with the Transaction, whose
determination
shall
be final.
|
9.7 |
The
Optionee acknowledges that in the event that the Company's shares
shall be
registered
for trading in any public market, Optionee's rights to sell the Shares
may
be
subject
to
certain
limitations (including a lock-up period), as will be requested by
the
Company or its underwriters, and the Optionee unconditionally agrees
and
accepts any
such
limitations.
|
10.1 |
Options
shall be exercised by the Optionee by giving written notice to
the Company
and/or
to
any
third party designated by the Company (the
"Representative"
), in such form and method as may be
determined by the Company and when applicable, by the Trustee in
accordance with the requirements of Section 102, which exercise
shall be
effective upon
receipt
of such notice by the Company and/or the Representative and the
payment of
the
Purchase
Price at the Company's or the Representative's principal office.
The
notice shall
specify
the number of Shares with respect to which the Option is being
exercised.
|
10.2 |
Options,
to the extent not previously exercised, shall terminate forthwith
upon the
earlier
of:
(i) the date set forth in the Option Agreement; and (ii) the expiration
of
any extended
period
in any of the events set forth in section 10.5
below.
|
10.3 |
The
Options may be exercised by the
Optionee
in
whole at any time or in part from time to
time,
to the extent that the Options become vested and exercisable, prior
to the
Expiration
Date,
and provided that, subject to the provisions of section 10.5 below,
the
Optionee is
employed
by or providing services to the Company
or
any
of its Affiliates, at all times
during
the period beginning with the granting of the Option and ending upon
the
date of
exercise.
|
10.4 |
S
ubject
to the provisions of section 10.5 below, in the event of termination
of
Optionee's
employment
or services, with the Company or any of its Affiliates, all Options
granted to
such
Optionee will immediately expire. A notice of termination of employment
or
service
shall
be deemed to constitute termination of employment or service. For
the
avoidance of
doubt,
in case of such termination of employment
or
service,
the unvested portion of the
Optionee's
Option shall not vest and shall not become
exercisable.
|
10.5 |
N
otwithstanding
anything to the contrary hereinabove and unless otherwise determined
in
the
Optionee's Option Agreement, an Option may be exercised after the
date of
termination
of Optionee's employment or service with the Company or any Affiliates
during
an additional period of time beyond the date of such termination,
but only
with respect to the number of Vested Options at the time of such
termination according to the
Vesting
Dates, if:
|
(i) |
termination
is
without
Cause,
in which event any
Vested
Option
still
in
force and
unexpired
may
be exercised
within
a
period
of
ninety (90) days
after
the date of such
termination;
or-
|
(ii) |
termination
is the result of death or
disability of the Optionee, in which event any
Vested
Option still in force and unexpired may be exercised within a period
of
twelve
(12)
months after the date of such termination;
or-
|
(iii) |
prior
to
the
date of such
termination,
the
Committee shall authorize an extension of
the
terms
of all or part of the Vested
Options
beyond the
date
of
such termination for a
period
not to exceed the period during which the Options by their terms
would
otherwise
have been exercisable.
|
For
avoidance of any doubt, if termination of employment or service is
for
Cause, any outstanding
unexercised
Option
(whether
vested or non-vested), will immediately expire
and
terminate, and the Optionee shall not have any right in connection
to such
outstanding
Options.
|
10.6 |
To
avoid doubt, the Optionees shall not have any of the rights or privileges
of
shareholders
of the Company in
respect
of any
Shares
purchasable upon the exercise of
any
Option, nor shall they be deemed to be a class of shareholders or
creditors of the
Company
for purpose of the operation of sections 350 and 351 of the Companies
Law
or
any
successor to such section, until registration of the Optionee as
holder of
such Shares
in
the Company's register of shareholders upon exercise of the Option
in
accordance with
the
provisions of the ISOP, but in case of Options and Shares held by
the
Trustee, subject t
o
the provisions of Section
6
of
the ISOP.
|
10.7 |
Any
form of Option Agreement authorized by the ISOP may contain such
other
provisions
as
the
Committee
may, from time to time, deem
advisable.
|
10.8 |
With
respect to Unapproved 102 Option, if the Optionee ceases to be
employed
by
the
Company
or any Affliate, the Optionee shall extend to the Company and/or
its
Affiliate
a
security
or guarantee for the payment of tax due at the time of sale
of
Shares, all in
accordance
with the provisions of Section
102
and the rules, regulation or orders
promulgated
thereunder.
|
11.1 |
Subject
to the provisions of the ISOP, each Option shall vest following
the
Vesting
Dates
and
for the number of Shares as shall be provided in the Option Agreement.
However, no
Option
shall be exercisable after the Expiration
Date.
|
11.2 |
An
Option may be subject to such other terms and conditions on the time
or
times when
it
may
be exercised, as the Committee may deem appropriate.
The
vesting provisions of
individual
Options may vary.
|
12.1 |
Notwithstanding
anything to the contrary in the Articles of Association of the
Company,
none
of the Optionees shall have a right of first refusal in relation
with any
sale of shares
in
the
Company.
|
12.2 |
Unless
otherwise determined by the Committee, until such time as the
Company
shall
complete
an
IPO,
an
Optionee
shall not have the right to sell Shares issued upon the
exercise
of
an
Option
within six (6) months and one day of the date of exercise of such
Option
or issuance of such Shares.
Following
such
six (6) months period
,
the sale of
Shares
issuable upon the exercise of an Option shall be subject to a right
of first
refusal
of shareholders of the Company, as set forth in the Articles of
Association
of
the
Company
(as may be amended from time to
time).
|
14.1 |
No
Option
or
any right with respect thereto, purchasable hereunder, whether
fully paid
or
not,
shall be
assignable,
transferable
or
given
as
collateral
or
any
right
with respect
to
it
given
to
any third party whatsoever, except as specifically allowed under
the
ISOP,
and
during
the lifetime
of
the
Optionee
each
and all
of
such
Optionee's
rights to purchase
Shares
hereunder
shall
be
exercisable
only by the Optionee.
|
Any
such
action
made directly or indirectly, for an immediate validation or for a
future
one,
shall be void.
|
14.2
|
As
long
as
Options
and/or
Shares are held by the Trustee on behalf of
the
Optionee,
all
rights
of
the
Optionee
over
the Shares are personal, can not be transferred, assigned,
pledged
or
mortgaged,
other than by will or pursuant
to
the
law
s
of descent and
distribution.
|
20.1
|
Any
tax consequences arising from the grant or exercise of any Option,
from
the payment
for
Shares covered thereby or from any other event or act (of the Company
and/or
its
Affiliates, the Trustee or the Optionee), hereunder, shall be borne
solely
by the
Optionee.
The
Company and/or its Affiliates and/or the Trustee shall withhold
taxes
according to
the
requirements
under the applicable laws, rules, and regulations, including withholding
taxes
at
source. Furthermore, the Optionee shall agree to indemnify the
Company
and/or its
Affiliates
and/or
the Trustee and hold them harmless against and from any and
all
liability
for
any such tax or interest or penalty thereon, including without
limitation,
liabilities
relating
to the necessity to withhold, or to have withheld, any such tax
from any
payment
made
to the Optionee.
|
20.2 |
The
Company and/or, when applicable, the Trustee shall not be required
to
release
any
Shares
certificate to
a
n
Optionee
until
all
required
payments have been fully made.
|
If
so requested by the Company or any representative of the underwriters
(the
“Managing Underwriter”) in connection with any registration of the
offering of any securities of the Company under the securities laws
of any
jurisdiction, the Participant shall not sell or otherwise transfer
any
Shares or other securities of the Company during a 180-day period
or such
other period as may be requested in writing by the Managing Underwriter
and agreed to in writing by the Company (the “Market Standoff Period”)
following the effective date of registration statement of the Company
filed under such securities laws. The Company may impose stop transfer
instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
|
1.
|
Negotiations,
execution, delivery and performance of agreements on behalf of the
Company
and any subsidiary thereof (“Subsidiary") including, inter alia, any claim
or demand made by a customer, supplier, contractor or other third
party
transacting any form of business with the Company, its Subsidiaries
or
affiliates relating to the negotiations or performance of such
transactions, representations or inducements provided in connection
thereto or otherwise.
|
2.
|
Any
claim or demand made in connection with any transaction which is
not
within the ordinary course of business of either the Company, its
subsidiaries or affiliates, including the sale, lease or purchase
of any
assets or businesses.
|
3.
|
Anti-competitive
acts and acts of commercial
wrongdoing.
|
4
.
|
Acts
in regard of invasion of privacy including with respect to databases
and
acts in regard of slander.
|
5
.
|
Any
claim or demand made for actual or alleged infringement, misappropriation
or misuse of any third party’s intellectual property rights including, but
not limited to confidential information, patents, copyrights, design
rights, service marks, trade secrets, copyrights, misappropriation
of
ideas by the Company, its Subsidiaries or
affiliates.
|
6.
|
Actions
taken in connection with the intellectual property of the Company
and any
Subsidiary and its protection, including the registration or assertion
of
rights to intellectual property and the defense of claims relating
thereof.
|
7.
|
Participation
and/or non-participation at the Company’s board meetings, bona fide
expression of opinion and/or voting and/or abstention from voting
at the
Company’s board meetings.
|
8
.
|
Approval
of corporate actions including the approval of the acts of the Company’s
management, their guidance and their
supervision.
|
9
.
|
Claims
of failure to exercise business judgement and a reasonable level
of
proficiency, expertise and care in regard of the Company’s
business.
|
10
.
|
Violations
of securities laws of any jurisdiction, including without limitation,
fraudulent disclosure claims, failure to comply with SEC and/or the
Israeli Securities Authority and/or any stock exchange disclosure
or other
rules and any other claims relating to relationships with investors,
shareholders and the investment community and any claims related
to the
Sarbanes-Oxley Act of 2002, as amended from time to
time.
|
1
1
.
|
Any
claim or demand made under any securities laws or by reference thereto,
or
related to the failure to disclose any information in the manner
or time
such information is required to be disclosed pursuant to such laws,
or
related to inadequate or improper disclosure of information to
shareholders, or prospective shareholders, or related to the purchasing,
holding or disposition of securities of the Company or any other
investment activity involving or affected by such securities, including
any actions relating to an offer or issuance of securities of the
Company
or of its subsidiaries and/or affiliates to the public by prospectus
or
privately by private placement, in Israel or abroad, including the
details
that shall be set forth in the documents in connection with execution
thereof.
|
1
2
.
|
Violations
of laws requiring the Company to obtain regulatory and governmental
licenses, permits and authorizations or laws related to any governmental
grants in any jurisdiction.
|
1
3
.
|
Claims
in connection with publishing or providing any information, including
any
filings with any governmental authorities, on behalf of the Company
in the
circumstances required under any applicable
laws
|
1
4
.
