As filed with the Securities and Exchange Commission on September 24, 2015

Registration No. 333-
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
     

 

Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
     

 

Kitov Pharmaceuticals Holdings Ltd.
(Exact Name of Registrant as Specified in its Charter)
     

 

State of Israel 2834 Not Applicable
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)  

 

One Azrieli Center, Round Building,

Tel Aviv, 6701101

Israel

+972-2-6254124
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
     

 

Puglisi & Associates
850 Library Avenue, Suite 204
Newark, DE 19715
(302) 738-6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)

     

 

Copies to:

       
Perry Wildes, Adv. Rick A. Werner, Esq. Robert F. Charron, Esq. Ronen Kantor, Adv.
Gross, Kleinhendler, Haynes and Boone, LLP Ellenoff Grossman Doron Tikotzky Kantor
Hodak, Halevy, 30 Rockefeller Plaza, & Schole LLP Gutman Cederboum

Greenberg & Co.

One Azrieli Center

Tel Aviv 67021, Israel

Tel: +972 (3) 607-4444

26th Floor

New York, New York 10112
(212) 659-7300

1345 Avenue of the Americas

New York, NY 10105

Tel: (212) 370-1300

12 Abba Hillel Silver Street

Ramat Gan 52506, Israel Tel: +972 (3) 613 3371

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after effectiveness of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

 
 

 

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. o

 
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. o
     
 
CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered   Proposed
Maximum
Aggregate
Offering Price (1)(2)(3)
    Amount of
Registration
Fee
 
Ordinary shares, no par value per share, represented by American Depositary Shares   US$ 5,087,400     US$ 591.16  
Warrants to purchase American Depositary Shares     2,500        0.29  
Ordinary shares underlying the American Depositary Shares issuable upon exercise of warrants     6,104,880       709.39  
Underwriter’s warrants to purchase American Depositary Shares (4)            
Ordinary shares underlying the American Depositary Shares issuable upon exercise of underwriter’s warrants (5)     305,244       35.46  
Total   US$

11,500,024

    US$

1,336.30

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2) American Depositary Shares, or ADSs, issuable upon deposit of ordinary shares registered hereby are registered under a separate registration statement on Form F-6 (Registration No. 333- ____) . Each ADS represents twenty (20) ordinary shares.

(3) Includes shares granted pursuant to the underwriters’ over-allotment option.

(4) In accordance with Rule 457(g) under the Securities Act, because the ordinary shares of the Registrant underlying the Underwriter’s warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.

(5) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to % of the public offering price. As estimated solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the underwriter’s warrants is $ (which is equal to % of $ ( % of $ )).

 

     

 

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 is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

     
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 24, 2015
     

 

250,000 American Depositary Shares Each Representing 20 Ordinary Shares

 

250,000 Warrants to Purchase American Depositary Shares

 

 

We are offering American Depositary Shares, or ADSs, and warrants to purchase ADSs, or warrants, at an offering price of $       per ADS and $       per warrant. The ADSs and warrants will be separately issued, but the ADSs and warrants will be issued and sold to purchasers in equal proportion. Each warrant will have a per ADS exercise price of % of the per ADS public offering price, will be exercisable immediately and will expire years from the date of issuance. Each ADS represents 20 of our ordinary shares. This is our initial public offering in the United States.

 

Our ordinary shares are currently traded on the Tel Aviv Stock Exchange, or the TASE, under the symbol “KTOV.” The last reported sale price of our ordinary shares on the TASE on                             , 2015 was NIS        , or $        , per share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS        = $1.00).

 

No public market currently exists for our ordinary shares, ADSs or warrants in the United States. The initial public offering price is expected to be between $ and $ per ADS and between $ and $ per warrant.

 

We have applied to list our ADSs and warrants on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”, respectively.

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and will be subject to reduced public company reporting requirements.

 

Investing in our ADSs involves a high degree of risk. See “Risk Factors” beginning on page of this prospectus for a discussion of information that should be considered in connection with an investment in our ADSs and warrants.

 

Neither the Securities and Exchange Commission, the Israeli Securities Authority, 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.

 

    Per ADS     Per
Warrant
    Total  
Initial public offering price   $     $     $  
Underwriting discounts and commissions (1)   $     $     $  
Proceeds to us (before expenses) (2)   $     $     $  

 

(1) In addition, we have agreed to reimburse the representative for certain expenses and to issue to the representative warrants equal to 5% of the ADSs sold in this offering. See “Underwriting” beginning on page 108 for a complete description of discounts, compensation and fees payable to the underwriters.
(2) Does not include proceeds from the exercise of the warrants in cash, if any.

 

The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” for a description of compensation payable to the underwriters.

 

We have granted a 45-day option to the underwriters to purchase up to additional ADSs and/or warrants to purchase up to an additional ADSs from us at the public offering price, less the underwriting discount, solely to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable will be $ , and the total proceeds to us, before expenses, will be $ .

 

 
 

   

The underwriters expect to deliver the ADSs and warrants to purchasers in the offering on or about  , 2015.

 

Rodman & Renshaw
a unit of H.C. Wainwright & Co.

 

The date of this prospectus is , 2015

 

 
 

 

Table of Contents

 

     
Prospectus Summary   1
The Offering   4
Summary Consolidated Financial and Other Data   6
Risk Factors   7
Special Note Regarding Forward-Looking Statements   28
Price Range of our Ordinary Shares   29
Use of Proceeds   30
Dividend Policy   31
Capitalization   32
Dilution   33
Selected Consolidated Financial and Other Data   34
Management’s Discussion and Analysis of Financial Condition and Results of Operations   35
Business   43
Management   62
Principal Shareholders   81
Certain Relationships and Related Party Transactions   83
Description of Share Capital   84
Description of Securities   89
Shares Eligible for Future Sale   97
Taxation and Government Programs   99
Expenses Related to Offering   107
Underwriting   108
Legal Matters   115
Experts   115
Enforceability of Civil Liabilities   115
Where You Can Find Additional Information   117

 

 

 

Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. When you make a decision about whether to invest in our ADSs and warrants, you should not rely upon any information other than the information in this prospectus and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our ADSs and warrants means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ADSs or warrants in any circumstances under which the offer or solicitation is unlawful.

 

Until and including 25 days after the date of this prospectus, all dealers that buy, sell, or trade our ADSs or warrants, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.

 

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources.

 

Unless otherwise indicated, all information contained in this prospectus (i) gives retrospective effect to a consolidation of our share capital at a ratio of 1:13, which was effected on November 30, 2014, or the Consolidation, so that: (A) each 13 ordinary shares of Kitov Holdings were consolidated into one ordinary share of Kitov Holdings; and (B) each of the Company’s options (tradable and non-tradable) outstanding immediately prior to the consolidation of the share capital was adjusted by multiplying the number of ordinary shares into which such option was exercisable by 1/13 (rounded to 0.07692) and (ii) assumes no exercise of the underwriter’s option to purchase up to  additional ADSs and/or warrants to purchase up at an additional ADSs to cover over-allotments, if any.

 

 
 

 

PROSPECTUS SUMMARY

 

This summary does not contain all of the information you should consider before investing in our ADSs and warrants. You should read this summary together with the more detailed information appearing in this prospectus, including “Risk factors,” “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations,” “Business” and our consolidated financial statements and the related notes included at the end of this prospectus, before making an investment in our ADSs and warrants. Unless the context otherwise requires, all references to (i) “Kitov Holdings,” refers to Kitov Pharmaceuticals Holdings Ltd., (ii) “we,” “us,” “our,” and similar designations refer to Kitov Pharmaceuticals Holdings Ltd., together with its wholly-owned subsidiary, Kitov Pharmaceuticals Ltd., and (iii) “Kitov Pharmaceuticals” refers to Kitov Pharmaceuticals Ltd., the wholly owned subsidiary of Kitov Pharmaceuticals Holdings Ltd. The terms “shekels”, “Israeli shekels” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar”, “US$” or “$” refer to U.S. dollars, the lawful currency of the United States and the term “Euro” or “€” refer to the Euro, the lawful currency of the European Union member states. Unless derived from our financial statements or otherwise indicated, U.S. dollar translations of NIS amounts and U.S. dollar translations of Euro amounts presented in this prospectus are translated using the rate of NIS 3.776 to $1.00 and Euro 0.9068 to $1.00, respectively, based on the exchange rates reported by the Bank of Israel on June 30, 2015. We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”).

 

Our company

 

We are a biopharmaceutical company focused on the development of therapeutic candidates for the simultaneous treatment of two clinical conditions:

 

  · pain caused by osteoarthritis; and
  · hypertension (high blood pressure), which can be pre-existing or caused by the treatment for osteoarthritis.

 

In particular, we focus on developing combinations of existing drugs in advanced stages of development. We currently have two combinations in our pipeline, KIT-301, based on the generic drugs naproxen and isradipine, and KIT-302, based on celecoxib and the generic drug amlodipine besylate. Both naproxen and celecoxib are active ingredients of known and approved-for-use drugs designed primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug “Celebrex®”. These combinations are designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using Non-Steroidal Anti-Inflammatory Drugs, or NSAIDs, for treating pain caused by osteoarthritis.

 

We are currently focusing our development efforts on KIT-302, which is in an advanced stage of its Phase III clinical study. We are currently not developing KIT-301, for which we have an active investigational new drug, or IND, due to our need to allocate resources for advancing the development of KIT-302. Depending on market acceptance of KIT-302 if approved, we will consider whether to continue the further development of KIT-301.

 

Where applicable, we intend to seek U.S. Food and Drug Administration, or FDA, approval for the commercialization of our therapeutic candidates through the Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding regulatory paths in other foreign jurisdictions. Our current pipeline consists of two clinical development therapeutic candidates, KIT-301 and KIT-302, which have been cleared for Phase III clinical trials, which will then be subject to review and approval by the FDA. Upon and subject to receipt of the requisite approvals, we intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements with pharmaceutical companies on a global and/or territorial basis. We may also evaluate, on a case by case basis, co-development and similar arrangements, as well as independent commercialization of our therapeutic candidates.

 

Our competitive strengths

 

We believe there are several advantages to the products we are developing, such as:

 

  · providing a solution to the concerns of physicians who avoid prescribing NSAID treatment for pain caused by osteoarthritis due to its side effect of elevating blood pressure, in particular for patients with existing hypertension or pre-hypertension;

 

  · reassuring physicians who are concerned that their patients who are treated for osteoarthritis will be also treated for hypertension, which is a known side effect of NSAID treatments for pain caused by osteoarthritis. This is a particular concern, as hypertension is usually not accompanied by tangible symptoms, and therefore patients may not be aware of their condition or the need to treat it;

 

1
 

  

  · using one drug that also includes an active ingredient that treats hypertension either as an existing condition or as a side effect of using other drugs, ensures that the patient receives the suitable treatment for their disease and for its side effect;

 

  · purchasing one drug as opposed to purchasing two separate drugs may lead to financial savings for patients in the U.S. by requiring payment of just one co-payment and prescription fee as opposed to a double co-payment and prescription fee. In addition, the use of one combination drug reduces the patient’s discretion with respect to whether to purchase and use only one of the drugs and provides a comprehensive dual medical treatment in one combined drug; and
     
  · using calcium channel blockers in our therapeutic candidates as an antihypertensive.  Calcium channel blockers  are not included in the FDA Safety Information Release for NSAIDs co-administered with ACE inhibitors or with angiotensin II receptor antagonists.  

 

In addition to the aforementioned medical and economic advantages, we believe the combination drugs that we have developed have several commercial advantages, such as reduced development time compared to the development time of new chemical entities (NCEs) and decreased risk factors in the development process. These commercial advantages derive from the fact that combination drugs are based on known materials already approved for use by the FDA. The FDA offers a shortened regulatory procedure referred to as a “505(b)(2) NDA” to approve combination drugs. This procedure may be used to file a request to approve a product that relies on the results of the safety and effectiveness trials performed for the components of the combination in the past by others and not by the filers of the request for approval. Accordingly, the approval process in a 505(b)(2) NDA is shorter and less expensive compared to the approval process for NCEs and is typically completed within a period of approximately five years (rather than a period of up to 15 years for approval of NCE drugs). In addition, the use of known, proven and safe components recognized by physicians and medical organizations, and the enhanced medical effect of concurrently treating and preventing hypertension, may shorten the time and decrease the costs usually required for the acceptance of the new product in the drug marketplace.

 

Our strategy

 

Our goal is to become a significant player in the development of innovative chemical drugs with a clinical and commercial added value, based on known and approved-for-use drugs.

 

Key elements of our strategy are to:

 

  · develop combination products with clinical and commercial advantages in the treatment of hypertension and pain caused by osteoarthritis, based on a combination of existing drugs and obtain approval thereof from the FDA and other foreign regulatory authorities;
     
  · expand our line of therapeutic candidates through the acquisition or in-licensing of technologies, products and drugs intended to meet clinical needs, thereby utilizing the skills, knowledge and experience of our personnel to develop and enhance the value of additional products, and bring them to market efficiently;
     
  · capitalize on the FDA’s 505(b)(2) regulatory pathway to obtain more timely and efficient approval of our formulations of previously approved products, when applicable;  and
     
  · cooperate with third parties to both develop and commercialize therapeutic candidates in order to share costs and leverage the expertise of others.

 

We intend to enter into sub-license agreements with international companies for potential or future therapeutic candidates based on potential upfront and milestone payments, royalties and/or other marketing arrangements, depending on product and market conditions.

 

2
 

  

Risks associated with our business

 

Investing in our ADSs and warrants involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page  before making a decision to invest in our ADSs and warrants. The following is a summary of some of the principal risks we face:

 

  · we have a history of operating losses. We expect to incur additional losses in the future and may never be profitable;
     
  · our limited operating history as a pharmaceutical research and development company makes it difficult to evaluate our business and prospects;
     
  · our current working capital is not sufficient to complete our research and development with respect to each of our therapeutic candidates. Our failure to raise sufficient capital would significantly impair our ability to fund our operations, develop our therapeutic candidates, attract development or commercial partners and retain key personnel;
     
  · if we and/or our potential commercialization partners are unable to obtain FDA or other foreign regulatory authority approval for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize our therapeutic candidates;
     
  · clinical trials may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We and/or our potential commercialization partners will not be able to commercialize our therapeutic candidates without completing such trials;
     
  · we rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including, but not limited to, failing to meet established deadlines for the completion of such clinical trials;
     
  · even if our therapeutic candidates receive regulatory approval or do not require regulatory approval, they may not become commercially viable products; and
     
  · the market for our therapeutic candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain competitive.
     
  ·

one of the active pharmaceutical ingredients we use in KIT-302, celecoxib, enjoys patent protection in the United States until December 2015. If the patent on this active pharmaceutical ingredient is further extended, it would delay the commercialization of our leading therapeutic candidate.

 

Corporate information

 

Kitov Holdings was incorporated under the laws of the State of Israel (under a previous name) on August 12, 1968. Our principal executive offices are located at One Azrieli Center, 132 Menachem Begin Road, Tel Aviv, Israel, and our telephone number is 972-2-625-4124. Our website is www.kitovpharma.com . The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.

 

3
 

  

THE OFFERING

     
ADSs we are offering   ADSs representing ordinary shares (or ADSs representing  ordinary shares if the underwriters exercise their over-allotment option to purchase additional ADSs in full).
     
Warrants we are offering   Warrants to purchase ADSs. Each warrant will have a per ADS exercise price of      % of the per ADS public offering price, will be exercisable upon issuance and will expire in years from the date of issuance. The ADSs issuable upon exercise of the warrants will be subject to anti-dilution in certain circumstances. See the “Description of Securities” section of this prospectus.
     
   

The ADSs and warrants will be separately issued, but the ADSs and warrants will be issued and sold to purchasers in equal proportion.

     
Option to purchase
additional ADSs and warrants
 

We have granted to the underwriters an option, exercisable within 45 days from the date of this prospectus, to purchase up to an aggregate of additional ADSs and/or additional warrants to purchase up to an aggregate amount of ADSs solely to cover over-allotments, if any.

 

     
Ordinary shares to be outstanding after this offering            ordinary shares, or ordinary shares if the warrants offered in this offering are exercised in full. If the underwriters exercise their over-allotment option in full, the ordinary shares outstanding immediately after this offering will be  ordinary shares, or   ordinary shares if the warrants offered in this offering are exercised in full.
     
Use of proceeds   We estimate that we will receive net proceeds from this offering of approximately $  million, or approximately $   million if the underwriters exercise their over-allotment option to purchase additional ADSs and warrants in full, based on an initial public offering price of per ADS and per warrant, the midpoints of the ranges on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
     
   

We expect to use the net proceeds from this offering as follows:

     
    (i) approximately $1.5 million to expand our clinical development program, specifically with respect to the Phase III clinical trial for our leading therapeutic candidate, KIT-302;
     
    (ii) approximately $1.0 million to finance the CMC activities required for  submitting a New Drug Application (NDA) for KIT-302 to the FDA;
     
    (iii) approximately $0.5 million to perform the final PK (pharmacokinetic) trial for the selected formulation of KIT-302;
     
    (iv) approximately $0.5 million to finance our business development activities to enable out-licensing of our leading therapeutic candidate, KIT-302;
     
   

(v)  up to approximately $0.6 million to repay outstanding loans entered into on August 12, 2015, or the August Loans, See "Business – August Loan Agreement" on page of this prospectus;

     
   

(vi) approximately $1 to $3 million to expand our clinical development pipeline for additional drug products; and

 

4
 

  

    (vii) the balance of the net proceeds for general corporate purposes, including working capital requirements. See “Use of Proceeds” on page     of this prospectus.
     
Depositary   The Bank of New York Mellon, Depositary
     
The ADSs   Each ADS represents 20 ordinary shares. The depositary will hold the ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement. To better understand the terms of the ADSs and warrants, you should carefully read the “Description of Securities” section of this prospectus. You should also read the deposit agreement and warrant agent agreement, which are filed as exhibits to the registration statement that includes this prospectus.
     
Risk factors   See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
     
Proposed NASDAQ Capital Market symbol   We have applied to list our ADSs and our warrants on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”, respectively. Our ordinary shares are currently traded on the TASE under the symbol “KTOV.”

 

The number of ordinary shares to be outstanding after this offering is based on ordinary shares outstanding as of , 2015.  

Unless otherwise indicated, all information in this prospectus:

 

•               is based on an initial public offering price of per ADS and per warrant, the midpoints of the ranges on the cover page of this prospectus;

 

•               assumes no exercise by holders of our 50,069,450 Series 2 Traded warrants to purchase 3,851,342 ordinary shares;

 

•               assumes no exercise by holders of our options to purchase 232,888 ordinary shares at a weighted average exercise price of NIS 9.52 (approximately $2.52) per share under our 2013 Option Plan, as amended;

 

•               excludes up to ordinary shares issuable at our discretion upon conversion of our outstanding August Loans following closing of this offering;

 

•               excludes up to 1,720,000 ordinary shares issuable upon exercise of warrants issued to the lenders under our August Loans;

 

•               excludes ordinary shares underlying the ADSs issuable upon exercise of warrants to be issued in this offering;

 

•               assumes no exercise by the underwriters of their over-allotment option to purchase from us up to additional ADSs and additional warrants to purchase up to ADSs; and

 

•               gives effect to the Consolidation.

 

5
 

  

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

 

The following tables present our summary consolidated statements of operations for the two years ended December 31, 2014 and 2013, and for the six months ended June 30, 2015 and 2014, and our summary consolidated statements of financial position as of December 31, 2014 and 2013 and as of June 30, 2015. Our summary consolidated statements of operations for the two years ended December 31, 2014 and 2013, and our summary consolidated statements of financial position as of December 31, 2014 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. Our historical results are not necessarily indicative of results to be expected in any future periods. You should read this information together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Year Ended
December 31,
   

Six Months ended

June 30,

 
    2014     2013     2015     2014  
    (U.S. Dollars in thousands, except per share and
weighted average shares data)
 
Statement of Operations:                                
Research and development expenses     3,192       109       919       1,928  
General and administrative expenses     1,269       1,061       708       476  
Trade listing expenses and other expenses     720       1,383       -       720  
                                 
Operating loss     5,181       2,553       1,627       3,124  
Financing expense, net     71       75       55       85  
Loss for the period     5,252       2,628       1,682       3,209  
Loss per ordinary share: (1)                                
Basic and diluted     *(1.17 )     1.60       (0.18 )     *(0.91 )
                                 
Weighted average number of ordinary shares used in computing basic and diluted loss per share (in thousands):     *4,482       *1,641       9,338       *3,529  

* Adjusted to reflect the Consolidation

 

    As of December 31,        
    2014     2013     As of June 30, 2015  
                Actual      As Adjusted (2)  
    (U.S. Dollars, in thousands)     (U.S. Dollars, in thousands)  
Balance Sheet Data:                        
Cash and cash equivalents     1,313       193       1,652       [•]  
Working capital (*)     773       (946 )     1,216       [•]  
Total assets     1,759       311       2,009       [•]  
Total liabilities     (986 )     (1,257 )     (877 )     [•]  
Accumulated deficit     (9,852 )     (4,600 )     (11,534 )     [•]  
Total equity (deficit)     773       (946 )     1,132       [•]  

 

(*) Working capital is defined as current assets less current liabilities

 

(1) Basic loss per ordinary share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. There are no differences between basic and diluted loss per ordinary share since there are no dilutive potential ordinary shares.

 

(2) As adjusted gives effect to the sale of ADSs and warrants by us in this offering at an initial public offering price of $ per ADS and $ per warrant, the midpoints of the ranges on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the initial public offering prices would increase (decrease) each of cash and cash equivalents, total current assets and total shareholders’ equity by approximately $ million, assuming that the number of ADSs and warrants offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions. The as adjusted information presented in the summary statement of financial position data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

 

6
 

  

RISK FACTORS

 

Investment in our ADSs or warrants involves a high degree of risk. You should carefully consider the risks described below and all other information contained in this prospectus before you decide to buy our ADSs or warrants. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our ordinary shares would likely decline and you might lose all or part of your investment.

 

Risks Related to Our Financial Condition and Capital Requirements

 

We are a clinical development stage biopharmaceutical company with a history of operating losses. We expect to incur additional losses in the future and may never be profitable.

 

We are a clinical development stage biopharmaceutical company, and we are focused on the development of innovative pharmaceutical products. Both of our current therapeutic candidates are in the clinical development stage, and neither has been approved for marketing or is being marketed or commercialized. Our therapeutic candidates require additional clinical trials before we can obtain the regulatory approvals in order to initiate commercial sales. For professional considerations and in order to manage our financial and human resources, we are currently advancing the development of KIT-302, and after its completion, we will consider the further development of KIT-301. We have incurred losses from commencement of our pharmaceutical research and development activities through June 30, 2015 of approximately $11.5 million as a result of research and development activities, clinical trial related activities, listing for trading and fund raising related activities, general administrative and other expenses. We may incur significant additional losses as we continue to focus our resources on advancing our therapeutic candidates. Our ability to generate revenue and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop our therapeutic candidates and obtain the required regulatory approvals in various territories and then commercialize our therapeutic candidates. We may be unable to achieve any or all of these goals with regard to our therapeutic candidates. As a result, we may never be profitable or achieve significant or sustained revenues.

   

Our limited operating history as a pharmaceutical research and development company makes it difficult to evaluate our business and prospects.

 

We have a limited operating history as a pharmaceutical research and development company, and our operations to date have been limited primarily to acquiring therapeutic candidates, research and development, raising capital and recruiting scientific and management personnel and third party partners. We have not yet demonstrated an ability to commercialize or obtain regulatory approval for any of our therapeutic candidates. Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability to complete development or commercialize our therapeutic candidates, obtain regulatory approvals, or achieve market acceptance or favorable pricing for our therapeutic candidates.

 

Our current working capital is not sufficient to complete our research and development with respect to either of our therapeutic candidates. We will need to raise additional capital to achieve our strategic objectives of developing and commercializing therapeutic candidates, and our failure to raise sufficient capital would significantly impair our ability to fund our operations, develop our therapeutic candidates, attract development or commercial partners and retain key personnel.

 

Our financial statements for the year ended December 31, 2014 and for the six months ended June 30, 2015 contained an explanatory paragraph in the footnotes as to our ability to continue as a going concern. We have funded our operations primarily through offerings of our securities and private loans. We plan to fund our future operations through commercialization and out-licensing of our therapeutic candidates and raising additional capital. As of June 30, 2015, we had cash and cash equivalents of approximately $1.6 million. This amount is not sufficient to complete the research and development of either of our therapeutic candidates.

 

Our business presently generates no revenues, and given that we plan to continue expending substantial funds in research and development, including clinical trials, we will need to raise additional capital in the future through either debt or equity financing or pursuant to development or commercialization agreements with third parties with respect to particular therapeutic candidates. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may have difficulty raising needed capital or securing a development or commercialization partner in the future as a result of, among other factors, our lack of revenues from commercialization of the therapeutic candidates, as well as the inherent business risks associated with our company and present and future market conditions. In addition, global and local economic and geopolitical conditions may make it more difficult for us to raise needed capital or secure a development or commercialization partner in the future and may impact our liquidity. If we are unable to obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research, development or commercialization programs related to our therapeutic candidates, any of which may have a material adverse effect on our business, financial condition and results of operations. Moreover, to the extent we are able to raise capital through the issuance of debt or equity securities, it could result in substantial dilution to existing shareholders.

 

7
 

  

Our long term capital requirements are uncertain and subject to numerous risks.

 

We estimate that so long as no significant revenues are generated from our therapeutic candidates, we will need to raise substantial additional funds to acquire, develop and/or commercialize both of our current therapeutic candidates and any additional therapeutic candidates, as our current cash and short-term investments are not sufficient to complete the research and development of both of our current therapeutic candidates and any additional therapeutic candidates and fund our related expenses. Our long term capital requirements are expected to depend on many potential factors, including, among others: 

 

  · the regulatory path of each of our therapeutic candidates;

 

  · our ability to successfully commercialize our therapeutic candidates, including securing commercialization agreements with third parties and favorable pricing and market share;

 

  · the progress, success and cost of our clinical trials and research and development programs;

 

  · the costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;

 

  · the costs of obtaining and enforcing our issued patents and defending intellectual property-related claims;

 

  · the costs of developing sales, marketing and distribution channels; and

 

  · our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.

 

If we are unable to commercialize or out-license our therapeutic candidates or obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research and development programs related to the therapeutic candidates, which may have a material adverse effect on our business, financial condition and results of operations.

    

Risks Related to Our Business and Regulatory Matters

 

If we and/or our potential commercialization partners are unable to obtain FDA or other foreign regulatory authority approval for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize our therapeutic candidates.

 

To date, we have not marketed, distributed or sold any therapeutic candidate or other product. Our therapeutic candidates are subject to extensive governmental laws, regulations and guidelines relating to development, clinical trials, manufacturing and commercialization of drugs. We may not be able to obtain regulatory approval for any of our therapeutic candidates in a timely manner or at all.

 

Any material delay in obtaining, or the failure to obtain, required regulatory approvals will increase our costs and materially and adversely affect our ability to generate future revenues. Any regulatory approval to market a therapeutic candidate may be subject to limitations on the indicated uses for marketing the therapeutic candidate or may impose restrictive conditions of use, including cautionary information, thereby limiting the size of the market for the therapeutic candidate. We also are, and will be, subject to numerous regulatory requirements from both the FDA and foreign state agencies that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. Moreover, approval by one regulatory authority does not ensure approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes and may impose additional testing requirements for our therapeutic candidates than other jurisdictions. Additionally, the FDA or other foreign regulatory bodies may change their approval policies or adopt new laws, regulations or guidelines in a manner that delays or impairs our ability to obtain the necessary regulatory approvals to commercialize our therapeutic candidates.

 

8
 

  

Clinical trials may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We and/or our potential commercialization partners will not be able to commercialize our therapeutic candidates without completing such trials.

 

We have limited experience in conducting and managing the clinical trials that are required to commence commercial sales of our therapeutic candidates . Clinical trials are expensive, complex, can take many years to complete and have uncertain outcomes. We cannot predict whether we, independently or through third parties, will encounter problems with any of the completed, ongoing or planned clinical trials that will cause delays, including suspension of clinical trials, delays in recruiting patients into the clinical trials, or delay of data analysis or release of the final report. The clinical trials of our therapeutic candidates may take significantly longer to complete than is estimated. Failure can occur at any stage of the testing, and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future therapeutic candidates.

 

In connection with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various risks, including but not limited to:

 

  · delays in securing clinical investigators or trial sites for the clinical trials;

  · delays in receiving import or other government approvals to ensure appropriate drug supply;

  · delays in obtaining institutional review board (human ethics committee) and other regulatory approvals to commence a clinical trial;

  · negative or inconclusive results from clinical trials;

  · the U.S. Food and Drug Administration or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical studies;

  · an inability to monitor patients adequately during or after treatment;

  · problems with investigator or patient compliance with the trial protocols;

  · a therapeutic candidate may not prove safe or efficacious;

  · there may be unexpected or even serious adverse events and side effects from the use of a therapeutic product;
  · the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;

  · the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;

  · the results will justify only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of the therapeutic candidate;
  · the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and

  · changes to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection with our receiving the applicable regulatory approvals.

 

A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. As such, we do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety sufficient to obtain regulatory approval to market our therapeutic candidates. If any of the clinical trials of any therapeutic candidate do not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, which will have a material adverse effect on our business, financial condition and results of operations.

 

9
 

   

If we do not establish collaborations for our therapeutic candidates or otherwise raise substantial additional capital, we will likely need to alter our development and any commercialization plans.

 

Our drug development programs and the potential commercialization of our therapeutic candidates will require additional cash to fund expenses. As such, our strategy includes selectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furthering development and potential commercialization of our therapeutic candidates, in some or all jurisdictions. We may not be successful in collaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development or commercialization agreements, we may have to limit the size or scope of our activities or we may have to delay one or more of our development or commercialization programs. Any failure to enter into development or commercialization agreements with respect to the development, marketing and commercialization of any therapeutic candidate or failure to develop, market and commercialize such therapeutic candidate independently will have an adverse effect on our business, financial condition and results of operation.

 

Any collaborative arrangements that we establish may not be successful or we may otherwise not realize the anticipated benefits from these collaborations. We do not control third parties with whom we have or may have collaborative arrangements, and we rely on them to achieve results which may be significant to us. In addition, any future collaboration arrangements may place the development and commercialization of our therapeutic candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.

 

Our collaborative arrangements require us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory, market research, and intellectual property. We do not control these third parties, but we rely on them to achieve results, which may be significant to us. Relying upon collaborative arrangements to develop and commercialize our therapeutic candidates subject us to a number of risks, including:

 

  · we may not be able to control the amount and timing of resources that our collaborators may devote to our therapeutic candidates;

  · should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held liable for such violations;

  · our collaborators may experience financial difficulties or changes in business focus;

  · our collaborators partners may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval, if at all;

  · our collaborators partners may have a shortage of qualified personnel;

  · we may be required to relinquish important rights, such as marketing and distribution rights;

  · business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

  · under certain circumstances, a collaborator could move forward with a competing therapeutic candidate developed either independently or in collaboration with others, including our competitors; and

  · collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our therapeutic candidates.

 

If any of these scenarios materialize, they could have an adverse effect on our business, financial condition or results of operations.

     

Our business plan is based upon the combination of drugs that have not been previously combined. Unexpected difficulties or delays in perfecting the combination of such drugs or in successfully marketing such combination drugs could have an adverse effect on our business, financial condition and results of operations.

 

We are focused on the development of combinations of existing drugs for the simultaneous treatment of pain caused by osteoarthritis and hypertension.

 

Since these existing drugs have not previously been combined into one therapeutic agent, we cannot be certain whether the combination will work as intended. In particular, we do not know whether the combination will be bio-equivalent to the separate component drugs, and we cannot be certain that the formulation and manufacturing process for the combination drugs will develop as planned. In addition, we cannot be certain that the market will consider our combination drug to be superior to treatment with the separate drug components. Any delays in perfecting the combination, the production of the combination, or in market acceptance of the combination could have an adverse effect on our business, financial condition and results of operations.

 

10
 

  

We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including, but not limited to, failing to meet established deadlines for the completion of such clinical trials.

 

We do not have the ability independently to conduct clinical trials for our product candidates, and we rely on third parties, such as contract research organizations, medical institutions, contract laboratories, current and potential development or commercialization partners, clinical investigators and independent study monitors to perform this function. Our reliance on these third parties for clinical development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in the ordinary course of business, entered into agreements with these third parties, we continue to be responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. To date, we believe our contract research organizations and other similar entities with which we are working have performed well. However, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional costs. Accordingly, we may be delayed in obtaining regulatory approvals for our therapeutic candidates and may be delayed in our efforts to successfully commercialize our therapeutic candidates for targeted diseases.

 

In addition, we rely substantially on third-party data managers for the clinical trial data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of third party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. There is no assurance that these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.

 

If third parties do not manufacture our therapeutic candidates in sufficient quantities, in the required timeframe, and at an acceptable cost, clinical development and commercialization of our therapeutic candidates would be delayed.

 

We do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties to manufacture clinical and commercial quantities of our therapeutic candidates. Our reliance on third parties includes our reliance on them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates may adversely affect our future profit margins, if any, and our ability to develop therapeutic candidates and commercialize any therapeutic candidates on a timely and competitive basis.

 

We may not be able to maintain our existing or future third party manufacturing arrangements on acceptable terms, if at all. If for some reason our existing or future manufacturers do not perform as agreed or expected, or our existing or future manufacturers otherwise terminate their arrangements with us, we may be required to replace them. Although we are not substantially dependent upon our existing manufacturing agreements since we could replace them with other third party manufacturers, we may incur added costs and delays in identifying, engaging, qualifying and training any such replacements.

 

We rely on third party contract vendors to manufacture and supply us with high quality API, or active pharmaceutical ingredients, in the quantities we require on a timely basis .

  

We currently do not manufacture any API ourselves. Instead, we rely on third-party vendors for the manufacture and supply of our APIs that are used to formulate our therapeutic candidates. While there are many potential API suppliers in the market, if these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all, we could experience a delay in conducting additional clinical trials of our therapeutic candidates and incur additional costs.

 

11
 

  

While there may be several alternative suppliers of API in the market, we have not conducted extensive investigation into the quality or availability of their APIs. As a result, we can provide no assurances that supply sources will not be interrupted from time to time. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant lead time to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next.

 

If we are not able to find stable, reliable supplies of our API, we may not be able to produce enough supplies of our therapeutic candidates, which could affect our business, financial condition and results of operation.

   

We anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates.

 

To date, our therapeutic candidates have been manufactured in relatively small quantities for formulation development and clinical trials by third-party manufacturers and our therapeutic candidates may be developed in the future for preclinical and clinical trials, as may be required. If the FDA or other regulatory agencies approve any of our therapeutic candidates for commercial sale, we expect that we would continue to rely, at least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. These manufacturers may not be able to successfully increase the manufacturing capacity for any of our approved therapeutic candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. If they are unable to successfully increase the manufacturing capacity for a therapeutic candidate, or we are unable to establish alternative manufacturing capabilities, the commercial launch of any approved products may be delayed or there may be a shortage in supply.

 

We and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.

 

We and our contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA and other foreign regulatory authorities setting forth current good manufacturing practices. These laws, regulations and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates. We and our manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our manufacturers are and will be subject to unannounced inspections by the U.S. Food and Drug Administration, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates and materially and adversely affect our business, financial condition and results of operations.

 

Even if we obtain regulatory approvals, our therapeutic candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations and guidelines, we could lose those approvals, and our business would be seriously harmed.

 

Even if our therapeutic candidates receive regulatory approval, we or our potential commercialization partners, as applicable, will be subject to ongoing reporting obligations, including pharmacovigilance, and the therapeutic candidates and the manufacturing operations will be subject to continuing regulatory review, including inspections by the U.S. Food and Drug Administration and other foreign regulatory authorities. The results of this ongoing review may result in the withdrawal of a therapeutic candidate from the market, the interruption of the manufacturing operations or the imposition of labeling or marketing limitations. Since many more patients are exposed to drugs following their marketing approval, serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing of the therapeutic candidate. In addition, the manufacturer and the manufacturing facilities that we or our potential commercialization partners use or will use to produce any therapeutic candidate will be subject to periodic review and inspection by the FDA and other foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate, manufacturer or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions such as:

 

  · restrictions on such therapeutic candidate, manufacturer or manufacturing process;

 

12
 

  

  · warning letters from the U.S. Food and Drug Administration or other foreign regulatory authorities;

  · withdrawal of the therapeutic candidate from the market;

  · suspension or withdrawal of regulatory approvals;

  · refusal to approve pending applications or supplements to approved applications that we or our potential commercialization partners submit;

  · voluntary or mandatory recall;

  · fines;

  · refusal to permit the import or export of our therapeutic candidates;

· product seizure or detentions;

  · injunctions or the imposition of civil or criminal penalties; or

  · adverse publicity.

  

If we, or our current or potential commercialization partners, suppliers, third party contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our potential commercialization partners may lose marketing approval for any of our therapeutic candidates if any of our therapeutic candidates are approved, resulting in decreased or lost revenue from milestones, product sales or royalties.

 

Modifications to our therapeutic candidates, or to any other therapeutic candidates that we may develop in the future, may require new regulatory clearances or approvals or may require us or our current or potential development and commercialization partners, as applicable, to recall or cease marketing these therapeutic candidates until clearances are obtained .

 

Modifications to our therapeutic candidates, after they have been approved for marketing, if at all, or to any other pharmaceutical product or medical device that we may develop in the future, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA and other foreign regulatory authorities require pharmaceutical product and device manufacturers initially to make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a modification may be implemented without pre-clearance by the U.S. Food and Drug Administration or other foreign regulatory authorities; however, the U.S. Food and Drug Administration or other foreign regulatory authorities can review a manufacturer’s decision and may disagree. The U.S. Food and Drug Administration or other foreign regulatory authorities may also on their own initiative determine that a new clearance or approval is required. If the U.S. Food and Drug Administration or other foreign regulatory authorities require new clearances or approvals of any pharmaceutical product for which we or our current or potential development and commercialization partners previously received marketing approval, we or our current or potential development and commercialization partners may be required to recall such therapeutic candidate and to stop marketing the therapeutic candidate as modified, which could require us or our current or potential development and commercialization partners to redesign the therapeutic candidate and cause a material adverse effect on our business, financial condition and results of operations.

   

While we have negotiated a special protocol assessment, or SPA, agreement with the FDA relating to the Phase III clinical trial protocol for KIT-302, this agreement does not guarantee approval of KIT-302 or any other particular outcome from regulatory review of the study or the drug candidate.

 

We have reached agreement with the FDA to conduct the Phase III clinical trial for KIT-302 pursuant to an SPA agreement. The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase III trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the drug candidate with respect to its effectiveness against the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA. Nevertheless, an SPA agreement does not guarantee approval of a drug candidate, and even if the FDA agrees to the design, execution and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts. In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.   A revocation or alteration in our existing SPA could significantly delay or prevent approval of our application. Our SPA with the FDA does not ensure that KIT-302 will receive marketing approval or that the approval process will be faster than conventional regulatory procedures.  Further, we cannot assure you that our Phase III clinical trial of KIT-302 will succeed or will result in any FDA approval for KIT-302.  Our Phase III clinical trial may not be completed in accordance with the SPA agreement and the data generated may not meet the endpoints that have been agreed in the SPA to represent adequate evidence of effectiveness, and, for those or other reasons, may not result in any FDA approval for KIT-302. Even if we believe that the data collected from the Phase III clinical trial demonstrates adequate evidence of efficacy in accordance with the SPA, if the FDA revokes or alters its agreement under the SPA, or if the FDA interprets the data collected from the clinical trial differently than we do, the FDA may not deem the data sufficient to support an application for regulatory approval, which could materially adversely affect our business, financial condition and results of operations.

 

We depend on our ability to identify and acquire or in-license therapeutic candidates to achieve commercial success.

  

Our therapeutic candidates were all acquired by us from third parties. We evaluate internally and with external consultants each potential therapeutic candidate. However, there can be no assurance as to our ability to accurately or consistently select therapeutic candidates that have the highest likelihood to achieve commercial success.

 

Our business could suffer if we are unable to attract and retain key employees or directors.

  

The loss of the services of members of senior management or other key personnel could delay or otherwise adversely impact the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates or otherwise affect our ability to manage our company effectively and to carry out our business plan. These key personnel include Dr. J. Paul Waymack, our founder and chairman of the board of directors. We do not maintain key-man life insurance. Although we have entered into employment or consultancy agreements with all of the members of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract such personnel.

 

13
 

  

Our growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business development, marketing, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to liability from their former employers. In addition, if we elect to independently commercialize any therapeutic candidate, we will need to expand our marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees on acceptable terms, we may not be able to develop and commercialize competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could prevent our business from successfully growing.

   

We are an international business, and we are exposed to various global and local risks that could have an adverse effect our business .

 

We operate our business in multiple international jurisdictions. Such operations could be affected by changes in foreign exchange rates, capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to, our products, as well as by political unrest, unstable governments and legal systems and inter-governmental disputes. Any of these changes could adversely affect our business.

 

Risks Related to Our Industry

 

Even if our therapeutic candidates receive regulatory approval or do not require regulatory approval, they may not become commercially viable products.

 

Even if our therapeutic candidates are approved for commercialization, they may not become commercially viable products. For example, if we or our potential commercialization partners receive regulatory approval to market a therapeutic candidate, approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and adversely affect the marketability and profitability of the therapeutic candidate. In addition, a new therapeutic candidate may appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate may not result in commercial success for various reasons, including:

 

  · difficulty in large-scale manufacturing, including yield and quality;

  · low market acceptance by physicians, healthcare payers, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods;

  · insufficient or unfavorable levels of reimbursement from government or third-party payers, such as insurance companies, health maintenance organizations and other health plan administrators;

  · infringement on proprietary rights of others for which we or our potential commercialization partners have not received licenses;

  · incompatibility with other therapeutic candidates;

  · other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate a particular market segment;

  · ineffective marketing and distribution support;

  · lack of significant competitive advantages over existing products on the market;

  · lack of cost-effectiveness; or

  · timing of market introduction of competitive products.

 

Physicians, various other health care providers, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our approved therapeutic candidates. If we are unable, either on our own or through third parties, to manufacture, commercialize and market our proposed formulations or therapeutic candidates when planned, or develop commercially viable therapeutic candidates, we may not achieve any market acceptance or generate revenue.

 

14
 

   

The market for our therapeutic candidates is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain competitive.

 

The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications for which we are currently developing therapeutic candidates or for which we may develop therapeutic candidates in the future. There are various other companies that currently market or are in the process of developing products that address all of the indications or diseases treated by our therapeutic candidates. For information regarding our competition, See “Business- Our Therapeutic Candidates.”

 

New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the process of being developed by others may render our therapeutic candidates noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our therapeutic candidates. Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities, human resources and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.

   

The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations or therapeutic candidates, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for our therapeutic candidates to receive widespread acceptance if commercialized.

 

If third-party payers do not adequately reimburse customers for any of our therapeutic candidates that are approved for marketing, they might not be purchased or used, and our revenues and profits will not develop or increase.

 

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved therapeutic candidates, if any, from governmental or other third-party payers, both in the U.S. and in foreign markets. Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer’s determination that the use of an approved therapeutic candidate is:

 

  · a covered benefit under its health plan;

  · safe, effective and medically necessary;

  · appropriate for the specific patient;

  · cost-effective, including compared to approved alternate therapies; and

  · neither experimental nor investigational.

 

Obtaining reimbursement approval for a therapeutic candidate from each government or other third-party payer is a time-consuming and costly process that could require us or our current or potential development and commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our therapeutic candidates to each payer. Even when a payer determines that a therapeutic candidate is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for some uses that are approved by the U.S. Food and Drug Administration or other foreign regulatory authorities. Reimbursement rates may vary according to the use of the therapeutic candidate and the clinical setting in which it used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates.

 

15
 

  

In the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services which may affect payments for our therapeutic candidates in the U.S. We believe that legislation that reduces reimbursement for our therapeutic candidates could adversely impact how much or under what circumstances healthcare providers will prescribe or administer our therapeutic candidates, if approved. This could materially and adversely impact our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our therapeutic candidates, if approved. At this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals.

 

Further, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare and Medicaid Services and other third-party payers may have sufficient market power to demand significant price reductions.

 

Legislative or regulatory reform of the healthcare system in the United States may harm our future business.

 

  Healthcare costs have risen significantly over the past decade. On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March 30, 2010, the President signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law” which, among other things, requires most individuals to have health insurance or pay a tax penalty; establishes new regulations for health plans; creates insurance exchanges; and imposes new requirements and changes in reimbursement and funding for healthcare providers, device manufacturers and pharmaceutical companies. Although many of the changes do not take effect until 2014 or later, several provisions of the Healthcare Reform Law took effect immediately or soon after. The Healthcare Reform Law imposes additional requirements and obligations upon us, which, to a certain extent, will depend upon the mix of products we sell. Some of the changes imposed by the Healthcare Reform Law include, among other things:

   

  · revisions to the Medicaid drug rebate program under which manufacturers must pay rebates by: (a) increasing the rebate percentage for brand name drugs to 23.1% of the average manufacturer price (“AMP”), with limited exceptions, (b) increasing the rebate for outpatient generic, multiple source drugs to 13% of AMP; (c) changing the definition of AMP; and (d) extending the Medicaid drug rebate program to certain drugs dispensed to individuals enrolled with a Medicaid managed care organization, with limited exceptions;

  · the imposition of annual fees upon manufacturers or importers of branded prescription drugs, which fees will be in amounts determined by the Secretary of Treasury based upon market share and other data;

  · providing a 50% discount on certain brand name prescription drugs for beneficiaries in the Medicare Part D coverage gap; and

  · expanding the definition of “covered entities” that purchase certain outpatient drugs in the 340B Drug Pricing Program of Section 340B of the Public Health Service Act.

 

While the Healthcare Reform Law may increase the number of patients who have insurance coverage for our products, the Healthcare Reform Law also restructures payments and reduces reimbursement to many institutional customers and others. Accordingly, the timing on the insurance mandate, the change in the Medicaid rebate levels, the additional fees imposed upon us if we market branded drugs, other compliance obligations, and the reduced and restructured reimbursement to institutional customers may result in a loss of revenue and could adversely affect our business. In addition, the Healthcare Reform Law contemplates the promulgation of significant future regulatory action which may also further affect our business.

 

We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions .

 

In the event that we were to market products in the United States, we would be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate include, but are not limited to, the following:

 

  · the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs;

 

16
 

  

  · the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program;
  · the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients for certain designated health services where that physician or family member has a financial relationship with the entity providing the designated health service, unless an exception applies;
  · federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;
  · federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
  · state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers.

 

Further, the recently enacted Healthcare Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity can now be found guilty of fraud or an anti-kickback violation without actual knowledge of the statute or specific intent to violate it. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the False Claims Act. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.

 

The Healthcare Reform Law also imposes reporting requirements on certain medical device and pharmaceutical manufacturers, among others, to make annual public disclosures of certain payments or other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians or their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and report such data to the Centers for Medicare & Medicaid Services (“CMS”) by March 31 each year. CMS made the data publicly available on its searchable database beginning in September 2014.

 

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing, medical directorships, and other purposes. Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts.

 

The scope and enforcement of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.

 

We could be exposed to significant drug product liability claims, which could be time consuming and costly to defend, divert management attention and adversely impact our ability to obtain and maintain insurance coverage.

 

The clinical trials that we conduct, and the testing, manufacture, marketing and commercial sale of our therapeutic candidates, involve and will involve an inherent risk that significant liability claims may be asserted against us. We currently have a clinical trial liability policy that includes coverage for our clinical trials. Should we decide to seek additional insurance against such risks before our product sales commence, there is a risk that such insurance will be unavailable to us, or if it can be obtained at such time, that it will be available only at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or litigation costs, especially in the case of wrongful death claims. Product liability claims or other claims related to our therapeutic candidates, regardless of their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our products and therapeutic candidates. A product liability claim could also significantly harm our reputation and delay market acceptance of our therapeutic candidates.

 

17
 

   

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

 

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets. An economic downturn could result in a variety of risks to our business, including weakened demand for our therapeutic candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our partners and suppliers, possibly resulting in supply disruption, or cause future customers to delay making payments for our products. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

 

Our business involves risks related to handling regulated substances which could severely affect our ability to conduct research and development of our therapeutic candidates.

 

In connection with our current or potential development and commercialization partners’ research and clinical development activities, as well as the manufacture of materials and therapeutic candidates, we and our current or potential development and commercialization partners are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We and our current or potential development and commercialization partners may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and clinical development, as well as the activities of our manufacturing and current or potential development and commercialization partners, both now and in the future, may involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.

   

Risks Related to Intellectual Property

 

We may be unable adequately to protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and potential profits.

 

Our success depends, in part, on our ability, and the ability of our current or potential development and commercialization partners to obtain patent protection for our therapeutic candidates, maintain the confidentiality of our trade secrets and know how, operate without infringing on the proprietary rights of others and prevent others from infringing our proprietary rights.

 

We try to protect our proprietary position by, among other things, filing U.S., European, and other patent applications related to our therapeutic candidates, inventions and improvements that may be important to the continuing development of our therapeutic candidates.

 

Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our competitors may independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent any patents that may be issued to or licensed by us. Our pending patent applications, and those that we may file in the future or those we may license from third parties may not result in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.

 

18
 

  

Patent rights are territorial; thus, the patent protection we have sought will only extend, if issued, to those countries, if any, in which we will be issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge any of our patents, produce similar drugs or products that do not infringe such patents, or produce drugs in countries where we have not applied for patent protection or that do not respect such patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.

 

After the completion of development and registration of any future patents, third parties may still act to manufacture or market our therapeutic candidates in infringement of our patent protected rights. Such manufacture or marketing of our therapeutic candidates in infringement of any patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates, thereby reducing our potential profits.

 

In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates, any patents that may be issued that protect our therapeutic candidates may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline in market share and profits.

 

One of the active pharmaceutical ingredients on which our leading therapeutic candidate, KIT-302, is based, currently enjoys patent protection until December 2, 2015. If the reissued patent on this active ingredient is further extended, it would delay the commercialization of KIT-302 and may have a material adverse effect on our business.

 

Our leading therapeutic candidate, KIT-302, is based on one generic drug (amlodipine besylate) and one drug currently protected by patents held by Pfizer Inc. (Celebrex®). The U.S. Patent and Trademark Office granted Pfizer a “reissue patent” covering methods of treating osteoarthritis and other approved conditions with celecoxib, the active ingredient in Celebrex®. The reissued patent extends U.S. patent protection for Celebrex from May 30, 2014 to Dec. 2, 2015. If the U.S. Patent and Trademark Office further extends the reissue patent on Celebrex®, it would delay the commercialization of KIT-302 and may have a material adverse impact on our business.

 

If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.

 

In addition to filing patents, we generally try to protect our trade secrets, know-how and technology by entering into confidentiality or non-disclosure agreements with parties that have access to it, such as our current or potential development and commercialization partners, employees, contractors and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants while we employ or engage them. However, these agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor.

   

To the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs to a third party.

   

Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could prevent us from developing or commercializing our therapeutic candidates.

 

The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third-party patents or other intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us, and it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty, or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action.

 

19
 

  

In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly.

 

We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.

 

In addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings before regulatory agencies, including interference or re-examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates, as well as other disputes regarding intellectual property rights with our current and potential development and commercialization partners, or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we and our current and potential development and commercialization partners will be required to defend these opposition procedures as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail.

 

Risks Related to our Operations in Israel

 

We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and its region.

 

We are incorporated under the laws of the State of Israel, our principal offices are located in central Israel and some of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region 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. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. In 2008, 2012, and again in the summer of 2014, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Political uprisings and civil resistance demonstrations in various countries in the Middle East, including Egypt and Syria, have affected the political stability of those countries. It is not clear how this instability, will develop and how it will affect the political and security situation in the Middle East. This instability may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised concerns regarding security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and Iran or these groups may escalate in the future and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary.

 

Our commercial 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.

 

20
 

  

Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business and trade activity with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

 

Provisions of Israeli law and our articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, or an acquisition of a significant portion of our shares, which could prevent a change of control, and negatively affect the price of our ordinary shares.

 

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent a change of control and therefore depress the price of our shares.

 

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders whose country of residence does not have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.

 

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant portion of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders. See “Description of Our Share Capital - Merger.”

 

Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.

 

Our reporting and functional currency is the U.S. dollar. Most of the royalty payments from our agreements with our current or potential development and commercialization partners are expected to be payable in U.S. dollars, and we expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars or in Euros. We pay a portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the employees in Israel and payment to part of the service providers in Israel, are paid in NIS and in other currencies. In addition, a portion of our financial assets is held in NIS. As a result, we are exposed to currency fluctuation risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher than anticipated. In addition, if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.

   

It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the U.S., or to serve process on our officers and directors.

 

We are incorporated in Israel. Most of our executive officers and directors reside outside of the U.S., and all of our assets and most of the assets of our executive officers and directors are located outside of the U.S. Therefore, a judgment obtained against us or such executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by an Israeli court. It may also be difficult for you to affect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel.

 

Your obligations and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the obligations and responsibilities of shareholders of U.S. companies. Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of corporations in the U.S.

 

21
 

  

We are incorporated under Israeli law. The obligations and responsibilities of the holders of our ordinary shares are governed by our articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.

 

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against us and may reduce the amount of money available to us.

 

The Israeli Companies Law and our articles of association permit us to indemnify our directors and officers for acts performed by them in their capacity as directors and officers. The Israeli Companies Law and our articles of association provide that a company may not exempt or indemnify a director or an office holder nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of (a) a breach by the director or officer of his duty of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. See “Management –Exculpation, Insurance and Indemnification of Directors and Officers.”

 

We have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any liability or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity will not exceed 25% of our then consolidated shareholders’ equity, per our most recent consolidated annual financial statements.

 

Our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors and officers liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to bring a claim against our company. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties, and may similarly discourage the filing of derivative litigation by our shareholders against the directors and officers even though such actions, if successful, might otherwise benefit our shareholders.

 

Risks primarily related to our ADSs, ordinary shares, and the offering

 

You will experience immediate and substantial dilution in the consolidated net tangible book value of the ADSs you purchase in this offering.

 

The initial public offering price of our ADSs will substantially exceed the consolidated net tangible book value per share of our ADSs immediately after to this offering. Therefore, assuming the sale of ADSs at an initial public offering price of $   per ADS, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and the estimated expenses payable by us, if you purchase our ADSs in this offering, you will suffer immediate dilution of $   per ADS, or $   per ADS if the underwriters exercise their over-allotment option to purchase additional ADSs in full, representing the difference between our pro forma consolidated net tangible book value per share as of June 30, 2015, after giving effect to this offering and the offering price. As a result of this dilution, investors purchasing ADSs from us in this offering will have contributed % of the total amount of our total gross funding to date but will own only  % of our equity. See the section entitled “Dilution” on page below for a more detailed illustration of the dilution you may incur. In addition, if outstanding options to purchase our ordinary shares or warrants to purchase our ADSs are exercised in the future, you will experience additional dilution. Moreover, you will experience further dilution if within 28 months from the completion of our acquisition of Kitov Pharmaceuticals, or November 11, 2015, we attain the milestone set forth in our 2013 Share Transfer Agreement pursuant to which we will issue 1,379,060 of our ordinary shares to the former shareholders of Kitov Pharmaceuticals. See Business - Share Transfer Agreement with Kitov Pharmaceuticals .”

 

22
 

  

We may be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes in 2015 or in any subsequent year, which may have negative tax consequences for U.S. investors.

 

We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Based on our estimated gross income, the average value of our gross assets, and the nature of our business, we believe that we may be classified as a PFIC in the current taxable year and in future years. In addition, because we have valued our goodwill based on the market value of our equity, a decrease in the price of our ordinary shares may result in our becoming a PFIC. If we are treated as a PFIC for any taxable year during which a U.S. investor held our ordinary shares or ADSs, certain adverse U.S. federal income tax consequences could apply to the U.S. investor. See “Taxation and Government Programs – Passive Foreign Investment Company Consequences.”

 

The market price of our ordinary shares is, and the market price of our ADSs and warrants will be, subject to fluctuation, which could result in substantial losses by our investors.

 

The stock market in general, and the market price of our ordinary shares on the Tel Aviv Stock Exchange in particular, is subject to fluctuation, and changes in our share price may be unrelated to our operating performance. The market price of our ordinary shares on the Tel Aviv Stock Exchange has fluctuated in the past, and we expect it will continue to do so. The market price of our ADSs and warrants may likewise be subject to wide fluctuations. The market price of our ordinary shares and ADSs and warrants are and will be subject to a number of factors, including:

 

  · announcements of technological innovations or new therapeutic candidates by us or others;

  · announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;

  · expiration or terminations of licenses, research contracts or other development or commercialization agreements;

  · public concern as to the safety of drugs that we, our current or potential development and commercialization partners or others develop;

  · the volatility of market prices for shares of biotechnology companies generally;

  · success or failure of research and development projects;

  · departure of key personnel;

  · developments concerning intellectual property rights or regulatory approvals;

  · variations in our and our competitors’ results of operations;

  · changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or ADSs or warrants are covered by analysts;

  · changes in government regulations or patent decision;

  · developments by our current or potential development and commercialization partners; and

  · general market conditions and other factors, including factors unrelated to our operating performance.

 

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and ADSs and warrants and result in substantial losses by our investors.

 

Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful.

 

23
 

  

Future sales of our ordinary shares or ADSs or warrants could reduce the market price of our ordinary shares and ADSs and warrants.

 

All of our outstanding ordinary shares are registered and available for sale in Israel. As of June 30, 2015, we had an aggregate of 12,957,331 issued and outstanding ordinary shares (not including 21 shares held in treasury), 50,069,450 Series 2 Traded warrants to purchase 3,851,342 ordinary shares, up to ordinary shares issuable upon conversion of our outstanding August Loans (based upon an initial public offering price of $ per ADS (the midpoint of the initial public offering price range as set forth on the cover page of this prospectus)), warrants to purchase 1,720,000 ordinary shares issued to lenders of our August Loans, and 2,483,753 non-tradable options to purchase 232,888 ordinary shares under our 2013 Option Plan. See “Business ––August Loan Agreement” and “Management –– 2013 Option Plan.” Substantial sales of our ordinary shares or ADSs or warrants, or the perception that such sales may occur in the future, including sales of shares issuable upon the exercise of options, may cause the market price of our ordinary shares or ADSs or warrants to decline. Moreover, the issuance of shares underlying our options will also have a dilutive effect on our shareholders, which could further reduce the price of our ordinary shares and ADSs and warrants on their respective exchanges.

 

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable Securities and Exchange Commission and NASDAQ Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to U.S domestic issuers.

 

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ Listing Rules for U.S domestic issuers. We will follow home country practice in Israel with regard to (1) the composition of the board of directors, which does not require that a majority of a company’s board of directors be independent, but rather that there are at least two independent directors, (2) director nomination procedures, as permitted by the Israeli Companies Law, under which our board of directors selects director nominees, subject to the terms of our articles of association, which provide that incumbent directors are re-nominated for additional terms. Directors are not selected, or recommended for board of director selection, as required by the NASDAQ Listing Rules, by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised solely of independent directors, and (3) quorum requirement at shareholders’ meetings, as permitted under the Israeli Companies Law, under which and pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent at least 25% of the voting rights of our shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of 33 1/3% of the issued share capital required under the NASDAQ Listing Rules. In addition, we will follow our home country law, instead of the NASDAQ Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on The NASDAQ Capital Market may provide less protection than is accorded to investors under the NASDAQ Listing Rules applicable to domestic issuers.

 

In addition, as a foreign private issuer, we will be exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended or 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 Securities and Exchange Commission, or the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

 

We currently do not anticipate paying cash dividends, and accordingly, shareholders must rely on the appreciation in our ADSs for any return on their investment.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs will depend upon any future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which our holders have purchased their ADSs.

 

24
 

  

The ability of any Israeli company to pay dividends or repurchase its shares is subject to Israeli law, and the amount of cash dividends payable may be subject to devaluation in the Israeli currency.

 

The ability of an Israeli company to pay dividends or repurchase its shares is governed by Israeli law, which provides that distributions, including cash dividends and share repurchases, may be made only out of retained earnings as determined for statutory purposes in Israeli currency. Since we do not have earnings, we do not have any ability to pay dividends or repurchase our shares. In the event of a devaluation of the Israeli currency against the U.S. dollar, the amount in U.S. dollars available for payment of cash dividends out of prior years’ earnings will decrease.

 

You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for them, if it is illegal or impractical to make them available to you.

 

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended or the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

   

Holders of ADSs must act through the depositary to exercise rights of shareholders of our company.

 

Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders’ meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient notice of the meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if the ordinary shares underlying their ADSs are not voted as they requested. In addition, ADS holders will not be able to call a shareholders’ meeting.

 

25
 

 

Our ordinary shares and our ADSs will be traded on different markets and this may result in price variations.

 

Our ordinary shares trade on the Tel Aviv Stock Exchange, and we have applied to have our ADSs and warrants listed on The NASDAQ Capital Market. Trading on these markets will take place in different currencies (U.S. dollars on The NASDAQ Capital Market and New Israeli Shekels, or NIS, on the Tel Aviv Stock Exchange), and at different times (resulting from different time zones, different trading days and different public holidays in the U.S. and Israel). The trading prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.

   

Our ADSs and warrants have no prior trading history in the U.S., and an active market may not develop, which may limit the ability of our investors to sell our ADSs and warrants in the U.S.

 

There is no public market for our ADSs, warrants or ordinary shares in the U.S. Although we have applied to have our ADSs and warrants listed on The NASDAQ Capital Market, an active trading market for our ADSs or warrants may never develop or may not be sustained if one develops. If an active market for our ADSs or warrants does not develop, it may be difficult to sell your ADSs or warrants.

 

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ADSs or warrants, the price of our ADSs or warrants could decline.

 

The trading market for our ADSs and warrants will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our ADSs or warrants could decline if such research or reports are not published or if one or more securities analysts downgrade our ADSs or warrants or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

 

We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively

 

We currently intend to use the net proceeds from this offering to expand our clinical development program, specifically with respect to our Phase III clinical trial for our leading therapeutic candidate, KIT-302, finance the CMC activities required for submitting a New Drug Application to the FDA, perform the final PK (pharmacokinetic) trial for the selected formulation of KIT-302, repay outstanding August Loans; expand our clinical development pipeline for additional drug products; finance our business development activities to enable out-licensing of our leading therapeutic candidate, KIT-302; and for general corporate purposes, including working capital requirements. For more information, see “Use of Proceeds.” However, our management will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate 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, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.

 

26
 

  

We will incur increased costs as a result of operating as a public company in the U.S, and our management will be required to devote substantial time to new compliance initiatives.

 

We have applied to have our ADSs and warrants listed on The NASDAQ Capital Market. As a public company whose securities are listed in the United States, we will incur accounting, legal and other expenses that we did not incur as a public company listed on the Tel Aviv Stock Exchange, including costs associated with our reporting requirements under the Exchange Act. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC and The NASDAQ Capital Market, and provisions of Israeli corporate law applicable to public companies. We expect that these rules and regulations will increase our legal and financial compliance costs, introduce new costs such as investor relations and stock exchange listing fees, and will make some activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder). When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that we file with the SEC after the closing of this offering, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above and depending on our status as per Rule 12b-2 of the Exchange Act, our independent registered public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We have not yet commenced the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. This process will require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this determination and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls from our independent auditors and cause the market price of our ordinary shares ADSs and warrants to decline.

 

Changes in the laws and regulations affecting public companies will result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.

 

We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate to disclosures that we would only be required to make if we also ceased to be a foreign private issuer in the future, for example, the requirement to hold stockholder advisory votes on executive and severance compensation and executive compensation disclosure requirements for U.S. companies. However, as a foreign private issuer, we would still be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are exempt from such requirement for as long as we remain an emerging growth company, which may be up to five fiscal years after the date of this offering. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares, ADSs, or warrants less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares, ADS, or warrants less attractive as a result, there may be a less active trading market for our ordinary shares, ADS, and warrants and our share price may be more volatile.

 

27
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements in this Registration Statement may include forward looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “will”, “would”, and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, certain sections of this Registration Statement contain information obtained from independent industry and other sources. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

 

Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

 

the initiation, timing, progress and results of our preclinical and clinical trials, and other development efforts;

 

  our ability to successfully complete our clinical trials;

 

  our receipt of regulatory approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals;

 

  the clinical development, commercialization, and market acceptance of our therapeutic candidates;

 

  our ability to establish and maintain corporate collaborations;

 

  the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in preclinical studies or clinical trials;

 

  the implementation of our business model, strategic plans for our business and therapeutic candidates;

 

  the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others;

 

  estimates of our expenses, future revenues capital requirements and our needs for additional financing;

 

  competitive companies, technologies and our industry; and

 

  the political and security situation in Israel on our business.

 

You should review carefully the risks and uncertainties described under the heading “Risk Factors” in this prospectus for a discussion of these and other risks that relate to our business and investing in our ADSs and warrants. The forward-looking statements contained in this prospectus are expressly qualified in their entirety by this cautionary statement.

 

28
 

 

PRICE RANGE OF OUR ORDINARY SHARES

 

Our ordinary shares are currently traded on the Tel Aviv Stock Exchange under the symbol “KTOV”. No trading market currently exists for our ADSs, warrants or ordinary shares in the U.S. We have applied to have our ADSs and warrants listed on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”, respectively.

 

The following table sets forth, for the periods indicated, the reported high and low closing sales prices of our ordinary shares on the Tel Aviv Stock Exchange in NIS and U.S. dollars. U.S. dollar per ordinary share amounts are calculated using the U.S. dollar representative rate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of Israel.

 

    NIS     $ U.S.  
    * Price Per
Ordinary Share
    * Price Per
Ordinary Share
 
    High     Low     High     Low  
Annual                                
                                 
2014     18.06       1.34       5.16       0.34  
2013     33.27       3.04       9.41       0.83  
2012     9.31       3.29       2.43       0.83  
2011     15.01       4.76       4.21       1.25  
2010     20.50       5.86       5.41       1.52  
                                 
Quarterly                                
                                 
Second Quarter 2015     1.84       1.38       0.47       0.35  
First Quarter 2015     4.13       1.51       1.05       0.38  
Fourth Quarter 2014     3.35       1.34       0.90       0.34  
Third Quarter 2014     6.89       3.25       2.01       0.88  
Second Quarter 2014     8.35       6.01       2.41       1.75  
First Quarter 2014     18.06       8.10       5.16       2.33  
Fourth Quarter 2013     33.27       10.28       9.41       2.96  
Third Quarter 2013     31.72       5.76       8.97       1.58  
Second Quarter 2013     7.36       5.76       2.03       1.61  
First Quarter 2013     7.36       3.04       2.02       0.82  
                                 
Most Recent Six Months                                
                                 

July 2015

   

0.82

     

1.37

     

0.48

     

0.36

 
June 2015     1.64       1.38       0.43       0.37  
May 2015     1.84       1.57       0.47       0.41  
April 2015     1.69       1.39       0.43       0.35  
March 2015     4.01       1.51       1.01       0.38  
February 2015     4.13       3.61       1.05       0.93  

  

* Price adjusted due to the distribution of dividends in October 2012 in connection with the sale by Kitov Holdings (then known as Mainrom Line Logistics Ltd.) of all of its activities, assets, rights, obligations and liabilities to a private company held by its then controlling shareholders. See “Business – Company History.”

 

On August 18, 2015 the last reported sale price of our ordinary shares on the Tel Aviv Stock Exchange was NIS 1.523 per share, or $ 0.40 per share (based on the representative U.S. dollar NIS rate of exchange of 3.829 on August 18, 2015). As of August 18, 2015 there was one shareholder of record of our ordinary shares. The number of record holders is not representative of the number of beneficial holders of our ordinary shares, as the shares of all shareholders listed on the Tel Aviv Stock Exchange are recorded in the name of our Israeli share registrar, Registration Company of United Mizrahi Bank Ltd. There were no record holders of our ordinary shares in the U.S. as of August 18, 2015.

 

29
 

 

USE OF PROCEEDS

 

We estimate that our net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise in full their over-allotment option to purchase additional ADSs and warrants, based upon an initial public offering price of $ per ADS and $ per warrant (the midpoints of the initial public offering price ranges as set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the initial public offering prices would increase (decrease) the net proceeds we receive from this offering by approximately $ million, assuming that the number of ADSs and warrants offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The primary purposes of this offering are to raise additional capital, create a U.S. public market for our ADSs and warrants, allow potential future access to the U.S. public markets should we need more capital in the future, increase the profile and prestige of our company with existing and possible strategic partners and make our shares more valuable and attractive to our employees and potential employees for compensation purposes.

 

We expect to use the net proceeds from this offering as follows:

 

(i) approximately $1.5 million to expand our clinical development program, specifically with respect to the Phase III clinical trial for our leading therapeutic candidate , KIT-302;

 

(ii) approximately $1.0 million to finance the CMC activities required for submitting a New Drug Application (NDA) for KIT-302 to the FDA;

 

(iii) approximately $0.5 million to perform the final PK (pharmacokinetic) trial for the selected formulation of KIT-302;

 

(iv) approximately $0.5 million finance our business development activities to enable out-licensing of our leading therapeutic candidate, KIT-302;
     
  (v)

up to approximately $0.6 million to repay the August Loans;

 

(vi)

approximately $1 to $3 million to expand our clinical development pipeline for additional drug products; and

 

(vii) the balance of the net proceeds for general corporate purposes, including working capital requirements.

 

We believe that based on the anticipated size of this offering as set forth on the cover page of this prospectus, the net proceeds from the offering, together with our current cash reserves, should be sufficient to complete the Phase III clinical trial for KIT-302, perform the final PK trial for KIT-302, and perform the scale-up and ancillary work required to submit an NDA for KIT-302 to the FDA.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty any or all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts, if any, that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the results of our Phase III clinical trial for KIT-302, the results of the final PK trial, and our ability to identify additional therapeutic candidates to be developed. As a result, our management will have broad discretion in the application of the net proceeds, which may include uses not set forth above, and investors will be relying on our judgment regarding the application of the net proceeds from this offering.

 

30
 

 

DIVIDEND POLICY

 

We anticipate that, for the foreseeable future, we will retain any future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends for at least the next several years. We did not declare dividends during the two most recent fiscal years and the six month period ended June 30, 2015.

 

The distribution of dividends may also be limited by the Israeli Companies Law, which permits the distribution of dividends only out of retained earnings or earnings derived over the two most recent fiscal years, whichever is higher, provided that there is no reasonable concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become due. Our articles of association provide that dividends will be paid at the discretion of, and upon resolution by, our board of directors, subject to the provision of the Israeli Companies Law.

 

31
 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of June 30, 2015 on:

 

an actual basis; and

 

on an as adjusted basis, to give further effect to the issuance of ADSs and warrants to purchase up to ADSs in this offering at an initial public offering price of $ per ADS and $ per warrant, the midpoints of the initial public offering price ranges as set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

You should read this table in conjunction with our financial statements and related notes appearing at the end of this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

    As of June 30, 2015  
    Actual     Adjusted for August Loan     Adjusted Pro
Forma
 
       
Cash and cash equivalents     1,652       2,082        
                         
Shareholders’ equity:                        
Ordinary shares             -          
August Loans     -       430          
Share premium     11,626       11,626          
Capital reserves     1,040       1,040          
Warrants to purchase ADSs             -          
Accumulated deficit     (11,534 )     (11,534 )        
Total shareholders’ equity     1,132       1,132          
Total capitalization     1,132       1,562          

 

 

This table is based on an initial public offering price of per ADS and per warrant , the midpoints of the ranges on the cover page of the prospectus. The number of ordinary shares to be outstanding after this offering is based on ordinary shares outstanding as of     , 2015 and:

 

•           assumes no exercise by holders of our 50,069,450 Series 2 Traded warrants to purchase 3,851,342 ordinary shares;

 

•           assumes no exercise by holders of our options to purchase 232,888 ordinary shares at a weighted average exercise price of NIS 9.52 (approximately $2.52) per share under our 2013 Option Plan, as amended;

 

•           excludes up to ordinary shares issuable at our discretion upon conversion of our outstanding August Loans following closing of this offering;

 

•           excludes up to 1,720,000 ordinary shares issuable upon exercise of warrants issued to the lenders under our August Loans;

 

•           excludes ordinary shares underlying the ADSs issuable upon exercise of warrants to be issued in this offering;

 

•           assumes no exercise by the underwriters of their over-allotment option to purchase from us up to     additional ADSs and additional warrants to purchase up to ADSs ; and

 

•           gives effect to the Consolidation.

 

A $1.00 increase (decrease) in the initial public offering prices would increase (decrease) the as adjusted amount of each of cash and cash equivalents, share premium and total capitalization, by approximately $ million, assuming that the number of ADSs and warrants offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

32
 

 

DILUTION

 

If you invest in our ADSs in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per ADS and the consolidated net tangible book value per ADS after this offering. Such calculation does not reflect any dilution associated with the sale and exercise of the warrants. Our consolidated net tangible book value as of June 30, 2015 was $1.132 million, or $0.09 per ordinary share or $ 1.75 per ADS. Consolidated net tangible book value per ADS was calculated by:

 

subtracting our consolidated liabilities from our consolidated tangible assets;

 

dividing the difference by the number of ordinary shares outstanding; and

 

Multiplying by the number of ordinary shares underlying each ADS.

 

After giving effect to adjustments relating to this offering, our consolidated net tangible book value on June 30, 2015 would have been approximately $ million, equivalent to $ per ADS. The adjustments made to determine our consolidated net tangible book value are as follows:

 

an increase in consolidated tangible assets to reflect the net proceeds of this offering received by us as described under “Use of Proceeds;” and

 

the addition of the ADSs offered in this prospectus (as set forth on the cover page of this prospectus), to the number of ordinary shares outstanding.

 

The following table illustrates the immediate increase in our consolidated net tangible book value of $ per ADS and the immediate dilution to new investors:
Initial public offering price per ADS
               
Consolidated net tangible book value per ADS as of June 30, 2015                
Increase in consolidated net tangible book value per ADS attributable to the offering                
As adjusted consolidated net tangible book value per ADS after this offering                
Dilution per ADS to new investors                
                 
Percentage of dilution per ADS to new investors               %

 

A $1.00 increase (decrease) in the initial public offering price of $ per ADS (the midpoint of the initial public offering price range as set forth on the cover page of this prospectus) would increase (decrease) the consolidated net tangible book value attributable to this offering by $ per ADS, the consolidated net tangible book value after giving effect to this offering by $ per ADS and the dilution per ADS to new investors in this offering by $ , assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

If the underwriters’ over-allotment option to purchase additional ADSs from us is exercised in full, and based on an initial public offering price of $ per ADS (the midpoint of the initial public offering price range as set forth on the cover page of this prospectus), the consolidated net tangible book value attributable to this offering would be $     per ADS, the consolidated net tangible book value after giving effect to this offering would be $     per ADS and the dilution per ADS to new investors in this offering would be $     , after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The table below summarizes, as of June 30, 2015, the differences for our existing shareholders and new investors in this offering, with respect to the number of ADSs purchased from us, the total consideration paid and the average per ADS price paid before deducting fees and offering expenses.

 

    Shares purchased     Total consideration     Average
price per
share
 
    Number     %     Amount     %        
Existing shareholders                   $               $    
New investors                                        
Total             100     $         100     $    

 

33
 

 

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

 

The following table sets forth our selected consolidated financial data, which is derived from our consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. The selected consolidated statements of financial position as of December 31, 2014 and 2013 and our selected consolidated statements of operations data for the years ended December 31, 2014, 2013, and 2012 is derived from our audited consolidated financial statements presented elsewhere in this prospectus. You should read this selected consolidated financial data in conjunction with, and it is qualified in its entirety by, reference to our historical financial information and other information provided in this prospectus including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes. The historical results set forth below are not necessarily indicative of the results to be expected in future periods.

 

    Year Ended December 31,    

Six Months ended

June,

 
    2014     2013     2012     2015     2014  
             
    (U.S. Dollars in thousands, except per share and weighted
average shares data)
 
Statement of Operations:      
Research and development expenses     3,192       109       94       919       1,928  
General and administrative expenses     1,269       1,061       608       708       476  
Trade listing expenses and other expenses     720       1,383       -       -       720  
                                         
Operating loss     5,181       2,553       702       1,627       3,124  
Financing expense, net     71       75       1       55       85  
Loss for the period     5,252       2,628       703       1,682       3,209  
Loss per ordinary share: (1)                                        
Basic and diluted     *(1.17)       *(1.60)       *(0.52)       *(0.18)       (0.91)  
Weighted average number of ordinary shares used in computing basic and diluted loss per share (in thousands):     *4,482       *1,641       *1,351       9,338       *3,529  

 

* Adjusted to reflect the Consolidation

 

    December 31,
2014
    December 31,
2013
    June 30,
2015
 
                   
    (U.S. Dollars in thousands)  
Balance Sheet Data:                        
Cash and cash equivalents     1,313       193       1,652  
Working capital(*)     773       (946 )     1,216  
Total assets     1,759       311       2,009  
Total liabilities     (986 )     (1,257 )     (877 )
Accumulated deficit     (9,852 )     (4,600 )     (11,534 )
 Total equity (deficit)     773       (946 )     1,132  

 

(*) Working capital is defined as current assets less current liabilities

 

(1) Basic loss per ordinary share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. There are no differences between basic and diluted loss per ordinary share since there are no dilutive potential ordinary shares.

 

34
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of the prospectus contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. See Special Note Regarding Forward-Looking Statements.”

 

Introduction

 

We are a biopharmaceutical company focused on the development of therapeutic candidates for the simultaneous treatment of two clinical conditions:

 

· pain caused by osteoarthritis, and

  

  · hypertension (high blood pressure), which can be pre-existing or caused by the treatment for osteoarthritis.

 

In particular, we focus on developing combinations of existing drugs in advanced stages of development. We currently have two combinations in our pipeline, KIT-301, based on the generic drugs naproxen and isradipine, and KIT-302, based on celecoxib and the generic drug amlodipine besylate. Both naproxen and celecoxib are active ingredients of known and approved-for-use drugs designed primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug “Celebrex®”. These combinations are designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using NSAIDs for treating pain caused by osteoarthritis. Since the commencement of our pharmaceutical research and development activities, we have not generated any revenues.

 

We are currently focusing our development efforts on KIT-302, which is in an advanced stage of its Phase III clinical study. We are currently not developing KIT-301, for which we have an active IND, due to our need to allocate resources for advancing the development of KIT-302. Depending on market acceptance of KIT-302 if approved, we will consider whether to continue the further development of KIT-301.

 

Where applicable, we intend to seek FDA approval for the commercialization of our therapeutic candidates through the Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding regulatory paths in other foreign jurisdictions. Our current pipeline consists of two clinical development therapeutic candidates, KIT-301 and KIT-302, which have been cleared for Phase III clinical trials, which will then be subject to review and approval by the FDA. Upon and subject to receipt of the requisite approvals, we intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements with pharmaceutical companies on a global and/or territorial basis. We may also evaluate, on a case by case basis, co-development and similar arrangements, as well as the independent commercialization of our therapeutic candidates.