|
Any
claim or demand made by employees, consultants, agents or other
individuals or entities employed by or providing services to the
Company
relating to compensation owed to them or damages or liabilities suffered
by them in connection with such employment or
service.
|
1
5
.
|
Resolutions
and/or actions relating to employment matters of the Company and/or
its
Subsidiaries and/or affiliates.
|
1
6
.
|
Events,
pertaining to the employment conditions of employees and to the employer
-
employee relations, including the promotion of workers, handling
pension
arrangements, insurance and saving funds, options and other
benefits.
|
1
7
.
|
Any
claim or demand made by any lenders or other creditors or for moneys
borrowed by, or other indebtedness of, the Company, its Subsidiaries
or
affiliates.
|
1
8
.
|
Any
claim or demand made by any third party suffering any personal injury
and/or bodily injury and/or property damage to business or personal
property through any act or omission attributed to the Company, its
Subsidiaries or affiliates, or their respective employees, agents
or other
persons acting or allegedly acting on their
behalf.
|
1
9
.
|
Any
claim or demand made directly or indirectly in connection with complete
or
partial failure, by the Company or any Subsidiary or affiliate thereof,
or
their respective directors, officers and employees, to pay, report,
keep
applicable records or otherwise, of any foreign, federal, state,
country,
local, municipal or city taxes or other compulsory payments of any
nature
whatsoever, including without limitation, income, sales, use, transfer,
excise, value added, registration, severance, stamp, occupation,
customs,
duties, real property, personal property, capital stock, social security,
unemployment, disability, payroll or employee withholding or other
withholding, including any interest, penalty or addition thereto,
whether
disputed or not.
|
20.
|
Any
claim or demand made by purchasers, holders, lessors or other users
of
products or assets of the Company, or individuals treated with such
products, for damages or losses related to such use or
treatment
,
and actions in connection with the testing of products developed
by the
Company and/or its Subsidiaries or in connection with the distribution,
sale, license or use of such products
.
|
21.
|
Any
administrative, regulatory or judicial actions, orders, decrees,
suits,
demands, demand letters, directives, claims, liens, investigations
proceedings or notices of noncompliance or violation by any governmental
entity or other person alleging potential responsibility or liability
(including potential responsibility or liability for costs of enforcement,
investigation, cleanup, governmental response, removal or remediation,
for
natural resources damages, property damage, personal injuries, or
penalties or contribution, indemnification, cost recovery, compensation,
or injunctive relief) arising out of, based on or related to (x)
the
presence of, release spill, emission, leaking, dumping, pouring,
deposit,
disposal , discharge, leaching or migration into the environment
(each a
“Release”) or threatened Release of, or exposure to, any hazardous, toxic,
explosive or radioactive substance, wastes or other substances or
wastes
of any nature regulated pursuant to any environmental law, at any
location, whether or not owned, operated, leased or managed by the
Company
or any of its subsidiaries, or (y) circumstances forming the basis
of any
violation of any environmental law, environmental permit, license,
registration or other authorization required under applicable
environmental and/or public health
law.
|
2
2
.
|
Actions
in connection with the Company’s development, use, sale, licensing,
distribution, marketing or offer of products and/or
services.
|
2
3
.
|
Resolutions
and/or actions relating to a merger of the company and/or of its
subsidiaries and/or affiliates, the issuance of shares or securities
exercisable into shares of the Company, changing the share capital
of the
Company, formation of subsidiaries, reorganization, winding up or
sale of
all or part of the business, operations or shares the
Company.
|
2
4
.
|
Resolutions
and/or actions relating to investments in the Company and/or its
subsidiaries and/or affiliated companies and/or the purchase or sale
of
assets, including the purchase or sale of companies and/or businesses,
and/or investments in corporate or other entities and/or investments
in
traded securities and/or any other form of
investment.
|
2
5
.
|
Any
administrative, regulatory or judicial actions, orders, decrees,
suits,
demands, demand letters, directives, claims, liens, investigations,
proceedings or notices of noncompliance or violation by any governmental
entity or other person alleging the failure to comply with any statute,
law, ordinance, rule, regulation, order or decree of any of its
subsidiaries and/or affiliates, or any of their respective business
operations.
|
26. |
Actions
relating to the operations and management of the Company and/or its
Subsidiaries.
|
27. |
Actions
taken in connection with the approval and execution of financial
reports
and business reports and the representations made in connection
therewith.
|
28
.
|
Any
claim or demand, not covered by any of the categories of events described
above, which, pursuant to any applicable law, a director or officer
of the
Company may be held liable to any government or agency thereof, or
any
person or entity, in connection with actions taken by such director
or
officer in such capacity.
|
1. |
Definitions
.
In addition to those terms defined elsewhere in this Agreement, each
of
the following terms shall have the meaning set forth opposite it,
unless
the context otherwise requires:
|
1.1. |
“
Intellectual
Property
”
shall mean all intellectual property, whether or not protected by
patents
or patent applications, including, but not limited to, trade secrets,
procedures, protocols, inventions, databases, know how, inventions,
improvements, discoveries, conceptions, ideas, techniques, designs,
products, developments, specifications, methods, drawings, diagrams,
models, software programs, data, data analysis, data interpretation,
written reports, and all rights therein including copyright, patent
rights, database rights, rights in designs and all registrations
and
applications therefore, and all continuations, continuations in part,
divisional applications, and renewals of any of the foregoing, in
any part
of the world.
|
1.2. |
“
Proprietary
Information
”
shall mean any and all scientific, clinical, regulatory, marketing,
financial and commercial information or data, including the terms
of this
Agreement, whether communicated in writing, orally or by any other
means,
which is provided by one Party to the other Party in connection with
this
Agreement.
|
1.3. |
“
Rosetta
IP
”
shall mean any and all Intellectual Property that Rosetta has developed
or
which Rosetta owns, as evidenced in written records, including but
not
limited to the Rosetta MicroRNAs.
|
1.4. |
“
Research
Results
”
shall mean any and all microRNAs expression profiling data measured
on the
Materials, and its analysis pertaining to potential diagnostic
application, as determined in the course of the performance of the
Research Project.
|
1.5. |
“
Rosetta
MicroRNAs
”
shall mean any novel human and non-human (including virus and bacteria)
microRNAs predicted by Rosetta prior to the execution of this Agreement,
as evidenced in writing.
|
1.6. |
“
THM’s
IP
”
shall mean any and all Intellectual Property developed and/or conceived
and/or made and/or discovered and/or reduced to practice and/or owned
by
THM and/or by Sheba Medical Center and/or by Medical Research
Infrastructure Development and Health Services Fund by the Sheba
Medical
Center (the “
Fund
”).
|
2. |
The
Research Project
.
|
2.1. |
The
Research Project shall include multiple trials as agreed upon by
the
Parties (the “
Trials
”),
each Trial shall be performed in accordance with a Trial Protocol
to be
prepared by Rosetta for each Trial and agreed upon by THM (the
“
Protocol
”).
Each Protocol will be attached to this agreement as Appendix A1,
A2 and so
forth and constitute an integral part of this Agreement. The remuneration
for each Trial shall be agreed upon by both Parties in advance and
shall
be specified in a budget schedule, executed by both Parties for each
Trial
and attached to the Trial’s Protocol (the “
Budget
Schedule
”).
The Budget Schedule of each Trial shall be attached to this agreement
as
Appendix B1, B2 and so forth and constitute an integral part of this
Agreement, the Protocol and the Budget Schedule collectively hereinafter:
the “
Protocol
Plan
”;
The Protocol Plan for each Trial shall constitute an integral part
of this
Agreement.
|
2.2. |
The
first Trial shall be conducted according to the Protocol attached
to this
Agreement as
Appendix
A1
and constituting an integral part thereof (“
Protocol
A1
”).
THM and Rosetta shall perform the activities mentioned in Protocol
A1. THM
shall perform the activities designated to it in Protocol A1 and
in any
other Protocol, directly or by employing the services of the Fund
or any
other third party to be agreed between THM and Rosetta (the entity
who
shall carry out the Trials on the part of THM: “
the
Research Entity
”).
|
2.3. |
Rosetta
shall oversee the conduct of the Research Project. THM shall designate
a
senior researcher currently contemplated to be Prof. Gideon Rechavi
(the
“
Investigator
”)
to collaborate with Rosetta in carrying out THM’s activities related to
the Research Project.
|
2.4. |
A
part of Rosetta’s activities under the Research Project shall be conducted
in the facilities of the Hospital (“
Rosetta’s
Work
”)
by Rosetta’s employees and/or agents and/or representatives and/or
contractor’s (“
Rosetta’s
Personnel
”).
|
2.4.1. |
Rosetta’s
Personnel shall be skillful, prudent, professionals and experienced
in the
field of the Research Project and shall hold any license and be qualified
and authorized to perform Rosetta’s Work in accordance with the
requirements of the applicable laws, regulations and
guidelines.
|
2.4.2. |
Rosetta’s
Work shall be performed by Rosetta’s Personnel in strict accordance with
the Hospital’s and/or the Research Entity’s and/or THM’s internal
guidelines and/or rules and/or directives relating to Rossetta’s Work
and/or to the work performed at the Hospital’s facilities or to the
Hospital’s and/or the Research Entity’s devises, instruments or
systems.
|
2.4.3. |
Without
derogating from anything to the contrary in this Agreement, Rosetta’s
Personnel shall obey all administrative instructions of the Investigator
or any other person designated by the Research Entity for such purpose
(“
Site’s
Supervisor
”).
Site’s Supervisor shall determine the exact dates and hours during which
Rosetta’s Work shall be performed at the
Hospital.
|
2.4.4. |
Rosetta’s
Personnel shall be deemed independent contactors and/or Rosetta’s
employees, and shall not be considered a partner, agent, employee
or
representative of the Research Entity and/or of
THM.
|
2.5. |
Either
party may conduct additional research projects, independently or
with
other third parties, in parallel to or following the Research Project,
and
nothing in this Agreement shall prevent a party from engaging in
any
additional research, provided that it fulfills its obligations
hereunder.
|
2.6. |
Each
party represents and warrants that it is legally authorized and entitled
to assume all responsibilities under this
Agreement.
|
2.7. |
It
is a condition precedent to the validity of this Agreement with respect
to
each Trial that this Agreement shall come into effect with respect
to each
Trial only after approval is received from: the Helsinki Committee
and the
Hospital’s Committee for Research Contracts with Commercial Companies. The
approval of the Helsinki Committee shall approve all the following:
(a)
the Protocol of the Trial (b) the transfer of the Study Specimens
to
Rosetta, (c) the use of the Study Specimens under the study to be
conducted by Rosetta (the “
Study
”)
(d) the Study. The performance of each Trial shall commence only
after the
Helsinki Committee approves the above with respect to such
Trial.
|
2.8. |
Both
parties undertake to perform the Research Project, in compliance
with the
following: (1) the Ministry Guidelines, as defined herein (2) the
instructions and the terms specified in the approval of the Helsinki
Committee (3) the ICH-GCP (4) the applicable laws, rules and regulations
regulating such studies which are applicable in Israel. The “
Ministry
Guidelines
”
the MOH Guidelines titled “Clinical Trials of Human Subjects” issued in
January 2006 including appendix 4 to the
guidelines.
|
2.9. |
Rosetta
shall use the Study Specimens solely for the purpose of the Study
and not
for any other purposes whatsoever.
|
2.10. |
Rosetta
shall use and dispose of the Study Specimens in accordance with the
State
of Israel’s laws, rules, regulations and guidelines regulating and/or
applicable and/or relevant to the use of the Study Specimens under
the
Study and to their disposal following the completion of the
Study.
|
2.11. |
Immediately
following the completion of the Study or the use of any Study Specimen
under the Study, Rosetta shall dispose of or terminate the Study
specimens
as specified above.
|
2.12. |
Rosseta
shall keep full and accurate records with respect to the use and
to the
dates and manner of disposal of each and every Study Specimen and
shall
provide such records to the Research Entity for examination, upon
the
Research Entity’s request.
|
2.13. |
For
the removal of doubt it is hereby clarified that nothing specified
in this
Agreement shall be construed as a warranty by THM that the Research
Project’s results or the results of any Trial shall be useful in any
manner or commercially exploitable.
|
3. |
Permitted
Uses of Information, Rights to the Research Results and Intellectual
Property
.
|
3.1. |
THM
may use the information provided by Rosetta regarding the results
of the
Research Project under the terms of this agreement for research and
academic purposes only. Notwithstanding the confidentiality obligations
of
Section 5, THM may publish the information in accordance with Section
6
below.
|
3.2. |
THM
agrees that all right, title and interest in and to the Research
Results
and any intellectual property deriving there from, whether they shall
be
protected by intellectual property rights or not, shall be solely
owned by
and vest with Rosetta. Without limiting the above, Rosetta shall
be solely
entitled, as it may deem fit, to file, in its name, patents and patent
applications with respect to any Research Results, to publicize the
Research Results and to commercially or otherwise exploit the Research
Results Provided however that THM’s investigators shall be registered as
“Inventors” in any such patent
application.
|
3.3. |
Each
party shall remain the sole owner of its own Intellectual Property.
It is
hereby expressly agreed that, nothing in this Agreement shall constitute
or be considered as constituting a transfer or license of any Intellectual
Property by one party to the other.
|
4. |
Costs
of Research
.
|
4.1. |
Rosetta
agrees to bear [***] costs related to the performance of the experiments
in relation to the Research Project, [***], all as indicated in the
Budget
Schedule of each Trial. The Budget Schedule of the first Trial specified
in Protocol A1 is attached as Appendix
B1.
|
4.2. |
Rosetta
will reimburse THM for [***] the Material provided by THM pursuant
to this
Agreement according to Appendix C.
|
4.3. |
In
addition, Rosetta will pay THM all the amounts specified in Section
8
herein (Royalties).
|
5. |
Confidentiality
.
|
5.1. |
Non-Disclosure
and Non-Use Obligations
|
5.2. |
Permitted
Disclosure of Proprietary Information
.
|
6. |
Publications
.
Notwithstanding Rosetta’s rights set out in Section 3 above, THM shall
have the right to publish the Research Results in scientific publications
or to present such results at scientific symposia, provided that
the
following procedure is followed:
|
6.1. |
No
later than 60 days prior to submission for publication of any scientific
articles, abstracts or papers concerning Research Results or Research
Project and prior to the presentation of such results at any scientific
symposia, THM shall send to Rosetta a written copy of the material
to be
so submitted or presented, and shall allow Rosetta to review such
submission to determine whether the publication or presentation contains
confidential information or subject matter for which patent protection
should be sought prior to publication or presentation for the preservation
of patent rights.
|
6.2. |
Rosetta
shall provide its comments with respect to such publication or
presentation, as the case may be, within 30 days following its receipt
of
such written material. The Investigator shall give due consideration
to
Rosetta’s comments.
|
6.3. |
If
Rosetta, in its written comments, identifies material for which patent
protection should be sought, then THM shall cause the publication
or
presentation of such submission to be delayed for a further period
of up
to 60 days from the receipt of such written comments to enable Rosetta
to
make the necessary patent filings.
|
6.4. |
THM
shall name Rosetta scientists as authors in accordance with scientific
custom.
|
6.5. |
In
the event that Rosetta publishes the Rosetta Results, Rosetta shall
name
the Investigator and The Institute as authors in accordance with
scientific custom.
|
7. |
Term
and Termination
.
|
7.1. |
The
term of each Trial, and the Parties’ right to terminate each Trial will be
specified in a written annex to this Agreement duly executed by the
Parties. Such annex will be prepared per each
Trial.
|
7.2. |
The
parties’ respective rights, obligations and duties under this Agreement
which by their nature extend beyond the expiration or termination
hereof,
shall survive any expiration or termination of this
Agreement.
|
8. |
Claims,
Liability And Insurance
|
8.1. |
Rosetta
shall bear sole responsibility and bear any payment and/or compensation
and/or liability for any damage whatsoever caused to any person,
directly
or indirectly, as a result of the performance of any of the Trials
or the
Research Project. Provided however that Rosetta shall not be responsible
or liable to pay any payments or compensation that are the result
of a
negligent act or willful misconduct of the Beneficiaries (as such
term is
defined in Section 8.2 below).
|
8.2. |
Rosetta
shall bear sole responsibility for any damage caused to any of Rosetta’s
Personnel in the Hospital’s premises, or to any third party by Rosetta’s
Personnel’s acts, omissions or willful
misconduct.
|
8.3. |
Rosetta
shall indemnify and hold harmless, THM, the Hospital, the Research
Project
staff, the Investigator and their employees and/or agents and/or
officers
and/or representatives (hereinafter: “
The
Beneficiaries
”)
from and against all claims, demands, causes of action and suits
of
whatsoever kind or nature based on damages claimed to have been caused
as
a result of the performance of any of the Trials and/or the Research
Project and/or the Study and/or any procedures prescribed in any
Trial
Protocol and/or pertaining to the Research Project and/or from the
performance of Rosetta’s Personnel’s Work and/or from the acts, omissions
or willful misconduct of Rosetta’s Personnel (“
the
Loss
”);
provided, however, that:
|
8.3.1. |
The
Loss was not caused as a result of a negligent act or willful misconduct
of THM and/or the Research Entity and/or the Investigator and/or
their
employees and agents.
|
8.3.2. |
The
Loss was not caused as a result of THM’s and/or the Research Entity’s
and/or the Investigator’s failure to perform the relevant Trial in
accordance with the Trial’s
Protocol.
|
8.3.3. |
THM
notified Rosetta, within 30 working days from the day THM acquired
such
knowledge, of any claim, or injury relating to the Research
Project.
|
8.3.4. |
Rosetta
shall pay all expenses associated with any proceedings taking place
as a
result of a complaint and/or legal claim submitted by any person
in
respect of the Loss.
|
8.4. |
Without
derogating from its above liabilities, the Company shall maintain
adequate
and appropriate insurance policies covering their liabilities under
this
Agreement. Such insurance shall include third parties’ liabilities and
employer’s liabilities.
|
9. |
Royalties
|
9.1. |
The
terms “Net Sales” “License”, “Licensing Consideration” and “Products”
shall have the meaning ascribed to them in subsection 9.9
below.
|
9.2. |
In
return for THM’s undertaking under this Agreement, Rosetta shall pay to
THM all the following amounts:
|
9.2.1. |
A
royalty of [***]% ([***] percent) of Net Sales by or on behalf of
Rosetta
(“
Royalties
”).
|
9.2.2. |
[***]%
([***] percent) of all Licensing
Consideration.
|
9.3. |
In
the event Rosetta is obligated, pursuant to agreements with Research
Institutes, as defined below, to pay THM and other Research Institutes
royalties of Net Sales with respect to a product employing the Patents
and
Additional Patents (the “
Combination
product
”),
in a total amount exceeding [***]% ([***] percent) of Net Sales,
then
Rosetta shall be entitled to reduce the amount of Royalties payable
to THM
hereunder according to the following principals: (a) Rosetta shall
calculate the total amount of Royalties it is obligated to pay THM
and the
Research Institutes that their Additional Patents are required for
the
sale, manufacture or use of the Combination Product (the “
Total
Royalties Amount
”);
(b) Rosetta shall calculate the difference between the Total Royalties
Amount and [***]% (the “
Difference
”);
(c) Rosetta shall calculate the relative share of THM’s Royalties in the
Total Royalties Amount (“
THM’s
Royalties Share
”)
and (d) Rosetta shall be entitled to reduce THM’s amount of Royalties by
an amount equal to the product of THM’s Royalties Share multiplied by the
Difference.
Provided
,
however
,
that in no event shall THM’s Royalties be reduced to less than
[***]%.
|
9.4. |
The
amounts payable to THM under this clause 9 shall be paid as
follows:
|
9.4.1. |
Royalties,
as specified in subsections 9.2.1, shall be paid on a quarterly basis.
Within [***] after the end of each quarter, commencing on the first
quarter where the first commercial sale took place or Licensing
Considerations are paid to Rosetta.
|
9.4.2. |
THM’s
fee of Licensing Consideration, as specified in subsection 9.2.2
shall be
paid within [***] from receipt of any Licensing Consideration by
Rosetta
from any Licensee.
|
9.5. |
In
calculating Net Sales, Licensing Consideration, all amounts shall
be
expressed in US Dollars and any amount received or invoiced in a
currency
other than US Dollars shall be translated into US Dollars, for the
purposes of calculation, in accordance with the Exchange Rate between
the
US Dollar and such currency on the date of such receipt or invoice,
as the
case may be.
|
9.6. |
Rosetta
shall provide THM with the following written reports: (a) a report
specifying the amounts payable to THM from Licensing Consideration.
Such
report shall be provided to THM within [***] after any Licensing
Consideration are received; and (b) a detailed quarterly report,
commencing with the first calendar quarter in which any Net Sales
are
made, or Licensing Consideration received or royalties are received
by
Rosetta, in a form acceptable to THM, signed by the chief financial
officer of Rosetta, specifying all amounts payable to THM under this
clause 8 in respect of the previous quarter to which the report refers.