 

On July 11, 2013, Kitov Holdings (then known as Mainrom Line Logistics Ltd.) acquired issued and outstanding shares of Kitov Pharmaceuticals, in exchange for the issuance by Kitov Holdings to Kitov Pharmaceuticals’ shareholders of ordinary shares constituting, immediately following such issuance, approximately 63.75% of the fully diluted share capital of Kitov Holdings (subject to a potential issuance of additional ordinary shares of Kitov Holdings to Kitov Pharmaceuticals’ shareholders upon the attainment of a milestone in connection with our Phase III clinical trial for KIT-302). See “Business – Share Transfer Agreement with Kitov Pharmaceuticals”. The acquisition was accounted for under IFRS as issued by the IASB, as a reverse merger, and therefore the consolidated financial statements of Kitov Holdings presented in this report include the financial results of Kitov Pharmaceuticals for the two years ended December 31, 2013 and 2014 and of Kitov Holdings for the period from July 11, 2013 to December 31, 2014.

 

History of Losses

 

Since commencement of our pharmaceutical research and development operations, we have generated significant losses mainly in connection with the research and development of our therapeutic candidates. Such research and development activities are expected to expand over time and will require further resources if we are to be successful. As a result, we expect to continue incurring operating losses, which may be substantial over the next several years, and will need to obtain additional funds to further develop our research and development programs. As of June 30, 2015, we had an accumulated deficit of approximately $11.5 million.

 

We expect to continue to fund our operations over the next several years through public or private equity offerings, debt financings or through commercialization of our therapeutic candidates. As of June 30, 2015, we had approximately $1.6 million of cash and cash equivalents.

 

35
 

 

Components of Statement of Operations

 

Research and Development Expenses

 

See “– Research and Development, Patents and Licenses” below.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of compensation for directors, employees and consultants in executive and operational functions. Other significant general and administrative costs include professional fees for outside accounting and legal services, travel costs and insurance premiums.

 

Expenses Related to Stock Exchange Listing

 

Expenses related to stock exchange listing represents the effective cost of the acquisition of Kitov Holdings, at that time a public shell company, from an accounting perspective, by Kitov Pharmaceuticals. The cost was determined based on the market value of the outstanding shares of Kitov Holdings that were held by the former shareholders of Kitov Holdings immediately following the acquisition.

 

Other Expenses

 

Other expenses represent payments made to Mr. Sheer Roichman as required by the Share Transfer Agreement. See “Business – Share Transfer Agreement with Kitov Pharmaceuticals.”

 

Finance Income and Finance Expense

 

Finance Income comprises changes in the fair value of financial liabilities and Finance Expense consists primarily of interest and fees in connection with loans granted to Kitov Holdings from third parties and related parties.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with IFRS as issued by the IASB, requires companies to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an inherent degree of uncertainty and actual results may differ. Our significant accounting policies are more fully described in Note 3 to our annual financial statements included elsewhere in this prospectus. Critical accounting estimates and judgments are evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are particularly important to the portrayal of our financial position and results of operations.

   

Share-based compensation

 

In accordance with IFRS 2 Share – based Payment, the grant of stock options to our employees for services rendered represents a supplementary benefit. Under IFRS 2 Share – based Payment, we estimate the fair value of these stock options at the grant date and record the value within shareholders’ equity. Fair value is determined using a standard option pricing model that takes into account the specific features of the stock option plan (net price, period of exercise, etc.), market data at the grant date (such as price, volatility, etc.) and behavioral assumptions relating to option holders. Different assumptions could result in material changes to the expense amounts recorded for these options.

 

36
 

 

Operating Results

 

Comparison of the Six Month Period Ended June 30, 2015 to the Six Month Period Ended June 30, 2014

 

Research and Development Expenses

 

Research and development expenses decreased to $919,000 during the six-month period ended June 30, 2015 from $1.928 million during the six-month period ended June 30, 2014. This decrease was primarily due to the offset of amounts to be paid to us under the the terms of our agreement with Dexcel Ltd., or Dexcel (see “Business – Services and License Agreements – Development Services Agreement with Dexcel”).

 

General and Administrative Expenses

 

General and administrative expenses increased to $708,000 during the six-month period ended June 30, 2015 from $476,000 during the six-month period ended June 30, 2014. This increase was primarily due to additional professional fees and to increased salary costs and consulting fees.

 

Other Expenses

 

During the six-month period ended June 30, 2014, other expenses were NIS 2.5 million (approximately $720,000 based on the representative rate of exchange on the date of payment, March 12, 2014) due to the payment to Mr. Sheer Roichman as required by the Share Transfer Agreement. See “Business – Share Transfer Agreement with Kitov Pharmaceuticals.” During the six-month period ended June 30, 2015 there were no other expenses.

 

Operating Loss

 

Operating loss decreased to $1.627 million during the six-month period ended June 30, 2015 from $3.124 million during the six-month period ended June 30, 2014 primarily due to the decrease in research and development expenses and the lack of other expenses described above.

    

Finance Expense

 

Finance expense decreased to $55,000 during the six-month period ended June 30, 2015 from $85,000 during the six-month period ended June 30, 2014 primarily resulting from the weaker rate of exchange of NIS to U.S. dollars in 2015 and from changes in the fair value of financial liabilities.

 

Loss for the Period

 

Loss for the period decreased to $1.682 million during the six-month period ended June 30, 2015 from $3.209 million during the six-month period ended June 30, 2014 primarily due to the decrease in research and development expenses and the lack of other expenses described above.

 

Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013

 

Research and Development Expenses

 

Research and development expenses increased to $3.192 million during the year ended December 31, 2014 from $109,000 during the year ended December 31, 2013. This increase was primarily due to costs associated with preparation for and conduct of the Phase III clinical trial for KIT-302 and the formulation of the combination drug by Dexcel.

 

General and Administrative Expenses

 

General and administrative expenses increased to $1.269 million during the year ended December 31, 2014 from $1.061 million during the year ended December 31, 2013. This increase was primarily due to additional professional fees as a public company, following the acquisition of Kitov Pharmaceuticals by Kitov Holdings on July 11, 2013, as well as increased salary costs and consulting fees.

 

37
 

  

Expenses Related to Stock Exchange Listing

 

Expenses related to stock exchange listing was $1.383 million during the year ended December 31, 2013 and represents the effective cost of the acquisition of Kitov Holdings, at that time a public shell company, from an accounting perspective, by Kitov Pharmaceuticals. There were no such expenses during the year ended December 31, 2014.

 

Other Expenses

 

During the year ended December 31, 2014, other expenses were NIS 2.5 million (approximately $720,000 based on the representative rate of exchange on the date of payment, March 12, 2014) due to the payment to Mr. Sheer Roichman as required by the Share Transfer Agreement See “Business – Share Transfer Agreement with Kitov Pharmaceuticals.” During the year ended December 31, 2013 there were no other expenses.

 

Operating Loss

 

Operating loss increased to $5.181 million during the year ended December 31, 2014 from $2.553 million during the year ended December 31, 2013 due to the increases in research and development expenses, general and administrative expenses and other expenses described above.

 

Finance Expense

 

Finance expense increased to $345,000 during the year ended December 31, 2014 from $75,000 during the year ended December 31, 2013 primarily resulting from the weaker rate of exchange of NIS to U.S. dollars in 2014. Finance income was $274,000 during the year ended December 31, 2014 as a result of changes in the fair value of financial liabilities. There was no finance income during the year ended December 31, 2013.

 

Loss for the Year

 

Loss for the year increased to $5.252 million during the year ended December 31, 2014 from $2.628 million during the year ended December 31, 2013 due to the increase in operating loss and finance expense described above. 

 

JOBS Act

 

On April 5, 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was signed into law. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. In addition, as a result of this election, our future financial statements may not be comparable to those of public companies that are not emerging growth companies and are required to comply with public company effective dates for new or revised accounting standards.

 

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we also elected or may elect to rely on other exemptions, including without limitation, not (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.

 

38
 

 

Liquidity and Capital Resources

 

Our therapeutic candidates are in the research and development stage and therefore do not generate revenues. Since commencement of our operations as a pharmaceutical research and development company, our activities have been financed by equity offerings and private loans. We have raised an aggregate of approximately NIS 4.1 million (approximately $1.137 million) from private loans (of which $430,000 from the August Loans remain outstanding) and gross proceeds of approximately NIS 33.5 million (approximately $9.2 million based on the representative rates of exchange on the dates of the closings, March 3, 2014, September 3, 2014, and March 30, 2015) from our public offerings on the Tel Aviv Stock Exchange (described below). The proceeds from the public offerings were used to repay the private loans and to fund our ongoing operations. As of June 30, 2015, we had on hand approximately $1.6 million in cash and cash equivalents.

 

We estimate that so long as no significant revenues are generated from our therapeutic candidates, we will need to raise substantial additional funds to acquire, develop and/or commercialize our current therapeutic candidates and any additional therapeutic candidates, as our current cash and short-term investments are not sufficient to complete the research and development of both of our current therapeutic candidates and any additional therapeutic candidates and fund our related expenses. However, additional financing may not be available on acceptable terms, if at all. Our long term capital requirements will depend on many factors, including:

 

·

the regulatory path of our therapeutic candidates;

 

  · our ability to successfully commercialize our therapeutic candidates, including securing commercialization agreements with third parties and favorable pricing and market share;

 

  · the progress, success and cost of our clinical trials and research and development programs;

 

  · the costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;

 

  · the costs of obtaining and enforcing our issued patents and defending intellectual property-related claims;

 

  · the costs of developing sales, marketing and distribution channels; and

  

  · our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.

 

If we are unable to commercialize or out-license our therapeutic candidates or obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research and development programs related to the therapeutic candidates, which may have a material adverse effect on our business, financial condition and results of operations.

 

Cash Flow

 

Operating activities

 

For the year ended December 31, 2014, net cash flow used in operating activities was approximately $4.526 million compared to approximately $512,000 for the year ended December 31, 2013. The increase in net cash flow used in operating activities was due to costs associated with preparation for and conduct of the Phase III clinical trial for KIT-302 and the formulation of the combination drug by Dexcel following the acquisition of Kitov Pharmaceuticals Ltd. by Kitov Holdings. The operating activities consisted of regulatory, strategy, planning and initiation of the Phase III clinical trial for KIT-302 and the formulation of prototypes of KIT-302, including increased payments to consultants and other service providers.

 

Investment activities

 

We had no investment activities during the years ended December 31, 2014 and 2013.

 

39
 

 

Financing activities

 

For the year ended December 31, 2014, financing activities consisted of net proceeds from issuance of shares and warrants on the Tel Aviv Stock Exchange of $6.6 million, repayment of loans received from related parties of $622,000 net repayment of loans received from third parties of $114,000, proceeds from conversion of options to shares of $57,000, and interest payments of $100,000, compared to loans received from related parties of $578,000 for the year ended December 31, 2013. The proceeds from the share issuances were used to finance the activities related to the Phase III clinical trial for KIT-302 and the formulation of prototypes of KIT-302 following the acquisition of Kitov Pharmaceuticals by Kitov Holdings.

  

Research and Development, Patents and Licenses

 

Our research and development expenses consist primarily of costs of clinical trials, salaries, and consulting fees (including share-based payments), and fees paid to external service providers. We primarily use external service providers to manufacture our therapeutic candidates and to perform clinical trials with our therapeutic candidates. We charge all research and development expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop our therapeutic candidates.

 

From the commencement of the pharmaceutical research and development activities of Kitov Pharmaceuticals through June 30, 2015, we incurred research and development expenses of approximately $4.384 million. Set forth below is a summary of the research and development costs for the years ended December 31, 2014 and 2013 and for the six-month period ended June 30, 2015. Virtually all of the costs were incurred in connection with the development of KIT-302.

 

    Year Ended December 31,   Six        
   

 


2014

    2013          

Months 
ended June
30 , 2015

    Total  
    (U.S. dollars in thousands)  
Total gross direct project costs     3,192       109               919       4,220  

 

In addition to the major cost of clinical trials, research and development expenses include consulting expenses for regulatory and project management work required for development of our drug portfolio at the current stage of development. Set forth below is a summary of our research and development expenses based on the type of expenditure.

 

    Year Ended December 31,  
    2014     2013  
    US dollars in thousands  
Payroll expenses - related party     -       47  
Sub-contractors - preparations for clinical trials     3,192       62  
                 
      3,192       109  

 

In April 2014, we entered into an agreement with Dexcel for the development of the drug formulation for KIT-302 and its manufacture in quantities sufficient to support the filing of a New Drug Application with FDA (see “Business – Services and License Agreements– Development Services Agreement with Dexcel”). We therefore have begun incurring costs in 2014 for the development of the drug formulation for KIT-302.

 

Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of our therapeutic candidates for potential commercialization. We estimate a total cost of approximately $1 million to $1.5 million of research and development expenses in order to complete the Phase III clinical trial for KIT-302 and $150,000 to prepare for the Phase III clinical trial for KIT-301. In addition, we expect the final formulation PK trial for KIT-302 to cost approximately $800,000.

  

40
 

  

While we are currently focused on advancing our therapeutic candidates, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as well as available resources and the ongoing assessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future commercialization arrangements, when such commercialization arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. See “Risk Factors – If we and/or our potential commercialization partners are unable to obtain U.S. Food and Drug Administration or other foreign regulatory authority approval for our therapeutic candidates, we and/or our potential commercialization partners will be unable to commercialize our therapeutic candidates.”

 

As we obtain results from clinical trials, we may elect to discontinue or delay development and clinical trials for certain therapeutic candidates in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate. See “Risk Factors – Risks Related to Our Business and Regulatory Matters.”

 

We expect our research and development expenses to increase from current levels as we continue the advancement of our clinical trials and therapeutic candidates’ development. The lengthy process of completing clinical trials and seeking regulatory approvals for our therapeutic candidates requires substantial expenditures. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Due to the factors set forth above, we are not able to estimate with any certainty if and when we would recognize any net revenues from our therapeutic candidates.

 

Disclosure of Contractual Obligations

 

The following table summarizes our significant contractual obligations as of June 30, 2015.

 

    Total     Less than
1 year
    1-3 years     3-5 years     More
than 5
years
 
    (U.S. dollars in thousands)
(unaudited)
 
                               
Office lease obligations     320       70       125       125       -  
Obligations to R&D service providers (1)     2,750       2,750                       -  
                                         
Total     3,070       2,820       250               -  
                                         

   

  (1) Reflects payments payable to Java Clinical Research and its sub-contractors, DABL Limited and Dexcel Ltd. upon achievement of various performance milestones in accordance with current time estimates, pursuant to our service agreements with them. See “Business - Services and License Agreements” and “Business – Services and License Agreements – Development Services Agreement with Dexcel”.

 

Kitov Pharmaceuticals had no material capital expenditures for the years ended December 31, 2014, 2013 and 2012.

 

Trend Information

 

We are a biopharmaceutical company which focuses its activities on the development of our therapeutic candidates. It is not possible for us to predict with any degree of accuracy the outcome of our research and development or commercialization efforts with regard to any of our therapeutic candidates. Our research and development expenditure is our primary expenditure. Increases or decreases in research and development expenditure are primarily attributable to the level and results of our clinical trial activities and the amount of expenditure on those trials.

 

41
 

 

Off-Balance Sheet Arrangements

 

We are not party to any transactions, agreements or other contractual arrangements with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

 

Quantitative and Qualitative Disclosure about Market Risk

 

Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our financial position, results of operations or cash flows. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance.

 

Risk of Interest Rate Fluctuation and Credit Exposure Risk

 

We do not anticipate undertaking any significant long-term borrowings. At present, our credit and interest risk arises from cash and cash equivalents, deposits with banks as well as accounts receivable. A substantial portion of our liquid instruments is invested in short-term deposits in highly-rated institutions.

 

We estimate that because the liquid instruments are invested mainly for the short-term and with highly-rated institutions, the credit and interest risk associated with these balances is immaterial. The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments.

 

Equity Price Risk

 

We may be exposed to equity securities price risk because of investments held by us and classified in our financial statements as financial assets at fair value through profit or loss. To manage the price risk arising from investments in equity securities, we invest in marketable securities with high ratings and diversify our investment portfolio.

 

Foreign Currency Exchange 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, mainly against the NIS and other currencies. Although the U.S. dollar is our functional currency and reporting currency, a portion of our expenses are denominated in NIS. Our NIS expenses consist principally of payments to employees or service providers and short term investments in currencies other than the U.S. dollar. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the U.S. dollar. If the U.S. dollar fluctuates significantly against the NIS it may have a negative impact on our results of operations. We manage our foreign exchange risk by aligning the currencies for holding short term investments with the currencies of expected expenses, based on our expected cash flows.

 

Portfolio diversification is performed based on risk level limits that we set. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.

 

(A) Set forth below is a sensitivity test to possible changes in U.S. dollars/NIS exchange rate as of December 31, 2014:

 

Sensitive 
instrument
  Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
    Value
(U.S. dollars
in thousands)
    Income (loss) from
change in exchange
rate (U.S. dollars in
thousands)
 
    Down 
2%
    Down 
5%
          Up 5%     Up 2%  
Cash and cash equivalents     (3 )     (8 )     165       8       3  
Accounts receivable     (9 )     (21 )     428       21       9  
Suppliers     1       2       (33 )     (2 )     (1 )
Accounts payable     2       5       (100 )     (5 )     (2 )
Total income (loss)     (9 )     (23 )     460       23       9  

   

(B) As of the date of this prospectus, our interest rate risk exposure is in respect to bank deposits, which expose us to risk due to change in fair value interest rates. As of June 30, 2015 we had bank deposits carrying annual interest of 0.52%. Under these low interest rates, reasonable changes in interest rates are expected have negligible impact on the fair value of these assets.

 

 

42
 

 

BUSINESS

 

Overview

 

We are a biopharmaceutical company focused on the development of therapeutic candidates for the simultaneous treatment of two clinical conditions:

 

· pain caused by osteoarthritis; and

 

  · hypertension (high blood pressure), which can be pre-existing or caused by the treatment for osteoarthritis.

 

In particular, we focus on developing combinations of existing drugs in advanced stages of development. We currently have in our pipeline two combinations, KIT-301, based on the generic drugs naproxen and isradipine, and KIT-302, based on celecoxib and the generic drug amlodipine besylate. Both naproxen and celecoxib are active ingredients of known and approved-for-use drugs designed primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug “Celebrex®”. These combinations are designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using NSAIDs for treating pain caused by osteoarthritis.

 

We are currently focusing our development efforts on KIT-302, which is in an advanced stage of its Phase III clinical study. We are currently not developing KIT-301, for which we have an active IND, due to our need to allocate resources for advancing the development of KIT-302. Depending on market acceptance of KIT-302 if approved, we will consider whether to continue the further development of KIT-301.

 

Where applicable, we intend to seek FDA approval for the commercialization of our therapeutic candidates through the Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding regulatory paths in other foreign jurisdictions. Our current pipeline consists of two clinical development therapeutic candidates, KIT-301 and KIT-302, which have been cleared for Phase III clinical trials, which will then be subject to review and approval by the FDA. Upon and subject to receipt of the requisite approvals, we intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements with pharmaceutical companies on a global and/or territorial basis. We may also evaluate, on a case by case basis, co-development and similar arrangements, as well as independent commercialization of our therapeutic candidates.

 

Our competitive strengths

 

We believe there are several advantages to the products we are developing, such as:

 

  · providing a solution to the concerns of physicians who avoid prescribing an NSAID treatment for pain caused by osteoarthritis due to its side effect of elevating blood pressure, in particular for patients with existing hypertension or pre-hypertension;

 

  · reassuring physicians who are concerned that their patients who are treated for osteoarthritis will also be treated for hypertension, which is a known side effect of NSAID treatments for pain caused by osteoarthritis. This is a particular concern, as hypertension is usually not accompanied by tangible symptoms, and therefore patients may not be aware of their condition or the need to treat it;

 

  · using one drug that also includes an active ingredient that treats hypertension either as an existing condition or as a side effect of using other drugs, ensures that the patient receives the suitable treatment for their disease and for its side effect;

 

  · purchasing one drug as opposed to purchasing two separate drugs may lead to financial savings for patients in the U.S. by requiring payment of just one co-payment and prescription fee as opposed to a double co-payment and prescription fee. In addition, the use of one combination drug reduces the patient’s discretion with respect to whether to purchase and use only one of the drugs and provides a comprehensive dual medical treatment in one combined drug; and
     
  · using calcium channel blockers in our therapeutic candidates as an antihypertensive.  Calcium channel blockers  are not included in the FDA Safety Information Release for NSAIDs co-administered with ACE inhibitors or with angiotensin II receptor antagonists.  

 

43
 

 

In addition to the aforementioned medical and economic advantages, we believe the combination drugs that we have developed have several commercial advantages, such as reduced development time compared to the development time of new chemical entities (NCEs) and decreased risk factors in the development process. These commercial advantages derive from the fact that combination drugs are based on known materials already approved for use by the FDA. The FDA offers a shortened regulatory procedure referred to as a “505(b)(2) NDA” to approve combination drugs. This procedure may be used to file a request to approve a product that relies on the results of the safety and effectiveness trials performed for the components of the combination in the past by others and not by the filers of the request for approval. Accordingly, the approval process in a 505(b)(2) NDA is shorter and less expensive compared to the approval process for NCEs, and is typically completed within a period of approximately five years (rather than a period of up to 15 years for approval of NCE drugs). In addition, the use of known, proven and safe components recognized by physicians and medical organizations, and the enhanced medical effect of concurrently treating and preventing hypertension, may shorten the time and decrease the costs usually required for the acceptance of the new product in the drug marketplace.

 

Our strategy

 

Our goal is to become a significant player in the development of innovative chemical drugs with a clinical and commercial added value.

 

Key elements of our strategy are to:

 

· develop combination products with clinical and commercial advantages in the treatment of hypertension and pain caused by osteoarthritis, based on a combination of existing drugs and obtain approval thereof from the FDA and other foreign regulatory authorities;

 

· expand our line of therapeutic candidates through the acquisition or in-licensing of technologies, products and drugs intended to meet clinical needs, thereby utilizing the skills, knowledge and experience of our personnel to develop and enhance the value of additional products, and bring them to market efficiently;

 

· capitalize on the FDA’s 505(b)(2) regulatory pathway to obtain more timely and efficient approval of our formulations of previously approved products, when applicable;

 

· cooperate with third parties to both develop and commercialize therapeutic candidates in order to share costs and leverage the expertise of others;
     
  ·

enter into sub-license agreements with international companies for potential or future therapeutic candidates based on potential upfront and milestone payments, royalties and/or other marketing arrangements, depending on product and market conditions; and

 

Our two current clinical stage therapeutic candidates, “KIT-301” and “KIT-302,” are described below.

   

Background on Osteoarthritis and Hypertension

 

Numerous factors influence the drug market, including the aging of the general population. As life expectancy increases, we expect that demand will increase for innovative drugs that treat diseases related to the elderly, such as osteoarthritis and hypertension.

 

Osteoarthritis

 

Arthritis means joint inflammation. The term is used to describe the pain, stiffness and/or swelling in the joints of the body where one or more bones are joined by ligaments. A normal joint provides a smooth surface enabling adjacent bones to move and glide on each other during normal motion. In contrast, an arthritic joint is one that may have varying degrees of inflammation and possibly destruction of the joint cartilage. These destructive changes preclude normal motion and cause pain.

 

The most common type of arthritis is called osteoarthritis and is more common with advancing age. People with osteoarthritis usually have joint pain and a decreased range of joint movement. Unlike some other forms of arthritis, osteoarthritis affects only the joints. This condition is also sometimes called degenerative joint disease. Osteoarthritis primarily affects the joint cartilage. Healthy cartilage allows bones to glide over one another and absorbs energy from the shock of physical movement. However, with osteoarthritis, the surface layer of cartilage breaks down and wears away. This allows the bony surface of the different bones under the cartilage to rub together, causing, pain, swelling, and loss of motion of the joint. Over time, affected joints may lose their normal shape. Also, bone spurs, small growths called osteophytes, may grow on the edges of the joint further impairing joint function. Thus, bits of bone or cartilage can break off and float inside the joint space, causing more pain and possible damage.

  

44
 

  

Osteoarthritis in the younger population is usually caused by traumatic injuries to the joints. In contrast, in the older population it is a more of a chronic degenerative disease process. The main symptom of osteoarthritis is pain that appears gradually, worsens with exertion, and is transiently relieved by rest.

 

The pain caused by osteoarthritis is described by patients as a deep pain or a burning sensation related to the joint tissues of the affected area. Osteoarthritis mainly affects the cartilage and disrupts the structural balance in the cartilage of the joint, causing the cartilage cells to increase production of new raw materials required to create cartilage, but concurrently produce enzymes that digest the cartilage.

 

Osteoarthritis is one of the most common diseases worldwide causing physical disability in adults. According to data published in the Center for Disease Control (CDC) website, an estimated 26.9 million U.S. adults in 2005 were diagnosed with osteoarthritis, of which approximately 50% were diagnosed as suffering from both osteoarthritis and hypertension. Among individuals in the US, it is estimated that over 40% will eventually suffer from osteoarthritis in at least one joint (Zhang Y., 2010 Clinics in Geriatric Medicine).

 

The pharmaceuticals used for treating osteoarthritis include a range of drugs. The particular choice of treatment is made according to the disease severity. These can range from acetaminophen for cases of milder severity, to Voltaren ® , naproxen, and Celebrex ® for moderate severity, up to treatment with narcotics for the most severe cases.

 

Various non pharmacological treatments are intended to relieve the pain caused by the disease and to preserve and improve joint function. Among these treatments are changes in the patient's life style, namely diet, physiotherapy and exercise. The objectives of these treatments are to strengthen the muscles adjacent to the joints and increase their ranges, thereby reducing body weight, and decreasing the loads on the weight carrying joints to subsequently reduce the intensity of the pain.

 

In some cases, the conservative non pharmacological treatments are not sufficiently helpful. In such cases, patients typically request medical treatment. According to data published on the website of the Mayo Clinic in April 2013, the most common medical treatments are the use of analgesics, such as NSAIDs, which include enzyme inhibitors, such as COX-2. NSAIDs are non-steroidal anti-inflammatory drugs that treat inflammation by inhibiting enzymes responsible for the development of inflammation and subsequent pain. COX-2 enzyme inhibitors are non-steroidal drugs that treat inflammation by directly inhibiting COX-2, an enzyme responsible for the development of inflammation and subsequent pain but do not target the COX-1 enzyme. Targeting selectivity for COX-2 reduces the risk of peptic ulceration, and is the main advantage of celecoxib, rofecoxib and other members of this drug class over non COX-2 selective NSAIDs.

 

After several COX-2 inhibiting drugs were approved for marketing, data from clinical trials revealed that COX-2 inhibitors caused a significant increase in heart attacks and strokes, with some drugs in the class possibly having worse risks than others. See "Business - Our Therapeutic Candidates – Competitive Treatments for Pain Caused by Osteoarthritis".

 

A typical osteoarthritis treatment plan with these analgesics is as follows: (i) initial treatment of minor osteoarthritis will begin with use of drugs such as acetaminophen; (ii) in the event that acetaminophen treatment is not effective, the physician will proceed to treatments using NSAIDs, which will begin using drugs such as Ibuprofen followed by naproxen and/or other NSAIDs (more than 20 types of drugs, including COX-2 enzyme inhibitors); (iii) in cases where treatment with these drugs is ineffective, the treatment will be direct injection of steroids into the affected joint; (iv) in cases where steroid injection is ineffective, treatment by injecting hyaluronic acid (HA) into the affected joint will be considered; and (v) in the event that all the aforementioned treatments fail, the patient may consider surgical replacement of the affected joint.

 

As noted above, non-steroidal anti-inflammatory drugs, or NSAIDs, both over-the-counter and prescription, are commonly taken to manage the pain of backache, osteoarthritis, rheumatoid arthritis, headache and other painful conditions. In 2012, approximately 100 million prescriptions were dispensed for oral anti-arthritis NSAIDs for the management of pain. Prescription sales of oral anti-arthritis NSAIDs in the U.S. in 2011 were approximately $3.0 billion.

   

45
 

 

NICOX, a pharmaceutical company, has attempted to develop NAPROXCINOD ®, a new chemical entity, or NCE, naproxen-based drug intended to treat pain and to act as an anti-hypertensive. From 2005 to 2010, NICOX completed three Phase III clinical trials following a significant investment. However, the results of the trials did not meet the FDA's expectations. Therefore, in May 2010, an outside advisory committee to the FDA recommended against approving the drug. As a result of this recommendation, and its own internal review, the FDA rejected the request for NDA approval. According to an announcement by NICOX in April 2012, pursuant to an appeal filed by NICOX in July 2011, a meeting was held in April 2012 between representatives of NICOX and the FDA, in which NICOX was informed that in order to gain approval of its drug, it must file a new New Drug Application, or NDA, that would include results from additional clinical trials, for the purpose of approving a specific dosage of the drug.

 

On July 9, 2015 the FDA published a safety announcement requiring labels for prescription NSAIDs to indicate that the risk of heart attack or stroke can occur as early as the first weeks of using an NSAID and that the risk may increase with longer use of the NSAID. In effect, the current labeling, in effect since 2005, will be strengthened as a result of a review by the FDA of a variety of new safety information on prescription and OTC NSAIDs, including observational studies, a large combined analysis of clinical trials, and other scientific publications. These studies were discussed at a joint meeting of the Arthritis Advisory Committee and Drug Safety and Risk Management Advisory Committee held in February 2015.

 

Hypertension (High Blood Pressure)

 

Hypertension is the most common chronic disease in the western world, affecting approximately thirty percent (30%) of the U.S. adult population, according to an article in Morbidity and Mortality Weekly Report (Gillespie CD et al 2013) . Untreated, hypertension can cause significant morbidity and mortality.

 

According to its physiological definition, "hypertension" is an excessive pressure applied by the blood on the walls of the blood vessels. The term hypertension refers to excessive arterial blood pressure, which is the pressure in the arteries that propels blood to body organs.

 

The blood pressure is created as a result of the contraction of the cardiac muscle propelling blood into the arteries, which possess a limited capacity to store the blood. Blood pressure is measured in units of mercury (Hg) millimeters ("mm Hg"). Diagnosing hypertension in adults requires at least two measures on two different occasions. There are two blood pressure values: 

 

  · Systolic pressure is the peak pressure in the arteries measured in the cardiac cycle, during the contraction of the heart (systole); and

 

  · Diastolic pressure is the lowest pressure point in the arteries measured when the heart’s left ventricle is relaxing and there is no contraction of the heart (diastole).

 

For many decades hypertension was defined as a systolic blood pressure of greater than 130 mm Hg or a diastolic blood pressure of greater than 90 mm Hg.

 

The cause of hypertension in 95% of patients is unknown, and in these cases hypertension is defined as "essential hypertension". However, some studies postulate that genetic factors and environmental factors are involved in the initial development of hypertension. These factors include high salt consumption, obesity, excessive alcohol consumption, and probably mental and behavioral factors, which may be caused by various circumstances, including working in certain professions. Extreme hypertension may lead to functional disorders, and worsening health, while the affected person does not necessarily feel it and/or is aware of it. Therefore, hypertension is often referred to as the "Silent Killer".

 

The danger of hypertension is continuing damage to blood vessels in critical areas of the body, such as blood vessels in the heart, kidneys, eyes, and to the nerve tissue in the brain where any damage may cause a stroke. Moreover, damage to the blood vessels may cause blockage due to arteriosclerosis and lead to the tearing of the vessels. These complications may cause various diseases and even death.

 

46
 

 

Hypertension treatment methods focus on reducing the patient’s blood pressure to normal values, thereby preventing the occurrence of complications in the long term. Even a small increase in blood pressure may cause significant cardiovascular problems. For example, it has been shown that any increase in blood pressure above a systolic value of 115 mm Hg is associated with an increased risk of suffering a cardiovascular death (Prospective Studies Collaboration, The Lancet 2002). This finding has been repeatedly replicated and it is now established that there is no safe level of blood pressure increase above of the “normotensive baseline value” of approximately 115 systolic and 70 diastolic (MacMahon S., et al, The Lancet 1990, Collins R., et al, The Lancet 1990). The danger of any increase in blood pressure above a value of 115/70 has now been further documented to correlate with adverse cardiovascular outcomes, according to a 2011 article (Gou K., et al, Texas Heart Institute Journal, 2011).

 

It has been recognized for many decades that hypertension requires treatment. This fact has been recently re-emphasized by a paper that reviewed 147 prior randomized studies of antihypertensive treatments. This meta-analysis study (Law MR et al, BMJ 2009), concluded that the majority of the adult population with hypertension can be expected to benefit considerably from using anti-hypertension drugs.

 

Hypertension can be treated with many different classes of medications. These include diuretics, beta blockers, alpha blockers, calcium channel blockers, angiotensin converting enzyme (ACE) inhibitors, angiotensin receptor antagonists and vasodilators. In general, these medications work by either relaxing blood vessels and thereby lowering the pressure in arteries, or by assisting the body in removing fluid and thereby decreasing the pressure inside of arteries.

 

Although drugs from each of the various classes of antihypertension medications are able to reduce blood pressure, there are marked differences in their side effects profiles. For example, the diuretics can result in kidney problems, while the beta blockers can slow the heart rate. It is therefore important for physicians carefully to select which antihypertension medications to prescribe for patients based upon the patient’s other medical problems, including what concomitant medications they are receiving.

 

Blood pressure can undergo significant alterations when subjects are placed on various medications. For example, according to a May 2010 FDA Joint Meeting of the Arthritis Advisory Committee and the Drug Safety and Risk Management Advisory Committee report published by the FDA, an increase of about 3.5 mm Hg was diagnosed following the use of naproxen, while the use of Celebrex causes an increase of about 2.5 mm Hg . In addition, in August 2011 the FDA issued a Safety Information release stating that co-administration of NSAIDs, including selective COX-2 inhibitors, with ACE inhibitors or with angiotensin II receptor antagonists, may result in deterioration of renal function, including possible acute renal failure, and that the antihypertensive effect of ACE inhibitors may be attenuated by NSAIDs. No such Safety Information release was issued with regard to calcium channel blockers, which is the anti-hyperintensive used in our therapeutic candidates.

 

Background on Combination Products

 

Numerous companies worldwide have developed in recent years successful combination products comprised of a combination of two or more drugs to treat various medical conditions, where the safety and effectiveness of each of the drugs was proven separately.

 

Combination products manufactured and sold which are similar to our therapeutic product candidates, include:

 

  · Vimovo ® , which was developed by Pozen Inc. and was approved by the FDA in May 2010. Vimovo ® is a combination of naproxen and esomeprazole magnesium, marketed by AstraZeneca PLC worldwide (except in the  U.S.) and by Horizon Pharma in the U.S., and is designed for treating both pain and preventing gastric ulcer. Vimovo’s ® net sales in the U.S. reached $163 million in 2014, a 79% increase compared to net sales in 2013.

 

  · Caduet ® , a combination of Lipitor ® and amlodipine, was originally developed and manufactured by Pfizer and is designated for treating both cholesterol and hypertension, with approximate sales of $180 million in 2014.

 

  · Janumet ® , a combination of metformin and sitagliptin, manufactured by Merck & Co. Inc. and designated to treat diabetes, with approximate sales of $2,071 million in 2014.

 

47
 

 

Combination drugs may provide improved medical treatment of patients diagnosed as suffering from two or more different diseases and also may provide convenience to patients of using a single drug instead of multiple drugs. In addition, combination drugs have significant commercial advantages deriving from maintaining and even increasing the market share of the active ingredients after their patents expire by extending the life span of the patents for the active ingredients through the use of combination drugs.

  

Our Therapeutic Candidates

 

Studies show that approximately 13.5 million patients in the U.S. alone suffer concurrently from hypertension and chronic osteoarthritis pain in the joints, according to data published by the Center for Disease Control (CDC). We are developing two combinations, KIT-301 based on the generic drugs naproxen and isradipine and KIT-302 based on celecoxib and the generic drug amlodipine besylate. Both naproxen and celecoxib are active ingredients of known and approved-for-use drugs designed primarily to relieve pain caused by osteoarthritis. Celecoxib is the active ingredient in the branded drug “Celebrex®”. Our combinations are designed to simultaneously relieve pain caused by osteoarthritis and treat hypertension, which is one of the side effects of using NSAIDs for treating pain caused by osteoarthritis. Our strategy in developing our therapeutic candidates is based on our belief that the added anti-hypertensive drug will decrease the side effect of increased hypertension typically caused by the use of NSAIDs alone.

 

To date, no combination drug exists that offers the combined treatment of pain caused by osteoarthritis and hypertension. We therefore believe that KIT-301 and KIT-302 potentially hold significant advantages over the currently available drugs in the market, due to the fact that the drug treatment of osteoarthritis together with hypertension eases the burden of the treatment process for patients by providing the ability to use one drug instead of multiple drugs concurrently, thereby increasing the patients’ ease of compliance with the required treatment. KIT-301 does not include a treatment for gastrointestinal problems caused by the use of naproxen, the generic drug that is one of the components of KIT-301. In contrast, KIT-302 uses celecoxib, an NSAID that does not produce the extent of gastrointestinal side effects seen with other NSAIDs. For professional considerations and in order to manage our financial and human resources, we intend to advance the development of KIT-302 first, and only then consider the further development of KIT-301.

 

KIT-301

 

KIT-301 is a fixed dosage combination product based on two known and approved-for-use active ingredients (naproxen and isradipine), the combination of which we believe enables effective concurrent treatment of hypertension and pain caused by osteoarthritis. We are currently focusing our development efforts on KIT-302. We are currently not developing KIT-301, for which we have an active IND, due to our need to allocate resources for advancing the development of KIT-302. Depending on market acceptance of KIT-302 if approved, we will consider whether to continue the further development of KIT-301.

 

KIT-302

 

Similar to KIT-301, KIT-302 is a fixed dosage combination product based on two known active ingredients (celecoxib and amlodipine besylate), the effectiveness and safety of which has been separately proven for each, and which is intended to enable the concurrent treatment of pain caused by osteoarthritis and hypertension.

  

On November 7, 2013, we filed with the FDA the final statistical plan for the Phase III clinical trial protocol for KIT-302 as part of the FDA’s Special Protocol Assessment, or SPA, procedures. On February 20, 2014, the FDA replied and indicated that the proposed data analysis of the trial’s results that we submitted to the FDA provides a suitable solution to achieve the primary endpoint of the Phase III clinical trial and to support the final request for approval, which will be submitted. As a result of the SPA process, the FDA approved the Phase III trial design for our clinical trial, and cleared our clinical trial to begin, and on June 18, 2014, we commenced the clinical trial, as described below. The clinical trial is being performed using the Adaptive Trial Design method, or ATD, in accordance with the SPA. Based on the ATD format, in the first stage of the trial 150 patients are to be recruited. Then, the results of the trial will be disclosed to an independent external data monitoring committee, or DMC, which will analyze the results and determine the number of additional patients that we must recruit in order to demonstrate statistical validity and to meet the primary end point of the trial. To the extent the DMC recommends testing 200 or fewer additional patients, we will continue to recruit additional patients until reaching statistical validity and the primary end point of the trial. In the event that the DMC recommends testing more than 200 additional patients, our board will discuss the steps needed to complete such additional testing. If the trial generates the anticipated results, it would support our submission of a new drug application to FDA for KIT-302.

 

48
 

 

Below is a summary of our projected timeline for the development of KIT-302:

    

Current Status   2015   2016

FDA Approved SPA.

Ongoing Phase III clinical trial

  Completion of recruitment for  the Phase III clinical trial, pilot PK study  and commencement of our business development activity for marketing rights in KIT-302   Final conclusive PK study and filing NDA

 

KIT-302 is based on one generic drug (amlodipine besylate) and one drug currently protected by patents held by Pfizer Inc. (Celebrex®). The U.S. Patent and Trademark Office granted Pfizer a “reissue patent” covering methods of treating osteoarthritis and other approved conditions with celecoxib, the active ingredient in Celebrex®. The reissued patent extends U.S. patent protection for Celebrex from May 30, 2014 to Dec. 2, 2015.

 

We currently expect to receive approval from the FDA to market KIT-302 in 2016. As a result of this timing and because KIT-302 combines the treatment of osteoarthritis by celecoxib with amlodipine besylate, which treats the side effect of hypertension, we believe that KIT-302 may be an attractive alternative to the generic versions of Celebrex® that we expect to be sold before KIT-302 enters the market.  

 

Research and Development

 

Our strategy is to develop two drug combinations that are intended to treat hypertension and pain caused by osteoarthritis. These combinations are comprised of known and approved-for-use components, the combination of which is intended to simultaneously treat the pain caused by osteoarthritis and reduce blood pressure, thereby offsetting a side effect caused by the use of NSAIDs for osteoarthritis. Following discussions with the FDA, the FDA approved a development design in accordance with the 505(b)(2) NDA track. The FDA did not require us to perform pre-clinical trials ( i.e. , animal studies), and therefore we are required only to conduct a single Phase III clinical trial and a single standard pharmacokinetic trial, or PK Trial, for each of our therapeutic candidates.

 

For the development of KIT-302, we are performing a double blind, placebo controlled, Phase III clinical trial for testing the decrease of hypertension in patients receiving our KIT-302 drug product. This trial is being performed in the U.K. in four groups of thirty (30) to sixty (60) patients (and a total of 150 – 200 patients), with each patient treated over a total period of two weeks. Group One is receiving a placebo, Group Two is being treated with a standard drug available in the market for treating hypertension (amlodipine besylate, one of the components of KIT-302), Group Three is being treated with celecoxib only, and Group Four is being treated with the two components of KIT-302 (celecoxib and amlodipine besylate). The trial began in June 2014, and we expect to complete recruitment of the patients by the end of 2015 and to receive the interim results of the trial approximately eight weeks thereafter.

 

The purpose of the trial is to show that a combination of the two components of KIT-302, as demonstrated in Group Four, lowers blood pressure by at least 50% as compared to the reduction in blood pressure in patients in Group Two (treatment with the anti-hypertension drug only). Group One and Group Three are for control purposes and will not be considered in evaluating the primary endpoint. The trial is being conducted with off-the-shelf drugs, and the combination drug is being developed in parallel by Dexcel.

 

In addition, in connection with our Development Services Agreement with Dexcel, pursuant to which Dexcel is developing the formulation for KIT-302 and the subsequent stability testing and manufacturing scale-up in quantities adequate for submission of a new drug application to the FDA, Dexcel has performed a pilot clinical bioequivalence trial, or the Pilot PK Study. This Pilot PK Study was performed during April and May 2015, after completion of the formulation of two prototypes of KIT-302 to check the pharmacokinetics of the combination drug in order to show that the blood levels achieved with our combination are the same as those obtained with the individual components. On June 9, 2015, we obtained the successful results of the Pilot PK Study. See “Business – Services and License Agreements – Development Services Agreement with Dexcel” below for more information.

 

49
 

 

The Phase III clinical trial for KIT-302 is being conducted in medical centers in the United Kingdom on the basis of approvals received from the British Regulatory Authority (MHRA) and the U.K. ethics committees. It is not currently known whether the European regulatory authorities will require additional studies in order to grant their approval to market KIT-302 in Europe.

 

If the results of the Phase III clinical trial present clear proof of the effectiveness of KIT-302, we will consider employing a similar development strategy for our second therapeutic candidate, KIT-301.

   

Competition and Market

 

The pharmaceutical market is characterized by large international pharmaceutical companies that develop a wide range of products, both generic and new chemical entities (NCEs), which operate alongside smaller companies, such as ours, that develop a specific drug or a combination of drugs. Therefore, many small companies enter into agreements with such global companies during the drug development stage in order to continue the development or marketing of the drug, taking advantage of the financial, marketing and/or other resources available to such global companies. At the same time, the global companies tend to enter into agreements with smaller companies in order to save development time and resources. The global drug sector is a highly developed market with a turnover of hundreds of billions of U.S. dollars and intense competition. Most of the drugs we intend to develop have competing drugs, developed at the same time by other companies and organizations. We are therefore exposed to competition in our field of operation. Although we believe our therapeutic candidates have advantages which our competitors lack, there is a constant risk in the drug development field that a competing party will complete the development stages before we are able to develop our therapeutic candidates intended for the same disease. Moreover, a constant threat in our market is presented by new drugs that have already completed all the development stages and have already entered the market and are competing with the treatments and drugs previously available on the market. All the drugs that we are currently developing are intended for oral use.

 

Competitive Treatments for Pain Caused by Osteoarthritis

 

The competition for KIT-302 and KIT-301 is expected to come from the oral anti-arthritic market, or more specifically the traditional non-selective NSAIDs (such as naproxen and diclofenac), traditional NSAID/gastroprotective agent combination products or combination product packages (such as Vimovo®, Arthrotec®, Prevacid® and NapraPAC™) and the only COX-2 inhibitor in the U.S. market, Celebrex® (including generic versions of Celebrex® that we expect to be sold following expiration of the patent). The U.S. prescription market for oral solid NSAIDs was approximately $2.9 billion in 2011, of which 62% was accounted for by Celebrex®, according to the IMS Institute for Healthcare Informatics.

 

Due to the voluntary withdrawal of Vioxx® by Merck & Co. in September 2004, the FDA ordered the withdrawal of Bextra® by Pfizer and issued a Public Health Advisory in April 2005, requiring manufacturers of all prescription products containing NSAIDs to provide warnings regarding potential adverse cardiovascular events as well as life-threatening gastrointestinal events associated with the use of NSAIDs. Moreover, subsequent to an FDA advisory committee meeting in February 2005 that addressed the safety of NSAIDs, and, in particular, the cardiovascular risks of COX-2 selective NSAIDs, the FDA has indicated that long-term studies evaluating cardiovascular risk will be required to approve new NSAID products that may be used on an intermittent or chronic basis. We believe that KIT-302 has a competitive advantage over other drugs in the market because, as a COX-2 inhibitor, it has limited gastrointestinal side effects, and due to the addition of amlodipine besylate it is designed to address existing hypertension and the cardiovascular side effects of NSAIDs.

 

Intellectual Property

 

Patents, trademarks and licenses and market exclusivity

 

Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position. We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological investments. Our business is not dependent, however, upon any single patent, trademark or contract. See “Risk Factors – Risks Related to Intellectual Property”.

 

50
 

 

We own two patent applications. If granted, the two patent applications would have a maximum term extending until 2029, in all jurisdictions where the cases are pending.  The claimed subject matter in the two patent applications would include claims to new treatment methods using known compounds and new formulations and dosage types including unique combinations of known compounds.   See “Business Services and License Agreements – Acquisition Agreement for Intellectual Property” below. The following is a brief description of our patent applications:

 

  ·

An application for a patent relating to a drug which addresses the users of anti-inflammatory drugs, pain relief drugs or fever reducing drugs of the NSAID type, in combination with anti-hypertension treatment, aiming to prevent or reduce the side effects related to the cardiovascular system. Patent applications related to this application were filed in the U.S., Australia, Japan, Canada and Europe in May 2009. Two preliminary applications for the patent were filed with priority dates in 2008; and

 

  ·

An application to approve a patent relating to a drug for treating hypertension or rapid pulse caused by a stimulating medical treatment (e.g., drugs against obesity or ADHD). The request for the patent includes a combination of a recognized and proven drug for treating hypertension caused by using drugs for treating ADHD, including stimulants (e.g., CNS stimulants), or from using the two drugs separately, to prevent increased hypertension or rapid pulse caused by using a stimulant. The patent application includes additional claims which are based on NSAID, which causes increased hypertension or rapid pulse. The patent application was filed in the U.S. in February 2011 as a continuation in part application of the first application with the same priority date.

 

We have similar pending applications in Australia, Canada and Europe.

 

In the branded pharmaceutical industry, the majority of a branded drug’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales. The rate of this decline varies by country and by therapeutic category, and the number of generic competitor entrants to the market, among other factors; however, following patent expiration, branded products often continue to have market viability based upon the goodwill of the product name, which typically benefits from trademark protection.

 

A brand product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the brand company and any regulatory forms of exclusivity to which the NDA-holder is entitled.

 

Patents are a key determinant of market exclusivity for most branded pharmaceuticals. Patents provide the brand company with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products, and polymorphs. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country.

 

Market exclusivity is also sometimes influenced by regulatory exclusivity rights. Many developed countries provide certain non-patent incentives for the development of medicines. For example, the U.S., the European Union and Japan each provide for a minimum period of time after the approval of a new drug during which the regulatory agency may not rely upon the data of the original party who developed the drug to approve a competitor’s generic copy. Regulatory exclusivity rights are also available in certain markets as incentives for research on new indications, on orphan drugs and on medicines useful in treating pediatric patients. Regulatory exclusivity rights are independent of any patent rights and can be particularly important when a drug lacks broad patent protection. Most regulatory forms of exclusivity, however, do not prevent a competitor from gaining regulatory approval prior to the expiration of regulatory data exclusivity on the basis of the competitor’s own safety and efficacy data on its drug, even when that drug is identical to that marketed by the innovator.

 

We estimate the likely market exclusivity period for each of our 505(b)(2) products on a case-by-case basis. It is not possible to predict the length of market exclusivity for any of our branded products with certainty because of the complex interaction between patent and regulatory forms of exclusivity, and inherent uncertainties concerning patent litigation. There can be no assurance that a particular product will enjoy market exclusivity for the full period of time that we currently estimate or that the exclusivity will be limited to the estimate.

 

51
 

 

Government Regulations and Funding

 

Pharmaceutical companies are subject to extensive regulation by foreign, federal, state and local agencies, such as the FDA in the U.S., the Ministry of Health in Israel, or the various European regulatory authorities. The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the U.S. and various foreign countries. Additionally, in the U.S., we must follow rules and regulations established by the FDA requiring the presentation of data indicating that our products are safe and efficacious and are manufactured in accordance with current good manufacturing practices (cGMP) regulations. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or allow us to manufacture or market our products, and we may be criminally prosecuted. We and our manufacturers and clinical research organizations may also be subject to regulations under other foreign, federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. The U.S. government has increased its enforcement activity regarding illegal marketing practices domestically and internationally. As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.

 

These regulatory requirements impact our operations and differ from one country to another, so that securing the applicable regulatory approvals of one country does not imply the approval of another country. The approval procedures involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.

  

U.S. Food and Drug Administration Approval Process

 

The steps usually required to be taken before a new drug may be marketed in the U.S. generally include:

 

  · completion of pre-clinical laboratory and animal testing;

 

  · completion of required chemistry, manufacturing and controls testing;

 

  · the submission to the FDA of an investigational new drug, or IND, the application for which must be evaluated and found acceptable by the FDA before human clinical trials may commence;

 

  · performance of adequate and well-controlled human clinical trials to establish the safety, pharmacokinetics and efficacy of the proposed drug for its intended use;

 

  · submission and approval of an NDA; and

 

  · agreement with FDA of the language on the package insert.

 

Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND process.

 

In all the countries that are signatories of the Helsinki Declaration (including Israel), the prerequisite for conducting clinical trials (on human subjects) is securing the preliminary approval of the competent authorities of that country to conduct medical experiments on human subjects in compliance with the other principles established by the Helsinki Declaration.

 

The clinical testing of a drug product candidate generally is conducted in three sequential phases prior to approval, but the phases may overlap or be combined. A fourth, or post approval, phase may include additional clinical studies. The phases are generally as follows:

 

52
 

 

Clinical trials are usually conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers to assess safety of various dosing regimens and pharmacokinetics. After a safe dose has been established, in Phase II clinical trials the drug is administered to small populations of sick patients to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess safety. In the case of vaccines, the participants are healthy and the signs of efficacy can be obtained in early Phase I, therefore this Phase is defined as Phase I/II. Phase III clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.

   

Clinical trials must be conducted in accordance with the FDA’s good clinical practices, or GCP, requirements. The FDA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may move forward at designated check points based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

 

As a product candidate moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA increases as clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of our product candidates and their respective components (including the active pharmaceutical ingredient, or API) are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements.

 

Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA in the form of an NDA, requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, controls and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction of the FDA.

 

If an NDA submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months of submission, unless the application relates to an unmet medical need, or is for a serious or life-threatening indication, in which case the goal may be within six months of NDA submission. However, PDUFA goal dates are not legal mandates and the FDA response often occurs several months beyond the original PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always conclusive and the FDA and/or any advisory committee it appoints may interpret data differently than the applicant.

 

After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-marketing testing. Such post-marketing testing may include Phase IV clinical trials and surveillance to further assess and monitor the product’s safety and efficacy after approval. Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug.

   

53
 

 

If the FDA approves one of our product candidates, we will be required to comply with a number of post-approval regulatory requirements. We would be required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record keeping requirements. If we seek to make certain changes to an approved product, such as certain manufacturing changes, we will need FDA review and approval before the change can be implemented. For example, if we change the manufacturer of a product or our API, the FDA may require stability or other data from the new manufacturer, and such data will take time and are costly to generate, and the delay associated with generating these data may cause interruptions in our ability to meet commercial demand, if any. While physicians may use products for indications that have not been approved by the FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all.

 

The FDA may also require post-marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions or an approval that could otherwise restrict the distribution or use of the product.

 

Section 505(b)(2) New Drug Applications

 

We intend to submit applications for both of our therapeutic candidates via the 505(b)(2) regulatory pathway. As an alternate path for FDA approval of new indications or new formulations of previously-approved products, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2) of the Food, Drug, and Cosmetic Act, or FDC, was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication.

 

The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication supported by the Section 505(b)(2) application. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under Section 505(b)(2).

 

To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations , or Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized.

 

Special Protocol Assessment

 

The special protocol assessment, or SPA, process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase III clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request.

 

The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the drug candidate with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.

 

54
 

 

Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement, such as under the following circumstances:

 

•           public health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun;

 

•           a sponsor fails to follow a protocol that was agreed upon with the FDA; or

 

•           the relevant data, assumptions or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts.

 

In addition, a documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. We have obtained an SPA with the FDA for our Phase III clinical trial protocol for KIT-302. Agreement by the FDA to an SPA does not guarantee that the results of a study conducted in accordance with the agreement will be successful.

 

FDA Guidelines on Anti-Hypertensive Drugs

 

In March 2011, the FDA published a new draft guideline stating that drugs designed to be anti-hypertensive may include in the usage indication section of the package insert a statement that “Reduced blood pressure decreases the risk of suffering fatal and non-fatal cardiovascular events, mainly stroke and myocardial infarction”. We do not intend to prove through our clinical trial that our products reduce the risk of suffering from the aforesaid diseases. Nevertheless, we expect that the said draft guideline will have a positive effect on the combination drugs we are developing because the combination drugs we are developing are intended to prevent hypertension. The FDA has informed us in writing that the package insert of our combination drug product may contain the statement provided in the draft guideline.

 

European Regulatory Authorities

 

In the event that we wish to perform trials in Europe or market or sell our products in Europe, we must apply to an applicable country’s regulatory authorities with a request to approve our drugs according to the Mutual Recognition Procedure (MRP), which is a procedure applied by European Directive No. 2001/83/EC that enables access to medicinal products (drugs) in 27 countries of the European Union. The MRP approval process requires the applicant to receive approval in one of the EU countries and then apply for recognition of the other member countries to acknowledge the approval within their territory. It is not currently known whether the European regulatory authorities will require additional studies in order to grant their approval to market KIT-302 in Europe.

   

The Israeli Ministry of Health

 

Our operations are subject to permits from the Israeli Ministry of Health on two levels:

 

First, pertaining to the import of drugs and/or raw materials, we are required to apply to the Ministry of Health for approval from its medical accessories and devices unit (AMR).

 

Second, pertaining to research and development, when we conduct trials in human, the trials will be subject to the approval of the Helsinki Committee, which acts by force of the Public Health Regulations (Trials in Human Beings), 1980 (“Trials in Human Beings Regulations”) and according to the guidelines of the Helsinki declaration, or any other approval required by the Ministry of Health. According to the Trials in Human Beings Regulations, the Helsinki Committee must plan and approve every experimental process that involved human beings. The Helsinki Committee is an institutional committee that acts in the medical institution where the trial is performed and is the party that approves and supervises the entire trial process. In practice, the physician, who is the chief researcher, submits a trial protocol to the committee on behalf of the requesting party. The committee forwards its decisions regarding the requests for medical trials that were approved by the committee to the manager of the medical institute and the manager has the authority to approve the requests without additional approval of the Ministry of Health. According to the procedure for medical trials in human beings of the Ministry of Health, the Helsinki Committee will not approve performance of a medical trial, unless it is absolutely convinced that the following conditions, among others, are fulfilled: (a) the expected benefits for the participant in the trial and to the company justify the risk and the inconvenience involved in the trial to its participant; (b) the available medical and scientific information justifies the performance to the requested medical trial; (c) the medical trial is planned in a scientific manner that enables a solution to the tested question and is described in a clear, detailed and precise manner in the protocol of the trial, conforming with the Helsinki principles declaration; (d) the risk to the participant in the trial is as minimal as possible; (e) optimal monitoring and follow-up of the participant in the trial; (f) the initiator, the chief researcher and the medical institute are capable and undertake to allocate the resources required for adequate execution of the medical trial, including qualified personnel and required equipment; and (g) the nature of the commercial agreement with the chief researcher and the medical institute does not impair the adequate performance of the medical trial.

 

All phases of clinical studies conducted in Israel must be conducted in accordance with the Public Health Regulations (Medical Studies Involving Human Subjects, 1980), including amendments and addenda thereto, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of Health (the “Guidelines”) and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The regulations and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee at the hospital intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition, certain clinical studies require the approval of the Ministry of Health. The Helsinki Committee will not approve the performance of the medical study unless it is satisfied that it has advantages to the study participants and society at large that justify the risk and inconvenience for the participants and that the medical and scientific information justifies the performance of the requested medical study. The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study is not contrary to the Helsinki Declaration or to other regulations. The Ministry of Health also licenses and regulates the marketing of pharmaceuticals in Israel, requiring the relevant pharmaceutical to meet internationally recognized cGMP standards.

 

55
 

 

Pervasive and continuing regulation in the U.S.

 

After a drug is approved for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited to: 

 

            the FDA’s current good manufacturing practice regulations require manufacturers, including third party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product;

 

            labeling regulations and the FDA prohibitions against the promotion of drugs for unapproved uses (known as off-label uses), as well as requirements to provide adequate information on both risks and benefits during promotion of the drug;

 

            approval of product modifications or use of a drug for an indication other than approved in an NDA;

 

            adverse drug experience regulations, which require us to report information on adverse events during pre-market testing;

 

•           post-market testing and surveillance requirements, including Phase IV trials, when necessary to protect the public health or to provide additional safety and effectiveness data for the drug; and

 

•           the FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing laws and regulation. After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a new approval, for which it may be possible to submit a 505(b)(2), accompanied by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.

 

Other U.S. Healthcare Laws and Compliance Requirements

 

For products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following:

 

The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;

 

The Ethics in Patient Referrals Act, commonly referred to as the Stark Law, and its corresponding regulations, prohibit physicians from referring patients for designated health services (including outpatient drugs) reimbursed under the Medicare or Medicaid programs to entities with which the physicians or their immediate family members have a financial relationship or an ownership interest, subject to narrow regulatory exceptions, and prohibits those entities from submitting claims to Medicare or Medicaid for payment of items or services provided to a referred beneficiary;

 

The federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government; and

 

Health Insurance Portability and Accountability Act of 1996, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. This statute also prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services.

 

56
 

 

Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government.

 

Reimbursement

 

Sales of our products in the United States may depend, in part, on the extent to which the costs of the products will be covered by third-party payers, such as government health programs, commercial insurance and managed health care organizations. These third-party payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

 

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, (the “MMA”), imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payers.

 

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes of Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payers, it is not clear how such a result could be avoided and what if any effect the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. Decreases in third-party reimbursement for our products or a decision by a third-party payer to not cover our products could reduce physician usage of the products and have a material adverse effect on our sales, results of operations and financial condition.

 

57
 

 

The Patient Protection and Affordable Care Act

 

On March 23, 2010, President Obama signed into legislation the Patient Protection and Affordable Care Act, which was subsequently amended by the Healthcare and Education Reconciliation Act (as amended, the “Affordable Care Act”). The Affordable Care Act will result in sweeping changes across the health care industry. The primary goal of this comprehensive legislation is to extend health insurance coverage to currently uninsured legal U.S. residents through a combination of public program expansion and private sector health insurance reforms. To fund the expansion of insurance coverage, the Affordable Care Act contains measures designed to promote quality and cost efficiency in health care delivery and to generate budgetary savings in the Medicare and Medicaid programs. The Affordable Care Act’s provisions are designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. Through modified reimbursement rates and other incentives, the U.S. government is requiring that providers identify the most cost-effective services, supplies and pharmaceuticals. This environment has caused changes in the purchasing habits of providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may result in our products being chosen less frequently or the pricing being substantially lowered. Additionally, the Affordable Care Act is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program. We cannot predict the impact of the Affordable Care Act on pharmaceutical companies as many of the Affordable Care Act reforms require the promulgation of detailed regulations implementing the statutory provisions which has not yet occurred. The legislation also includes significant provisions that encourage state and federal law enforcement agencies to increase activities related to preventing, detecting and prosecuting those who commit fraud, waste and abuse in federal healthcare programs, including Medicare, Medicaid and Tricare. Since the enactment of the Affordable Care Act, numerous regulations have been issued providing further guidance on its requirements. The Affordable Care Act continues to be implemented through regulation and government activity but is subject to possible amendment, additional implementing regulations and interpretive guidelines. Several states have decided not to expand their Medicaid programs and are seeking alternative reimbursement models to provide care to the uninsured. The manner in which these issues are resolved could materially affect the extent to which and the amount at which pharmaceuticals are reimbursed by government programs such as Medicare, Medicaid and Tricare.

 

Services and License Agreements

 

Master Research Services Agreement with Java Clinical Research Ltd.

 

On February 9, 2014, we entered into a Master Research Services Agreement with Java Clinical Research Ltd., or Java, a contract research organization based in Dublin, Ireland. According to the terms of the agreement, Java will manage the Phase III clinical trial for KIT-302, including preparation and filing of the requests to the ethics boards and the necessary regulatory bodies of the European Union, recruiting the tested subjects, employment of the primary researchers, identification and evaluation of the medical centers and their subsequent management throughout the trial period and overall management of the trial process through its completion. We engage with third party medical centers for the performance of our Phase III clinical trial through Java. The total cost of the agreement with Java including the cost of all service providers with which we have engaged through Java, will amount to approximately $2.5 million.

 

The Master Research Services Agreement will remain in effect until Java has provided all services through the completion of our Phase III trial of KIT-302. However, the parties have customary termination rights and either party may terminate the agreement (or any work thereunder) upon 60 days’ notice.

 

Services Agreement with DABL Limited

 

On August 2, 2013, we entered into a services agreement with DABL Limited, or DABL, an Irish company based in Dublin, Ireland, in the ambulatory blood pressure monitoring technologies field. According to the agreement, DABL will provide protocol consultation services and coordinate the ambulatory blood pressure monitoring (ABPM) procedures and the analysis of the blood pressure tests during and after our Phase III trial of KIT-302. DABL’s technology enables the collection of data from hundreds of blood pressure tests during the day on each patient during the clinical trials as opposed to the traditional individual tests that yield many fewer results for statistical analysis during the same time frame.

 

The services agreement will remain in effect until DABL has provided all services including the statistical analysis of results the blood pressure tests following our Phase III trial of KIT-302. However, we may terminate the agreement at any time upon 90 days’ notice, and both parties have customary termination rights.

 

58
 

 

Development Services Agreement with Dexcel

 

On April 1, 2014, we entered into a Development Services Agreement with Dexcel Ltd., or Dexcel, a global pharmaceutical company, which has been involved in the manufacture and marketing of more than 55 branded and generic products. The agreement provides for Dexcel to develop the formulation for KIT-302 and the subsequent stability testing and manufacturing scale-up in quantities adequate for submission of an NDA to the FDA. Dexcel’s services include performing compatibility testing of APIs with excipients, screening to find at least two prototypes and identifying analytical methods for product analysis. We agreed to bear the cost of the APIs as well as other materials or means required for Dexcel to perform the services under the agreement. In exchange for these services, we will pay Dexcel: (i) $2 million in cash in four equal installments ($500,000 which was paid upon execution of the agreement, $500,000 which was paid upon attainment of the second milestone in May 2015, and the remaining to be paid in two equal payments based on the remaining milestones during the development and manufacturing period); and (ii) in our ordinary shares having an aggregate value of $1.5 million issued in three equal installments (the first issuance of 157,783 ordinary shares was made upon execution of the agreement, the second issuance of 597,511 ordinary shares was made upon attainment of the second milestone in May 2015, and the remaining issuance is due upon the attainment of the remaining milestones during the development and manufacturing period).

 

In addition, in exchange for a right of first negotiation with regard to future global marketing rights for KIT-302 and for an option to negotiate the future commercial manufacture of KIT-302 Dexcel agreed to pay us $500,000 in two equal installments based on milestones during the development and manufacturing period (of which the first payment of $250,000 was made in May 2015 upon the attainment of the second development milestone). Under the terms of the agreement, in the event we intend to enter into negotiations with any third party to enter into a commercial marketing or licensing agreement for the product, we are obligated to notify Dexcel of our intention to do so, and Dexcel has the right, within 21 days, to notify us whether it wishes to negotiate with us on mutually agreeable and commercially reasonable terms for the rights, in which case we are required to negotiate exclusively with Dexcel in good faith in an attempt to reach a mutual agreement with 60 days. If Dexcel does not so notify us, or if upon expiration of this 60 day period the parties are unable to agree in good faith upon its terms and conditions, we will be free to enter into a commercial agreement with any party on any terms we determine.

 

On June 9, 2015 we, together with Dexcel, successfully completed the performance of a pilot pharmacokinetic clinical trial, or Pilot PK Study, which commenced on March 31, 2015 in Ichilov Medical Center in Tel Aviv. The objective of the Pilot PK Study was to demonstrate that the concentration of KIT-302 in the blood of the subjects is comparable to the concentrations observed in the administration of the two existing, approved drugs (celecoxib and amlodipine besylate, which are the active components of KIT-302). For the purpose of this Pilot PK Study, Dexcel manufactured two prototypes of the KIT-302 final formulation, based on the two existing approved drugs. The Pilot PK Study was performed with 15 subjects who were each treated with two different prototypes of the final formulation of KIT-302. During the course of the Pilot PK Study, blood samples were taken from the subjects following treatment with each of the two prototype formulations and following treatment with the two existing approved drugs (celecoxib and amlodipine besylate) separately for purposes of comparison, over a period of approximately six weeks. The Pilot PK Study demonstrated successful levels in the blood of the two prototype formulations, and one of the two final formulations that were tested met all the objectives of the study protocol and was selected for purposes of continuing the clinical development of KIT-302. In addition, based on the positive results achieved, we expect that the scope of the final PK study will be lower than originally expected.

 

The Development Services Agreement will remain in effect until Dexcel has provided all services through the completion of manufacturing scale-up in quantities adequate for submission of an NDA to the FDA. However, the parties have customary termination rights and either party may terminate the agreement upon 90 days’ notice.

 

Acquisition Agreement for Intellectual Property

 

Pursuant to an Asset Purchase Agreement, dated October 13, 2010, between Kitov Pharmaceuticals and JPW PCH LLC, or JPW, JPW sold to Kitov Pharmaceuticals JPW’s rights and interests in and to U.S. and international patent applications relating to KIT-301 and KIT-302 in exchange for $100 plus 80% of the equity in Kitov Pharmaceuticals. Kitov Pharmaceuticals assumed all liabilities arising from ownership, use or exercise, of rights under, the patent applications.

 

Under the terms of the agreement, JPW had a conditional right to repurchase the patent applications from Kitov Pharmaceuticals, which right has since expired.

  

59
 

  

Manufacturing Agreement with Sterling Pharmaceuticals Services

 

In September 2013, we entered into an agreement with Sterling Pharmaceuticals Services LLC to produce the drugs for the Phase III trial of KIT-302. The clinical trial supplies include over encapsulated celecoxib, over encapsulated amlodipine besylate, and an over encapsulated placebo. Pursuant to the terms of the agreement, Sterling will manufacture the drugs and perform the stability and release tests, the packaging and the delivery to the various sites where the clinical trial is be performed. In January 2014, Sterling notified us that the drug production process was completed successfully, and it subsequently notified us that the primary stability tests were completed successfully. In June 2014, the drugs were shipped to the medical center where the trial began. In addition, pursuant to our decision to conduct the clinical trial according to the ATD method, we ordered the manufacture of additional drugs for the clinical trial.

 

Consulting Agreement with Lior Tamar Investments Ltd.

 

In August 2014, we entered into a consulting agreement with Lior Tamar Investments Ltd., or Lior Tamar, a privately held Israeli company, pursuant to which Lior Tamar provides us with various services, including  introduction to Israeli investors, facilitating meetings and introductions to underwriters, assistance in locating business cooperation opportunities, and consultation with respect to raising debt and bonds.  In consideration for these services, we pay Lior Tamar a monthly fee of $9,500, and 2.5% of all amounts actually raised and received by us from third parties, excluding amounts received from interested parties. However, Lior Tamar has waived its rights to receive 2.5% of the amounts raised in this offering in exchange for a flat fee of $245,000 in consideration of Lior Tamar’s services in connection with advising us on matters related to this offering.  Lior Tamar will not be serving as a finder, in any way, in connection with this offering. The agreement may be terminated by either party upon 60 days’ notice, and Lior Tamar is entitled to payment for any fund raising that closes during the 90 day period following termination of the agreement.

 

Share Transfer Agreement with Kitov Pharmaceuticals

 

On July 11, 2013, pursuant to a Share Transfer Agreement dated April 2, 2013 between Kitov Holdings, Kitov Pharmaceuticals, Dr. Morris Laster and JPW PCH LLC (Kitov Pharmaceutical’s shareholders at the time), and the controlling shareholder in Kitov Holdings at such time, Mr. Sheer Roichman and Haiku Capital Ltd. (a private company wholly owned by Mr. Roichman), Kitov Holdings (then called Mainrom Line Logistics Ltd.) acquired the shares of Kitov Pharmaceuticals in exchange for the issuance of 1,351,478 ordinary shares to Kitov Pharmaceutical’s shareholders, representing at the time 63.75% of the fully diluted share capital of Kitov Holdings. In addition, pursuant to the agreement, Kitov Holdings issued to the former shareholders of Kitov Pharmaceutical a right to purchase an additional 1,379,060 ordinary shares of Kitov Holdings if within 28 months from the completion of the acquisition, or November 11, 2015, we complete our Phase III clinical trial and the data analyses have demonstrated that the reduction in blood pressure in the group treated with KIT-302 was at least half of that achieved with amlodipine monotherapy, known as the Milestone.

 

At the closing of the Share Transfer Agreement, Kitov Pharmaceutical’s shareholders transferred 100% of Kitov Pharmaceuticals share capital on a fully diluted basis to Kitov Holdings, as follows: (i) 80% of the share capital directly to Kitov Holdings and (ii) 20% of the share capital to a trustee, to hold such shares for the sole benefit of Kitov Holdings until the earlier of the occurrence of: (A) the Milestone referred to above or (B) 28 months from the closing of the Share Transfer Agreement, or November 11, 2015.

 

In addition, under the terms of the Share Transfer Agreement, Mr. Roichman was entitled to receive various sums from the funds raised by us from public and private financings. This amount was paid in full by the Company in March 2014.

 

August Loan Agreement

 

On August 12, 2015 we entered into a loan agreement with certain lenders, pursuant to which the lenders extended us a loan, or the August Loan, in the aggregate amount of $430,000, or the Principal Amount.

 

In addition, we have an option, or the Additional Financing Option, at any time until the earliest of (i) completion of our initial public offering in the United States, or a U.S. offering; (ii) the completion of a public offering on the Tel Aviv Stock Exchange, or TASE, of our securities, or an Israeli Offering; or (iii) December 31, 2015, to require that each lender advance an additional principal amount equal to the Principal Amount advanced by such lender and up to an additional aggregate of $430,000, or the Additional Principal Amount. Such Additional Principal Amount, if any, shall have the same terms and conditions as the Principal Amount.

 

The Principal Amount and the Additional Principal Amount, if any, do not bear interest and are not linked to any index.

 

In the event that we complete a U.S. Offering, we will be required to pay each lender an allocation fee equal to 33% of the lender’s Principal Amount plus the Additional Principal Amount, if any, advanced by such lender, upon the repayment of the August Loan to such lender. In the event we do not complete a U.S. Offering and complete an Israeli Offering, we will be required to pay other applicable fees to the lenders. The Principal Amount plus the Additional Principal Amount, if any, together with the applicable allocation fee, shall be referred to hereinafter as the Loan Amount.

 

We must repay the August Loan, unless converted or repaid by such date, within five (5) business days of the earliest of the completion of the U.S. Offering, as follows:

 

· Upon a U.S. Offering in which a lender placed an order to purchase shares in an amount equal to or greater than the Loan Amount applicable to such lender, or the U.S. Order, we shall repay the lender its applicable portion of the Loan Amount; and

· In the event a lender:

o did not place a U.S. Order, or

o placed a U.S. Order in an amount lower than its applicable portion of the Loan Amount, we shall:

§ (a) repay the lender the amount of the U.S. Order, if any; and

§ (b) we may, at our sole discretion, either

· repay the applicable Loan Amount less the U.S. Order amount (if any), less the applicable allocation fee; or

· within forty five (45) days, convert such amount, into our ordinary shares at a conversion price equal to the closing price of the U.S. Offering

 

Pursuant to the August Loan agreement, we will, no later than September 27, 2015, issue the lenders warrants to purchase our ordinary shares as follows:

 

· in consideration for the Principal Amount, warrants to purchase up to an aggregate amount of 860,000 ordinary shares, or the Initial Warrants; and

· in consideration for the Additional Financing Option, additional warrants to purchase up to 860,000 additional ordinary shares, or the Additional Financing Warrants (for each $1.00 lent under the Additional Financing Option, we will issue a warrant to purchase two ordinary shares). The Initial Warrants and Additional Financing Warrants shall be fully vested at the date of grant and exercisable by each lender at any time until their expiration on August 31, 2016 at an exercise price equal to NIS1.80 and shall include customary adjustments.

 

In addition, we undertook that until the full repayment of the Principal Amount and the Additional Principal Amount, if any, together with the applicable allocation fee, if any, we will not incur any loans other than: (i) the Additional Principal Amount; or (ii) loans advanced by related parties; or (iii) loans which shall be used according to the terms thereof for the repayment of the Principal Amount and the Additional Principal Amount, if any, together with the applicable allocation fee, if any, or any part thereof.

 

In addition, we undertook that until the full repayment of the Principal Amount and the Additional Principal Amount, if any, our shareholders' equity, as reflected in our last published financial statements shall not be less than minus $ 500,000 (-$500,000). In the event that our shareholders' equity is lower than such amount, each lender may notify us by written notice of its demand for immediate repayment of its portion of the then unpaid outstanding Principal Amount and Additional Principal Amount, if any.

 

Employees and Consultants

 

As of the date of this prospectus and as of December 31, 2014, we had: (i) three consultants and service providers providing management and financial services, including our chief financial officer; (ii) one employee serving as our chief executive officer; (iii) one employee providing in-house legal services; and (iv) five consultants providing research and development services, including our chief medical officer who also serves as chairman of the board. As of December 31, 2013, we had (i) four consultants and service providers providing management and financial services, including our chief executive officer and chief financial officer; and (ii) three consultants providing research and development services, including our chief medical officer who also serves as chairman of the board.

 

60
 

 

While none of our employees is party to a collective bargaining agreement, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by order of the Israel Ministry of Labor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our employees have pension plans in accordance with the applicable Israeli legal requirements.

 

We have never experienced labor-related work stoppages or strikes and believe that our relations with our employees are satisfactory.

 

Property, Plant and Equipment

 

All of our facilities are leased, and we do not own any real property. Our principal executive offices are located in the Round Tower in the Azrieli Center, Tel-Aviv, Israel. The space is in a commercial office building and has approximately 100 square meters pursuant to a 60-month lease which commenced on January 1, 2015. In addition, we sub-lease a 20 square meter office space at 11 Beit Hadfus Street, Jerusalem, Israel pursuant to a sub-lease agreement entered into on July 16, 2014 with a third party which terminates on July 31, 2016. We have no material tangible fixed assets apart from the properties described above. We believe our facilities are adequate and suitable for our current needs.

 

Legal Proceedings

 

From time to time, we may become party to legal proceedings and claims in the ordinary course of business. We are not currently a party to any significant legal proceedings.

 

Company History

 

Kitov Holdings was incorporated under the laws of the State of Israel (under a previous name) on August 12, 1968 and its ordinary shares were originally listed for trading on the Tel Aviv Stock Exchange in 1978. Our ordinary shares are currently traded on the Tel Aviv Stock Exchange under the symbol “KTOV.”

 

In October 2012, Kitov Holdings (then known as Mainrom Line Logistics Ltd.) sold all of its activities, assets, rights, obligations and liabilities to a private company held by its then controlling shareholders, and all rights of Kitov Holdings’ creditors against it were extinguished. The sale was made pursuant to an arrangement between Kitov Holdings and its creditors which was confirmed by the District Court in Lod, Israel under Section 350 of the Israeli Companies Law. Following such sale and a related cash distribution to Kitov Holdings’ shareholders, Kitov Holdings remained without any assets, debt and/or liabilities. In connection with the sale, on October 31, 2012, the former controlling shareholders sold control of Kitov Holdings (then a shell company) to Mr. Sheer Roichman. From the completion of these transactions until the completion of the acquisition of Kitov Pharmaceuticals described below, Kitov Holdings did not conduct any business activities and was a public shell company.

 

We operate through our wholly owned Israeli subsidiary, Kitov Pharmaceuticals Ltd., in the research and development of combinations of existing drugs in advanced stages of development. Kitov Pharmaceuticals Ltd. was founded in June 2010. On July 11, 2013, we acquired Kitov Pharmaceuticals Ltd. As part of the acquisition, Mainrom Line Logistics Ltd. changed its name to Kitov Pharmaceuticals Holdings Ltd. See “Business – Share Transfer Agreement with Kitov Pharmaceuticals”.

 

61
 

  

MANAGEMENT

 

Executive officers, directors and director nominees

 

The following table sets forth the name, age and position of each of our executive officers, directors and director nominees as of the date of this prospectus.

 

Name   Age   Position
John Paul Waymack   62   Chairman of the Board of Directors and Chief Medical Officer
Isaac Israel   37   Chief Executive Officer and Director
Simcha Rock   65   Chief Financial Officer and Director
Philip Serlin (1)(2)   55   Independent Director
Moran Sherf-Blau (1)(2)   35   External Director
Alain Zeitoun (1)(2)   54   External Director

 

(1) Member of our audit committee that also serves as our financial statements committee.
(2) Member of our compensation committee.