Such report shall include: (i) the sales made by Rosetta and Licensees
with a breakdown of Net Sales according to country, identity of seller,
currency of sales, dates of invoices, number and type of Products
sold
and; (ii) Licensing Consideration with a breakdown according to identity
of Licensees, countries, the currency of the payment and date of
receipt
thereof; and (iii) deductions applicable, as provided in the definition
of
“Net Sales”; (iv) the Total royalties Amount paid by Rosetta of Net Sales,
and THM’s Royalties Share; and (iv) any other matter required by THM in
order to calculate and/or verify the amounts payable hereunder; and
(c)Within [***] after the end of each fiscal year, Rosetta will provide
THM with a detailed report, certified by its Chairman of the Board
and by
it’s independent auditor, stating all amounts due to THM pursuant to
this
clause 8 in the reported year including relevant Invoices issued
and all
invoices and all payments received by Rosetta with respect to it’s Net
Sales and to the Licensing Consideration as detailed in the quarterly
reports.
|
9.7. |
Rosetta
shall keep and shall cause Licensees to keep complete, accurate and
correct books of account and records consistent with sound business
and
accounting principles and
practices.
|
9.8. |
THM
shall be entitled to appoint an independent auditor selected by it
to
inspect, during Rosetta’s regular business hours, all equipment, records,
and documents of Rosetta as may contain information bearing upon
the
amounts payable to THM under this clause 8. Rosetta shall take all
steps
necessary so that all such books of account, records and other
documentation of Rosetta and its Licensees are available for inspection
as
aforesaid at a single location for each of Rosetta and its Licensees.
The
cost of such auditing shall be borne by Rosetta if the audit uncovers
an
underreporting of the corresponding amounts owed to THM by more than
[***]
percent ([***]%). Otherwise, such costs and expenses shall be borne
by
THM. Rosetta shall remedy such discrepancy and pay (i) the shortfall
within [***] of the date of discovery; and (ii) interest thereon
at the
rate of [***]% above the London Interbank Offered Rate (LIBOR) applicable
to a 12 month USD deposit, as such rate shall be in effect on each
Disbursement Date. The Interest shall be compounded annually and
computed
on the basis of a 360 day year.
|
9.9. |
Definitions:
|
9.9.1. |
“
Net
Sales
”
shall mean the Total amount invoiced by Rosetta with respect to Products
sold anywhere in the world (whether in a territory where one or more
of
the Patents is applicable or not) after deducting (if not previously
deducted from the amount invoiced):
|
(i) |
customs
duties, VAT or any other sales taxes or levies to the extent applicable
to
the sale or export of Products or Services and not collected separately
from the counterparty to the sale;
|
(ii) |
Amounts
credited by a credit note.
|
9.9.2. |
This
section was intentionally left
blank.
|
9.9.3. |
“
Licence
”
shall mean any right granted, licence and/or sublicense given, or
agreement entered into, by Rosetta to or with any other person or
entity,
permitting any use of the Research Results and/or any other information
and/or data and/or technologies and/or developments conceived and/or
developed in the course of the Research Project and/or the Patents
(or any
part thereof) for the development and/or manufacture and/or marketing
and/or distribution and/or sale of Products; and the term “
Licensee
”
shall be construed accordingly;
|
9.9.4. |
“
Licensing
Consideration
”
-
shall mean all royalties, license fees and milestone payments, or
all
other payment, whether monetary or otherwise, received by Rosetta
for or
from the grant of Licences and/or pursuant thereto, or in connection
with
the grant of an option for a Licence. For clarity, Licensing Consideration
will not include equity investments in Rosetta, research funding
paid to
Rosetta or loans provided that such loans were not granted to Rosetta
for
a grant of License;
|
9.9.5. |
“
Products
”
-
any products, the development, design, manufacture, sale or use of
which
is based upon and/or uses and/or employs one or more Patents and/or
THM’s
Research Results covered by a Patent, provided however that if a
certain
Patent was not approved, then any product including THM’s Research Results
that were part of such not approved Patent, will be considered a
Product
as well.
|
10. |
Miscellaneous
.
|
10.1. |
Assignment
.
No party to this Agreement shall be entitled to transfer or assign
its
rights or obligations under this Agreement, unless with the prior
written
consent of the other party, which shall not be unreasonably withheld;
provided however that an assignment resulting from merger and/or
acquisition of either party shall not require the consent of the
other
party, in the event that the surviving entity is committed to such
assigning party’s obligations hereunder. Notwithstanding the
aforementioned, THM shall be entitled to assign it’s rights and
obligations hereunder to any legal entity which was established in
connection with or for the benefit of the
Hospital.
|
10.2. |
No
Agency
.
It is hereby expressly declared and agreed that this Agreement in
no way
establishes any principal-agent, employer-employee, or partnership
relations between the parties. Nothing in this Agreement shall be
construed as granting either party the power or authority to act
for or on
behalf of the other party, to create any undertakings on behalf of
the
other party, or to bind or commit the other party in respect to any
such
undertakings, except as set forth herein or as otherwise agreed to
in
writing between the parties prior to such
act.
|
10.3. |
Governing
Law; Venue
.
This Agreement shall be governed by and construed in accordance with
the
laws of the State of Israel. The competent courts of Tel Aviv shall
have
the exclusive jurisdiction to adjudicate on any disputes arising
hereunder.
|
10.4. |
Entire
Agreement
.
This Agreement, including all exhibits attached hereto, constitutes
the
entire understanding of the parties and supersedes all oral or written
representations, agreements and understandings between the parties
with
respect to the subject matter hereof, all of which shall become,
upon
signature of this Agreement, void.
|
10.5. |
Amendments;
Interpretation
.
No modification or amendment of this Agreement may be made except
in a
written instrument duly signed by all parties. The headings in this
Agreement are inserted for convenience of reference only and shall
not
affect its interpretation. The preamble and annexes to this Agreement
form
an integral part of this Agreement.
|
10.6. |
Severability
.
If any non-material condition, term or covenant of this Agreement
shall at
any time be held to be void, invalid or unenforceable such condition,
covenant or term shall be construed as severable and such holding
shall
attach only to such condition, covenant or term and shall not in
any way
affect or render void, invalid or unenforceable any other condition,
covenant or term of this Agreement, and this Agreement shall be carried
out as if such void, invalid or unenforceable term were not embodied
herein.
|
10.7. |
Waivers
.
The failure at any time of either Party to enforce any of the terms
or
conditions or any right or to exercise any option of this Agreement
will
in no way be construed to be a waiver of such terms, conditions,
rights or
options, or in any way to affect the validity of this Agreement.
A waiver
by a party of any of its rights under this Agreement shall not be
effective unless made by a written instrument duly signed by such
party,
and shall not be deemed a waiver of any other right
hereunder.
|
10.8. |
No
Hiring
.
Both Parties acknowledge that each Party would receive substantial
additional value and would be deprived of the benefits of its work
force,
if the other Party were to hire such Party’s personnel after such Party’s
introduction of them to the other Party. Accordingly, each Party
shall
not, directly or indirectly, recruit or hire or engage any personnel
of
the other Party that are or have been assigned to perform any of
the
services and/or Research Project or any part thereof hereunder, or
induce
such personnel to quit employment with the other Party, during the
term of
this Agreement and for a period of [***] following the termination
of this
Agreement, without the other Party’s prior written
consent..
|
10.9. |
Notices
.
Any notice sent by one party to the others to the addresses set forth
below shall be considered as having reached its destination, if it
was
delivered by hand, at the time of its delivery; if it was sent by
registered mail, within 96 hours from the time it was so dispatched;
and
if it was sent by facsimile, within 48 hours from the receipt of
the
confirmation of proper transmission of the
notice.
|
If
to Rosetta:
|
10
Plaut Street, Rehovot, 76706, Israel
Fax:
972-8-9484766
Attention:
Director, Business Development
|
If
to THM:
|
Tel
Hashomer Ltd.
The
Technology Transfer Company of
Claim
Sheba Medical Center, Tel Hashomer, 5621 Israel
Office:
+972 3 5305998
Fax:
+972 3 5305944 Attention: Business Development
|
ROSETTA
GENOMICS LTD.
|
|
By:
/s/ Amir Avniel
|
By:
/s/ Shlomo Nos
|
Name:
Amir Avniel
|
Name:
Shlomo Nos
|
Title:
President and CEO
|
Title:
Chairman
|
1. |
[***]
|
2.
|
Perform
the [***].
|
Step
|
Details
|
Suggested
Responsible Party
|
Estimated
Completion Time
|
I.
Pre-discovery:
|
Obtain
[***]. In order to [***].
|
[***]
|
[***]
|
Identify
[***]. This step will [***].
|
[***]
|
[***]
|
|
II.
Discovery:
|
Obtain
[***]. The [***].
|
[***]
|
[***]
|
Perform
[***].
|
[***]
|
[***]
|
|
Analyze
[***] in order to [***].
|
[***]
|
||
Based
on [***].
|
[***]
|
[***]
|
Technician
[***]
|
$[***]
|
Research
Coordinator
|
$[***]
|
Kits,
reagents, disposables
|
$[***]
|
Overhead
[***]%
|
$[***]
|
Total
|
$[***]
|
(a) |
in
clinical
research where the medical management of a human is involved, for
(aa)
the measurement, observation or determination of (i) the presence
of a
human disease, (ii) the stage, progression or severity of a human
disease,
(iii) the risk of contracting a disease,or (iv) the effect of a particular
treatment on a human disease; and/or (bb) the selection of patients
for a
particular treatment with respect to a human disease;
and/or
|
(b) |
in
clinical
laboratory for tracking, testing or quality controlling of human
body
fluids or tissue samples, and/or
|
(c) |
designated
and regulated by the FDA as a diagnostic test or ASR, to the extent
used
according to (a) and/or (b) above.
|
(a) |
the
patent applications filed by MPG listed in Annex 1, and the resulting
patents,
|
(b) |
any
subsequent patent applications in any jurisdiction claiming the same
priority date and directed to the same subject matter as the patent
application listed in Annex 1, and any divisionals, continuations,
continuation-in-part applications, and continued prosecution applications
(and their relevant international equivalents) of the patent applications
listed in Annex 1, and the resulting patents,
and
|
(c) |
any
patents resulting from reissues, reexaminations (and their relevant
international equivalents) of the patents described in (a) and (b)
above
.
|
(a) |
shall
mean the gross amount invoiced by each of COMPANY, Affiliates,
Sublicensees and Sales Partners
to
independent Third Parties for the sale, use, lease, transfer or other
disposition of Licensed Products (including the amounts invoiced
for
diagnostic kits) and Licensed Services in a first commercial sale
at arm's
length transaction, less the following: (i) to the extent separately
stated on the document of sale, any taxes or duties imposed on the
sale or
import of Licensed Products and Licensed Services which are actually
paid,
(ii) to the extent separately stated on the document of sale, any
outbound
transportation costs and costs of insurance in transit, (iii) customary
trade, cash or quantity discounts or rebates, to the extent actually
allowed and taken,
(iv)
amounts repaid or credited by reason of rejection or
return.
|
(b) |
COMPANY,
Affiliates, Sublicensees and Sales Partners will be treated as having
sold
Licensed Products and Licensed Services for an amount equal to the
fair
market value of such Licensed Products if (i) Licensed Products and
Licensed Services are internally used by each of COMPANY, Affiliates,
Sublicensees or Sales Partners (excluding Licensed Products used
by
COMPANY for COMPANY’S internal and collaborative research and development
purposes) without charge or provision of invoice, or (ii) Licensed
Products and Licensed Services are provided to a Third Party by each
of
COMPANY, Affiliates, Sublicensees or Sales Partners without charge
or
provision of invoice and used by such Third Party, except
in
the case of reasonable amounts of Licensed Products
and
Licensed Services
used
as
promotional
free samples, free goods, or other marketing programs
to
induce sales
.
|
(c) |
If
COMPANY,
Affiliates,
Sublicensees
or Sales Partners sell a Licensed Product to a Third Party
in
a first commercial sale at arm's length transaction for further resale,
and if the relation between COMPANY and such Third Party is a pure
seller-buyer relationship (i.e. if the agreement between COMPANY,
Affiliates,
Sublicensees
or Sales Partners
and
such Third Party does not provide for any obligation to share costs
or
revenues, or a reporting obligation, or responsibility for sales
and/or
marketing efforts in a country)
,
then the gross amount to be included in the calculation of Net Sales
shall
be the amount invoiced by COMPANY,
Affiliates,
Sublicensees
or Sales Partners to such Third Party, not the amount invoiced by
such
Third Party upon resale.
|
(d) |
No
deductions shall be made for commissions paid to individuals or entities,
or for cost of collections. Net Sales shall occur on the date of
invoice
for a Licensed Product or a Licensed
Service.
|
(e) |
Sales
of Licensed Products between COMPANY and its
Affiliates,
Sublicensees
or Sales Partners, or among such
Affiliates,
Sublicensees
and Sales Partners, for a subsequent resale of such Licensed Product
to a
Third Party, shall not be included in the calculation of Net Sales,
but in
such cases the Net Sales shall be calculated on the amount invoiced
by
such
Affiliates,
Sublicensees or Sales Partners to a Third Party upon resale.
|
(f) |
In
the event that a Licensed Product is sold in a combination product
form
with one or more other diagnostically active product components (i.e.
other microRNAs) which are not Licensed Products and which are required
to
improve the accuracy of the Licensed Product (the "Combination Product"),
then Net Sales, for purposes of determining royalty payments on the
Combination Product, shall be calculated by multiplying the Net Sales
of
the Combination Product by [***]. In the event that a Licensed Product
is
sold in combination with other diagnostically active product component(s),
and the Licensed Product or one or more diagnostically active product
components are not sold separately, then Net Sales, for the purpose
of
determining royalty payments on the Combination Product, shall be
calculated by multiplying the Net Sales of the Combination Product
by
[***]. In the event that a Licensed Service is sold in a combination
service form, which service uses Licensed Products and one or more
other
diagnostically active product components that are not Licensed Products,
this Subsection (f) shall apply
accordingly.
|
Calendar
Year
|
Maintenance
Fee
|
2007
|
EUR
[***]
|
2008
|
EUR
[***]
|
2009
|
EUR
[***]
|
2010
|
EUR
[***]
|
2011
and each calendar year thereafter
|
EUR
[***]
|
(i) |
[***]%
(six percent) in the event of a sale by COMPANY (or its Affiliates,
Sublicensees and Sales Partners) to end users,
and
|
(ii) |
[***]%
(twelve percent) in the event of a sale by COMPANY (or its Affiliates,
Sublicensees and Sales Partners) to distributors (that are not Sales
Partners)
|
(a) |
to
Regulatory Authorities in connection with regulatory filings, provided
that such disclosures may be made only to the extent reasonably necessary
to make such filings;
|
(b) |
to
Sublicensees, agents, consultants, attorneys and/or other Third Parties
for the development, manufacturing and/or marketing of Licensed Products
(or for such parties to determine their interest in performing such
activities) in accordance with this Agreement on the condition that
such
Sublicensees and Third Parties agree to be bound by the confidentiality
obligations contained in this
Agreement;
|
(c) |
if
such disclosure is required by law or regulation (including without
limitation by rules or regulations of any securities exchange), provided
that prior to such disclosure, the obligated Party promptly notifies
the
disclosing Party of such requirement, and provided further that the
obligated Party will furnish only that portion of the disclosing
Party’s
Confidential Information that it is legally required to
furnish.
|
If
to GI:
|
Garching
Innovation GmbH
|
Marstallstrasse
8
|
|
D-80539
Muenchen/Germany
|
|
Fax:
+49/89/290919-99
|
|
If
to COMPANY:
|
Rosetta
Genomics Ltd.
|
10
Plaut Street
|
|
Rehovot
76706, Israel
|
|
Fax
+97289484766
|
For
COMPANY:
|
Chief
Executive Officer
|
|
For
GI:
|
Managing
Director
|
(i) |
whether
a Licensed Product would, absent the license granted hereunder, infringe
the MPG Patent Rights, or
|
(ii) |
whether
a Licensed Product is sold in a Combination Product form,
or
|
(iii) |
the
determination of a MPG Patent Rights Value in the event of sublicenses
for
pooled technologies, or
|
(iv) |
the
determination of a fair market
value,
|
Garching
Innovation GmbH
|
Rosetta
Genomics Ltd.
|
||
By:
|
By:
|
||
Name:
|
Dr.
Jörn Erselius
|
Name:
|
Amir
Avniel
|
Title:
|
Managing
Director
|
Title:
|
Chief
Executive Officer
|
Date:
|
Date:
|
· |
[***],
|
· |
[***],
|
· |
[***]
and
|
· |
[***].
|
1 |
Definitions
.
In addition to those terms defined elsewhere in this Agreement, each
of
the following terms shall have the meaning set forth opposite it,
unless
the context otherwise requires:
|
1.1 |
“Affiliate
”
of a Party or other entity shall mean any entity that, directly or
indirectly, is controlled by, controls, or is under common control
with
such Party including (i) any corporation or business entity of which
at
least fifty percent (50%) or the maximum ownership interest permitted
by
applicable law in the country where such entity exists, whichever
is less,
of the securities or other ownership interests representing the equity
or
right to receive profits, the voting stock, general partnership interest
or power to direct the affairs of such entity, are owned, controlled
or
held, directly or indirectly, by a Party
or
such entity
;
(ii) any corporation or business entity which, directly or indirectly,
owns, controls or holds at least fifty percent (50%) or the maximum
ownership interest permitted by law in the country where a Party
or such
entity exists, whichever is less, of the securities or other ownership
interests representing the equity or right to receive profits, voting
stock, general partnership interest or power to direct the affairs
of, a
Party or such entity; or (iii) any corporation or business entity
of which
a Party or such entity has the right to acquire, directly or indirectly,
at least fifty percent (50%) or the maximum ownership interest permitted
by law in the country where such entity exists, whichever is less,
of the
securities or other ownership interests representing the equity or
right
to receive profits, voting stock, general partnership interest or
power to
direct the affairs, thereof.
|
1.2 |
“
Combination
Product
”
shall mean a product, substance or device which is not an internal
development of Rosetta derived from the Research Results, and which
incorporates a product based on the Patent Assets and at least one
other
essential additional ingredient, substance, compound or element which
either (i) when administered to a patient, has a therapeutic or
prophylactic clinical effect, either directly or by acting synergistically
with other compounds or substances contained in such product, (ii)
is
required for delivery of another compound or substance contained
in such
product or (iii) otherwise enhances the effect another compound or
substance contained in such
product.
|
1.3 |
“
Customers
”
shall mean patients, hospitals, medical institutions, health funds,
pharmacies and other retailers, provided that they are not an Affiliate
of
Rosetta Genomics.
|
1.4 |
“
First
Commercial Sale
”
shall mean the first for-profit sale of a Product or a Service by
Rosetta
Genomics or its Affiliates in any country in the Territory, for end
use or
consumption; provided, that, any sale to an Affiliate or Sublicensee
will
not constitute a First Commercial Sale unless the Affiliate or Sublicensee
is the last entity in the distribution chain of the Product or
Service.
|
1.5 |
“
Intellectual
Property
”
shall mean all intellectual property, whether or not protected by
patents
or patent applications, including, but not limited to, trade secrets,
procedures, protocols, inventions, databases, know how, inventions,
improvements, discoveries, conceptions, ideas, techniques, designs,
products, developments, specifications, methods, drawings, diagrams,
models, software programs, data, data analysis, data interpretation,
written reports, and all rights therein including copyright, patent
rights, database rights, rights in designs and all registrations
and
applications therefore, and all continuations, continuations in part,
divisional applications, and renewals of any of the foregoing, in
any part
of the world.
|
1.6 |
“
Net
Sales
”
shall mean the aggregate gross amount invoiced with respect to Products
sold or provided in the Territory, by Rosetta or its Affiliates to
Customers, after deducting (if not previously deducted from the amount
invoiced):
|
(i) |
quantity
and/or cash discounts directly related to the sale of the Product;
|
(ii) |
customs
duties, VAT or any other sales taxes or levies to the extent applicable
to
the sale or export of Products or Services and not collected separately
from the counterparty to the sale;
|
(iii)
|
recalls,
credits and allowances on account of returned or rejected products,
including, but not limited to, allowance for breakage or
spoilage;
|
(iv) |
payments
paid in connection with transporting, packaging and insuring the
Products
and appearing separately on invoices; and
|
(v) |
amounts
not actually collected;
|
(i) |
In
any transactions between Rosetta and an Affiliate, Net Sales shall
be
[***], in each case, after appropriate deductions as set forth
above;
|
(ii) |
In
the event that Rosetta or its Affiliate receives non-monetary
consideration for any transaction, Net Sales shall be calculated
based on
the fair market value of such consideration, except that with respect
to
Net Sales received in the form of equity,
[***]
|
(iii) |
In
the event a Product is sold by Rosetta, or an Affiliate of Rosetta
in the
form of a Combination Product, Net Sales from such Combination Product,
for purposes of determining Royalties, shall be determined by multiplying
the actual Net Sales of such Combination Product during the applicable
royalty reporting period, by the fraction [***]. In the event that
such
average sale price cannot be determined for both the product based
on the
Patent Rights and all other ingredients, substances, compounds or
elements
included in the Combination Product, Net Sales for the purpose of
determining royalties shall be calculated by multiplying the Net
Sales of
the Combination Products by the fraction [***]. In such event, the
parties
shall negotiate in good faith to arrive at a determination of the
respective fair market values of the product based on the Patent
Assets
and all other additional ingredients included in the Combination
Product.
|
1.7 |
“
Patent
Rights
”
shall mean United States and foreign patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention) which as of the Effective
Date
or at any time during the term of this Agreement relate in any way
to
Research Results, including all certificates of invention, divisions,
continuations, continuations-in-part, reissues, renewals, extensions,
supplementary protection certificates or the like of any such patents
and
current and future patent applications, and any counterparts thereof
which
may be filed in other countries. Any Patent Rights and any subsequent
changes thereto shall be attached hereto as Schedule 1.7, provided,
however, that the failure to include the then current Patent Rights
in
Schedule 1.7 from time to time shall not affect the Parties’ respective
rights and obligations under this Agreement.