 

John Paul Waymack , M.D., Sc.D . was one of the founders of Kitov Pharmaceuticals and has served as the chairman of our board of directors and chief medical officer since July 2013. Dr. Waymack has over 20 years of experience in the biopharma field. Dr. Waymack is a former academic transplant surgeon and a former FDA medical officer, with over fifteen years of experience in drug development as a consultant to major pharmaceutical companies, including Pfizer, Roche, Pharmacia, Warner Lambert and Searle. During his 10 years of academic career, Dr. Waymack published over 100 scientific essays, mainly in the fields of prostaglandins and immunology. In addition, Dr. Waymack volunteered to the U.S. Army, where he was commissioned and served as a Major in the Medical Corp. in the position of chief of surgical studies in the U.S. Army’s Institute for Surgical Research. Dr. Waymack was also an associate professor of surgery at the University of Texas Medical Branch and at the University of Medicine and Dentistry of New Jersey.

 

Isaac Israel has served as our chief executive officer and a member of the board since July 2013 and as the chief executive officer and member of the board since October 2012. Mr. Israel was the founding chief executive officer of BeeContact Ltd. (formerly TASE:BCNT), from 2001 until 2007. Since 2008 Mr. Israel has served as founding chief executive officer of Uneri Capital Ltd., a consulting firm in the capital markets field, owned by Mr. Israel, that specializes in the healthcare sector. In providing such consulting services, Mr. Israel also serves as a member of the board of directors of various healthcare corporations, both private and public, including as chairman of the board of NextGen Biomed Ltd., which is traded on the TASE. Since 2011 Mr. Israel has also provided business development services to Capital Point Ltd. (TASE:CPTP).

   

Simcha Rock, CPA, MBA , has served as our chief financial officer and a member of the board since July 2013. Mr. Rock was a private equity manager at Edmond de Rothschild Private Equity Management, a firm specializing in the management of venture capital and other private equity investments funds, from February 2000 until January 2011, with responsibility for all financial, legal and administrative matters for several investment funds. Prior to 2000, Mr. Rock held financial management positions at Intel Electronics Ltd., The Jerusalem College of Technology, and JC Technologies Ltd. Mr. Rock holds a BA from Yeshiva University and an MBA from Cleveland State University. 

 

Philip Serlin ,CPA, MBA , has served as a member of our board since July 2013. Mr. Serlin is the chief financial and operating officer of BioLineRx Ltd., a biopharmaceutical company traded on both NASDAQ and the Tel Aviv Stock Exchange. He formerly held senior financial positions with other publicly traded companies, as well as at Deloitte and the U.S. Securities and Exchange Commission. Mr. Serlin currently serves as a director at Vascular Biogenics Ltd., a biopharmaceutical company traded on The NASDAQ Capital Market. Mr. Serlin is a certified public accountant and holds a B.Sc. in accounting from Yeshiva University and a Master’s degree in economics and public policy from The George Washington University.

 

Moran Sherf-Blau, CPA, M.A., has served as a member of our board since December 2013. Ms. Sherf-Blau is the founder and owner of Total Finance Ltd., a company that provides accounting and financial management services to public, government, and private companies and acts as the chief financial officer of Bio-cell Ltd., a company traded on the TASE. Ms. Sherf-Blau also serves as an executive certified public accountant in PricewaterhouseCoopers Israel.

 

62
 

 

Alain Zeitoun, M.D., M.A., has served as a member of our board since December 2013. Dr. Zeitoun’s experience includes serving as chief executive officer of Chi2Gel, an Israeli medical device company, business unit director and European marketing leader at Merck Sharp and Dohme Israel (Merck & Co) as well as medical and marketing positions at Procter & Gamble and Boehringer Ingelheim pharmaceutical companies in France. In these positions, Dr. Zeitoun was in charge of several therapeutic fields, such as cardiology, rheumatology, orthopedics and gastroenterology. Dr. Zeitoun holds an M.D. degree from Paris Medical School and a Master’s degree from ESCP Europe Business School, Paris, France.

 

The spouses of Simcha Rock, our chief financial officer, and Philip Serlin, a member of our board, are first cousins. Other than this relationship, there are no family relationships among any of our office holders (including directors).

 

Compensation

 

Director Compensation

 

Under the Israeli Companies Law, 5754-1999, and related regulations, external directors are entitled to a fixed annual compensation and an additional payment for each meeting attended. We currently pay our external directors, Dr. Zeitoun and Ms. Sherf-Blau, an annual fee of NIS 21,258 (approximately $5,630) and a fee of NIS 1,231 (approximately $327) per meeting (or a smaller amount in case they do not physically attend the meeting). Mr. Phillip Serlin, an independent director, is compensated at the same rate. During the year ended December 31, 2014, we paid Dr. Zeitoun, Ms. Sherf-Blau and Mr. Serlin NIS 126,926 (approximately $33,614) in the aggregate.

 

Directors’ Service Contracts

 

There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries, except as provided in certain employment or service agreements with our executive officers who also serve as directors.

  

Executive Compensation

 

The aggregate compensation paid, and benefits in-kind granted to or accrued on behalf of all of our directors and senior management for their services, in all capacities, to us during the year ended December 31, 2014, was approximately $460,000. No additional amounts have been set aside or accrued by us to provide pension, retirement or similar benefits.

 

Below is a breakdown of the annual compensation paid to each of our executive officers during the year ended December 31, 2014:

 

Name   Position   Salary  or
other
payments in
(in $
thousands)
  Value of
Social 1 or
Other 2
Benefits
  Share-based
payment
(in $
thousands)
  Reimbursement
of expenses
  Total
(in $
thousands)
Dr. J. Paul Waymack   Chairman of the Board and Chief Medical Officer   128           8   136
Isaac Israel   Chief Executive Officer and Director   102   12       3   117
Simcha Rock   Chief Financial Officer and Director   134   7   47   2   190

 

 

1 “Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperation pay as mandated by Israeli law.

2 “Other Benefits” include car lease related benefits.

 

We have entered into engagement agreements with each of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable laws.

 

63
 

 

Our directors and executive officers hold exemption and indemnification letters and a valid D&O insurance policy. For information on exemption and indemnification letters granted to our officers and directors, please see “Management – Fiduciary Duties and Approval of Specified Related Party Transactions and Compensations under Israeli Law – Exculpation, Insurance and Indemnification of Directors and Officers.”

 

Consulting Agreement with Waymack Inc. (wholly owned by Dr. John Paul Waymack)

 

In July 2013, we entered into a consulting agreement with Waymack Inc. for the services of Dr. John Paul Waymack, one of our founders, pursuant to which Dr. Waymack provides services to us as our chief medical officer and as the chairman of our board of directors. In return for Dr. Waymack’s services, as of March 2014 we paid Waymack Inc. a monthly fee of NIS 29,880 (approximately $8,690 per month based on the representative rate of exchange on June 30, 2014). As of September 2014, we are paying Waymack Inc. a monthly fee of $14,000. The service agreement may be terminated by either party upon 180 days’ advance notice to the other party. In addition to the above monthly fee Waymack Inc. is entitled to the following additional compensation:

 

Retirement Grant . A retirement grant upon termination of Dr. Waymack’s engagement with us, provided that the termination is not due to circumstances that do not entitle an employee to severance payments under any applicable law and/or under any judicial decision of a competent tribunal. The retirement grant is (i) three (3) times the monthly fee if the services provided by Dr. Waymack have been provided for a consecutive period of at least 18 months; or (ii) six (6) times the monthly fee if the services provided by Dr. Waymack have been provided for a consecutive period of at least three years.

 

Annual Bonus. Annual bonus, which shall not exceed twelve (12) times the monthly fee, of which at least 80% is based on measurable criteria and either (i) up to 20% or (ii) up to three (3) times the monthly fee is based on non-measurable criteria under our compensation policy. Below is a description of the annual bonus based on measurable criteria:

 

(i) a bonus in the amount of one (1) time the monthly fee for each NIS 5 million (gross) increase during the calendar year compared to the previous calendar year-end of our equity and/or asset value, taking into consideration and offsetting any relevant decrease in our equity and/or asset value which occurred in the 12 months previous to such increase; (ii) a bonus in the amount of one (1) time the monthly fee for each NIS 5 million (gross) increase in income from sales of our products in the calendar year compared to the previous calendar year; (iii) a bonus in the amount of three (3) times the monthly fee for completion of in-licensing transaction for a new product, provided however that in any event the bonus will not be paid prior to the clinical trial phase and IND approval with respect to the new product; (iv) a bonus in the amount of one (1) time the monthly fee for each NIS 10 million increase in our market value during the calendar year compared to the previous calendar year-end; (v) a bonus in the amount of six (6) times the monthly fee for each target successfully achieved in a clinical trial as of Phase II of the trial and a bonus in the amount of one (1) time the monthly fee for each target successfully achieved in a clinical trial as of Phase I; (vi) a bonus in the amount of six (6) times the monthly fee upon approval by the FDA (NDA approval) or any comparable regulatory authority in connection with our products provided however that such bonus shall not be paid for each product more than once; and (vii) a bonus in the amount of two (2) times the monthly fee after completion of registration of our securities on a U.S. stock exchange.

 

Special bonus based on either a Merger Transaction or a Commercialization Transaction. A special bonus equal to :

 

(i) 4% of our valuation determined in a Merger Transaction; provided that: (a) in the event that a commission is paid to third parties, the total bonus paid to Waymack Inc., any other office holders, and any third parties with respect thereto will not exceed 8% of the valuation, and the bonus paid to each such office holder shall be calculated pro rata; (b) in any event Waymack Inc. will not be entitled to a bonus based on a Merger Transaction in an amount exceeding $500,000; A “Merger Transaction” means one or more related transactions of either: (A) sale, lease, license or any transfer of all or most of our assets or securities; (B) merger so that the shareholders holding at least 50% of our issued and outstanding share capital prior to the consummation of such transaction hold less than 50% of our issued and outstanding share capital or the share capital of the surviving company following the consummation of such transaction, provided however that our valuation in such Merger Transaction is at least $25 million;

 

64
 

 

(ii) 4% of the cumulative revenues actually received from a Commercialization Transaction, less any payments made to third parties. The initial bonus is payable upon the receipt of at least $5 million as a result of the commercialization of our products. In the event we receive additional revenues as a result of a Commercialization Transaction exceeding such amount, Waymack Inc. will be entitled to an additional monthly bonus against revenues received by us as a result of the Commercialization Transaction in the prior month; provided that: (a) in the event that a commission is paid to third parties, the total bonus paid to Waymack Inc. and any other office holders, and any third parties with respect thereto will not exceed 10% of the total revenues, and the bonus paid to each such office holder shall be calculated pro rata; (b) in any event Waymack Inc. will not be entitled to a bonus based on a Commercialization Transaction in an amount exceeding $500,000. A “Commercialization Transaction” means the execution of a licensing and/or distribution agreement of our products with revenues of at least $5 million. Waymack Inc. will be entitled to the bonus as a result of a Commercialization Transaction only upon our receipt of at least $5 million as a result of the commercialization of our products.

 

In the event our cash balance decreases below NIS 2 million, we may, by a resolution of the compensation committee and the board of directors, decrease and/or choose not to grant the annual bonus and/or the special bonus, provided that such resolution was made with respect to all of our office holders. Upon the increase of our cash balance above such amount, we shall grant the foregone annual bonus and/or the special bonus, as applicable.

 

In the event of the reference of our auditors in the auditors’ opinion on our financial statements with respect to significant doubt as to our ability to continue as a “going concern,” we may, by a resolution of the compensation committee and the board of directors, decrease and/or choose not to grant the special bonus, provided that such resolution was made with respect to all of our office holders. However, upon the removal of the auditors’ “going concern” reference, we may grant the special bonus with respect to a past merger transaction.

 

Employment Agreement with Mr. Isaac Israel (previously Service Agreement with Uneri Capital Ltd.)

 

In July 2013, we entered into a services agreement with Uneri Capital Ltd., a private company wholly owned by Mr. Isaac Israel, for the provision of part-time management services according to our needs. For such services we paid as of such date monthly payments of NIS 25,000 (approximately $7,300 per month based on the representative rate of exchange on June 30, 2014). As of September 2014 we terminated the engagement with Uneri Capital and entered into an employment agreement with Mr. Isaac Israel as our chief executive officer pursuant to which we pay Mr. Israel a base salary of NIS 40,000 (approximately $10,593) per month.

 

In addition to the above we provide Mr. Israel a leased company car at a monthly cost of up to NIS 4,000 (approximately $1,059), management insurance policy and advanced study fund. The employment agreement may be terminated upon 90 days’ prior notice to the other party. In addition, Mr. Israel is entitled to the following additional compensation:

 

Retirement Grant . A retirement grant upon termination of Mr. Israel’s employment with us, provided that the termination is not due to circumstances that do not entitle an employee to severance payments under any applicable law and/or under any judicial decision of a competent tribunal. The retirement grant is (i) one (1) time the monthly salary if the services provided by Mr. Israel have been provided for a consecutive period of at least 18 months; or (ii) three (3) times the monthly salary if the services provided by Mr. Israel have been provided for a consecutive period of at least three years;

 

Annual Bonus . Annual bonus, which shall not exceed twelve (12) times the monthly salary of which at least 80% is based on measurable criteria and either (i) up to 20% or (ii) up to three (3) times the monthly salary is based on non-measurable criteria under our compensation policy. The annual bonus based on measurable criteria is payable for the same events and in the same amounts as the agreement with Waymack Inc. described above, except that the bonus to Mr. Israel for each target successfully achieved in a clinical trial as of Phase I is two (2) times his monthly salary.

 

Special bonus based on either a Merger Transaction, Fund Raise or a Commercialization Transaction . A special bonus equal to: (i) 4% of our valuation determined in a Merger Transaction payable in the same manner as the agreement with Waymack Inc. described above; (ii) NIS 200,000 for each Fund Raise, provided however, in the event that a commission is paid to third parties, the total bonus paid to Mr. Israel, any other office holders and any third parties with respect thereto will not exceed 10% of the Fund Raise amount (gross); and (iii) 4% of the cumulative revenues actually received from a Commercialization Transaction, less any payments made to third parties, payable in the same manner as the agreement with Waymack Inc. described above. A “Fund Raise” means a raise by us of each NIS 10 Million (cumulative), in any calendar year, commencing as of October 1, 2014.

 

65
 

 

We may, by a resolution of the compensation committee and the board of directors, decrease and/or choose not to grant the annual bonus and/or the special bonus, in the manner described above regarding the Service Agreement with Waymack Inc. 

 

Consulting Agreement with Mr. Simcha Rock

 

In July 2013, we entered into a consulting agreement with Mr. Rock pursuant to which Mr. Rock provides services to us as our chief financial officer. In return for Mr. Rock’s services, as of March 2014, we paid Mr. Rock a monthly fee of NIS 35,000 (approximately $10,200 per month based on the representative rate of exchange on June 30, 2014). As of September 2014, we are paying Mr. Rock NIS 50,000 (approximately $13,242) per month. The agreement may be terminated by either party upon 90 days’ prior notice to the other party.

 

In addition to the above monthly fee Mr. Rock is, as of September 1, 2014, entitled to a leased company car at a monthly cost of up to NIS 3,000 (approximately $795) and to the following additional compensation:

 

Retirement Grant. A retirement grant upon termination of Mr. Rock’s employment with us, provided that the termination is not due to circumstances that do not entitle an employee to severance payments under any applicable law and/or under any judicial decision of a competent tribunal. The retirement grant is (i) one (1) time the monthly fee if the services provided by Mr. Rock have been provided for a consecutive period of at least 18 months; or (ii) three (3) times the monthly fee if the services provided by Mr. Rock have been provided for a consecutive period of at least three years;

 

Annual Bonus. Annual bonus, which shall not exceed twelve (12) times the monthly fee of which at least 80% is based on measurable criteria and either (i) up to 20% or (ii) up to three (3) times the monthly fee is based on non-measurable criteria under our compensation policy. The annual bonus based on measurable criteria is payable for the same events and in the same amounts as the agreement with Waymack Inc. described above, except that the bonus to Mr. Rock for meeting the targets of our clinical trials in a clinical trial as of Phase II is four (4) times his monthly fee and after completion of registration of our securities on a U.S. stock exchange the bonus to Mr. Rock shall be four (4) times the monthly fee and the measurable criteria for Mr. Rock includes a bonus in the amount of three (3) times the monthly fee for meeting our budget objectives.

 

Special bonus based on either a Merger Transaction, Fund Raise or a Commercialization Transaction . A special bonus equal to: (i) 4% of our valuation determined in a Merger Transaction payable in the same manner as the agreement with Waymack Inc. described above, provided that the bonus payable to Mr. Rock based on a Merger Transaction will not exceed $350,000; (ii) NIS 100,000 for each Fund Raise, provided however, in the event that a commission is paid to third parties, the total bonus paid to Mr. Rock, any other office holders and any third parties with respect thereto will not exceed 10% of the Fund Raise amount (gross); and (iii) 4% of the cumulative revenues actually received from a Commercialization Transaction, less any payments made to third parties, payable in the same manner as the agreement with Waymack Inc. described above, provided that the bonus payable to Mr. Rock based on a Commercialization Transaction will not exceed $350,000.

 

We may, by a resolution of the compensation committee and the board of directors, decrease and/or choose not to grant the annual bonus and/or the special bonus, in the manner described above regarding the Service Agreement with Waymack Inc. 

 

In addition, in July 2014 we granted Mr. Rock 1,188,967 non-tradable options under our 2013 Option Plan to purchase 91,455 ordinary shares. Of these options: (a) 1,011,500 options to purchase 77,805 ordinary shares will vest pro rata on a monthly basis over a period of 18 months from the date of grant and will be exercisable at an exercise price of NIS 10.40 (approximately $2.75) per ordinary share for a period of three years commencing from the date of grant of the options; and (b) 177,467 options to purchase 13,651 ordinary shares vested as of the date of the grant and are exercisable at an exercise price of NIS 10.40 (approximately $2.75) per ordinary share and will have a term of three years from the date of grant. Following the attainment of the Milestone under the Share Transfer Agreement in connection with our Phase III trial for KIT-302, we will grant to Mr. Rock an additional 181,089 options to purchase 13,929 ordinary shares. See “Business – Share Transfer Agreement with Kitov Pharmaceuticals”. These options will vest as of the date of grant and will be exercisable at an exercise price of NIS 10.40 (approximately $2.75) per ordinary share and will have a term of three years from the date of grant.

 

66
 

 

Corporate Governance Practices

 

Board of Directors and Officers

 

Our board of directors consists of six directors, including Dr. Zeitoun and Ms. Sherf-Blau, who qualify as external directors and whose appointment fulfills the requirements of the Companies Law to have two external directors (see “Management − Board of Directors and Officers − External Directors”). These two directors, as well as Mr. Serlin, also qualify as independent directors under the corporate governance standards of the NASDAQ Listing Rules and the independence requirements of Rule 10A-3 of the Exchange Act.

 

Under our articles of association, the number of directors on our board of directors will be no less than four and no more than 12 (including the two external directors). The number of directors may be changed, at any time and from time to time, by a simple majority vote of our shareholders at a shareholders’ meeting. The board members may appoint a director to fill any vacancies until the next annual meeting of the shareholders.

 

The directors will be elected by a majority vote of the shareholders at the shareholders’ annual general meeting. Each director will hold office until the subsequent annual general meeting. Notwithstanding the foregoing, if no directors are appointed at an annual general meeting, the incumbent directors previously appointed by the shareholders shall continue to hold office.

   

Each director will hold office commencing as of such director’s appointment by the annual general meeting; however the shareholders may determine a later date for such appointment.

 

The shareholders may at all times, by a simple majority vote of the shareholders, replace or dismiss a director (in the case of replacement, only if the appointed director is not a corporation). A director to be replaced shall be given a reasonable opportunity to address the shareholders at their meeting.

 

The tenure of a director expires pursuant to the provisions of the Companies Law, upon death or if s/he becomes incompetent, unless removed from office as described below. Notwithstanding the foregoing, the term of office for external directors under Israeli law is three years (see “Management − External Directors − Election and Dismissal of External Directors”).

 

In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. See “Management −External Directors – Qualifications of External Directors.” He or she must be able to thoroughly comprehend the financial statements of the company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting expertise and that Mr. Rock (who also serves as our CFO), Mr. Serlin and Ms. Sherf-Blau are each deemed to have such expertise.

 

Alternate Directors

 

Our articles of association provide, as allowed by the Companies Law, that any director may, at all times, appoint any person (which is not a corporation) by written notice to us to serve as an alternate director at the meeting of the board. A person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director, unless otherwise permitted by applicable law. A director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors so long as he or she is not already serving as a member of such committee, and if the alternate director is to replace an external director, he or she is required to be an external director and to have either “financial and accounting expertise” or “professional expertise,” depending on the qualifications of the external director he or she is replacing. So long as the external director’s appointment is valid, the alternate director shall be entitled to participate and vote in every meeting of the board of directors from which the appointing director is absent. Subject to the terms of appointment, the alternate director will be regarded as a director and shall have all of the authority of the director he is replacing. An appointing director may at any time cancel the appointment of an alternate director. The term of appointment of an alternate director will end if the appointing director notifies us in writing of the termination or cancellation of the appointment or if the appointing director’s appointment is terminated.

 

67
 

 

External Directors

 

Qualifications of External Directors

 

Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including companies with shares listed on The NASDAQ Capital Market, are required to appoint at least two external directors who meet the qualification requirements set forth in the Companies Law. Dr. Zeitoun and Ms. Sherf-Blau serve as our external directors.

 

A person may not serve as an external director if the person is a relative of a controlling shareholder or if on the date of the person’s appointment or within the preceding two years the person or his or her relatives, partners, employers or anyone to whom that person is subordinate, whether directly or indirectly, or entities under the person’s control have or had any affiliation with any of (each an “Affiliated Party”): (1) us; (2) any person or entity controlling us on the date of such appointment; (3) any relative of a controlling shareholder; or (4) any entity controlled, on the date of such appointment or within the preceding two years, by us or by a controlling shareholder. If there is no controlling shareholder or any shareholder holding 25% or more of voting rights in the company, a person may not serve as an external director if the person has any affiliation to the chairman of the board of directors, the general manager (chief executive officer), any shareholder holding 5% or more of the company’s shares or voting rights or the senior financial officer as of the date of the person’s appointment.

 

The term “controlling shareholder” means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to have “control” of the company and thus to be a controlling shareholder of the company if the shareholder holds 50% or more of the “means of control” of the company. “Means of control” is defined as (1) the right to vote at a general meeting of a company or a corresponding body of another corporation; or (2) the right to appoint directors of the corporation or its general manager. For the purpose of approving transactions with controlling shareholders, the term also includes any shareholder that holds 25% or more of the voting rights of the company if the company has no shareholder that owns more than 50% of its voting rights. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint holders.

   

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 initial public offering.

 

The term “relative” is defined as a spouse, sibling, parent, grandparent, descendant, spouse’s descendant, sibling and parent and the spouse of each of the foregoing.

 

The term “office holder” is defined as a general manager, chief business manager, deputy general manager, vice general manager, director or manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’s title.

 

A person may not serve as an external director if that person or that person’s relative, partner, employer, a person to whom such person is subordinate (directly or indirectly) or any entity under the person’s control has a business or professional relationship with any entity that has an affiliation with any Affiliated Party, even if such relationship is intermittent (excluding insignificant relationships). Additionally, any person who has received compensation intermittently (excluding insignificant relationships) other than compensation permitted under the Companies Law may not continue to serve as an external director.

 

68
 

 

No person can serve as an external director if the person’s position or other affairs create, or may create, a conflict of interest with the person’s responsibilities as a director or may otherwise interfere with the person’s ability to serve as a director or if such a person is an employee of the Israeli Securities Authority or of an Israeli stock exchange. If at the time an external director is appointed all current members of the board of directors, who are not controlling shareholders or relatives of controlling shareholders, are of the same gender, then the external director to be appointed must be of the other gender. In addition, a person who is a director of a company may not be elected as an external director of another company if, at that time, a director of the other company is acting as an external director of the first company.

 

The Companies Law provides that an external director must meet certain professional qualifications or have financial and accounting expertise, and that at least one external director must have financial and accounting expertise. However, if at least one of our other directors (1) meets the independence requirements of the Exchange Act, (2) meets the standards of the NASDAQ Listing Rules for membership on the audit committee and (3) has financial and accounting expertise as defined in the Companies Law and applicable regulations, then neither of our external directors is required to possess financial and accounting expertise as long as both possess other requisite professional qualifications. The determination of whether a director possesses financial and accounting expertise is made by the board of directors. A director with financial and accounting expertise is a director who by virtue of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements so that he or she is able to fully understand our financial statements and initiate debate regarding the manner in which the financial information is presented.

 

The regulations promulgated under the Companies Law define an external director with requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2) the director either holds an academic degree in any other field or has completed another form of higher education in the company’s primary field of business or in an area which is relevant to his or her office as an external director in the company, or (3) the director has at least five years of experience serving in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a company with a substantial scope of business, (b) a senior position in the company’s primary field of business or (c) a senior position in public administration.

 

Until the lapse of a two-year period from the date that an external director of a company ceases to act in such capacity, the company in which such external director served, and its controlling shareholder or any entity under control of such controlling shareholder may not, directly or indirectly, grant such former external director, or his or her spouse or child, any benefit, including via (i) the appointment of such former director or his or her spouse or his child as an officer in the company or in an entity controlled by the company’s controlling shareholder, (ii) the employment of such former director and (iii) the engagement, directly or indirectly, of such former director as a provider of professional services for compensation, including via an entity under his or her control. With respect to a relation who is not a spouse or a child, such limitations shall only apply for one year from the date such external director ceased to be engaged in such capacity.

    

Election and Dismissal of External Directors

 

Under Israeli law, external directors are elected by a majority vote at a shareholders’ meeting, provided that either:

 

· the majority of the shares that are voted at the meeting in favor of the election of the external director, excluding abstentions, include at least a majority of the votes of shareholders who are not controlling shareholders and do not have a personal interest in the appointment (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder); or
· the total number of shares held by non-controlling shareholders or any one on their behalf that are voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.

 

69
 

 

Under Israeli law, the initial term of an external director of an Israeli public company is three years. The external director may be reelected, subject to certain circumstances and conditions, to two additional terms of three years, and thereafter, subject to conditions set out in the regulations promulgated under the Companies Law, to further three year terms. An external director may be removed by the same special majority of the shareholders required for his or her election, if he or she ceases to meet the statutory qualifications for appointment or if he or she violates his or her fiduciary duty to the company. An external director may also be removed by order of an Israeli court if the court finds that the external director is permanently unable to exercise his or her office, has ceased to meet the statutory qualifications for his or her appointment, has violated his or her fiduciary duty to the company, or has been convicted by a court outside Israel of certain offenses detailed in the Companies Law.

 

If the vacancy of an external directorship causes a company to have fewer than two external directors, the company’s board of directors is required under the Companies Law to call a special general meeting of the company’s shareholders as soon as possible to appoint such number of new external directors so that the company thereafter has two external directors.

 

Additional Provisions

 

Under the Companies Law, each committee authorized to exercise any of the powers of the board of directors is required to include at least one external director and its audit and compensation committees are required to include all of the external directors.

 

An external director is entitled to compensation and reimbursement of expenses in accordance with regulations promulgated under the Companies Law and is prohibited from receiving any other compensation, directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification and insurance provided by the company, as specifically allowed by the Companies Law.

 

Audit Committee

 

Companies Law Requirements

 

Under the Companies Law, the board of directors of any public company must also appoint an audit committee comprised of at least three directors, including all of the external directors. The audit committee may not include:

 

· the chairman of the board of directors;
· a controlling shareholder or a relative of a controlling shareholder;
· any director employed by us or by one of our controlling shareholders or by an entity controlled by our controlling shareholders (other than as a member of the board of directors); or
· any director who regularly provides services to us, to one of our controlling shareholders or to an entity controlled by our controlling shareholders.

 

According to the Companies Law, the majority of the members of the audit committee, as well as the majority of members present at audit committee meetings, will be required to be “independent” (as defined below) and the chairman of the audit committee will be required to be an external director. Any persons disqualified from serving as a member of the audit committee may not be present at the audit committee meetings, unless the chairman of the audit committee has determined that such person is required to be present at the meeting or if such person qualifies under one of the exemptions of the Companies Law.

   

The term “independent director” is defined under the Companies Law as an external director or a director who meets the following conditions and who is appointed or classified as such according to the Companies Law: (1) the conditions for his or her appointment as an external director (as described above) are satisfied and the audit committee approves the director having met such conditions and (2) he or she has not served as a director of the company for over nine consecutive years with any interruption of up to two years of his or her service not being deemed a disruption to the continuity of his or her service.

 

Listing Requirements

 

Under the NASDAQ Listing Rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise.

 

70
 

 

Our audit committee consists of Mr. Serlin, Dr. Zeitoun and Ms. Sherf-Blau. Ms. Sherf-Blau serves as the chairman of the audit committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Listing Rules. Our board of directors has determined that Ms. Sherf-Blau and Mr. Serlin are audit committee financial experts as defined by the SEC rules and have the requisite financial experience as defined by the NASDAQ Listing Rules.

 

Each of the members of the audit committee is “independent” as such term is defined in Rule 5605(a)(2) of the NASDAQ Listing Rules and in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.

 

Approval of Transactions with Related Parties

 

The approval of either the audit committee or the compensation committee is required to effect specified actions and transactions with office holders and controlling shareholders and their relatives, or in which they have a personal interest. See “Management − Share-Based Compensation − Fiduciary Duties and Approval of Specified Related Party Transactions and Compensation under Israeli Law.”

 

Audit Committee Role

 

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 audit committee meets the composition requirements under the Companies Law.

 

Our board of directors will adopt an audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the NASDAQ Listing Rules, which will include:

 

· retaining and terminating our independent auditors, subject to board of directors and shareholder ratification;
· pre-approval of audit and non-audit services to be provided by the independent auditors;
· reviewing with management and our independent directors our quarterly and annual financial reports prior to their submission to the SEC; and
· approval of certain transactions with office holders and controlling shareholders, as described above, and other related-party transactions.

 

Additionally, under the Companies Law, the role of the audit committee includes the identification of irregularities in our business management, among other things, by consulting with the internal auditor or our independent auditors and suggesting an appropriate course of action to the board of directors. In addition, the audit committee or the board of directors, as set forth in the articles of association of the company, is required to approve the yearly or periodic work plan proposed by the internal auditor. The audit committee is required to assess the company’s internal audit system and the performance of its internal auditor. The Companies Law also requires that the audit committee assess the scope of the work and compensation of the company’s external auditor. In addition, the audit committee is required to determine whether certain related party actions and transactions are “material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies Law and resolve whether transaction with a controlling shareholder shall be subject to an auction type process. The audit committee charter will state that in fulfilling its role the committee is entitled to demand from us any document, file, report or any other information that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the audit committee.

 

Compensation Committee

 

Amendment No. 20 to the Companies Law, which became effective as of December 2012 (“Amendment No. 20”), established new regulations relating to the terms of office and employment of directors and officers in public companies and companies that have publicly issued debentures. Such companies are required to appoint a compensation committee in accordance with the guidelines set forth in Amendment No. 20.

 

71
 

   

The compensation committee must consist of at least three members. All of the external directors must serve on the committee and constitute a majority of its members. The chairman of the compensation committee must be an external director. The remaining members need not be external directors but must be directors who qualify to serve as members of the audit committee (as described above). In accordance with Amendment No. 20, our compensation committee is composed of three members Mr. Serlin, Dr. Zeitoun and Ms. Sherf-Blau. The chairman of the compensation committee is Ms. Sherf-Blau.

 

In accordance with the Companies Law, the roles of the compensation committee are, among others, as follows:

 

· to recommend to the board of directors the compensation policy for directors and officers, and to recommend to the board of directors once every three years whether the compensation policy that had been approved should be extended for a period of more than three years;

 

· to recommend to the board of directors updates to the compensation policy, from time to time, and examine its implementation;

 

· to decide whether to approve the terms of office and employment of directors and officers that require approval of the compensation committee; and

 

· to decide whether the compensation terms of the chief executive officer of the company which were determined pursuant to the compensation policy need not be brought for approval of the shareholders because it will harm the ability to engagement with the chief executive officer.

 

In addition to the roles mentioned above our compensation committee also makes recommendations to our board of directors regarding the awarding of employee equity grants.

 

In accordance with the provisions of Amendment No. 20, public companies must adopt a compensation policy with respect to the terms of service and employment of their directors and officers. The compensation policy must be approved by the compensation committee and board of directors, and subject to limited exceptions, by the shareholders. Shareholder approval requires one of the following: (i) the majority of shareholder votes counted at general meeting including the majority of all of the votes of those shareholders who are non-controlling shareholders and do not have a personal interest in the approval of the compensation policy, who participate at the meeting (excluding abstentions) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does exceed two percent (2%) of the voting rights in the company. Under special circumstances, the board of directors may approve the compensation policy despite the objection of the shareholders on the condition that the compensation committee and then the board of directors decide, on the basis of detailed arguments and after discussing again the compensation policy, that approval of the compensation policy, despite the objection of the meeting of shareholders, is for the benefit of the company.

 

Compensation Policy

 

Under Amendment No. 20, public companies must adopt a compensation policy with respect to the terms of service and employment of their directors and officers. On January 12, 2014, our shareholders approved our compensation policy (as amended by our shareholders on November 20, 2014, the “Compensation Policy”) which will be in effect for a period of three years from the date of approval. The Compensation Policy does not, on its own, grant any rights to our directors or officers. The Compensation Policy includes both long term and short term compensation elements and is to be reviewed from time to time by our compensation committee and board, according to the requirements of the Companies Law.

 

In general, compensation for officers will be examined while taking into consideration the following parameters, including, among others (i) education, qualifications, expertise, seniority (with us in particular, and in the officer’s profession in general), professional experience and achievements of the officer; (ii) meeting by the officer of the targets set for him, if relevant; (iii) the officer’s position, the scope of his responsibility and previous wage agreements that were signed with him; and (iv) the ratio between the total cost of the proposed engagement terms of an officer and the total cost of the wages for all of our other employees, officers and contractors, and in particular compared to the average or median wage of such employees, officers and contractors and the effect of this ratio and difference, if any, on labor relations.

 

72
 

 

Under the Compensation Policy, we are entitled to provide a compensation package to officers which may include fixed salary (a base salary and ancillary benefits), annual cash bonus and share-based compensation, or any combination thereof, and additional standard benefits (“Compensation Package”).

    

Internal Auditor

 

Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may not be a related party or an office holder or a relative of a related party or of an office holder, nor may the internal auditor be the company’s independent auditor or the representative of the same.

 

A “related party” is defined in the Companies Law as (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as a chief executive officer of the company. Our internal auditor is Pinhas Bar-Shmuel, certified public accountant (Isr.), of RSM Shiff Hazenfratz & Co.

 

Fiduciary Duties and Approval of Specified Related Party Transactions and Compensation under Israeli Law

 

Fiduciary Duties of Office Holders

 

The Companies Law imposes a duty of care and a fiduciary duty on all office holders of a company. The duty of care of an office holder is based on definition of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:

 

· information on the business advisability 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 such action.

 

The fiduciary duty incumbent on an office holder requires him or her to act in good faith and for the benefit of the company, and includes, among other things, the duty to:

 

· refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
· refrain from any activity that is competitive with the business of the company;
· refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and
· disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.

 

We may approve an act specified above which would otherwise constitute a breach of the office holder’s fiduciary duty, provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses his or her personal interest a sufficient time before the approval of such act. Any such approval is subject to the terms of the Companies Law, setting forth, among other things, the appropriate parties of the company entitled to provide such approval, and the methods of obtaining such approval.

    

Disclosure of Personal Interests of an Office Holder and Approval of Transactions

 

The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.

 

73
 

 

Under the Companies Law, once an office holder has complied with the above disclosure requirement, a company may approve a transaction between the company and the office holder or a third party in which the office holder has a personal interest. However, a company may not approve a transaction or action that is not to the company’s benefit.

 

Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third party in which the office holder has a personal interest, which is not an extraordinary transaction, requires approval by the board of directors. The Companies Law provides that such a transaction, which is not an extraordinary transaction, may be approved by the board of directors or a committee of the board of directors or any other entity (which has no personal interest in the transaction) authorized by the board of directors. If the transaction considered is an extraordinary transaction with an office holder or third party in which the office holder has a personal interest, then audit committee approval is required prior to approval by the board of directors. For the approval of compensation arrangements with directors and executive officers, see “Management − Compensation of Directors and Executive Officers.”

 

Any persons who have a personal interest in the approval of a transaction that is brought before a meeting of the board of directors or the audit committee may not be present at the meeting or vote on the matter. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required, such office holder may be present at the meeting for the purpose of presenting the matter. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting and vote on the matter if a majority of the directors or members of the audit committee have a personal interest in the approval of such transaction. If a majority of the directors at a board of directors meeting have a personal interest in the transaction, such transaction also requires approval of the shareholders of the company.

 

A “personal interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the company, including the personal interest of such person’s relative or the interest of any other corporate body in which the person or such person’s relative is a director or general manager, a 5% shareholder or holds 5% or more of the voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest also includes (1) a personal interest of a person who votes according to a proxy of another person, including in the event that the other person has no personal interest, and (2) a personal interest of a person who gave a proxy to another person to vote on his or her behalf regardless of whether the discretion of how to vote lies with the person voting or not.

 

An “extraordinary transaction” is defined under the Companies Law as any of the following:

 

· a transaction other than in the ordinary course of business;
· a transaction that is not on market terms; or
· a transaction that may have a material impact on the company’s profitability, assets or liabilities.

 

Disclosure of Personal Interests of a Controlling Shareholder and Approval of Transactions

 

The Companies Law also requires that a controlling shareholder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. A controlling shareholder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or her terms of employment, require the approval of each of (i) the audit committee or the compensation committee with respect to the terms of the engagement of the company, (ii) the board of directors and (iii) the shareholders, in that order. In addition, the shareholder approval must fulfill one of the following requirements:

   

· a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or

 

74
 

 

· the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2.0% of the voting rights in the company.

 

In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years, however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.

 

The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.

 

Compensation of Directors and Executive Officers

 

Directors . Under Amendment No. 20, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, shareholder approval will also be required, as follows:

 

· at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or
· the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting against the compensation package does not exceed 2% of the aggregate voting rights in the company.

 

Executive Officers Other Than the Chief Executive Officer . Amendment No. 20 requires the compensation of a public company’s executive officers (other than the chief executive officer) to be approved by, first, the compensation committee, second, by the company’s board of directors and third, if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.

 

Chief Executive Officer . The compensation paid to a public company’s chief executive officer is required to be approved by, first, the company’s compensation committee; second, the company’s board of directors, and third, the company’s shareholders (by a special majority vote as discussed above with respect to the approval of director compensation). However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide a detailed report for their decision.

 

The compensation committee and board of directors approval should be in accordance with the company’s stated compensation policy; however, in special circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). The compensation committee may waive the shareholder approval requirement with regards to the approval of the engagement terms of a candidate for the chief executive officer position, if they determine that the compensation arrangement is consistent with the company’s stated compensation policy, and that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate.

 

75
 

 

Duties of Shareholders

 

Under the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, when voting at meetings of shareholders on the following matters:

   

· an amendment to the articles of association;
· an increase in the company’s authorized share capital;
· a merger; and
· the approval of related party transactions and acts of office holders that require shareholder approval.

 

A shareholder also has a general duty to refrain from discriminating against other shareholders.

 

The remedies generally available upon a breach of contract will also apply to a breach of the shareholder duties mentioned above, and in the event of discrimination against other shareholders, additional remedies are available to the injured shareholder.

 

In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or any other power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.

 

Approval of Private Placements

 

Under the Companies Law and the regulations promulgated thereunder, a private placement of securities does not require approval at a general meeting of the shareholders of a company; provided however, that in special circumstances, such as a private placement completed in lieu of a special tender offer (See Certain Relationships And Related Party Transactions – Acquisitions under Israeli Law”) or a private placement which qualifies as a related party transaction (See “ Management – Share Based Compensation - Fiduciary Duties and Approval of Specified Related Party Transactions and Compensation under Israeli Law”), approval at a general meeting of the shareholders of a company is required.

 

Exculpation, Insurance and Indemnification of Directors and Officers

 

Under the Companies Law, a company may not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.

 

Under the Companies Law and the Securities Law, 5738 – 1968 (the “Securities Law”) a company may indemnify an office holder in respect of the following liabilities, payments and expenses incurred for acts performed by him or her as an office holder, either in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:

 

· a monetary liability incurred by or imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s 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 foreseen events and amount or criteria;
· reasonable litigation expenses, including reasonable 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 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 or in connection with a monetary sanction;

 

76
 

 

· a monetary liability imposed on him or her in favor of a payment for a breach offended at an Administrative Procedure (as defined below) as set forth in Section 52(54)(a)(1)(a) to the Securities Law;
· expenses associated with an Administrative Procedure conducted regarding an office holder, including reasonable litigation expenses and reasonable attorneys’ fees; 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 an offense that does not require proof of criminal intent.

  

An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law.

 

Under the Companies Law and the Securities Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:

 

· a breach of a fiduciary duty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
· a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder;
· a monetary liability imposed on the office holder in favor of a third party;
· a monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and
· expenses incurred by an office holder in connection with an Administrative Procedure, including reasonable litigation expenses and reasonable attorneys’ fees.

 

Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:

 

· a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty 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 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 or forfeit levied against the office holder.

 

Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the board of directors and, with respect to directors or controlling shareholders, their relatives and third parties in which such controlling shareholders have a personal interest, also by the shareholders.

 

Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by law. Our office holders are currently covered by a directors’ and officers’ liability insurance policy. As of the date of this prospectus, 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 office holders, including our directors, in which indemnification is sought.

 

77
 

 

We have entered into agreements with each of our current office holders exculpating them from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest extent permitted by law, subject to limited exceptions, including with respect to liabilities resulting from the Registration Statement on Form F-1 of which this prospectus forms a part, to the extent that these liabilities are not covered by insurance. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances. When the Registration Statement on Form F-1 of which this prospectus forms a part becomes effective, the maximum aggregate amount of indemnification that we may pay to our office holders based on such indemnification agreement is with respect to all permitted indemnification, including in connection with a public offering of our securities, an amount equal to 25% of our shareholders’ equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnification payment was made. Such indemnification amounts are in addition to any insurance amounts. Each office holder who agrees to receive this letter of indemnification also gives his approval to the termination of all previous letters of indemnification that we have provided to him or her in the past, if any.

 

Insofar as indemnifications for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

   

To our knowledge, there is no pending litigation or proceeding against any of our office holders as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any office holder.

 

Home Country Practices

 

As a foreign private issuer, we are permitted to follow Israeli corporate governance practices instead of NASDAQ Listing Rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. We intend to rely on this “foreign private issuer exemption” with respect to the following items:

 

· Independent Directors - Our board of directors includes two external directors in accordance with the Israeli Companies Law, but does not require that a majority of our board members be independent as required by the NASDAQ Listing Rules. Furthermore, Israeli law does not require, nor do our independent directors conduct, regularly scheduled meetings at which only our independent directors are present.

 

· Shareholder Approval - We seek shareholder approval for all corporate actions requiring such approval in accordance with the requirements of the Israeli Companies Law, which are different from the shareholder approval requirements under the NASDAQ Listing Rules. The NASDAQ Listing Rules require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans and arrangements, issuances that will result in a change of control of a company, certain transactions other than a public offering involving issuances of 20% or more of the shares or voting power in a company, and certain acquisitions of the stock or assets of another company involving issuances of 20% or more of the shares or voting power in a company or if any director, officer or holder of 5% or more of the shares or voting power of the company has a 5% or greater interest in the company or assets to be acquired or consideration to be paid and the transaction could result in an increase in the outstanding common shares or voting power by 5% or more.

 

Under the Israeli Companies Law, shareholder approval is required for any transaction, including any grant of equity-based compensation, to a director or a controlling shareholder, but is not generally required to establish or amend an equity based compensation plan. Similarly, shareholder approval is required for a private placement that is deemed a “extraordinary private placement” or that involves a director or controlling shareholder. A “extraordinary private placement” is a private placement in which a company issues securities representing 20% or more of its voting rights prior to the issuance and the consideration received pursuant to such issuance is not comprised, in whole or in part, solely of cash or securities registered for trade on an exchange or which is not made pursuant to market conditions, and as a result of which the shareholdings of a 5% holder of the shares or voting rights of the company increases or as a result of which a person will become a holder of 5% of the shares or voting rights of the company or a controlling shareholder after the issuance.

 

78
 

 

· Quorum - As permitted under the Israeli Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent at least 25% of the voting rights of our shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of 33 1/3% of the issued share capital required under the NASDAQ Listing Rules.

 

· Nominations Committee - As permitted under the Israeli Companies Law, our board of directors selects director nominees, subject to the terms of our articles of association, which provide that incumbent directors are re-nominated for additional terms. Directors are not selected, or recommended for board of director selection, by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised solely of independent directors as required by the NASDAQ Listing Rules.

   

Otherwise, we intend to comply with the rules generally applicable to U.S. domestic companies listed on The NASDAQ Capital Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other NASDAQ Listing Rules related to corporate governance. We also intend to comply with Israeli corporate governance requirements under the Israeli Companies Law applicable to public companies.

 

Disclosure of Compensation of Executive Officers

 

For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, including the requirement applicable to emerging growth companies to disclose the compensation of our chief executive officer and other two most highly compensated executive officers on an individual, rather than an aggregate, basis. Nevertheless, a recent amendment to regulations promulgated under the Israeli Companies Law will require us, after we become a public company, to disclose the annual compensation of our five most highly compensated office holders on an individual basis, rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas. This disclosure will not be as extensive as that required of a U.S. domestic issuer. We intend to commence providing such disclosure, at the latest, in the annual proxy statement for our 2015 annual meeting of shareholders, which will be furnished under cover of a Form 6-K and we may elect to provide such information at an earlier date.

 

2013 Option Plan

 

On November 27, 2013, we adopted the 2013 Kitov Pharmaceutical Holdings Ltd. Stock Option Allocation Plan, or the 2013 Option Plan. The 2013 Option Plan provides for the granting of options to our directors, officers, employees and consultants and to the directors, officers, employees and consultants of our subsidiaries and affiliates. The 2013 Option Plan provides for options to be granted at the determination of our board of directors (who is entitled to delegate its powers under the 2013 Option Plan to the Company's compensation committee) in accordance with applicable laws. The exercise price and vesting period are determined by our board of directors. As of June 30, 2015, there were 2,483,753 non-tradable options exercisable into 232,888 ordinary shares issuable upon the exercise of outstanding options under the 2013 Option Plan.

 

 The 2013 Option Plan will be effective up to the earliest of (a) its cancellation by the board of directors and (b) October 31, 2023. Nevertheless, options granted up to the plan’s expiration date, whether vested or not vested up to that date, will remain effective and will not expire prior to their expiration date (within 10 (ten) years from the allocation date).

 

Upon termination of employment for any reason, other than in the event of death or for cause, all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 days following termination, subject to the terms of the 2013 Option Plan and the governing option agreement. If we terminate a grantee for cause (as defined in the 2013 Option Plan) the grantee’s right to exercise all vested and unvested the options granted to him will expire immediately. Upon termination of employment due to death, all the vested options at the time of termination will be exercisable by the grantee’s heirs or estate, for twelve (12) months from the latest of: (i) death or (ii) option expiration date, subject to the terms of the 2013 Option Plan and the governing option agreement.

 

The 2013 Option Plan enables us to grant options through one of the following tax programs, at our discretion and subject to the applicable legal limitations: (a) according to section 102 of the Israeli Income Tax Ordinance, through a program with a trustee that is appointed by us or (b) according to the provisions of section 3(i) in the Israeli Income Tax Ordinance.

 

79
 

 

The plan includes directives for protecting the option holders during the exercise period with respect to distribution of bonus stock, issue of rights, splitting or consolidating our share capital and dividend distribution. We will be entitled at our sole discretion, to change the terms of the plan and/or replace it and/or terminate it regarding future grants at any time, as we deem appropriate. It is also clarified that we will be entitled to change the terms of plan regarding grants that were granted to the grantees, provided that the terms of the options which were already granted will not be changed in a way that may materially impair the rights of the grantees, without the consent of the grantees. Our board of directors will determine, at its sole discretion, if a certain change may materially impair the rights of the grantee.

 

Without limiting the foregoing, in every case of a material event whereby (i) we will become a private company with shares no longer be traded on a stock exchange; (ii) there occurs a restructuring, including merger transaction in which we are not the surviving corporation or as a result of which there is a change in control; (iii) there occurs an arrangement between us and our creditors and/or shareholders and/or option holders; (iv) there occurs the sale of all or a substantial part of our assets; or (v) there occurs our liquidation, the board of directors, in its sole discretion, may adjust and change the terms of the options according to the plan for all the grantees or to certain grantees, in its sole discretion, including by (i) accelerating the vesting period of unvested options and (ii) replacing vested options with securities of the purchaser or any party related to the purchaser or other compensation to the grantee. Unless otherwise determined by the board of directors, non-vested options will expire soon before the material event or will be exercised, according to the decision of the board of directors. The board of directors will have the right to require the grantees to exercise all the vested options, soon before the occurrence of the material event and any option that will not be exercised will expire and will be devoid of any value.

 

Administration of Our Option Plan

 

Our option plan is administered by our board of directors, regarding the granting of options and the terms of option grants, including exercise price, method of payment, vesting schedule, acceleration of vesting and the other matters necessary in the administration of these plans. Options granted under the 2013 Option Plan to eligible Israeli employees, officers and directors are granted under Section 102 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 two years from the date upon which such options were granted in order to benefit from the provisions of Section 102. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options or ordinary shares by the trustee to the employee or upon the sale of the options or ordinary shares, and gains may qualify to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions.

 

80
 

 

PRINCIPAL SHAREHOLDERS

 

The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this prospectus and after this offering by:

 

each person or entity known by us to own beneficially more than 5% of our outstanding ordinary shares;

 

each of our directors and executive officers individually; and

 

all of our executive officers and directors as a group.

 

The beneficial ownership of our ordinary shares in this table is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of June 30, 2015, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The percentage of ordinary shares beneficially owned after the offering is based on  ordinary shares to be issued outstanding immediately after the offering. The percentage of ordinary shares beneficially owned prior to the offering is based on 12,957,330 ordinary shares issued and outstanding as of June 30, 2015 (not including 21 shares held in treasury).

 

The percentages of ordinary shares beneficially owned after the offering assume that the underwriters will not exercise their over-allotment option to purchase additional ADSs and/or warrants in the offering. Except where otherwise indicated, we believe, based on information furnished to us by such owners, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such shares.

 

None of our shareholders has different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

 

Unless otherwise noted below, each shareholder’s address is c/o Kitov Pharmaceuticals Holdings Ltd., One Azrieli Center, Round Building, Tel Aviv, 6701101, Israel.

 

    Shares Beneficially
Owned Prior to Offering
    Shares Beneficially
Owned After Offering
 
Name of Beneficial Owner   Number     Percentage     Number     Percentage  
5% or greater shareholders                                
                                 
Dr. John Paul Waymack (1)     1,111,721       8.58 %     1,111,721          
                                 
Dexcel Ltd. (2)     755,294       5.83 %     755,294          
Directors and executive officers who are not 5% or greater shareholders                                
Isaac Israel     15,385       0.12 %     15,385          
Simcha Rock (3)     7,692       0.56 %     7,692          
Philip Serlin     -       0 %     -          
Moran Sherf-Blau     -       0 %     -          
Alain Zeitoun     -       0 %     -          
Total (directors and executive officers)             9.26 %                
All directors and executive officers who are not 5% or greater shareholders as a group (5 persons)     23,077       0.68 %     23,077                  

 

81
 

 

(1) Includes 1,081,183 ordinary shares held directly by JPW PCH LLC, a Virginia limited liability company, owned 51% by Dr. John Paul Waymack and 30,538 ordinary shares held directly by Dr. John Paul Waymack. Dr. John Paul Waymack may be deemed to beneficially own all of the shares held directly by JPW PCH LLC. Does not include a right exercisable by JPW PCH LLC into 1,103,248 additional ordinary shares upon achievement of the milestone in connection with our Phase III clinical trial for KIT-302 described in the Share Transfer Agreement (see “Business – Share Transfer Agreement with Kitov Pharmaceuticals”).

 

(2) Dexcel Ltd. is a private company wholly owned by Dexon Holdings Ltd. which is a private company wholly owned by Dan Oren. Dexcel Ltd.’s address is 1 Dexcel Street, Or Akiva, Israel. Mr. Oren may be deemed to beneficially own all of the shares held directly by Dexcel Ltd.

 

(3) Does not include 181,089 options to be granted to Mr. Rock upon achievement of the milestone in connection with our Phase III trial for KIT-302 described in the April 2013 Share Transfer Agreement. See “Management - Compensation – Executives and Directors Compensation.”

 

U.S Shareholders

 

As of the date of this prospectus, there are no U.S. persons that are holders of record of our ordinary shares. We have no information with regard to the number and the corresponding percentage of shares beneficially held in the United States, but believe the number of U.S. shareholders to be immaterial, if any.

 

82
 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Loans from JPW PCH LLC and Dr. Morris Laster

 

Until the closing of the Share Transfer Agreement in July 2013, our subsidiary, Kitov Pharmaceuticals, financed its operations through shareholder loans made by Kitov Pharmaceutical’s founders, JPW PCH LLC, or JPW, and Dr. Morris Laster, amounting to $356,000. These loans were made without interest and had no stated maturity date. These loans have been repaid in full.

 

Loans from Mr. Sheer Roichman

 

On February 11, 2013, Mr. Sheer Roichman, then the controlling shareholder, loaned NIS 200,000 (approximately $54,000 based on the representative rate of exchange on the date of February 11, 2013) to Kitov Holdings (then known as Mainrom Line Logistics Ltd.), and on May 30, 2013, Mr. Roichman loaned an additional amount of NIS 50,000 (approximately $13,600 based on the representative rate of exchange on the date of May 30, 2013). These loans were unsecured, did not bear interest and were linked to the Israeli consumer price index, or CPI. In July 2013, Mr. Sheer Roichman loaned Kitov Holdings NIS 500,000 (approximately $141,000 based on the representative rate of exchange on July 11, 2013), free of interest and linkage to the CPI. All of these loans have been repaid in full.

 

From November 2013 to February 2014, we received loans in the aggregate amount of NIS 990,000 (approximately $285,000 based on the representative rate of exchange on December 31, 2013) pursuant to a loan agreement with several lenders, including Mr. Sheer Roichman and third parties. The loans did not bear interest and were not linked to the CPI. However, we paid to the lenders a credit allocation commission in the amount of approximately NIS 330,000 (approximately $95,000 based on the representative rate of exchange on December 31, 2013), payable to the lenders together with the principal of the loan on the loan repayment date. The entire loan and commission have been repaid according to its terms.

 

Loans from Dr. John Paul Waymack, Dr. Morris Laster, Mr. Sheer Roichman and Others

 

In August 2013, we received loans in the aggregate amount of NIS 1.02 million (approximately $285,000 based on the representative rate of exchange on August 25, 2013) pursuant to a loan agreement with Dr. John Paul Waymack, our current controlling shareholder (through JPW), Dr. Morris Laster, Mr. Sheer Roichman, Mr. Isaac Israel, Mr. Simcha Rock and an additional third party. The loans were linked to the Israeli CPI and were repayable in November 2013. The loans have been repaid in full.

 

Agreements with Executive Officers and Key Employees

 

We have entered into agreements with our executive officers and key employees. See “Management — Compensation – Executive Compensation.”

 

Share Transfer Agreement

 

Pursuant to a share transfer agreement in April 2013 by and between Kitov Holdings, Kitov Pharmaceuticals, Kitov Pharmaceutical’s shareholders at the time, Dr. Morris Laster and JPW PCH LLC, and the controlling shareholder in Kitov Holdings at such time, Mr. Sheer Roichman and Haiku Capital Ltd. (a private company wholly owned by Mr. Roichman), Kitov Holdings (then called Mainrom Line Logistics Ltd.) acquired the shares of Kitov Pharmaceuticals in exchange for the issuance of 1,351,478 ordinary shares to Kitov Pharmaceutical’s shareholders, representing at the time 63.75% of the fully diluted share capital of Kitov Holdings. See “Business – Share Transfer Agreement with Kitov Pharmaceuticals”.

   

Court Arrangement

 

In October 2012, Kitov Holdings (then known as Mainrom Line Logistics Ltd.) sold all of its activities, assets, rights, obligations and liabilities to a private company held by its then controlling shareholders pursuant to an arrangement between Kitov Holdings and its creditors which was confirmed by the District Court in Lod, Israel under Section 350 of the Israeli Companies Law. See “Business – Company History”.

 

83
 

 

Other Agreements

   

For information on exemption and indemnification letters granted to our officers and directors, please see “Management – Exculpation, Insurance and Indemnification of Directors and Officers.”

 

DESCRIPTION OF SHARE CAPITAL

 

The following description of our share capital and provisions of our articles of association are summaries and do not purport to be complete.

 

Ordinary Shares

 

The following is a description of our ordinary shares. Our authorized share capital is 500,000,000 ordinary shares, with no par value.

 

The ordinary shares do not have preemptive rights, preferred rights or any other right to purchase our securities. Neither our articles of association nor the laws of the State of Israel restrict the ownership or voting of ordinary shares by non-residents of Israel, except for subjects of countries which are enemies of Israel.

 

According to Section 8 of our articles of association, we may engage in any legal business. Our registration number with the Israeli Registrar of Companies is 520031238.

 

Transfer of Shares . Fully paid ordinary shares are issued in registered form and may be freely transferred pursuant to our articles of association unless that transfer is restricted or prohibited by another instrument or by law.

 

Notices . Under the Israeli Companies Law and our articles of association, we are required to publish notices in two Hebrew-language daily newspapers at least 21 days’ prior notice of a shareholders’ meeting. However, under regulations promulgated under the Israeli Companies Law, we are required to publish notice in two daily newspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares are listed for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An amendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances.

 

According to the Israeli Companies Law and the regulations promulgated thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors may fix the record date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement regarding the general meeting shall be given prior to the record date.

 

Election of Directors . The number of directors on the board of directors shall be no less than four but no more than twelve, including the external directors. The general meeting is entitled, at any time and from time to time, in a resolution approved by a regular majority of the votes of the shareholders present and voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining votes, or by a regular majority of the board of directors to change the minimum or maximum number of directors as stated above. For more information, please see “Management – Corporate Governance Practices – Board of Directors and Officers.”

 

Dividend and Liquidation Rights . Our profits, in respect of which a resolution was passed to distribute them as dividend or bonus shares, shall be paid pro rata to the amount of shares held by the shareholders. In the event of our liquidation, the liquidator may, with the general meeting’s approval, distribute parts of our property in specie among the shareholders and he may, with similar approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned above, deems fit.

 

84
 

 

Voting, Shareholders’ Meetings and Resolutions . Holders of ordinary shares are entitled to one vote for each ordinary share held on all matters submitted to a vote of shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or who has sent us a voting instrument indicating the way in which he is voting, who hold or represent, in the aggregate, at least 25% of the voting rights of our outstanding share capital. A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or any time and place as prescribed by the board of directors in notice to the shareholders. At the reconvened meeting one shareholder at least, present in person or by proxy constitutes a quorum except where such meeting was called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the demand of the meeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual general meetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annual general shareholders’ meeting. The board of directors may call special general meetings of shareholders. The Israeli Companies Law provides that a special general meeting of shareholders may be called by the board of directors or by a request of two directors or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of our issued share capital and at least 1% of the voting rights, or of shareholders holding at least 5% of our voting rights.

 

An ordinary resolution requires approval by the holders of a majority of the voting rights present, in person or by proxy, at the meeting and voting on the resolution.

 

Allotment of Shares. Our board of directors has the power to allot or to issue shares to any person, with restrictions and condition as it deems fit.

 

Board of Directors

 

Under our articles of association, resolutions by the board of directors shall be decided by a majority of votes of the directors present, or participating, in the case of voting by media, and voting, each director having one vote. In the event of a tie, the chairman of the board does not hold a tie-breaking vote.

 

In addition, the Israeli Companies Law requires that certain transactions, actions and arrangements be approved as provided for in a company’s articles of association and in certain circumstances by the audit committee and by the board of directors itself. Those transactions that require such approval pursuant to a company’s articles of association must be approved by its board of directors. In certain circumstances, audit committee and shareholder approval is also required. The vote required by the audit committee and the board of directors for approval of such matters, in each case, is a majority of the directors participating in a duly convened meeting. Under the Israeli Companies Law, the audit committee is to be comprised of at least three members appointed by the board of directors, which members must include all of the external directors. The majority of members of the audit committee should be independent directors, and the chairman of the audit committee should be an external director.

 

The Israeli Companies Law requires that a member of the board of directors or senior management of the company promptly and, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal interest that he or she may have, either directly or by way of any corporation in which he or she is, directly or indirectly, 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, as well as all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company’s profitability, assets or liabilities), the member of the board of directors or senior management must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings and parents, and the spouses of any of the foregoing.

 

Once the member of the board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association. Under the provisions of the Israeli Companies Law, whoever has a personal interest in a matter, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless it is not an extraordinary transaction as defined in the Israeli Companies Law. However, if the chairman of the board of directors or the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal interest in a matter, they shall be allowed to participate and vote on this matter, but an approval of the transaction by the shareholders in the general meeting shall be required.

 

Our articles of association provide that, subject to the Israeli Companies Law, all actions executed in good faith by the board of directors or by a committee thereof or by any person acting as a director or a member of a committee of the board of directors, will be deemed to be valid even if, after their execution, it is discovered that there was a flaw in the appointment of these persons or that any one of these persons was disqualified from serving at his or her office.

 

85
 

 

Our articles of association provide that, subject to the provisions of the Israeli Companies Law, the board of directors may appoint board of directors’ committees. The committees of the board of directors shall report to the board of directors their resolutions or recommendations on a regular basis, as shall be prescribed by the board of directors. The board of directors may cancel the resolution of a committee that has been appointed by it; however, such cancellation shall not affect the validity of any resolution of a committee, pursuant to which we acted, vis-à-vis another person, who was not aware of the cancellation thereof. Decisions or recommendations of the committee of the board which require the approval of the board of directors will be brought to the directors’ attention a reasonable time prior to the discussion at the board of directors.

 

According to the Israeli Companies Law, a contract of a company with its directors, regarding their conditions of service, including the grant to them of exemption from liability from certain actions, insurance, and indemnification as well as the company’s contract with its directors on conditions of their employment, in other capacities, require the approval of the audit committee, the board of directors, and the shareholders.

 

Exchange Controls

 

Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under the law and enabled Israeli citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israeli currencies. Dividends, if any, paid to holders of our ordinary shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into U.S. dollars at the rate of exchange prevailing at the time of conversion.

 

Access to corporate records

 

Under the Israeli Companies Law, shareholders are provided access to minutes of our general meetings, our shareholders register and principal shareholders register, our articles of association, our financial statements and any document that we are required by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may request to be provided with any document related to an action or transaction requiring shareholder approval under the related party transaction provisions of the Israeli Companies Law. We may deny this request if we believe it has not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.

 

Modification of class rights

 

Under the Israeli Companies Law and our articles of association, the rights attached to any class of share, such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set forth in our articles of association.

 

Acquisitions under Israeli Law

 

Full Tender Offer

 

A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company.

 

A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class.

 

If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of the shares.

 

86
 

 

Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.

 

If the shareholders who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.

 

The description above regarding a full tender offer shall also apply, with necessary changes, when a full tender offer is accepted and the offeror has also offered to acquire all of the company’s securities.

 

Special Tender Offer

 

The Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company.

 

Similarly, the Israeli 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 a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company.

 

These requirements do not apply if the acquisition (i) occurs in the context of a private offering, on the condition that the shareholders’ meeting approved the acquisition as a private offering whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least 25% of the voting rights in the company, or as a private offering whose purpose is to give the acquirer 45% of the voting rights in the company, if there is no person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company.

 

The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer; in counting the votes of offerees, the votes of a holder in control of the offeror, a person who has personal interest in acceptance of the special tender offer, a holder of at least 25% of the voting rights in the company, or any person acting on their or on the offeror’s behalf, including their relatives or companies under their control, are not taken into account.

 

In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention.

   

An office holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting from his acts, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, office holders of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.

 

87
 

 

If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them shall refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.

 

Merger

 

The Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Israeli Companies Law are met, a majority of each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’ meeting.

 

The board of directors of a merging company is required pursuant to the Israeli Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that, as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, taking into account the financial condition of the merging companies. If the board of directors has determined that such a concern exists, it may not approve a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.

 

For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders’ meeting (excluding abstentions) that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control (See “Management – Audit Committee – Approval of Transactions with Related Parties” for a definition of means of control) of the other party to the merger or any one on their behalf including their relatives (See “Management – External Directors – Qualifications of External Directors” for a definition of relatives) or corporations controlled by any of them, vote against the merger.

 

In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders.

 

If the transaction would have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule that the company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and the consideration offered to the shareholders.

 

Under the Israeli Companies Law, each merging company must send a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided by the regulations promulgated under the Israeli Companies Law. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in order to secure the rights of creditors.

 

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 with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.

 

Private Placements

 

Under the Israeli Companies Law, if (i) as a result of a private placement a person would become a controlling shareholder or (ii) a private placement will entitle investors to receive 20% or more of the voting rights of a company as calculated before the private placement, and all or part of the private placement consideration is not in cash or in public traded securities or is not in market terms and if as a result of the private placement the holdings of a substantial shareholder shall increase or as a result of it a person shall become a substantial shareholder, then in either case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial shareholder” is defined as a shareholder who holds five percent or more of the company’s outstanding share capital, assuming the exercise of all of the securities convertible into shares held by that person. In order for the private placement to be on “market terms” the board of directors has to determine, on the base of detailed explanation, that the private placement is on market terms, unless proven otherwise.

 

88
 

 

Establishment

 

We were incorporated under the laws of the State of Israel. We are registered with the Israeli Registrar of Companies in Jerusalem.

 

Transfer agent and registrar

 

Our transfer agent and registrar will be the depositary for our ADSs, Bank of New York Mellon, and its address is 101 Barclay Street, New York, NY.

 

Listing

 

We have applied to have our ADSs and warrants approved for listing on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW”, respectively.

 

DESCRIPTION OF SECURITIES

 

The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS will represent 20 shares (or a right to receive 20 shares) deposited with Bank Hapoalim or Bank Leumi, as custodian for the depositary in Israel. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at One Wall Street, New York, New York 10286.

 

You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

 

Registered holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.

   

As an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Israeli law governs shareholder rights. The depositary will be the holder of the shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.

 

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR. Directions on how to obtain copies of those documents are provided under the heading “Where You Can Find Additional Information”.

 

Dividends and Other Distributions

 

How will you receive dividends and other distributions on the shares?

 

The depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.

 

89
 

 

Cash. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and can not be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

 

Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See “Taxation and Government Programs - Taxation of our Shareholders" for more detail. It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some of the value of the distribution.

 

Shares. The depositary may distribute additional ADSs representing any shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell shares which would require it to deliver a fraction of an ADS (or ADSs representing those shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares (or ADSs representing those shares) sufficient to pay its fees and expenses in connection with that distribution.

 

Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may (i) exercise those rights on behalf of ADS holders, (ii) distribute those rights to ADS holders or (iii) sell those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive no value for them. The depositary will exercise or distribute rights only if we ask it to and provide satisfactory assurances to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate and distribute those securities or, in the case of shares, new ADSs representing the new shares, to subscribing ADS holders, but only if ADS holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights or ADSs or other securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

 

Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

 

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.

 

Deposit, Withdrawal and Cancellation

 

How are ADSs issued?

 

The depositary will deliver ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.

 

90
 

 

How can ADS holders withdraw the deposited securities?

 

You may surrender your ADSs for the purpose of withdrawal at the depositary’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible. The depositary may charge you a fee and its expenses for instructing the custodian regarding delivery of deposited securities.

 

How do ADS holders interchange between certificated ADSs and uncertificated ADSs?

 

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.

 

Voting Rights

 

How do you vote?

 

ADS holders may instruct the depositary how to vote the number of deposited shares their ADSs represent. If we request the depositary to solicit your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders’ meeting and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of Israel and the provisions of our articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. If we do not request the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.

 

Except by instructing the depositary as described above, you won’t be able to exercise voting rights unless you surrender your ADSs and withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. In any event, the depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed by the holder of the ADSs.

 

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested.

 

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least [45] days in advance of the meeting date.

 

91
 

 

Fees and Expenses

 

Persons depositing or withdrawing
shares or ADS holders must pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

 

Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

   
$.05 (or less) per ADS Any cash distribution to ADS holders
   
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
   
$.05 (or less) per ADS per calendar year Depositary services
   
Registration or transfer fees Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
   
Expenses of the depositary

Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

 

converting foreign currency to U.S. dollars

   
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as  stock transfer taxes, stamp duty or withholding taxes

As necessary

 

   
Any charges incurred by the depositary or its agents for servicing the deposited securities As necessary

 

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.

 

The depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account.  The spread is the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives in an offsetting foreign currency trade. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under the deposit agreement.

 

92
 

 

Payment of Taxes

 

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

 

Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities

 

The depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs and subject to any conditions or procedures the depositary may establish.

 

If deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.

 

If there is any change in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the depositary decides it would not be lawful to hold the replacement securities because those securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities and distribute the net proceeds upon surrender of the ADSs.

 

If there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

 

If there are no deposited securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs have become apparently worthless, the depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the ADS holders.

 

Amendment and Termination

 

How may the deposit agreement be amended?

 

We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

 

How may the deposit agreement be terminated?

 

The depositary will initiate termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement if

 

· 60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment;

 

· we delist our shares from an exchange on which they were listed and do not list the shares on another exchange;

 

· we appear to be insolvent or enter insolvency proceedings

 

· all or substantially all the value of the deposited securities has been distributed either in cash or in the form of securities;

 

93
 

 

· there are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or

 

· there has been a replacement of deposited securities.

 

If the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary will sell as soon as practicable after the termination date.

 

After the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities if it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited securities, but , after the termination date, the depositary is not required to register any transfer of ADSs or distribute any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any notices or perform any other duties under the deposit agreement except as described in this paragraph.

 

Limitations on Obligations and Liability

 

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

 

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:

 

· are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

 

· are not liable if we are or it is prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations under the deposit agreement;

 

· are not liable if we or it exercises discretion permitted under the deposit agreement;

 

· are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;

 

· have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person;

 

· are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and

 

· may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person.

 

In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

 

Requirements for Depositary Actions

 

Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require: 

 

· payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

 

94
 

 

· satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

 

· compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

 

The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.

 

Your Right to Receive the Shares Underlying your ADSs

 

ADS holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:

 

· when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders' meeting; or (iii) we are paying a dividend on our shares;

 

· when you owe money to pay fees, taxes and similar charges; or

 

· when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

 

This right of withdrawal may not be limited by any other provision of the deposit agreement.

 

Pre-release of ADSs

 

The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. The depositary may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADSs instead of shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the shares or ADSs to be deposited; (2) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more than five business days' notice. In addition, the number of ADSs that may be outstanding at any time as a result of pre-release will not normally exceed      % of the total number of ordinary shares deposited under the deposit agreement, although the depositary may disregard the limit from time to time if it thinks it is appropriate to do so. The depositary has full discretion as to how and to what extent it may disregard the limit for the amount of ADSs that may be outstanding at any time as a result of the pre-release.

 

Direct Registration System

 

In the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to as DRS, and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs through DTC and a DTC participant. Profile is a feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.

 

In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.

 

95
 

 

Shareholder communications; inspection of register of holders of ADSs

 

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications or otherwise make those communications available to you if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.

 

Warrants to be Issued as Part of this Offering

 

The following summary of certain terms and provisions of the warrants offered hereby is not complete and is subject to, and qualified in its entirety by the provisions of the ADS Warrant Agent Agreement, also referred to as the warrant agreement, and form of Warrant Certificate, which are filed as exhibits to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the warrant agreement and form of Warrant Certificate. Warrants issued in connection with this offering will be administered by the Bank of New York Mellon, as warrant agent.

 

Exercisability.  The warrants are exercisable immediately upon issuance and at any time up to the date that is years from the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment in full for the number of ADSs purchased upon such exercise (except in the case of a cashless exercise as discussed below), together with the ADS issuance fee of $0.05 per ADS and other applicable charges and taxes. Unless otherwise specified in the warrant, the holder will not have the right to exercise the warrants, in whole or in part, if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of our ordinary shares outstanding immediately after giving effect to the exercise, as such percentage is determined in accordance with the terms of the warrants.

 

Cashless Exercise.  In the event that a registration statement covering ordinary shares underlying the warrants is not effective, and an exemption from registration is not available for the resale of such ordinary shares underlying the warrants, the holder may, in its sole discretion, exercise warrants and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of ADSs determined according to the formula set forth in the warrant agreement. The issuance fee of $0.05 per ADS, as well as other applicable charges and taxes, are due and payable upon any cashless exercise.

 

Exercise Price.  The initial exercise price per ADS purchasable upon exercise of the warrants is equal to % of the per ADS public offering price. In addition to the exercise price per ADS, the $0.05 issuance fee per ADS and other applicable charges and taxes are due and payable upon exercise.

 

Anti-Dilution Provisions.      The exercise price is subject to adjustment in the event of sales of our ADSs or an equivalent number of ordinary shares during the one-year period following the closing at a price per share less than the exercise price then in effect (or securities convertible or exercisable into ADSs or equivalent number of ordinary shares at a conversion or exercise price less than the exercise price then in effect subject to customary exceptions). In addition, the exercise price and the number of ADSs issuable upon exercise are subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock subdivisions and combinations, reclassifications or similar events affecting our ADSs or ordinary shares.

 

Transferability.  Subject to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to the warrant agent, together with the appropriate instruments of transfer.

 

Warrant Agent and Exchange Listing.  The warrants will be issued in registered form under the Warrant Agreement between us and the warrant agent.

 

96
 

 

 

Fundamental Transaction . If, at any time while the warrants are outstanding, (1) we consolidate or merge with or into another corporation and we are not the surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of our shares of ordinary shares are permitted to sell, tender or exchange their shares of ordinary shares for other securities, cash or property and has been accepted by the holders of 50% or more of our outstanding shares of ordinary shares, (4) we effect any reclassification or recapitalization of our shares of ordinary shares or any compulsory share exchange pursuant to which our ordinary shares are converted into or exchanged for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or other business combination with another person or entity whereby such other person or entity acquires more than 50% of our outstanding ordinary shares, each, a “Fundamental Transaction”, then upon any subsequent exercise of the warrants, the holders thereof will have the right to receive the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of ADSs then issuable upon exercise of the warrant, and any additional consideration payable as part of the Fundamental Transaction.

 

Rights as a Stockholder.  Except as otherwise provided in the warrant agreement or by virtue of such holder’s ownership of ADSs or ordinary shares, the holder of warrants does not have rights or privileges of a holder of ADSs or ordinary shares, including any voting rights, until the holder exercises the warrants.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, no public market existed for our ADSs or warrants. Sales of substantial amounts of our ordinary shares, ADSs or warrants following this offering, or the perception that these sales could occur, could adversely affect prevailing market prices of our ordinary shares, the ADSs and warrants and could impair our future ability to obtain capital, especially through an offering of equity securities. Assuming that the underwriters do not exercise their over-allotment option to purchase additional ADSs and warrants in this offering and assuming no exercise of options outstanding following this offering, we will have an aggregate of ordinary shares outstanding upon the completion of this offering (including those represented by ADSs). All of the ADSs and warrants sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates” (as that term is defined under Rule 144 of the Securities Act), who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.

 

Our ordinary shares held by our existing shareholders have not been registered under the Securities Act and may not be sold publicly in the United States unless they are registered or an exemption from the registration requirements is available.

 

Eligibility of restricted shares for sale in the public market

 

The following indicates approximately when our ordinary shares will be eligible for sale into the public market under the provisions of Rule 144 and Rule 701 (but subject to the further contractual restrictions arising under the lock-up agreements described below):

 

upon the completion of this offering, ordinary shares held by non-affiliates of our company that have been held for at least one year will be available for resale under Rule 144(b)(1)(ii); and

 

upon the completion of this offering, ordinary shares held by affiliates or non-affiliates of our company that have been held for at least six months will be available for resale under Rule 144, so long as at least 90 days have elapsed after the completion of this offering, and subject to the current public information requirement and, in the case of affiliates of our company, the volume, manner of sale and other limitations under Rule 144.

 

Underwriter’s Warrants

 

We have agreed to issue to the representative of the underwriters warrants to purchase up to 5% of the ADSs sold in this offering, including the ADSs sold pursuant to the exercise of the over-allotment option, if any. The ADSs issuable upon exercise of these warrants are identical to those offered by this prospectus. We are registering hereby the issuance of the representative’s warrants and the ADSs issuable upon exercise of the warrants. The representative’s warrants are exercisable for cash or on a cashless basis at per share exercise price equal to the exercise price of the warrants issued to the investors and expiring on a date which is no more than five years from such effective date in compliance with FINRA Rule 5110(f)(2)(H)(i). The representative’s warrants and the ADSs underlying the warrants have been deemed compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representative (or permitted assignees under the Rule) will not sell, transfer, assign, pledge or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these warrants or the underlying securities for a period of 180 days after the effective date. In addition, the representative’s warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the date of effectiveness in compliance with FINRA Rule 5110(f)(2)(H)(iv). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the representative’s warrants, other than underwriting commissions incurred and payable by the holders. The exercise price and number of ADSs issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of ADSs at a price below the warrant exercise price.

 

97
 

 

Lock-up agreements

  

We and our officers and directors have entered into lock-up agreements with the underwriters. Under these agreements, we and these other individuals have agreed, subject to specified exceptions, not to sell or transfer any ADSs or ordinary shares or securities convertible into, or exchangeable or exercisable for, ADSs or ordinary shares, during a period ending 180 days after the date of this prospectus, without first obtaining the written consent of representative of the underwriters.

 

The 180-day restricted period is subject to extension if (1) during the last 17 days of the restricted period we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the restricted period, in which case the restrictions imposed in the lock-up agreements 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.

 

Rule 144

 

Shares held for six months

 

In general, under Rule 144 as currently in effect, and subject to the terms of any lock-up agreement, commencing 90 days after the completion of this offering, a person, including an affiliate, who has beneficially owned our ordinary shares for six months or more, including the holding period of any prior owner other than one of our affiliates (i.e., commencing when the shares were acquired from us or from an affiliate of us as restricted securities), is entitled to sell our shares, subject to the availability of current public information about us (which information will be deemed to be available as long as we continue to file required reports with the SEC). In the case of an affiliate shareholder, the right to sell is also subject to the fulfillment of certain additional conditions, including manner of sale provisions, notice requirements, and a volume limitation that limits the number of shares that may be sold thereby, within any three-month period, to the greater of:

 

1% of the number of ordinary shares then outstanding; or

 

the average weekly trading volume of our ordinary shares on The NASDAQ Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

 

Rule 144 also provides that affiliates that sell our ordinary shares that are not restricted securities must nonetheless comply with the same restrictions applicable to restricted securities, other than the holding period requirement.