|
1.8 |
“
Products
”
-
any products developed and/or manufactured based upon and/or in connection
with the Patent Rights.
|
1.9 |
“
Proprietary
Information
”
shall mean any and all scientific, clinical, regulatory, marketing,
financial and commercial information or data, including the terms
of this
Agreement, whether communicated in writing, orally or by any other
means,
which is provided by one Party to the other Party in connection with
this
Agreement.
|
1.10 |
“
Research
Results
”
shall mean any and all microRNAs expression profiling data measured
on the
Materials, and its analysis pertaining to potential diagnostic
application, as determined in the course of the performance of the
Research Project.
|
1.11 |
“
Rosetta
MicroRNAs
”
shall mean any novel human and non-human (including virus and bacteria)
microRNAs predicted or which may be predicted by
Rosetta.
|
1.12 |
“
Sub
License
”
-
shall mean any right granted, licence and/or sublicense given, or
agreement entered into, by Rosetta to or with any other person or
entity,
permitting any use of the Research and/or the Patents (or any part
thereof) for the development and/or manufacture and/or marketing
and/or
distribution and/or sale of Products;
|
1.13 |
“
Sublicense
Income
”
shall mean all royalties, license fees and milestone payments paid
by a
Sublicensee to Rosetta in consideration of the grant of a Sublicense
to
such Sublicensee. [***].
|
1.14 |
“
Sub
Licensee
”
shall mean a sublicensee who was granted a Sublicense from Rosetta
Genomics.
|
1.15 |
“
Territory
”
shall mean all the countries in the
world.
|
1.16 |
“
Valid
Claim
”
means a claim of an issued and unexpired patent included within the
Patent
Rights, which has not been revoked or held unenforceable or invalid
by a
decision of a court or other governmental agency of competent
jurisdiction, unappealable or for which an appeal has not been filed
within the time allowed for appeal, and which has not been disclaimed,
denied or admitted to be invalid or unenforceable through reissue
or
disclaimer or otherwise.
|
2 |
The
Research Project.
|
2.1 |
The
parties will collaborate in the performance of the Research Project,
pursuant to the following terms and
conditions:
|
2.2 |
The
Research Project shall include multiple trials as agreed upon by
the
Parties (the Trials”), each Trial shall be performed in accordance with a
protocol to be prepared by the company for each Trial and agreed
upon by
Hadasit (the “Protocol”). Each Protocol will be attached to this agreement
as Appendix A1, A2 and so forth and constitute an integral part of
this
Agreement. The remuneration for advisory services provided during
each
Trial shall be agreed upon by both Parties in advance and shall be
specified in a budget schedule, executed by both Parties for each
Trial
and attached to the Trial’s Protocol (the “Budget Schedule”). The Budget
Schedule of each Trial shall be attached to this agreement as Appendix
B1,
B2 and so forth and constitute an integral part of this Agreement.
the
Protocol and the Budget Schedule collectively hereinafter: the “Protocol
Plan”; The Protocol Plan for each Trial shall constitute an integral part
of this Agreement.
|
2.3 |
The
first Trials shall be conducted according to the Protocol attached
to this
Agreement as Appendix A1 Appendix A2, and constituting an integral
part
thereof ("Protocol A1" and “Protocol A2”). Hadasit, HMO and Rosetta shall
perform the activities mentioned in Protocol A1 and Protocol A2.
Hadasit
shall procure the performance of the the activities designated to
it in
Protocol A1 and in any other Protocol, by
HMO.
|
2.4 |
Rosetta
shall oversee the conduct of the Research Project. Hadasit shall
designate
a senior researcher for each Protocol. (the “Investigator”) to collaborate
with Rosetta in carrying out HMO’s activities related to the Research
Project.
|
2.5 |
Either
party may conduct additional research projects, independently or
with
other third parties, in parallel to or following the Research Project,
and
nothing in this Agreement shall prevent a party from engaging in
any
additional research, provided that it fulfills its obligations
hereunder.
|
2.6 |
Each
party represents and warrants that it is legally authorized and entitled
to assume all responsibilities under this
Agreement.
|
2.7 |
It
is a condition precedent to the validity of this Agreement with respect
to
each Trial that this Agreement shall come into effect with respect
to each
Trial only after approval is received from: the Helsinki Committee
and the
HMO’s Committee for Research Contracts with Commercial Companies. The
approval of the Helsinki Committee shall approve all the following:
(a)
the Protocol of the Trial (b) the transfer of the Study Specimens
to
Rosetta, (c) the use of the Study Specimens under the study to be
conducted by Rosetta (the “Study”) (d) the Study. The performance of each
Trial shall commence only after the Helsinki Committee approves the
above
with respect to such Trial.
|
2.8 |
Both
parties undertake to perform the Research Project, in compliance
with the
following: (1) the Ministry Guidelines, as defined herein; (2) the
instructions and the terms specified in the approval of the Helsinki
Committee; and (3) the applicable laws, rules and regulations regulating
such studies which are applicable in Israel. The “Ministry
Guidelines”
the
MOH Guidelines titled “Clinical Trials of Human Subjects” issued in
January 2006 including appendix 4 to the guidelines. Rosetta shall
use the
Study Specimens solely for the purpose of the Study and not for any
other
purposes whatsoever.
|
2.9 |
Rosetta
shall use and dispose of the Study Specimens in accordance with the
State
of Israel’s laws, rules, regulations and guidelines regulating and/or
applicable and/or relevant to the use of the Study Specimens under
the
Study and to their disposal following the completion of the Study.
|
2.10 |
Rosetta
shall keep full and accurate records with respect to the use and
to the
dates and manner of disposal of each and every Study Specimen and
shall
provide such records to the Fund for examination, upon the Fund’s request.
|
2.11 |
Notwithstanding
the above, nothing contained herein shall be construed as a warranty
by
Hadasit and/or the HMO and/or any other party involved in the Research
Project, that the Research Results will be useful or commercially
exploitable or of any value whatsoever. In addition, and without
derogating from the aforementioned, the above parties disclaim all
warranties, either express or implied, with respect to any products
that
incorporate, integrate or are designed based in whole or part, on
the
Research Results (
“New
Products
”),
including without limitation implied warranties of merchantability,
efficacy and fitness for a particular purpose.
|
3 |
Permitted
Uses of Information, Rights to the Research Results and Intellectual
Property.
|
3.1 |
Hadasit
may use the information provided by Rosetta regarding the results
of the
Research Project under the terms of this agreement for research and
academic purposes only. Notwithstanding the confidentiality obligations
of
Section 5, Hadasit may publish the information in accordance with
Section 6 below.
|
3.2 |
All
right, title and interest in and to the Research Results and any
intellectual property deriving there from, whether they shall be
protected
by intellectual property rights or not, shall be jointly owned by
and vest
with both Hadasit and Rosetta.
|
3.3 |
Each
party shall remain the sole owner of its own Intellectual Property.
It is
hereby expressly agreed that, nothing in this Agreement shall constitute
or be considered as constituting a transfer or license of any Intellectual
Property by one party to the other.
|
4 |
Patents
|
4.1 |
Filing,
Prosecution and Maintenance of Patent Applications or
Patents
|
4.1.1 |
Patent
Rights
.
Rosetta, acting through patent counsel of its choice, shall be
responsible, at its sole expense, for the preparation, filing, prosecution
and maintenance of all Patent Rights in Rosetta’s and Hadasit’s name. At
Rosetta’s request, Hadasit shall cooperate with Rosetta in all reasonable
respects in connection with such preparation, filing, prosecution
and
maintenance of Patent Rights.
|
4.1.2 |
Review
of Patent Applications.
In
each case, the Rosetta shall give Hadasit an opportunity to review
the
text of the application before filing, shall consult with Hadasit
with
respect thereto, and shall supply Hadasit with a copy of the application
as filed, together with notice of its filing date and serial number.
Rosetta shall keep Hadasit advised of the status of the actual and
prospective patent application filings and upon the request of Hadasit,
shall provide advance copies of any papers related to the filing,
prosecution, or maintenance of such patent application filings.
|
4.1.3 |
Right
of Hadasit to Prosecute and Maintain Patents
.
Rosetta shall give notice to Hadasit of any desire to cease prosecution
and/or maintenance of the Patent Rights and, in such case, shall
permit
Hadasit, at its sole discretion, to continue prosecution and/or
maintenance at its own expense. In the event that Hadasit continues
prosecution and/or maintenance at its own expense, Rosetta shall
have no
rights to any such patent/patent application and any license granted
to it
for such patent/patent application shall terminate. Provided however
that
in the event that Roestta’s notice of its desire to cease prosecution
and/or maintenance related to certain Patent Rights and/or certain
countries, then the license shall terminate only with regard to those
patent rights and/or in those countries.
|
4.2 |
Patent
Office Proceedings
.
Hadasit shall reasonably cooperate with Rosetta with respect to any
patent
office proceeding.
|
4.3 |
Enforcement
and Defense
.
|
4.3.1 |
Each
Party shall promptly give the other Party notice of any infringement
in
the Territory of any patent application or patent included in the
Patent
Rights that comes to such Party’s attention. The Parties will thereafter
consult and cooperate fully to determine a course of action, including,
without limitation, the commencement of legal action by either Party.
Rosetta, upon notice to Hadasit, shall have the first right to initiate
and prosecute such legal action at its own expense and in the name
of
Hadasit and Rosetta, as applicable, or to control the defense of
any
declaratory judgment action relating to the Patent Rights. Rosetta
shall
promptly inform Hadasit if Rosetta elects not to exercise such first
right, and Hadasit thereafter shall have the right, in its discretion,
to
initiate and prosecute such action or to control the defense of such
declaratory judgment action (“Manage Proceedings”) in the name of Hadasit
and Rosetta. In the event that Rosetta elects not to Manage Proceedings
and Hadasit elects to Manage Proceedings, Rosetta shall have no rights
to
any such patent/patent application and any license granted to it
for such
patent/patent application shall terminate. Provided however that
in the
event elected not to Manage Proceedings only with regard to certain
patent
applications and/or certain countries, and Hadasit Managed Proceedings
for
such patent applications and/or in such countries, then the license
will
terminate only with regard to those patent assets and/or in these
countries. In no event shall Rosetta enter into any settlement that
would
adversely affect the Patent Rights in any material respect without
the
prior written consent of Hadasit.
|
4.3.2 |
For
any such legal action or defense, in the event that any Party is
unable to
initiate, prosecute, or defend such action solely in its own name,
the
other Party shall join such action voluntarily and shall execute
all
documents reasonably necessary for the Party to prosecute, defend
and
maintain such action. In connection with any such action, the Parties
will
cooperate and will provide each other with any information or assistance
that either reasonably may request. Each Party shall keep the other
informed of developments in any such action or proceeding, including,
to
the extent permissible by law, the status of any settlement negotiations
and the terms of any offer related thereto.
|
4.3.3 |
Any
recovery obtained by Rosetta or Hadasit in any such action or proceeding
shall be shared as follows in the following order of
priority:
|
4.3.3.1 |
the
Party that initiated and prosecuted or maintained the defense of,
the
action, shall recoup all of its costs and expenses incurred in connection
with the action, whether by settlement or
otherwise;
|
4.3.3.2 |
the
other Party shall next recoup all of its costs and expenses incurred
in
connection with the action, whether by settlement or
otherwise;
|
4.3.3.3 |
if
Hadasit initiated and prosecuted, or maintained the defense of, the
action, the amount of any recovery remaining then shall be retained
by
Hadasit; and
|
4.3.3.4 |
if
Rosetta initiated and prosecuted, or maintained the defense of, the
action, the amount of any recovery remaining shall be retained by
Rosetta,
except that Hadasit shall receive a portion equivalent to the royalties
they would have received on such remaining amount if such amount
were
deemed Net Sales.
|
4.4 |
Patent
Term Extensions and Supplemental Protection Certificates
.
The Parties shall cooperate in obtaining patent term extensions or
supplemental protection certificates or their equivalents in any
country
in the Territory where applicable and where desired by Rosetta. If
elections with respect to obtaining such extension or supplemental
protection certificates are to be made, Rosetta shall have the first
right
to make the election, in consultation with
Hadasit.
|
5 |
Advisory
Costs of Research.
|
6 |
Rosetta
agrees to bear the advisory related to the performance of the experiments
in relation to the Research Project, all as indicated in the Budget
Schedule of each Trial. The Budget Schedule of the first two Trials
specified in Protocol A1 and Protocol A2, is attached as Appendix
B1 and
Appendix B2.
|
7 |
Confidentiality.
|
7.1 |
Non-Disclosure
and Non-Use Obligations
|
7.2 |
All
Proprietary Information disclosed by one Party to the other Party
hereunder shall be maintained in confidence and shall not be disclosed
to
any Third Party or used for any purpose except as expressly permitted
herein without the prior written consent of the Party that disclosed
the
Proprietary Information to the other Party. The foregoing non-disclosure
and non-use obligations shall not apply to the extent that such
Proprietary Information:
|
7.2.1 |
is
known by the receiving Party (including the HMO in the case of Hadasit)
at
the time of its receipt, and not through a prior disclosure by the
disclosing Party, as documented by contemporaneous written
records;
|
7.2.2 |
is
in the public domain or knowledge;
|
7.2.3 |
is
subsequently disclosed to a receiving Party (including the HMO in
the case
of Hadasit) by a Third Party who may lawfully do so and is not under
an
obligation of confidentiality to the disclosing Party;
or
|
7.2.4 |
is
developed by the receiving Party (including the HMO in the case of
Hadasit) independently of Proprietary Information received from the
other
Party, as documented by contemporaneous research and development
records.
|
7.3 |
Permitted
Disclosure of Proprietary Information
.
|
7.4 |
Notwithstanding
Section 7.1, a Party receiving Proprietary Information of another
Party may disclose such Proprietary
Information:
|
7.4.1 |
to
governmental or other regulatory agencies in order to obtain patents
on
Products, or to gain approval to conduct clinical trials or to market
Products, but such disclosure may be only to the extent reasonably
necessary to obtain such patents or
authorizations;
|
7.4.2 |
to
its respective agents, consultants, Affiliates, sublicensees and/or
other
Third Parties for the research and development, manufacturing and/or
marketing of Products (or for such parties to determine their interests
in
performing such activities) on the condition that such Third Parties
agree
to be bound by the confidentiality obligations contained in this
Agreement; or
|
7.4.3 |
if
required to be disclosed by law or court order, provided that notice
is
promptly delivered to the disclosing Party in order to provide an
opportunity to challenge or limit the disclosure obligations;
provided
,
however
,
without limiting any of the foregoing, it is understood that either
Party
or its Affiliates may make disclosure of this Agreement and the terms
hereof in any filings required by the SEC, may file this Agreement
as an
exhibit to any filing with the SEC and may distribute any such filing
in
the ordinary course of its business. However, to the maximum extent
allowable by SEC rules and regulations, the Parties shall be obligated
to
maintain the confidentiality obligations set forth herein and shall
redact
any confidential information set forth in such
filings.
|
7.5 |
Publication
.
During the term of this Agreement, Hadasit and Rosetta Genomics each
acknowledge the other Party's interest in publishing its results
related
to the Products to obtain recognition within the scientific community
and
to advance the state of scientific knowledge. Each Party also recognizes
the mutual interest in obtaining valid patent protection and in protecting
business interests and trade secret information. Consequently, either
Party, its employees or consultants wishing to make a publication
shall
deliver to the other Party a copy of the proposed written publication
or
an outline of the proposed oral disclosure at least sixty (60) days
prior
to submission for publication or presentation. The other Party shall
have
the right (a) to propose modifications to the publication for scientific
reason, patent reasons, trade secret reasons or business reasons
or (b) to
request a reasonable delay in publication or presentation in order
to
protect patentable information. If the other Party requests a delay,
the
publishing Party shall delay submission or presentation for a period
of
thirty (30) days to enable patent applications protecting each Party's
rights in such information to be filed. Upon expiration of such thirty
(30) days, the publishing Party shall be free to proceed with the
publication or presentation, but may not include Proprietary Information
of the other Party unless it is within an exception of Section 7.1.1
through 7.1.4. If the other Party requests modifications to the
publication, the publishing Party shall edit such publication to
prevent
disclosure of trade secret or Proprietary Information prior to submission
of the publication or presentation.
|
7.6 |
Notwithstanding
anything to the contrary herein, Rosetta shall not use the names
and/or
logos of Hadasit and/or the HMO, and shall not disclose their involvement
in the Research without both their prior written approval, all except
for
(a) references to scientific publications which are already in the
public
domain at the time of executing this Agreement and (b) applications
for
regulatory approvals to official authorities, including securities
authorities, and (c) as requested by regulatory authorities as required
by
law or applicable regulation. Subject to the foregoing, Rosetta shall
include appropriate acknowledgement and credit to Hadasit and/or
the HMO
and their employees in any publication relating to the Research in
whatever media, including application(s) to official authorities
or
presentations to potential
investors.
|
8 |
Term
and Termination.
|
8.1 |
Each
Trial may be terminated according to the termination section provided
in
each Protocol related to such Trial.
|
8.2 |
The
parties’ respective rights, obligations and duties under this Agreement
which by their nature extend beyond the expiration or termination
hereof,
shall survive any expiration or termination of this
Agreement.
|
9 |
Claims,
Liability And Insurance
|
9.1 |
Rosetta
shall bear sole responsibility and bear any payment and/or compensation
and/or liability for any damage whatsoever caused to any person,
directly
or indirectly, as a result of the performance of any of the Trials
or the
Research Project. Provided however that Rosetta shall not be responsible
or liable to pay any payments or compensation that are the result
of a
negligent act or willful misconduct of Hadasit, HMO or the Investigator.
|
9.2 |
Rosetta
shall indemnify and hold harmless, Hadasit, HMO, the Investigators
and
their employees and/or agents and/or officers and/or representatives
(hereinafter: “The Beneficiaries”) from and against all claims, demands,
causes of action and suits of whatsoever kind or nature based on
damages
claimed to have been caused as a result of the performance of any
of the
Trials and/or the Research Project and/or the Study and/or any procedures
prescribed in any Trial Protocol and/or pertaining to the Research
Project
and/or the commercialization of the New Products (“the Loss”); provided,
however, that:
|
9.2.1 |
The
Loss was not caused as a result of negligence or willful misconduct
of
Hadasit, HMO and/or the Investigator and/or their employees and
agents.
|
9.2.2 |
The
Loss was not caused as a result of Hadasit’s and/or HMO’s and/or the
Investigator's failure to perform the relevant Trial in accordance
with
the Trial's Protocol.
|
9.2.3 |
Hadasit
notified Rosetta, within 30 working days from the day Hadasit acquired
such knowledge, of any claim, or injury relating to the Research
Project.
|
9.2.4 |
Rosetta
shall pay all expenses associated with any proceedings taking place
as a
result of a complaint and/or legal claim submitted by any person
in
respect of the Loss.
|
9.3 |
Without
derogating from its above liabilities, Rosetta shall cover the
beneficiaries with an insurance policy, for an amount similar to
the
amount with which the State of Israel insures its physicians, against
third party’s claims and/or
demands.
|
9.4 |
Neither
party shall be liable (whether under contract, tort (including negligence)
or otherwise) to the other party, or any third party for any indirect,
incidental or consequential damages, including, without limitation,
any
loss or damage to business earnings, lost profits or goodwill and
lost or
damaged data or documentation, suffered by any person, arising from
and/or
related with and/or connected to this agreement even if such party
is
advised of the possibility of such
damages.
|
10 |
License
|
11 |
Royalties
|
11.1 |
Subject
to the terms and conditions of this Agreement, and in consideration
of the
rights granted by Hadasit hereinabove, Rosetta Genomics shall pay
to
Hadasit royalties in an amount equal to the following percentages
of
aggregate annual Net Sales of any Product in the Territory in each
Royalty
Year a royalty of [***]% ([***] percent) of Net Sales by or on behalf
of
Rosetta.
|
11.2 |
In
the event Rosetta is obligated, pursuant to agreements with third
parties,
to pay Hadasit and such other third parties royalties with respect
to a
Product, in a total amount exceeding [***]% ([***] percent) of Net
Sales,
then Rosetta shall be entitled to reduce the amount of royalties
payable
to Hadasit hereunder according to the following principals: (a) Rosetta
shall calculate the total amount of royalties it is obligated to
pay
Rosetta and the other third parties (the "Total Royalties Amount");
(b)
Rosetta shall calculate the difference between the Total Royalties
Amount
and [***]% (the "Difference") ;(c) Rosetta shall calculate the relative
share of Hadasit’s royalties from the Total Royalties Amount ("Hadasit
Royalties Share") and (d) Rosetta shall be entitled to reduce Hadasit’s
amount of Royalties by an amount equal to the product of Hadasit’s
Royalties Share multiplied by the Difference. Provided, however,
that in
no event shall Hadasit’s Royalties be reduced to less than
[***]%.
|
11.3 |
If
a Product contains or is designed to detect both
micro
RNA sequences covered by a Valid Claim of the Patent Rights and micro
RNA
sequences that are not covered by a Valid Claim of the Patent Rights,
then
Net Sales of such Product shall be multiplied by the ratio of (x)
the
number of micro RNA sequences covered by a Valid Claim of the Patent
Rights in a given Product to (y) the total number of micro RNA sequences
included in such given Licensed Product to determine the portion
of the
value of the micro RNA sequences
Product.
|
11.4 |
Royalties
on Net Sales, at the rates set forth above, shall accrue as of the
date of
the applicable First Commercial Sale in any country and shall continue
and
accrue on Net Sales (a) in a country where a Valid Claim included
within
the Patent Rights exists, until the later of the date of expiry of
such
patent in such country or the expiry of the period of [***] ([***])
years
commencing with the date of the First Commercial Sale (b) in any
other
country, until the expiry of the period of [***] ([***]) years commencing
with First Commercial Sale in such
country.
|
11.5 |
Following
the expiration of the last applicable period set forth in subsection
(v)
above, (a) Rosetta Genomics shall have the right under this Agreement
to
directly and indirectly (through sublicensees or otherwise) continue
to
manufacture, use, market, commercialize, distribute and sell and
otherwise
dispose of Products, throughout the world, without having to pay
royalties
or any other consideration to Hadasit and (b) Hadasit shall not grant
any
exclusive license to its part in the Research Results and/or the
Patent
Rights to any Third Party for the
Field.
|
11.6 |
Sublicense
Income
.