 

Shares held by non-affiliates for one year

 

Under Rule 144 as currently in effect, a person who is not considered to have been one of our affiliates at any time during the three months preceding a sale and who has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates, is entitled to sell his, her or its shares under Rule 144 without complying with the provisions relating to the availability of current public information or with any other conditions under Rule 144. Therefore, unless subject to a lock-up agreement or otherwise restricted, such shares may be sold immediately upon the completion of this offering.

 

Rule 701

 

In general, under Rule 701 as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell such ordinary shares in reliance on Rule 144, but without compliance with some of the restrictions, as described below.

 

98
 

 

Rule 701 will apply to the options granted under our 2013 Option Plan prior to the completion of this offering, along with the shares acquired upon exercise of these options, including exercises after the completion of this offering. Securities issued in reliance on Rule 701 are restricted securities and may be sold beginning 90 days after the completion of this offering in reliance on Rule 144 by:

 

persons other than affiliates, without restriction; and

 

affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144,

 

in each case, without compliance with the six-month holding period requirement of Rule 144.

 

Form S-8 registration statements

 

Following the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register our ordinary shares issued or reserved to be issued under our 2013 Option Plan. The registration statement on Form S-8 will become effective automatically upon filing. Ordinary shares issued upon exercise of a share option or other award and registered pursuant to the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately unless they are subject to the 180-day lock-up or, if subject to the lock-up, immediately after the 180-day lock-up period expires.

 

TAXATION AND GOVERNMENT PROGRAMS

 

The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares, ADSs or warrants (the “Shares”). You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.

 

Israeli Tax Considerations and Government Programs

 

The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of some Israeli tax consequences to persons owning our Shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax legislation which has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax considerations.

 

SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.

 

General Corporate Tax Structure in Israel

 

Israeli resident companies are generally subject to corporate tax, currently at the rate of 26.5% of a company’s taxable income. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate.

 

Under Israeli tax legislation, a corporation will be considered as an “Israeli resident company” if it meets one of the following: (i) it was incorporated in Israel; or (ii) the control and management of its business are exercised in Israel.

 

99
 

 

Taxation of Our Shareholders

 

Capital Gains

 

Capital gain tax is imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non- Israel resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel. The Israeli Income Tax Ordinance of 1961 (New Version) (the “Ordinance”) distinguishes between “Real Gain” and the “Inflationary Surplus.” Real Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli CPI between the date of purchase and the date of disposal.

 

In 2015, the capital gain accrued by individuals on the sale of our Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12 months period, such gain will be taxed at the rate of 30%.

 

The real capital gain derived by corporations will be generally subject to a corporate tax rate of 26.5% in 2015.

  

Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income – 26.5% for corporations in 2015 and a marginal tax rate of up to 48% in 2015 for individuals, plus a 2% excess tax which is levied on individuals whose taxable income in Israel exceeds NIS 810,720 in 2015. Notwithstanding the foregoing, capital gain derived from the sale of our Shares by a non-Israeli shareholder may be exempt under the Ordinance from Israeli taxation provided that the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the securities on the stock exchange (this condition shall not apply to shares purchased on or after January 1, 2009), (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributed, (iii) if the seller is a corporation, no more than 25% of its means of control are held, directly and indirectly, by an Israeli resident shareholders, and (iv) if the seller is a corporation, there is no Israeli Resident that is entitled to 25% or more of the revenues or profits of the corporation directly or indirectly. In addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12 month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel.

 

Either the purchaser, the Israeli stockbrokers or financial institution through which the shares are held is obliged, subject to the above mentioned exemptions, to withhold tax upon the sale of securities from the real capital gain at the rate of 25% in respect of a corporation and/or an individual.

 

At the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and June 30 of every tax year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual income tax return.


Dividends

 

A distribution of dividend by our company from income attributed to a Preferred Enterprise will generally be subject to withholding tax in Israel at the following tax rates: Israeli resident individuals - 20% with respect to dividends to be distributed as of 2014; Israeli resident companies – 0% for a Preferred Enterprise; Non-Israeli residents – 20% with respect to dividends to be distributed as of 2014, subject to a reduced rate under the provisions of any applicable double tax treaty, subject to an approval from the Israeli Tax Authorities. A distribution of dividends from income, which is not attributed to a Preferred Enterprise to an Israeli resident individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a “Controlling Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel.

 

100
 

 

The Ordinance provides that a non-Israeli resident (either individual or corporation) is generally subject to an Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as defined above), at the time of distribution or at any time during the preceding 12 months period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty. Thus, under the U.S.-Israel Double Tax Treaty the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends (other than dividend or interest received from subsidiary corporations, 50 percent or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest is received) – the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to a Preferred Enterprise as defined in the Israel’s Encouragement of Capital Investments Law (1959) – the tax rate is 15% and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.

 

A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.

 

Financial institutions through which shareholders typically hold securities are generally required, subject to any of the foregoing exemptions, reduced tax rates and the demonstration of a shareholder regarding his, her or its foreign residency, to withhold tax upon the distribution of dividend at the rate of 25%, so long as the shares are registered with a Nominee Company (for corporations and individuals).

   

Foreign Exchange Regulations

 

Non-residents of Israel who hold our Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated, and may be restored at any time by administrative action.

 

Estate and Gift Tax

 

Israeli law presently does not impose estate or gift taxes.

 

U.S Federal Income Tax Considerations

 

The following is a description of certain U.S. federal income tax consequences relating to the acquisition, ownership and disposition of our ADSs and warrants by a holder. This description addresses only the U.S. federal income tax consequences to holders that are initial purchasers of our ADSs and warrants pursuant to this offering and that will hold such ADSs and warrants as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:

 

  banks, financial institutions or insurance companies;

 

  real estate investment trusts, regulated investment companies or grantor trusts;

 

  dealers or traders in securities, commodities or currencies;

 

  tax exempt entities or organizations;

 

  certain former citizens or residents of the United States;

 

101
 

 

  persons that received our ADSs or warrants as compensation for the performance of services;

 

  persons that will hold our ADSs or warrants as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes;

 

  partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, or holders that will hold our ADSs or warrants through such an entity;

 

  U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; or

 

  holders that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares.

 

Moreover, this description does not address the U.S. federal estate, gift, or alternative minimum tax consequences, or any U.S. state, local or non-U.S. tax consequences of the acquisition, ownership and disposition of our ADSs and warrants.

 

This description is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, in each case as in effect and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service, or IRS, will not take a different position concerning the tax consequences of the acquisition, ownership and disposition of our ADSs and warrants or that such a position would not be sustained. Holders should consult their own tax advisers concerning the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ADSs and warrants in their particular circumstances.

 

For purposes of this description, the term “U.S. Holder” means a beneficial owner of our ADSs or warrants that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected to be treated as a domestic trust for U.S. federal income tax purposes.

 

A “Non-U.S. Holder” is a beneficial owner of our ADSs or warrants that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for U.S. federal income tax purposes).

 

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ADSs and warrants, the U.S. federal income tax consequences relating to an investment in our ADSs and warrants will depend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax consequences of acquiring, owning and disposing of our ADSs and warrants in its particular circumstances.

 

In general, if you hold ADSs, you will be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally will not be recognized if you exchange ADSs for the underlying ordinary shares represented by those ADSs.

 

Persons considering an investment in our ADSs or warrants should consult their own tax advisors as to the particular tax consequences applicable to them relating to the acquisition, ownership and disposition of our ADSs and warrants, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.

 

102
 

 

Taxation of Dividends and Other Distributions on Our ADSs

 

Subject to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, the gross amount of any distribution made to you with respect to our ADSs before reduction for any Israeli taxes withheld therefrom, generally will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ADSs applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. Moreover, such lower rate of taxation shall not apply if we are a PFIC for the taxable year in which it pays a dividend, or was a PFIC for the preceding taxable year. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in our ADSs and thereafter as either long-term or short-term capital gain depending upon whether the U.S. Holder has held our ADSs for more than one year as of the time such distribution is received.

 

If you are a U.S. Holder, dividends paid to you with respect to our ADSs will be foreign source income for foreign tax credit purposes. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends generally constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.

 

The amount of a distribution paid to a U.S. Holder in a foreign currency will be the dollar value of the foreign currency calculated by reference to the spot exchange rate on the day the U.S. Holder receives the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. Holder realizes on a subsequent conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received in foreign currency are converted into U.S. dollars on the day they are received, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend.

 

Subject to certain limitations, including the Medicare tax, discussed below, “qualified dividend income” received by a non-corporate U.S. Holder will be subject to tax at a preferential maximum tax rate of 20 percent. Distributions taxable as dividends paid on the our ADSs should qualify for the preferential 20 percent rate provided that either: (i) we are entitled to benefits under the income tax treaty between the United States and Israel (the “Treaty”) or (ii) our ADSs will become readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we will be entitled to benefits under the Treaty and that our ADSs will become readily tradable on an established securities market in the United States, and therefore any dividend distributions with respect to our ADSs should be “qualified dividends” eligible for the preferential tax rate. However, no assurance can be given that our ADSs will become readily tradable. The preferential rate does not apply unless certain holding period requirements are satisfied. With respect to our ADSs, the U.S. Holder must have held such ADSs for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. The preferential rate also does not apply to dividends received from a passive foreign investment company or in respect of certain hedged positions or in certain other situations. The legislation enacting the preferential tax rate on qualified dividends contains special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to the preferential tax rate. U.S. Holders of our ADSs should consult their own tax advisors regarding the effect of these rules in their particular circumstances.

 

Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S. Holder, you generally will not be subject to U.S. federal income (or withholding) tax on dividends received by you on your ADSs, unless:

 

  you conduct a trade or business in the U.S. and such income is effectively connected with that trade or business (and, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder maintains in the U.S.); or

 

  you are an individual and have been present in the U.S. for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.

 

103
 

 

Sale, Exchange or Other Disposition of Our ADSs and Warrants

 

Subject to the discussion below under “Passive Foreign Investment Company Consequences,” if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other disposition of our ADSs and warrants equal to the difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in our ADSs and warrants, and such gain or loss will be capital gain or loss. The adjusted tax basis in an ADS and warrant generally will be equal to the cost of such ADS and warrant. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of an ADS or warrant is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period determined at the time of such sale, exchange or other disposition for such ADS or warrant exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses is subject to limitations. Any such gain or loss generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.

   

Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S. Holder, you generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange of such ADSs and warrants unless:

 

  such gain is effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base that you maintain in the United States); or

 

  you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.

 

Passive Foreign Investment Company Consequences

 

We may be classified as a Passive Foreign Investment Company (PFIC). If we were to be so classified in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.

 

A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of subsidiaries, either:

 

at least 75% of its gross income is “passive income”; or

 

at least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of our ADSs and warrants, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income.

 

Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ADSs and warrants. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ADSs or warrants, we will generally continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ADSs or warrants, regardless of whether we continue to meet the tests described above.

 

We were not classified as a PFIC in the year ended December 31, 2014. We have not performed tests to determine whether we will be classified as a PFIC, and we therefore do not know whether we will be classified as a PFIC for the taxable year ending December 31, 2015. Furthermore, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2015 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years will depend on our income, assets and activities in those years. In addition, our status as a PFIC may depend on how quickly we utilize the cash proceeds from this offering in our business. There can be no assurance that we will not be considered a PFIC for any taxable year.

 

104
 

 

If we were a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or your holding period for our ADSs or warrants) and (b) any gain realized on the sale or other disposition of the ADSs or warrants. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax, at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below), and (iii) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “Distributions.” Certain elections may be available that would result in an alternative treatment (such as mark-to-market treatment) of our ADSs or warrants.

   

If a U.S. Holder makes the mark-to-market election, then, in lieu of being subject to the tax and interest charge rules discussed above, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ADSs or warrants at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs or warrants over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in its ADSs or warrants will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs or warrants in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election).

 

The mark-to-market election is available only if we are a PFIC and our ADSs or warrants are “regularly traded” on a “qualified exchange.” Our ADSs and warrants will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of our ADSs and warrants are traded on a qualified exchange on at least 15 days during each calendar quarter. The NASDAQ Capital Market is a qualified exchange for this purpose. Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the tax and interest charge rules discussed above with respect to such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including stock in any of our subsidiaries that are treated as PFICs. If a U.S. Holder makes a mark-to market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless our ADSs or warrants are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election.

 

We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular circumstances.

 

If we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.

 

If a U.S. Holder owns ADSs or warrants during any year in which we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to us, generally with the U.S. Holder’s federal income tax return for that year.

 

U.S. Holders should consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules.

 

105
 

 

Medicare Tax

 

Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the disposition of ADSs and warrants. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ADSs and warrants.

 

Certain Reporting Requirements with Respect to Payments of Offer Price

 

U.S. Holders paying more than $100,000 for our ADSs and warrants generally will be required to file IRS Form 926 reporting the payment of the Offer Price for our ADSs and warrants to us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply. Each U.S. Holder should consult its own tax advisor as to the possible obligation to file IRS Form 926.

 

Backup Withholding Tax and Information Reporting Requirements

 

U.S. backup withholding tax and information reporting requirements may apply to certain payments to certain holders of our ADSs and warrants. Information reporting generally will apply to payments of dividends on our ADSs, and to proceeds from the sale or redemption of our ADSs and warrants made within the United States, or by a U.S. payer or U.S. middleman, to a holder of our ADSs and warrants, other than an exempt recipient (including a payee that is not a U.S. person that provides an appropriate certification and certain other persons). A payer may be required to withhold backup withholding tax from any payments of dividends on our ADSs, or the proceeds from the sale or redemption of our ADSs and warrants within the United States, or by a U.S. payer or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the beneficial owner’s U.S. federal income tax liability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is timely furnished to the IRS.

   

Foreign Asset Reporting

 

Certain U.S. Holders who are individuals are required to report information relating to an interest in our ADSs and warrants, subject to certain exceptions (including an exception for shares held in accounts maintained by financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ADSs and warrants.

 

THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN OUR ADSs AND WARRANTS IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.

 

106
 

 

EXPENSES RELATED TO OFFERING

 

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the offer and sale of ADSs and warrants in this offering. The underwriting discounts and commissions to be paid to the underwriters represent of the total amount of the offering. All amounts listed below are estimates except the SEC registration fee, NASDAQ listing fee and the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee.

 

Itemized expense   Amount  
SEC registration fee   $  
FINRA filing fee        
NASDAQ Capital Market listing fee        
Printing and engraving expenses        
Legal fees and expenses        
Transfer agent and registrar fees        
Accounting fees and expenses        
Miscellaneous        
Total   $  

 

107
 

 

UNDERWRITING

 

Rodman & Renshaw, a unit of H.C. Wainwright & Co., is acting as the sole manager of the offering and as representative of the underwriters. Subject to the terms and conditions set forth in an underwriting agreement among us and the representative of the underwriters named below, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase from us, the number of ADSs and warrants listed next to its name in the following table.

 

    Number of     Number of  
Underwriters   ADSs     Warrants  

Rodman & Renshaw

           
                 
Total            

 

The underwriters are committed to purchase all the ADSs and warrants offered by us if they purchase any ADSs and warrants. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the ADSs, warrants or combinations thereof covered by the underwriters’ over-allotment option described below. The underwriters are offering the ADSs and warrants, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Discounts and Commissions

 

The underwriters propose initially to offer the ADSs and warrants to the public at the public offering prices set forth on the cover page of this prospectus and to dealers at those prices less a concession not in excess of $    per ADS and warrant. After the initial offering of the ADSs and warrants, the public offering price and other selling terms may be changed by the representative.

 

The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to us. The information assumes either no exercise or full exercise of the over-allotment option we granted to the representative of the underwriters.

 

    Per
ADS and warrant
    Total Without
Over-Allotment
Option
    Maximum
Total With
Over-Allotment
Option
 
Public offering price   $     $       $    
Underwriting discounts and commissions                        
Non-accountable expense allowance                        
Proceeds, before expenses, to us   $     $       $    

 

We have agreed to pay a non-accountable expense allowance to the representative of the underwriters equal to 1% of the gross proceeds received in the offering; provided, however, that an allowance shall not be paid in connection with the over-allotment option if the over-allotment option is exercised. We have also agreed to pay the representative’s accountable expenses relating to the offering, including (a) all actual filing fees incurred in connection with the review of this offering by FINRA; all fees and expenses relating to the listing of our ADSs and warrants on The NASDAQ Capital Market, (b) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $4,000 per individual and up to an aggregate of $20,000, (c) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under state securities laws, or “blue sky” laws, or under the securities laws of foreign jurisdictions designated by the representative, (d) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of our ADSs and warrants under the securities laws of such foreign jurisdictions as the representative may reasonably designate, (e) the costs of all mailing and printing of the underwriting documents as the representative may reasonably deem necessary, (f) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and Lucite tombstones in an amount not to exceed $5,000, (g) the fees and expenses of the representative’s legal counsel not to exceed $100,000, $25,000 of which has been paid in advance, (h) up to $15,000 of the representative’s road show expenses for the offering and (i) up to $10,000 of the fees and expenses of the representative’s clearing firm.

 

108
 

 

The total estimated expenses of the offering, excluding underwriting discounts, commissions, and non-accountable expense allowances are approximately $    and are payable by us.

 

Over-Allotment Option

 

We have granted to the underwriters an option to purchase up to (i) additional ADSs at price of $    per ADS, which price reflects underwriting discounts and commissions, and/or (ii) warrants to purchase up to an additional ADSs at price of $    per warrant, which price reflects underwriting discounts and commissions. The over-allotment option may be used to purchase ADSs, warrants or any combination thereof, as determined by the underwriters, but such purchases cannot exceed an aggregate of 15% of the number of ADSs and warrants sold in the primary offering. The underwriters may exercise this option for 45 days from the date of this prospectus solely to cover sales of units by underwriters in excess of the total number of ADSs and warrants set forth in the table above. If any of these additional securities are purchased, the underwriters will offer the additional ADSs and warrants on the same terms as those on which the units are being offered. We will pay the expenses associated with the exercise of the over-allotment option.

 

Representative’s Warrants

 

We have agreed to issue to the representative of the underwriters warrants to purchase up to 5% of the ADSs sold in this offering, including the ADSs sold pursuant to the exercise of the over-allotment option, if any. The ADSs issuable upon exercise of these warrants are identical to those offered by this prospectus. We are registering hereby the issuance of the representative’s warrants and the ADSs issuable upon exercise of the warrants. The representative’s warrants are exercisable for cash or on a cashless basis at per share exercise price equal to the exercise price of the warrants issued to the investors and expiring on a date which is no more than five years from such effective date in compliance with FINRA Rule 5110(f)(2)(G)(i). The representative’s warrants and the ADSs underlying the warrants have been deemed compensation by FINRA and are, therefore, subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representative (or permitted assignees under the Rule) will not sell, transfer, assign, pledge or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of these warrants or the underlying securities for a period of 180 days after the effective date. The exercise price and number of ADSs issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of ADSs at a price below the warrant exercise price.

 

Lock-Up Agreements

 

We and our officers and directors have entered into lock-up agreements with the underwriters. Under these agreements, we and these other individuals have agreed, subject to specified exceptions, not to sell or transfer any ADSs or ordinary shares or securities convertible into, or exchangeable or exercisable for, ADSs or ordinary shares, during a period ending 180 days after the date of this prospectus, without first obtaining the written consent of representative of the underwriters.

 

Specifically, we and these other individuals have agreed not to:

 

offer, pledge, sell or contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any ADSs or ordinary shares or any securities convertible into or exercisable or exchangeable for ADSs or ordinary shares;

 

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the ADSs or ordinary shares, whether any such transaction described above is to be settled by delivery of ADSs or ordinary shares or other securities, in cash or otherwise;

 

make any demand for or exercise any right with respect to the registration of any ADSs or ordinary shares or any securities convertible into or exchangeable or exercisable for ADSs or ordinary shares; or

 

publicly announce an intention to do any of the foregoing.

 

109
 

 

The restrictions described above do not apply to:

 

the sale of ADSs, warrants or ordinary shares to the underwriters pursuant to the underwriting agreement;

 

the issuance by us of ADSs or ordinary shares upon the exercise of an option or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing or that is described in this prospectus;

 

the grant by us of stock options or other stock-based awards, or the issuance of ADSs or ordinary shares upon exercise thereof, to eligible participants pursuant to employee benefit or equity incentive plans described in this prospectus, provided that, prior to the grant of any such stock options or other stock-based awards that vest within the restricted period, each recipient of such grant shall sign and deliver a lock-up agreement agreeing to be subject to the restrictions on transfer described above;

 

the establishment of a 10b5-1 trading plan under the Exchange Act by a security holder for the sale of ADSs or ordinary shares, provided that such plan does not provide for the transfer of ADSs or ordinary shares during the restricted period;

 

transfers by security holders of ADSs or ordinary shares or other securities as a bona fide gift or by will or intestacy;

 

transfers by distribution by security holders of ADSs or ordinary shares or other securities to partners, members, or stockholders of the security holder; or

 

transfers by security holders of ADSs or ordinary shares or other securities to any trust for the direct or indirect benefit of the security holder or the immediate family of the security holder;

 

provided that in the case of each of the preceding three types of transactions, the transfer does not involve a disposition for value and each transferee or distributee signs and delivers a lock-up agreement agreeing to be subject to the restrictions on transfer described above.

 

The 180-day restricted period is subject to extension if (1) during the last 17 days of the restricted period we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the restricted period, in which case the restrictions imposed in the lock-up agreements 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.

 

Right of First Refusal

 

Subject to certain conditions, we granted the representative of the underwriters in this offering, for a period of nine months after the date of effectiveness, a right of first refusal to act as sole book-running manager for each and every future public and private equity and public debt offerings.

 

Indemnification

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

 

NASDAQ Listing

 

We have applied to have our ADSs and warrants listed for trading on The NASDAQ Capital Market under the symbols “KTOV” and “KTOVW,” respectively. No assurance can be given that such listings will be approved; however, it is a condition of the underwriters’ obligation to purchase the securities in the offering that the ADSs and warrants have been approved for listing on The NASDAQ Capital Market.

 

Price Stabilization, Short Positions and Penalty Bids

 

In order to facilitate the offering of our ADSs and warrants, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our ADSs and warrants. In connection with the offering, the underwriters may purchase and sell our ADSs or warrants in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of ADSs or warrants than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional ADSs or warrants in the offering pursuant to the exercise of their over-allotment option to purchase additional ADSs or warrants, as applicable. The underwriters may close out any covered short position by either exercising the over-allotment option or purchasing ADSs or warrants, as applicable, in the open market. In determining the source of ADSs or warrants, as applicable, to close out the covered short position, the underwriters will consider, among other things, the price of ADSs or warrants available for purchase in the open market as compared to the price at which they may purchase ADSs or warrants, as applicable, through the over-allotment option. “Naked” short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing ADSs or warrants, as applicable, 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 our ADSs or warrants in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of ADSs or warrants made by the underwriters in the open market prior to the completion of the offering.

 

110
 

 

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our ADSs and warrants or preventing or retarding a decline in the market price of our ADSs and warrants. As result, the price of our ADSs and warrants may be higher than the price that might otherwise exist in the open market.

 

The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of our ADSs and warrants, including the imposition of penalty bids. This means that if the representative of the underwriters purchases ADSs or warrants in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those ADSs or warrants, as applicable as part of this offering to repay the underwriting discount received by them.

 

The underwriters make no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our ADSs and warrants. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

 

Electronic Offer, Sale and Distribution of ADSs and warrants

 

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of ADSs and warrants to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.

 

Other Relationships

 

From time to time, certain of the underwriters and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

 

Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Australia

 

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.

 

111
 

 

China

 

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

 

European Economic Area — Belgium, Germany, Luxembourg and Netherlands

 

The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

 

An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

 

(a) to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

(b) to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €€43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €€50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);

 

(c) to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or

 

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

France

 

This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaireet financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

 

This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

 

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

 

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

 

112
 

 

Ireland

 

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

 

Israel

 

The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority, or the ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

 

Italy

 

The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ — $$— Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

 

qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and

 

in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

 

Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

 

made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and

 

in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

 

Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.

 

Japan

 

The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.

 

113
 

 

Portugal

 

This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de ValoresMobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

 

Sweden

 

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) omhandel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

 

Switzerland

 

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art.1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

 

Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.

 

This document is personal to the recipient only and not for general circulation in Switzerland.

 

United Arab Emirates

 

Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.

 

No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.

 

United Kingdom

 

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA.

 

This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

 

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.

 

114
 

 

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49 (2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

LEGAL MATTERS

 

The validity of the ordinary shares, ADSs and warrants being offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., Tel-Aviv, Israel. Certain legal matters in connection with this offering relating to U.S. law will be passed upon for us by Haynes and Boone, LLP, New York, New York. Certain legal matters in connection with this offering relating to Israeli law will be passed upon for the underwriters by Doron Tikotzky Kantor Gutman Cederboum &SRFF. Certain legal matters concerning this offering relating to U.S. law will be passed upon for the underwriters by Ellenoff Grossman & Schole LLP. 

 

EXPERTS

 

The consolidated financial statements of Kitov Pharmaceuticals Holdings Ltd. as of December 31, 2014 and 2013 and for each of the years in the two-year period ended December 31, 2014, have been included herein in reliance upon the report of Somekh Chaikin, a Member Firm of KPMG International, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

 

The audit report covering the December 31, 2014 consolidated financial statements contains an explanatory paragraph that states that our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements and consolidating information do not include any adjustments that might result from the outcome of this uncertainty.

 

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 United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States

 

We have irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any U.S. federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering. The address of our agent is 850 Library Avenue, Suite 204, Newark, Delaware 19715.

 

We have been informed by our legal counsel in Israel, Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., that it may be difficult to initiate an action with respect to U.S. securities law in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum to hear 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 by expert witnesses which can be a time-consuming and costly process. Certain matters of procedure may also be governed by Israeli law.

 

Subject to certain 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 judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment;

 

the judgment may no longer be appealed;

 

the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and

 

the judgment is executory in the state in which it was given.

 

115
 

 

Even if these conditions are met, an Israeli court will not declare a foreign civil judgment enforceable if:

 

the judgment was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases);

 

the enforcement of the judgment is likely to prejudice the sovereignty or security of the State of Israel;

 

the judgment was obtained by fraud;

 

the opportunity given to the defendant to bring its arguments and evidence before the court was not reasonable in the opinion of the Israeli court;

 

the judgment was rendered by a court not competent to render it according to the laws of private international law as they apply in Israel;

 

the judgment is contradictory to another judgment that was given in the same matter between the same parties and that is still valid; or

 

at the time the action was brought in the foreign court, a lawsuit in the same matter and between the same parties was pending before a court or tribunal in Israel.

 

If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.

 

116
 

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our ADSs and warrants. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.

 

You may read and copy the registration statement, including the related exhibits and schedules, and any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet site that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through this web site at http://www.sec.gov.

 

We are not currently subject to the informational requirements of the Exchange Act. As a result of this offering, we will become subject to the informational requirements of the Exchange Act applicable to foreign private issuers and will fulfill the obligations of these requirements by filing reports with the SEC. As a foreign private issuer, we will be exempt from the rules under the Exchange Act relating 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 periodic 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 intend to file with the SEC, within 120 days after the end of our fiscal year ended December 31, 2015 and each subsequent fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent registered 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.

 

We maintain a corporate website at www.kitovpharma.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 

117
 

 

Kitov Pharmaceuticals

Holdings Ltd.

 

Consolidated Financial

Statements

As of December 31, 2014

 

 
 

  

Kitov Pharmaceuticals Holdings Ltd.
 
Consolidated Financial Statements as of December 31, 2014

 

Contents  
   
  Page
   
Auditors’ Report F-2
   
Consolidated Financial Statements as of December 31, 2014  
   
Consolidated Statements of Financial Position F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Changes in Equity (Deficit) F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to the Consolidated Financial Statements F-7

 

 
 

   

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Shareholders Kitov Pharmaceuticals Holdings Ltd.

 

We have audited the accompanying consolidated statements of financial position of Kitov Pharmaceuticals Holdings Ltd (hereinafter – “the Company”)  and its subsidiary as of December 31, 2014 and 2013 and the related consolidated statements of operations, changes in equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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.  Our audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiary of  December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with  International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company’s recurring losses from operations and negative cash flows raise substantial doubt about the entity’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements and consolidating information do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Somekh Chaikin

Certified Public Accountants (Isr.)

Member firm of KPMG International

Tel-Aviv, Israel

July 19, 2015

 

  F- 2  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Consolidated Statements of Financial Position

 

          December 31     December 31  
         

2014

   

2013

 
   

Note

   

USD thousands

   

USD thousands

 
Assets                        
Cash     4       1,313       193  
Other receivables     5       446       118  
                         
Total current assets             1,759       311  
                         
Total assets             1,759       311  
                         
Liabilities                        
Accounts payable             500       54  
Other payables     7       114       420  
Loans from related parties     8,11       294       783  
Derivative instruments     9       78       -  
                         
Total current liabilities             986       1,257  
                         
Equity (Deficit)                        
                         
Share capital, no par value             -       -  
Share premium     9       9,104       2,654  
Receipts on account of warrants             200       -  
Capital reserve for share-based payments     10       560       141  
Capital reserve from transactions with related parties             761       859  
Accumulated loss             (9,852 )     (4,600 )
                         
Total equity (deficit)             773       (946 )
                         
Total liabilities and equity (deficit)             1,759       311  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 3  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Consolidated Statements of Operations for the year ended December 31,

 

         

2014

   

2013

 
   

Note

   

USD thousands

   

USD thousands

 
                   
Research and development expenses     13       3,192       109  
General and administrative expenses     14       1,269       1,061  
Stock exchange listing expense     3B     -       1,383  
Other expenses     15       720       -  
Operating Loss             5,181       2,553  
                         
Finance expense     16       345       75  
Finance income             (274 )     -  
Financial expenses, net             71       75  
                         
Loss for the year             5,252       2,628  
                         
Loss per share data                        
Basic and diluted loss per share – USD             1.17     *1.60
Number of shares used in calculating basic and diluted loss per share             4,481,684       *1,641,177  

 

* Retroactively adjusted to reflect the reverse stock split that took place in November 2014, see note 9A.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 4  
 

 

Kitov Pharmaceuticals Holdings Ltd.
Consolidated Statements of Changes in Equity (Deficit)

 

   

Share
Capital

   

Share
premium

   

Receipts on
account of
warrants

   

Capital
reserve for
share-
based
payments

   

Capital
reserve from
transactions
with related
parties

   

Accumulated
loss

   

Total

 
       
For the year ended December 31, 2014:                                                        
                                                         
Balance as of January 1, 2014     -       2,654       -       141       859       (4,600 )     (946 )
Changes for the year ended                                                        
 December 31, 2014:                                                        
Issuance of shares, net of issuance costs     -       6,200               57       -       -       6,257  
Issuance of warrants in a rights offering     -       (200 )     200       -       -       -       -  
Share issuance deriving from a strategic cooperation agreement (see note 12)     -       327       -       333       -       -       660  
Share-based payments     -       -       -       88       -       -       88  
Options exercised     -       123       -       (59 )     -       -       64  
Capital reserve from transactions with related parties     -       -       -       -       43       -       43  

Return of funds to a related party (see note 11D.)

    -       -       -       -       (141 )     -       (141 )
Total comprehensive loss for the year     -       -       -       -       -       (5,252 )     (5,252 )
                                                         
Balance as of December 31, 2014     -       9,104       200       560       761       (9,852 )     773  

 

   

Share
Capital

   

Share
premium

   

Capital
reserve for
share-based
payments

   

Capital reserve
from
transactions
with related
parties

   

Accumulated
loss

   

Total

 
                                     
For the year ended December 31, 2013:                                                
                                                 
Balance as of January 1, 2013     -       1,089       -       476       (1,972 )     (407 )
                                                 
Issuance of shares pursuant to share purchase transaction     -       1,383       -       -       -       1,383  
Share-based payments     -       -       296       -       -       296  
Options exercise     -       182       (155 )     -       -       27  
Capital reserve from transactions with related parties     -       -       -       383       -       383  
Total comprehensive loss for the year     -       -       -       -       (2,628 )     (2,628 )
                                                 
Balance as of December 31, 2013     -       2,654       141       859       (4,600 )     (946 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 5  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Consolidated Statements of Cash Flows for the year ended December 31,

 

   

2014

   

2013

 
   

USD thousands

 
             
Cash flows from operating activities:                
Loss for the year     (5,252 )     (2,628 )
                 
Adjustments:                
Finance expense, net     71       75  
Stock exchange listing expense (See note 3B)     -       1,383  
Share-based payments     88       296  
Expenses in regard to a strategic cooperation agreement (see note 12)     660       -  
Non-remunerable services provided by related parties     37       228  
                 
      (4,396 )     646  
                 
Changes in assets and liabilities:                
Changes in receivables     (375 )     (110 )
Changes in accounts payable     453       (11 )
Changes in other payables     (208 )     255  
                 
      (130 )     134  
                 
Net cash used in operating activities     (4,526 )     (512 )
                 
Cash flows from financing activities:                
Loan received from related parties     -       578  
Repayment of loans from related parties     (622 )     -  
Loans received from third parties     132       108  
Repayment of loans from third parties     (246 )     -  
Proceeds from issuance of shares     6,848       -  
Share issuance expenses paid     (571 )     -  
Proceeds from issuance of warrants     349       -  
Warrants issuance expenses paid     (25 )     -  
Receipts from option exercise     57       27  
Interest paid     (100 )     (12 )
                 
Net cash provided by financing activities :     5,822       701  
                 
Net increase in cash     1,296       189  
Cash at the beginning of the year     193       -  
Effect of translation adjustments on cash     (176 )     4  
                 
Cash at end of the year     1,313       193  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 6  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Notes to the Consolidated Financial Statements

 

Note 1 - General

 

A. Reporting entity

 

Kitov Pharmaceuticals Holdings Ltd. (hereinafter: "the Company ") was incorporated in Israel in August 1968 as a private company with limited shares. Since September 1978, the Company’s shares have been listed for trading on the Tel Aviv Stock Exchange. The Company's address is Azrieli Towers, the Round Tower, 132 Menachem Begin Road, Tel Aviv.

 

In October 2012, the Company disposed of all of its previous operations, and in July 2013, the Company acquired shares of Kitov Pharmaceuticals Ltd. (hereinafter: " Kitov ") from its shareholders, in exchange for the Company’s shares (hereinafter: "the Acquisition" ).

 

The Company together with Kitov are referred to, in these financial statements, as "the Group"

 

As of the date of the financial statements, the Company is engaged, through Kitov, in the development of combination drugs that treat two clinical conditions simultaneously, pain deriving from osteoarthritis and hypertension.

 

During the reported years, the Company has incurred losses and negative cash flows from operations, and the accumulated loss has reached USD 10 million. The Company has financed its operations mainly through the issuance and sale of its securities. The Company is acting to raise additional funds required for its operations in accordance with the Company's work plan. However, there is no certainty regarding the Company’s ability to obtain such funding. The Company estimates that cash as of the approval date of the financial statements will allow it to fund its operations through the fourth quarter of 2015.

 

As of the balance sheet date, there is significant doubt with regard to the Company's continued operation as a going concern. The financial statements include no adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate as a going concern.

 

B. Immaterial adjustment of previously released financial statements

 

An adjustment was made to the financial statements as of December 31, 2014  that have been issued previously regarding the classification  of warrants which have been issued to the public in September 2014. These warrants were classified in equity rather than as a financial liability as required since their exercise price was not considered fixed. These warrants are measured at fair value at each period end with the resulting adjustment charged to finance expense. The total effect on the statement of operation was USD 246 thousand and derivative instruments of USD 78 thousand was added to current liabilities. These financial statements incorporate the immaterial adjustment.

 

Note 2 - Basis of Preparation of the Financial Statements

 

A. Statement of compliance with International Financial Reporting Standards

 

The Company has prepared the financial statements in accordance with International Financial Reporting Standards (hereinafter: "IFRS"), as issued by the International Accounting Standard Board (“IASB”).

 

  F- 7  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Notes to the Consolidated Financial Statements

 

Note 2 - Basis of Preparation of the Financial Statements (continued)

 

B. Functional and presentation currency

 

These financial statements are presented in US dollars (USD), which is the Group's functional currency, rounded to the nearest one thousand, unless otherwise noted. The USD is the currency that represents the principal economic environment in which the Group operates.

 

C. Use of estimates and judgment

 

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Management prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

 

D. Fair value determination - share-based payments

 

In preparing these financial statements, the Group is required to determine the fair value of share-based payment arrangements. In order to determine the fair value, the Company conducted an independent valuation. For more information about assumptions used in determination of the fair value of granted options, see Note 10.

 

E. Exchange rates and linkage bases

 

Balances in foreign currency or linked thereto are included in the financial statements at the representative exchange rates, as published by the Bank of Israel, which were prevailing as of the statement of financial position date.

 

Data on exchange rates are as follows:

 

    Representative  
    exchange rate of $  
    (NIS/$ 1)  
Date of financial statements:      
December 31, 2014     3.889  
December 31, 2013     3.471  

 

Changes in exchange rates for the      
year ended:   %  
December 31, 2014     12.0
December 31, 2013     (7.0 )

 

  F- 8  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Notes to the Consolidated Financial Statements

 

Note 3 - Significant Accounting Policies

 

The following accounting policies have been consistently applied, with adjustments necessary for presentation as set forth in sections B and C below.

 

A. Subsidiary

 

A subsidiary is an entity controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiary are included in the consolidated financial statements from the date that control commences until the date that control is lost.

 

B. Acquisition of entity as part of re-structuring (As Pooling)

 

The financial statements include the operations acquired through the Acquisition. In conformity with IFRS 3, the Company acquired Kitov operations, as described in Note 1 above. Since the Company was the acquired entity for accounting purposes and was not an actual business (but rather a public company shell) - the transaction was, in fact, a re-structuring made for the purpose of issuing shares. Accordingly, the transaction was accounted for using the As Pooling method, with assets and liabilities of the acquired operations recognized in the financial statements at their carrying amounts by Kitov immediately prior to the transaction.

 

Furthermore, the Company's comparative figures were re-stated to reflect the Company's financial position and operating results as if it has always owned the operations acquired in the Acquisition.

 

In light of the above, balances of assets, liabilities, expenses and revenues which refer to the Company's past operations prior to the Acquisition are excluded from these financial statements.

 

The consideration for the Acquisition consists of stock exchange listing expenses, which in accordance with IFRS 2, were recognized in the statement of operations in the amount of USD 1,383 thousand. The amount of the expenses represents the effective cost of the acquisition of the Company, at that time a public shell, from an accounting perspective, by Kitov Pharmaceuticals Ltd.

 

C. Foreign currency transactions

 

Transactions in foreign currency are translated to the respective functional currencies of Group companies at exchange rates as of the transaction dates. Monetary assets and liabilities denominated in foreign currency as of the reporting date are translated into the functional currency at the exchange rate as of said date. Exchange rate differences with respect to monetary items are the differences between the amortized cost in the functional currency as of the start of the year, adjusted for the effective interest during the year, and the amortized cost in foreign currency, translated at the exchange rate as of the end of the year. Non-monetary items denominated in foreign currency and measured at historical cost, are translated using the exchange rate as of the transaction date. Exchange rate differences arising from translation into the functional currency are recognized on the statement of operations.

 

D. Non-derivative financial liabilities

 

Non-derivative financial liabilities include: borrowings from related parties and others, trade payables and accounts payable.

 

  F- 9  
 

 

Kitov Pharmaceuticals Holdings Ltd.
 
Notes to the Consolidated Financial Statements

 

Note 3 - Significant Accounting Policies (continued)

 

Initial recognition of financial liabilities

The Group initially recognizes debt instruments issued as they are created. Other financial liabilities are initially recognized on the trade date on which the Group becomes party to contractual terms of the instrument.

 

Financial liabilities are initially recognized at fair value less any attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortized cost using the effective interest method.

 

Transaction costs directly related to a specific instrument are classified as financial liabilities and are recognized as an asset under deferred expenses on the statement of financial position. These transaction costs are deducted from the financial liability upon initial recognition thereof, or are amortized as finance expenses on the statement of operations when the issuance of the instrument is no longer expected to take place.

 

De-recognition of financial liabilities

Financial liabilities are de-recognized upon expiration of the Group's liability, as set forth in the agreement, or when reversed or cancelled.

 

E. Intangible assets – research and development costs

 

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.

 

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group has the intention and sufficient resources to complete development and to use or sell the asset. The expenditure capitalized in respect of development activities includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditure is recognized in profit or loss as incurred. In subsequent periods, any capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.

 

As the Company has not met the criteria mentioned above, all development costs are currently recognized in profit and loss as expense.

 

F. Loss per share

 

The Group presents loss per share data for its ordinary share capital. Loss per share is calculated by dividing the loss attributable to holders of ordinary shares, by the weighted average number of ordinary shares outstanding during the period.

 

G. Transactions with controlling shareholder

 

Assets and liabilities included in a transaction with a controlling shareholder are measured at fair value on the date of the transaction. As the transaction is on the equity level, the Company includes the difference between the fair value and the consideration from the transaction in its equity.

 

  F- 10  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 3 - Significant Accounting Policies (continued)

 

H. Share-based payment transactions

  

The fair value of share-based payment grants to employees and officers is recognized as payroll expense, against equity, over the period in which non-contingent eligibility for such grant is earned. The amount charged as share-based payment grants expense is contingent on vesting conditions, which are service or performance conditions and is adjusted to reflect the number of grants expected to vest. As for share-based payment grants contingent on non-vesting conditions, or on vesting conditions which are performance conditions that are market conditions, the Company accounts for these conditions when estimating the fair value of such grants; therefore the Company recognizes an expense with respect to these grants, regardless of fulfillment of these conditions.

  

I. Financing income and expense

 

Finance income comprises changes in the fair value of financial liability through profit and loss.

 

Finance expenses include loss from exchange rate differences and interest paid on loans received. Interest expense is recognized, using the effective interest method. In the statements of cash flows, Interest paid is presented as part of cash flows from financing activities

 

J. Share capital

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and warrants are recognized as a deduction from equity, net of any tax effects.

 

K. Share issuance expense

 

Share issuance expense is recognized when incurred, as pre-paid expenses, when an issuance is expected to take place. Expenses are recognized under Share Premium upon the issuance of shares.

 

L. Issuance of units of securities

 

The consideration received from the issuance of units of securities is attributed initially to financial liabilities that are measured each period at fair value through profit or loss, and then to financial liabilities that are measured only upon initial recognition at fair value. The remaining amount is the value of the equity component.

 

Direct issuance costs are attributed to the specific securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities on a proportionate basis according to the allocation of the consideration from the issuance of the units, as described above.

 

Note 4 - Cash

 

    As of December 31  
    2014     2013  
    USD thousands  
             
Balance in USD     165       80  
Balance in other currencies (primarily NIS)     1,148       113  
Total cash     1,313       193  

 

  F- 11  
 

  

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 5 - Other Receivables

 

    As of December 31  
    2014     2013  
    USD thousands  
       
Government authorities - VAT     420       38  
Prepaid expenses     26       80  
                 
Total receivables     446       118  

 

Note 6 - Subsidiary

 

The following is condensed information regarding the subsidiary directly held by the Company:

 

    Incorporated Group’s
ownership
    Company’s
direct
ownership of
   

Amounts provided by the
Company to the subsidiary

    Total
investment
 
   

in

 

equity

   

equity

   

Loans

   

Guarantees

   

in subsidiary

 
                       

USD thousands

 
Kitov Pharmaceuticals Ltd.   Israel     100 %*     100 %*     6,081       -       (5,464 )

 

* 20% of Kitov share capital is held in trust on behalf of the Company.

 

Note 7 - Other Payables

 

    As of December 31  
    2014     2013  
    USD thousands  
Due to related parties (note 11)     82       40  
Accrued expenses     10       266  
Employees and payroll related Government authorities     22       -  
Other*     -       114  
      114       420  

 

* Loans obtained from lenders other than related parties. For terms of these loans, see Note 8 below.

 

Note 8 - Loans from Related Parties and Others

 

A. Composition as of December 31:

 

    2014     2013  
    USD thousands  
       
Related parties     294       783  
Others - presented under Other Payables, see Note 7     -       114  
      294       897  

 

  F- 12  
 

  

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 8 - Loans from Related Parties and Others (continued)

 

B. Below is information regarding the balances as of December 31:

  

Loan currency  

Interest and linkage terms

 

Note

 

2014

   

2013

 
                     
USD   No interest or linkage   (1)     294       363  
NIS   No interest, linked to CPI   (2)     -       69  
NIS   No interest, linked to CPI   (2)     -       298  
NIS   No interest or linkage   (2)     -       167  
              294       897  

 

(1) Amounts received from related parties in Kitov for financing operations prior to the date of Kitov's Acquisition by the Company. These loans were fully repaid through March 2015.

 

(2) These loans were fully repaid during 2014.

 

Note 9 - Equity

 

A. The Company's share capital

 

    As of December 31, 2014     As of December 31, 2013  
    Authorized     Issued and
paid-in
    Authorized     Issued and
paid-in
 
                         
Ordinary shares, no par value*     500,000,000       5,971,467       38,461,538       2,010,401  

 

* In November 2014, the Company completed a 1-for-13 reverse stock split of its outstanding share capital. These financial statements and the accompanying notes give retroactive effect to the reverse stock split for all periods presented. In addition, the reverse stock split resulted in an adjustment in the number of shares issuable upon the exercise of warrants at a 1:13 ratio. Furthermore, an increase to the authorized share capital was approved, following which it stands at 500,000,000 shares.

 

B. During the year, the Group recognized the following amounts under share capital, reserves and share premium

 

    For the year ended December 31  
    2014     2013  
    USD thousands  
Share premium for shares issued in conjunction with the Acquisition*     -       1,383  
Issuance of shares, net of issuance costs     6,257       -  
Share issuance deriving from a strategic cooperation agreement (see note 12)     660       -  
Share-based payments     88       296  
Options exercised     64       27  
Receipts (repayment) of  a loan from a related party (see note 11D)     (141 )     141  
Capital reserve from related parties**     43       242  
                 
      6,971       2,089  

 

* Stock exchange listing expenses were determined based on the quoted share price as of the Acquisition date, amounting to USD 1,383 thousand. See Note 3B.

 

** The change in capital reserve from related parties consists of non-remunerable services provided by related parties.

 

 

  F- 13  
 

   

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 9 – Equity (continued)

 

C. Financing rounds

 

1. In March 2014, the Company issued 2,211,538 shares at a price of Israeli Shekel (NIS) 7.80 per share. Total gross proceeds amounted to NIS 17,250,000 (USD 4.9 million). In addition, in August 2014, the Company issued to the underwriters 1,437,500 warrants (series 1) at an exercise price of NIS 9.75 per share, exercisable into 110,577 shares for their services. The warrants are exercisable through June 30, 2015. The fair value of these warrants total $57 thousand

 

2. In May 2014 the Company filed a rights offering prospectus, in which it issued 5,717,074 warrants (series 1) on a pro-rata basis to all its shareholders, exercisable from their issuance date through June 30, 2015. Each 13 warrants are exercisable into one share, for a cash payment of NIS 9.75 per share. The exercise price is not linked to any index. The warrants were registered for trading on June 11, 2014. Any warrant that is not exercised during the exercise period will expire, and the holder will not have any right or claim on it. Company's management estimated the value of the warrants at USD200 thousand. This amount was recorded as payments on account of warrants against premium on shares.

 

3. In September 2014 the Company issued 1,548,000 shares and 25,156,250 warrants (series 2) exercisable into 1,627,339 shares at a price per unit of NIS 5.20. The warrants are exercisable from their issuance date through September 2, 2015. Total gross proceeds amounted to NIS 8,050,000 (USD 2.2 million). Net proceeds amounted to USD 2,072 thousand, of which USD 349 thousand, which represent the market value of the warrants at their first day of trade, were attributed to liabilities, warrant issuance cost of USD 25 thousand were charged to finance expenses in the statement of operations and the remaining USD 1,748 thousand were attributed to share premium. As of December 31, 2014, the fair market value of the warrants was USD 78 thousand. The change in value since issuance has been recorded as finance income.

  

Note 10 - Share-based Payment Arrangements

  

The Company grants options to service providers as well as under the 2013 Option Plan. On November 27, 2013, the Company adopted the 2013 Kitov Pharmaceutical Holdings Ltd. Stock Option Allocation Plan, or the 2013 Option Plan. The 2013 Option Plan provides for the granting of options to directors, officers, employees and consultants and to the directors, officers, employees and consultants of subsidiaries and affiliates. The 2013 Option Plan provides for options to be granted at the determination of the board of directors (which is entitled to delegate its powers under the 2013 Option Plan to the Company's compensation committee) in accordance with applicable laws. The exercise price and vesting period are determined by the board of directors.

 

 

  F- 14  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 10 - Share-based Payment Arrangements (continued)

 

A. Below are details of options granted during the reporting period.

  

1. 1,195 thousand options granted in July 2013 to Lior Tamar Investments Ltd., serving as advisors to the Company. Each option may be immediately exercised into one ordinary share at an exercise price of NIS 0.10 per share. These options were exercised in 2013 and 2014. The shares were included in the 1-for-13 reverse stock split. See note 9A.

  

2. 1,370 thousand options granted to the Company's CFO and Board member, Mr. Simcha Rock. Each 13 options may be exercised into one ordinary share, at an exercise price of NIS 10.40 per share. Exercise period is 36 months from date of issuance.

- 1,012 thousand options vest over 18 months (in equal monthly portions) starting from the date the Company raises NIS 1,000,000 or more. (This condition was met with the public issuance in March 2014, see Note 9.C.1.)

- 181 thousand options subject to the achievement of a milestone (success in clinical trial), the outcome of which is expected during 2015.

- 177 thousand options immediately exercisable.

 

3. 400 thousand options granted to an external advisor of the Company. Each 13 options may be exercised into one ordinary share. The grant includes 200 thousand options which may be immediately exercised into ordinary shares, at an exercise price of NIS 5.85 per share and 200 thousand options which may be immediately exercised into ordinary shares at an exercise price of NIS 7.15 per share. Exercise period is 24 months from date of issuance.

 

4. 933 thousand options granted to an external consultant in August 2014. The grant was comprised of:

 

- 600 thousand options of which each 13 options may be exercised into one ordinary share, at an exercise price of NIS 15.60 per share over a vesting period of 2 years. Exercise period is 48 months from date of issuance.

- 333 thousand options of which each option may be immediately exercised into one ordinary share, at an exercise price of NIS 0.60 per share. These options were exercised in 2014. The shares were included in the 1-for-13 reverse stock split. See note 9A.

   

5. 250 thousand options granted to an employee in August 2014. Each 13 options may be exercised into one ordinary share, at an exercise price of NIS 8.45 per share over a vesting period of 3 years. Exercise period is 120 months from date of issuance.

 

B . Other share based payment arrangements

 

See note 12 with regard to share based payments to a strategic cooperation service provider.

 

  F- 15  
 

    

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 10 - Share-based Payment Arrangements (continued)

 

C. The number and weighted average exercise prices (in NIS) of share options are as follows:

 

    Weighted average
exercise price
    Number of options  
    2014     2013     2014     2013  
Outstanding at January 1     0.46       -       1,819,475       -  
Forfeited during the year     -       -       -       -  
Expired during the year     -       -       -       -  
Exercised during the year     0.21       0.10       567,949       960,000  
Granted during the year     0.8       0.46       2,620,833       2,779,475  
Outstanding at December 31     0.78       0.46       3,872,359       1,819,475  
Exercisable at December 31     0.54       0.65       4,171,684       6,138,932  

 

D. The fair value of the Company’s share options granted to employees, directors and service providers was estimated by applying the Black Scholes model using the following assumptions:

 

   

2014

 

2013

Share Price - NIS   0.52 - 0.60   0.65
Expected volatility (%)   56 - 115   72-97
Expected duration (years)   4-10   2-5
Dividend yield (%)   0   0
Risk free rate interest rate (%)   0.75 - 3   1.2 - 2.3

 

The expected volatility of the share prices reflects the assumption that the historical volatility of the share price is reasonably indicative of expected future trends. The expected term of the instruments has been based on general option holder behavior.

 

E. Expenses recognized in the financial statements:

 

    For the year ended
December 31
 
    2014     2013  
    USD thousands  
Total share based general and administrative expense recognized     88       296  

 

Note 11 - Transactions and Balances with Related Parties

 

A. Related party balances are included in the balance sheet under the following items:

 

    As of December 31  
    2014     2013  
    USD thousands  
Accounts payable     -       5  
Other payables     82       40  
Loans from related parties     294       783  

 

  F- 16  
 

  

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 11 - Transactions and Balances with Related Parties (continued)

 

B. The statement of operations includes amounts referring to transactions with related parties, as follows:

 

    For the year ended December 31  
    2014     2013  
    USD thousands  
General and administrative expenses*     477       382  
Research and development expenses*     -       47  
Interest and linkage expenses     6       31  

 

* Balance includes non-remunerable service expense. See note 9B and notes C1 and C2 below.

   

C. Service agreement with related parties

 

Upon the closing of the Acquisition, employment agreements were signed with the controlling shareholder and with Company officers, as follows:

 

1. Agreement for consulting services with a company owned by Dr. Paul Waymack. The monthly payment amounts to NIS 30 thousand (USD 9 thousand). Actual payments commenced in March 2014, after completion of a funding round. Expenses for services rendered by Dr. Waymack, for the months of January and February 2014, are included in the financial statements against capital reserves as these services were not remunerable. In November 2014 the general shareholders' meeting approved a raise in the monthly payment to USD 14 thousand, retroactively from September 2014.

 

2. Agreement with Mr. Simcha Rock for his full time services to the Company as the Company's CFO. The monthly payment amounts to NIS 35 thousand (USD 10 thousand). Actual payments commenced in March 2014 after completion of a funding round. Expenses with respect to services rendered by Mr. Rock in the months of January and February 2014 are included in the financial statements against capital reserves as these services were not remunerable. In November 2014 the general shareholders' meeting approved a raise in the monthly payment to NIS 50 thousand (USD 13 thousand), retroactively from September 2014.

 

3. On November 20, 2014 the general shareholders' meeting approved the employment of Mr. Isaac Israel (replacing his existing engagement as a service provider). Mr. Israel's basic salary will be NIS 40 thousand per month (USD 10 thousand) and will be linked to the Consumer Price Index.

 

In addition. Dr. Waymack, Mr. Rock, and Mr. Israel are entitled to annual and special bonuses, see Note 12.C.

 

D. In 2013 the Company received USD 141 thousand from a former controlling shareholder. The return of this sum was subject to certain circumstances under the control of the Company, and therefore was classified as a capital reserve. In 2014 the Company returned this amount to the former controlling shareholder.

 

  F- 17  
 

   

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 12 - Commitments

 

A. In April 2014, the Company signed a strategic cooperation agreement with Dexcel Ltd. (hereinafter: “ Dexcel ”), including formulation development services for the drug KIT-302 (hereinafter: “the drug”) , the right to negotiate the commercial manufacture of the drug, and the right to negotiate the marketing of the drug.

 

In consideration for the services provided by Dexcel, the Company will pay USD 2 million in 4 equal USD 0.5 million payments. The first payment was made 30 days after the date of the signing on the agreement, and the other three payments will be paid according to milestones, the second payment of which was made in May 2015. In addition, the Company will pay USD 1.5 million worth of shares in 3 tranches of USD 0.5 million each. The first tranche was issued at a share price of NIS 11.05 per share, and 157,783 shares were issued. The other two tranches will be issued upon reaching milestones, at a price per share based on the average price per share during the 45 days prior to the date of completing the relevant milestone. Upon completion of a milestone, the second tranche was issued subsequent to balance sheet date in May 2015 at a share price of NIS 3.359, totaling 597,511 shares. Dexcel is required to pay the Company USD 0.5 million in 2 payments upon completion of milestones for the right to negotiate the global marketing rights and the commercial manufacturing of the drug. The first payment was received in May 2015. Payments made to Dexcel, net of receipts from Dexcel, are charged to research and development expenses based on milestones achieved and progress of the work done.

 

The intellectual property (hereinafter - “IP”) owned by the Company prior to this agreement will continue to be owned by the Company. Dexcel was granted the right to use the Company’s IP for the purpose of development and marketing of the drug. Any IP developed in the process of the drug’s development and manufacturing will be owned jointly by the Company and Dexcel, and the Company and Dexcel will give each other the right to use this IP. In addition, any IP developed by Dexcel in the process of the drug’s development and manufacturing, and which is not under the joint IP, will be owned by Dexcel, and Dexcel will give the Company the right to use it in connection with the drug.

 

B. The Company has an annual commitment under a lease agreement for its office premises of approximately NIS 240 thousand (approximately USD 64 thousand) for a period of five years beginning January 1, 2015.

 

C. The Company’s Chairman of the Board, Chief Executive Officer, and Chief Financial Officer are entitled to annual and special bonuses under the terms of their employment and consulting agreements. These bonuses will become due upon the achievement of certain milestones, including fund raising, merger transactions, and agreements for the commercialization of the Company’s products. None of these milestones were met in 2014.

 

  F- 18  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 13 - Research and Development Expenses

 

Research and development expenses include consulting expenses for development of drug formulation and for non-clinical, clinical, regulatory and project management work required for the Company's drug portfolio.

 

    For the year ended December 31  
    2014     2013  
    USD thousands  
       
Payroll expenses - related party     -       47  
Sub-contractors     3,192       62  
      3,192       109  

 

Note 14- General and Administrative Expenses

 

    For the year ended December 31  
    2014     2013  
    USD thousands  
Payroll expenses (see also Note 10 with regard to share-based payment arrangements)     523       554  
Professional consulting     532       385  
Board member remuneration and insurance     54       57  
Rent and office maintenance     52       26  
Other general and administrative expenses     108       39  
                 
      1,269       1,061  

 

Note 15 - Other Expenses

 

As part of the Acquisition, Haiku, a wholly owned company of the controlling shareholder at the time of the transaction, was eligible to receive, out of all funds raised by the Company in one or multiple transactions, an amount of up to NIS 2,500 thousand. Following the share issuance described in Note 9C1., an amount of NIS 2,500 thousand (USD 720 thousand) was paid to Haiku. This amount was recorded as other expenses.

 

Note 16–Finance Expense (Income)

 

    For the year ended December 31  
    2014     2013  
    USD thousands  
Finance expense                
Fees and interest expense     21       17  
Loss from exchange rate differences, net     216       27  
Interest and linkage on related party loans     -       31  
Credit allocation fee     83       -  

Warrant issuance costs

    25       -  
      345       75  
Finance income                
                 
Net change in fair value of financial instrument  designated at fair value through profit and loss     274       -  
      274       -  

 

  F- 19  
 

  

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Consolidated Financial Statements

 

Note 17 - Taxes on Income

 

A. Corporate tax rate

 

The tax rate applicable to the Company for 2014 is 26.5%

 

B. The Company and its subsidiary incurred losses in 2014, as well as carry-forward losses from previous years, which will not be utilized in the foreseeable future. Therefore the Group companies did not record current taxes or deferred taxes.

 

The carry-forward loss for tax purposes for the Company and its subsidiary, together with the balance of research and development expenses to be recognized in coming years, amounts to USD 5 million as of December 31, 2014 (2013 – USD1 million).

 

C. The Company's 2009 tax assessment is deemed finalized, pursuant to section 145 of the Income Tax Ordinance. The subsidiary has no finalized tax assessments to date.

 

Note 18 -  Subsequent Events

 

In March 2015 the Company issued 6,388,077 shares, 24,913,200 warrants (series 2) exercisable into 1,916,400 shares and 3,194,000 warrants (series 3) exercisable into 3,194,000 shares at a price per unit of NIS 1.30. Total gross proceeds amounted to NIS 8,304,400 (USD 2.1 million), of which NIS 505,000 (USD 0.1 million) was allocated to the warrants' fair value. The warrants are exercisable through September 2, 2015 and April 30, 2015, respectively.

 

Proceeds from the issuance were received by the share issue manager on March 31, 2015, and were transferred to the Company on April 1, 2015.

 

  F- 20  
 

 

Kitov Pharmaceuticals

 

Holdings Ltd.

 

Condensed Consolidated

Interim Financial

Statements

As of June 30, 2015

 

  F- 21  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Condensed Consolidated Interim Financial Statements as of June 30, 2015

 

Contents

 

  Page
   
Condensed Consolidated Interim Financial Statements as of June 30, 2015  
   
Condensed Consolidated Statements of Financial Position F-23
   
Condensed Consolidated Statements of Operations F-24
   
Condensed Consolidated Statements of Changes in Equity F-25
   
Condensed Consolidated Statements of Cash Flows F-27
   
Notes to the Condensed Consolidated Interim Financial Statements F-28

 

  F- 22  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Condensed Consolidated Statements of Financial Position

 

          June 30     December 31  
          2015     2014  
          (unaudited)     audited  
    Note     USD thousands     USD thousands  
                   
Assets                        
Cash and cash equivalents             1,652       1,313  
Other receivables             351       446  
                         
Total current assets             2,003       1,759  
                         
Fixed assets             6       -  
                         
Total assets             2,009       1,759  
                         
Current Liabilities                        
Accounts payables             228       500  
Other payables             293       114  
Related parties     5       -       294  
Derivative instruments           266       78  
                         
Total current liabilities             787       986  
                         
Non-current liabilities                        
                         
Post employment benefit liabilities             90       -  
                         
Equity                        
                         
Share capital, no par value             -       -  
Share premium     4       11,626       9,104  
Receipts on account of warrants             -       200  
Capital reserve for share-based payments             279       560  
Capital reserve from transactions with related parties             761       761  
Accumulated loss             (11,534 )     (9,852 )
                         
Total equity             1,132       773  
                         
Total liabilities and equity             2,009       1,759  

  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

  F- 23  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Condensed Consolidated Statements of Operations

 

     
    For the six months ended  
    June 30  
    2015     2014  
    USD thousands     USD thousands  
             
Research and development expenses     919       1,928  
General and administrative expenses     708       476  
Other expenses     -       720  
                 
Operating loss     1,627       3,124  
                 
Finance expense     55       91  
Finance income     -       (6 )
                 
Loss for the period     1,682       3,209  
                 
Loss per share                
Basic and diluted loss per share - USD     0.18       *0.91  
Number of shares used in calculating basic and diluted loss per share     9,338,280       *3,529,217  

 

* Retroactively adjusted to reflect the reverse stock split that took place in November 2014.

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

  F- 24  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Condensed Consolidated Statements of Changes in Equity  

 

                            Capital              
                            reserve from              
                      Capital     transactions              
                Receipts on     reserve for     with              
    Share     Share     account of     share-based     related     Accumulated        
    capital     premium     warrants     payments     parties     loss     Total  
    USD thousands  
                                           
For the six months ended June 30, 2015:                                                        
                                                         
Balance as of January 1, 2015     -       9,104       200       560       761       (9,852 )     773  
                                                         
Issuance of shares, net of issuance costs     -       1,821       -       -       -       -       1,821  
Exercise and expiration of Warrants (series 1)     -       201       (200 )     -       -       -       1  
Share issuance deriving from a strategic cooperation agreement     -       500       -       (333 )     -       -       167  
Share-based payments     -       -       -       52       -       -       52  
Total comprehensive loss for the period     -       -       -       -       -       (1,682 )     (1,682 )
                                                         
Balance as of June 30, 2015     -       11,626       -       279       761       (11,534 )     1,132  

 

                      Capital              
                      reserve from              
                Capital     transactions              
                reserve for     with              
    Share     Share     share-based     related     Accumulated        
    capital     premium     payments     parties     loss     Total  
    USD thousands  
                                     
For the six months ended June 30, 2014:                                                
                                                 
Balance as of January 1, 2014     -       2,654       141       859       (4,600 )     (946 )
                                                 
Issuance of shares, net of issuance costs     -       4,451       57       -       -       4,508  
Issuance of warrants in a right offering     -       (200 )     200       -               -  
Share issuance deriving from a strategic cooperation agreement             327       167       -       -       494  
Share-based payments     -       -       31       -       -       31  
Options exercised     -       46       (39 )     -       -       7  
Capital reserve from transactions with related parties     -       -       -       43       -       43  
Return of funds to a related party     -       -       -       (141 )     -       (141 )
Total comprehensive loss for the period     -       -       -       -       (3,209 )     (3,209 )
                                                 
Balance as of June 30, 2014     -       7,278       557       761       (7,809 )     787  

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

  F- 25  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Condensed Consolidated Statements of Cash Flows

 

   

For the six months

ended June 30

 
    2015     2014  
             
Cash flows from operating activities:                
Loss for the period     (1,682 )     (3,209 )
Adjustments:                
Finance expense (income), net     55       85  
Share-based payment     37       31  
Expenses in regard to a strategic cooperation agreement     167       494  
Non-remunerable services provided by related parties     -       37  
                 
      (1,423 )     (2,562 )
Changes in assets and liabilities:                
Changes in other receivables     123       (335 )
Changes in accounts payables     (277 )     89  
Changes in other payables     178       (142 )
Changes in Post employment benefit liabilities     90       -  
                 
      114       (388 )
                 
Net cash used in operating activities     (1,309 )     (2,950 )
                 
Cash flows from investing activities:                
Acquisition of fixed assets     (6 )     -  
Net cash used in investing activities     (6 )     -  
                 
Cash flows from financing activities:                
Repayment of loans from related parties     (294 )     (495 )
Loans received from third parties     -       132  
Repayment of loans from third parties     -       (189 )
Proceeds from issuance of shares     1,929       4,964  
Share issuance expenses paid     (108 )     (456 )
Proceeds from issuance of warrants     157       -  
Option issuance expenses paid     (5 )     -  
Receipts from warrants exercised     1       -  
Interest paid     (4 )     (86 )
Net cash provided by financing activities     1,676       3,870  
                 
Net increase (decrease) in cash and cash equivalents     361       920  
Cash and cash equivalents at the beginning of the period     1,313       193  
Effect of translation adjustments on cash and cash equivalents     (22 )     18  
                 
Cash and cash equivalents at the end of the period     1,652       1,131  

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

  F- 27  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015 (unaudited)

 

Note 1 -General

 

A. Reporting entity

 

Kitov Pharmaceuticals Holdings Ltd. (hereinafter: "the Company ") was incorporated in Israel in August, 1968 as a private company with limited shares. Since September, 1978, the Company’s shares have been listed for trading on the Tel Aviv Stock Exchange. The Company's address is Azrieli Towers, the Round Tower, 132 Menachem Begin Road, Tel Aviv.

 

In October 2012, the Company disposed of all of its previous operations, and in July, 2013, the Company acquired shares of Kitov Pharmaceuticals Ltd. (hereinafter: " Kitov ") from its shareholders, in exchange for the Company’s shares (hereinafter: "the Acquisition" ).

 

The Company together with Kitov are referred to, in these financial statements, as "the Group"

 

As of the date of the financial statements, the Company is engaged, through Kitov, in the development of combination drugs that treat two clinical conditions simultaneously, pain deriving from osteoarthritis and hypertension .

 

During the reported period, the Company incurred losses and negative cash flows from operations. The accumulated loss has reached USD 11.5 million. The Company has financed its operations mainly through the issuance and sale of its securities. The Company is acting to raise additional funds required for its operations according to the Company's work plan. The Company estimates that cash as of the approval date of the financial statements will allow it to fund its operations through the fourth quarter of 2015.

 

As of the balance sheet date, there is significant doubt about the Company's continued operating as a going concern. The financial statements include no adjustments for measurement or presentation of assets and liabilities, which may be required should the Company fail to operate as a going concern.

 

B. Immaterial adjustment of previously released financial statements

 

An adjustment was made to the financial statements as of December 31, 2014  that have been issued previously regarding the classification  of warrants which have been issued to the public in September 2014. These warrants were classified in equity rather than as a financial liability as required since their exercise price was not considered fixed. These warrants are measured at fair value at each period end with the resulting adjustment charged to finance expense. The total effect on the statement of operations for the year ended December 31, 2014 was USD 246 thousand and derivative instruments of USD 78 thousand were added to current liabilities. These financial statements incorporate the immaterial adjustment

 

Note 2 - Basis of Preparation

 

A. Statement of compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. They should be read in conjunction with the financial statements as at and for the year ended December 31, 2014 (hereinafter – “the annual financial statements”).

 

  F- 28  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015 (unaudited)

 

Note 2 - Basis of Preparation (continued)

 

B.

The Company’s presentation currency is the US dollar (USD).

 

The following presents the exchange rates of the New Israeli Shekel (NIS) to the USD:

 

                As of    
    As of June 30     December 31    
    2015     2014     2014    
                         
    3.769       3.438       3.889  

 

The following presents changes in USD rates:

 

 

For the six months

ended

   

For the year

ended

 
  June 30     December 31  
    2015     2014     2014  
    %     %     %  
                         
    (3.08 )     (0.95 )     11.0  

 

C. Use of estimates and judgments

 

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Note 3 - Significant Accounting Policies

 

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its annual financial statements.

 

Note 4 –Share Capital and Share Premium

 

A. The Group recognized the following amounts in share capital, share premium and capital reserves:

 

   

 

For the six months ended

   

For the

Year ended

 
   

 

June 30, 2015

   

 

June 30, 2014

   

December 31,

2014

 
    USD thousands     USD thousands     USD thousands  
Issuance of shares, net of issuance costs*     1,821       4,508       6,257  
Share issuance deriving from a strategic cooperation agreement     167       494       660  
Share-based payments     52       31       88  
Options exercised     1       7       64  
Return of funds to a related party     -       (141 )     (141 )
Capital reserve from related parties     -       43       43  
      1,791       4,942       6,971  

 

  F- 29  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015 (unaudited)

 

Note 4 –Share Capital and Share Premium (continued)

 

* During the six months ended June 30, 2015 and 2014 issuance costs totaled USD 108 thousand and USD 513 thousand, respectively. During the year ended December 31, 2014 these costs totaled USD 650 thousand. These costs are included as a deduction from equity.

 

B. On March 30, 2015 the Company issued 6,388,000 shares at a price per share of NIS 1.30 and 24,913,200 warrants (series 2) exercisable into 1,916,400 shares and 3,194,000 warrants (series 3) exercisable into 3,194,000 shares for no consideration. Total gross proceeds amounted to NIS 8,304,400 (USD 2.1 million). Warrants (series 3) expired on April 30, 2015. Warrants (series 2) are exercisable through September 2, 2015. Regarding the extension of the exercise period, see note F. below.

 

Net proceeds amounted to USD 1,974 thousand, of which USD 157 thousand, which represent the market value of the warrants at their first day of trade, were attributed to liabilities, warrant issuance cost of USD 5 thousand were charged to finance expense in the statement of operations and the remaining USD 1,821 thousand were attributed to share premium.

 

Proceeds from the issuance were received by the share issue manager on March 31, 2015, and were transferred to the Company on April 1, 2015.

 

C. In February, 2015, the Company's board of directors decided to grant 44,786 options to two consultants in return for their services. The options are exercisable into 44,786 shares. The options became exercisable immediately on the grant date, May 14, 2015, for an exercise price of NIS 4.00 for a period of 24 months.

 

D. During the reported period 4,571 warrants (series 1) were exercised into 352 shares for proceeds of approximately USD 1 thousand.

 

E. In May 2015 the Company issued 597,511 shares to Dexcel Ltd. in exchange for formulation development services, and paid Dexcel a net amount of USD 0.25 million, following the meeting of milestones .

 

F. In June 2015 the Company's board of directors decided to act to extend the exercise period of warrants (series 2) by six months until March 1, 2016. In accordance with a court order, the Company called for a shareholders' meeting and a warrant holders' meeting on August 9, 2015. The meetings did not have a quorum and were therefore re-convened on August 16, 2015. The extension was approved by the two meetings. On August 18, 2015 the Company submitted to the court the results of the said meetings.

 

Note 5 -Transactions and Balances with Related Parties

 

A. Balances with related parties are included in the statement of financial position in the following items:

 

    June 30,     December 31,  
    2015     2014  
    USD thousands     USD thousands  
                 
Other payables     83       82  
Long term Liability for Retirement     90       -  
Loans from related parties     -       294  

 

  F- 30  
 

 

Kitov Pharmaceuticals Holdings Ltd.

 

Notes to the Condensed Consolidated Interim Financial Statements as of June 30, 2015 (unaudited)

 

Note 5 -Transactions and Balances with Related Parties (continued)

 

B. The statements of operations include the following transactions with related parties and related parties:

 

   

For the six

months ended

 
    June 30  
    2015     2014  
    USD thousands     USD thousands  
General and administrative expenses     381       215  
                 
Other expenses     -       720  
                 
Financing expenses     -       2  

 

Note 6 - Subsequent Events

 

A. Regarding the extension of the exercise period of warrants (series 2) by six months until March 1, 2016, see note 4F.

 

B. In August 2015, the Company entered into a loan agreement with certain lenders in the aggregate amount of $430,000, under the terms of which the Company has a put option enabling the Company to require the lenders to provide additional funding of up to $430,000 (the “Loan”). Upon repayment of the Loan (or conversion into ordinary shares under certain circumstances), the Company will pay the lenders a fee in amounts ranging up to 50% of the Loan, depending on factors such as a future public offering, location of offering, timing of offering and participation of the lenders in the offering. The Loan and fee must be repaid either in cash or converted into shares, under certain circumstances, upon a public offering either in the US or Israel, but in any event, no later than December 31, 2015.

 

In connection with the loan, the Company has also granted the lenders warrants to purchase 1,720,000 ordinary shares with an exercise price of NIS 1.80, which may be exercised through August 31, 2016.

 

Until full repayment of the Loan and fee, the Company has undertaken not to incur any borrowings, other than those advanced by related parties or used for the repayment the Loan.

 

In addition, until full repayment of the Loan and fee, the Company’s shareholders' equity, as reflected in its most recent published financial statements, may not reflect a deficit greater than $500,000; otherwise, each lender may request immediate repayment of its portion of the then unpaid outstanding loan balance, if any.

 

  F- 31  
 

 

 

 

American Depositary Shares Each Representing 20 Ordinary Shares

 

Warrants to Purchase    American Depositary Shares

 

 

 

 

PROSPECTUS

 

 

 

Rodman & Renshaw
a unit of H.C. Wainwright & Co.

 

Until        , 25 days after the date of this prospectus, all dealers that effect 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 Office Holders (including Directors).

 

Under the Companies Law, a company may not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.

 

Under the Companies Law and the Securities Law, 5738-1968 (the “Securities Law”) a company may indemnify an office holder in respect of the following liabilities, payments and expenses incurred for acts performed by him as an office holder, either in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:

 

a monetary liability incurred by or imposed on the office holder in favor of another person pursuant to a court judgment, including pursuant to a settlement confirmed as judgment or arbitrator’s decision approved by a competent court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s 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 foreseen events and amount or criteria;

 

reasonable litigation expenses, including reasonable attorneys’ fees, which were incurred by the office holder as a result of an investigation or proceeding filed against the office holder by an authority authorized to conduct such investigation or proceeding, provided that such investigation or proceeding was either (i) concluded without the filing of an indictment against such office holder and without the imposition on him of any monetary obligation in lieu of a criminal proceeding; (ii) concluded without the filing of an indictment against the office holder but with the imposition of a monetary obligation on the office holder in lieu of criminal proceedings for an offense that does not require proof of criminal intent; or (iii) in connection with a monetary sanction;

 

a monetary liability imposed on the office holder in favor of all the injured parties by the breach in an Administrative Procedure (as defined below) as set forth in Section 52(54)(a)(1)(a) to the Securities Law;

 

expenses expended by the office holder with respect to an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees;

 

reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or which were imposed on the office holder by a court (i) in a proceeding instituted against him or her by the company, on its behalf, or by a third party, or (ii) in connection with criminal indictment of which the office holder was acquitted, or (iii) in a criminal indictment which the office holder was convicted of an offense that does not require proof of criminal intent; and

 

any other obligation or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law.

 

An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law.

 

II - 1
 

 

Under the Companies Law and the Securities Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:

 

a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;

 

a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder;

 

a monetary liability imposed on the office holder in favor of a third party;

 

a monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and

 

expenses incurred by an office holder in connection with an Administrative Procedure, including reasonable litigation expenses and reasonable attorneys’ fees.

 

Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:

 

a breach of the duty of loyalty, except for indemnification and insurance for a breach of the 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 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 or forfeit levied against the office holder.

 

Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to directors or controlling shareholders, their relatives and third parties in which such controlling shareholders have a personal interest, also by the shareholders.

 

Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by law. Our office holders are currently covered by a directors’ and officers’ liability insurance policy. As of the date of this Registration Statement, 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 office holders, including our directors, in which indemnification is sought.

 

We have entered into agreements with each of our current office holders exculpating them from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest extent permitted by law, subject to limited exceptions, including with respect to liabilities resulting from this Registration Statement on Form F-1, to the extent that these liabilities are not covered by insurance. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances. When this Registration Statement on Form F-1 becomes effective, the maximum aggregate amount of indemnification that we may pay to our office holders based on such indemnification agreement is with respect to all permitted indemnification, including in connection with a public offering of our securities, an amount equal to 25% of our shareholders’ equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnification payment was made. Such indemnification amounts are in addition to any insurance amounts. Each office holder who agrees to receive this letter of indemnification also gives his approval to the termination of all previous letters of indemnification that we have provided to him or her in the past, if any. However, in the opinion of the SEC, indemnification of office holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.

 

II - 2
 

 

Item 7.            Recent Sales of Unregistered Securities.

 

The following is a summary of transactions during the three years preceding this offering, involving offers and sales of our securities which took place outside the United States and were not registered under the Securities Act:

 

On March 3, 2014, we issued 2,211,450 ordinary shares, in exchange for NIS 17.25 million (approximately $4.9 million based on the representative rate of exchange on the date of closing, March 3, 2014) in a public offering on the Tel Aviv Stock Exchange pursuant to a prospectus we filed with the Israel Securities Authority. As part of the offering, we committed to our shareholders that we would initiate a rights offering to all existing shareholders. The specific terms of the rights offering were not described in the prospectus.

  

On May 28, 2014, we published a prospectus for a rights offering under which each shareholder received, at no cost, one Series 1 traded warrant for each ten ordinary shares held by such shareholder. No consideration was received by us in connection with the issuance of the warrants. The aggregate number of Series 1 traded warrants issued was 5,717,074 exercisable into 439,757 ordinary shares. The Series 1 Traded warrants were traded on the Tel Aviv Stock Exchange and expired on June 30, 2015. 

 

On September 3, 2014 we issued 1,548,077 ordinary shares, and 25,156,250 Series 2 tradable warrants exercisable into 1,935,019 ordinary shares in exchange for NIS 8.05 million (approximately $2.2 million based on the representative rate of exchange on the date of closing, September 3, 2014) in a public offering on the Tel Aviv Stock Exchange, and on March 30, 2015 we issued additional 24,913,200 Series 2 tradable warrants exercisable into1,916,400 ordinary shares under the same terms and conditions. The Series 2 tradable warrants were exercisable any time until September 2, 2015 at an exercise price of NIS 5.20 (approximately $1.38) and are traded on the Tel Aviv Stock Exchange. On August 30, 2015, following approval of the extension by the special meetings of our shareholders and our holders of our Series 2 tradable warrants on August 16, 2015, the Tel Aviv District courts approved, under Section 350 of the Israeli Companies Law, the extension of the exercise period of the Series 2 tradable warrants until March 1, 2016.

 

On March 31, 2015 we issued 6,388,000 ordinary shares and 24,913,200 Series 2 tradable warrants exercisable into 1,916,323 ordinary shares, and 3,194,000 Series 3 tradable warrants exercisable into 3,194,000 ordinary shares, in exchange for NIS 8.304 million (approximately $2.1 million based on the representative rate of exchange on the date of closing, March 31, 2015) in a public offering on the Tel Aviv Stock Exchange. The Series 3 warrants expired on April 30, 2015.

 

We had 2,483,753 outstanding options under our 2013 Option Plan to purchase an aggregate of 232,888 ordinary shares, of which options to purchase 171,057 shares are exercisable. Each of these options is exercisable into 0.7692 of an ordinary share for an exercise price of between NIS 5.85 (approximately $1.55) and NIS 15.60 (approximately $4.13) per share. All the options will be fully vested within three years. These options have expiration dates of between May 2016 and August 2024.

 

None of the transactions after our initial public offering in Israel used the services of a U.S. underwriter.

 

Item 8.            Exhibits and Financial Statement Schedules.

 

Exhibit
Number
  Exhibit Description
     
1.1 *   Form of Underwriting Agreement
3.1   Articles of Association of the Registrant and Certificate of Company Name Change (both unofficial English translations from Hebrew).

 

II - 3
 

 

4.1   Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, and all Owners and Holders from time to time of American Depositary Shares issued hereunder.
4.2 *   Form of Warrant Agent Agreement.
4.3   Form of American Depositary Receipt (included in Exhibit 4.1).
5.1 *   Form of Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., Israeli counsel to the Registrant, as to the validity of the ordinary shares.
10.1 †    Development Services Agreement, dated as of April 1, 2014, by and between Kitov Pharmaceuticals Holdings Ltd. and Dexcel Ltd.
10.2   Master Research Services Agreement, dated February 4, 2014, between Kitov Pharmaceuticals Holdings Ltd. and Java Clinical Research Limited.
10.3   Change Order Forms under Master Research Services Agreement between Kitov Pharmaceuticals Holdings Ltd. and Java Clinical Research Limited dated March 26, 2014, September 22, 2014, and April 2, 2015.
10.4   Share Transfer Agreement, dated as of April 2, 2013, Kitov Pharmaceuticals Holdings Ltd. (then known as Mainron Line Logisitics Ltd.), Kitov Pharmaceuticals Ltd., the shareholders of Kitov Pharmaceuticals, Sheer Roichman and Haiku Capital Ltd.
10.5   Form of Letter of Exemption adopted on July 2013 (unofficial English translation from Hebrew).
10.6   Form of Letter of Indemnity adopted on July 2013 (unofficial English translation from Hebrew).
10.7   2013 Stock Option Plan, as amended (unofficial English translation from Hebrew).
10.8   Loan Agreement, dated August 12, 2015 between Kitov Pharmaceuticals Holdings Ltd. and certain lenders.
     
21.1   List of subsidiaries of the Registrant
23.1   Consent of Somekh Chaikin, independent registered public accounting firm, a Member Firm of KPMG International
23.2*   Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., Israeli counsel to the Registrant (included in Exhibit 5.1)

 

* To be filed by amendment.

†  Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

 

II - 4
 

 

Item 9.            Undertakings.

 

a. The undersigned registrant hereby undertakes:

 

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

4. To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.

 

5. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

II - 5
 

 

6. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

b. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

c. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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.

 

d. The undersigned registrant hereby undertakes that:

 

1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

2. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

II - 6
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, 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 Tel-Aviv, State of Israel on September 24, 2015.

 

  KITOV PHARMACEUTICALS HOLDINGS LTD.
     
  By: /s/ Isaac Israel
    Name: Isaac Israel
    Title: Chief Executive Officer
     
  By: /s/ Simcha Rock
    Name: Simcha Rock
    Title: Chief Financial Officer
     

 

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Kitov Pharmaceuticals Holdings Ltd., a company incorporated under the laws of the State of Israel, do hereby constitute and appoint Isaac Israel and Simcha Rock, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments, exhibits thereto and other documents in connection therewith) to this Registration Statement and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended, which relates to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. 

 

Signatures   Title   Date
         
/s/ J. Paul Waymack   Chairman of the Board of Directors and   September 24, 2015
J. Paul Waymack   Chief Medical Officer    
         
/s/ Isaac Israel   Chief Executive Officer and Director   September 24, 2015
Isaac Israel   (Principal Executive Officer)    
         
/s/ Simcha Rock   Chief Financial Officer and Director   September 24, 2015
Simcha Rock   (Principal Financial Officer and    
    Principal Accounting Officer)    
         
/s/ Philip Serlin   Director   September 24, 2015
Philip Serlin        
         
/s/ Moran Sherf-Blau   Director   September 24, 2015
Moran Sherf-Blau        
         
       Director        
Alain Zeitoun        

 

II - 7
 

 

Signature of authorized representative in the United States

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant’s duly authorized representative has signed this registration statement on Form F-1 in on this 24th day of September, 2015.

 

  By: Puglisi & Associates
    Authorized U.S. Representative
       
    By: /s/ Donald J. Puglisi
    Name:  Donald J. Puglisi
    Title: Managing Director

 

II - 8

 

 

Exhibit 3.1

[Unofficial English Translation From Hebrew]

 

Articles of Association

 

of

Mainrom Line Logistics Limited

 

Paragraph Page
Interpretation 1
Name of the Company 2
Objects of the Company 2
Essential purpose of the Company 3
Registered Share Capital 3
Liability of the Shareholders 3
Public company 3
Shares 3
Share Certificates; Share Warrants 4
Calls 5
Forfeiture of shares 6
Transfer and Transmission of Shares 8
Redeemable securities 9
Alteration of capital 10
General Meetings 11
Proceedings and resolutions adopted at general meetings 15
The Board of Directors 16
Powers and duties of the Directors 18
Meetings of the Board 19
Committees of the Board 20
The managing director 21
Officeholders 22
Internal auditor 22
Auditors 22
Validity of acts and approval of other than irregular transactions 23
Distribution 23
Dividends and bonus shares 23
Merger 24
Minutes 24
Register of Shareholders 25
Notices 26
Winding-up of the Company 27
Exemption from liability 27
Insurance of liability 27
Indemnity 28
Liability of the Company 29
Alteration of the Articles 30

  

 
 

 

Interpretation

 

1. In these Articles, unless the context otherwise prescribes, the meaning of the following words shall be as follows:

 

“person” - includes a corporate body (unless otherwise stated herein);
     
“Shareholder” - a person who is a Registered or Unregistered Shareholder. If any ‘effective date’ exists (as defined in section 182 of the Companies Law), for such purpose, a shareholder will be deemed to be a holder who is registered as such on the effective date.
     
“Registered Shareholder” - a Shareholder registered in the Company’s register of members.
     
“Unregistered Shareholder” - a person in whose favour a share is registered at a stock exchange member and such share is included amongst those that are registered the Company’s register of members, in the name of a nominees company.
     
“the TASE” - the Tel Aviv Stock Exchange Ltd.
     
“the Board” or    
“the Board of Directors” - the Board of Directors duly appointed in accordance with the provisions of these Regulations.
     
“Director” - A member of the Board of Directors of the Company and who effectively acts as a director, whatever his title may be.
     
“the Companies Law” - the Companies Law, 5759-1999, as amended from time to time, as well as the Regulations that have been or will be promulgated by virtue thereof;  
     
“Securities Law” - the Securities Law, 5728-1968
     
“the Law” - the Companies Law, the Securities Law, as amended from time to time, as well as the Regulations that have been or will be promulgated by virtue thereof and any other valid statute relating to companies that applies to the Company for the time being;  
     
“the Company” - the Company mentioned above.
     
     
the Register - the shareholders register to be maintained pursuant to section 127 of the Companies Law and also, if the Company holds another register outside of Israel – any other register, pursuant to the circumstances.
 
 

 

the Office - the registered office of the Company as existing for the time being, and which will vary from time to time, as determined by the Board of the Company;
     
     
“writing” - printing, lithography, photocopy, cable, telex, fax, e-mail and any other form of creating or impressing words in any visible form.
     
“securities” - includes, shares, debentures, capital notes, certificates and other documents conferring the right to sell, convert or sell and the like.
     
" the Companies Ordinance " - means the Companies (New Version) Ordinance, 5743-1983.
     
 “ the Articles - the articles of association as presently framed, or as varied.

 

2. The provisions contained in sections 2, 3, 4, 5, 6, 7, 8 and 10 of the Interpretation Law, 5741-1981, will, mutatis mutandis, apply also to the interpretation of the Articles, in the absence of any other provision relating thereto and unless otherwise repugnant to or inconsistent with such application.

 

3. Save as stated in this paragraph, unless repugnant to or inconsistent with the context or the content, words and expressions defined in the Companies Law, shall bear the same meaning when used in these Articles.

 

4. Provisions that cannot be varied by contract will apply to the Company unless otherwise stated herein, and in the event of any deviation between the provisions of the Companies Law mentioned and these Articles, the provisions of these Articles shall apply.

 

5. Reference made herein to any provision contained in the Companies Law and which has been amended or repealed, the provision in question shall be regarded as valid and form part of these Articles, unless otherwise prohibited by law.

 

6. Unless these articles make reference to the particular majority required for adopting a resolution at the general meeting or by the Board, the majority required for adopting such a resolution shall be a simple majority.

 

Name of the Company

 

7. The name of the Company is: Mainrom Line Logistics Ltd.

 

Objects of the Company

 

8. The Company may engage in any lawful business, subject to the objects of the Company set forth in the Company’s memorandum of association.
2
 

 

Essential purpose of the Company

 

9. The essential purpose of the Company is to act in accordance with business considerations to generate profits save that the Company may contribute reasonable amounts to worthy causes even if the contribution does not fall within the scope of such business considerations, in accordance with the discretion of the Company’s Board.

 

Registered Share Capital

 

10. (a) The registered share capital of the Company is 500,000,000 (five hundred million) ordinary shares of no par value (hereinafter: “ the Shares ”);

 

(b) All the ordinary shares shall have equal rights inter se for all purposes and every ordinary share for which all the calls have been paid in full, will confer upon the holder thereof:

 

(1) the right to be invited to and attend all of the general meetings of the Company and the right to a single vote in respect of each ordinary share that he/she holds, at every vote, at every general meeting of the Company at which he/she participates;

 

(2) the right to receive dividends (if and when distributed) and the right to receive bonus shares, if distributed;

 

(3) the right to participate on a distribution of the Company’s surplus assets, on a winding-up.

 

Liability of the Shareholders

 

11. The liability of the Shareholders is limited as stated in the Company’s memorandum of association, and in the Companies Law.

 

Public company

 

12. Subject to the provisions of the Companies Law, and as long as the Company’s securities are listed for trading on the TASE or as long as the Company’s securities that have been offered to, are held by, the public, the Company shall be public.

 

Shares

 

13. Without prejudice to any special rights previously conferred on the holders of existing shares in the Company, any share in the Company may be issued with such preferred or deferred rights or rights of redemption or other special rights or such restrictions, whether in regard to dividend, voting, sight or otherwise, as the Company may from time to time by resolution adopted at the general meeting by a majority of the Shareholders, determine.

 

14. If at any time the share capital of the company is divided into different classes of shares, the Company may, by resolution adopted by a simple majority at the general meeting, the rights, privileges, concessions, limitations and provisions for the time being attached to or otherwise in relation to any class, may, unless otherwise provided by the terms of issue of the shares of that class, be varied, converted, extended, added to or otherwise altered with the consent in writing of the holders of all the issued shares of that class, or as determined by a resolution adopted at a general meeting by simple majority of the shareholders of such class.
3
 

  

15. The special or other rights conferred upon the Shareholders or the holders of a class of shares that have been issued, including shares that have been issued with preferential or other special rights, will not be deemed to have been varied by the creation or issue of additional shares of any class, ranking equally therewith unless otherwise stipulated by the terms of issue of such shares. The provisions contained in these Articles regarding general meetings will, mutatis mutandis, apply to every class meeting as above.

 

16. The unissued shares in the capital of the Company shall be under the control of the Board of Directors who may allot the same up to the limit of the registered share capital of the Company, to such persons for cash or other consideration otherwise than cash, with such reservations and on such conditions, and on such dates as the Board shall deem fit, and the Board shall have the power to make calls on any person regarding such shares or any of them during such period and on such consideration and on such terms as the Board shall deem fit.

 

17. Upon the allotment of shares, the Board of Directors may provide for differences among the holders of such shares as to the amount of calls and / or the times of payment thereof.

 

18. If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in instalments, every such instalment shall, when due, be paid to the Company by the then registered holder of the share or by his representatives.

 

19. The Company may pay at any time, commission to any person for subscribing or procuring the subscription, or agreeing to subscribe or procuring a subscription to the shares of the Company, whether conditionally or unconditionally, for any security, debentures or debenture stock of the Company. In any event, the commission may be payable or discharged in cash, or in securities or debentures, or stock of debentures of the Company.

 

Share Certificates; Share Warrants

 

20. Subject and pursuant to the provisions of the Companies Law, share certificates attesting to the right of title to a share, shall bear the stamp of the Company or its printed name together with the signature of one Director and of the secretary, or as determined by the Company’s Board from time to time.

 

21. Every Registered Shareholder (including the nominees company) is entitled to receive from the Company, at his request, one share certificate in respect of the shares registered in his name or, if the Board so approve (after he pays the amount prescribed from time to time by the Directors) to a number of share certificates each for one or more of such shares; each share certificate shall specify the name of the shareholder, the number of the shares, subject to the provisions of the Companies Law.

 

22. A certificate relating to a share that is registered in the name of two or more persons, shall be delivered to the person whose name appears first in the Shareholders Register in relation to such share unless all of the registered owners of that share shall have instructed the Company in writing to deliver the same to any other registered holder.
4
 

 

23. (a) The Company may deliver a share warrant in respect of shares that have been fully paid to the Company, which confer upon the holder thereof the right to the shares therein specified and the right to transfer the same by delivery of the share, and the provisions of these Articles concerning the transfer of shares will not apply to the shares specified in such share warrant;

 

(b) A Shareholder lawfully holding a share warrant shall, on surrender of the warrant to the Company for cancellation and on payment of such sum as the Board may prescribe, be entitled to have his name entered as a member in the register of members in respect of the shares included in the warrant, and to a share certificate issued in his name;

 

(c) The holder of a share warrant may deposit the share warrant at the Office, and as long as it is so deposited, the depositor shall have the right to demand the convening of a meeting of the Company pursuant and subject to the provisions of the Companies Law and these Articles, and attend the same, vote and exercise rights of a shareholder at every meeting convened upon his requisition following 48 hours of the deposit, as if his name were registered in the register of shareholders as the owner of the shares comprised in the share warrant. Only one person shall be recognized as the depositor of the share, and the Company shall be bound to return the share warrant to the depositor if he requests the same in writing, two days at least in writing in advance.

 

Should such share warrant not be deposited, the holder thereof shall not have the rights set forth in this sub-regulation (c) but shall have, subject to the provisions of these Articles, all other rights that are conferred upon a shareholder of the Company.

 

24. If any share certificate or share warrant has been lost or defaced, the Board may issue a new certificate respectively in lieu thereof, provided the original certificate has not been cancelled by the Company, or it has been proved to its satisfaction that the certificate or warrant has been lost or destroyed, and satisfactory indemnity has been received for any possible damage, all against payment, if imposed, as resolved by the Board. The provisions of paragraphs 20-23 above shall, mutatis mutandis, apply also with respect to the issue of a new share certificate.

 

Calls

 

25. The Directors may, from time to time, at their discretion make calls upon members for all monies unpaid in respect of the shares held by each of the members, and which are not by the terms of issue thereof required to be paid at a fixed date or dates, and each member shall pay the Company the amount of such calls made upon him at the time and place prescribed by the Board. A call may be effected by making payment in installments. A call shall be deemed to have been made on the date on which the decision of the Directors approving the making of the call, has been passed.

 

26. Fourteen (14) days' prior notice will be given for each call specifying the amount and place of payment thereof save that the Directors may, before the time prescribed for payment of such call, revoke by notice in writing to the members, such call or extend the time for payment thereof, provided that such resolution has been adopted prior to the payment date of the call.
5
 

 

27. Joint holders of a share shall be jointly and severally liable for payment of all calls and installments due in respect of such share.

 

28. If, by the terms of allotment of any share or otherwise an amount or installments are payable on a fixed date or dates on account of such sum or installment shall be discharged as if it were a call duly made and notified by the Board, and all the provisions contained in these Articles relating to calls shall apply to such amount or installment.

 

29. If a sum called or installment payable is not discharged on or prior to the date of payment thereof, the person who is for the time being the holder of such share in respect of which such call or installment has been made, shall pay interest on such amount at the rate determined by the Board from time to time, or at the rate as permitted by law for the time being, from the date prescribed for payment thereof until actually paid, save that the Board of Directors may waive the payment of interest in whole or in part.

 

30. If the Directors deem fit, they may receive from a member wishing to advance such amounts which have not been called or have not become payable and remain outstanding on account of all or some of his shares, an advance payment and may pay him on such monies so prepaid as aforesaid or any part thereof, interest until the date on which such monies would have otherwise become payable at the rate agreed to between the Directors and such member.

 

Forfeiture of shares

 

31. If a Shareholder fails to pay any call or installment of a call at or before the day appointed for payment thereof and on the conditions prescribed, regardless of whether a call has been issued or not, the Board may serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued and all the expenses that the Company has borne in respect of such non-payment.

 

32. The notice shall name a further day (which shall be at least 14 days after the date of the notice) and the place or places at which the above call or installment is to be paid together with such interest and expenses. The notice shall further state that in the event of non-payment on the date prescribed or by such day, and at the place specified in the notice, the shares in respect of which the call was made or the date of the payment of the installment has fallen due, may be forfeited by the Company.

 

33. If the requirements of any such notice as aforesaid are not complied with, the Directors shall be entitled according to a resolution passed in this connection, at any time thereafter prior to payment of the call or the installment, the interest and the expenses due in connection with the shares, forfeit the shares in respect of which such notice was given such forfeiture to extend to all the dividends declared in relation to the forfeited shares and not actually paid prior to the forfeiture.

 

34. A share so forfeited shall be deemed to be the property of the Company and the Directors will be entitled, subject as provided in these Regulations, to sell the same re-allot the share or otherwise transfer the share as they deem fit, subject to the provisions of the Companies Law.

 

35. Shares that have been forfeited and prior to the sale thereof, will be dormant, and shall not confer any rights whatsoever as long as they are in the ownership of the Company.

 

6
 

 

36. The Directors may, at any time, prior to the sale, re-allotment or transfer of any share so forfeited, revoke the forfeiture on such terms as the Board deem fit.

 

(a) A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall notwithstanding, remain liable to pay forthwith to the Company all calls, installments, interest and expenses due on account of or for such shares at the time of forfeiture, together with the interest on such sums from the date of forfeiture until the date of payment, at the maximum permitted rate at such time according to law, unless the shares that have been forfeited have been sold and the Company has received the full amount of the consideration undertaken to be paid by the shareholder, with the addition of the expenses incidental to the sale;

 

37. (b) Where the proceeds received on account of a sale of the shares forfeited exceed the consideration undertaken to be paid by the Shareholder for the shares so forfeited, the Shareholder shall be entitled to a partial refund of the consideration that he/she has given for them, if any, subject to the provisions of the agreement issuing the shares, provided the consideration remaining in the hands of the Company will not be less than the full amount of the consideration undertaken by the holder of the shares that have been forfeited, with the addition of the expenses incidental to the sale. The provisions of these Articles regarding forfeiture of shares shall likewise apply to cases of non-payment of an amount known which, according to the terms of the issue of the share, falls due on a fixed date as if such sum were payable by virtue of a call duly made and notified in regard thereto.

 

38. The Company shall have a first and paramount lien upon all the shares registered in the name of each member, apart from fully paid-up shares, as well as over the proceeds of sale thereof for the discharge of the debts and liabilities of such member to the Company solely or jointly with any other persons whether the period for the payment or discharge thereof shall have actually arrived or not and howsoever arising, and save as provided by Regulation 11 hereof no right in equity shall be created with respect to any such share. Such lien and charge shall extend to all dividends from time to time declared in respect of such shares. Unless otherwise resolved, the registration of a transfer of any shares by the Company shall operate as a waiver of the Company's lien or charge (if any) upon the shares.

 

39. For enforcing the above charge, the Company may sell the shares subject to any such lien at such time or times and in such manner as they shall think fit, but no sale of any share shall be made until the period specified in paragraph 32 above shall have passed and notice in writing given to the Shareholder (or to whomsoever is entitled to receive notice following the death or bankruptcy or winding-up or receivership of the member) stating that the Company intends to sell the shares and the Shareholder or the person so entitled to the share has failed to pay the debts specified above or comply with or fail to perform the above engagements for 14 (fourteen) days after such notice.

 

40. The proceeds of such sale after payment of the costs of such sale shall be applied in or towards satisfaction of the debts or liabilities of such member (including debts, liabilities and engagements not yet due for payment or performance) and the provisions of paragraph 36(b) will mutatis mutandis, apply.
7
 

 

41. Upon a sale after forfeiture or after enforcing a lien by or in the exercise of the powers hereinbefore given, the Directors may appoint a person to sign the instrument of transfer of the shares so sold and cause the purchaser's name to be registered in the Register in respect of the shares sold and after his name has been registered in the Register in respect of such shares the validity of the sale shall not be impeached and the remedy of any person aggrieved by the sale shall be by way of a suit for damages only against the Company exclusively.

 

Transfer and Transmission of Shares

 

42. Every transfer of shares registered in the Register of Shareholders in the name of a Registered Shareholder, including a transfer by or to the nominees company, will be made in writing provided that the instrument of share transfer will be signed under the hand only of the transferor and by the transferee, personally or by proxy, as well as by witnesses to their signature, and the transferor will be deemed to remain as shareholder until the name of the transferee is registered in the Register of Shareholders in relation to the transferred share. Subject to the provisions of the Companies Law, the share transfer will not be registered unless an instrument of transfer has been delivered to the Office of the Company, as detailed below:

 

The instrument of share transfer will be drawn and completed in the following manner or in similar manner to the extent possible, or in the common or accepted form that will be approved by the chairman of the Board:

 

"I, __________________________ of ______________ (“the Transferor”) in consideration of the sum of __________ paid to me by __________________________ of _________________ (hereinafter: "the Transferee") do hereby transfer to the Transferee the share (or shares) numbered __________ in the undertaking called the __________ company Ltd., to hold unto the Transferee, his executors, administrators and assigns, subject to the several conditions on which I held the same at the time of the execution thereof; and I, the Transferee, do hereby agree to take the said share subject to the conditions aforesaid.”

 

As witness our hands this _____ day of __________.

 

         
  Transferor   Transferee  
         
         
  Witness to the Transferor’s signature   Witness to the Transferee’s signature  

 

43. The Company may close the Company's books and the Register of Members for such period as the Directors see fit, provided it is not for more than 30 days in any one year. The Company will give notice to the Shareholders of the closure of the Shareholders Register pursuant to that stated in these Articles, with respect to the delivery of notices to the Shareholders.

 

8
 

 

44. (a) Each transfer of shares will be lodged for registration at the Office together with the share certificates in respect of the shares being transferred (if so issued) together with such other evidence as will be required by the Directors. Share transfers registered will be retained by the Company but instruments of transfer which the Directors refuse to register will be returned, upon demand, to the party lodging the same, together with the share certificate (if lodged), after giving notice to the transferor of their refusal, not later than 30 (thirty) days after the date on which the instrument of transfer was received.

 

(b) The Company may demand payment of a fee for registering the transfer in such sum or at such rate as will be determined by the Board of the Company.

 

45. Only the personal representatives and administrator or executors of the estate of a deceased shareholder, and in the absence thereof, his heirs, shall be recognized as the holder thereof.

 

46. Only the surviving holder of a Share held by two or more persons shall be recognized as the holder thereof, or as the holder of an interest in such Share, save that nothing stated above shall serve to release the estate of a deceased joint holder of a Share from any obligation with respect to the security that was jointly held by him. The interest of any one of joint holders of a Registered Share may be transferred by any of them.

 

47. Any person becoming entitled to a share following the death of a member, may, be entitled, upon production of evidence as to the probate of a will or the appointment of a personal representative or succession order, and testifying to his right to appear in such capacity may be registered as member in respect of such shares, or may, taking into account the Regulations of these Articles, transfer such shares.

 

48. The Company may recognize the receiver or liquidator of a member being a corporate body and which is being dissolved or wound up or its trustee if bankrupt or a receiver of a bankrupt member as the holders of title to the shares registered in such member's name.

 

49. The receiver or liquidator of a company in liquidation or the trustee in bankruptcy or any official receiver of a bankrupt member may, upon production of appropriate proof as the Directors deem sufficient, and testifying to his right to appear in such capacity according to this Article or which testify to his title, may, with the Directors' consent, (and the Directors may refuse to grant such consent without reason) be registered as member in respect of such shares, or may, taking into account the Regulations herein contained, transfer such shares.

 

50. All of the foregoing in regard to the transfer of Shares will apply to a transfer of other securities of the Company, mutatis mutandis.

 

Redeemable securities

 

51. The Company may issue or allot securities that are redeemable, subject to the provisions of these Articles in regard to the issue of securities.

 

52. Redeemable securities issued by the Company may be redeemed and no restriction by virtue of the Second Chapter of Part Seven of the Companies Law, shall apply to the redemption.

 

53. Redeemable Securities issued by the Company may have attached thereto the features of Shares, including rights to vote and the right to participate in profits.
9
 

 

Alteration of capital

 

54. The Company may, from time to time, by resolution of the general meeting adopted by simple majority, increase its registered share capital into such classes of shares as it will determine.

 

55. Unless otherwise stated in the resolution approving such increase of the share capital, the provisions contained herein shall apply to the new shares.

 

56. The Company in general meeting may, by resolution adopted by simple majority:

 

(a) Consolidate and divide all or any of its share capital into shares of larger paragraph value than its existing shares, and if there existed shares of its capital without par value – into capital consisting of a smaller number of shares provided that this will not operate to modify the Shareholders’ holding rates of the issued capital.

 

In order to effectuate the above resolution, the Board of Directors may, at its discretion, settle any difficulty arising in connection therewith, and inter alia , issue certificates of fractional shares or certificates in the name of a number of Shareholders that will comprise the fractional shares that are due to them.

 

Without derogating from such power of the Board, in the event of there being as a result of the consolidation, Shareholders remaining whose consolidation of shares leaves fractions, the Board of Directors may, with the sanction of the Company in general meeting adopted by simple majority:

 

(1) sell all of the fractions and to that end appoint a trustee in whose name will be issued share certificates comprising the fractions, that will be sold and the proceeds received less commissions and expenses, divided amongst those entitled; or

 

(2) allot to each Shareholder who, as a result of such consolidation is left with fractional shares, fully paid-up shares of the class existing prior to the consolidation in such number as will, when consolidated with the fraction, be sufficient for a single complete consolidated Share and such allotment will be deemed to have taken effect immediately prior to such consolidation or distribution; or

 

(3) determine that Shareholders will not be entitled to receive a consolidated share in respect of a fraction of a consolidated share resulting from the consolidation of one half or less of the number of the shares whose consolidation creates a single consolidated share, but will be entitled to receive a consolidated share in respect of a consolidated fractional share that results from the consolidation of more than one half of the number of the shares whose consolidation creates a single consolidated share;

 

In the event of action according to sub-paragraphs (2) or (3) above obligating the issue of additional shares then payment thereof will be effected in the manner in which bonus shares are paid. Such consolidation and distribution will not be deemed to be a modification of the rights of the shares to which the consolidation and distribution relates;

 

10
 

 

(b) effect a re-distribution of the existing shares or part thereof of its share capital, in whole or in part, into shares having a smaller par value than that of the existing shares and if shares of no par value existed – into issued capital consisting of a larger number of shares provided that this will not operate to modify the Shareholders’ holding rates of the issued capital;

 

(c) cancel registered share capital that on the date of the making of the resolution, had not yet been alloted, provided that no commitment exists of the Company, including a conditional commitment, to allot the shares.

 

(d) reduce the issued share capital of the Company in a manner whereby such shares will be cancelled and all consideration paid in respect of the par value thereof (to the extent relevant) will be recorded in the Company’s books as a capital reserve which will, for all purposes, be regarded as premium that has been paid on the shares that will remain in the Company’s issued share capital;

 

(e) consolidate its share capital or part thereof into a single class of shares, and the Company shall likewise be entitled to resolve to compensate all or any of the Shareholders of the Company in respect of the consolidation of the share capital, by way of allotting bonus shares to those Shareholders;

 

General Meetings

 

57. The Company will hold an annual meeting each year not later than 15 (fifteen) months after the last general meeting. A general meeting other than an annual meeting shall be a special meeting.

 

58. The agenda at the general meeting will include the following matters:

 

(a) consideration of the Company’s periodic report, consisting of, inter alia , the Company’s audited financial statements and the Directors’ Review of the state of the Company’s affairs, as submitted to the general meeting;

 

(b) the appointment of Directors;

 

(c) the appointment of auditors and receiving a report regarding the auditor’s remuneration;

 

(d) such business as the Board shall have decided to submit to the general meeting for resolution.

 

59. The Board may, whenever it deems fit, convene a special meeting by resolution, and special meetings will be convened upon such requisition of two Directors or one quarter of the Directors for the time being in office or upon a requisition of one or more Shareholders holding at least 5% (five per centum) of the issued share capital and 1% (one per centum) at the least of the voting rights in the Company or one or more Shareholders holding at least 5% (five per centum) of the voting rights in the Company.

 

11
 

 

The Board will, if a special meeting has been requisitioned, convene the meeting within 21 (twenty-one) days of the date of such requisition being submitted, for a date that will be determined in the notice of the special meeting as stated in paragraph 62(b) hereof, provided that such date will not be later than 35 (thirty-five) days of the date of the publication of the notice, subject in all respects to the provisions of the Law.

 

60. In the absence by the Board to convene a special meeting as stated in paragraph 59 above, the requisitionist may, in the case of Shareholders, including also those of them who hold more than one half of the voting rights, convene the meeting themselves provided that it will not take place later than three months after the date on which such requisition has been submitted and will, to the extent possible, be convened in the same manner as are convened meetings by the Board.

 

61. (a) The agenda at a general meeting will be determined by the Board, that will include also business on account of which the convening of a special meeting according to paragraph 59 above is required as well as business mentioned in sub-paragraph (b) hereof;

 

(b) One or more shareholders holding 1% (one per centum) at least of the voting rights at the general meeting may request from the Board to include business on the agenda of a general meeting that will be convened in the future provided that the business is properly to be considered at a general meeting subject to the provisions of the Companies Law;

 

(c) A request mentioned in sub-paragraph (b) above will be submitted to the Company in writing at least 7 (seven) days before the notice convening the general meeting is given, and the form of the resolution proposed by the Shareholder will be attached thereto, unless otherwise prescribed by law.

 

62. (a) Notice convening a general meeting will be published in two daily newspapers at least, having wide circulation and published in Hebrew, on such date as is prescribed by the Law, and the Company will give no further notice to the Registered Shareholders in the Company’s Shareholders Register, unless required by law.

 

(b) Notice convening the general meeting will specify the class of the meeting, the place and time at which the meeting will be convened, details of the business on the agenda, a summary of the proposed resolutions, the majority required for adopting resolutions, the date for determining the entitlement of all the Shareholders to vote at the general meeting as well as any further particulars as are required by the Law. A date for an adjourned meeting that has been fixed for a date that does not fall on the same day in the following week at the same time and in the same place, will be specified in the notice.

 

63. The general meeting may assume the powers vested in another organ for a specific matter or for a specific period of time that will not exceed the time required in the circumstances. Powers assumed by the general meeting that are vested by the Law in the Board, will entitle the Shareholders to the rights, and render them liable to the duties and liability applying to the Board with respect to the exercise of such powers, mutatis mutandis, and in this connection, they will be subject, having regard to their holdings of the Company, to their participation at the meeting and the manner of their voting, and to the provisions of the Third, Fourth, and Fifth Chapters of the Sixth Part of the Companies Law.

 

12
 

 

64. A defect occurring in good faith in the convening or conduct of a general meeting or other defect resulting from the failure to perform any term or provision prescribed in the Law or in these Articles, including with respect to the manner of convening or conducting the general meeting, will not disqualify any resolution adopted at the general meeting nor derogate from the considerations and discussions that took place thereat, subject to the provisions of any law.

 

65. A shareholder wishing to vote at the general meeting will prove his title to the share to the Company, as required by law.

 

66. (a) The Company may determine an effective date for the purpose of entitlement to participate and vote at general meetings, provided that such date will not exceed 21 days before the date fixed for holding the general meeting, and be not less than four days before the date for which it is convened.

 

(b) Notwithstanding that stated in sub-paragraph (a) above, at a general meeting on whose agenda are the items specified in section 87 (a) of the Companies Law, the Company will fix a specific date that will fall not later than 40 days not less than 28 days before the date on which the general meeting is convened, unless the law enables a specific date to be determined earlier.

 

67. A minor shareholder as well as a shareholder who the court has declared to be legally incompetent may vote only by his guardian and such guardian may vote by a proxy.

 

68. Subject to the provisions of any law, in the case of joint shareholders, each of them may vote at any meeting personally or by proxy, in relation to such share, as if he were the sole party entitled thereto. Where two or more joint holders of a share participate at the meeting, whether in person or by representative proxy, the vote of one of them whose name first appears in the Register of Members or in a certificate regarding his title to the share or other document as will be prescribed by the Board of Directors in this connection. A number of guardians or administrators of the estate of a deceased registered shareholder will be deemed for the purposes of this Regulation to be joint owners of such shares .

 

69. A shareholder may vote personally or by proxy, as hereinafter stipulated.

 

70. Any member of the Company being a corporate body may empower any person by resolution of its Directors or other managing body, as its representative at any meeting of the Company, as it deems fit to be representative at any general meeting. A person so empowered will be entitled to exercise on behalf of the corporate body he represents, the same powers as the corporate body itself could have exercised had it been an individual shareholder of the Company. The chairman of the meeting may demand from any person so empowered reasonable proof of his being an authorized representative of the body corporate as a condition for his participating at the meeting.

 

It is clarified that regulations 71 to 75 respecting the proxy will not apply to the authorized representative of the body corporate but only to a proxy appointed to vote on behalf of the body corporate.

 

13
 

 

71. The instrument appointing a proxy (“ proxy ”) will be signed by the appointor or by his duly appointed attorney in writing or if the appointor is a corporation - the appointment will be made in writing and duly signed by the authorized signature of and under the stamp of the Company, or under the hand of the authorized representative thereof.

 

72. The instrument appointing a proxy or a copy thereof to the satisfaction of the Board of Directors, or such person who has been empowered by it, shall be deposited at the Office or the place at which the meeting is due to be held at least 48 hours before the time appointed for holding the meeting at which the person named in such instrument proposes to vote, save that the chairman may waive such demand with respect to any meeting and accept the proxy or copy thereof to the satisfaction of the chairman of the meeting, at the time the meeting proceeds to business.

 

73. A shareholder holding more than one share will be entitled to appoint more than one proxy, subject to the following provisions:

 

(a) the instrument of appointment will specify the class and number of shares in respect of which it was granted, and in the cases required by law, reference to the question of the shareholder’s personal interest in the engagement on the agenda of the general meeting;

 

(b) if the number of shares of any class specified in the instruments of appointment granted by a single shareholder exceed the number of the shares of such class held by him, all the instruments of appointment granted by such shareholder will be null and void in respect of the surplus shares, without derogating from the validity of the vote in respect of the shares that are held by him;

 

(c) Where only one proxy has been appointed by a shareholder and the instrument of appointment does not specify the number and class of shares in respect of which it was granted, the instrument of appointment will be deemed to have been granted in respect of all the shares held by the shareholder on the date on which the instrument of appointment is deposited with the Company or the date of delivery thereof to the chairman of the meeting, as appropriate. Insofar as the instrument of appointment has been given in respect of a smaller number of shares than that held by the shareholder, the shareholder will be deemed to have abstained in respect of the remaining shares held by him and the instrument of appointment will be valid in respect of the number of shares therein specified.

 

74. The instrument appointing a proxy for a general meeting will, to the extent the circumstances permit, be in the following form or common or usual form as approved by the chairman of the Board:

 

"I, _________________(I.D./corporate no.___________________) of _________________ being a member in the company known as _________________ hereby appoint. _________________ (I.D./corporate no.___________________) of _________________ or failing him. _________________ (I.D./corporate no.___________________) of _________________ to vote for me and on my behalf at the (ordinary/extra-ordinary) general meeting of the Company to be convened on the _____ day _________________ __ and at every adjournment thereof in respect of the ______shares of ______class held by the undersigned signature. As witness my hand this ____ day of _________________ .”

 

14
 

 

75. A vote pursuant to the provisions of an instrument appointing a proxy will be valid notwithstanding the death of the appointor, or the revocation of the power of attorney or the transfer of the share in respect of which voting took place as above, unless notice in writing of such death, revocation or transfer was received at the Office of the Company or by the chairman of the meeting prior to the voting.

 

Proceedings and resolutions adopted at general meetings

 

76. No business shall be transacted at any general meeting unless a quorum is present within half an hour of the meeting proceeding to business. Save where otherwise stipulated in these Articles, or in the Companies Law, there shall be a quorum when one member at least is present personally or by proxy holding at least two (2) shareholders holding jointly at least one quarter (1/4) of the voting rights in the Company.

 

77. If within half an hour from the time appointed for the holding of a meeting no quorum is present, it will be adjourned to the same day in the next week at the same time and at the same place or to such other day and/or time and/or place as determined in notice to the members or to such other date as stated and at the adjourned meeting only the business for which the meeting was originally called will be transacted and if there is no quorum present at the adjourned meeting within half an hour of the time appointed for such meeting, the member/s present will be deemed a quorum.

 

If the general meeting has been convened upon a requisition of shareholders, the adjourned meeting will only take place if there are present one or more members holding at the least 5% (five per centum) of the issued share capital and 1% (one per centum) at the least of the voting rights in the Company or one or more shareholders holding at least 5% (five per centum) of the voting rights of the Company.

 

78. The chairman of the Board will serve as chairman of the meeting. In the absence of the chairman of the Board at the meeting, the meeting will appoint a chairman for every general meeting and the appointment of the chairman will be made at the beginning of the discussions at the meeting that will, subject to the existence of a quorum, be opened by the secretary of the Company or by a shareholder authorized for such purpose by the secretary.

 

79. The chairman of the general meeting may, with the consent of the meeting at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting, the discussion or adoption of the resolution on the subject itemized on the agenda, from time to time and from place to place. No business shall be transacted at any adjourned meeting other than the business still to be transacted at the meeting at which the adjournment was decided upon.

 

80. Subject to the provisions of any law, a resolution at the general meeting will be passed by a vote of a ballot, in a manner whereby each share conferring a right to vote will confer one vote. In the event of an equality of votes, the resolution will be deemed to have been lost.

 

81. Resolutions at a general meeting will be passed by simple majority unless another majority is prescribed by the Law or these regulations.

 

15
 

 

82. In addition to those resolutions that the Company in general meeting is authorized to adopt and which are detailed in these Articles and/or the Companies Law, resolutions of the Company on the following matters will be passed at the general meeting by simple majority (subject to the relevant provisions of the law):

 

(a) alteration of the Company’s articles or memorandum of association;

 

(b) the exercise of powers by the Board of Directors in the event of the meeting determining that the Board of Directors is constrained from exercising its powers and that the exercise of any of those powers is essential for properly managing the Company as stated in section 52(a) of the Companies Law;

 

(c) the appointment and termination of the service of the Company’s auditor;

 

(d) appointment and dismissal of Directors for the Company;

 

(e) approval of acts and transactions requiring the approval of the general meeting;

 

(f) increasing and cancelling the registered share capital;

 

(g) a merger (unless a transaction is in question that acquires approval according to section 275(a) of the Companies Law).

 

83. A declaration by the chairman that a resolution has been carried unanimously or by a particular majority or has been lost and an entry to that effect in the minute book of the Company, shall be prima facie evidence thereof.

 

84. The shareholders of the Company may on any item which is on the agenda of the meeting, vote at a general meeting (including a class meeting) by means of a proxy, provided the Board has not, subject to any law, negated in its decision to convene the general meeting, the option of voting by means of a proxy on such item.

 

The Board of Directors

 

85. The number of members of the Board of Directors in the Company will be determined from time to time by the Company in general meeting by simple majority of the shareholders or by the Board of Directors of the Company, by simple majority of the members of the Board, provided that it will not be less than four, not exceed twelve, members, including the non-executive Directors. Only an individual and not a body corporate, may be appointed as director of the Company.

 

86. (a) The Directors will be elected by decision by simple majority of the shareholders adopted at the annual meeting. Any director that has been appointed will serve until the next annual meeting. Notwithstanding the foregoing, if no Directors are appointed at the annual meeting, the Directors who were appointed at the previous annual general meeting, will continue to serve;

 

(b) The service of a director will commence on the date of his appointment by such meeting, but the meeting may determine a later date than that of the meeting for his appointment;

 

(c) The general meeting may at any time dismiss a director by simple majority of the shareholders and may resolve at that time to appoint in his stead another person (not being a body corporate) as director of the Company. A director who, on the agenda, has been dismissed will be afforded a reasonable opportunity to voice his position to the general meeting.

 

16
 

 

87. (a) A director may at any time appoint a person (not being a body corporate) to act as his alternate on the Board ( Alternate Director ). A person will not serve as alternate director if he is not qualified to be appointed as director nor a director who currently serves as such or as an alternate director unless permitted by law. An alternate director may be appointed as member of a Board committee if he serves as director provided the candidate for appointment as alternate director for a member of a committee does not serve on such Board committee and, if he is an alternate director for an outside director, the candidate will be an outside director, save that no alternate director will be appointed for an outside director except according to this sub-paragraph (a) only unless otherwise provided by the Law.

 

(b) As long as the appointment of the Alternative Director is in force, he shall be entitled to receive notices to any meeting of the Board (without negating the right of the Appointor Director to receive notices) and attend and vote at any meeting of the Board from which the Appointor Director is absent.

 

(c) The Alternate Director will have, subject to the provisions of his instrument of appointment, all the powers vested in the Director for whom he is alternate, and shall be treated as a Director.

 

(d) A Director who has appointed an alternate will be entitled at any time to revoke the appointment and the service of an alternate will cease if the director who appointed him (herein referred to as: “ the Appointor Director ”) has notified the Company in writing of such revocation of the appointment or of his resignation or if the service of the Appointor Director as such has been otherwise terminated.

 

(e) Every appointment and revocation of the appointment of an Alternate Director will be made by written notice to the Company.

 

88. A director whose term of office has ceased, will be eligible for re-election.

 

89. The office of a director shall be ipso facto vacated in any of the following cases:

 

(a) if he has resigned or has been dismissed from office as stated in sections 229- 231 of the Companies Law;

 

(b) if he has been convicted of an offence as stated in section 232 of the Companies Law;

 

(c) on the date on which notice is given of the imposition of a means of enforcement as if stated in section 232A of the Companies Law;

 

(d) if a court has decided to instruct the termination of his office as stated in section 233 of the Companies Law;

 

(e) if he has been declared bankrupt;

 

(f) on his death;

 

17
 

 

(g) if he is of unsound mind;

 

(h) on the date on which notice is given according to section 227A or 245A of the Companies Law.

 

90. If the office of Director is vacated, the continuing Directors may act in respect of all matters provided that their number is not less than four Directors (including the outside Directors). If their number is less than such minimum, they may only act in order to convene a general meeting for purpose of appointing additional Directors.

 

91. The Directors may appoint immediately or for a future date, an additional Director or Directors who will hold office until the next annual meeting, provided the aggregate number of the members of the Board will not exceed twelve (12).

 

92. The Directors will be entitled to remuneration and compensation in respect of their service subject to receiving the approvals required by law. A Director is entitled to receive his reasonable travelling expenses and remaining expenses related to participating in meetings of the Board and performing his duties as member of the Board.

 

93. At least two outside Directors will serve in the Company, at least one of whom will have accounting and financial expertise and the remainder will have professional qualifications within the meaning of section 240 of the Law, and the provisions prescribed in the Companies Law in this connection will apply to their service, including the payments to which they are entitled for their service.

 

Powers and duties of the Directors

 

94. The Board of Directors will steer the policy of the Company and supervise the acts and performance of the managing director’s acts and duties, including in this context any power of the Company that has not by the Law or these Articles, been conferred on any other organ.

 

95. The Directors may delegate any of its powers to the managing director and any committee of the Board, subject to the restrictions by law.

 

96. (a) The Directors may assume powers that are conferred on the managing director for a particular matter or for a certain period of time, that shall not exceed the period of time that is required in the circumstances, all at the discretion of the Directors, by resolution passed by majority vote of the Directors.

 

(b) Without derogating from the foregoing, the Directors may instruct the managing director how to act on a particular matter and failure by the managing director to do so will entitle the Board of Directors to exercise the necessary power for implementing the instruction in his stead;

 

(c) If the managing director is constrained from exercising his powers, the Board of Directors may exercise the same in his stead.

 

18
 

 

Meetings of the Board

 

97. The Directors will convene meetings according to the needs of the Company and at least once every 3 (three) months.

 

98. The chairman of the Board may convene the Board at any time, and one director may demand the convening of the Board on such matter as will be specified.

 

99. (a) Notice convening a meeting of the Board may be given orally, by telephone call, in writing (including by fax or e-mail) or by cable, provided the notice will be given at least 24 (twenty-four) hours before the date appointed for the meeting, unless all the members of the Board or their alternates (if any) have agreed in urgent cases, to a shorter notice or to convene without notice.

 

(b) A director leaving Israel (“ Absent Director” ) and wishing to receive during the period of his absence notice, will leave with the secretary of the Company sufficient details to enable him to be notified of the meeting of the Board during the period of his absence (an absent director who has left details with the secretary of the Company detailed above together with the Directors who are found within Israel will be called: “ Directors entitled to receive Notice ”).

 

(c) An Absent Director who has not left his details as detailed above in this Regulation, is not entitled for the duration of his absence outside of Israel to receive notice unless he has requested the transfer of the notice to an alternate representative director who has been appointed according to these Articles.

 

(d) A note by the secretary of the Company will be deemed to be conclusive evidence of the giving of notice to the Absent Director who is entitled to receive notice.

 

100. The notice of a Directors’ meeting will set out the date and place of the meeting and provide reasonable detail of all the matters that are on the agenda.

 

The agenda of the Directors’ meetings will be fixed by the chairman of the Board and will include the subjects that the chairman of the Board has fixed as well as any matter that the director or the managing director has requested the chairman of the Board to include in the agenda a reasonable time in advance of convening the meeting of the Board.

 

101. The quorum for commencing business at a meeting of the Board will be a majority of the members thereof entitled to receive notice and who are not by law constrained from participating and voting at the meeting of the Board. The quorum will be examined when the meeting proceeds to business.

 

Notwithstanding the foregoing, the quorum with respect to a resolution of the Board concerning the termination of the office of the internal auditor concerning the termination of the service of the internal auditor, will not in any case be less than a majority of the members of the Board.

 

102. The general meeting of the Company will appoint a chairman of the Board. The chairman of the Board will preside over each meeting of Directors. If the chairman is absent from or unwilling to preside over the meeting, the Directors present at the meeting will choose one of their number to act as chairman of such meeting and sign the minutes of the meeting.

 

19
 

 

103. Resolutions of the Board will be adopted by majority vote of the Board members present and participating in the vote, each director having a single vote. In the event of an equality of votes on the Board, the chairman of the Board will not have any additional vote.

 

104. Each meeting of Directors at which a quorum s present, will be authorized to exercise all powers, authorities and discretions for the time being vested in the Directors or generally exercised by them according to the terms of these regulations.

 

105. The Board may hold meetings by using any means of communication provided that all the Directors participating can hear one another simultaneously.

 

106. The Directors of the Company may pass resolutions without actually convening, provided that all the Directors entitled to receive notices of and attend discussions have given their consent. When such a meeting takes place, minutes of the resolutions will be drawn, including the resolution not to convene, and signed by the chairman of the Board or a notation made by the chairman and the signatures of the Directors appended to the resolution.

 

For this purpose “signature of a Directors” may be together with the consent or objection or notation of the abstention of that director. In lieu of the signature of a Director, the chairman of the Board or the secretary of the Company may append a notation under his hand setting out the manner of the director’s vote.

 

106A. A resolution without a meeting actually being convened, signed by the chairman of the Board of Directors provided that all the Directors entitled to receive notice and entitled to participate in the discussion and vote on the business that has been submitted for resolution have agreed thereto (provided their number will not be less than 2) or a resolution in writing signed by all the members of the Board entitled to receive notice and entitled to participate in the discussion and vote on the business that has been submitted for resolution (provided their number will not be less than 2) will, subject to the provisions of the Law, be valid and effectual as a resolution duly passed at a meeting of the Board that has been convened and held in accordance with the terms of these Articles.

 

107. Subject to the provisions of the law, all acts done by or by resolution of the Board of Directors or by a meeting of a committee of the Directors, or by a person (not being a body corporate) acting as a member of the Board of Directors, shall be effectual notwithstanding it be afterwards discovered that there was some defect in the appointment of any director or person acting as such member of the Board of Directors or that all or any of them were disqualified, as if every such person had been duly appointed and as if they had the necessary qualifications to be a member of the Board or such committee.

 

20
 

 

Committees of the Board

 

108. The Directors may from time to time set up committees of the Board. No person not being a member of the Board will serve on a committee to whom powers have been delegated by the Board. Persons not being members of the Board may serve on a committee of the Board whose function it will be to advise or make recommendations to the Board. Subject to the provisions of the Companies Law and the Regulations herein contained, the Directors may entrust their powers to such committees or any of them; one each committee there will be two Directors at the least.

 

109. Each committee established under Regulation 108 above must, when exercising its powers, fulfil all the directions that will be laid down by the Directors. The meetings and acts of any such will be conducted according to the Regulations comprised in these Articles regulating meetings and acts of the Directors to the extent they are consistent and save to the extent otherwise directed by the Directors.

 

110. A committee of the Directors will report to the Board of Directors on a regular basis its resolutions or recommendations as determined by the Board. Resolutions or recommendations of a Board committee requiring the Board approval, will be submitted to the Directors for information, a reasonable time before the discussion on the Board.

 

111. The Board may cancel a resolution of a committee that has been appointed by it but no such cancellation shall affect the validity of a resolution of a committee in accordance with which the Company has acted vis-à-vis another person who had no knowledge of the cancellation.

 

All acts done in good faith at meetings of Directors or by a committee of the Directors, or by a person acting as a director, shall be effectual notwithstanding it be afterwards discovered that there was some defect in the appointment of any Director or person so acting or that all or any of them were disqualified, as if every such person had been duly appointed and was qualified to be a director.

 

The managing director

 

112. The managing director will be appointed and dismissed by the Board of Directors, which may appoint more than one managing director.

 

113. The managing director will be responsible for the ongoing management of the Company’s affairs within the framework of the policy determined by the Board, and, subject to its directives, will have all the administrative and executive powers that have not, by the Companies Law or these Articles, been conferred on any other organ of the Company, and he will be subject to the supervision of the Board of Directors.

 

The managing director may, with the approval of the Board, delegate to a party who is subordinate to him, any of his powers. Such approval of the Board may be general and given in advance.

 

114. (a) The managing director will promptly notify the chairman of the Board of any irregular matter that is material to the Company, and will submit reports to the Board on such matters and at such dates and in such volume as will be determined by the Board of Directors. If the Company has no chairman of the Board or he is constrained from fulfilling his duties, the managing director will, as stated give notice to all the members of the Board;

 

(b) The chairman of the Board may of his own initiative or according to a resolution of the Board, demand a report in relation to the Company’s business from the managing director.

 

21
 

 

(c) The chairman of the Board will promptly call a meeting of the Board for the purpose of discussing or passing a resolution on any notice or report which has necessitated the taking of action by the Board.

 

Officeholders

 

115. The managing director may from time to time appoint for the Company officeholders (other than Directors and a general manager) to such permanent, temporary or special functions as the managing Director will deem fit from time to time, and will further be entitled to terminate the service of one or more of such persons from time to time and at any time, at his absolute discretion.

 

116. The managing director may, subject to the provisions of the Companies Law, determine the powers and duties of the officeholders so appointed by him, and the terms of their service. The terms of service of the officeholders will be set in accordance with that stated in the Companies Law.

 

Internal auditor

 

117. The Board of Directors may appoint an internal auditor, according to a proposal of the Audit Committee.

 

118. The internal auditor will, inter alia , examine the propriety of the acts of the Company from the standpoint of upholding the Law and proper business practice.

 

119. The organizational supervisor of the internal auditor will be the chairman of the Board or if otherwise decided by the Board of the Company, as so decided by the Board.

 

120. The internal auditor will submit to the Board for approval a proposal for an annual or periodic working program and the Board will approve the same with such changes as it considers appropriate.

 

Auditors

 

121. One or more auditors will be appointed at every annual meeting and hold office until the end of the next annual meeting. Notwithstanding the foregoing, the general meeting may, by resolution adopted by a simple majority, appoint an auditor who will hold office for a longer period that will not extend beyond the end of the third annual meeting following that at which he was appointed.

 

122. The general meeting may terminate the service of the auditor subject and pursuant to the provisions contained in the Companies Law.

 

123. The auditor’s remuneration for the audit activity will be set by the Board, and the terms of the auditor’s employment will be reported by the Board at every general meeting. The Audit Committee or committee that has been appointed by the Company to review the financial statements according to the provisions of Companies Law, will test the volume of the auditor’s work and his remuneration and submit its recommendations to the Board of Directors.

 

22
 

 

124. The auditor’s remuneration for additional services to the Company not being audit-related will be set by the Board, which will report at every annual meeting the terms of the auditor’s engagement for such additional services, including the payments and undertakings of the Company towards him; for the purpose of this regulation “auditor” includes a partner, close associate of an auditor and includes a corporation within his control.

 

Validity of acts and approval of other than irregular transactions

 

125. Subject as provided by law, all actions taken by the Directors or by a committee of the directors or by any person acting as Director or as a member of a committee of directors or by the managing director as appropriate, will be valid notwithstanding that it is subsequently discovered that any defect existed in the appointment of the Board, the committee of the Board, the Director being a member of the committee or the managing director, as appropriate, or that any of the holders of such positions was disqualified from acting as such.

 

126. An officeholder who has a personal interest in an action of the Company will disclose to the Company a reasonable time before the date for discussing the approval of the action, the nature of his personal interest therein, including any material fact or document.

 

127. A transaction which is not an irregular transaction of a company with an officeholder thereof or with its controlling stakeholder, or transaction which is not an irregular transaction of the Company with another person in which an officeholder of the Company or its controlling stakeholder has a personal interest, other than a transaction pertaining to the terms of service and employment of the officeholders or of the controlling stakeholders of the Company and their relations, will be approved by the Audit Committee (subject to the provisions of law). The Audit Committee approval may be made by the giving of a general approval for a certain class of transactions, or by a specific transaction approval.

 

128. Irregular transactions with an officeholder thereof or with the controlling stakeholder of the Company or with another person in which the officeholder or the controlling stakeholder has a personal interest in approving as well as transactions pertaining to the terms of service of the officeholders and the terms of service of the controlling stakeholders and their relations, will be approved in the manner prescribed by the law.

 

Distribution

 

129. A resolution of the Company regarding distribution will be passed by the Board of the Company, subject to the limitations according to the law.

 

Dividends and bonus shares

 

130. Subject to any special or limited rights conferred on any shares, dividend or bonus shares will be distributed in proportion to the number of shares that are held by Shareholders.

 

131. The Company may determine a record date for purposes of the right to receive dividend, provided that such date will fall after that of the resolution regarding the distribution of dividend.

 

23
 

 

132. The Board may detain any dividend, bonus, right or amount payable in respect of shares over which the Company has a lien or charge and apply any such sum or realize any bonus and any right and apply the proceeds of the realization in discharge of the debts of such shareholder in respect of which the Company has a lien or charge.

 

133. No transfer of shares will confer upon the transferee the right to any dividend or any other distribution that has been declared thereon after such transfer and before registration of the transfer. Notwithstanding the foregoing, in the case of a share transfer requiring Board approval, the approval date will be substituted for the registration date of the transfer.

 

134. The person entitled to dividend, the payment of which has not been claimed within the period of 7 (seven) years from the date of the resolution regarding the distribution will be deemed to have waived the same and the dividend will revert to the Company’s ownership.

 

135. In the absence of stipulations to the contrary, dividend may be paid by check or payment order that will be sent by mail according to the registered address of the party entitled thereto, or, in the case of joint registered owners, to such member whose name first appears in the shareholders register in relation to the joint ownership. Any such check will be drawn to the order of the person to whom it is sent and payment thereof will serve as a release pertaining to all the payments that have been made in connection with such share.

 

136. The Board of Directors may deduct from any dividend or other distribution payable in connection with shares held by a shareholder, whether he is sole or joint holder thereof, any amounts of money that are due from him and which ought to have been paid to the Company alone or jointly with others, on account of calls and the like.

 

137. The Board may, at its discretion set aside to special funds, any sum out of the profits of the Company or from a revaluation of its assets or its proportionate share in the revaluation of the assets of companies that are affiliated to it, and determine the designation of such funds.

 

Merger

 

138. Approval of a merger requires a majority vote of the uhareholders, subject to the provisions of the Companies Law.

 

Minutes

 

139. The Company will keep a register of minutes of general meetings, class meetings, meetings of the Board and meetings of committees of the Board and keep the same at its registered office or elsewhere in Israel as notified by the Company to the Registrar, for a period of 7 (seven) years from the date of the meeting or the Board meeting, as appropriate.

 

140. All minutes will include the following:

 

(a) the date and place at which the particular meeting took place;

 

24
 

 

(b) the names of those present, and in the case of attornies or alternates, the names of the attornies or the appointors and, at a meeting of Shareholders, the number of shares by virtue of which the vote was held, and the class thereof;

 

(c) a concise summary of the business, the course of the discussions and resolutions that were adopted;

 

(d) instructions that have been given by the Board to committees of the Board or to the managing director;

 

(e) documents, reports, approvals, opinions and the like that have been presented, discussed or attached.

 

141. Such minutes of a general meeting when signed by the chairman of the meeting will serve as prima facie evidence of the contents thereof. Minutes of the meeting of the Board or of a committee of the Board that have been approved and signed by the Director who presided over the meeting will serve as prima facie evidence of the contents thereof.

 

Register of Shareholders

 

142. The Company will keep a Register of Shareholders and register therein the following details:

 

(a) With respect to Registered Shares –

 

(1) the name, identity number and address of each shareholder, all as delivered to the Company;

 

(2) the number of shares and class of the shares owned by each Shareholder, indicating the nominal value thereof, if existing, and if any amount remains as yet unpaid on account of the price fixed for a share - the amount as yet unpaid;

 

(3) the date of allotment of the shares or dates of the transfer thereof to the Shareholders, as appropriate;

 

(4) in the case of the shares bearing serial numbers, the Company will make a notation alongside the name of each Shareholder of the numbers of the shares that are registered in his name;

 

(b) With respect to bearer shares –

 

(1) A notation of the fact of the allotment of bearer shares, the date of the allotment and the number of shares allotted;

 

(2) The numbering of the shares to bearer and of the share warrants;
The name of the holder of a share warrant at whose request the warrant has been cancelled, will be registered in the principal Register of Shareholders, indicating the number of shares that are registered in his name.

 

25
 

 

(c) With respect to dormant shares - in addition also, the number thereof and the date on which they became dormant, as known to the Company.

 

(d) With respect to shares that confer no voting rights according to section 309(b) of the Law or section 333(b) of the Law - also the number thereof and the date on which they became shares that confer no voting rights, all as known to the Company.

 

(e) Such other particulars as are according to the Companies Law or these Regulations, required or permitted to be registered in the Register of Shareholders.

 

143. The Company may maintain an additional Register of Shareholders outside of Israel.

 

144. The Register of Shareholders will be prima facie evidence of the accuracy of the entries therein recorded. In the event of any deviation between the entries in the Register of Shareholders and a share certificate, the evidential value of the Register of Shareholders will take preference over that of the share certificate.

 

Notices

 

145. Notice regarding the convening of a general meeting will be given as stated in Regulation 62.

 

146. (a) Notices which by law are to be given to the Company to Shareholders Registered in the Register of Shareholders will, subject to Regulation 62 above, be delivered personally to the shareholder or sent to him according to the last address given by him to the Company. Notices sent by mail will be deemed to have been delivered - if sent to an address in Israel, within 72 (seventy-two) hours of the date of despatch, and, if sent to an address abroad - within 10 (ten) days of the date of despatch.

 

(b) The Company may deliver notices to the shareholders regardless of whether they hold registered shares or bearer shares, by publishing a notice in two generally circulating daily newspaper in Hebrew as stated in Regulation 62 above, and the date of the publication in the newspaper will be deemed to be the date on which the notice was received by the Shareholder.

 

The provisions of sub-regulation (a) will not apply where the Company has elected to give notice as stated in this sub-regulation (b), except where an express duty by law applies to publish a notice by a different method.

 

(c) Nothing contained in sub-regulations (a) and (b) above shall impose any duty on the Company to give notice to any party who has not furnished an address to the Company in Israel.

 

147. In each of the following cases, a Shareholder will be deemed not to have furnished an address to the Company:

 

(a) Where the Company has sent him according to the latest address that was furnished by him, a letter by registered mail requesting him to confirm that such address is still current or notify the Company of a new address, and the Company has received no reply within 30 (thirty) days of the date of the despatch of the notice.

 

26
 

 

(b) Where the Company has sent him according to the latest address that was furnished by him, a letter by registered mail and the Postal Authority - incidental to returning the letter or in the absence of so doing - has notified the Company that the person concerned is not known at such address or for any other like reason.

 

148. Each notice to be given to members relating to joint shares will be given to the person first named in the register of members with request to such share.

 

149. Any document or notice delivered by the Company according to the provisions of these Articles will be deemed to have been properly delivered notwithstanding the death, bankruptcy or liquidation of such shareholder (whether or not the Company was aware thereof) as long as no other person has been registered in the Shareholder’s stead, and such despatch and delivery will be deemed for all purposes to be sufficient with respect to any person having an interest in such shares.

 

Winding-up of the Company

 

150. In the event of the winding-up of the Company, whether voluntarily or otherwise, the following provisions will, unless otherwise expressly provided in these Articles or in the terms of issue of any share, apply:

 

(a) The liquidator will first apply all the Company’s assets in payment of its debts (the Company’s assets after payment of its debts to be hereinafter called - “ the Surplus Assets ”).

 

(b) Subject to any special rights attaching to the shares, the liquidator will distribute the Surplus Assets among the shareholders in proportion, pro rata to the number of shares held by all of the Shareholders.

 

(c) With the sanction of a resolution of the Company passed at a general meeting by a majority of the Shareholders, the liquidator may distribute the Surplus Assets of the Company or any part thereof among the Shareholders in specie and further convey any Surplus Assets to a trustee by way of a deposit to the credit of the Shareholders, as the liquidator deems fit.

 

Exemption from liability

 

151. The Company may exempt in advance any of its officeholders from all or part of his liability by reason of damage following a breach of the duty of care towards it, save for a breach of the duty of care on a distribution within the meaning of that term contained in the Companies Law.

 

Insurance of liability

 

152. The Company may enter into a contract to insure the liability of any of its officeholders by reason of liability that will be imposed upon him in consequence of an act effected by virtue of his position as such, in whole or in part, in any of the following:

 

27
 

 

(a) breach of the duty of care towards the Company or towards any other person;

 

(b) the breach of a fiduciary duty towards it, provided the officeholder acted in good faith and had reasonable grounds to assume that the act would not harm the interests of the Company;

 

(c) financial liability that will be imposed upon him for the benefit of any other person;

 

(d) any other act that is insurable as permitted by the Companies Law.

 

153. Without prejudice to paragraph 152 above, the Company may enter into a contract to insure the liability of its officeholder that involves payments or expenses that will be borne by the officeholder, as appropriate, as follows:

 

(a) expenses incurred in connection with a “proceeding” that has been conducted in his case, including reasonable litigation expenses, including legal fees;

 

With respect to this paragraph - “proceeding” is a proceeding according to the Chapters H-3, H-4 and I-1 of the Securities Law and a a proceeding according to Article D of the Fourth Chapter of Part Nine of the Companies Law;

 

(b) Payment to an aggrieved party as stated in section 542BB(a)(1)(a) of the Securities Law according to Chapter H-4 of the Securities Law.

 

Indemnity

 

154. The Company may indemnify any of its officeholders retroactively by reason of liability or expense as detailed in sub-paragraphs (a) to (f) hereof, that has been imposed upon him in consequence of any act that he effected by virtue of his position in the Company:

 

(a) has financial liability imposed upon him in favor of any other person by a judgment, including a judgment given in a compromise or arbitrator's award that has been approved by the court;

 

(b) reasonable litigation expenses, including legal fees, that have been laid out by an officeholder in consequence of any investigation or proceeding that has been conducted against him by an authority authorized to carry on an investigation or proceeding, and has been concluded without the filing of a charge against him and without any financial liability having been imposed upon him as an alternative to a criminal proceeding, or which has ended without the bringing of any charge against him but in which a financial liability has been imposed as an alternative to a criminal proceeding or an offence that does not require proof of criminal intent or in connection with a financial sanction;
In this paragraph - conclusion of a proceeding without the making of any charge on any matter in which a criminal investigation has been instituted - means the closure of the case according to section 62 of the Criminal Procedure (Consolidated Version) Law, 5742-1982 (in this sub-paragraph - the Criminal Procedure Law), or a stay of proceedings by the Attorney-General, according to section 231 of the Criminal Procedure Law;

 

28
 

 

“Financial liability as an alternative to a criminal proceeding” - means financial liability that has been imposed by statute as an alternative to a criminal proceeding, including an administrative fine according to the Administrative Offences Law, 5746-1985, penalty for an offence that has been prescribed as a penal offence according to the provisions of the Criminal Procedure Law, financial sanction or fine.

 

(c) Reasonable litigation expenses, including legal fees, that have been laid out by the officeholder or for which he has been made liable by a Court in a proceeding that has been brought against him by or in the name of the Company or by another party, or in a criminal charge from which he was acquitted or criminal charge in which he was convicted of an offence not requiring proof of criminal intent.

 

(d) expenses incurred in connection with a “proceeding” as defined in paragraph 153(a) above, that has been conducted in his case, including reasonable litigation expenses, including legal fees;

 

(e) Payment to an aggrieved party as stated in section 542BB(a)(1)(a) of the Securities Law according to Chapter H-4 of the Securities Law.

 

(f) Liability or other expense that is indemnifiable according to the Companies Law.

 

155. The Company may undertake in advance towards an officeholder to indemnify him in respect in respect of a liability or expense detailed in sub-paragraphs 154(b) to 154(f)) above, and may further give an undertaking in advance to indemnify an officeholder thereof as stated in Regulation 154(a) above, provided that the undertaking will be limited to the events which, in the opinion of the Board of Directors, are foreseeable in light of the Company’s activity in practice at the time of giving the undertaking for indemnity, and to such amount or criteria as the Board has determined to be reasonable in the circumstances, and the undertaking for indemnity shall specify the events which, in the opinion of the Board, are foreseeable in light of the Company’s activity in practice at the time of giving the liability and the amount and criteria that the Board has determined to be reasonable in the circumstances.

 

156. In any event, the aggregate indemnity amount that will be payable by the Company (in addition to the sums that will be received from an insurance company, if any, within the framework of a directors’ and officeholders’ liability insurance that has been acquired by the Company, to the extent it has acquired the same) to all the officeholders of the Company cumulatively, according to the indemnity letters that will be issued to them by the Company, will not exceed 25% of the Company’s equity capital according to its latest consolidated financial statements, as existing as of the date of the indemnity.

 

Liability of the Company

 

157. (a) The signature of any person who will be appointed from time to time by the Board generally or for a specific event personally or together with other persons, accompanied by the stamp or printed name of the Company, will bind the Company.

 

(b) The Board of Directors may determine separate signature rights with respect to different businesses of the Company, and with respect to the amount of the sums for which the persons are empowered to sign.

 

29
 

 

Alteration of the Articles

 

158. The Company may alter these Articles by resolution adopted by simple majority at the general meeting.

 

30
 

 

 

 

31

 

Exhibit 4.1

 

 

KITOV PHARMACEUTICALS HOLDINGS LTD

 

AND

 

THE BANK OF NEW YORK MELLON

 

As Depositary

 

AND

 

OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES

 

Deposit Agreement

 

Dated as of ______________, 2015

 

 

 

 

 

TABLE OF CONTENTS

 

       
ARTICLE 1. DEFINITIONS 1
SECTION 1.1. American Depositary Shares. 1
SECTION 1.2. Commission. 2
SECTION 1.3. Company. 2
SECTION 1.4. Custodian. 2
SECTION 1.5. Delisting Event. 2
SECTION 1.6. Deliver; Surrender. 2
SECTION 1.7. Deposit Agreement. 3
SECTION 1.8. Depositary; Depositary’s Office. 3
SECTION 1.9. Deposited Securities. 3
SECTION 1.10. Disseminate. 3
SECTION 1.11. Dollars. 4
SECTION 1.12. DTC. 4
SECTION 1.13. Foreign Registrar. 4
SECTION 1.14. Holder. 4
SECTION 1.15. Insolvency Event. 4
SECTION 1.16. Owner. 5
SECTION 1.17. Receipts. 5
SECTION 1.18. Registrar. 5
SECTION 1.19. Replacement. 5
SECTION 1.20. Restricted Securities. 5
SECTION 1.21. Securities Act of 1933. 5
SECTION 1.22. Shares. 5
SECTION 1.23. SWIFT. 6
SECTION 1.24. Termination Option Event. 6
     
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY SHARES 6
SECTION 2.1. Form of Receipts; Registration and Transferability of American Depositary Shares. 6
SECTION 2.2. Deposit of Shares. 7
SECTION 2.3. Delivery of American Depositary Shares. 8
SECTION 2.4. Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange of Certificated and Uncertificated American Depositary Shares. 9
SECTION 2.5. Surrender of American Depositary Shares and Withdrawal of Deposited Securities. 10
SECTION 2.6. Limitations on Delivery, Transfer and Surrender of American Depositary Shares. 11

 

  - i -  

 

       
SECTION 2.7. Lost Receipts, etc. 11
SECTION 2.8. Cancellation and Destruction of Surrendered Receipts. 12
SECTION 2.9. Pre-Release of American Depositary Shares. 12
SECTION 2.10. Maintenance of Records 12
SECTION 2.11. DTC Direct Registration System and Profile Modification System. 13
     
ARTICLE 3. CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES 13
SECTION 3.1. Filing Proofs, Certificates and Other Information. 13
SECTION 3.2. Warranties on Deposit of Shares. 14
SECTION 3.3. Disclosure of Interests. 15
     
ARTICLE 4. THE DEPOSITED SECURITIES 15
SECTION 4.1. Cash Distributions. 15
SECTION 4.2. Distributions Other Than Cash, Shares or Rights. 16
SECTION 4.3. Distributions in Shares. 17
SECTION 4.4. Rights. 18
SECTION 4.5. Conversion of Foreign Currency. 19
SECTION 4.6. Fixing of Record Date. 20
SECTION 4.7. Voting of Deposited Shares. 21
SECTION 4.8. Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities. 22
SECTION 4.9. Reports. 23
SECTION 4.10. Lists of Owners. 24
SECTION 4.11. Withholding. 24
     
ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY 24
SECTION 5.1. Maintenance of Office and Transfer Books by the Depositary. 24
SECTION 5.2. Prevention or Delay in Performance by the Depositary or the Company. 25
SECTION 5.3. Obligations of the Depositary and the Company. 25
SECTION 5.4. Resignation and Removal of the Depositary. 26
SECTION 5.5. The Custodians. 27
SECTION 5.6. Notices and Reports. 28
SECTION 5.7. Distribution of Additional Shares, Rights, etc. 28
SECTION 5.8. Indemnification. 29
SECTION 5.9. Charges of Depositary. 31
SECTION 5.10. Retention of Depositary Documents. 32

 

  - ii -  

 

       
SECTION 5.11. Exclusivity. 32
     
ARTICLE 6. AMENDMENT AND TERMINATION 32
SECTION 6.1. Amendment. 32
SECTION 6.2. Termination. 33
     
ARTICLE 7. MISCELLANEOUS 34
SECTION 7.1. Counterparts; Signatures. 34
SECTION 7.2. No Third Party Beneficiaries. 34
SECTION 7.3. Severability. 34
SECTION 7.4. Owners and Holders as Parties; Binding Effect. 34
SECTION 7.5. Notices. 35
SECTION 7.6. Appointment of Agent for Service of Process; Submission to Jurisdiction; Jury Trial Waiver. 35
SECTION 7.7. Waiver of Immunities. 36
SECTION 7.8. Governing Law. 37
       

  - iii -  

 

 

DEPOSIT AGREEMENT

 

DEPOSIT AGREEMENT dated as of __________, 2015 among KITOV PHARMACEUTICALS HOLDINGS LTD., a company incorporated under the laws of the State of Israel (herein called the Company), THE BANK OF NEW YORK MELLON, a New York banking corporation (herein called the Depositary), and all Owners and Holders (each as hereinafter defined) from time to time of American Depositary Shares issued hereunder.

 

WITNESSETH:

 

WHEREAS, the Company desires to provide, as set forth in this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of the Company from time to time with the Depositary or with the Custodian (as hereinafter defined) under this Deposit Agreement, for the creation of American Depositary Shares representing the Shares so deposited and for the execution and delivery of American Depositary Receipts evidencing the American Depositary Shares; and

 

WHEREAS, the American Depositary Receipts are to be substantially in the form of Exhibit A annexed to this Deposit Agreement, with appropriate insertions, modifications and omissions, as set forth in this Deposit Agreement;

 

NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties hereto as follows:

 

ARTICLE 1.          DEFINITIONS

 

The following definitions shall for all purposes, unless otherwise clearly indicated, apply to the respective terms used in this Deposit Agreement:

 

SECTION 1.1.           American Depositary Shares.

 

The term “ American Depositary Shares ” shall mean the securities created under this Deposit Agreement representing rights with respect to the Deposited Securities. American Depositary Shares may be certificated securities evidenced by Receipts or uncertificated securities. The form of Receipt annexed as Exhibit A to this Deposit Agreement shall be the prospectus required under the Securities Act of 1933 for sales of both certificated and uncertificated American Depositary Shares. Except for those provisions of this Deposit Agreement that refer specifically to Receipts, all the provisions of this Deposit Agreement shall apply to both certificated and uncertificated American Depositary Shares.

 

Each American Depositary Share shall represent the number of Shares specified in Exhibit A to this Deposit Agreement, except that , if there is a distribution upon Deposited Securities covered by Section 4.3, a change in Deposited Securities covered by Section 4.8 with respect to which additional American Depositary Shares are not delivered or a sale of Deposited Securities under Section 3.2 or 4.8, each American Depositary Share shall thereafter represent the amount of Shares or other Deposited Securities that are then on deposit per American Depositary Share after giving effect to that distribution, change or sale.

 

  - 1 -  

 

 

SECTION 1.2.           Commission.

 

The term “ Commission ” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency in the United States.

 

SECTION 1.3.           Company.

 

The term “ Company ” shall mean Kitov Pharmaceuticals Holdings Ltd., a company incorporated under the laws of the State of Israel, and its successors.

 

SECTION 1.4.           Custodian.

 

The term “ Custodian ” shall mean either Bank Hapoalim or Bank Leumi, as custodian for the Depositary in Israel for the purposes of this Deposit Agreement, and any other firm or corporation the Depositary appoints under Section 5.5 as a substitute or additional custodian under this Deposit Agreement, and shall also mean all of them collectively.

 

SECTION 1.5.           Delisting Event.

 

A “ Delisting Event ” occurs if the American Depositary Shares are delisted from a securities exchange on which the American Depositary Shares were listed and the Company has not listed or applied to list the American Depositary Shares on any other securities exchange.

 

SECTION 1.6.           Deliver; Surrender.

 

(a)          The term “ deliver ”, or its noun form, when used with respect to Shares or other Deposited Securities, shall mean (i) book-entry transfer of those Shares or other Deposited Securities to an account maintained by an institution authorized under applicable law to effect transfers of such securities designated by the person entitled to that delivery or (ii) physical transfer of certificates evidencing those Shares or other Deposited Securities registered in the name of, or duly endorsed or accompanied by proper instruments of transfer to, the person entitled to that delivery.

 

(b)          The term “ deliver ”, or its noun form, when used with respect to American Depositary Shares, shall mean (i) registration of those American Depositary Shares in the name of DTC or its nominee and book-entry transfer of those American Depositary Shares to an account at DTC designated by the person entitled to that delivery, (ii) registration of those American Depositary Shares not evidenced by a Receipt on the books of the Depositary in the name requested by the person entitled to that delivery and mailing to that person of a statement confirming that registration or (iii) if requested by the person entitled to that delivery, execution and delivery at the Depositary’s Office to the person entitled to that delivery of one or more Receipts evidencing those American Depositary Shares registered in the name requested by that person.

 

  - 2 -  

 

 

(c)          The term “ surrender ”, when used with respect to American Depositary Shares, shall mean (i) one or more book-entry transfers of American Depositary Shares to the DTC account of the Depositary, (ii) delivery to the Depositary at its Office of an instruction to surrender American Depositary Shares not evidenced by a Receipt or (iii) surrender to the Depositary at its Office of one or more Receipts evidencing American Depositary Shares.

 

SECTION 1.7.           Deposit Agreement.

 

The term “ Deposit Agreement ” shall mean this Deposit Agreement, as it may be amended from time to time in accordance with the provisions of this Deposit Agreement.

 

SECTION 1.8.           Depositary; Depositary’s Office.

 

The term “ Depositary ” shall mean The Bank of New York Mellon, a New York banking corporation, and any successor as depositary under this Deposit Agreement. The term “ Office ”, when used with respect to the Depositary, shall mean the office at which its depositary receipts business is administered, which, at the date of this Deposit Agreement, is located at 101 Barclay Street, New York, New York 10286.

 

SECTION 1.9.           Deposited Securities.

 

The term “ Deposited Securities ” as of any time shall mean Shares at such time deposited or deemed to be deposited under this Deposit Agreement, including without limitation, Shares that have not been successfully delivered upon surrender of American Depositary Shares, and any and all other securities, property and cash received by the Depositary or the Custodian in respect of Deposited Securities and at that time held under this Deposit Agreement.

 

SECTION 1.10.          Disseminate.

 

The term “ Disseminate ,” when referring to a notice or other information to be sent by the Depositary to Owners, shall mean (i) sending that information to Owners in paper form by mail or another means or (ii) with the consent of Owners, another procedure that has the effect of making the information available to Owners, which may include (A) sending the information by electronic mail or electronic messaging or (B) sending in paper form or by electronic mail or messaging a statement that the information is available and may be accessed by the Owner on an Internet website and that it will be sent in paper form upon request by the Owner, when that information is so available and is sent in paper form as promptly as practicable upon request.