Rosetta Genomics will pay Hadasit the following percentages of all
Sublicense Income received from Sublicensees in each Calendar
Quarter:
|
11.6.1 |
[***]%
of Sublicense Income if Sublicense was granted within [***] as of
the
Effective Date.
|
11.6.2 |
[***]%
of Sublicense Income if Sublicense was granted during the period
between
[***] as of the Effective Date.
|
11.6.3 |
[***]%
of Sublicense Income if Sublicense was granted during at any date
after
[***] as of the Effective Date.
|
11.7 |
Reports;
Payment of Royalty
.
Commencing with the first Calendar Quarter in which royalty or other
payments are due, Rosetta shall furnish to Hadasit a quarterly written
report for such Calendar Quarter (the “Quarterly Report”), each showing
the sales of all Products subject to royalty or other payments sold
by
Rosetta Genomics and its Affiliates and all Sublicense Income received
during the reporting period and the royalties or other payments payable
under this Agreement. Quarterly Reports shall be due on the sixtieth
(60th) day following the close of each Calendar Quarter. Royalties
and
other payments shown to have accrued by each Quarterly Report, if
any,
shall be due and payable on the date such Quarterly Report is due.
Rosetta
shall keep (and shall require its Affiliates to keep) complete and
accurate records in sufficient detail to enable Net Sales and the
royalties and other payments payable hereunder, to be determined,
reconciled and verified.
|
11.8 |
Audits
.
|
11.8.1 |
Upon
the written request of Hadasit and not more than once in each Calendar
Year, Rosetta shall permit an independent certified public accounting
firm
of recognized standing in Israel, selected by Hadasit and reasonably
acceptable to Rosetta, to have access during normal business hours
at
times mutually convenient to the Parties and upon reasonable notice
to
Rosetta to such of the records of Rosetta as may be reasonably necessary
to verify the accuracy of the royalty and other payment reports hereunder
for any Royalty Year, for a period of up to three (3) years from
the
completion of such Royalty Year. The accounting firm shall report
to
Hadasit only the results of the work performed as contemplated by
this
Section 11.7.1 and the details concerning any
discrepancies.
|
11.8.2 |
If
such accounting firm concludes that additional royalties or other
payments
were owed during such Royalty Year , Rosetta shall pay the additional
royalties or other payments (plus accrued interest at the LIBOR rate
as in
effect on the date that such payment was first due, plus one and
[***]%)
percent) within [***] of the date Hadasit delivers to Rosetta such
accounting firm’s written report so concluding. In the event such
accounting firm concludes that Rosetta overpaid amounts during such
period, Hadasit shall reimburse Rosetta the amount of such overpayment
within [***] of receipt of such accounting firm’s written report. The fees
charged by such accounting firm shall be paid by
Hadasit.
|
11.8.3 |
Each
Party reviewing information under this Section 11.7 shall treat all
financial information subject to review under this Section 11.7 in
accordance with the confidentiality provisions of this Agreement
and shall
request a confidentiality agreement to the same effect from any accounting
firm reviewing information under this Section 11.7.
|
11.9 |
Payments
.
All payments to be made under this Agreement shall be made in New
Israeli
Shekels and shall be paid by bank wire transfer or by automated
clearinghouse (electronic funds transfer) in immediately available
funds
to such bank account designated in writing by each Party to the other
from
time to time. Bank charges necessary for making the bank transfer
shall be
incurred by the Party making the
transfer.
|
11.10 |
Save
for the circumstances set out in section 11.8.2 above, any amount
payable
hereunder which has not been made upon its due date of payment, shall
bear
interest from the date such payment is due until the date of its
actual
payment, at the maximum interest charged by Bank Leumi Le Israel
B.M. for
unapproved overdrafts.
|
12 |
Miscellaneous
.
|
12.1 |
Assignment.
No party to this Agreement shall be entitled to transfer or assign
its
rights or obligations under this Agreement, unless with the prior
written
consent of the other party, which shall not be unreasonably withheld;
provided however that an assignment resulting from merger and/or
acquisition of either party shall not require the consent of the
other
party, in the event that the surviving entity is committed to such
assigning party’s obligations hereunder. Notwithstanding the
aforementioned, THM shall be entitled to assign it’s rights and
obligations hereunder to any legal entity which was established in
connection with or for the benefit of the
Hospital.
|
12.2 |
No
Agency. It is hereby expressly declared and agreed that this Agreement
in
no way establishes any principal-agent, employer-employee, or partnership
relations between the parties. Nothing in this Agreement shall be
construed as granting either party the power or authority to act
for or on
behalf of the other party, to create any undertakings on behalf of
the
other party, or to bind or commit the other party in respect to any
such
undertakings, except as set forth herein or as otherwise agreed to
in
writing between the parties prior to such
act.
|
12.3 |
Governing
Law; Venue. This Agreement shall be governed by and construed in
accordance with the laws of the State of Israel. The competent courts
of
Jerusalem shall have the exclusive jurisdiction to adjudicate on
any
disputes arising hereunder.
|
12.4 |
Entire
Agreement. This Agreement, including all exhibits attached hereto,
constitutes the entire understanding of the parties and supersedes
all
oral or written representations, agreements and understandings between
the
parties with respect to the subject matter hereof, all of which shall
become, upon signature of this Agreement,
void.
|
12.5 |
Amendments;
Interpretation. No modification or amendment of this Agreement may
be made
except in a written instrument duly signed by all parties. The headings
in
this Agreement are inserted for convenience of reference only and
shall
not affect its interpretation. The preamble and annexes to this Agreement
form an integral part of this Agreement. In the event of any conflict
between the terms of this Agreement and the terms of any Protocol
and/or
Budget Schedule, the terms of this Agreement shall prevail.
|
12.6 |
Severability.
If any non-material condition, term or covenant of this Agreement
shall at
any time be held to be void, invalid or unenforceable such condition,
covenant or term shall be construed as severable and such holding
shall
attach only to such condition, covenant or term and shall not in
any way
affect or render void, invalid or unenforceable any other condition,
covenant or term of this Agreement, and this Agreement shall be carried
out as if such void, invalid or unenforceable term were not embodied
herein.
|
12.7 |
Waivers.
The failure at any time of either Party to enforce any of the terms
or
conditions or any right or to exercise any option of this Agreement
will
in no way be construed to be a waiver of such terms, conditions,
rights or
options, or in any way to affect the validity of this Agreement.
A waiver
by a party of any of its rights under this Agreement shall not be
effective unless made by a written instrument duly signed by such
party,
and shall not be deemed a waiver of any other right
hereunder.
|
12.8 |
Notices.
Any notice sent by one party to the others to the addresses set forth
below shall be considered as having reached its destination, if it
was
delivered by hand, at the time of its delivery; if it was sent by
registered mail, within 96 hours from the time it was so dispatched;
and
if it was sent by facsimile, within 48 hours from the receipt of
the
confirmation of proper transmission of the
notice.
|
If
to Rosetta:
|
10
Plaut Street, Rehovot, 76706, Israel
Fax:
972-8-9484766
Attention:
Business Development
With
a copy to General Counsel
|
If
to Hadasit:
|
POB
12000, Jerusalem 91120, Israel
Fax:
+972-2- 6437712
Attention:
VP Finance and Contracts
With
a copy to Legal Counsel
|
13 |
IN
WITNESS WHEREOF, the parties have set their signatures hereunto as
of the
date first above written.
|
ROSETTA
GENOMICS LTD.
By:
Name:
Title:
|
_____________________________________
By:
Name:
Title:
|
a.
|
that
can be demonstrated to have been in the public domain or publicly
known
and readily available to the trade or the public prior to the date
of the
disclosure; or
|
b.
|
that
can be demonstrated, from written records to have been in the recipient's
possession prior to the date of disclosure;
or
|
c.
|
that
becomes part of the public domain or publicly known by publication
or
otherwise, not due to any unauthorized act by the recipient;
or
|
d.
|
that
is demonstrated from written records to have been developed by or
for the
receiving party without reference to confidential information disclosed
by
the disclosing party.
|
that
is required to be disclosed by law, government regulation or court
order.
|
If to Company: |
Rosetta
Genomics Ltd.
|
If to JHU: |
Technology
Transfer
|
THE
JOHNS HOPKINS UNIVERSITY
|
ROSETTA
GENOMICS LTD
|
/s/
Jill A. Tarzian
Sorensen
|
/s/
Amir
Avniel
|
Jill
A. Tarzian Sorensen
|
Name:
Amir Avniel
|
Executive
Director
|
Title:
CEO
|
Johns
Hopkins Technology Transfer
|
Rosetta
Genomics
|
August
2, 2006
|
August
2, 2006
|
(Date)
|
(Date)
|
1 st anniversary: |
[***]
dollars ($[***]).
|
2 nd anniversary: | [***] dollars ($[***]). |
3 rd anniversary: | [***] dollars ($[***]). |
4 th anniversary: | [***] dollars ($[***]). |
5 th anniversary: | [***] dollars ($[***]). |
6 th anniversary and thereafter: | [***] dollars ($[***]). |
PRODUCT
ID
|
PRODUCT
NAME
|
*
JHU
REFERENCE
|
1
st
COMMERCIAL SALE DATE
|
TOTAL
NET
SALES/SERVICES
|
ROYALTY
RATE
|
AMOUNT
DUE
|
Subsidiary | Jurisdiction | ||
Rosetta Genomics Inc. | Delaware Corporation. | ||
|
|
/S/
KOST FORER GABBAY &
KASIERER
|
|
Tel
Aviv, Israel
September
_, 2006
|
KOST
FORER GABBAY & KASIERER
A
Member of Ernst & Young
Global
|
|
|
/S/
KOST FORER GABBAY &
KASIERER
|
|
Tel
Aviv, Israel
September 1,
2006
|
KOST
FORER GABBAY & KASIERER
A
Member of Ernst & Young
Global
|