 

  - 3 -  

 

 

SECTION 1.11.          Dollars.

 

The term “ Dollars ” shall mean United States dollars.

 

SECTION 1.12.          DTC.

 

The term “ DTC ” shall mean The Depository Trust Company or its successor.

 

SECTION 1.13.          Foreign Registrar.

 

The term “ Foreign Registrar ” shall mean the entity that carries out the duties of registrar for the Shares and any other agent of the Company for the transfer and registration of Shares, including, without limitation, any securities depository for the Shares.

 

SECTION 1.14.          Holder.

 

The term “ Holder ” shall mean any person holding a Receipt or a security entitlement or other interest in American Depositary Shares, whether for its own account or for the account of another person, but that is not the Owner of that Receipt or those American Depositary Shares.

 

SECTION 1.15.          Insolvency Event.

 

An “ Insolvency Event ” occurs if the Company institutes proceedings to be adjudicated as bankrupt or insolvent, consents to the institution of bankruptcy or insolvency proceedings against it, files a petition or answer or consent seeking reorganization or relief under any applicable law in respect of bankruptcy or insolvency, consents to the filing of any petition of that kind or to the appointment of a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of it or any substantial part of its property or makes an assignment for the benefit of creditors, or if information becomes publicly available indicating that unsecured claims against the Company are not expected to be paid.

 

  - 4 -  

 

 

SECTION 1.16.          Owner.

 

The term “ Owner ” shall mean the person in whose name American Depositary Shares are registered on the books of the Depositary maintained for that purpose.

 

SECTION 1.17.          Receipts.

 

The term “ Receipts ” shall mean the American Depositary Receipts issued under this Deposit Agreement evidencing certificated American Depositary Shares, as the same may be amended from time to time in accordance with the provisions of this Deposit Agreement.

 

SECTION 1.18.          Registrar.

 

The term “ Registrar ” shall mean any corporation or other entity that is appointed by the Depositary to register American Depositary Shares and transfers of American Depositary Shares as provided in this Deposit Agreement.

 

SECTION 1.19.          Replacement.

 

The term “ Replacement ” shall have the meaning assigned to it in Section 4.8.

 

SECTION 1.20.          Restricted Securities.

 

The term “ Restricted Securities ” shall mean Shares that (i) are “restricted securities,” as defined in Rule 144 under the Securities Act of 1933, except for Shares that could be resold in reliance on Rule 144 without volume restrictions or current public information requirements, (ii) are beneficially owned by an an officer, director (or person performing similar functions) or other affiliate of the Company, (iii) otherwise would require registration under the Securities Act of 1933 in connection with the public offer and sale thereof in the United States or (iv) are subject to other restrictions on sale or deposit under the laws of the State of Israel, a shareholder agreement or the articles of association or similar document of the Company.

 

SECTION 1.21.          Securities Act of 1933.

 

The term “ Securities Act of 1933 ” shall mean the United States Securities Act of 1933, as from time to time amended.

 

SECTION 1.22.          Shares.

 

The term “ Shares ” shall mean ordinary shares of the Company that are validly issued and outstanding, fully paid and nonassessable and that were not issued in violation of any pre-emptive or similar rights of the holders of outstanding securities of the Company; provided , however , that, if there shall occur any change in nominal or par value, a split-up or consolidation or any other reclassification or, upon the occurrence of an event described in Section 4.8, an exchange or conversion in respect of the Shares of the Company, the term “Shares” shall thereafter also mean the successor securities resulting from such change in nominal value, split-up or consolidation or such other reclassification or such exchange or conversion.

 

  - 5 -  

 

 

SECTION 1.23.          SWIFT.

 

The term “ SWIFT ” shall mean the financial messaging network operated by the Society for Worldwide Interbank Financial Telecommunication, or its successor.

 

SECTION 1.24.          Termination Option Event.

 

The term “ Termination Option Event ” shall mean an event of a kind defined as such in Section 4.1, 4.2 or 4.8.

 

ARTICLE 2.          FORM OF RECEIPTS, DEPOSIT OF SHARES, DELIVERY, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY SHARES

 

SECTION 2.1.           Form of Receipts; Registration and Transferability of American Depositary Shares.

 

Definitive Receipts shall be substantially in the form set forth in Exhibit A to this Deposit Agreement, with appropriate insertions, modifications and omissions, as permitted under this Deposit Agreement. No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose, unless that Receipt has been (i) executed by the Depositary by the manual signature of a duly authorized officer of the Depositary or (ii) executed by the facsimile signature of a duly authorized officer of the Depositary and countersigned by the manual signature of a duly authorized signatory of the Depositary or the Registrar or a co-registrar. The Depositary shall maintain books on which (x) each Receipt so executed and delivered as provided in this Deposit Agreement and each transfer of that Receipt and (y) all American Depositary Shares delivered as provided in this Deposit Agreement and all registrations of transfer of American Depositary Shares, shall be registered. A Receipt bearing the facsimile signature of a person that was at any time a proper officer of the Depositary shall, subject to the other provisions of this paragraph, bind the Depositary, even if that person was not a proper officer of the Depositary on the date of issuance of that Receipt.

 

The Receipts and statements confirming registration of American Depositary Shares may, and upon the written request of the Company shall, have incorporated in or attached to them such legends or recitals or modifications not inconsistent with the provisions of this Deposit Agreement as may be reasonably required by the Depositary or the Company, or required to comply with any applicable law or regulations thereunder or with the rules and regulations of any securities exchange upon which American Depositary Shares may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Receipts and American Depositary Shares are subject by reason of the date of issuance of the underlying Deposited Securities or otherwise.

 

  - 6 -  

 

 

American Depositary Shares evidenced by a Receipt, when the Receipt is properly endorsed or accompanied by proper instruments of transfer, shall be transferable as certificated registered securities under the laws of the State of New York. American Depositary Shares not evidenced by Receipts shall be transferable as uncertificated registered securities under the laws of the State of New York. The Depositary and the Company, notwithstanding any notice to the contrary, may treat the Owner of American Depositary Shares as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes, and neither the Depositary nor the Company shall have any obligation or be subject to any liability under this Deposit Agreement to any Holder of American Depositary Shares (but only to the Owner of those American Depositary Shares).

 

SECTION 2.2.           Deposit of Shares.

 

Subject to the terms and conditions of this Deposit Agreement, Shares or evidence of rights to receive Shares may be deposited under this Deposit Agreement by delivery thereof to any Custodian, accompanied by any appropriate instruments or instructions for transfer, or endorsement, in form satisfactory to the Custodian.

 

As conditions of accepting Shares for deposit, the Depositary may require (i) any certification required by the Depositary or the Custodian in accordance with the provisions of this Deposit Agreement, (ii) a written order directing the Depositary to deliver to, or upon the written order of, the person or persons stated in that order American Depositary Shares representing those deposited Shares, (iii) evidence satisfactory to the Depositary that those Shares have been re-registered in the books of the Company or the Foreign Registrar in the name of the Depositary, a Custodian or a nominee of the Depositary or a Custodian, (iv) evidence satisfactory to the Depositary that any necessary approval has been granted by any governmental body in each applicable jurisdiction and (v) an agreement or assignment, or other instrument satisfactory to the Depositary, that provides for the prompt transfer to the Custodian of any dividend, or right to subscribe for additional Shares or to receive other property, that any person in whose name those Shares are or have been recorded may thereafter receive upon or in respect of those Shares, or, in lieu thereof, such agreement of indemnity or other agreement as shall be satisfactory to the Depositary.

 

At the request and risk and expense of a person proposing to deposit Shares, and for the account of that person, the Depositary may receive certificates for Shares to be deposited, together with the other instruments specified in this Section, for the purpose of forwarding those Share certificates to the Custodian for deposit under this Deposit Agreement.

 

  - 7 -  

 

 

The Depositary shall instruct each Custodian that, upon each delivery to a Custodian of a certificate or certificates for Shares to be deposited under this Deposit Agreement, together with the other documents specified in this Section, that Custodian shall, as soon as transfer and recordation can be accomplished, present that certificate or those certificates to the Company or the Foreign Registrar, if applicable, for transfer and recordation of the Shares being deposited in the name of the Depositary or its nominee or that Custodian or its nominee.

 

Deposited Securities shall be held by the Depositary or by a Custodian for the account and to the order of the Depositary or at such other place or places as the Depositary shall determine.

 

Neither the Depositary nor the Custodian shall deliver Shares (other than to the Company or its agent as contemplated by Sections 4.8(b) or (c)), or otherwise permit Shares to be withdrawn from the facility created hereby, except upon the surrender and cancellation of American Depositary Shares or in connection with a sale permitted under Section 3.2, 4.3, 4.11 or 6.2.

 

The Depositary will not accept a deposit of Shares to the extent the Shares cannot be represented by a whole number of American Depositary Shares.

 

SECTION 2.3.           Delivery of American Depositary Shares.

 

The Depositary shall instruct each Custodian that, upon receipt by that Custodian of any deposit pursuant to Section 2.2, together with the other documents or evidence required under that Section, that Custodian shall notify the Depositary of that deposit and the person or persons to whom or upon whose written order American Depositary Shares are deliverable in respect thereof. Upon receiving a notice of a deposit from a Custodian, or upon the receipt of Shares or evidence of the right to receive Shares by the Depositary, the Depositary, subject to the terms and conditions of this Deposit Agreement, shall, as promptly as practicable, deliver, to or upon the order of the person or persons entitled thereto, the number of American Depositary Shares issuable in respect of that deposit, but only upon payment to the Depositary of the fees and expenses of the Depositary for the delivery of those American Depositary Shares as provided in Section 5.9, and of all taxes and governmental charges and fees payable in connection with that deposit and the transfer of the deposited Shares. However , the Depositary shall deliver only whole numbers of American Depositary Shares.

 

  - 8 -  

 

 

SECTION 2.4.           Registration of Transfer of American Depositary Shares; Combination and Split-up of Receipts; Interchange of Certificated and Uncertificated American Depositary Shares.

 

The Depositary, subject to the terms and conditions of this Deposit Agreement, shall, without unreasonable delay, register a transfer of American Depositary Shares on its transfer books upon (i) in the case of certificated American Depositary Shares, surrender of the Receipt evidencing those American Depositary Shares, by the Owner or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer or (ii) in the case of uncertificated American Depositary Shares, receipt from the Owner of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10), and, in either case, duly stamped as may be required by the laws of the State of New York and of the United States of America. Upon registration of a transfer, the Depositary shall deliver the transferred American Depositary Shares to or upon the order of the person entitled thereto.

 

The Depositary, subject to the terms and conditions of this Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts, execute and deliver a new Receipt or Receipts for any authorized number of American Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.

 

The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificated American Depositary Shares, shall cancel the Receipt evidencing those certificated American Depositary Shares and send the Owner a statement confirming that the Owner is the owner of the same number of uncertificated American Depositary Shares. The Depositary, upon receipt of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10) from the Owner of uncertificated American Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated American Depositary Shares and register and deliver to the Owner a Receipt evidencing the same number of certificated American Depositary Shares.

 

The Depositary may appoint one or more co-transfer agents for the purpose of effecting registration of transfers of American Depositary Shares and combinations and split-ups of Receipts at designated transfer offices on behalf of the Depositary. In carrying out its functions, a co-transfer agent may require evidence of authority and compliance with applicable laws and other requirements by Owners or persons entitled to American Depositary Shares and will be entitled to protection and indemnity to the same extent as the Depositary.

 

  - 9 -  

 

 

SECTION 2.5.           Surrender of American Depositary Shares and Withdrawal of Deposited Securities.

 

Upon surrender at the Depositary’s Office of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby and payment of the fee of the Depositary for the surrender of American Depositary Shares as provided in Section 5.9 and payment of all taxes and governmental charges payable in connection with that surrender and withdrawal of the Deposited Securities, and subject to the terms and conditions of this Deposit Agreement, the Owner of those American Depositary Shares shall be entitled to delivery (to the extent delivery can then be lawfully and practicably made), to or as instructed by that Owner, of the amount of Deposited Securities at the time represented by those American Depositary Shares, but not any money or other property as to which a record date for distribution to Owners has passed. That delivery shall be made, as provided in this Section, without unreasonable delay.

 

As a condition of accepting a surrender of American Depositary Shares for the purpose of withdrawal of Deposited Securities, the Depositary may require (i) that each surrendered Receipt be properly endorsed in blank or accompanied by proper instruments of transfer in blank and (ii) that the surrendering Owner execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be delivered to or upon the written order of a person or persons designated in that order.

 

Thereupon, the Depositary shall, without unreasonable delay, direct the Custodian to deliver, subject to Sections 2.6, 3.1 and 3.2, the other terms and conditions of this Deposit Agreement and applicable laws and regulations and local market practices, to the surrendering Owner or to or upon the written order of the person or persons designated in the order delivered to the Depositary as above provided, the amount of Deposited Securities represented by the surrendered American Depositary Shares.

 

At the request, risk and expense of an Owner surrendering American Depositary Shares for withdrawal of Deposited Securities, and for the account of that Owner, the Depositary shall direct the Custodian to forward any cash or other property comprising, and forward a certificate or certificates, if applicable, and other proper documents of title, if any, for, the Deposited Securities represented by the surrendered American Depositary Shares to the Depositary for delivery at the Depositary’s Office or to another address specified in the order received from the surrendering Owner.

 

The Depositary shall direct the Custodian with respect to the delivery of Deposited Securities and may charge the surrendering Owner a fee and its expenses for doing so.

 

  - 10 -  

 

 

SECTION 2.6.           Limitations on Delivery, Transfer and Surrender of American Depositary Shares.

 

As a condition precedent to the delivery, registration of transfer or surrender of any American Depositary Shares or split-up or combination of any Receipt or withdrawal of any Deposited Securities, the Depositary, Custodian or Registrar may require payment from the depositor of Shares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by a Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees as provided in this Deposit Agreement, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with any regulations the Depositary may establish consistent with the provisions of this Deposit Agreement, including, without limitation, this Section 2.6.

 

The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may be suspended, or the registration of transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer of outstanding American Depositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission, or under any provision of this Deposit Agreement, or for any other reason. Notwithstanding anything to the contrary in this Deposit Agreement, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securities may not be suspended, subject only to (i) temporary delays caused by closing of the transfer books of the Depositary or the Company or the Foreign Registrar, if applicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes and similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American Depositary Shares or to the withdrawal of the Deposited Securities.

 

The Depositary shall not knowingly accept for deposit under this Deposit Agreement any Shares for which the Depositary has received written instructions with respect thereto from the Company that the deposit of such Shares would violate applicable law or regulation, or any Shares that, at the time of deposit, are Restricted Securities.

 

SECTION 2.7.           Lost Receipts, etc.

 

If a Receipt is mutilated, destroyed, lost or stolen, the Depositary shall deliver to the Owner the American Depositary Shares evidenced by that Receipt in uncertificated form or, if requested by the Owner, execute and deliver a new Receipt of like tenor in exchange and substitution for such mutilated Receipt, upon surrender and cancellation of that mutilated Receipt, or in lieu of and in substitution for that destroyed, lost or stolen Receipt. However , before the Depositary will deliver American Depositary Shares in uncertificated form or execute and deliver a new Receipt, in substitution for a destroyed, lost or stolen Receipt, the Owner must (a) file with the Depositary (i) a request for that replacement before the Depositary has notice that the Receipt has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond and (b) satisfy any other reasonable requirements imposed by the Depositary.

 

  - 11 -  

 

 

SECTION 2.8.           Cancellation and Destruction of Surrendered Receipts.

 

The Depositary shall cancel all Receipts surrendered to it and is authorized to destroy Receipts so cancelled. Cancelled Receipts shall not be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose.

 

SECTION 2.9.           Pre-Release of American Depositary Shares.

 

Notwithstanding Section 2.3, unless requested by the Company in writing to cease doing so, the Depositary may deliver American Depositary Shares prior to the receipt of Shares pursuant to Section 2.2 (a “Pre-Release”). The Depositary may, pursuant to Section 2.5, deliver Shares upon the surrender of American Depositary Shares that have been Pre-Released, whether or not that surrender is prior to the termination of that Pre-Release or the Depositary knows that those American Depositary Shares have been Pre-Released. The Depositary may receive American Depositary Shares in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release must be (a) preceded or accompanied by a written representation from the person to whom American Depositary Shares or Shares are to be delivered, that such person, or its customer, owns the Shares or American Depositary Shares to be remitted, as the case may be, (b) at all times fully collateralized with cash or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to all indemnities and credit regulations that the Depositary deems appropriate. The number of American Depositary Shares outstanding at any time as a result of Pre-Release will not normally exceed thirty percent (30%) of all American Depositary Shares outstanding; provided , however , that the Depositary reserves the right to change or disregard that limit from time to time as it deems appropriate.

 

The Depositary may retain for its own account any compensation received by it in connection with Pre-Release.

 

SECTION 2.10.          Maintenance of Records

 

The Depositary agrees to maintain or cause its agents to maintain records of all American Depositary Shares surrendered and Deposited Securities withdrawn under Section 2.5, substitute Receipts delivered under Section 2.7, and of cancelled or destroyed Receipts under Section 2.8, in keeping with procedures ordinarilyordinary followed by stock transfer agents located in the United States or as required by the laws or regulations governing the Depositary.

 

  - 12 -  

 

 

SECTION 2.11.          DTC Direct Registration System and Profile Modification System.

 

(a)          Notwithstanding the provisions of Section 2.4, the parties acknowledge that DTC’s Direct Registration System (“ DRS ”) and Profile Modification System (“ Profile ”) apply to the American Depositary Shares upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC that facilitates interchange between registered holding of uncertificated securities and holding of security entitlements in those securities through DTC and a DTC participant. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of an Owner of American Depositary Shares, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from the Owner to register that transfer.

 

(b)          In connection with DRS/Profile, the parties acknowledge that the Depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an Owner in requesting a registration of transfer and delivery as described in paragraph (a) above has the actual authority to act on behalf of that Owner (notwithstanding any requirements under the Uniform Commercial Code). For the avoidance of doubt, the provisions of Sections 5.3 and 5.8 apply to the matters arising from the use of the DRS/Profile. The parties agree that the Depositary’s reliance on and compliance with instructions received by the Depositary through the DRS/Profile system and otherwise in accordance with this Deposit Agreement shall not constitute negligence or bad faith on the part of the Depositary.

 

ARTICLE 3.          CERTAIN OBLIGATIONS OF OWNERS AND HOLDERS OF AMERICAN DEPOSITARY SHARES

 

SECTION 3.1.           Filing Proofs, Certificates and Other Information.

 

Any person presenting Shares for deposit or any Owner or Holder may be required from time to time to file with the Depositary or the Custodian such proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of the Company or the Foreign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary may deem necessary or proper or as the Company may reasonably request. The Depositary may withhold the delivery or registration of transfer of American Depositary Shares, the distribution of any dividend or other distribution or of the proceeds thereof or the delivery of any Deposited Securities until that proof or other information is filed or those certificates are executed or those representations and warranties are made. Upon the written request and expense of the Company, the Depositary shall, as promptly as practicable, provide to the Company copies or originals, if necessary and appropriate, of any proofs of citizenship or residence, taxpayer status, exchange control approval, information, certificate or other representations and warranties that the Depositary receives under this Section 3.1 from the Owner or Holder or any person presenting Shares for deposit, to the extent that disclosure is permitted under applicable law. Each Owner and Holder agrees to provide any information requested by the Company or the Depositary pursuant to this Section 3.1.Liability of Owner for Taxes.

 

  - 13 -  

 

 

If any tax or other governmental charge shall become payable by the Custodian or the Depositary with respect to or in connection with any American Depositary Shares or any Deposited Securities represented by any American Depositary Shares or in connection with a transaction to which Section 4.8 applies, that tax or other governmental charge shall be payable by the Owner of those American Depositary Shares to the Depositary. The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of Deposited Securities represented by those American Depositary Shares until that payment is made, and may withhold any dividends or other distributions or the proceeds thereof, or may sell for the account of the Owner any part or all of the Deposited Securities represented by those American Depositary Shares and apply those dividends or other distributions or the net proceeds of any sale of that kind in payment of that tax or other governmental charge but , even after a sale of that kind, the Owner of those American Depositary Shares shall remain liable for any deficiency. The Depositary shall distribute any net proceeds of a sale made under this Section that are not used to pay taxes or governmental charges to the Owners entitled to them in accordance with Section 4.1. If the number of Shares represented by each American Depositary Share decreases as a result of a sale of Deposited Securities under this Section, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatory basis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary to avoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them.

 

SECTION 3.2.           Warranties on Deposit of Shares.

 

Every person depositing Shares under this Deposit Agreement shall be deemed thereby to represent and warrant that those Shares and each certificate therefor, if applicable, are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive or similar rights of the holders of outstanding securities of the Company and that the person making that deposit is duly authorized so to do. Every depositing person shall also be deemed to represent that the Shares, at the time of deposit, are not Restricted Securities. All representations and warranties deemed made under this Section shall survive the deposit of Shares and delivery of American Depositary Shares.

 

  - 14 -  

 

 

SECTION 3.3.           Disclosure of Interests.

 

In order to comply with applicable laws and regulations or the articles of association or similar document of the Company, the Company may from time to time request each Owner and Holder to provide to the Depositary information relating to: (a) the capacity in which it holds American Depositary Shares, (b) the identity of any Holders or other persons or entities then or previously interested in those American Depositary Shares and the nature of those interests and (c) any other matter where disclosure of such matter is required for that compliance.   Each Owner and Holder agrees to provide all information known to it in response to a request made pursuant to this Section.  Each Holder consents to the disclosure by the Owner or any other Holder through which it holds American Depositary Shares, directly or indirectly, of all information responsive to a request made pursuant to this Section relating to that Holder that is known to that Owner or other Holder.  The Depositary agrees to use reasonable efforts, at the Company's expense, to comply with written instructions requesting that the Depositary forward any request authorized under this Section to the Owners and to forward to the Company any responses it receives in response to that request.

 

Each Holder and Owner agrees to comply with any applicable law, including in both the United States and Israel, with regard to the notification to the Company of the holding or proposed holding of certain interests in Shares and the obtaining of certain consents, to the same extent as if that Holder or Owner were a registered holder or beneficial owner of Shares. The Depositary is not required to take any action with respect to that compliance on behalf of any Holder or Owner, including the provision of the notification described below.

 

Each Holder and Owner agrees to comply with the provisions of applicable law, including in both the United States and Israel, which may require that persons who hold a direct or indirect interest in 5% or more of the voting securities of the Company (including persons who hold an interest of that kind through the holding of American Depositary Shares) give written notice of their interest and any subsequent changes in their interest to the Company.

 

ARTICLE 4.          THE DEPOSITED SECURITIES

 

SECTION 4.1.           Cash Distributions.

 

Whenever the Depositary receives any cash dividend or other cash distribution on Deposited Securities, the Depositary shall, subject to the provisions of Section 4.5, convert that dividend or other distribution into Dollars and distribute the amount thus received (net of the fees and expenses of the Depositary as provided in Section 5.9) to the Owners entitled thereto; provided , however , that if the Custodian or the Depositary shall be required to withhold and does withhold from that cash dividend or other cash distribution an amount on account of taxes or other governmental charges, the amount distributed to the Owners of the American Depositary Shares representing those Deposited Securities shall be reduced accordingly. However , the Depositary will not pay any Owner a fraction of one cent, but will round each Owner’s entitlement to the nearest whole cent.

 

  - 15 -  

 

 

The Company or its agent will remit to the appropriate governmental agency in each applicable jurisdiction all amounts withheld and owing to such agency. The Depositary will forward to the Company or its agent, at the Company’s expense, such information from its records as the Company may reasonably request to enable the Company or its agent to file necessary reports with governmental agencies. Each Owner and Holder agrees to indemnify the Company, the Depositary, the Custodian and their respective directors, officers, employees, agents and affiliates for, and hold each of them harmless against, any claim by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced withholding at source or other tax benefit received by it. The Depositary shall, to the extent required by U.S. law, report to the Owners any taxes or governmental charges withheld from or paid out of a distribution on Deposited Securities by it, the Custodian or, to the extent such information is received from the Company, by the Company or its agent.

 

If a cash distribution would represent a return of all or substantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a condition of making that cash distribution. A distribution of that kind shall be a Termination Option Event .

 

SECTION 4.2.           Distributions Other Than Cash, Shares or Rights.

 

Subject to the provisions of Sections 4.11 and 5.9, whenever the Depositary receives any distribution other than a distribution described in Section 4.1, 4.3 or 4.4 on Deposited Securities (but not in exchange for or in conversion or in lieu of Deposited Securities), the Depositary shall cause the securities or property received by it to be distributed to the Owners entitled thereto, after deduction or upon payment of any fees and expenses of the Depositary and any taxes or other governmental charges, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively, in any manner that the Depositary deems equitable and practicable for accomplishing that distribution (which may be a distribution of depositary shares representing the securities received); provided , however , that if in the opinion of the Depositary such distribution cannot be made proportionately among the Owners entitled thereto, or if for any other reason (including, but not limited to, any requirement that the Company or the Depositary withhold an amount on account of taxes or other governmental charges or that securities received must be registered under the Securities Act of 1933 in order to be distributed to Owners or Holders) the Depositary deems such distribution not to be lawful and feasible, the Depositary after consultation with the Company to the extent practicable, may adopt such other method as it may deem equitable and practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of the securities or property thus received, or any part thereof, and distribution of the net proceeds of any such sale (net of the fees and expenses of the Depositary as provided in Section 5.9) to the Owners entitled thereto, all in the manner and subject to the conditions set forth in Section 4.1; provided, further, that no distributions to the Owners pursuant to this Section 4.2 shall be unreasonably delayed by any action of the Depositary. To the extent such securities or property or the net proceeds thereof are not distributed to the Owners as provided in this Section 4.2, the same shall constitute Deposited Securities and each American Depositary Share shall thereafter also represent its proportionate interest in such securities, property or net proceeds. The Depositary may withhold any distribution of securities under this Section 4.2 if it has not received satisfactory assurances from the Company that the distribution does not require registration under the Securities Act of 1933. The Depositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute under this Section 4.2 that is sufficient to pay its fees and expenses in respect of that distribution.

 

  - 16 -  

 

 

If a distribution under this Section 4.2 would represent a return of all or substantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a condition of making that distribution. A distribution of that kind shall be a Termination Option Event .

 

SECTION 4.3.           Distributions in Shares.

 

Whenever the Depositary receives any distribution on Deposited Securities consisting of a dividend in, or free distribution of, Shares, the Depositary may, and if so requested by the Company in writing, the Depositary shall, as promptly as practicable, deliver to the Owners entitled thereto, in proportion to the number of American Depositary Shares representing those Deposited Securities held by them respectively, an aggregate number of American Depositary Shares representing the amount of Shares received as that dividend or free distribution, subject to the terms and conditions of the Deposit Agreement with respect to the deposit of Shares and issuance of American Depositary Shares, including withholding of any tax or governmental charge as provided in Section 4.11 and payment of the fees and expenses of the Depositary as provided in Section 5.9 (and the Depositary may sell, by public or private sale, an amount of the Shares received (or American Depositary Shares representing those Shares) sufficient to pay its fees and expenses in respect of that distribution). In lieu of delivering fractional American Depositary Shares, the Depositary may sell the amount of Shares represented by the aggregate of those fractions (or American Depositary Shares representing those Shares) and distribute the net proceeds, all in the manner and subject to the conditions described in Section 4.1. If and to the extent that additional American Depositary Shares are not so delivered and Shares or American Depositary Shares are not sold, each American Depositary Share shall thenceforth also represent the additional Shares distributed on the Deposited Securities represented thereby.

 

  - 17 -  

 

 

If the Company declares a distribution in which holders of Deposited Securities have a right to elect whether to receive cash, Shares or other securities or a combination of those things, or a right to elect to have a distribution sold on their behalf, the Depositary may, after consultation with the Company, make that right of election available for exercise by Owners in any manner the Depositary considers to be lawful and practical. As a condition of making a distribution election right available to Owners, the Depositary may require satisfactory assurances from the Company that doing so does not require registration of any securities under the Securities Act of 1933.

 

SECTION 4.4.           Rights.

 

(a)          If rights are granted to the Depositary in respect of deposited Shares to purchase additional Shares or other securities, the Company and the Depositary shall endeavor to consult as to the actions, if any, the Depositary should take in connection with that grant of rights. The Depositary may, to the extent deemed by it to be lawful and practical (i) if requested in writing by the Company, grant to all or certain Owners rights to instruct the Depositary to purchase the securities to which the rights relate and deliver those securities or American Depositary Shares representing those securities to Owners, (ii) if requested in writing by the Company, deliver the rights to or to the order of certain Owners, or (iii) sell the rights to the extent practicable and distribute the net proceeds of that sale to Owners entitled to those proceeds. To the extent rights are not exercised, delivered or disposed of under (i), (ii) or (iii) above, the Depositary shall permit the rights to lapse unexercised.

 

(b)          If the Depositary will act under (a)(i) above, the Company and the Depositary will enter into a separate agreement setting forth the conditions and procedures applicable to the particular offering. Upon instruction from an applicable Owner in the form the Depositary specified and upon payment by that Owner to the Depositary of an amount equal to the purchase price of the securities to be received upon the exercise of the rights, the Depositary shall, on behalf of that Owner, exercise the rights and purchase the securities. The purchased securities shall be delivered to, or as instructed by, the Depositary. The Depositary shall (i) deposit the purchased Shares under this Deposit Agreement and deliver American Depositary Shares representing those Shares to that Owner or (ii) deliver or cause the purchased Shares or other securities to be delivered to or to the order of that Owner. The Depositary will not act under (a)(i) above unless the offer and sale of the securities to which the rights relate are registered under the Securities Act of 1933 or the Depositary has received satisfactory assurances from the Company that those securities may be sold and delivered to the applicable Owners without registration under the Securities Act of 1933.

 

  - 18 -  

 

 

(c)          If the Depositary will act under (a)(ii) above, the Company and the Depositary will enter into a separate agreement setting forth the conditions and procedures applicable to the particular offering. Upon (i) the request of an applicable Owner to deliver the rights allocable to the American Depositary Shares of that Owner to an account specified by that Owner to which the rights can be delivered and (ii) receipt of such documents as the Company and the Depositary reasonably require to comply with applicable law, the Depositary will deliver those rights as requested by that Owner.

 

(d)          If the Depositary will act under (a)(iii) above, the Depositary will use reasonable efforts to sell the rights in proportion to the number of American Depositary Shares held by the applicable Owners and pay the net proceeds to the Owners otherwise entitled to the rights that were sold, upon an averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date of delivery of any American Depositary Shares or otherwise.

 

(e)          Payment or deduction of the fee of the Depositary as provided in Section 5.9 and payment or deduction of the expenses of the Depositary and any applicable taxes or other governmental charges shall be conditions of any delivery of securities or payment of cash proceeds under this Section 4.4.

 

(f)          Neither thet Depositary nor the Company shall be responsible for any failure to determine that it may be lawful or feasible to make rights available to or exercise rights on behalf of Owners in general or any Owner in particular, or to sell rights.

 

SECTION 4.5.           Conversion of Foreign Currency.

 

Whenever the Depositary or the Custodian receives foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the Depositary be converted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert or cause to be converted by sale or in any other manner that it may determine that foreign currency into Dollars, and those Dollars shall be distributed to the Owners entitled thereto. A cash distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Owners based on exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses of conversion into Dollars incurred by the Depositary as provided in Section 5.9.

 

If a conversion of foreign currency or the repatriation or distribution of Dollars can be effected only with the approval or license of any government or agency thereof, the Depositary may, but will not be required to, file an application for that approval or license. The Company shall have no obligation to make any such filing.

 

  - 19 -  

 

 

If the Depositary determines that in its judgment any foreign currency received by the Depositary or the Custodian is not convertible on a reasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof that is required for such conversion is not filed or sought by the Depositary, or if any required approval or licenseis not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute the foreign currency received by the Depositary to, or in its discretion may hold such foreign currency uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled to receive the same.

 

If any conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto, the Depositary may in its discretion make that conversion and distribution in Dollars to the extent practicable and permissible to the Owners entitled thereto and may distribute the balance of the foreign currency received by the Depositary to, or hold that balance uninvested and without liability for interest thereon for the account of, the Owners entitled thereto.

 

The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account.  The Depositary makes no representation that the exchange rate used or obtained in any currency conversion will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under Section 5.3.

 

SECTION 4.6.           Fixing of Record Date.

 

Whenever a cash dividend, cash distribution or any other distribution is made on Deposited Securities or rights to purchase Shares or other securities are issued with respect to Deposited Securities (which rights will be delivered to or exercised or sold on behalf of Owners in accordance with Section 4.4) or the Depositary receives notice that a distribution or issuance of that kind will be made, or whenever the Depositary receives notice that a meeting of holders of Shares will be held in respect of which the Company has requested the Depositary to send a notice under Section 4.7, or whenever the Depositary will assess a fee or charge against the Owners, or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, as provided in this Deposit Agreement, or whenever the Depositary otherwise finds it necessary or convenient, the Depositary shall fix a record date, which shall be the same as, or as near as practicable to, any corresponding record date set by the Company with respect to Shares, (a) for the determination of the Owners (i) who shall be entitled to receive the benefit of that dividend or other distribution or those rights, (ii) who shall be entitled to give instructions for the exercise of voting rights at that meeting or (iii) who shall be responsible for that fee or charge or (iv) for any other purpose for which the record date was set, or (b) on or after which each American Depositary Share will represent the changed number of Shares. Subject to the provisions of Sections 4.1 through 4.5 and to the other terms and conditions of this Deposit Agreement, the Owners on a record date fixed by the Depositary shall be entitled to receive the amount distributable by the Depositary with respect to that dividend or other distribution or those rights or the net proceeds of sale thereof in proportion to the number of American Depositary Shares held by them respectively, to give voting instructions or to act in respect of the other matter for which that record date was fixed, or be responsible for that fee or charge, as the case may be.

 

  - 20 -  

 

 

SECTION 4.7.           Voting of Deposited Shares.

 

(a)          Upon receipt of notice of any meeting of holders of Shares at which holders of Shares will be entitled to vote, if requested in writing by the Company, the Depositary shall, as soon as practicable thereafter, Disseminate to the Owners a notice, the form of which shall be in the sole discretion of the Depositary, that shall contain (a) the information contained in the notice of meeting received by the Depositary, (b) a statement that the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of Israeli law and of the articles of association or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Shares represented by their respective American Depositary Shares (c) a statement as to the manner in which those instructions may be given and (d) the last date on which the Depositary will accept instructions (the “ Instruction Cutoff Date ”).

 

(b)          Upon the written request of an Owner of American Depositary Shares, as of the date of the request or, if a record date was specified by the Depositary, as of that record date, received on or before any Instruction Cutoff Date established by the Depositary, the Depositary may, and if the Depositary sent a notice under the preceding paragraph shall, endeavor, in so far as practicable, to vote or cause to be voted the amount of deposited Shares represented by those American Depositary Shares in accordance with the instructions set forth in that request. The Depositary shall not vote or attempt to exercise the right to vote that attaches to the deposited Shares other than in accordance with instructions given by Owners and received by the Depositary.

 

(c)          There can be no assurance that Owners generally or any Owner in particular will receive the notice described in paragraph (a) above in time to enable Owners to give instructions to the Depositary prior to the Instruction Cutoff Date.

 

(d)          In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Shares, if the Company will request the Depositary to Disseminate a notice under paragraph (a) above, the Company shall give the Depositary notice of the meeting, details concerning the matters to be voted upon and copies of materials to be made available to holders of Shares in connection with the meeting not less than 30 days prior to the meeting date.

 

  - 21 -  

 

 

SECTION 4.8.           Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities.

 

(a)          The Depositary shall not tender any Deposited Securities in response to any voluntary cash tender offer, exchange offer or similar offer made to holders of Deposited Securities (a “ Voluntary Offer ”), except when instructed in writing to do so by an Owner surrendering American Depositary Shares and subject to any conditions or procedures the Depositary may require.

 

(b)          If the Depositary receives a written notice that Deposited Securities have been redeemed for cash or otherwise purchased for cash in a transaction that is mandatory and binding on the Depositary as a holder of those Deposited Securities (a “ Redemption ”), the Depositary, at the expense of the Company, shall (i) if required, surrender Deposited Securities that have been redeemed to the issuer of those securities or its agent on the redemption date, (ii) Disseminate a notice to Owners (A) notifying them of that Redemption, (B) calling for surrender of a corresponding number of American Depositary Shares and (C) notifying them that the called American Depositary Shares have been converted into a right only to receive the money received by the Depositary upon that Redemption and those net proceeds shall be the Deposited Securities to which Owners of those converted American Depositary Shares shall be entitled upon surrenders of those American Depositary Shares in accordance with Section 2.5 or 6.2 and (iii) distribute the money received upon that Redemption to the Owners entitled to it upon surrender by them of called American Depositary Shares in accordance with Section 2.5 (and, for the avoidance of doubt, Owners shall not be entitled to receive that money under Section 4.1). If the Redemption affects less than all the Deposited Securities, the Depositary shall call for surrender a corresponding portion of the outstanding American Depositary Shares and only those American Depositary Shares will automatically be converted into a right to receive the net proceeds of the Redemption. The Depositary shall allocate the American Depositary Shares converted under the preceding sentence among the Owners pro-rata to their respective holdings of American Depositary Shares immediately prior to the Redemption, except that the allocations may be adjusted so that no fraction of a converted American Depositary Share is allocated to any Owner. A Redemption of all or substantially all of the Deposited Securities shall be a Termination Option Event .

 

(c)          If the Depositary is notified of or there occurs any change in nominal value or any subdivision, combination or any other reclassification of the Deposited Securities or any recapitalization, reorganization, sale of assets substantially as an entirety, merger or consolidation affecting the issuer of the Deposited Securities or to which it is a party that is mandatory and binding on the Depositary as a holder of Deposited Securities and as a result securities or other property have been or will be delivered in exchange, conversion, replacement or in lieu of, Deposited Securities (a “ Replacement ”), then (i) the Depositary shall, if required surrender the old Deposited Securities affected by that Replacement of Shares and hold, as new Deposited Securities under this Deposit Agreement, the new securities or other property delivered to it in that Replacement. However , the Depositary may elect to sell those new Deposited Securities if in the opinion of the Depositary it is not lawful or not practical for it to hold those new Deposited Securities under this Deposit Agreement because those new Deposited Securities may not be distributed to Owners without registration under the Securities Act of 1933 or for any other reason, at public or private sale, at such places and on such terms as it deems proper and proceed as if those new Deposited Securities had been Redeemed under paragraph (b) above. A Replacement shall be a Termination Option Event .

 

  - 22 -  

 

 

(d)          In the case of a Replacement where the new Deposited Securities will continue to be held under this Deposit Agreement, the Depositary may call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing the new Deposited Securities and the number of those new Deposited Securities represented by each American Depositary Share. If the number of Shares represented by each American Depositary Share decreases as a result of a Replacement, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatory basis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary to avoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them.

 

(e)          If there are no Deposited Securities with respect to American Depositary Shares, including if the Deposited Securities are cancelled, or the Deposited Securities with respect to American Depositary Shares have become apparently worthless, the Depositary may call for surrender of those American Depositary Shares or may cancel those American Depositary Shares, upon notice to Owners, and a Termination Option Event occurs.

 

SECTION 4.9.           Reports.

 

The Depositary shall make available for inspection by Owners at its Office any reports and communications, including any proxy solicitation material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of those Deposited Securities by the Company. The Company shall furnish reports and communications, including any proxy soliciting material to which this Section applies, to the Depositary in English, to the extent those materials are required to be translated into English pursuant to any regulations of the Commission.

 

  - 23 -  

 

 

SECTION 4.10.          Lists of Owners.

 

Upon written request by the Company, the Depositary shall, at the expense of the Company, furnish to it a list, as of a recent date, of the names, addresses and American Depositary Share holdings of all Owners.

 

SECTION 4.11.          Withholding.

 

In the event that the Depositary reasonably determines that any distribution received or to be made by the Depositary (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge that the Depositary is obligated to withhold, the Depositary may sell, by public or private sale, all or a portion of the distributed property (including Shares and rights to subscribe therefor) in the amounts and manner the Depositary deems reasonably necessary and practicable to pay those taxes or charges, and the Depositary shall distribute the net proceeds of that sale, after deduction of those taxes or charges, to the Owners entitled thereto in proportion to the number of American Depositary Shares held by them respectively.

 

ARTICLE 5.          THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY

 

SECTION 5.1.           Maintenance of Office and Transfer Books by the Depositary.

 

Until termination of this Deposit Agreement in accordance with its terms, the Depositary shall maintain facilities for the execution and delivery, registration, registration of transfers and surrender of American Depositary Shares in accordance with the provisions of this Deposit Agreement.

 

The Depositary shall keep books for the registration of American Depositary Shares, which shall be open for inspection by the Owners at the Depositary’s Office during regular business hours, provided that such inspection is not for the purpose of communicating with Owners in the interest of a business or object other than the business of the Company or a matter related to this Deposit Agreement or the American Depositary Shares.

 

The Depositary may close the transfer books, at any time or from time to time, when deemed reasonably expedient by it in connection with the performance of its duties under this Deposit Agreement.

 

The Company shall have the right, upon reasonable request and provided the Depositary shall suffer no significant disruption of its normal activities, at all reasonable times, to inspect the transfer and registration records of the Depositary relating to the American Depositary Shares, to make copies thereof and to request the Depositary and the Registrar in writing to supply copies of such portions of such records as the Company may reasonably request and at the Company's expense.

 

  - 24 -  

 

 

If any American Depositary Shares are listed on one or more stock exchanges, the Depositary shall act as Registrar or appoint a Registrar or one or more co-registrars for registry of those American Depositary Shares in accordance with any requirements of that exchange or those exchanges.

 

SECTION 5.2.           Prevention or Delay in Performance by the Depositary or the Company.

 

Neither the Depositary nor the Company nor any of their respective directors, officers, employees, agents or affiliates shall incur any liability to any Owner or Holder (i) if by reason of any provision of any present or future law or regulation or stock exchange of the United States or any other country, or of any governmental or regulatory authority or stock exchange, or by reason of any provision, present or future, of the articles of association or similar document of the Company, or by reason of any provision of any securities issued or distributed by the Company, or any offering or distribution thereof, or by reason of any act of God or war or terrorism or other circumstances beyond its control, the Depositary or the Company is prevented from, forbidden to or delayed in, or could be subject to any civil or criminal penalty on account of, doing or performing, and therefore does not do or perform, any act or thing that, by the terms of this Deposit Agreement or the Deposited Securities, it is provided shall be done or performed, (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement (including any determination by the Depositary or Company to take, or not take, any action that this Deposit Agreement provides the Depositary or Company may take), (iii) for the inability of any Owner or Holder to benefit from any distribution, offering, right or other benefit that is made available to holders of Deposited Securities but is not, under the terms of this Deposit Agreement, made available to Owners or Holders, or (iv) for any special, consequential or punitive damages for any breach of the terms of this Deposit Agreement. Where, by the terms of a distribution to which Section 4.1, 4.2 or 4.3 applies, or an offering to which Section 4.4 applies, or for any other reason, that distribution or offering may not be made available to Owners, and the Depositary may not dispose of that distribution or offering on behalf of Owners and make the net proceeds available to Owners, then the Depositary shall not make that distribution or offering available to Owners, and shall allow any rights, if applicable, to lapse.

 

SECTION 5.3.           Obligations of the Depositary and the Company.

 

The Company assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to any Owner or Holder, except that the Company agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.

 

The Depositary assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to any Owner or Holder (including, without limitation, liability with respect to the validity or worth of the Deposited Securities), except that the Depositary agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.

 

  - 25 -  

 

 

Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of the American Depositary Shares on behalf of any Owner or Holder or any other person.

 

Each of the Depositary and the Company may rely, and shall be protected in relying upon, any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

 

Neither the Depositary nor the Company shall be liable for any action or non-action by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Owner or any other person believed by it in good faith to be competent to give such advice or information.

 

The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.

 

Neither thethe Depositary nor the Company shallbe liable for the acts or omissions of any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of American Depositary Shares or Deposited Securities or otherwise.

 

In the absence of bad faith on its part, the Depositary shall not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote.

 

The Depositary shall have no duty to make any determination or provide any information as to the tax status of the Company or any liability for any tax consequences that may be incurred by Owners or Holders as a result of owning or holding American Depositary Shares.

 

No disclaimer of liability under the Securities Act of 1933 is intended by any provision of this Deposit Agreement.

 

SECTION 5.4.           Resignation and Removal of the Depositary.

 

The Depositary may at any time resign as Depositary hereunder by written notice of its election so to do delivered to the Company, to become effective upon the appointment of a successor depositary and its acceptance of that appointment as provided in this Section. The effect of resignation if a successor depositary is not appointed is provided for in Section 6.2.

 

  - 26 -  

 

 

The Depositary may at any time be removed by the Company by 90 days’ prior written notice of that removal, to become effective upon the later of (i) the90th day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of its appointment as provided in this Section.

 

If the Depositary resigns or is removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, The City of New York. Every successor depositary shall execute and deliver to the Company an instrument in writing accepting its appointment under this Deposit Agreement. If the Depositary receives notice from the Company that a successor depositary has been appointed following its resignation or removal, the Depositary, upon payment of all sums due it from the Company, shall deliver to its successor a register listing all the Owners and their respective holdings of outstanding American Depositary Shares and shall deliver the Deposited Securities to or to the order of its successor. When the Depositary has taken the actions specified in the preceding sentence (i) the successor shall become the Depositary and shall have all the rights and shall assume all the duties of the Depositary under this Deposit Agreement and (ii) the predecessor depositary shall cease to be the Depositary and shall be discharged and released from all obligations under this Deposit Agreement, except for its duties under Section 5.8 with respect to the time before that discharge. A successor Depositary shall notify the Owners of its appointment as soon as practical after assuming the duties of Depositary.

 

Any corporation or other entity into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.

 

SECTION 5.5.           The Custodians.

 

The Custodian shall be subject at all times and in all respects to the directions of the Depositary and shall be responsible solely to it. The Depositary in its discretion may at any time discharge a Custodian or appoint a substitute or additional custodian or custodians, each of which shall thereafter be one of the Custodians under this Deposit Agreement. If the Depositary receives notice that a Custodian is resigning and, upon the effectiveness of that resignation there would be no Custodian acting under this Deposit Agreement, the Depositary shall, as promptly as practicable after receiving that notice, appoint a substitute custodian or custodians, each of which shall thereafter be a Custodian under this Deposit Agreement. The Depositary shall require any Custodian that resigns or is removed to deliver all Deposited Securities held by it to another Custodian. The Depositary shall endeavor to notify the Company of the discharge of the Custodian, or the appointment of a substitute or additional Custodian, as promptly as practicable.

 

  - 27 -  

 

 

SECTION 5.6.           Notices and Reports.

 

On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares, or of any adjourned meeting of those holders, or of the taking of any action in respect of any cash or other distributions or the granting of any rights, the Company agrees to transmit to the Depositary and the Custodian a copy of the notice thereof in English but otherwise in the form given or to be given to holders of Shares.

 

The Company will arrange for the translation into English, if not already in English, to the extent required pursuant to any regulations of the Commission, and the prompt transmittal by the Company to the Depositary and the Custodian of all notices and any other reports and communications which are made generally available by the Company to holders of its Shares. If requested in writing by the Company, the Depositary will Disseminate, at the Company’s expense, those notices, reports and communications to all Owners or otherwise make them available to Owners in a manner that the Company specifies as substantially equivalent to the manner in which those communications are made available to holders of Shares and compliant with applicable law and the requirements of any securities exchange on which the American Depositary Shares are listed. The Company will timely provide the Depositary with the quantity of such notices, reports, and communications, as requested by the Depositary from time to time, in order for the Depositary to effect that Dissemination.

 

The Company represents that as of the date of this Deposit Agreement, the statements in Article 11 of the Receipt with respect to the Company’s obligation to file periodic reports under the United States Securities Exchange Act of 1934, as amended, are true and correct. The Company agrees to promptly notify the Depositary upon becoming aware of any change in the truth of any of those statements.

 

SECTION 5.7.           Distribution of Additional Shares, Rights, etc.

 

If the Company or any affiliate of the Company determines to make any issuance or distribution of (1) additional Shares, (2) rights to subscribe for Shares, (3) securities convertible into Shares, or (4) rights to subscribe for such securities (each a “ Distribution ”), the Company shall notify the Depositary in writing in English as promptly as practicable and in any event before the Distribution starts and, if requested in writing by the Depositary, the Company shall as promptly as practicable furnish to the Depositary either (i) evidence reasonably satisfactory to the Depositary that the Distribution is registered under the Securities Act of 1933 or (ii) a written opinion from U.S. counsel for the Company that is reasonably satisfactory to the Depositary, stating that the Distribution does not require, or, if made in the United States, would not require, registration under the Securities Act of 1933.

 

  - 28 -  

 

 

The Company agrees with the Depositary that neither the Company nor any company controlled by, controlling or under common control with the Company will at any time deposit any Shares that, at the time of deposit, are Restricted Securities.

 

Nothing in this Deposit Agreement shall create any obligation on the part of the Company to file a registration statement under the Securities Act of 1933 with respect to any Distribution. To the extent the Company in its sole discretion deems it necessary or advisable in order to avoid any requirement to register securities under the Securities Act of 1933, it may prevent Owners in the United States from purchasing securities (whether pursuant to preemptive rights or otherwise) and may instruct the Depositary not to accept certain Shares reasonably identified in such instruction for deposit for such period of time following the issuance of such additional securities or to adopt such other specific measures as the Company may reasonably request.

 

SECTION 5.8.           Indemnification.

 

The Company agrees to indemnify the Depositary, its directors, employees, agents and affiliates and each Custodian against, and hold each of them harmless from, any liability or expense (including, but not limited to any fees and expenses incurred in seeking, enforcing or collecting such indemnity and the fees and expenses of counsel) that may arise out of or in connection with (a) any registration with the Commission of American Depositary Shares or Deposited Securities or the offer or sale thereof in the United States, except to the extent the liability or expense arises out of information relating to the Depositary or the Custodian furnished in writing to the Company by the Depositary expressly for use in any registration statement, proxy statement, prospectus (or offering memorandum) or preliminary prospectus (or preliminary offering memorandum) relating to the Shares (it being understood and agreed that the Depositary has not furnished any information of that kind) or (b) acts performed or omitted, pursuant to the provisions of or in connection with this Deposit Agreement and the American Depositary Shares, as the same may be amended, modified or supplemented from time to time, (i) by either the Depositary or a Custodian or their respective directors, employees, agents and affiliates, except for any liability or expense arising out of the negligence or bad faith of either of them, or (ii) by the Company or any of its directors, employees, agents and affiliates.

 

The indemnities contained in the preceding paragraph shall not extend to any liability or expense which arises solely and exclusively out of a Pre-Release (as defined in Section 2.9) of American Depositary Shares in accordance with Section 2.9 and which would not otherwise have arisen had such American Depositary Shares not been the subject of a Pre-Release pursuant to Section 2.9; provided , however , that the indemnities provided in the preceding paragraph shall apply to any such liability or expense (i) to the extent that such liability or expense would have arisen had the American Depositary Shares not been the subject of a Pre-Release, or (ii) which may arise out of any misstatement or alleged misstatement or omission or alleged omission in any registration statement, proxy statement, prospectus (or offering memorandum), or preliminary prospectus (or preliminary offering memorandum) relating to the offer or sale of American Depositary Shares, except to the extent any such liability or expense arises out of (i) information relating to the Depositary or any Custodian (other than the Company), as applicable, furnished in writing by the Depositary expressly for use in any of the foregoing documents, and not materially changed or altered by the Company, or, (ii) if such information is provided, the failure to state a material fact necessary to make the information provided not misleading.

 

  - 29 -  

 

 

The Depositary agrees to indemnify the Company, its directors, officers, employees, agents and affiliates and hold them harmless from any liability or expense(including, but not limited to any fees and expenses incurred in seeking, enforcing or collecting such indemnity and the reasonable fees and expenses of counsel) that may arise out of acts performed or omitted by the Depositary or any Custodian or their respective directors, officers, employees, agents and affiliates due to their negligence or bad faith.

 

If an action, proceeding (including, but not limited to, any governmental investigation), claim or dispute (collectively, a “Proceeding”) in respect of which indemnity may be sought by either party is brought or asserted against the other party, the party seeking indemnification (the “Indemnitee”) shall promptly (and in no event more than ten (10) days after receipt of notice of such Proceeding) notify the party obligated to provide such indemnification (the “Indemnitor”) of such Proceeding. The failure of the Indemnitee to so notify the Indemnitor shall not impair the Indemnitee’s ability to seek indemnification from the Indemnitor (but only for costs, expenses and liabilities incurred after such notice) unless such failure adversely affects the Indemnitor’s ability to adequately oppose or defend such Proceeding. Upon receipt of such notice from the Indemnitee, the Indemnitor shall be entitled to participate in such Proceeding and, to the extent that it shall so desire and provided no conflict of interest exists as specified in subparagraph (b) below or there are no other defenses available to Indemnitee as specified in subparagraph (d) below, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee (in which case all attorney’s fees and expenses shall be borne by the Indemnitor and the Indemnitor shall in good faith defend the Indemnitee). The Indemnitee shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be borne by the Indemnitee unless (a) the Indemnitor agrees in writing to pay such fees and expenses, (b) the Indemnitee shall have reasonably and in good faith concluded that there is a conflict of interest between the Indemnitor and the Indemnitee in the conduct of the defense of such action, (c) the Indemnitor fails, within ten (10) days prior to the date the first response or appearance is required to be made in such Proceeding, to assume the defense of such Proceeding with counsel reasonably satisfactory to the Indemnitee or (d) there are legal defenses available to Indemnitee that are different from or are in addition to those available to the Indemnitor. No compromise or settlement of such Proceeding may be effected by either party without the other party’s consent unless (i) there is no finding or admission of any violation of law and no effect on any other claims that may be made against such other party and (ii) the sole relief provided is monetary damages that are paid in full by the party seeking the settlement. Neither party shall have any liability with respect to any compromise or settlement effected without its consent, which shall not be unreasonably withheld. The Indemnitor shall have no obligation to indemnify and hold harmless the Indemnitee from any loss, expense or liability incurred by the Indemnitee as a result of a default judgment entered against the Indemnitee unless such judgment was entered after the Indemnitor agreed, in writing, to assume the defense of such Proceeding.

 

  - 30 -  

 

 

SECTION 5.9.           Charges of Depositary.

 

The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering American Depositary Shares or to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of American Depositary Shares pursuant to Section 4.3), or by Owners, as applicable: (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar and applicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits or withdrawals hereunder, (3) such cable (including SWIFT) and facsimile transmission fees and expenses as are expressly provided in this Deposit Agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.5, (5) a fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant to Section 2.3, 4.3 or 4.4 and the surrender of American Depositary Shares pursuant to Section 2.5 or 6.2, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) for any cash distribution made pursuant to this Deposit Agreement, including, but not limited to Sections 4.1 through 4.4 and Section 4.8, (7) a fee for the distribution of securities pursuant to Section 4.2 or of rights pursuant to Section 4.4 (where the Depositary will not exercise or sell those rights on behalf of Owners), such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred to above which would have been charged as a result of the deposit of such securities under this Deposit Agreement (for purposes of this item 7 treating all such securities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged under item 6 above, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as provided in item 9 below, and (9) any other charges payable by the Depositary or the Custodian, any of the Depositary's or Custodian’s agents or the agents of the Depositary's or Custodian’s agents, in connection with the servicing of Shares or other Deposited Securities (which charges shall be assessed against Owners as of the date or dates set by the Depositary in accordance with Section 4.6 and shall be payable at the sole discretion of the Depositary by billing those Owners for those charges or by deducting those charges from one or more cash dividends or other cash distributions).

 

  - 31 -  

 

 

The Depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securities to be distributed, to Owners that are obligated to pay those fees.

 

The Depositary, subject to Section 2.9, may own and deal in any class of securities of the Company and its affiliates and in American Depositary Shares.

 

SECTION 5.10.          Retention of Depositary Documents.

 

The Depositary is authorized to destroy those documents, records, bills and other data compiled during the term of this Deposit Agreement at the times permitted by the laws or regulations governing the Depositary.

 

SECTION 5.11.          Exclusivity.

 

Without prejudice to the Company’s rights under Section 5.4, the Company agrees not to appoint any other depositary for issuance of depositary shares, depositary receipts or any similar securities or instruments so long as The Bank of New York Mellon is acting as Depositary under this Deposit Agreement.

 

ARTICLE 6.          AMENDMENT AND TERMINATION

 

SECTION 6.1.           Amendment.

 

The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by written agreement between the Company and the Depositary without the consent of Owners or Holders in any respect that they may deem necessary or desirable. Any amendment that would impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that would otherwise prejudice any substantial existing right of Owners, shall, however, not become effective as to outstanding American Depositary Shares until the expiration of 30 days after notice of that amendment has been Disseminated to the Owners of outstanding American Depositary Shares. Every Owner and Holder, at the time any amendment so becomes effective, shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to that amendment and to be bound by the Deposit Agreement as amended thereby. Upon the effectiveness of an amendment to the form of Receipt, including a change in the number of Shares represented by each American Depositary Share, the Depositary may call for surrender of Receipts to be replaced with new Receipts in the amended form or call for surrender of American Depositary Shares to effect that change of ratio. In no event shall any amendment impair the right of the Owner to surrender American Depositary Shares and receive delivery of the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law.

 

  - 32 -  

 

 

SECTION 6.2.           Termination.

 

(a)          The Company may initiate termination of this Deposit Agreement by notice to the Depositary. The Depositary may initiate termination of this Deposit Agreement if (i) at any time 60 days shall have expired after the Depositary delivered to the Company a written resignation notice and a successor depositary has not been appointed and accepted its appointment as provided in Section 5.4, (ii) an Insolvency Event or Delisting Event occurs with respect to the Company or (iii) a Termination Option Event has occurred or will occur. If termination of this Deposit Agreement is initiated, the Depositary shall Disseminate a notice of termination to the Owners of all American Depositary Shares then outstanding setting a date for termination (the “ Termination Date ”), which shall be at least 90 days after the date of that notice, and this Deposit Agreement shall terminate on that Termination Date.

 

(b)          After the Termination Date, the Company shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary under Sections 5.8 and 5.9.

 

(c)          At any time after the Termination Date, the Depositary may sell the Deposited Securities then held under this Deposit Agreement and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, unsegregated and without liability for interest, for the pro rata benefit of the Owners of American Depositary Shares that remain outstanding, and those Owners will become general creditors of the Depositary with respect to those net proceeds. After making that sale, the Depositary shall be discharged from all obligations under this Deposit Agreement, except (i) to account for the net proceeds and other cash (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges) and (ii) for its obligations under Section 5.8 and (iii) to act as provided in the paragraph (d) below.

 

(d)          After the Termination Date, the Depositary shall continue to receive dividends and other distributions pertaining to Deposited Securities (that have not been sold), may sell rights and other property as provided in this Deposit Agreement and shall deliver Deposited Securities (or sale proceeds) upon surrender of American Depositary Shares (after payment or upon deduction, in each case, of the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of those American Depositary Shares in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges). After the Termination Date, the Depositary shall not accept deposits of Shares or deliver American Depositary Shares. After the Termination Date, (i) the Depositary may refuse to accept surrenders of American Depositary Shares for the purpose of withdrawal of Deposited Securities (that have not been sold) if in its reasonable judgment the requested withdrawal would interfere with its efforts to sell the Deposited Securities, (ii) the Depositary will not be required to deliver cash proceeds of the sale of Deposited Securities until all Deposited Securities have been sold and (iii) the Depositary may discontinue the registration of transfers of American Depositary Shares and suspend the distribution of dividends and other distributions on Deposited Securities to the Owners and need not give any further notices or perform any further acts under this Deposit Agreement except as provided in this Section.

 

  - 33 -  

 

 

ARTICLE 7.          MISCELLANEOUS

 

SECTION 7.1.           Counterparts; Signatures.

 

This Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of those counterparts shall constitute one and the same instrument. Copies of this Deposit Agreement shall be filed with the Depositary and the Custodians and shall be open to inspection by any Owner or Holder during regular business hours.

 

Any manual signature on this Deposit Agreement that is faxed, scanned or photocopied, and any electronic signature valid under the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001, et. seq ., shall for all purposes have the same validity, legal effect and admissibility in evidence as an original manual signature, and the parties hereby waive any objection to the contrary.

 

SECTION 7.2.           No Third Party Beneficiaries.

 

This Deposit Agreement is for the exclusive benefit of the parties to this Deposit Agreement and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person.

 

SECTION 7.3.           Severability.

 

In case any one or more of the provisions contained in this Deposit Agreement or in a Receipt should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Deposit Agreement or that Receipt shall in no way be affected, prejudiced or disturbed thereby.

 

SECTION 7.4.           Owners and Holders as Parties; Binding Effect.

 

The Owners and Holders from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms and conditions of this Deposit Agreement and of the Receipts by acceptance of American Depositary Shares or any interest therein.

 

  - 34 -  

 

 

SECTION 7.5.           Notices.

 

Any and all notices to be given to the Company shall be in writing and shall be deemed to have been duly given if personally delivered or sent by domestic first class or international air mail or air courier or sent by facsimile transmission or email attaching a pdf or similar bit-mapped image of a signed writing, provided that receipt of the facsimile transmission or email has been confirmed by the recipient, addressed to Kitov Pharmaceuticals Holdings Ltd., One Azrieli Center, Round Building, Tel Aviv, 6701101, Israel, Attention: Chief Financial Officer, or any other place to which the Company may have transferred its principal office with notice to the Depositary.

 

Any and all notices to be given to the Depositary shall be in writing and shall be deemed to have been duly given if in English and personally delivered or sent by first class domestic or international air mail or air courier or sent by facsimile transmission or email attaching a pdf or similar bit-mapped image of a signed writing, addressed to The Bank of New York Mellon, 101 Barclay Street, New York, New York 10286, Attention: Depositary Receipt Administration, or any other place to which the Depositary may have transferred its Office with notice to the Company.

 

Delivery of a notice to the Company or Depositary by mail or air courier shall be deemed effected when deposited, postage prepaid, in a post-office letter box or received by an air courier service. Delivery of a notice to the Company or Depositary sent by facsimile transmission or email shall be deemed effected when the recipient acknowledges receipt of that notice.

 

A notice to be given to an Owner shall be deemed to have been duly given when Disseminated to that Owner. Dissemination in paper form will be effective when personally delivered or sent by first class domestic or international air mail or air courier, addressed to that Owner at the address of that Owner as it appears on the transfer books for American Depositary Shares of the Depositary, or, if that Owner has filed with the Depositary a written request that notices intended for that Owner be mailed to some other address, at the address designated in that request. Dissemination in electronic form will be effective when sent in the manner consented to by the Owner to the electronic address most recently provided by the Owner for that purpose.

 

SECTION 7.6.           Appointment of Agent for Service of Process; Submission to Jurisdiction; Jury Trial Waiver.

 

The Company hereby (i) designates and appoints the person named in Exhibit A to this Deposit Agreement, located in the United States, as the Company's authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Shares or Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement (a “Proceeding”), (ii) consents and submits to the jurisdiction of any state or federal court in the State of New York in which any Proceeding may be instituted and (iii) agrees that service of process upon that authorized agent shall be deemed in every respect effective service of process upon the Company in any Proceeding. The Company agrees to deliver to the Depositary, upon the execution and delivery of this Deposit Agreement, a written acceptance by that authorized agent of its appointment as process agent. The Company further agrees to take any and all action, including the filing of any and all such documents and instruments, as may be necessary to continue that designation and appointment in full force and effect, or to appoint and maintain the appointment of another process agent located in the United States as required above, and to deliver to the Depositary a written acceptance by that agent of that appointment, for so long as any American Depositary Shares or Receipts remain outstanding or this Deposit Agreement remains in force. In the event the Company fails to maintain the designation and appointment of a process agent in the United States in full force and effect, the Company hereby waives personal service of process upon it and consents that a service of process in connection with a Proceeding may be made by certified or registered mail, return receipt requested, directed to the Company at its address last specified for notices under this Deposit Agreement, and service so made shall be deemed completed five (5) days after the same shall have been so mailed.

 

  - 35 -  

 

 

EACH PARTY TO THIS DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THE RECEIPTS, THIS DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF, INCLUDING, WITHOUT LIMITATION, ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

 

SECTION 7.7.           Waiver of Immunities.

 

To the extent that the Company or any of its properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Shares or Deposited Securities, the American Depositary Shares, the Receipts or this Deposit Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any immunity of that kind and consents to relief and enforcement as provided above.

 

  - 36 -  

 

 

SECTION 7.8.           Governing Law.

 

This Deposit Agreement and the Receipts shall be interpreted in accordance with and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by the laws of the State of New York, except with respect to its authorization and execution by the Company, which shall be governed by the laws of the State of Israel.

 

  - 37 -  

 

 

IN WITNESS WHEREOF, KITOV PHARMACEUTICALS HOLDINGS LTD and THE BANK OF NEW YORK MELLON have duly executed this Deposit Agreement as of the day and year first set forth above and all Owners and Holders shall become parties hereto upon acceptance by them of American Depositary Shares or any interest therein.

 

  KITOV PHARMACEUTICALS
  HOLDINGS LTD
     
  By:  
  Name:
  Title:
   
  THE BANK OF NEW YORK MELLON,
     as Depositary
     
  By:  
  Name:
  Title:

 

  - 38 -  

 

 

EXHIBIT A

 

AMERICAN DEPOSITARY SHARES

(Each American Depositary Share represents

twenty (20) deposited Shares)

 

THE BANK OF NEW YORK MELLON

AMERICAN DEPOSITARY RECEIPT

FOR ORDINARY SHARES OF

KITOV PHARMACEUTICALS HOLDINGS LTD

(INCORPORATED UNDER THE LAWS OF THE STATE OF ISRAEL)

 

The Bank of New York Mellon, as depositary (hereinafter called the “Depositary”), hereby certifies that_________________________________________, or registered assigns IS THE OWNER OF _____________________________

 

AMERICAN DEPOSITARY SHARES

 

representing deposited ordinary shares (herein called “Shares”) of Kitov Pharmaceuticals Holdings Ltd, incorporated under the laws of the State of Israel (herein called the “ Company ”). At the date hereof, each American Depositary Share represents twenty (20) Shares deposited or subject to deposit under the Deposit Agreement (as such term is hereinafter defined) with a custodian for the Depositary (herein called the “ Custodian ”) that, as of the date of the Deposit Agreement, was Bank Hapoalim or Bank Leumi located in Israel. The Depositary's Office is located at a different address than its principal executive office. Its Office is located at 101 Barclay Street, New York, N.Y. 10286, and its principal executive office is located at One Wall Street, New York, N.Y. 10286.

 

THE DEPOSITARY'S OFFICE ADDRESS IS

101 BARCLAY STREET, NEW YORK, N.Y. 10286

 

1.           THE DEPOSIT AGREEMENT.

 

This American Depositary Receipt is one of an issue (herein called “ Receipts ”), all issued and to be issued upon the terms and conditions set forth in the deposit agreement dated as of _______, 2015 (herein called the “ Deposit Agreement ”) among the Company, the Depositary, and all Owners and Holders from time to time of American Depositary Shares issued thereunder, each of whom by accepting American Depositary Shares agrees to become a party thereto and become bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights of Owners and Holders and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time received in respect of those Shares and held thereunder (those Shares, securities, property, and cash are herein called “ Deposited Securities ”). Copies of the Deposit Agreement are on file at the Depositary's Office in New York City and at the office of the Custodian.

 

 

 

 

The statements made on the face and reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and are qualified by and subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made. Capitalized terms defined in the Deposit Agreement and not defined herein shall have the meanings set forth in the Deposit Agreement.

 

2.           SURRENDER OF AMERICAN DEPOSITARY SHARES AND WITHDRAWAL OF DEPOSITED SECURITIES.

 

Upon surrender at the Depositary’s Office of American Depositary Shares for the purpose of withdrawal of the Deposited Securities represented thereby and payment of the fee of the Depositary for the surrender of American Depositary Shares as provided in Section 5.9 of the Deposit Agreement and payment of all taxes and governmental charges payable in connection with that surrender and withdrawal of the Deposited Securities, and subject to the terms and conditions of the Deposit Agreement, the Owner of those American Depositary Shares shall be entitled to delivery (to the extent delivery can then be lawfully and practicably made), to or as instructed by that Owner, of the amount of Deposited Securities at the time represented by those American Depositary Shares, but not any money or other property as to which a record date for distribution to Owners has passed. The Depositary shall direct the Custodian with respect to delivery of Deposited Securities and may charge the surrendering Owner a fee and its expenses for doing so. That delivery will be made, at the office of the Custodian, except that , at the request, risk and expense of the surrendering Owner, and for the account of that Owner, the Depositary shall direct the Custodian to forward any cash or other property comprising, and forward a certificate or certificates, if applicable, and other proper documents of title, if any, for, the Deposited Securities represented by the surrendered American Depositary Shares to the Depositary for delivery at the Depositary’s Office or to another address specified in the order received from the surrendering Owner.

 

3.           REGISTRATION OF TRANSFER OF AMERICAN DEPOSITARY SHARES; COMBINATION AND SPLIT-UP OF RECEIPTS; INTERCHANGE OF CERTIFICATED AND UNCERTIFICATED AMERICAN DEPOSITARY SHARES.

 

The Depositary, subject to the terms and conditions of the Deposit Agreement, shall, without unreasonable delay, register a transfer of American Depositary Shares on its transfer books upon (i) in the case of certificated American Depositary Shares, surrender of the Receipt evidencing those American Depositary Shares, by the Owner or by a duly authorized attorney, properly endorsed or accompanied by proper instruments of transfer or (ii) in the case of uncertificated American Depositary Shares, receipt from the Owner of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10 of the Deposit Agreement), and, in either case, duly stamped as may be required by the laws of the State of New York and of the United States of America. Upon registration of a transfer, the Depositary shall deliver the transferred American Depositary Shares to or upon the order of the person entitled thereto.

 

  A- 2  

 

 

The Depositary, subject to the terms and conditions of the Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts, execute and deliver a new Receipt or Receipts for any authorized number of American Depositary Shares requested, evidencing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered.

 

The Depositary, upon surrender of certificated American Depositary Shares for the purpose of exchanging for uncertificated American Depositary Shares, shall cancel the Receipt evidencing those certificated American Depositary Shares and send the Owner a statement confirming that the Owner is the owner of the same number of uncertificated American Depositary Shares. The Depositary, upon receipt of a proper instruction (including, for the avoidance of doubt, instructions through DRS and Profile as provided in Section 2.10 of the Deposit Agreement) from the Owner of uncertificated American Depositary Shares for the purpose of exchanging for certificated American Depositary Shares, shall cancel those uncertificated American Depositary Shares and register and deliver to the Owner a Receipt evidencing the same number of certificated American Depositary Shares.

 

As a condition precedent to the delivery, registration of transfer, or surrender of any American Depositary Shares or split-up or combination of any Receipt or withdrawal of any Deposited Securities, the Depositary, the Custodian, or Registrar may require payment from the depositor of the Shares or the presenter of the Receipt or instruction for registration of transfer or surrender of American Depositary Shares not evidenced by a Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees as provided in the Deposit Agreement, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with any regulations the Depositary may establish consistent with the provisions of the Deposit Agreement.

 

The delivery of American Depositary Shares against deposit of Shares generally or against deposit of particular Shares may be suspended, or the registration of transfer of American Depositary Shares in particular instances may be refused, or the registration of transfer of outstanding American Depositary Shares generally may be suspended, during any period when the transfer books of the Depositary are closed, or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of any requirement of law or of any government or governmental body or commission, or under any provision of the Deposit Agreement, or for any other reason. Notwithstanding anything to the contrary in the Deposit Agreement or this Receipt, the surrender of outstanding American Depositary Shares and withdrawal of Deposited Securities may not be suspended subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the Foreign Registrar, if applicable, or the deposit of Shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes and similar charges, and (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the American Depositary Shares or to the withdrawal of the Deposited Securities. The Depositary shall not knowingly accept for deposit under the Deposit Agreement any Shares for which the Depository has received written instructions with respect thereto from the Company that the deposit of such Shares would violate applicable law or regulation, or any Shares that, at the time of deposit, are Restricted Securities.

 

  A- 3  

 

 

4.           LIABILITY OF OWNER FOR TAXES.

 

If any tax or other governmental charge shall become payable by the Custodian or the Depositary with respect to or in connection with any American Depositary Shares or any Deposited Securities represented by any American Depositary Shares or in connection with a transaction to which Section 4.8 of the Deposit Agreement applies, that tax or other governmental charge shall be payable by the Owner of those American Depositary Shares to the Depositary. The Depositary may refuse to register any transfer of those American Depositary Shares or any withdrawal of Deposited Securities represented by those American Depositary Shares until that payment is made, and may withhold any dividends or other distributions or the proceeds thereof, or may sell for the account of the Owner any part or all of the Deposited Securities represented by those American Depositary Shares, and may apply those dividends or other distributions or the net proceeds of any sale of that kind in payment of that tax or other governmental charge but, even after a sale of that kind, the Owner shall remain liable for any deficiency. The Depositary shall distribute any net proceeds of a sale made under Section 3.2 of the Deposit Agreement that are not used to pay taxes or governmental charges to the Owners entitled to them in accordance with Section 4.1 of the Deposit Agreement. If the number of Shares represented by each American Depositary Share decreases as a result of a sale of Deposited Securities under Section 3.2 of the Deposit Agreement, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatory basis for a lesser number of American Depositary Shares and may sell American Depositary Shares to the extent necessary to avoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them.

 

  A- 4  

 

 

5.           WARRANTIES ON DEPOSIT OF SHARES.

 

Every person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant, that those Shares and each certificate therefor, if applicable, are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive or similar rights of the holders of outstanding securities of the Company and that the person making that deposit is duly authorized so to do. Every depositing person shall also be deemed to represent that the Shares, at the time of deposit, are not Restricted Securities. All representations and warranties deemed made under Section 3.3 of the Deposit Agreement shall survive the deposit of Shares and delivery of American Depositary Shares.

 

6.           FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.

 

Any person presenting Shares for deposit or any Owner or Holder may be required from time to time to file with the Depositary or the Custodian such proof of citizenship or residence, exchange control approval, or such information relating to the registration on the books of the Company or the Foreign Registrar, if applicable, to execute such certificates and to make such representations and warranties, as the Depositary may deem necessary or proper or as the Company may reasonable request. The Depositary may withhold the delivery or registration of transfer of any American Depositary Shares, the distribution of any dividend or other distribution or of the proceeds thereof or the delivery of any Deposited Securities until that proof or other information is filed or those certificates are executed or those representations and warranties are made. Each Owner and Holder agrees to provide any information requested by the Company or the Depositary pursuant to this Article 6. As conditions of accepting Shares for deposit, the Depositary may require (i) any certification required by the Depositary or the Custodian in accordance with the provisions of the Deposit Agreement, (ii) a written order directing the Depositary to deliver to, or upon the written order of, the person or persons stated in that order, the number of American Depositary Shares representing those deposited Shares (iii) evidence satisfactory to the Depositary that those Shares have been re-registered in the books of the Company or the Foreign Registrar in the name of the Depositary, a Custodian or a nominee of the Depositary or a Custodian, (iv) evidence satisfactory to the Depositary that any necessary approval has been granted by any governmental body in each applicable jurisdiction and (v) an agreement or assignment, or other instrument satisfactory to the Depositary, that provides for the prompt transfer to the Custodian of any dividend, or right to subscribe for additional Shares or to receive other property, that any person in whose name those Shares are or have been recorded may thereafter receive upon or in respect of those Shares, or, in lieu thereof, such agreement of indemnity or other agreement as shall be satisfactory to the Depositary.

 

  A- 5  

 

 

7.           CHARGES OF DEPOSITARY.

 

The following charges shall be incurred by any party depositing or withdrawing Shares or by any party surrendering American Depositary Shares or to whom American Depositary Shares are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the American Depositary Shares or Deposited Securities or a delivery of American Depositary Shares pursuant to Section 4.3 of the Deposit Agreement), or by Owners, as applicable: (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of Shares generally on the Share register of the Company or Foreign Registrar and applicable to transfers of Shares to or from the name of the Depositary or its nominee or the Custodian or its nominee on the making of deposits or withdrawals hereunder, (3) such cable (including SWIFT) and facsimile transmission fees and expenses as are expressly provided in the Deposit Agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency pursuant to Section 4.5 of the Deposit Agreement, (5) a fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for the delivery of American Depositary Shares pursuant to Section 2.3, 4.3 or 4.4 of the Deposit Agreement and the surrender of American Depositary Shares pursuant to Section 2.5 or 6.2 of the Deposit Agreement, (6) a fee of $.05 or less per American Depositary Share (or portion thereof) for any cash distribution made pursuant to the Deposit Agreement, including, but not limited to Sections 4.1 through 4.4 and 4.8 of the Deposit Agreement, (7) a fee for the distribution of securities pursuant to Section 4.2 of the Deposit Agreement or of rights pursuant to Section 4.4 of that Agreement (where the Depositary will not exercise or sell those rights on behalf of Owners), such fee being in an amount equal to the fee for the execution and delivery of American Depositary Shares referred to above which would have been charged as a result of the deposit of such securities under the Deposit Agreement (for purposes of this item 7 treating all such securities as if they were Shares) but which securities are instead distributed by the Depositary to Owners, (8) in addition to any fee charged under item 6, a fee of $.05 or less per American Depositary Share (or portion thereof) per annum for depositary services, which will be payable as provided in item 9 below, and (9) any other charges payable by the Depositary or the Custodian, any of the Depositary's or Custodian’s agents or the agents of the Depositary's or Custodian’s agents, in connection with the servicing of Shares or other Deposited Securities (which charges shall be assessed against Owners as of the date or dates set by the Depositary in accordance with Section 4.6 of the Deposit Agreement and shall be payable at the sole discretion of the Depositary by billing those Owners for those charges or by deducting those charges from one or more cash dividends or other cash distributions).

 

The Depositary may collect any of its fees by deduction from any cash distribution payable, or by selling a portion of any securities to be distributed, to Owners that are obligated to pay those fees.

 

The Depositary, subject to Article 8 hereof, may own and deal in any class of securities of the Company and its affiliates and in American Depositary Shares.

 

  A- 6  

 

 

From time to time, the Depositary may make payments to the Company to reimburse the Company for costs and expenses generally arising out of establishment and maintenance of the American Depositary Shares program, waive fees and expenses for services provided by the Depositary or share revenue from the fees collected from Owners or Holders. In performing its duties under the Deposit Agreement, the Depositary may use brokers, dealers or other service providers that are affiliates of the Depositary and that may earn or share fees and commissions.

 

8.           PRE-RELEASE OF AMERICAN DEPOSITARY SHARES.

 

Notwithstanding Section 2.3 of the Deposit Agreement, unless requested by the Company in writing to cease doing so, the Depositary may deliver American Depositary Shares prior to the receipt of Shares pursuant to Section 2.2 of the Deposit Agreement (a “Pre-Release”). The Depositary may, pursuant to Section 2.5 of the Deposit Agreement, deliver Shares upon the surrender of American Depositary Shares that have been Pre-Released, whether or not that surrender is prior to the termination of that Pre-Release or the Depositary knows that those American Depositary Shares have been Pre-Released. The Depositary may receive American Depositary Shares in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release must be (a) preceded or accompanied by a written representation from the person to whom American Depositary Shares or Shares are to be delivered, that such person, or its customer, owns the Shares or American Depositary Shares to be remitted, as the case may be, (b) at all times fully collateralized with cash or such other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to all indemnities and credit regulations that the Depositary deems appropriate. The number of American Depositary Shares outstanding at any time as a result of Pre-Release will not normally exceed thirty percent (30%) of all American Depositary Shares outstanding; provided , however , that the Depositary reserves the right to change or disregard that limit from time to time as it deems appropriate.

 

The Depositary may retain for its own account any compensation received by it in connection with Pre-Release.

 

9.           TITLE TO AMERICAN DEPOSITARY SHARES.

 

It is a condition of the American Depositary Shares, and every successive Owner and Holder of American Depositary Shares, by accepting or holding the same consents and agrees that American Depositary Shares evidenced by a Receipt, when the Receipt is properly endorsed or accompanied by proper instruments of transfer, shall be transferable as certificated registered securities under the laws of the State of New York, and that American Depositary Shares not evidenced by Receipts shall be transferable as uncertificated registered securities under the laws of the State of New York. The Depositary and the Company, notwithstanding any notice to the contrary, may treat the Owner of American Depositary Shares as the absolute owner thereof for the purpose of determining the person entitled to distribution of dividends or other distributions or to any notice provided for in the Deposit Agreement and for all other purposes, and neither the Depositary nor the Company shall have any obligation or be subject to any liability under the Deposit Agreement to any Holder of American Depositary Shares, but only to the Owner.

 

  A- 7  

 

 

10.          VALIDITY OF RECEIPT.

 

This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or obligatory for any purpose, unless this Receipt shall have been (i) executed by the Depositary by the manual signature of a duly authorized officer of the Depositary or (ii) executed by the facsimile signature of a duly authorized officer of the Depositary and countersigned by the manual signature of a duly authorized signatory of the Depositary or the Registrar or a co-registrar.

 

11.          REPORTS; INSPECTION OF TRANSFER BOOKS.

 

The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and, accordingly, files certain reports with the Securities and Exchange Commission. Those reports will be available for inspection and copying through the Commission's EDGAR system or at public reference facilities maintained by the Commission in Washington, D.C.

 

The Depositary will make available for inspection by Owners at its Office any reports, notices and other communications, including any proxy soliciting material, received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of those Deposited Securities by the Company. If requested in writing by the Company, the Depositary will Disseminate, at the Company’s expense, those notices, reports and communications to all Owners or otherwise make them available to Owners in a manner that the Company specifies as substantially equivalent to the manner in which those communications are made available to holders of Shares and compliant with applicable law and the requirements of any securities exchange on which the American Depositary Shares are listed. The Company shall furnish reports and communications, including any proxy soliciting material to which Section 4.9 of the Deposit Agreement applies, to the Depositary in English, to the extent such materials are required to be translated into English pursuant to any regulations of the Commission.

 

The Depositary will keep books for the registration of American Depositary Shares and transfers of American Depositary Shares, which shall be open for inspection by the Owners at the Depositary’s Office during regular business hours, provided that such inspection shall not be for the purpose of communicating with Owners in the interest of a business or object other than the business of the Company or a matter related to the Deposit Agreement or the American Depositary Shares.

 

  A- 8  

 

 

12.          DIVIDENDS AND DISTRIBUTIONS.

 

Whenever the Depositary receives any cash dividend or other cash distribution on Deposited Securities, the Depositary will, if at the time of receipt thereof any amounts received in a foreign currency can in the judgment of the Depositary be converted on a reasonable basis into Dollars transferable to the United States, and subject to the Deposit Agreement, convert that dividend or other cash distribution into Dollars and distribute the amount thus received (net of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement) to the Owners entitled thereto; provided , however , that if the Custodian or the Depositary is required to withhold and does withhold from that cash dividend or other cash distribution an amount on account of taxes or other governmental charges, the amount distributed to the Owners of the American Depositary Shares representing those Deposited Securities shall be reduced accordingly. However, the Depositary will not pay any Owner a fraction of one cent, but will round each Owner’s entitlement to the nearest whole cent. If a cash distribution would represent a return of all or substantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a condition of making that cash distribution. A distribution of that kind shall be a Termination Option Event .

 

Subject to the provisions of Section 4.11 and 5.9 of the Deposit Agreement, whenever the Depositary receives any distribution other than a distribution described in Section 4.1, 4.3 or 4.4 of the Deposit Agreement on Deposited Securities (but not in exchange for or in conversion or in lieu of Deposited Securities), the Depositary will cause the securities or property received by it to be distributed to the Owners entitled thereto, after deduction or upon payment of any fees and expenses of the Depositary and any taxes or other governmental charges, in any manner that the Depositary deems equitable and practicable for accomplishing that distribution (which may be a distribution of depositary shares representing the securities received); provided , however , that if in the opinion of the Depositary such distribution cannot be made proportionately among the Owners of Receipts entitled thereto, or if for any other reason the Depositary deems such distribution not to be lawful and feasible, the Depositary, after consultation with the Company to the extent practicable, may adopt such other method as it may deem equitable and practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of the securities or property thus received, or any part thereof, and distribution of the net proceeds of any such sale (net of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement) to the Owners entitled thereto all in the manner and subject to the conditions set forth in Section 4.1 of the Deposit Agreement; provided, further that no distribution to the Owners pursuant to Section 4.2 of the Deposit Agreement shall be unreasonably delayed by any action of the Depository. To the extent such securities or property or the net proceeds thereof are not distributed to the Owners as provided in Section 4.2 of the Deposit Agreement, the same shall constitute Deposited Securities and each American Depository Share shall thereafter also represent its proportionate interest in such securities, property or net proceeds. The Depositary may withhold any distribution of securities under Section 4.2 of the Deposit Agreement if it has not received satisfactory assurances from the Company that the distribution does not require registration under the Securities Act of 1933. The Depositary may sell, by public or private sale, an amount of securities or other property it would otherwise distribute under this Article that is sufficient to pay its fees and expenses in respect of that distribution. If a distribution under Section 4.2 of the Deposit Agreement would represent a return of all or substantially all the value of the Deposited Securities underlying American Depositary Shares, the Depositary may require surrender of those American Depositary Shares and may require payment of or deduct the fee for surrender of American Depositary Shares (whether or not it is also requiring surrender of American Depositary Shares) as a condition of making that distribution. A distribution of that kind shall be a Termination Option Event .

 

  A- 9  

 

 

Whenever the Depositary receives any distribution consisting of a dividend in, or free distribution of, Shares, the Depositary may, and if so requested by the Company in writing, the Depository shall, as promptly as practicable deliver to the Owners entitled thereto, an aggregate number of American Depositary Shares representing the amount of Shares received as that dividend or free distribution, subject to the terms and conditions of the Deposit Agreement with respect to the deposit of Shares and issuance of American Depositary Shares, including the withholding of any tax or other governmental charge as provided in Section 4.11 of the Deposit Agreement and the payment of the fees and expenses of the Depositary as provided in Article 7 hereof and Section 5.9 of the Deposit Agreement (and the Depositary may sell, by public or private sale, an amount of Shares received (or American Depositary Shares representing those Shares) sufficient to pay its fees and expenses in respect of that distribution). In lieu of delivering fractional American Depositary Shares, the Depositary may sell the amount of Shares represented by the aggregate of those fractions (or American Depositary Shares representing those Shares) and distribute the net proceeds, all in the manner and subject to the conditions described in Section 4.1of the Deposit Agreement. If and to the extent that additional American Depositary Shares are not so delivered and Shares or American Depositary Shares are not sold, each American Depositary Share shall thenceforth also represent the additional Shares distributed on the Deposited Securities represented thereby.

 

If the Company declares a distribution in which holders of Deposited Securities have a right to elect whether to receive cash, Shares or other securities or a combination of those things, or a right to elect to have a distribution sold on their behalf, the Depositary may, after consultation with the Company, make that right of election available for exercise by Owners any manner the Depositary considers to be lawful and practical. As a condition of making a distribution election right available to Owners, the Depositary may require satisfactory assurances from the Company that doing so does not require registration of any securities under the Securities Act of 1933.

 

  A- 10  

 

 

In the event that the Depositary reasonably determines that any distribution received or to be made by the Depositary (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charge that the Depositary is obligated to withhold, the Depositary may sell, by public or private sale, all or a portion of the distributed property (including Shares and rights to subscribe therefor) in the amounts and manner the Depositary deems reasonably necessary and practicable to pay any those taxes or charges, and the Depositary shall distribute the net proceeds of that sale, after deduction of those taxes or charges, to the Owners entitled thereto in proportion to the number of American Depositary Shares held by them respectively.

 

Each Owner and Holder agrees to indemnify the Company, the Depositary, the Custodian and their respective directors, officers, employees, agents and affiliates for, and hold each of them harmless against, any claim by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced withholding at source or other tax benefit received by it. The Depositary shall, to the extent required by U.S. law, report to the Owners any taxes or governmental charges withheld from or paid out of a distribution on Deposited Securities by it, the Custodian or, to the extent such information is received from the Company, by the Company or its agent.

 

13.         RIGHTS.

 

(a)          If rights are granted to the Depositary in respect of deposited Shares to purchase additional Shares or other securities, the Company and the Depositary shall endeavor to consult as to the actions, if any, the Depositary should take in connection with that grant of rights. The Depositary may, to the extent deemed by it to be lawful and practical (i) if requested in writing by the Company, grant to all or certain Owners rights to instruct the Depositary to purchase the securities to which the rights relate and deliver those securities or American Depositary Shares representing those securities to Owners, (ii) if requested in writing by the Company, deliver the rights to or to the order of certain Owners, or (iii) sell the rights to the extent practicable and distribute the net proceeds of that sale to Owners entitled to those proceeds. To the extent rights are not exercised, delivered or disposed of under (i), (ii) or (iii) above, the Depositary shall permit the rights to lapse unexercised.

 

(b)          If the Depositary will act under (a)(i) above, the Company and the Depositary will enter into a separate agreement setting forth the conditions and procedures applicable to the particular offering. Upon instruction from an applicable Owner in the form the Depositary specified and upon payment by that Owner to the Depositary of an amount equal to the purchase price of the securities to be received upon the exercise of the rights, the Depositary shall, on behalf of that Owner, exercise the rights and purchase the securities. The purchased securities shall be delivered to, or as instructed by, the Depositary. The Depositary shall (i) deposit the purchased Shares under the Deposit Agreement and deliver American Depositary Shares representing those Shares to that Owner or (ii) deliver or cause the purchased Shares or other securities to be delivered to or to the order of that Owner. The Depositary will not act under (a)(i) above unless the offer and sale of the securities to which the rights relate are registered under the Securities Act of 1933 or the Depositary has received satisfactory assurances from the Company that those securities may be sold and delivered to the applicable Owners without registration under the Securities Act of 1933.

 

  A- 11  

 

 

(c)          If the Depositary will act under (a)(ii) above, the Company and the Depositary will enter into a separate agreement setting forth the conditions and procedures applicable to the particular offering. Upon (i) the request of an applicable Owner to deliver the rights allocable to the American Depositary Shares of that Owner to an account specified by that Owner to which the rights can be delivered and (ii) receipt of such documents as the Company and the Depositary reasonably require to comply with applicable law, the Depositary will deliver those rights as requested by that Owner.

 

(d)          If the Depositary will act under (a)(iii) above, the Depositary will use reasonable efforts to sell the rights in proportion to the number of American Depositary Shares held by the applicable Owners and pay the net proceeds to the Owners otherwise entitled to the rights that were sold, upon an averaged or other practical basis without regard to any distinctions among such Owners because of exchange restrictions or the date of delivery of any American Depositary Shares or otherwise. Nothing in the Deposit Agreement shall create any obligation on the part of the Company to file a registration statement with respect to rights or underlying securities or any other distribution or to endeavor to have a registration statement of that kind declared effective.

 

e) Payment or deduction of the fee of the Depositary as provided in Section 5.9 of the Deposit Agreement and payment or deduction of the expenses of the Depositary and any applicable taxes or other governmental charges shall be conditions of any delivery of securities or payment of cash proceeds under Section 4.4 of that Agreement.

 

(f)          Neither the Depositary nor the Company shallbe responsible for any failure to determine that it may be lawful or feasible to make rights available to or exercise rights on behalf of Owners in general or any Owner in particular, or to sell rights.

 

14.         CONVERSION OF FOREIGN CURRENCY.

 

Whenever the Depositary or the Custodian receives foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the Depositary be converted on a reasonable basis into Dollars and the resulting Dollars transferred to the United States, the Depositary shall convert or cause to be converted by sale or in any other manner that it may determine that foreign currency into Dollars, and those Dollars shall be distributed to the Owners entitled thereto. A cash distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Owners based on exchange restrictions, the date of delivery of any American Depositary Shares or otherwise and shall be net of any expenses of conversion into Dollars incurred by the Depositary as provided in Section 5.9 of the Deposit Agreement.

 

  A- 12  

 

 

If a conversion of foreign currency or the repatriation or distribution of Dollars can be effected only with the approval or license of any government or agency thereof, the Depositary may, but will not be required to, file an application for that approval or license. The Company shall have no obligation to make any such filing.

 

If the Depositary determines that in its judgment any foreign currency received by the Depositary or the Custodian is not convertible on a reasonable basis into Dollars transferable to the United States, or if any approval or license of any government or agency thereof that is required for such conversion is not filed or sought by the Depositary, or if any required approval or license is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute the foreign currency received by the Depositary to, or in its discretion may hold such foreign currency uninvested and without liability for interest thereon for the respective accounts of, the Owners entitled to receive the same.

 

If any conversion of foreign currency, in whole or in part, cannot be effected for distribution to some of the Owners entitled thereto, the Depositary may in its discretion make that conversion and distribution in Dollars to the extent practicable and permissible to the Owners entitled thereto and may distribute the balance of the foreign currency received by the Depositary to, or hold that balance uninvested and without liability for interest thereon for the account of, the Owners entitled thereto.

 

The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account.  The Depositary makes no representation that the exchange rate used or obtained in any currency conversion will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under Section 5.3 of the Deposit Agreement.

 

15.          RECORD DATES.

 

Whenever a cash dividend, cash distribution or any other distribution is made on Deposited Securities or rights to purchase Shares or other securities are issued with respect to Deposited Securities (which rights will be delivered to or exercised or sold on behalf of Owners in accordance with Section 4.4 of the Deposit Agreement) or the Depositary receives notice that a distribution or issuance of that kind will be made, or whenever the Depositary receives notice that a meeting of holders of Shares will be held in respect of which the Company has requested the Depositary to send a notice under Section 4.7 of the Deposit Agreement, or whenever the Depositary will assess a fee or charge against the Owners, or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each American Depositary Share, as provided in the Deposit Agreement, or whenever the Depositary otherwise finds it necessary or convenient, the Depositary shall fix a record date, which shall be the same as, or as near as practicable to, any corresponding record date set by the Company with respect to Shares, (a) for the determination of the Owners (i) who shall be entitled to receive the benefit of that dividend or other distribution or those rights, (ii) who shall be entitled to give instructions for the exercise of voting rights at that meeting, (iii) who shall be responsible for that fee or charge or (iv) for any other purpose for which the record date was set, or (b) on or after which each American Depositary Share will represent the changed number of Shares. Subject to the provisions of Sections 4.1 through 4.5 of the Deposit Agreement and to the other terms and conditions of the Deposit Agreement, the Owners on a record date fixed by the Depositary shall be entitled to receive the amount distributable by the Depositary with respect to that dividend or other distribution or those rights or the net proceeds of sale thereof in proportion to the number of American Depositary Shares held by them respectively, to give voting instructions or to act in respect of the other matter for which that record date was fixed, or be responsible for that fee or charge, as the case may be.

 

  A- 13  

 

 

16.          VOTING OF DEPOSITED SHARES.

 

(a)          Upon receipt of notice of any meeting of holders of Shares at which holders of Shares will be entitled to vote, if requested in writing by the Company, the Depositary shall, as soon as practicable thereafter, Disseminate to the Owners a notice, the form of which shall be in the sole discretion of the Depositary, that shall contain (a) the information contained in the notice of meeting received by the Depositary, (b) a statement that the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of Israeli law and of the articles of association or similar documents of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Shares represented by their respective American Depositary Shares (c) a statement as to the manner in which those instructions may be given and (d) the last date on which the Depositary will accept instructions (the “ Instruction Cutoff Date ”).

 

(b)          Upon the written request of an Owner of American Depositary Shares, as of the date of the request or, if a record date was specified by the Depositary, as of that record date, received on or before any Instruction Cutoff Date established by the Depositary, the Depositary may, and if the Depositary sent a notice under the preceding paragraph shall, endeavor, in so far as practicable, to vote or cause to be voted the amount of deposited Shares represented by those American Depositary Shares in accordance with the instructions set forth in that request. The Depositary shall not vote or attempt to exercise the right to vote that attaches to the deposited Shares other than in accordance with instructions given by Owners and received by the Depositary.

 

  A- 14  

 

 

(c)          There can be no assurance that Owners generally or any Owner in particular will receive the notice described in paragraph (a) above in time to enable Owners to give instructions to the Depositary prior to the Instruction Cutoff Date.

 

(d)          In order to give Owners a reasonable opportunity to instruct the Depositary as to the exercise of voting rights relating to Shares, if the Company will request the Depositary to Disseminate a notice under paragraph (a) above, the Company shall give the Depositary notice of the meeting, details concerning the matters to be voted upon and copies of materials to be made available to holders of Shares in connection with the meeting not less than 30 days prior to the meeting date.

 

17.         TENDER AND EXCHANGE OFFERS; REDEMPTION, REPLACEMENT OR CANCELLATION OF DEPOSITED SECURITIES.

 

(a)          The Depositary shall not tender any Deposited Securities in response to any voluntary cash tender offer, exchange offer or similar offer made to holders of Deposited Securities (a “ Voluntary Offer ”), except when instructed in writing to do so by an Owner surrendering American Depositary Shares and subject to any conditions or procedures the Depositary may require.

 

(b)          If the Depositary receives a written notice that Deposited Securities have been redeemed for cash or otherwise purchased for cash in a transaction that is mandatory and binding on the Depositary as a holder of those Deposited Securities (a “ Redemption ”), the Depositary, at the expense of the Company, shall (i) if required, surrender Deposited Securities that have been redeemed to the issuer of those securities or its agent on the redemption date, (ii) Disseminate a notice to Owners (A) notifying them of that Redemption, (B) calling for surrender of a corresponding number of American Depositary Shares and (C) notifying them that the called American Depositary Shares have been converted into a right only to receive the money received by the Depositary upon that Redemption and those net proceeds shall be the Deposited Securities to which Owners of those converted American Depositary Shares shall be entitled upon surrenders of those American Depositary Shares in accordance with Section 2.5 or 6.2 of the Deposit Agreement and (iii) distribute the money received upon that Redemption to the Owners entitled to it upon surrender by them of called American Depositary Shares in accordance with Section 2.5 of that Agreement (and, for the avoidance of doubt, Owners shall not be entitled to receive that money under Section 4.1 of the Deposit Agreement). If the Redemption affects less than all the Deposited Securities, the Depositary shall call for surrender a corresponding portion of the outstanding American Depositary Shares and only those American Depositary Shares will automatically be converted into a right to receive the net proceeds of the Redemption. The Depositary shall allocate the American Depositary Shares converted under the preceding sentence among the Owners pro-rata to their respective holdings of American Depositary Shares immediately prior to the Redemption, except that the allocations may be adjusted so that no fraction of a converted American Depositary Share is allocated to any Owner. A Redemption of all or substantially all of the Deposited Securities shall be a Termination Option Event .

 

  A- 15  

 

 

(c)          If the Depositary is notified of or there occurs any change in nominal value or any subdivision, combination or any other reclassification of the Deposited Securities or any recapitalization, reorganization, sale of assets substantially as an entirety, merger or consolidation affecting the issuer of the Deposited Securities or to which it is a party that is mandatory and binding on the Depositary as a holder of Deposited Securities and as a result securities or other property have been or will be delivered in exchange, conversion, replacement or in lieu of, Deposited Securities (a “ Replacement ”), then (i) the Depositary shall, if required surrender the old Deposited Securities affected by that Replacement of Shares and hold, as new Deposited Securities under the Deposit Agreement, the new securities or other property delivered to it in that Replacement. However , the Depositary may elect to sell those new Deposited Securities if in the opinion of the Depositary it is not lawful or not practical for it to hold those new Deposited Securities under the Deposit Agreement because those new Deposited Securities may not be distributed to Owners without registration under the Securities Act of 1933 or for any other reason, at public or private sale, at such places and on such terms as it deems proper and proceed as if those new Deposited Securities had been Redeemed under paragraph (b) above. A Replacement shall be a Termination Option Event .

 

(d)          In the case of a Replacement where the new Deposited Securities will continue to be held under the Deposit Agreement, the Depositary may call for the surrender of outstanding Receipts to be exchanged for new Receipts specifically describing the new Deposited Securities and the number of those new Deposited Securities represented by each American Depositary Share. If the number of Shares represented by each American Depositary Share decreases as a result of a Replacement, the Depositary may call for surrender of the American Depositary Shares to be exchanged on a mandatory basis for a lesser number of American Depositary and may sell American Depositary Shares to the extent necessary to avoid distributing fractions of American Depositary Shares in that exchange and distribute the net proceeds of that sale to the Owners entitled to them.

 

(e)          If there are no Deposited Securities with respect to American Depositary Shares, including if the Deposited Securities are cancelled, or the Deposited Securities with respect to American Depositary Shares become apparently worthless, the Depositary may call for surrender of those American Depositary Shares or may cancel those American Depositary Shares, upon notice to Owners, and a Termination Option Event occurs.

 

  A- 16  

 

 

18.         LIABILITY OF THE COMPANY AND DEPOSITARY.

 

Neither the Depositary nor the Company nor any of their respective directors, officers, employees, agents or affiliates shall incur any liability to any Owner or Holder, (i) if by reason of any provision of any present or future law or regulation or stock exchange of the United States or any other country, or of any governmental or regulatory authority or stock exchange, or by reason of any provision, present or future, of the articles of association or any similar document of the Company, or by reason of any provision of any securities issued or distributed by the Company, or any offering or distribution thereof, or by reason of any act of God or war or terrorism or other circumstances beyond its control, the Depositary or the Company is prevented from, forbidden to or delayed in, or could be subject to any civil or criminal penalty on account of, doing or performing, and therefore does not do or perform, any act or thing that, by the terms of the Deposit Agreement or Deposited Securities, it is provided shall be done or performed, (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement (including any determination by the Depositary or Company to take, or not take, any action that the Deposit Agreement provides the Depositary or Company may take), (iii) for the inability of any Owner or Holder to benefit from any distribution, offering, right or other benefit that is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Owners or Holders, or (iv) for any special, consequential or punitive damages for any breach of the terms of the Deposit Agreement. Where, by the terms of a distribution to which Section 4.1, 4.2 or 4.3 of the Deposit Agreement applies, or an offering to which Section 4.4 of the Deposit Agreement applies, or for any other reason, that distribution or offering may not be made available to Owners of Receipts, and the Depositary may not dispose of that distribution or offering on behalf of such Owners and make the net proceeds available to Owners, then the Depositary shall not make that distribution or offering available to Owners, and shall allow any rights, if applicable, to lapse.

 

Neither the Company nor the Depositary assumes any obligation or shall be subject to any liability under the Deposit Agreement to Owners or Holders, except that they agree to perform their obligations specifically set forth in the Deposit Agreement without negligence or bad faith. The Depositary shall not be subject to any liability with respect to the validity or worth of the Deposited Securities. Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit, or other proceeding in respect of any Deposited Securities or in respect of the American Depositary Shares, on behalf of any Owner or Holder or other person. Each of the Depositary and the Company may rely, and shall be protected in relying upon, any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. Neither the Depositary nor the Company shall be liable for any action or non-action by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Owner or Holder, or any other person believed by it in good faith to be competent to give such advice or information. The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with a matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises, the Depositary performed its obligations without negligence or bad faith while it acted as Depositary. Neither thet Depositary nor the Company shall be liable for the acts or omissions of any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of American Depositary Shares or Deposited Securities or otherwise. In the absence of bad faith on its part, the Depositary shall not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities or for the manner in which any such vote is cast or the effect of any such vote. The Depositary shall have no duty to make any determination or provide any information as to the tax status of the Company or any liability for any tax consequences that may be incurred by Owners or Holders as a result of owning or holding American Depositary Shares. No disclaimer of liability under the Securities Act of 1933 is intended by any provision of the Deposit Agreement.

 

  A- 17  

 

 

19.         RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF SUCCESSOR CUSTODIAN.

 

The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of its election so to do delivered to the Company, to become effective upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by 90 days’ prior written notice of that removal, to become effective upon the later of (i) the 90th90 day after delivery of the notice to the Depositary and (ii) the appointment of a successor depositary and its acceptance of its appointment as provided in the Deposit Agreement. The Depositary in its discretion may at any time appoint a substitute or additional custodian or custodians.

 

20.         AMENDMENT.

 

The form of the Receipts and any provisions of the Deposit Agreement may at any time and from time to time be amended by written agreement between the Company and the Depositary without the consent of Owners or Holders in any respect which they may deem necessary or desirable. Any amendment that would shall impose or increase any fees or charges (other than taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that would otherwise prejudice any substantial existing right of Owners, shall, however, not become effective as to outstanding American Depositary Shares until the expiration of 30 days after notice of that amendment has been Disseminated to the Owners of outstanding American Depositary Shares. Every Owner and Holder, at the time any amendment so becomes effective, shall be deemed, by continuing to hold American Depositary Shares or any interest therein, to consent and agree to that amendment and to be bound by the Deposit Agreement as amended thereby. Upon the effectiveness of an amendment to the form of Receipt, including a change in the number of Shares represented by each American Depositary Share, the Depositary may call for surrender of Receipts to be replaced with new Receipts in the amended form or call for surrender of American Depositary Shares to effect that change of ratio. In no event shall any amendment impair the right of the Owner to surrender American Depositary Shares and receive delivery of the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law.

 

  A- 18  

 

 

21.         TERMINATION OF DEPOSIT AGREEMENT.

 

(a)          The Company may initiate termination of the Deposit Agreement by notice to the Depositary. The Depositary may initiate termination of the Deposit Agreement if (i) at any time 60 days shall have expired after the Depositary delivered to the Company a written resignation notice and a successor depositary has not been appointed and accepted its appointment as provided in Section 5.4 of that Agreement, (ii) an Insolvency Event or Delisting Event occurs with respect to the Company or (iii) a Termination Option Event has occurred or will occur. If termination of this Deposit Agreement is initiated, the Depositary shall Disseminate a notice of termination to the Owners of all American Depositary Shares then outstanding setting a date for termination (the “ Termination Date ”), which shall be at least 90 days after the date of that notice, and the Deposit Agreement shall terminate on that Termination Date.

 

(b)          After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary under Sections 5.8 and 5.9 of that Agreement.

 

(c)          At any time after the Termination Date, the Depositary may sell the Deposited Securities then held under the Deposit Agreement and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, unsegregated and without liability for interest, for the pro rata benefit of the Owners of American Depositary Shares that remain outstanding, and those Owners will become general creditors of the Depositary with respect to those net proceeds. After making that sale, the Depositary shall be discharged from all obligations under the Deposit Agreement, except (i) to account for the net proceeds and other cash (after deducting, in each case, the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of such American Depositary Shares in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes or governmental charges) and (ii) for its obligations under Section 5.8 of that Agreement and (iii) to act as provided in the paragraph (d) below.

 

(d)          After the Termination Date, the Depositary shall continue to receive dividends and other distributions pertaining to Deposited Securities (that have not been sold), may sell rights and other property as provided in the Deposit Agreement and shall deliver Deposited Securities (or sale proceeds) upon surrender of American Depositary Shares (after payment or upon deduction, in each case, of the fee of the Depositary for the surrender of American Depositary Shares, any expenses for the account of the Owner of those American Depositary Shares in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes or governmental charges). After the Termination Date, the Depositary shall not accept deposits of Sharaes or deliver American Depositary Shares. After the Termination Date, (i) the Depositary may refuse to accept surrenders of American Depositary Shares for the purpose of withdrawal of Deposited Securities (that have not been sold) if in its reasonable judgment the requested withdrawal would interfere with its efforts to sell the Deposited Securities, (ii) the Depositary will not be required to deliver cash proceeds of the sale of Deposited Securities until all Deposited Securities have been sold and (iii) the Depositary may discontinue the registration of transfers of American Depositary Shares and suspend the distribution of dividends and other distributions on Deposited Securities to the Owners and need not give any further notices or perform any further acts under the Deposit Agreement except as provided in Section 6.2 of that Agreement.

 

  A- 19  

 

 

22.         DTC DIRECT REGISTRATION SYSTEM AND PROFILE MODIFICATION SYSTEM.

 

(a)          Notwithstanding the provisions of Section 2.4 of the Deposit Agreement, the parties acknowledge that DTC’s Direct Registration System (“ DRS ”) and Profile Modification System (“ Profile ”) apply to the American Depositary Shares upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC that facilitates interchange between registered holding of uncertificated securities and holding of security entitlements in those securities through DTC and a DTC participant. Profile is a required feature of DRS that allows a DTC participant, claiming to act on behalf of an Owner of American Depositary Shares, to direct the Depositary to register a transfer of those American Depositary Shares to DTC or its nominee and to deliver those American Depositary Shares to the DTC account of that DTC participant without receipt by the Depositary of prior authorization from the Owner to register that transfer.

 

(b)          In connection with DRS/Profile, the parties acknowledge that the Depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an Owner in requesting registration of transfer and delivery described in paragraph (a) above has the actual authority to act on behalf of that Owner (notwithstanding any requirements under the Uniform Commercial Code). For the avoidance of doubt, the provisions of Sections 5.3 and 5.8 of the Deposit Agreement apply to the matters arising from the use of the DRS/Profile. The parties agree that the Depositary’s reliance on and compliance with instructions received by the Depositary through the DRS/Profile system and otherwise in accordance with the Deposit Agreement, shall not constitute negligence or bad faith on the part of the Depositary.

 

23.          APPOINTMENT OF AGENT FOR SERVICE OF PROCESS; SUBMISSION TO JURISDICTION; JURY TRIAL WAIVER; WAIVER OF IMMUNITIES.

 

The Company has (i) appointed Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715 as the Company's authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Shares or Deposited Securities, the American Depositary Shares, the Receipts or the Deposit Agreement, (ii) consented and submitted to the jurisdiction of any state or federal court in the State of New York in which any such suit or proceeding may be instituted, and (iii) agreed that service of process upon said authorized agent shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding.

 

  A- 20  

 

 

EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH OWNER AND HOLDER) THEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE AMERICAN DEPOSITARY SHARES OR THE RECEIPTS, THE DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF, INCLUDING WITHOUT LIMITATION ANY QUESTION REGARDING EXISTENCE, VALIDITY OR TERMINATION (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

 

To the extent that the Company or any of its properties, assets or revenues may have or hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any respect thereof, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Shares or Deposited Securities, the American Depositary Shares, the Receipts or the Deposit Agreement, the Company, to the fullest extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement.

 

24.         DISCLOSURE OF INTERESTS.

 

InI order to comply with applicable laws and regulations or the articles of association or similar document of the Company, the Company may from time to time request each Owner and Holder to provide to the Depositary information relating to: (a) the capacity in which it holds American Depositary Shares, (b) the identity of any Holders or other persons or entities then or previously interested in those American Depositary Shares and the nature of those interests and (c) any other matter where disclosure of such matter is required for that compliance.   Each Owner and Holder agrees to provide all information known to it in response to a request made pursuant to this Section.  Each Holder consents to the disclosure by the Owner or other Holder through which it holds American Depositary Shares, directly or indirectly, of all information responsive to a request made pursuant to this Section relating to that Holder that is known to that Owner or other Holder.  The Depositary agrees to use reasonable efforts, at the Company's expense, to comply with written instructions requesting that the Depositary forward any request authorized under this Section to the Owners and to forward to the Company any responses it receives in response to that request.

 

  A- 21  

 

 

Each Holder and Owner agrees to comply with any applicable law, including in both the United States and Israel, with regard to the notification to the Company of the holding or proposed holding of certain interests in Shares and the obtaining of certain consents, to the same extent as if such Holder or Owner were a registered holder or beneficial owner of Shares. The Depositary is not required to take any action with respect to such compliance on behalf of any Holder or Owner, including the provision of the notification described below.

 

Each Holder and Owner agrees to comply with the provisions of applicable law, including in both the United States and Israel, which may require that persons who hold a direct or indirect interest in 5% or more of the voting securities of the Company (including persons who hold such an interest through the holding of American Depositary Shares) give written notice of their interest and any subsequent changes in their interest to the Company.

 

  A- 22  

 

 

EXHIBIT 10.1

 

Confidential Execution Copy

 

THE SYMBOL "****" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

development Services

 

agreEment

 

This Development Services Agreement (the " Agreement "), is made and entered into, as of ________________, 2014, by and between Kitov Pharmaceuticals Holdings Ltd ., an Israeli company with offices at Lev Hagiva, 11 Bet Hadfus Street, Jerusalem 95483, Israel (hereinafter “ Kitov ”); and Dexcel Ltd ., a company incorporated under the laws of Israel, with offices at 1 Dexcel Street Or Akiva, 3060000, Israel (" Dexcel ").

 

(Each of Kitov and Dexcel shall be referred to herein as a "Party" and together as the "Parties")

 

WHEREAS ; Dexcel is a specialty pharmaceutical company; and

 

WHEREAS ; Kitov is interested in retaining Dexcel's services for the development of the Product, as elaborated in this Agreement, and Dexcel is interested in providing such services to Kitov; and

 

WHEREAS ; As a consideration for the provisions of the Services (as defined herein below) by Dexcel to Kitov, Kitov shall pay Dexcel the Consideration, and subject to the terms and conditions set forth in this Agreement, grant Dexcel certain rights as elaborated in this Agreement;

 

NOW, THEREFORE , in consideration of the mutual covenants contained herein, the Parties agree to the following terms and conditions, which set forth the rights, duties, and obligations of the Parties.

 

1. Definitions.

 

1.1. API - means active pharmaceutical ingredient of Celecoxib and Amoloidpine Besylate .

 

1.2. API Cost - shall have the meaning defined in Section ‎5.1.

 

1.3. Commercial Agreement shall have the meaning defined in Section ‎4.2.

 

1.4. Confidential Information ” means, any information disclosed by one Party (the “ Disclosing Party ”) to the other Party (the “ Receiving Party ”) in connection with this Agreement, whether orally or in writing or in any other form including, without limitation, computer programs, code, algorithms, names and expertise of employees and consultants, know-how, trade secrets, formulae, processes, ideas, inventions (whether patentable or not), schematics and other technical, improvements, business, financial and product development plans, forecasts, strategies and information or data relating to the Disclosing Party's business, products and technology.

 

 
Confidential Execution Copy

 

1.5. " Deliverables " – mean the production file as developed by Dexcel as part of the Services which will allow Kitov to manufacture the Product independently or through a third party, all as detailed and in accordance with Annex A .

 

1.6. Dexcel IP - shall have the meaning defined in Section‎8.

 

1.7. Dexcel's Development Updates - shall have the meaning defined in Section ‎2.5.

 

1.8. Effective Date ”- shall mean the date of the last Party to sign this Agreement.

 

1.9. Exchange Rate"- shall mean the ratio at which one (1) U.S. Dollar can be exchanged for one (1) New Israeli Shekel on the payment date, as determined by the reference rate of the Bank of Israel .

 

1.10. FDA the US Food and Drug Administration.

 

1.11. Fee ” – shall have the meaning defined in 3.1.

 

1.12. Force Majeure shall mean an event beyond a Party’s reasonable control which prevents such Party from performing its obligations hereunder, such events may include, but not be limited to, Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, any extraordinary military operation which requires a large military reserve mobilization, nationalization, governmental activities relating to emergency situations, change in applicable laws, shortages in availability of raw materials, blockage, embargo, strikes or lockouts.

 

1.13. "Full Bio shall mean a study that is designed to show that the Product is bioequivalent to the Reference Listed Drugs (" RLD ").

 

1.14. " Information ” - all data inventions, processes, protocols, and formulae (electronic files, notebooks, reports, etc.) resulting from the Services provided hereunder.

 

1.15. Intellectual Property Rights ” means all intellectual property rights, including patents, copyrights, trademarks, applications, service marks, trade names, applications for any of the foregoing, trade secrets, mask works, formulae, industrial design rights, rights of priority, know how, concepts, processes, data rights, design flows, methodologies, and any and all other legal rights protecting proprietary intangible property, whether registerable or not, and whether reduced to practice or not.

 

1.16. " Issuance of Shares " shall have the meaning defined in Section (ii).

 

1.17. Good Manufacturing Practices ” or “ cGMP ” means the principles and guidelines of good manufacturing practice for medicinal products for human use as defined in 21 CFR 210, 21 CFR 211, and European Directive 2003/94/EC.

 

1.18. Kitov Data ” – means, Kitov Foreground IP, including Patent families embodied in Patents applications no. 13/026,741, 12/990,724, WO2009/154944 and WO2011/100659, and Kitov's Confidential Information.

 

2
Confidential Execution Copy

 

1.19. Kitov Foreground IP ”- shall have the meaning defined in Section ‎8.

 

1.20. " Lien "- shall have the meaning defined in Section (ii).

 

1.21. Materials ”- shall have the meaning defined in Section ‎7.

 

1.22. Milestone Event "- achieving a stage as detailed in Annex C .

 

1.23. “NDA” – a New Drug Application to the FDA.

 

1.24. Negotiation Period ”– shall have the meaning defined in Section ‎4.

 

1.25. "Payment Conversion Notice" – shall have the meaning defined in Section ‎3.3.

 

1.26. Pilot Bio shall mean studies to check the bioequivalence of the Prototype, as detailed in Section 5-8 of Annex A .

 

1.27. Publication – A press release, filing of legally required notices and reports or public statement concerning this Agreement and/or any activity in relation thereto.

 

1.28. "Product " means the selected Prototype.

 

1.29. Prototype ” means a combination solid oral dosage form of Celecoxib and Amlodipine Besylate as developed under this Agreement in a form of a [****] .

 

1.30. " RFP " – means Request For Proposal for the development and production of a combination solid oral dosage form of celecoxib and amlodipine besylate issued by Kitov dated October 29 th , 2013.

 

1.31. Services - shall have the meaning defined in Section ‎2.1 .

 

1.32. "Shares Payment Non-Performance" - shall have the meaning defined in Section ‎3.3 .

 

1.33. “Shares” - shall have the meaning defined in Section (ii).

 

1.34. SOW shall have the meaning defined in Section 2.1.1.

 

1.35. Term - shall have the meaning defined in Section ‎14.1.

 

1.36. Timetable - shall have the meaning defined in Section ‎2.1.2.

 

1.37. "Value"- shall have the meaning defined in section 3.1 (ii).

 

2. The Services.

 

2.1. Dexcel shall provide formulation development services for a combination [****] drug product which shall include: performing compatibility testing of APIs with excipients, screening to find at least two Prototypes, identifying analytical methods for Product analysis, performing Product preliminary stability testing, performing analytical methods validations, manufacturing pivotal batches and performing stability studies on pivotal batches. The activities under each phase of the Services shall be provided according to:

 

2.1.1. the details as set forth in Statement of Work attached as Annex A to this Agreement (the " SOW ") and serves as integral part thereof.

 

3
Confidential Execution Copy

  

2.1.2. the timetable attached as Annex C to this Agreement (the " Timetable ") and serves as integral part thereof.

 

(Collectively the " Services ").

 

Following the Completion of the Services under the SOW, simultaneously with the completion of Milestone 6 (as set forth in Annex C) and the full payment of the Consideration to Dexcel, Dexcel shall provide Company with the Deliverables.

 

2.2. Dexcel shall provide Kitov with proposals for the performance of Pilot Bio and Full Bio services to be performed by sub-contractors selected by Dexcel (the “ Pilot Bio Proposals ” and the “ Full Bio Proposals ”). Kitov shall have the right at its sole discretion to accept or reject the Pilot Bio Proposals and the Full Bio Proposals and to select other contractors to perform the Pilot Bio and Full Bio services or to decide not to perform such services at all. Prior to making such determinations, Kitov shall consult with Dexcel, however any decision shall be made at Kitov's sole discretion, and without any liability to Dexcel. For the avoidance of doubt, any delay in Kitov's decisions whether to perform the Pilot Bio or the Full Bio with Dexcel or with other third party shall respectively delay Dexcel's timeline commitments related thereto. Dexcel recommends performing a Pilot Bio before commencement of the performance of the Full Bio.

 

2.3. All data generated from the provision of the Services, including the scientific report, which are specifically required and contemplated under the Service protocol, shall be provided to Kitov upon full payment of the Consideration in accordance with Section ‎3.

 

2.4. Other than as expressly provided to the contrary in this Agreement, nothing contained in this Agreement shall be construed as a warranty on the part of Dexcel that any results or inventions will be achieved by the Services or that the results of the Services, if any, are or will be of commercial or scientific value to Kitov.

 

2.5. At the end of each development milestone (as detailed in the SOW), Dexcel shall provide Kitov a written notice to inform Kitov that Dexcel concluded the development under such milestone (" Dexcel's Development Update "). Within 7 business days following receipt by Kitov of such Dexcel's Development Update, Kitov shall provide a written statement to Dexcel, which either confirms Dexcel's Development Update (" Notice of Completion of Milestone "), or rejects Dexcel's Development Update (" Notice of Rejection "), in which case the Notice of Rejection shall elaborate in sufficient detail the grounds for the rejection. Following such Notice of Rejection, subject to the provisions of section 3.4 herein, and provided that the Notice of Rejection is reasonable and in accordance with customary standard or practice in the industry, Dexcel shall perform all such actions required to cure such rejections, and resubmit Dexcel's Development Update. The foregoing process shall be repeated until Kitov provides a Notice of Completion of Milestone. For the avoidance of doubt, in the event that Kitov has failed to provide Dexcel with any written notice within 7 business days from the date Kitov had received Dexcel's Development Update, Dexcel Development Update (including the demand for payment of the relevant milestone payment) shall be deemed confirmed by Kitov.

 

4
Confidential Execution Copy

 

2.6. To the extent carried out by Dexcel or a CRO on Dexcel's behalf, a successful Full Bio shall be determined in accordance with the following criteria: Pivotal BE Study shall be deemed to be successful if in both analytes (Celecoxib and Amlodipine) for the following parameters AUC0-t, AUCinf and Cmax, the 90% confidence intervals of the geometric mean Test/Reference ratios will fall within the limits of 80.00-125.00%.

 

3. Consideration

 

3.1. The total aggregate consideration due to Dexcel subject to and in accordance with the provisions hereof in consideration of the Services is detailed as follows:

 

(i) US$ 2,000,000, payable in cash, upon occurrence of the Milestone Events as set out in this Section 3 below; (the " Cash Payment ") and

 

(ii) US$ 1,500,000 payable in Shares to be issued to Dexcel by Kitov, upon occurrence of the Milestone Events as set out in this Section 3 below (the " Issuance of Shares "), subject to the terms and conditions of this Section 3 .

 

(The Cash Payment and the Issuance of Shares collectively the " Fee ").

 

In this Agreement:

 

" Shares " shall mean Ordinary Shares of Kitov, with no nominal value, validly issued and registered for trade in the Tel Aviv Stock Exchange (" TASE "), fully paid, free and clear of (i) any Liens; and (ii) any restrictions with respect to the use, transfer, assignment, resale or any similar action, excluding only restrictions that are relevant and imposed on Dexcel by Israeli mandatory securities law and regulation in the event the Shares are issued by a private placement.

  

" Lien " shall mean any lien, pledge, charge, claim, mortgage, security interest or other encumbrance or any third party/ies right of any sort.

 

" Value " shall mean, with respect to the Shares to be Issued to Dexcel on the Effective Date, NIS 0.85 per share, and with respect to any other Issuance of Shares, the average price per share of the Shares, based on their recorded price at the end of the trade on TASE, during a period of trading 45 days prior to the date of acceptance (or deemed acceptance) by Kitov of Notice of Dexcel's Development Update as set forth in section 2.5 above and on the NIS US$ exchange rate on such date.

 

5
Confidential Execution Copy

 

The Fee shall be paid to Dexcel in accordance with the following Table A:

 

  Due Date Cash
Amount Due
Shares to be
Issued to Dexcel  
on Due Date
Payments to
Kitov
according to
Section 4.1
(Right of
First
Negotiation)
1. Effective Date US$ 500,000

Shares in such quantity that the Value of which on the date of issuance to Dexcel is equal to US$ 500,000.

 

 
2. Acceptance (or deemed acceptance) by Kitov of Notice of Dexcel's Development Update with respect to Milestone 2 of Annex C US$ 500,000

Shares in such quantity that the Value of which on the date of issuance to Dexcel is equal to US$ 500,000.

 

US$ 250,000
3.  Acceptance (or deemed acceptance) by Kitov of Notice of Dexcel's Development Update with respect to Milestone 5 of Annex C US$ 500,000

Shares in such quantity that the Value of which on the date of issuance to Dexcel is equal to US$ 500,000.

 

US$ 250,000
4. Acceptance (or deemed acceptance) by Kitov of Notice of Dexcel's Development Update with respect to Milestone 6 of Annex C- however, the payment due herein shall be at the Completion of the stability study for pivotal batches of 1 month (in accelerated conditions). US$ 500,000    

  

Table A

 

3.2. Kitov shall be solely and exclusively responsible to timely:

 

(a) obtain and maintain any and all corporate, regulatory, third party or other approvals, and to

 

(b) undertake and perform any and all corporate and other actions, required under applicable law, regulation or Kitov articles of association, by-laws, any other binding obligation of Kitov or otherwise,

 

to the extent required in order to timely issue the Shares to Dexcel in accordance with the terms of this Section 3.

 

6
Confidential Execution Copy

 

In the event Kitov is not able to obtain or cause to be obtained any of the above, Kitov shall pay Dexcel a cash payment instead of the applicable Issuance of Shares, in the amount of the applicable US$ value.

 

In addition, the Parties hereby agree and understand, that inasmuch as an approval of Kitov's shareholders is required for any Issuance of Shares hereunder, pursuant to Sections 270(5) and/or 274 of the Israeli Companies Law – 1999 (or any other Sections replacing such Sections or intended to come in their stead), the approval of Kitov's shareholders shall be a condition precedent to such Issuance of Shares, and in the event such approval shall not be obtained, Kitov shall pay Dexcel a cash payment instead of the applicable Issuance of Shares, in the amount of the applicable US$ value.

 

3.3. Payment Terms.

 

3.3.1. Each Party shall issue an invoice to the other Party with respect of each payment due to such Party hereunder (including, for the avoidance of doubt, with respect to Issuance of Shares).

 

3.3.2. The Cash Payment. The Cash Payment shall be made on a current + 30 days (30 days as of the end of the calendar month following the month in which the invoice was issued) based on the issuance of valid tax invoice by Dexcel with respect to each cash amount due.

 

3.3.3. The Issuance Shares. (i) The issuance of the Shares shall be subject to the approval of the Tel Aviv Stock Exchange for the issuance of the Shares. (ii) The issuance of the Shares is pending the execution, delivery, and performance of any additional document by Dexcel as required by any applicable law and/or corporate governance policy, bylaws or articles of association (ii) the issuance of the Shares shall be considered timely, if issued up to 30 days as of the Due Date of issuance.

 

3.3.4. In the event that any of the Shares are not timely issued to Dexcel, and in accordance with the other terms of this Section 3, and/or not in a manner that immediately after the issuance Dexcel has full and good title to the respective Shares free and clear of any Lien ("Shares Payment Non-Performance") and only in case such Shares Payment Non Performance is not fully cured within 30 days as of the Due Date , Dexcel may notify Kitov in writing, that the respective portion of the Fee payable in Shares is due, and if not issued within 30 days as of the receipt of such notice by Kitov, then the respective portion of the Fee shall no longer be payable in Shares but due and payable in cash ("Payment Conversion Notice").Upon the lapse of 30 days as of the receipt by Kitov of the Payment Conversion Notice, to the extent the Shares Payment Non Performance was not cured as set forth herein, the respective portion of the Issuance of Shares shall become immediately due and payable in cash. Upon Kitov's full payment of the sums in lieu of the Shares as detailed in the Payment Conversion Notice, Kitov shall be released from its obligation to issue the respective portion of the Shares that has not been issued to Dexcel, for which the Payment Conversion notice was issued. For illustration and clarification purposes, in case a certain Due Date is May 1st, 2015, and pursuant to this Section 3, within 30 days of such date Kitov is obligated to issue Dexcel Shares at a Value of US$ 500,000, and Kitov has only issued Dexcel shares in a quantity that the Value of which on the date of their issuance is equal to US$ 300,000, as of June 1st, 2015 Dexcel may send Kitov a Payment Conversion Notice with respect to the remaining US$ 200,000 worth of Shares, and upon the lapse of 30 days as of receipt of which by Kitov, Kitov shall be obligated to immediately pay Dexcel a cash amount of US$ 200,000, instead of the issuance of such Shares, unless the applicable portion of the Shares has been issued before the lapse of such 30 days period; such number of Shares shall be determined at the Value on the date of actual issuance thereof.

 

7
Confidential Execution Copy

 

3.4. In the event that Dexcel shall need to repeat any development stage not due to Dexcel’s misconduct or omission, Kitov shall pay the costs associated with such repetition upon Dexcel written demand. In such case the Timetable shall be adjusted and deadlines shall be prolonged in accordance with the duration of the repeated stage of development.

 

3.4.1. Without derogating from the any provisions of this Agreement, and provided that Kitov has not received from Dexcel additional services other than the Services, the Fee and the payment obligation as stipulated in Section 5 5 herein, shall constitute the sole and complete compensation due to Dexcel in consideration of the Services.

 

3.4.2. With respect to payments under Section 4.1 hereunder, Dexcel shall make the necessary payments to Kitov within thirty (30) days of the end of the month in which it received the relevant invoice ("Shotef" + 30).

 

3.4.3. All cash payments made by and between the Parties under this Agreement shall be in New Israeli Shekels based on the Exchange Rate as of the date of the payment.

 

3.4.4. Any consideration set forth is exclusive of VAT or any other applicable sales tax, which shall be added to the extent required by law to any consideration set forth herein, Unless Dexcel provides Kitov with an official approval of the ITA with respect to exemption from tax withholding at source, or provide a certain rate of tax withholding at source, with respect to the payments made hereunder, Kitov shall withhold at source from any payment due hereunder the maximum rate of tax applicable, from any amount payable to Dexcel.

 

4. Right of First Negotiation and Product Manufacture

 

4.1. In consideration of a First Negotiation Right (as defined below) regarding the global rights relating to marketing of the Product, and in consideration of the right to enter into good faith negotiations with Kitov with respect to the manufacture of the Product upon completion of Milestone 4 (as set forth in Annex C), Dexcel shall pay to Kitov an amount of USD 500,000 in instalments in accordance with the milestone payments set forth in Table A hereinabove. The actual Payment of the foregoing sums shall be made by way of offset by Kitov against sums payable by Kitov to Dexcel on such occasions.

 

8
Confidential Execution Copy

 

4.2. In the event Kitov intends to begin negotiations with any third-party with the objective of entering into a commercial marketing or licensing agreement with respect of the Product (" Commercial Agreement ") Kitov shall notify Dexcel of its intent to do so. Dexcel shall then have the right, within 21 days of such notification by Kitov, to notify Kitov whether Dexcel desires to negotiate with Kitov with regard to reaching mutually agreeable and commercially reasonable terms and conditions for such transaction (the " First Negotiation Right "). If Dexcel notifies Kitov in writing within such 21day period, that it so desires, then Kitov shall negotiate solely and exclusively with Dexcel in good faith and attempt to reach mutual agreement upon such terms and conditions for such Commercial Agreement within sixty (60) calendar days thereafter (the “ Negotiation Period ”).

  

4.3. If Dexcel does not notify Kitov within the said 21 day period of its interest in entering into such a Commercial Agreement, (for the avoidance of doubt, if Dexcel does not provide any notification regarding the subject matter, this shall be regarded as a notice of non interest) or if upon expiration of the Negotiation Period the Parties are unable to agree in good faith upon the terms and conditions thereof, then Kitov shall be free to enter into a Commercial Agreement with any party on any terms that Kitov determines in its sole discretion, and Kitov shall have no obligation to offer any such terms to Dexcel.

 

5. Payment of API and Development Cost

 

5.1. Dexcel undertakes, to procure and obtain all API, ancillary chemical or other supplies and products and any other substances or materials required with sufficient quantities for Dexcel's use in conducting the Services under this Agreement (the “API Supplies”), provided however, that the cost of the APIs as well as other materials or means required for Dexcel to perform the Services (the “ API Cost ”) shall be borne by Kitov. The payment of such API cost shall be made on a current + 30 days (30 days as of the end of the calendar month following the month in which the invoice was issued) based on the issuance of valid tax invoice by Dexcel, to be issued by Dexcel upon ordering such API from API suppliers. At Kitov’s sole discretion, it may, after consulting with Dexcel, elect to procure the API Supplies at its own cost and arrange for their shipment to Dexcel. Should Dexcel procure the API Supplies, the API Cost shall be paid by Kitov to Dexcel, upon Dexcel written demand, in addition to the Consideration. As of the Effective Date, Dexcel's estimation of the cost of the API is USD$ 200,000 (two hundred thousand) per pivotal batch. For the avoidance of any doubt, in the event that Kitov elects to procure the API Supplies at Kitov's own cost and arrangement, Kitov shall be solely liable to the quality and timeline relating to the supply of the API.

 

5.2. To the extent carried out by Dexcel or a CRO on behalf of Dexcel, pursuant to Section 2.2. herein, prior to the commencement of the Pilot Bio and the Full Bio, Kitov shall pay the cost associated with the Pilot Bio and the Full Bio, based on a formal quote that will be presented to Kitov +12.5% and agreed upon in writing by Kitov. For the avoidance of doubt, the figures as detailed in Annex B , are only estimated costs. For the avoidance of doubt, Kitov shall only be bound by any such costs to the extent they are presented in a formal quote and approved by signature of an authorized representative of Kitov.

  

9
Confidential Execution Copy

 

6. Confidentiality

 

6.1. All Confidential Information shall be protected by the Receiving Party from disclosure with the same degree of care with which the Receiving Party protects its own confidential information from disclosure, but in no event with less than a reasonable degree of care preventing unauthorized disclosure. The Receiving Party agrees (a) not to disclose Confidential Information to any Person except to those of its employees, consultants, advisors, directors, or representatives who need to know Confidential Information in connection with the conduct of its business, and (b) that neither the Receiving Party nor any of its employees, consultants, advisors, directors, or representatives will use the Confidential Information for any purpose other than in connection with the conduct of its business pursuant to this Agreement and the Receiving Party shall cause such employees, consultants, advisors, directors, and representatives to engage in non-disclosure agreements not less restrictive than the provisions of this Section 6; provided, however, that such restrictions shall not apply if such Confidential Information (i) is or hereafter becomes public other than by a breach of this Agreement, (ii) was already in the Receiving Party's possession prior to any disclosure of the Confidential Information to the Receiving Party made by the Disclosing Party (iii) has been or is hereafter obtained by the Receiving Party from a third party which was not bound by any confidentiality obligation with respect to the Confidential Information, (iv) is required to be disclosed pursuant to judicial order, but only to the extent of such order and after reasonable notice to the Disclosing Party, provided that such reasonable notice is possible, so as to allow the Disclosing Party to intervene in any proceeding leading to such order, or (v) is required to be disclosed by any government authority which regulates the business of the Receiving Party, but only to the extent of such required disclosure and after reasonable notice to the Disclosing Party provided that such reasonable notice is possible so as to allow the Disclosing Party to intervene to seek confidential treatment.

 

6.2. This Section ‎0 shall survive the termination or expiration of this Agreement for a period of seven (7) years after the last transfer of Confidential Information hereunder.

 

7. Materials

 

Any and all materials, samples, or products (the " Materials ") provided by Kitov to Dexcel, to the extent provided, shall remain the sole and exclusive property of Kitov. Dexcel shall not use the Materials for any purpose other than as expressly contemplated by this Agreement. Dexcel will store and handle the Materials according to Kitov instructions and either return to Kitov or destroy the Materials as shall be instructed by Kitov, in the latter case, Dexcel shall provide certificate of destruction signed by an authorized representative of Dexcel to that extent.

 

10
Confidential Execution Copy

 

8. Intellectual Property Rights

 

8.1. Any Intellectual Property Rights or Confidential Information belonging to either Kitov or Dexcel prior to the execution of this Agreement will remain the sole property of either Kitov or Dexcel, respectively (" Kitov Foreground IP " and " Dexcel Foreground IP ", respectively).

 

8.2. Kitov hereby grants to Dexcel a fully paid, limited, non exclusive, license to use Kitov Data inasmuch as required for the provision of the Services by Dexcel.

 

8.3. Subject to the provisions of sections 8.1 and 8.2 above and without derogating therefrom, any and all rights, title and interest in any Intellectual Property Rights resulting from any development made by Dexcel which is related to the Product and embodied in the Deliverables or conceived in connection with the services provided hereunder by Dexcel to Kitov, which is only applicable for the manufacture, research, development, making of, use, sale, production, commercialisation and distribution of the Product, shall be jointly and equally (50%/50%) owned by Dexcel and Kitov (the " Joint IP ").

 

8.4. All rights, title and interest in all Intellectual Property Rights discovered or developed by Dexcel during the course of the provision of the Services or as a result thereof, which is not Joint IP (i.e., which applicability is general and not only applicable to the Product), Kitov Foreground IP or the Deliverables, shall be solely owned by Dexcel (the “Dexcel IP ”).

 

8.5. Dexcel hereby grants Kitov a non-exclusive, perpetual, non revocable and world-wide license to any and all Dexcel IP and any and all Joint IP that is required to the making of, sale, production, commercialization, manufacture, distribution, marketing research and development, of the Product (the " License to Dexcel IP "). For the avoidance of doubt, the scope of the License to Dexcel IP shall not include any use of Dexcel IP to manufacture, distribution, marketing or further development of any other product other than the Product, and/or the combination of the Product with additional APIs.

 

8.6. Kitov hereby grants Dexcel a fully paid, non-exclusive, perpetual, non revocable and world-wide license to any and all Joint IP but only to the extent required to allow Dexcel to research, develop, make, have made, register, import, manufacture, use, sell, offer for sale, produce, commercialise and distribute any product other than the Product.

 

9. Data Archives

 

Dexcel will maintain records of the Information. This Information will be archived in the Dexcel files for 24 months following the completion of the Services, at which time copy of the data will be transferred to Kitov at Kitov’s expense or disposed of according to Kitov written instructions. All documents reviewed by Dexcel's quality assurance which are required for regulatory filings will be maintained by Dexcel without limitation, for not less than 4 years. Kitov may request Dexcel to provide Kitov with the Information or any part thereof at any time, and Dexcel shall provide such requested Information within a reasonable time.

 

11
Confidential Execution Copy

  

10. Addendums; Change Orders

 

During the course of the Services under the terms of the Agreement, Kitov may require additional services that pertains to the Services but is outside the scope of the SOW. Such additional services will be described and quoted in a separate proposed addendum that references this Agreement. Without derogating from the provisions of Section ‎5 hereinabove, no changes, deletions or additions to the SOW will be considered valid and bind either of the Parties hereto, without mutual written agreement between Kitov and Dexcel.

 

11. Warranties and Undertakings

 

11.1. Dexcel makes the following representations, warranties and undertakings to Kitov, with respect to the Services:

 

11.1.1. Dexcel is free to provide Kitov, with the Services upon the terms contained in this Agreement and the ancillary documents thereof and there are no contracts and/or restrictive covenants preventing full performance of Dexcel's duties and obligations under this Agreement.

 

11.1.2. Dexcel itself or, in the event the Pilot Bio and/or the full Bio is performed by Dexcel’s sub-contractors, Dexcel's subcontractors (that shall be bound by confidentiality obligations substantially similar to those as stipulated in this Agreement) has the requisite facilities, personnel, qualifications, knowledge, and experience to perform the obligations under this Agreement, and Dexcel undertakes to perform the Services under this Agreement in the highest degree of professionalism, and in the highest quality according to industry standards.

 

11.1.3. Dexcel shall provide the Services using adequately skilled personnel having the requisite qualifications, knowledge, and experience to perform Dexcel's obligations under this Agreement.

 

11.1.4. Dexcel shall provide the Services in compliance with all cGMP requirements, where needed.

 

11.2. Dexcel makes the following representations, warranties and undertakings to Kitov, with respect to the Shares:

 

11.2.1. Dexcel is aware that the Shares which shall be allocated to them in accordance with the provisions of this Agreement may be subject to the restrictions of a resale in accordance with the provisions of the Securities Law, 5728 - 1968 and the regulations by virtue thereof.

 

11.2.2. Except as set forth in this Agreement, there are no agreements, whether in writing or orally, by and between Dexcel and a holder of shares in Kitov or others, pertaining to the purchase or sale of securities of Kitov or pertaining to the voting rights therein.

 

12
Confidential Execution Copy

 

11.2.3. Dexcel undertakes to bear all applicable taxes, including in connection with the issuance of the Shares to Dexcel.

 

11.3. Kitov makes the following representations, warranties and undertakings to Dexcel:

 

11.3.1. It is a corporation duly organized and validly existing under the laws of the State of Israel with the full power to conduct its affairs as currently conducted and contemplated hereunder. All necessary actions have been taken to enable it to execute and deliver this Agreement and perform its obligations hereunder.

 

11.3.2. This Agreement is a valid and binding obligation of Kitov enforceable against both Parties hereto in accordance with its terms. Kitov has the unencumbered right to enter into this Agreement and to fulfill its duties hereunder.

 

11.3.3. Other than as expressly set forth otherwise in this Agreement, no approval, consent, order, authorization or license by, giving notice to or taking any other action with respect to, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by Kitov and the performance by Kitov of its obligations hereunder.

 

11.3.4. With respect to the Kitov Data, Kitov warrants that, as of the Effective Date and to the best of its knowledge: (a) Kitov owns or has the right to license all relevant rights hereunder, (b) it has not received any communications, in writing and/or oral, alleging any interference, infringement, misappropriation, or violation (including any claim that Kitov must license or refrain from using any Intellectual Property Rights of any third party), and (c) it has not received any notice that any proceedings have been instituted or are pending which challenge any rights of Kitov with respect to the Kitov Data.

 

11.3.5. Should Kitov have any concern that the License granted hereunder to Dexcel, may violate or breach any third parties' right, Kitov shall immediately update Dexcel in writing of such concern.

 

11.3.6. Kitov is well aware that Dexcel, in the framework of providing the Services, will not perform any evaluation of the situation of the Product with respect to third parties’ Intellectual Property Rights and Dexcel makes no representation or warranty that the launching, selling and marketing the Product in any country will not infringe the Intellectual Property Rights of any third party. Kitov hereby declares that it will hold Dexcel, its Affiliates, shareholders, officers, directors, employees and agents harmless for any claims raised from third parties related directly or indirectly from Kitov’s decision on when to import, launch, sell or market the Product in any country.

 

13
Confidential Execution Copy

 

11.3.7. Kitov shall be solely liable that the issuance of the Shares to Dexcel shall be in accordance with the Israeli law and all regulations related thereto (including, without limitations the Israeli Securities Law, 5728-1968, and the regulations related thereto, and the Israeli Stock Exchange regulations (if applicable)).

 

11.3.8. The Shares shall be issued to Dexcel, free of any Lien and immediately after the issuance Dexcel will have full and good title to the respective Shares.

 

11.4. The representations and warranties made herein shall be true and correct as of the date of execution of this agreement, and shall remain true and correct for the duration of the Agreement. Each Party undertakes to promptly notify the Other Party of any change to any representations and warranties provided hereunder.

 

12. Publications

 

12.1. Neither Party shall use the name of the other Party or names of the other Party's employees in any advertising, PR or sales promotional material or in any other Publication without the prior consent of the other Party.

 

12.2. Dexcel acknowledges that Kitov is a publicly traded corporation and is subject to certain reporting obligations under any applicable laws, and hence Dexcel agrees Kitov has a right to make such Publications as required under any such applicable laws, provide however, that Kitov shall notify Dexcel and provide such Publication in advance to Dexcel, to allow Dexcel to provide comments to such publications that shall be taken into account by Kitov, to the extent that the schedule and the time enable such discovery.

 

13. Independent Contractor

 

The Parties expressly declare and confirm that there shall be no employer-employee relationship between Kitov and Dexcel or any of Dexcel's employees, and/or anyone on Dexcel’s behalf. This Agreement does not create any partnership, joint venture, or agency relationship between the Parties.

 

14. Term and Termination.

 

14.1. This Agreement will take effect on the Effective Date and shall continue until completion by Dexcel of the Services (the " Term ").

 

14.2. Either Party may terminate this Agreement if the other Party is in breach of any provisions hereof and the breaching Party fails to remedy any such breach within thirty (30) days of the notice of such breach delivered by the non - breaching Party.

 

14.3. This Agreement may be terminated, in whole or in part, by either Party providing ninety (90) days’ written notice to the other Party. In the event of such termination by Dexcel, Dexcel shall fully cooperate with Kitov to transfer all records, formulations, calculations, know-how developed for the Prototypes to a Kitov to a contractor of Kitov's choosing at no cost to Kitov, provided however that Dexcel may retain one copy of the said records for archival purposes and to meet regulatory obligations.

 

14
Confidential Execution Copy

 

14.4. Each Party shall have the right to terminate this Agreement upon the filing or institution of bankruptcy, reorganisation, liquidation, receivership, rehabilitation or freeze order (“hakpa’at halichim”) proceedings with respect to the other Party, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, in the case of any involuntary bankruptcy, reorganisation, liquidation, receivership, rehabilitation or freeze order (“hakpa’at halichim”) or assignment proceeding, such right to terminate shall only become effective if such other Party consents to the involuntary proceeding or such proceeding is not dismissed within ninety (90) days after the filing thereof.

 

14.5. Termination Consequences

 

14.5.1. Following the termination or expiration of this Agreement:

 

a. the license relating to Kitov Data, as stipulated in section ‎8, shall expire,

 

b. The Licenses as detailed in sections 8.5 and 8.6 shall survive; and

 

14.5.2. The obligation of the Parties contained in Sections 6 (''Confidentiality'') ,7 (''Materials''), 8 ("Intellectual Property") subject to the provisions of section 14.5.1 above, 9 (''Data Archives''), 12 (''Publications''), 14 (''Termination''), 16 (''Indemnification and limitation of Liability''), and 18 (''Miscellaneous'') shall survive the expiration or earlier termination of this Agreement.

 

14.5.3. Upon Termination of this Agreement, at the effective date of termination, all sums owed by either Party to the other shall become immediately due and payable on such date, and all amounts paid to Dexcel under this Agreement up to the date of termination shall be considered as non-refundable.

 

14.5.4. Upon termination of this Agreement for any other reason, each Party, at the written request of the other Party, shall immediately return to the other Party all materials, reports, updates, documentation, written instructions, notes, memoranda, discs or records or other documentation or physical matter of whatsoever nature or description provided by the other Party, except in the event that such material is owned or licensed by such Party pursuant to the terms of this Agreement, and provided that each Party shall be allowed to retain one copy for archival purposes.

 

15. Audit And Visitation Rights

 

Dexcel agrees to permit Kitov to visit Dexcel's facilities from time to time, during normal business hours and upon reasonable notice to Dexcel, to monitor the progress under the terms of this Agreement. A Reasonable time before a FDA visit in Dexcel's facilities, that is designated to monitor Dexcel's facilities prior to approval of the Product (the ''FDA Visit''), Dexcel shall allow Kitov to audit Dexcel's facilities to ensure their readiness for the FDA Visit.

 

15
Confidential Execution Copy

 

16. Indemnification and limitation of Liability

 

16.1. Subject to the provisions of sub-section 1616.4, Kitov agrees to defend, indemnify and hold Dexcel and its Affiliates harmless from and against any and all demands, claims, actions, causes of action, assessments, losses, damages, injuries, liabilities, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) of Dexcel and its Affiliates, directly related to, arising out of or resulting from

 

16.1.1. any breach or failure of or liability under any of the representations, warranties or covenants of Kitov contained herein,

 

16.1.2. actual or asserted violations of any applicable law by Kitov or its Affiliates,

 

16.1.3. any negligent or wrongful act or omission to act by Kitov or its affiliates in any manner in connection with performance hereunder.

 

16.2. Subject to the provisions of sub-sections 16 16.4 and 16.5, Dexcel agrees to defend, indemnify and hold Kitov and its Affiliates harmless from and against any and all demands, claims, actions, causes of action, assessments, losses, damages, injuries, liabilities, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) of Kitov and its Affiliates, directly related to, arising out of or resulting from:

 

16.2.1. any breach or failure of or liability under any of the representations, warranties and covenants of Dexcel contained herein,

 

16.2.2. actual or asserted violations of any applicable law by Dexcel or any of its affiliates or representatives and

 

16.2.3. any negligent or wrongful act or omission to act by Dexcel or its affiliates or representatives in any manner in connection with performance of the Services hereunder.

 

16.3. A Party or any of its Affiliates (the “ Indemnitee ”) that intends to claim indemnification under this Section 16 with respect to any third party claim or action shall promptly notify the other Party (the “ Indemnitor ”) of any loss, claim, damage, or liability arising out of any third party claim or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof with counsel of its own choosing; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor only, if representation of such Indemnitee by the counsel retained by the Indemnitor, in the opinion of an independent counsel chosen by both parties, would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. An Indemnitee shall not be entitled to indemnification under this Section 16 if any settlement or compromise of a third party claim is effected by the Indemnitee without the consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. An Indemnitee shall not be entitled to indemnification with respect to any third party claim in an amount in excess of the amount which such third party has unequivocally, without other conditions and in writing agreed with the Indemnitor it is willing to accept in settlement or compromise of any such third party claim. An Indemnitor shall not enter into any settlement or compromise of any third party claim or consent to the entry of any judgment or other order with respect to any claim which does not contain, as a part thereof, an unconditional release of the Indemnitee for liability for all loss, cost or damage that may arise from such claim or which does contain any injunctive or other non-monetary relief that might in any way interfere with the future conduct of business by the Indemnitee. The failure by the Indemnitee to deliver notice to the Indemnitor within a reasonable time after the commencement of any such third party claim or action, if materially prejudicial to the Indemnitor’s ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 16. An Indemnitee, and its employees, agents and representatives, shall cooperate fully with the Indemnitor and its legal representatives, at the Indemnitor’s expense for out-of-pocket costs, in the investigation of any action, claim or liability covered by this indemnification.

 

16
Confidential Execution Copy

 

16.4. Neither Party shall be liable to the other Party's, indirect or consequential liabilities (including loss of profits, loss of business, depletion of goodwill and similar losses). Subject to and without derogating with the limitation of Dexcel's liability as stipulated in section 16.5, and for the avoidance of doubt, any damages actually incurred by a Party as a result of a third party claim, are not excluded or limited under this Section 16 and shall not be considered as indirect or consequential liabilities.

 

16.5. Notwithstanding anything to the contrary in this Agreement, Dexcel's liability for damages shall in no event exceed the amounts received by Dexcel as consideration in accordance with the provisions of this agreement.

 

16.6. Dexcel shall maintain comprehensive general liability insurance, including product liability and professional liability insurance, in such amounts as each customarily maintains for similar products and activities. Kitov shall maintain comprehensive general liability insurance, including clinical trial insurance. At the time of entering this agreement, each Party shall be fully insured and shall duly maintain such insurance during the term of this agreement and thereafter for so long as it customarily maintains insurance for itself for similar products and activities. Each Party shall provide the other Party with proof of such insurance upon request.

 

In the event that Kitov shall perform the Full Bio by itself and (without Dexcel), prior to the commencement of the performance of the Full Bio, Kitov will provide Dexcel an updated certificate of insurance proving Kitov's then existing insurance. Kitov shall update said insurance policies such that the insured amount shall be at least USD 5,000,000 per insurance event. Kitov shall add Dexcel as additional insured to such insurance (i.e. general liability and clinical trial insurance).

 

17. Force Majeure

 

17.1. If a Party asserts the occurrence of an event of Force Majeure as an excuse for failure to perform such Party's obligations, then the obligations of the parties hereunder shall be suspended for so long as the Force Majeure event renders performance of the Agreement impossible; provided, however, that (a) the nonperforming Party shall timely notify the other Party in writing of the likelihood or actual occurrence of an event of Force Majeure by the nonperforming Party; (b) the nonperforming Party must reasonably prove that it took all commercially reasonable steps to minimize delay or damages caused by such event; and (c) the nonperforming Party substantially fulfilled all non-excused obligations, unless the other Party has notified the nonperforming Party to the contrary.

 

17
Confidential Execution Copy

 

17.2. In the event that such event of Force Majeure continues for a period in excess of sixty (60) days, the parties agree to undertake good faith discussions with a view to reaching some other mutually acceptable and reasonable arrangement for alleviating the effects of such Force Majeure. In the event that the parties are unable to agree on such an arrangement, the other Party shall be entitled to provide immediate written notice of termination to the nonperforming Party.

 

18. Miscellaneous.

 

18.1. Either Party's failure or delay in enforcing any of the provisions of this Agreement shall not, in any way, be construed as a waiver of any such provisions, or prevent either Party thereafter from enforcing each and every other provision of this Agreement which were previously not enforced;

 

18.2. Notices given hereunder including any notifications and approvals pursuant to this Agreement and any ancillary documents thereto, shall be made in writing and addressed to one of the qualified contact persons, detailed in the SOW and shall be deemed to have been duly given on the date of personal delivery, on the date of postmark if mailed by certified or registered mail, or on the date sent by facsimile upon transmission and electronic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and electronic confirmation of receipt, addressed as set forth above or such other address as either Party may designate to the other in accordance with the aforesaid procedure;

 

18.3. This Agreement, including its attachments, constitutes the entire agreement of the Parties hereto with respect to the subject matters hereof, and supersedes all prior agreements and understandings between the Parties with respect thereto.

 

18.4. In any contradiction between the terms and provisions of the SOW and the terms and provisions of the RFP, the terms and provisions of the SOW shall prevail.

 

18.5. This Agreement shall not be amended, modified, or varied by any oral agreement or representation other than by a written instrument executed by both Parties by their duly authorized representatives.

 

18.6. Neither this Agreement nor any of either Party's rights hereunder, may be assigned or otherwise transferred by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed, provided, however, that in the event Kitov is acquired by or merged into a third party, such assignment of rights shall be deemed to have been made to such third party. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall be deemed to have assumed all obligations of its assignor under this Agreement.

 

18
Confidential Execution Copy

 

18.7. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

18.8. The Parties acknowledge that the injury that would be suffered by the other Party as a result of a breach of the provisions of Sections 6 and 8 of this Agreement would be irreparable and that an award of monetary damages for such a breach would be an inadequate remedy. Consequently, either Party has the right, in addition to any other rights it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provisions of Sections 6 and 9 of this Agreement, and such Party will not be obligated to post bond or other security in seeking such relief.

 

18.9. This Agreement shall be interpreted and enforced exclusively under the laws of the State of Israel, without regard to the conflict of laws provisions thereof. The Parties submit to the exclusive jurisdiction of the competent courts of Tel-Aviv in any dispute related to this Agreement without giving effect to choice of law rules. Notwithstanding the aforesaid, the Parties shall endeavor in good faith to settle amicably any dispute which may arise between them under or in connection to this Agreement.

 

18.10. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same Agreement.

 

Dexcel Ltd.   Kitov Pharmaceuticals Holdings, Ltd.

 

By: /s/ Dan Oren   By: /s/ Simcha Rock
Name: Dan Oren   Name: Simcha Rock
Title: CEO   Title: CFO
Date: March 31, 2014   Date: April 1, 2014

  

19
Confidential Execution Copy

 

Annex A

 

Statement of Work of solid dosage formulations [****] of Celecoxib and Amoloidpine Besylate [****]

 

API

 

1. APIs analytical methods development.

 

1.1. Allocate suppliers of the APIs.
1.2. Analytical methods development and validation or verification.
1.3. APIs Release tests.

 

Formulation Development

 

2. Compatibility (API-API and API-Excipeint)

( corresponding to points 1&t 2 in Kitov's RFP )

1.1. Compatibility of Celecoxib & Amoloidpine Besylate
1.2. Compatibility of each API & excipients

 

3. Development of formulation Prototypes of Celecoxib and Amoloidpine Besylate (the '' Prototypes '') ( corresponding to point 3 in Kitov's RFP ).

2.1. Screening of various formulations.
2.2. Selection of the 2 formulation Prototypes to be developed under the Agreement (the '' Selected Prototypes '').

 

4. Prototypes' analytical methods development (including pre-validations)

Development of analytical methods for the formulation Prototypes (in accordance with the ICH guidelines).

 

5. Release and stability studies on the Selected Prototypes.

5.1. Release tests on the Selected Prototypes.
5.2. Stability studies on the Selected Prototypes (Testing at the following time points: 0, 1, 3, 6 months accelerated, 0, 1, 3, 6, 9, 12 months intermediate, and 0, 1, 3, 6, 9, 12 months long term with 18 and 24 months optional ).

 

In the event Kitov decides to perform a Pilot Bio : Pilot Bio Decision

 

Dexcel highly recommends performing the Pilot Bio before the performance of the Full Bio.

 

20
Confidential Execution Copy

 

6. 1 st Pilot Bio-Studies on the Selected Prototypes.

 

2 pilot bio-studies (fast and fed conditions) on the highest strength [****] :

 

Pilot Studies Strength Study Design
[****] Single Centre, Open-Label, Randomized, Single-Dose, 3-Way Crossover, Pilot Bioequivalence Study, Comparing Two Test Formulations [****] with the Compotator Products (Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fasting Conditions
  Single Centre, Open-Label, Randomized, Single-Dose, 3-Way Crossover, Pilot Bioequivalence Study, Comparing Two Test Formulations [****] with the Compotator Products (Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fed Conditions

  

7. Reformulation (if required)

According to the results of the Pilot Bio, fine tuning of the formulations may be necessary. This will be regarded as the "Adjusted Prototype/s".

 

8. Release and stability studies on the Adjusted Prototype/s.

8.1. Release tests on the adjusted Prototype.

8.2. Stability studies on the adjusted Prototype (at least 1 month in accelerated conditions).

 

In the event Kitov decides to perform a Pilot Bio on the Adjusted Prototypes: - 2 nd Pilot Bio Decision

Dexcel highly recommends performing the Pilot Bio before the performance of the Full Bio.

 

9. 2 nd Pilot Bio-Studies on the adjusted Prototype/s.

2 pilot bio-studies (fast and fed conditions) on the highest strength ( [****] ):

 

Pilot Studies Strength Study Design
[****] Single Centre, Open-Label, Randomized, Single-Dose, 3-Way Crossover, Pilot Bioequivalence Study, Comparing Two Test Formulations [****] with the Compotator Products (Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fasting Conditions
Single Centre, Open-Label, Randomized, Single-Dose, 3-Way Crossover, Pilot Bioequivalence Study, Comparing Two Test Formulations [****] with the Compotator Products (Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fed Conditions

  

21
Confidential Execution Copy

  

Successful Pilot Bio → Pivotal batch manufacture & Full Bio decision.

 

Pivotal (registration) batch manufacture, DOE, stability testing and BE study.

 

10. Design Of Experiment Studies (DOE) ( corresponding to point 6 in Kitov's RFP ) .

Critical Material Attributes (CMAs) and Critical Process Parameters (CPPs)

will be established using either full design of experiment, or process range findings.

 

11. Pivotal batches manufacture ( corresponding to point 4 in Kitov's RFP ) .

11.1. GMP manufacture of three (3) pivotal scale (at least 100,000 units) for each of the [****] strengths [****] equal to a total of [**** ] batches. API from two vendors for each drug substance will be used in registration stability lot production.

 

11.2. Packaging of each batch, with two packaging configurations that will be selected by Kitov and that have shown adequate stability results on pilot scale batches (sections 4& 7 hereinabove) additional packages will require additional fees.

 

12. Full validation of the analytical methods for the selected prototype (" Product ")
( corresponding to point 5 in Kitov's RFP ) .

  

13. Release and stability studies for pivotal batches.

( corresponding to point 4 in Kitov's RFP )

 

Full release of all [****] batches.

 

Stability studies according to the following:

 

· Samples will be stored at 40°C/75% RH , 30°C/65% RH and 25°C/60% RH.
· Testing at the following time points: 0, 1, 3, 6 months accelerated, 1, 3, 6, 9, 12 months intermediate, and 1, 3, 6, 9, 12, 18, 24, and 36 months long-term.
· Comparative RLD stability testing
· ICH- photostability and heat stress stability (Comparable to heat induced forced degradation except in final packaging. For example, 50ºC for two weeks and 70ºC for one week to demonstrate temperature excursions during shipping/handling are unlikely to have an adverse effect on product quality).

 

22
Confidential Execution Copy

 

14. Full Bio study on Pivotal batches

Dexcel highly recommends on having a PIND meeting with the FDA before the Full Bio study in order to understand what are the agency’s requirements from the BE studies.

 

The requirements should:

 

· No. of Full Bio studies required: 2 studies (Fasting and Fed on [****] dose) using 24 - 60 healthy volunteers

 

Pivotal Studies [****] Single Centre, Open-Label, Randomized, Single-Dose, 2-Way Crossover, Pivotal Bioequivalence Study, Comparing One Test Formulations [****] with the Compotator Products (Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fasting Conditions.
Single Centre, Open-Label, Randomized, Single-Dose, 2-Way Crossover, Pivotal Bioequivalence Study, Comparing One Test Formulations [****] with the Compotator Products(Celebrex [****] and Norvasc [****] ) Given in Combination in Healthy Volunteers Under Fed Conditions

 

23
Confidential Execution Copy

 

Annex B

General Cost estimation regarding the Pilot and Full Bio

 

Pilot Bio studies

 

The total estimated cost for the 4 Pilot Bio studies (2 in the 1 st pilot bio + 2 for the 2 nd pilot bio) on the higher dosage [****] : $1,004,000 (cost of each pilot study: $251,000).

  

Full Bio studies on pivotal batches

 

No. of Full Bio studies required: 2 (Fasting and Fed studies on the highest [****] dose).

 

Estimated cost for the Full Bio studies: $1,450,000 (cost of each full bio study: $725,000)

 

For the avoidance of any doubt, and according to Section ‎5.2 of the Agreement, the above-mentioned figures are only estimation of costs associated to the Pilot Bio studies and the Full Bio. A formal quote will be presented to Kitov prior to each study. Dexcel shall charge Kitov such quoted cost+12.5%.

 

24
Confidential  

   

Annex C

 

TIMETABLE

 

Milestone
No.
  Milestone   Time Frame   Comments
    Kick Off        
1   [****]   [****]months from Kick Off    
2   [****]   [****]months from Completion of Milestone 1   [****]
3   [****]   [****]months  from Completion of Milestone 2    
4   [****]   [****]months  from Completion of Milestone 3   [****]
5   [****]   [****]months  from Completion of Milestone 4    
6   [****]   [****]months  from Completion of Milestone 5   [****]

 

*According to Section 3.4 of the Agreement, in the event that Dexcel shall need to repeat any development stage, not due to Dexcel’s misconduct or omission, the Timetable shall be adjusted and deadlines shall be prolonged in accordance with the duration of the repeated stage of Development.

 

25

 

 

 

EXHIBIT 10.2

 

 

 

Dated 04 February 2014

 

Kitov Pharmaceutical Limited

 

AND

 

Java Clinical Research Limited

 

Master Research Services Agreement

Strictly Confidential

 

 
 

 

THIS MASTER SERVICES AGREEMENT ( this “AGREEMENT”)

 

BETWEEN:

 

(1) Kitov Pharmaceuticals Limited (“Kitov”) a Company incorporated in Israel and whose principal place of business and resgistered address is at, 11 Bet Hadfus Street Jerusalem 95483, Israel.
(2) JAVA CLINICAL RESEARCH LIMITED, a company incorporated in Ireland, registered number 311398, with registered office address 2 Grand Canal Square, Dublin 2, Fitzwilliam Business Centre, 26/27 Upper Pembroke Street, Dublin 2 (" JAVA ");

(each a " Party " and together the " Parties ").

 

RECITALS

 

(A) The Sponsor is concerned with the diagnosis, treatment and prevention of disease and clinical research for the improvement of healthcare. JAVA is in the business of providing research services; and

 

(B) The Sponsor and JAVA desire to enter into this Agreement to provide the terms and conditions upon which the Sponsor may engage JAVA from time-to-time to provide research services for individual projects by executing individual Work Orders (as defined below) specifying the details of the services and the related terms and conditions.

 

NOW, IT IS HEREBY AGREED AS FOLLOWS in consideration of the mutual covenants contained herein:

 

1. DEFINITIONS

 

1.1. "Applicable Laws " shall mean all laws, rules and regulations including without limitation, Good Clinical Practice (“GCP”) that are applicable to the performance by JAVA of the Services under this Agreement.

 

1.2. "Change Order" shall have the meaning given to the term in Clause 2.3.

 

1.3. " Claims " shall mean all and any claims (whether successful or otherwise), loss, liability, damages and expenses, including reasonable attorneys' fees and expenses and legal costs.

 

1.4. "Confidential Information" shall mean all confidential and proprietary information, including without limitation, inventions, specifications, designs, know-how, trade secrets, inventions (including patent applications covering such inventions), data, information, and any improvements, modifications, derivations, or compilations thereto that is owned, licensed by or controlled by the disclosing Party; provided however, that Confidential Information shall not include any information which is:

 

1.4.1. already known to the receiving Party at the time of disclosure, as evidenced by such Party's written records, provided such information was not obtained directly or indirectly by the receiving Party from the disclosing Party pursuant to a confidentiality agreement;

 

1.4.2. publicly known prior to or after disclosure, through no default of the receiving Party;

 

1.4.3. disclosed in good faith to the receiving party by a third party, lawfully and contractually entitled to make such disclosure; or

 

2
 

 

1.4.4. is independently discovered without the aid or application of the Confidential Information as shall be evidenced by the written records of the receiving Party.

 

1.5. " Effective Date " shall mean the date of this Agreement.

 

1.6. “GCP” shall mean the ICH Harmonised Tripartite Guidelines for Good Clinical Practice, and any subsequent versions thereof.

 

1.7. "Intellectual Property Rights" shall mean all patents, patent applications, copyrights, copyright applications, trademarks, trade secrets, know-how and other intellectual property rights.

 

1.8. "Materials" shall have the meaning given to the term in Clause 3.1.

 

1.9. "Project" shall have the meaning given to the term in Clause 2.1.1.

 

1.10. "Services" shall have the meaning given to the term in Clause 2.2.2.

 

1.11. "Term" shall have the meaning given to the term in Clause 12.1.

 

1.12. "Work Orders" shall have the meaning given to the term in Clause 2.2.1.

 

2. SCOPE OF THE AGREEMENT, WORK ORDERS AND CHANGE ORDERS

 

2.1. Scope of Agreement and Performance of the Services

 

2.1.1. This Master Agreement allows the Parties to contract for multiple projects and other services requested by the Sponsor and agreed by JAVA (each a " Project" ) through the issuance of multiple Work Orders in accordance with the terms of this Agreement.

 

2.2. Work Orders

 

2.2.1. The specific details of each Project under this Agreement shall be separately negotiated and agreed by the Parties and specified in writing in substantially the form attached hereto in Appendix 1 (each a " Work Order" ).

 

2.2.2. Each Work Order will include details of the services to be provided by JAVA (“ Services” ), scope of work, timelines, budget and payment schedule.

 

2.2.3. Each Work Order, upon execution, shall be incorporated into this Agreement and shall be subject to all of the terms and conditions of this Agreement, in addition to the specific details set forth in the Work Order.

 

2.2.4. To the extent any terms or provisions of a Work Order conflict with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall prevail, except to the extent that the applicable Work Order expressly and specifically states an intent to supersede the Agreement on a specific matter and such Work Order is signed by both Parties.

 

3
 

 

2.3. Change Orders

 

2.3.1 Any material change in the details of a Work Order, or the assumptions upon which the Work Order is based, shall require written amendment to the Work Order in substantially the form attached hereto in Appendix 2 (a " Change Order" ).

 

2.3.2 Each Change Order shall detail the requested changes to the applicable task, responsibility, duty, budget, timeline or other matter.

 

2.3.3 The Change Order will become effective upon the execution of the Change Order by both Parties.

 

2.3.4 Both Parties agree to act in good faith and promptly when considering a Change Order requested by the other Party.

 

2.4 Services

 

2.4.1 JAVA shall perform the Services in good faith, with due care and skill, in accordance with the terms of this Agreement, the reasonable instructions of the Sponsor, and with all Applicable Laws.

 

2.4.2 The Sponsor agrees to cooperate with JAVA and provide JAVA with such information and assistance as JAVA may reasonably require in order to enable or facilitate JAVA duly and punctually to comply with its obligations under this Agreement and each Work Order.

 

2.4.3 Except as expressly stated in this Agreement, all warranties, conditions and terms, whether express or implied by statute, common law or otherwise (including but not limited to fitness for purpose and suitability) are hereby excluded to the extent permitted by law.

 

3. MATERIALS

 

3.1 The Sponsor shall provide JAVA with materials required for the purpose of performing the Projects (the "Materials" ).

 

3.2 JAVA undertakes that it shall not:

 

3.2.1 use the Materials other than for the purpose of performing the Projects;

 

3.2.2 make the Materials available to any third party;

 

3.2.3 allow access to the Materials by any of its employees or students except those who are directly involved in performing the Projects;

 

3.2.4 make any commercial use of the Materials or any composition made using the Materials; or

 

3.2.5 analyse or otherwise attempt to determine the composition of the Materials.

 

3.3 The Sponsor warrants that all Materials shall be fit for purpose as envisaged by this Agreement and that all such Materials may be lawfully used in conducting the Services.

 

4
 

 

3.4 Upon termination of the Agreement, any unused Materials shall, at the Sponsor's option, either be destroyed by JAVA or returned to the Sponsor, at the Sponsor’s expense.

 

4. PAYMENT OF FEES AND EXPENSES

 

4.1. The fees to be charged by JAVA for each Project performed hereunder (the "Service Fees" ) shall be set out in the relevant Work Order.

 

4.2. In consideration of the supply of Services for each Project, the Sponsor shall pay JAVA the Services Fees and reasonable and necessary vouched expenses incurred in the performance of the Services as set out in the Work Order on the following basis:

 

4.2.1. the Service Fees and the total cost of each Project and an estimate of the total expenses to be incurred in relation thereto (the " Total Project Cost ") shall be set out in the relevant Work Order; and

 

4.2.2. in no event shall the Sponsor be required to pay any amount exceeding the Total Project Cost unless otherwise agreed in writing by both Parties by Change Order(s) (as specified in Clause 2.3 above).

 

4.2.3. Invoices for fees and expenses shall be issued on a monthly basis and Sponsor shall pay each invoice within 30 days of receipt.

 

4.3. All sums referred to in each Work Order shall be exclusive of Value Added Tax (VAT). The Sponsor shall pay all VAT at the rate and in the manner prescribed by law from time to time.

 

5. PERSONNEL

 

5.1. JAVA shall be responsible for ensuring that all personnel which it assigns to each Project are fully qualified by education, training and experience to perform their respective obligations under this Agreement and the relevant Work Order (" JAVA Personnel ").

 

5.2. JAVA shall remain fully liable for the performance by all JAVA Personnel of JAVA’s obligations hereunder.

 

5.3. The Sponsor shall be responsible for ensuring that all personnel which it assigns to each Project (“ Sponsor Personnel ") are fully qualified by education, training and experience to perform their respective obligations under this Agreement and the relevant Work Order.

 

5.4. The Sponsor shall remain fully liable for the performance by all Sponsor Personnel of the Sponsor’s obligations hereunder.

 

6. CONFIDENTIAL INFORMATION/ANNOUNCEMENTS

 

6.1. During the Term and for a period of 7 (seven) years thereafter, each Party undertakes to maintain as confidential all Confidential Information disclosed by the other Party to it (the “Confidential Information" ) before or after the date of this Agreement.

 

6.2. Each Party shall not without the other Party’s prior written consent:

 

6.2.1. use the Confidential Information for any purpose other than the proper performance of the Services; or

 

5
 

 

6.2.2. disclose the Confidential Information to any other person, save those employees, representatives and agents as may be strictly necessary in order to perform the Services, and provided that JAVA first ensures that such person is under a duty of confidentiality to JAVA to protect the Sponsor’s Confidential Information on no less onerous terms than as set out in this Clause 6.

 

6.3. Notwithstanding the provisions of this Clause 6, Confidential Information may be disclosed to the extent required by law or as ordered by a court or other regulatory body having competent jurisdiction, provided that if a Party becomes legally required to disclose any Confidential Information hereunder, the receiving Party shall give the disclosing Party prompt notice of such requirement to enable the disclosing Party to seek a protective order or other appropriate remedy concerning any such disclosure. The receiving Party shall fully co-operate with the disclosing Party in connection with the disclosing Party’s efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude disclosure, the receiving Party shall make such disclosure only to the extent that such disclosure is legally required. JAVA acknowledges that Sponsor is a publicly traded corporation and is subject to certain reporting obligations under any applicable laws, and hence JAVA agrees Sponsor has a right to make such publications as required under any such applicable laws.

 

6.4. JAVA agrees to maintain, as strictly confidential the subject matter of this Agreement and the fact that the Parties have entered into this Agreement.

 

6.5. Upon termination or expiration of this Agreement, JAVA shall promptly return, or at the Sponsor's request, destroy all of the Sponsor's Confidential Information.

 

6.6. Each Party shall be entitled to provide a copy of this Agreement (and any related documents) to a potential third-party acquirer, investor, or other commercialisation partner, provided that the relevant third party has entered into a confidentiality agreement with the disclosing Party on terms equivalent hereto.

 

6.7. In relation to all personal data (as defined in the Data Protection Acts 1988 and 2003 as amended), the Parties shall at all times comply with the Data Protection Acts 1988 and 2003 as amended, and the Parties shall only undertake processing of personal data reasonably required in connection with the Services and in compliance with law.

 

6.8. JAVA acknowledges that information provided by it to the Sponsor may be the subject of a request under the Freedom of Information Act, 1997 (“FOI”), as amended. If a request is made under FOI, the Sponsor shall give JAVA prompt notice of such request to enable JAVA to seek a protective order or other appropriate remedy concerning any such disclosure. The Sponsor shall fully co-operate with JAVA in connection with JAVA's efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude disclosure, the Sponsor shall make such disclosure only to the extent that such disclosure is legally required.

 

7. PROJECT RESULTS, INTELLECTUAL PROPERTY RIGHTS AND REPORTS

 

7.1. JAVA agrees that:

 

7.1.1. all data, materials and reports, and all rights therein (the "Project Results" ); and

 

6
 

 

7.1.2. all Intellectual Property Rights (the "Project IP" );

 

conceived, created, developed and or otherwise invented as a result of performing the Services shall be owned exclusively by the Sponsor.

 

7.2. JAVA shall assign to the Sponsor all right, title and interest in and to all Project Results and Project IP and further agrees to execute all such documents, make such applications, give such assistance and do such acts and things as may be necessary or desirable to vest in and register or obtain letters patent in the name of the Sponsor and otherwise to protect and maintain such Project Results and Project IP.

 

7.3. JAVA shall promptly disclose all Project Results and Project IP to the Sponsor and provide copies of all documents relating to same to the Sponsor at its request at any time during or after the Term.

 

7.4. JAVA has informed the Sponsor that JAVA possesses certain processes, know-how, trade secrets and other intellectual assets relating to applicable processing, laboratory analyses, analytical methods, procedures and techniques, computer technical expertise and software which have been developed by JAVA prior to the Effective Date and which the Sponsor understands are applied and utilised by JAVA on an ongoing basis in providing services to clients (collectively " JAVA Property "). JAVA and the Sponsor agree that the JAVA Property or any improvements relating to the JAVA Property developed by JAVA pursuant to this Agreement shall be owned exclusively by JAVA.

 

7.5. Subject to Clause 11, JAVA shall not, without the prior written consent of the Sponsor, disclose or publish any Project Results or Project IP, or use any Project Results or Project IP for any purpose other than to perform its obligations hereunder.

 

7.6. Reports and Record Retention

 

7.6.1. JAVA will provide reports in writing on the Services performed (each a " Report ") on a regular basis.

 

7.6.2. If for any reason any Report is not to the satisfaction of the Sponsor acting reasonably, JAVA shall re-produce such Report to the satisfaction of the Sponsor.

 

7.6.3. JAVA shall maintain all books, records, data, reports, pictures and other documents (both in electronic and paper form) relating to the Services (the " Records ") for the maximum period required by law (the " Retention Period "). The Parties agree that all Records shall constitute Sponsor Confidential Information and the provisions of Clause 6 (Confidentiality) shall apply to all such Records. Upon expiry of the Retention Period, JAVA shall provide all original Records (both in electronic and paper form), and all copies thereof, to the Sponsor.

 

8. SOPS/REGULATORY INSPECTIONS

 

8.1. Upon the written request of the Sponsor, JAVA shall provide the Sponsor with a list of all of JAVA's standard operating procedures (" SOPs ") relevant to the Services to be performed by JAVA hereunder.

 

8.2. At any time during the Term, JAVA shall allow the Sponsor to review all such SOPs, including any updates thereof, on JAVA's premises.

 

7
 

 

8.3. If any regulatory agency requests to inspect any books, records, or facilities of JAVA, relating to the Services, JAVA shall immediately notify the Sponsor (within 1 business day) and shall promptly notify the Sponsor of the outcome of any such inspection within 5 business days of such outcome becoming known to Service Provider.

 

9. REPRESENTATIONS, WARRANTIES AND COVENANTS

 

9.1. JAVA represents and warrants to the Sponsor that the performance by JAVA of its obligations hereunder are not inconsistent with and will not breach any third-party obligations.

 

9.2. JAVA covenants that it shall have agreements in place with all servants and agents, that impose confidentiality obligations on such servants and agents, vest in JAVA any rights such servants and agents might otherwise have in any Project Results or Project IP, permit JAVA to assign all such rights to the Sponsor, and otherwise enable JAVA to comply with the terms of this Agreement and any Work Order hereunder, including without limitation any timeline set out therein.

 

10. INDEMNIFICATION/LIABILITY

 

10.1. The Sponsor shall indemnify and hold harmless JAVA and its employees, agents, officers and directors from and against any Claims incurred or sustained by JAVA arising out of the Services performed under this Agreement, except to the extent such Claims arise out of, or are connected with any:

 

10.1.1. breach of any representation, covenant, warranty or obligation by JAVA under this Agreement; or

 

10.1.2. negligent act or omission or wilful misconduct on the part of JAVA or any of its agents or employees in the performance of this Agreement.

 

10.2. JAVA shall indemnify and hold harmless the Sponsor and their respective employees, agents, officers and directors from and against any Claims incurred or sustained by the Sponsor arising out of or in connection with any:

 

10.2.1. breach of any representation, covenant, warranty or obligation by JAVA under this Agreement; or

 

10.2.2. negligent act or omission or wilful misconduct on the part of JAVA or any of its respective employees, agents, officers and directors in the performance of this Agreement.

 

10.3. The Party seeking an indemnity shall:

 

10.3.1. fully and promptly notify the other Party of any claim or proceedings, or threatened claim or proceedings;

 

10.3.2. permit the indemnifying Party to take full control of such claim or proceedings, with counsel of the indemnifying Party's choice, provided that the indemnifying Party shall reasonably and regularly consult with the Party seeking to be indemnified in relation to the progress and status of such claim or proceedings;

 

10.3.3. co-operate in the investigation and defence of such claim or proceedings; and

 

8
 

 

10.3.4. take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceedings.

 

Neither the indemnifying Party nor the Party seeking to be indemnified shall acknowledge the validity of, compromise or otherwise settle any Claim without the prior written consent of the other, which shall not be unreasonably withheld.

 

The Parties agree that the aggregate liability of either party to the other party under or in connection with this Agreement shall in no event exceed the total Service Fees paid by the Sponsor to JAVA under this Agreement, provided however, that this limitation to each other shall not apply to the indemenities set forth in 10.1 and 10.2 hereunder .

 

10.4. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE SPONSOR AND JAVA SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR AGENTS OR OTHERWISE.

 

10.5. Nothing in this Agreement shall limit the liability of either Party for fraud, or limit the liability of either Party to any third party under applicable laws where any act or omission of either Party results in death or personal injury.

 

10.6. Insurance

 

JAVA shall furnish certificates of insurance evidencing the required insurance policies to the Sponsor as soon as practicable after the Effective Date and within 30 days after renewal of such policies.

 

11. PUBLICATION

 

11.1. It is acknowledged and agreed by JAVA that:

 

11.1.1. publication of the Project Results and/or Project IP in whole or in part shall be within the sole and absolute discretion of the Sponsor;

 

11.1.2. JAVA shall not publish or refer to any Project Results and/or Project IP, in whole or in part, without the prior written consent of the Sponsor; and

 

11.1.3. JAVA will not use the Sponsor’s name in connection with any publication or promotion without the Sponsor’s prior written consent.

 

11.2. In the event that such consent is given, prior to publication or communication of any Project Results and/or Project IP by JAVA, JAVA shall provide to the Sponsor, for its review and comment, a copy of the relevant abstract, presentation, or paper 30 days before such abstract, presentation, or paper is submitted for publication.

 

11.3. No release of such abstract, presentation, or paper shall be permitted without the prior written consent of the Sponsor.

 

11.4. The provisions of this Clause 11 also apply to any amendments that are subsequently requested by referees or journal editors.

 

9
 

 

12. TERM and TERMINATION

 

12.1. This Agreement shall commence on the Effective Date and shall continue until terminated by either Party in accordance with this Clause 12 (the " Term ").

 

12.2. This Agreement or any Work Order may be terminated without cause by either Party at any time during the term of the Agreement on sixty (60) days prior written notice to the other Party. The written termination shall identify whether this Agreement or a specific Work Order or Work Orders are being terminated.

 

12.3. In addition to the rights of termination provided for elsewhere in this Agreement, each Party shall be entitled forthwith to terminate this Agreement by written notice to the other Party if:

 

12.3.1. either Party commits any material breach of any provisions of this Agreement, and in the case of a breach capable of remedy, fails to cure the same within 30 days after receipt of a written notice giving full particulars of the breach and requiring it to be cured; or

 

12.3.2. either Party goes into liquidation (except for the purposes of amalgamation or reconstruction and in such manner that the company resulting therefrom effectively agrees to be bound by or assume the obligations imposed on such party under this Agreement); or

 

12.3.3. an encumbrancer takes possession or a receiver is appointed over any of the property or assets of either Party; or

 

12.3.4. a Party becomes unable to pay its debts as and when they fall due or is deemed to be unable to pay its debts as they fall due; or

 

12.3.5. any proceedings are filed or commenced by any Party under bankruptcy, insolvency or debtor relief laws.

 

12.4. Upon receipt of a termination notice from the Sponsor, JAVA shall cease performing any work not necessary for the orderly close out of the affected Projects or for the fulfilment of regulatory requirements.

 

12.5. In the event of termination of this Agreement or any Work Order, each Party will co-operate in good faith with the other Party to wind-down and terminate or transition, at Sponsors  discretion, to another service provider, any Services then in progress that are affected by such termination and will perform such additional acts as are reasonably necessary in order to effect such wind-down or transition of the Services.  JAVA will provide to SPONSOR within forty-five (45) days following any Work Order termination date, an accounting for all Services performed together with reasonable supporting documentation.  SPONSOR will promptly review such accounting and will notify JAVA in writing of its approval or will notify CRO of any disputed amounts.  SPONSOR will pay CRO within 30 days after receipt of the approved accounting or upon mutual agreement of the final amount due for: (1) all unpaid and undisputed amounts for Services rendered and expenditures made by JAVA in accordance with this Agreement and the applicable Work Order prior to the Termination Date; and (2) expenses resulting from reasonable non-cancellable obligations that JAVA properly incurred for the Services in accordance with a Work Order prior to receipt of notice of termination and which JAVA used commercially reasonable efforts to cancel after receipt of notice of termination.

 

10
 

 

12.6. Upon the termination of this Agreement or any Work Order, JAVA shall deliver to the Sponsor all Confidential Information and Materials provided by the Sponsor to JAVA for the conduct of Services under the terminated Work Orders, and JAVA shall also deliver to the Sponsor all Project IP, Project Results and any other data, information and documentation produced as the result of Services performed by JAVA under the terminated Work Orders.

 

13. MISCELLANEOUS

 

13.1. This Agreement shall be governed by and construed in accordance with Irish laws and, subject to Clauses 13.2 and 13.3, the Parties submit to the exclusive jurisdiction of the Irish courts.

 

13.2. Resolution of Disputes: The Parties shall attempt in good faith to resolve promptly any dispute arising out of or relating to this Agreement by negotiation. If the matter cannot be resolved in the normal course of business either Party may give the other Party written notice of any such dispute not resolved, after which the dispute shall be referred to more senior executives of both Parties, who shall likewise attempt to resolve the dispute.

 

13.3. If the Parties cannot resolve the dispute or difference by referral to a senior representative of each Party, then within 15 days from the date of such meeting of the senior representatives, the matter shall be referred to a mediator to be agreed upon by Parties or, failing such agreement, shall be appointed on the application of either one of the Parties to the President of the Law Society of England and Wales. The Parties shall use reasonable efforts to resolve any dispute by mediation for a period of 60 days.

 

13.4. No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed to be a waiver of any future breach or failure to perform or of any other right arising under this Agreement.

 

13.5. Neither Party to this Agreement shall be liable for delay or failure in the performance of any of its obligations hereunder to the extent such delay or failure results from causes beyond its reasonable control, including, without limitation, acts of God, fires, strikes, acts of war, or intervention of a government authority (" Force Majeure "), but any such delay or failure shall be remedied by such Party as soon as practicable.

 

13.6. JAVA shall not subcontract with a third party to perform the Services without the prior written consent of the Sponsor.

 

13.7. JAVA shall not be entitled to assign this Agreement to a third party, without the prior written consent of the Sponsor, which shall not be unreasonably withheld.

 

13.8. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

 

13.9. Nothing contained in this Agreement is intended or is to be construed to constitute JAVA and the Sponsor as partners or members of a joint venture. None of the Parties hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any third party.

 

11
 

 

13.10. No amendment, modification or addition hereto shall be effective or binding on any Party unless set forth in writing and executed by a duly authorised representative of each of the Parties.

 

13.11. Any notice to be given under this Agreement shall be sent in writing in writing by recognized courier or registered mail to each of the Parties stated in this Agreement, in the Sponsor’s case to to Mr. Simcha Rock, Kitov Pharmaceuticals, Bet Hadfus 11 Jerusalem, or to such other address(es) as may from time to time be notified by any of the Parties, in the Sponsor’s case by the office of Corporate and Legal Affairs, to the others hereunder.

 

13.12. Any notice sent by overnight courier or registered mail shall be deemed to have been delivered upon receipt by the addressee.

 

13.13. If any provision in this Agreement is agreed by the Parties to be, or is deemed to be, or becomes invalid, illegal, void or unenforceable under any law that is applicable hereto:-

 

13.13.1. such provision will be deemed to be deleted, and the Parties shall promptly meet and negotiate in good faith a valid and enforceable replacement for the severed provision which replacement shall be designed to achieve as nearly as possible the same commercial objective as the original; and

 

13.13.2. the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way.

 

13.14. This Agreement sets forth all of the agreements and understandings between the Parties with respect to the subject matter hereof, and supersedes and terminates all prior agreements and understandings between the Parties with respect to the subject matter hereof.

 

13.15. At the request of any of the Parties, the other Party shall (and shall use reasonable efforts to procure that any other necessary third parties shall) execute and do all such documents, acts and things as may reasonably be required subsequent to the signing of this Agreement for assuring to or vesting in the requesting Party the full benefit of the terms hereof.

 

13.16. The provisions of Clauses 1, 6, 7, 9, 10, 11, 12, and 13 shall survive the termination of this Agreement or any Work Order.

 

13.17. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement.

 

12
 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.

 

SIGNED by  /s/ Simcha Rock  

Chief Financial Officer

 

for and on behalf of

KITOV PHARMACEUTICALS LTD (“Kitov”)

 

DATE: February 9, 2014

 

SIGNED by  /s/ Ruth Nullen  

(Managing Director)

 

for and on behalf of

JAVA CLINICAL RESEARCH LIMITED

 

DATE: February 6, 2014

 

13
 

 

APPENDIX 1

WORK ORDER NO 1

 

This WORK ORDER dated as of the date of last signature below

 

BETWEEN

 

(1) Kitov Pharmaceuticals Limited (“Kitov”) Company incorporated in Israel whose registered address and principal place of business is at, 11 Bet Hadfus Street, Jerusalem, Israel.

(" Sponsor "); and

 

(2) JAVA CLINICAL RESEARCH LIMITED, a company incorporated in Ireland, registered number 311398, with registered office address 2 Grand Canal Square, Dublin 2, whose principal place of business is at Fitzwilliam Business Centre, 26/27 Upper Pembroke Street, Dublin 2 (" JAVA ")

 

WHEREAS

 

A. The Sponsor and JAVA are bound by the terms of the Master Services Agreement dated 04 February 2014 between the Sponsor and JAVA (the " Master Services Agreement ").

 

The Sponsor and JAVA wish to set out the specific details of services to be provided by JAVA in respect of A Prospective Randomized Placebo Controlled Study to Evaluate the Effect of Celecoxib on the Efficacy and Safety of Amlodipine in Subjects with Hypertension Requiring Antihypertensive Therapy

 

(the "Project ").

 

THE PARTIES NOW HEREBY AGREE AS FOLLOWS:

 

1. JAVA shall provide the services as outlined in Schedule 2 hereto (the " Services ") in accordance with the timelines set out in Schedule 3 hereto and the terms and conditions of the Master Services Agreement together with the additional provisions as set out in the following Schedules:

 

Schedule 1 Scope of Services

Schedule 2 Timelines

Schedule 3 Budget and Payment Schedule

Schedule 4 Personnel / Contacts for Notices and Payments

Schedule 5 Protocol

 

2. This Work Order has an effective date as of the last date of signature and will remain valid until completion of Services described herein and when the Sponsor has paid the final invoice in accordance with the terms of the Master Services Agreement, unless otherwise terminated in accordance with the provisions of Clause 12 of the Master Services Agreement.

 

14
 

 

SIGNED BY

 

KITOV PHARMACEUTICALS LIMITED

 

Signature :  /s/ Simcha Rock     

 

By :        Simcha Rock                     

(Print Name)

Title:           Chief Financial Officer      

 

Date:           February 9, 2014       

 

JAVA CLINICAL RESEARCH LIMITED

 

Signature :   /s/ Ruth Nullen       

 

By :        Ruth Nullen     

(Print Name)

Title: Managing Directoe         

 

Date:     February 6, 2014     

 

15
 

 

SCHEDULE 1: SCOPE OF SERVICES

 

16
 

 

Study Title : A Prospective Randomized Placebo Controlled Study to Evaluate the Effect of Celecoxib on the Efficacy and Safety of Amlodipine in Subjects with Hypertension Requiring Antihypertensive Therapy

 

PROTOCOL NO. : K-302-03-01

 

Proposed Allocation of Sponsor - Java- Duties and Functions

 

04 February 2014

 

I. Regulatory and Ethics

 

II. Investigator Relations

 

III. IMP Supplies

 

IV. Study Documentation

 

V. Relationship between Sponsor& Java

 

VI. Relationship with other subcontractors

 

VII. Monitor Activities of Clinical Sites

 

VIII. Medical and coherence review of the CRF following retrieval from the site

 

IX. Serious Adverse Events follow up and reporting

 

X. Data entry, Data Management & Coding

 

XI. Statistical Analysis

 

XII. Clinical Study Report

 

XIII. XIV Medical Monitoring

 

XIV. Quality Assurance

 

17
 

 

table of responsibilities: E = Execute; A = Assist; R = Review

 

* = Subcontracted by Java to a third party Vendor

 

# = Subcontracted by SPONSOR to a third party Vendor

 

    Sponsor   JAVA
I              Regulatory & Ethics        
1.    Provision of all supporting IMP documentation for CTA  submission to IMB and MHRA.   E   R
2.    Completion of EudraCT Form, compilation of supporting documents (on receipt from relevant parties) into required electronic format for submission of Clinical Trial Application to IMB and MHRA, plus submission of responses to any queries raised during review period       E
3.    Submission of CTA to National Ethics Committees in Republic and Northern Ireland plus submission of responses to any queries raised during review period       E
4.    Providing Sponsor with the final answer given by IMB. MHRA and Ethics Committees       E
II          Investigator Relations        
A.  Selection        
1.    Definition of investigator selection criteria   E    
2.    Proposal of potential investigators and national coordinator       E
3.    Organization of site assessment visits to evaluate the interest and suitability of the centers to participate in the study.       E
4.    Approval of selected investigators   A   E
5.    Organization of pre-trial visits with all investigators to evaluate the capability of the centers to recruit patients within the time frame, advise them of the study requirement and procedures in preparation for Site Initiation       E

 

18
 

 

    Sponsor   JAVA
B Investigator fees        
1.    Proposal of investigator fees and payment schedule for each involved country   A   E
2.    Proposal and negotiation of the fees to the investigators       E
3.    Approval of final investigator fees   E    
4.    Management of payment of investigator fees and issue of invoices to Sponsor       E
C. Agreement with investigators/institutions        
1.    Issue of Confidentiality Agreements to be signed by investigators       E
2.    Identification of all the agreements to be obtained before study start   A   E
3.    Drawing up of all agreements   A   E
4.    Submission of the agreements to the investigators/institutions for approval and signature       E
5.    Signature of the agreements   E   A
6.    Collection of specific FDA  documentation  requirements such as 1572 forms as requested by Sponsor   R   E
III         IMP Supplies        
         
A. Randomization/allocation of treatments        
1.    Programming, development of a randomisation list   E#    
2.    Issue of decoding envelopes to be sent to investigators for decoding in case of medical emergency   E#    
3.    Allocation of treatments through a Central Randomisation system   E#    
4.    Shipment of initial  treatment blocks  of IMP to site   E#    
5.    Approval  of additional reorders form sitesite   R   E
6.     Shipment of additional reorders to site   E#    

 

19
 

 

    Sponsor   JAVA
B. Management of trial drug supplies        
1.    Manufacturing of drug supplies (or subcontracting)    E#    
2.    Management of subcontracting for packaging, labeling and shipment to sites    E#    
3.    Validation of labeling regarding administrative and regulatory procedure in each involved country       E
4.    Submission of import license when applicable   E#    
5.    Management of all customs issues   E#    
6.    Forwarding of required regulatory documentation to Sponsor for allowing the shipment of clinical supplies to each site       E
C. Retrieval and disposal of study drug        
1.    Manage retrieval of study drug from each site   E#   E
2.    Manage destruction of study drug.   E#    
3.    Perform a reconciliation of all drugs supplied and returned to Sponsor   E#   E
IV        Study documentation        
A. Drawing up study documents        
1.    Final protocol   E    
2.    Patient Information Leaflet and Informed Consent Form development   R   E
3.    Approval of Patient Information Leaflet and Informed Consent Form   E    
4.    eCRF development   R   E*
5.    Approval of eCRF   E    
6.    Printing of CRFs, if applicable   N/A   N/A
7.    Monitoring Guidelines and their update   R   E
8.    Approval of Monitoring Guidelines   E    
9.    Laboratory Operating Manual development       E*
10.  Approval of Laboratory Operating Manual   E    
11.  ABPM Manuals development and approval   E#   R

 

20
 

 

    Sponsor   JAVA
B. Filing and archiving of study document        
1.    Preparation of the Investigator’s Trial Files       E
2.    Filing of all original administrative study documents according to mutually agreed SOP (Trial Master File)       E
3.    Provide Sponsor on an ongoing basis with:        
- CRO personnel CVs and Allocation of duties and functions form       E
- Regulatory filing of declaration and any correspondence or contact with Regulatory Authorities       E
- Approval letters or acknowledgement letters of Regulatory Authorities       E
- Approval letters and any correspondence with Ethics committees       E
- Protocol signature page signed by Sponsor and the investigators       E
- Trial and Financial Agreements with Sponsor signed by the investigators       E
- CVs from site personnel and Trial Site Signature forms       E
-1572 form and any other FDA documents required by the Sponsor       E
4.    Ensure that patients' names and addresses are masked prior to returning documents to Sponsor but assure that the documents are still identifiable with protocol number, patient's initials and number       E
5.    Assure the maintenance and archiving at the trial sites of the Investigators’ Trial Files and CRFs       E
6.    Provide all original documents of the Trial Master File upon request of Sponsor, after database closure       E
V          Relationship between Sponsor and Java        
A. CRO clinical team        
1.    Assignment of a clinical team dedicated to the study       E
2.    Regular contacts (teleconference), , between Java and Sponsor representatives; initially weekly  then frequency will depend on the ongoing issues to be discussed   A   E

 

21
 

 

    Sponsor   JAVA
B. Reporting        
1.    Preparation and forwarding every week to Sponsor of a study report concerning the status of patients per site : number of patients included, dropped out, randomised, treatment ongoing, completed, recruitment rate (% included/to be included)       E
2.    Preparation and forwarding every two months to Sponsor of a report concerning the activities in terms of patient visits to allow payments of fees       E
3.     Monthly report of monitoring activities: type and date of visit, report date, problems, actions taken       E
4.     CRF tracking per centre: CRF visits monitored, laboratory results monitored, deviations to protocol, quality of the data, number of SAEs will be included in each monitoring report.       E

VI Relationship with the Central Laboratory

Negotiation and signature of agreement with central laboratory

      E*
A.    Proposal of a central laboratory for        
1.    Biochemistry & Haematology Profile        
2.    Urine Drug Screen        
3.    Urinalysis & Pregnancy       E*
4.    Alcohol Detection        
         
         B.       Preparation of        
1.    Investigator Laboratory Manual        
2.    Multi Part Laboratory Reports       E*
Tailor made request forms & patient labelling        

 

   C. Collection of specimens       E*
1.    Logistics and transportation in accordance with ADR regulations under temperature controlled conditions (ambient, +4°C or -20°C).        
2.    Analysis of specimens as required during normal working hours.        

 

22
 

 

    Sponsor   JAVA
    D. Reporting Procedures      
1.    Authorized report on the results from each patient specimen.        
2.    Expert medical pathologist support where result interpretation and clinical advice is required.       E* 
3.    Post Analysis Storage of Sampl        
         
E. Disposing of samples        
1.    OpenLabs Web Browser enabling Secure        
Access to Patient Results over the Internet        
2.    Full Extraction of results for all sample post analysis as per client request.       E*
3.    Resolution of queries in a timely manner,queries relating to sample requests        
1.        
VII – Monitor activities on clinical sites        
A. Pre-Initiation and Site Initiation Visits        
1.    Performing site assessment visits       E
2.    Performing pre-study visits       E
3.    Performing all the site initiation visits as soon as possible after obtaining all required regulatory documents       E
4.    Assure that all critical points of the study including scientific, administrative and logistic matters are well understood by all members of the study team prior to enrollment of the first patient at a site       E
5.    Check that all study documents and/or material such as eCRF manual, investigator study file, investigator operating manual have been forwarded to the investigator prior to the Site Initiation Visit or handed over during the visit       E
6.    Retrieval of any outstanding essential study documents to be signed by the investigator at the latest (if not, study drugs cannot be released and the investigator is not allowed to include patients)       E

 

23
 

 

    Sponsor   JAVA
7.    Management of all regulatory and logistical matters with the study pharmacist, if applicable       E
B.  Patient selection and recruitment        
1.    Monitor patient recruitment at the sites in order to ensure the target number of patients, as defined in the protocol and in accordance with the the planned study timelines, is met       E
2.    Decision to increase the number of sites, if needed   E    
C.   Monitoring        
1.    Allocation of internal experienced CRAs to monitor the study       E
2.    Performing all monitoring activities related to the study, including investigators’ site monitoring according to Monitoring Guidelines and agreed SOPs. The rate of monitoring visits will be defined in the Monitoring Plan.       E
3.    Monitoring of pharmacy  where applicable       E
4.    Detection and report to Sponsor potential problems as well as possible proposed actions to be discussed with the Sponsor       E
5.    Verification of source documents for 100% of randomised patients for the key-criteria (inclusion/exclusion criteria, primary endpoint assessments, AEs (serious and non-serious), drug dispensing record and informed consent forms, reason for premature termination)       E
6.     The monitor will ensure site personnel address all corrections/ discrepancies on the eCRF pages during, or following each monitoring visit.  The monitor will also ensure site addresses data queries when generated by CROSNT, as per CROSNT’s query handling procedure       E
7.    Review of biological results filing and  their masking       E
8.    Check of maintenance and update of the investigatorss trial files at routine monitoring visits       E

 

24
 

 

    Sponsor   JAVA
9.    Completion of a visit report form and forwarding to Sponsor within 10 working days after each visit (site assessment, pre-study, site initiation, monitoring, close-out)       E
10.  Co-monitoring visits with the CRO at investigator’s site according to a mutually agreed rhythm described in the Monitoring Plan   E    
D. Drug accountability        
1.    Check of 100% study drug accountability and storage conditions       E
2.    Check that the product is dispensed in conformity with the centralized allocation procedure       E
3.    Check that Drug Dispensing and Accountability Forms are complete and accurate       E
E. Study closure        
1.    Perform close-out visit to the sites on Sponsor’s instruction       E
2.    Check that essential documents are archived properly on site       E
3.    Collect all unused study materials       E
VIII        Medical and coherence review of the eCRF following retrieval from the site        
1.    Medical review in order to ensure validity and consistency of the information contained within the CRFs, specifically: past medical history, inclusion/exclusion criteria, concomitant illnesses, forbidden treatments, clinical examination and vital signs, follow-up of adverse events, follow-up of serious adverse events (hospital report...), ancillary examinations.   E    
IX          Serious Adverse Events follow up and reporting        
1.    Provide investigator sites with SAE forms   R   E *
2.    Monitoring and collection of Serious Adverse Events follow-up and additional documentation such as discharge reports       E
3.    Eudravigilance registration       E*
4.    Responsible Person for Eudravigilance       E*
5.    Safety Database       E*

 

25
 

 

    Sponsor   JAVA
6.    Review of all Serious Adverse Events forms on an ongoing basis       E*
7.    Shipment of SUSARs reports and annual safety reports to Competent Authorities       E*
8.    Shipment of Development Safety Update Reports to Competent Authorities   E    
9.    Shipment of SUSARs reports and annual safety reports to Ethics Committees (reports provided by Sponsor)       E
X      Data-Entry, Data management and Coding        
A. eCRF completion        
1.    The monitor will check that all monitored data eCRF are entered in the eCRF database. The monitor will ensure that the Principal Investigator signs the eCRF signatory page at the end of the study once all data queries have been addressed       E
B. Data management        
1.    CRF Design   R   E*
2.    Data Management Plan   R   E*
3.    Programming and Validation of Database   R   E*
4.    Programming and Validation of Consistency Checks   R   E*
5.    Data Load set-up       E*
6.    User acceptance testing   R   E*
7.    CRF/DCF Tracking and Archiving       E*
8.    Lab imports       E*
9.    Data Entry       E*
10.  Data Cleaning       E*
11.  SAE Reconciliation       E*
12.  Production of Listing for Medical Review   R   E*
13.  Coding       E*
14.   Metrics/Tracking Report       E*
15.   Documentation Archiving       E*
16.   Database Lock       E*
17.   Database Transfer       E*
XI    Statistical analysis        
1.    Responsibility for statistical analysis other than ABPM   R   E*

 

26
 

 

    Sponsor   JAVA
2.    Responsibility for statistical analysis of ABPM   E    
XII     Clinical study report        
            Clinical Study Report (excluding ABPM)   R   E*
XIII Medical Monitoring        
 Primary contact for all medical queries   E    
XIV     Quality Assurance        
1    Issue of audit plans for the trial.   E    
2    Conduct on site QA audits   E    
3    Implement corrective actions and follow up with sites       E

 

SCHEDULE 2-: TIMELINES

 

The Work Order is based on the following proposed timelines and is is dependent that all supporting documentation for CTA submissions to The IMB and MHRA are available week commencing 24 th February.

 

Project Preparation January- April 2014
EC & CTA Approvals May 2014
First Site Initiation Visit May 2014
First Patient First Visit June 2014
Last Patient Last Visit October 2014
 Data Base Lock  TBC ( based on results of interim analysis)  

 

27
 

 

SCHEDULE 3: BUDGET AND PAYMENT SCHEDULE

 

28
 

 

Study Reference K-03-01  
   
Projected Timelines:  
Project Preparation 14 weeks
Study Recruitment and Conduct Period 22 weeks
Close out period 12 weeks
   
Indication: Hypertension
   
Key Assumptions:  
Number of patients to be screened 300
Number of patients to be randomised 150
Sites 10 sites Republic/Northern Ireland
Number of monitoring visits Estimated pool of 60 monitoring site visits
Total CRF pages per patient TBC
   

 

  RATE       EST. REQ.   ESTIMATED
CHARGE
   
ACTIVITY        UNIT   Range   Range €     Comments 
Project Preparation                            
PM project training     110.00     hour   16     1,760.00     To include protocol, CRF and SOP training
CRA project training     85.00     hour   16     1,360.00     To include protocol, CRF and SOP training
PM project preparation time     1,760.00     week   14     24,640.00     Includes site contacts/feasibility assessments to ensure all required systems are in place for study initiation, assistance with eCRF development to include advice on required CRF data fields, communication with Kitov Ltd on project related progress/issue
CRA project preparation time     1,360.00     week   14     19,040.00     Includes site contacts/feasibility, communication with Kitov Ltd, collating all study related materials required for initiation, addressing site queries and issues, preparation/customisation of Investigator Study Files and Forms, collection of essential d
CTA project preparation time     400.00     week   14     5,600.00      
                             
Preparation total                     52,400.00      
Regulatory and Ethics                            
Review and submission of CTA to IMB (including submission of responses to any queries raised during review period)     3,840.00     submission   1     3,840.00      
Review and submission of CTA to MHRA (including submission of responses to any queries raised during review period)     3,840.00     submission   1     3,840.00      
Submission to National Ethics Committee in Repbulic of Ireland (including submission of responses to any queries raised during review period)     2,040.00     submission   1     2,040.00      
Submission to National Ethics Committee in Northern Ireland (including submission of responses to any queries     2,720.00     submission   1     2,720.00      
Management of Site Specific Approvals for all sites     340.00     site   10     3,400.00      
                             
Regulatory total                     15,840.00      
Clinical Operations                           Assuming 4 Dublin Centres: 6 Regional Centres -  estimated Monitoring Visit Pool of 60 site visits
Site Qualification Visits     680.00     site   10     6,800.00      
Travel time     400.00     site   6     2,400.00     Site Visit preparation time for pre study visits and monitoring
Pre-Study Visits     850.00     site   10     8,500.00     visits - 2 hours. Site Visit preparation time for SIV and
Travel time     400.00     site   6     2,400.00     close out visit - 4 hours.  Site Qualification and Pre study visit duration - 4 hours.
Site Initiation Visits     1,360.00     site   10     13,600.00     SIV, monitoring and close out visit duration -
Travel time     400.00     site   6     2,400.00      
Study Monitoring Visits     1,190.00     site   60     71,400.00      
Travel time     400.00     site   6     2,400.00      
Study Close-Out Visits     1,360.00     site   10     13,600.00      
CRA Site Management     1,020.00     week   34     34,680.00     Communication/liaison with Project Manager and site personnel on study related issues, progress etc; eCRF review (only as preparation for the monitoring visit); participation in project teleconferences, when required.
Project Management     2,200.00     week   34     74,800.00     Internal management of CRAs including advice on recruitment strategies, site related issues, contingency measurement implementation etc; Communication with Kitov Ltd on project progress/study related issues; Management of Third Party Vendors; Management o
CTA study conduct     400.00     week   34     13,600.00     Assistance with compilation of return of essential dcoument for TMF, CRA travel arrangements, collation of all pass through costs and study related invoices.
Clinical Operations                     246,580.00      
Other Services                            
Clinical Laboratory Services (Estimate)                            
Sample Analysis                     37,020.00      
Central Laboratory Fee                     2,700.00      
Web Browser Access                     FOC      
Results Extraction                     300.00      
Sample Collection Logistics Estimate                     5,000.00      
Clinical Laboratory Services Subtotal                     45,020.00      
                             
Data Management and Statistics                            
Biometrics Management                     11,172.00      
Data Management                     42,873.50      
eCRF management and hosting                     64,189.25      
Statistics                     37,225.75      
Data Management and Statistics Subtotal                     155,460.50      
Pharmacovigilance                            
Safety Database Maintenance                     4,000.00      
PhV Specifications                     2,910.00      
SAE Initial/Follow-up Report Processing                     3,600.00      
Expedite SUSARs reporting                     108.00      
Line Listing production                     2,440.00      
Responsible Person - Eudravigilance                     6712.5      
Pharmacovigilance Subtotal                     19,770.50      
                             
Medical Writing                            
Clinical Study Report                     14,252.00      
                             
Other Services Subtotal                     234,503.00      
8% Overhead                     18,760.24      
SUBTOTALS                     253,263.24      
                             
GRAND TOTAL  PROFESSIONAL FEES                     568,083.24      
                             
Other study conduct  costs                            
IMB CTA                     1,443.00      
MHRA CTA                     3,982.00      
Ethics Committe Fees                     2,350.00      
CRA Travel                     23,400.00     Dublin sites 4 sites x 10 visits x €30 per visit = €1200
                            Regional sites: 6 sites x 2 visits x €250 = €3000 (SQV/PS)
                            Regional sites: 6 sites x 8 visits x €400 = €19,200
Courier Costs - as per receipted expenses                     5,000.00     Estimate
Stationary, Printing, Photocopying for TMF, Investigator Site Files and Ethics Applications                     10,000.00      
Management of PI fees                     9,885.00      
Estimate other pass through costs                   56,060.00      
                             
Proposed payment schedule                            
15% upfront fee at exchange of contracts                     85,212.49      
15% first Competent Authority approval (IMB or MHRA)                     85,212.49      
10% following 30 subjects randomised                     56,808.32      
10% following 60 subjects randomised                     56,808.32      
10% following 90 subjects randomised                     56,808.32      
10% following 120 subjects randomised                     56,808.32      
10% following 150 subjects randomised                     56,808.32      
10% DB lock                     56,808.32      
10% final study report                     56,808.32      
                      568,083.24      
Pass through fees                            
20 % upfront  fee at exchange of contracts                     11,212.00      
                             
Monthly based on actual expenses incurred.                            

 

29
 

 

SCHEDULE 4 -: PERSONNEL/CONTACTS FOR NOTICES

Sponsor Personnel

 

Country   Name   Role   Phone   Email address
Israel    Simcha Rock    CFO   

+972

625

4142

   simcha@kitovpharma.com

 

Java Personnel

 

Country   Name   Role    Phone   Email address
Ireland    Ruth Nallen    Managing Director    +353 1
6373903
   rnallen@javacr.com

 

30
 

 

SCHEDULE 5 -: PROTOCOL

 

31

 

 

Exhibit 10.3

 

Master Services Agreement Dated

Between Kitov Pharmaceuticals Limited (Kitov)

and

Java Clincial Research Ltd ( JAVA)

 

CHANGE ORDER FORM (1)

 

PROTOCOL NUMBER:

 

K-302-03-01

Kitov CONTACT:

 

Mr Simcha Rock

SUPPLIER CONTACT:

 

Ms Ruth Nallen

DATE OF REQUEST:

 

26 03 2014

BRIEFLY DESCRIBE ORIGINAL ASSUMPTION AND NEW REQUEST:

 

The Original MSA dated 04 February refers only to Java Professional and Pass through Fees.

This change order reflects total agree PI Fees for both Republic of Ireland and Northern Ireland.

  • ROI fees which will be paid in euro to Java Clinical Research ltd who will then pass it on to the PIs upon receipt of invoices.
  • NI fees will be paid in sterling directly to the single Investigator site at Celerion.
  • A detailed service agreement will be exchanged directly between Kitov Pharmaceuticals and Celerion.

 

IMPACT (estimated effort and/or timeline):

 

This change order has no impact on effort or timelines.

COST:

Total additional cost: €669,989.60

 

Payment Terms : Payment details and schedules are detailed in Appendix 1 & 2

 

Amendment:    This Change Order Form shall constitute a Contract Amendment to the MSA dated 04 February 2014 between Kitov and Java and shall apply only to the revision of PIs fees attached hereto.  In all other respects the terms and conditions of the MSA shall remain in full force and effect and shall be applied to this Contract Amendment.

Kitov Pharmaceuticals Ltd

 

 

 

/s/ Simcha Rock                             

(Signature)

 

26/3/2014                                         

(Date)

 

 

 

Java

 

 

 

/s/ Ruth Nallen                               

(Signature)

 

26/03/2014                                  

(Date)

 

 

Change order no 1

Kitov/ Java MSA

        

 

Page 1 of 3

 

 

 

Appendix 1

 

PI Fees Republic of Ireland

Fees payable to Java Clinical Research Ltd

 

 

Study Reference K-03-01          
Estimate ROI  Investigator   Costs (Euro)          
Investigator fees     72,000.00     Cost per screen failure: €720 x 100 subjects
      257,500.00     Cost per randomised subject: €2575 x 100 subjects
Total     329,500.00      
Other Investigator Pass through costs            
GP Patient Referral Fee     7,500.00     Estimate: 100 patients x €100 per patient
Community Screening Clinics     7,500.00     Estimate: €1000 per site x 10 sites
ABPM subject lifestyle inconvenience reimbursement     25,000.00     Screen failures: 100 x 1 x €50; Randomised subjects: 100 x 4 x €50
Estimated receipted subject travel expenses     60,000.00     Screen failures:100 x 3 visits  x €50; Randomised subjects:100 x 9 visitsx €50
Total     100,000.00      
Proposed  payment of PI fees         Estimate Invoice  Date 
Upfront payment of  25%     82,375.00     Apr-14
Payments every 2 months thereafter based on subject visits            
      82,375.00     Jul-04
      82,375.00     Sep-14
      82,375.00     Nov-14
      329,500.00    
Pass through Fees            
Upfront 25%     25,000.00     Apr-14
 Following SIV completion     25,000.00     Jun-14
Payments every 2 months thereafter based on exepditure     25,000.00     Aug-14
Payments every 2 months thereafter based on exepditure     25,000.00     Oct-14
      100,000.00    

 

 

 

Change order no 1

Kitov/ Java MSA      

 

Page 2 of 3              

 

 

 

Appendix 2

 

PI Fees Northern Ireland

Paid and contracted directly to Celerion

 

MSA Kitov/ Celerion   Euro     Sterling  
                 
Patient Management /PI Fees   217,166.40     £ 180,972.00  
                 
Pass through costs   6,000.00     £ 5,000.00  
                 
PK sampling   17,323.20     £ 14,436.00  
                 
Total   240,489.60     £ 200,408.00  

 

 

Change order no 1

Kitov/ Java MSA

 

Page 3 of 3

 

 

 

Master Services Agreement Dated

Between Kitov Pharmaceuticals Limited (Kitov)

and

Java Clinical Research Ltd ( JAVA)

 

CHANGE ORDER FORM (2)

 

PROTOCOL NUMBER:

 

KIT-302-03-01

Kitov CONTACT:

 

Mr Simcha Rock

SUPPLIER CONTACT:

 

Ms Ruth Nallen

DATE OF REQUEST:

 

22 09 2014

BRIEFLY DESCRIBE ORIGINAL ASSUMPTION AND NEW REQUEST:

 

  • Project timelines have extended as the study will now be conducted in the UK as opposed to the Republic of Ireland as stated in the original MSA. The movement of the study to the UK necessitated additional feasibility assessments which resulted in the selection of 4 additional UK sites and a central laboratory in the UK. Kitov Pharmaceuticals will contract directly with ACM laboratories so this service is now excluded from the MSA. Kitov will also manage PI fees directly with UK sites, so the PI fees itemised in CO 1 will no longer be applicable to this MSA.

 

  • Multiple protocol amendments were issued to facilitate recruitment. This resulted in the submission of multiple substantial amendment to the UK REC and MHRA. It also resulted in modifications to the eCRF and data management plan. Additionally REC approval, by means of submission of a substantial amendment to the REC, was required for each of the additional UK sites.

 

 

IMPACT (estimated effort and/or timeline):

 

  • Project preparation timelines extended by 4 weeks
  • Study conduct time has extended by 20 weeks
  • Milestone payments have been restructured as detailed below in payment terms

 

 

COST:

Total additional cost:

 

€ 96,716.34 Professional Fees

€ 9,968 Pass through Fees

 

Revised budget break down is included in Appendix 1.

Costs will be revisited if recruitment is completed earlier than 27 March 2015 as detailed in the attached Appendix 1.

 

GRAND  REVISED TOTAL  PROFESSIONAL FEES     664,799.58  
less received to date     204,657.98  
         
Balance     460,141.60  
         
20% following 10 subjects randomised     92,028.32  
10 % following 30  subjects randomised     46,014.16  
10 % following 50 subjects randomised     46,014.16  
10 % following 75 subjects randomised     46,014.16  
10 % following 100 subjects randomised     46,014.16  
10 % following 125 subjects randomised     46,014.16  
10 % following 150 subjects randomised     46,014.16  
10%  following LPLV     46,014.16  
5% following DB lock     23,007.08  
5% following final study Report     23,007.08  
      460,141.60  

 

Amendment:    This Change Order Form shall constitute a Contract Amendment to the MSA dated 04 February 2014 and Change Order No 1 dated 26 March 2014 between Kitov and Java. In all respects the terms and conditions of the MSA shall remain in full force and effect and shall be applied to this Contract Amendment No 2

Kitov Pharmaceuticals Ltd

 

 

 

/s/ Simcha Rock                             

(Signature)

 

September 23, 2014                       

(Date)

 

 

 

Java Clinical Research ltd

 

 

 

/s/                                                    

(Signature)

 

_________________________

(Date)

 

Change order no 1

Kitov/ Java MSA

 Page  1 of 5

 

 

Appendix 1

Revised Professional & Pass through fees

 

Study Reference K-03-01          
           
Projected Timelines:          
Project Preparation 14 weeks 18 weeks    January 2014 – Mid-May 2014
Study Recruitment and Conduct Period 22 weeks 42 weeks   22 June 2014 - 27 March 2015
Close out period 12 weeks      30 March 2015 - 19 June 2015
           
Indication: Hypertension         
           
Key Assumptions:          
Number of patients to be screened 300        
Number of patients to be randomised 150        
Sites 1 site NI 4 sites UK       
Number of monitoring visits Estimated pool of 45 monitoring site visits  
Total CRF pages per patient TBC        

                           
ACTIVITY   RATE     UNIT   EST. REQ.     ESTIMATED CHARGE     Comments
            Range     Range €      
Project Preparation                          
PM project training     110.00     hour     16       1,760.00     To include protocol, CRF and SOP training
CRA project training     85.00     hour     16       1,360.00     To include protocol, CRF and SOP training
PM project preparation time     1,760.00     week     22       38,720.00     Includes site contacts/feasibility assessments to ensure all required systems are in place for study initiation, assistance with eCRF development to include advice on required CRF data fields, communication with Kitov Ltd on project related progress/issue
PM Feasibility & Preparation UK sites     880.00     day     12       10,560.00     Site & laboratory feasibility and selection activities including  budget and contract negotiations
CRA project preparation time     1,360.00     week     14       19,040.00     Includes site contacts/feasibility, communication with Kitov Ltd, collating all study related materials required for initiation, addressing site queries and issues, preparation/customisation of Investigator Study Files and Forms, collection of essential d
CTA project preparation time     400.00     week     18       7,200.00      
                                 
Preparation total                         78,640.00      
Regulatory and Ethics                                
Review and submission of CTA to IMB (including submission of responses to any queries raised during review period)     3,840.00     submission     1       3,840.00      
Review and submission of CTA to MHRA (including submission of responses to any queries raised during review period)     3,840.00     submission     1       3,840.00      
Submission of  Substantial Amendment  to MHRA     120.00     hour     38       4,560.00     12 hours Amen1: 8 hours Ament 2 ;                                            16 hours Amen 3 :12 hours amendment 4
Submission to National Ethics Committee in Northern Ireland  (including submission of responses to any queries raised during review period)     2,040.00     submission     1       2,040.00      
Submission to National Ethics Committee in Northern Ireland (including submission of responses to any queries     2,720.00     submission     1       2,720.00      
Preparation and submission of substantial amendments to National Ethics Committee in Northern Ireland     880.00     submission     7       6,160.00      
Management of R&D Office Approval, including budget negotiation     1,760.00     site     1       1,760.00      

 

Change order no 1

Kitov/ Java MSA

 Page 2 of 5

 

 

Regulatory total                         24,920.00     Estimate  13 Belfast visits; 32 UK visits
Clinical Operations                               Assuming 1 Belfast  Centre:  4  UK Regional Centres  -  estimated Monitoring Visit Pool of 45 visits ( 12 visits Belfast : 32UK)) 
Site Qualification Visits     680.00     site     10       6,800.00     Site Visit preparation time for pre study visits  -  2 hours. Site Visit preparation time for SIV and close out visit - 4 hours.  Site Qualification and Pre study visit duration - 4 hours. SIV and close out visit duration - 8 hours. Monitoring Visits  pre
Travel time     400.00     site     6       2,400.00      
Site Qualification Visits UK     680.00     site     4       2,720.00      
Travel time UK     600.00     site     4       2,400.00      
Pre-Study Visits     850.00     site     5       4,250.00      
Travel time Belfast     200.00     visit     1       200.00      
Travel time UK     600.00     visit     4       2,400.00      
Site Initiation Visits     1,360.00     site     5       6,800.00      
Travel time Belfast     200.00     visit     1       200.00      
travel time UK     600.00     visit     4       2,400.00      
                                 
Study Monitoring Visits     2,040.00     site     45       91,800.00      
Travel time Belfast     200.00     visit     13       2,600.00      
Travel time UK     600.00     visit     32       19,200.00      
Study Close-Out Visits     1,360.00     site     5       6,800.00      
Travel time Belfast     200.00     visit     1       200.00      
Travel time UK     600.00     visit     4       2,400.00      
CRA Site Management     340.00     week     18       6,120.00     June - Sept 2014
CRA Site Management     850.00     week     24       20,400.00     Oct - March 2015
CRA Site Management     850.00     week     12       10,200.00     Close out period
Project Management     2,200.00     week     52       114,400.00     Internal management of CRAs including advice on recruitment strategies, site related issues, contingency measurement implementation etc; Communication with Kitov Ltd on project progress/study related issues; Management of Third Party Vendors; Management o
CTA study conduct     320.00     week     52       16,640.00     Assistance with compilation of return of essential dcoument for TMF, CRA travel arrangements, collation of all pass through costs and study related invoices.

 

Change order no 1

Kitov/ Java MSA

 Page 3 of 5

 

 

Clinical Operations     321,330.00      
Other Services            
Clinical Laboratory Services (Estimate)            
Central Laboratory set up  Fee     5,874.00     ACM laboratory contracted directly with Kitov
Data Management and Statistics            
Biometrics Management     11,172.00      
Data Management     42,873.50      
Amendment 1-3     5,133.50      
Amendment 4     27,522.00      
eCRF management and hosting     64,189.25      
Statistics     37,225.75      
      188,116.00      
             
Pharmacovigilance            
Safety Database Maintenance     4,000.00      
PhV Specifications     2,910.00      
SAE Initial/Follow-up Report Processing     3,600.00      
Expedite SUSARs reporting     108.00      
Line Listing production     2,440.00      
Responsible Person - Eudravigilance     6712.5      
Pharmacovigilance Subtotal     19,770.50      
             
Medical Writing            
Clinical Study Report     14,252.00      
             
Other Services Subtotal     222,138.50      
8% overhead     17,771.08      
 Preparation Regulatory & Clinops Subtotals     424,890.00      
             
GRAND TOTAL  PROFESSIONAL FEES     664,799.58      

 

             
Other study conduct  costs            
IMB CTA     1,443.00      
MHRA CTA + amendments     5,000.00      
Ethics Committe Fees     3,500.00      
CRA Travel     28,200.00     Belfast  site: 1 sites x 4 visits x €300 = €1200 (SQV/PS/SIV/C0)
            Belfast site: 1 x 13 visits x €300 = 3900
            UK sites: 4 sites x 4 visits  €500 =€8000 (SQV/PS/SIV/C0)
            UK sites: 32 x €500 = €16000
Courier Costs - as per receipted expenses     8,000.00     Estimate
Stationary, Printing, Photocopying for TMF, Investigator Site Files and Ethics Applications ; other     10,000.00      
Management of PI fees     9,885.00      
Estimate other pass through costs     66,028.00      

 

Change order no 1

Kitov/ Java MSA

 Page 4  of 5

 

         
GRAND TOTAL  PROFESSIONAL FEES     664,799.58  
less received to date     204,657.98  
         
Balance     460,141.60  
         
20% following 10 subjects randomised     92,028.32  
10 % following 30  subjects randomised     46,014.16  
10 % following 50 subjects randomised     46,014.16  
10 % following 75 subjects randomised     46,014.16  
10 % following 100 subjects randomised     46,014.16  
10 % following 125 subjects randomised     46,014.16  
10 % following 150 subjects randomised     46,014.16  
10%  following LPLV     46,014.16  
5% following DB lock     23,007.08  
5% following final study Report     23,007.08  
      460,141.60  

 

Change order no 1

Kitov/ Java MSA

 Page 5  of 5

 

 

Master Services Agreement Dated

2 nd April 2015

 

Between Kitov Pharmaceuticals Limited (Kitov)

and

Java Clinical Research Ltd ( JAVA)

 

CHANGE ORDER FORM (3)

 

PROTOCOL NUMBER:

 

KIT-302-03-01

Kitov CONTACT:

 

Mr Simcha Rock

SUPPLIER CONTACT:

 

Ms Ruth Nallen

DATE OF REQUEST:

 

2 nd April 2015

 

BRIEFLY DESCRIBE ORIGINAL ASSUMPTION AND NEW REQUEST:

 


·       Project timelines have been extended as follows: 8 additional weeks in the study conduct 8 weeks interim analysis

 

· The budget is now reflective of up to 30 additional patients.  

 

· The Monitoring visit schedule has been restructured. The total monitoring visits have increased from 45 to 56; 40 of which are two day visits and 16 are one day visits.

· 3 additional sites in the UK have been included; the budget reflects additional site feasibility assessments and initiation and close out visits allocated to these new sites.

 

· Protocol amendments were issued to facilitate recruitment. This resulted in the submission of multiple substantial amendment to the UK REC and MHRA. It also resulted in modifications to the eCRF and data management plan. Additionally REC approval, by means of submission of a substantial amendment to the REC, was required for each of the additional UK sites.

 

IMPACT (estimated effort and/or timeline):

As stated above

 

COST:

Total additional cost:

 

€116,238.18

 

Revised budget break down is included in Appendix 1.

 

Page 1 of 5

 

 

GRAND TOTAL  PROFESSIONAL FEES     781,037.76  
Less received to date     388,714.62  
Invoice due for payment 30 March 2015     46,014.16  
      434,728.78  
Balance Due     346,308.98  
Revised Payment schedule ( based on montly resources)        
30-Apr-15     76,957.50  
30-Jun-15     76,957.50  
30-Aug-15     76,957.50  
30-Oct-15     76,957.50  
30-Dec-15     38,478.98  
      346,308.98  
         
         

 

Amendment:    This Change Order Form shall constitute a Contract Amendment to the MSA dated 04 February 2014, Change Order No 1 dated 26 March 2014 and Change Order 2 dated 22 September 2014 between Kitov and Java. In all respects the terms and conditions of the MSA shall remain in full force and effect and shall be applied to this Change Order  No 3.

Kitov Pharmaceuticals Ltd

 

 

 

/s/ Simcha Rock                             

(Signature)

 

April 2, 2015                                    

(Date)

 

 

 

Java Clinical Research ltd

 

 

 

/s/ Ruth Nallen                      

(Signature)

 

02 April 2015                          

(Date)

   

 

Change order no 1

Kitov/ Java MSA

 

Page 2 of 5

 

 

Appendix 1

Revised Professional fees

 

Study Reference K-03-01          
  Agreed V8  Revised V9      
Projected Timelines:          
Project Preparation 18 weeks     January 2014 – Mid-May 2014
Study Recruitment and Conduct Period 42 weeks 50 weeks   22 June 2014 - 05 June  2015
Interim Analysis Recruitment and Conduct Period   8   08 June - 03 AUG
Close out period 12 weeks  12 weeks   03 AUG - 2 Nov  
           
Indication: Hypertension         
           
Key Assumptions:          
Number of patients to be screened 300 400      
Number of patients to be randomised  150 150      
Number of patients randomised  during interim analysis   30      
Sites 5 sites 8 Sites      
Number of monitoring visits (180 patients) Estimated pool of 56 monitoring site visits  
     
Total CRF pages per patient TBC        

 

Change order no 1

Kitov/ Java MSA

 

Page 3 of 5

 

                           
ACTIVITY   RATE     UNIT   EST. REQ.     ESTIMATED CHARGE     Comments
            Range     Range €      
Project Preparation                          
PM project training     110.00     hour     16       1,760.00     To include protocol, CRF and SOP training
CRA project training     85.00     hour     16       1,360.00     To include protocol, CRF and SOP training
PM project preparation time     1,760.00     week     22       38,720.00     Includes site contacts/feasibility assessments to ensure all required systems are in place for study initiation, assistance with eCRF development to include advice on required CRF data fields, communication with Kitov Ltd on project related progress/issue
PM Feasibility & Preparation UK sites     880.00     day     12       10,560.00     Site & laboratory feasibility and selection activities including  budget and contract negotiations
CRA project preparation time     1,360.00     week     14       19,040.00     Includes site contacts/feasibility, communication with Kitov Ltd, collating all study related materials required for initiation, addressing site queries and issues, preparation/customisation of Investigator Study Files and Forms, collection of essential d
CRA project preparation time     2,040.00     site     3       6,120.00     additional 3 sites
CTA project preparation time     400.00     week     18       7,200.00      
Preparation total                         84,760.00      
Regulatory and Ethics                                
Review and submission of CTA to IMB (including submission of responses to any queries raised during review period)     3,840.00     submission     1       3,840.00      
Review and submission of CTA to MHRA (including submission of responses to any queries raised during review period)     3,840.00     submission     1       3,840.00      
Submission of  Substantial Amendment  to MHRA     120.00     hour     38       4,560.00     12 hours Amen1: 8 hours Ament 2 ; 16 hours Amen 3 :12 hours amendment 4
Submission to National Ethics Committee in Northern Ireland  (including submission of responses to any queries raised during review period)     2,040.00     submission     1       2,040.00      
Submission to National Ethics Committee in Northern Ireland (including submission of responses to any queries     2,720.00     submission     1       2,720.00      
Preparation and submission of substantial amendments to National Ethics Committee in Northern Ireland     880.00     submission     12       10,560.00      
Preparation and submission of non substantial amendments to National Ethics Committee in Northern Ireland     220.00     submission     25       5,500.00      
Management of R&D Office Approval, including budget negotiation     1,760.00     site     1       1,760.00      
Submission fo R&D Office Amendment including revised budget negotiaition for QMUH     880.00     site     1       880.00      
Regulatory total                         35,700.00      
Clinical Operations                                
Site Qualification Visits     680.00     site     10       6,800.00     Site Visit preparation time for pre study visits  -  2 hours. Site Visit preparation time for SIV and close out visit - 4 hours. Site Qualification and Pre study visit duration - 4 hours. SIV and close out visit duration - 8 hours. Monitoring Visits  prep
Travel time     400.00     site     6       2,400.00      
Site Qualification Visits UK     680.00     site     4       2,720.00      
Travel time UK     600.00     site     4       2,400.00      
Pre-Study Visits     850.00     site     8       6,800.00      
Travel time Belfast     200.00     visit     1       200.00      
Travel time UK     200.00     visit     4       800.00      
Site Initiation Visits     1,360.00     site     8       10,880.00      
Travel time Belfast     200.00     visit     1       200.00      
travel time UK     200.00     visit     7       1,400.00      
                                 
Study Monitoring Visits (2 day visits)     2,040.00     site     40       81,600.00      
Study Monitoring Visits (1 day visits)     1,360.00     site     16       21,760.00      
Travel time Belfast     200.00     visit     7       1,400.00      
Travel time UK     200.00     visit     49       9,800.00      
Study Close-Out Visits     1,360.00     site     8       10,880.00      
Travel time Belfast     200.00     visit     1       200.00      
Travel time UK     200.00     visit     7       1,400.00      
CRA Site Management     340.00     week     18       6,120.00     June - Sept 2014 (2 sites)
CRA Site Management     510.00     week     12       6,120.00     Oct - Dec 2014 (5 sites)
CRA Site Management     680.00     week     28       19,040.00     Jan - Aug 2015(8 sites) 1 hour per site per week
CRA Site Management     1,360.00     week     12       16,320.00     Close out period  2 hours per site per week
Project Management     2,200.00     week     70       154,000.00     Internal management of CRAs including advice on recruitment strategies, site related issues, contingency measurement implementation etc.; Communication with Kitov Ltd on project progress/study related issues; Management of Third Party Vendors; Management
CTA study conduct     320.00     week     70       22,400.00     Assistance with compilation of return of essential document for TMF, CRA travel arrangements, collation of all pass through costs and study related invoices.

 

Change order no 1

Kitov/ Java MSA

Page 4 of 5

 

 

Clinical Operations     385,640.00      
Other Services            
Clinical Laboratory Services (Estimate)            
Central Laboratory set up  Fee     5,874.00     ACM laboratory contracted directly with Kitov
Clinical Laboratory Services (Estimate) total     5,874.00      
             
Data Management and Statistics            
Biometrics Management     15,361.00      
Data Management     52,313.50      
Statistics     37,225.75      
Amendment 1-3     5,133.50      
Amendment 4     27,522.00      
eCRF management and hosting     82,148.75      
Data Management and Statistics total     219,704.50      
             
Pharmacovigilance            
Safety Database Maintenance     6,857.50      
PhV Specifications     2,910.00      
SAE Initial/Follow-up Report Processing           3600  only if  SAE
Expedite SUSARs reporting     108.00      
Line Listing production     2,440.00      
Responsible Person - Eudravigilance     8,300.00      
Pharmacovigilance total     20,615.50      
             
Medical Writing            
Clinical Study Report     14,252.00      
Medical Writing total     14,252.00      
Other Services Subtotal            
Summary            
Preparation total     84,760.00      
Regulatory total     35,700.00      
Clinical Operations total     385,640.00      
Other Services total     254,572.00      
8% overhead     20,365.76      
             
GRAND TOTAL  PROFESSIONAL FEES     781,037.76      

 

Change order no 1

Kitov/ Java MSA

 

Page 5 of 5

 

 

 

EXHIBIT 10.4

 

 

SHARE TRANSFER AGREEMENT

 

THIS SHARE TRANSFER AGREEMENT (this " Agreement ") is made as of the 2 nd day of April 2013 (the “Execution Date” ), by and among Mainrom Line Logistics Ltd., a public company traded on the Tel Aviv Stock Exchange (“ Mainrom ”), Kitov Pharmaceuticals Ltd., a private company incorporated under the laws of the State of Israel (the " Kitov "), and all the shareholders of Kitov, as detailed in Schedule A attached hereto (collectively referred to as the “ Shareholders ”), the controlling shareholder of Mainrom, Sheer Roichman (“ Roichman” ) and Haiku Capital Ltd. (Israeli Co # 51-3783209) (“ Haiku ”).

 

WITNESSETH:

 

WHEREAS , Roichman, the controlling shareholder of Haiku, is the holder of 71.25% of Mainrom’s issued and outstanding shares;

 

WHEREAS, Mainrom has no business activity and no liabilities, other than a liability to Roichman in the amount of up to NIS 300,000 representing a loan given to Mainrom by Roichman (including any interest accrued thereon), and other liabilities as detailed in Schedule ‎5.1.5 ; and

 

WHEREAS , the Shareholders desire to assign and transfer 10,000,000 ordinary shares, NIS 0.01 nominal value each, of Kitov (the “ Transferred Shares ”), which represent 100% of the issued and outstanding share capital of Kitov on a fully diluted basis, to Mainrom (the Transfer of the Transferred Shares shall be performed in two parts as more fully set forth in Section ‎1.1 below).

 

WHEREAS , in consideration for the transfer of the Transferred Shares, Mainrom shall issue to the Shareholders ordinary voting shares of Mainrom as follows: at the Closing Mainrom shall issue 17,569,220 ordinary shares of Mainrom representing 66.182% of Mainrom's issued share capital on a fully diluted basis immediately following such issuance, taking into account all options granted under section ‎1.5 below (the " Closing Options ") (the “ Closing Issued Shares ”); and in addition, subject to Kitov's achievement of the Milestone (defined below), Mainrom shall issue to the Shareholders additional 17,927,776 ordinary shares of Mainrom (the “ Additional Shares ”) which, together with the Closing Issued Shares and taking into account the Closing Options, but disregarding any future issuance of securities and rights convertible into securities of Mainrom, represent 79.490% of Mainrom's issued share capital on a fully diluted basis, all as more fully set forth in Section‎1 below (together the “ Issued Shares ”)(the “ Share Exchange ”); and

 

WHEREAS , Kitov, the Shareholders, Roichman and Mainrom desire to effect and perform the Share Exchange pursuant to the terms and conditions more fully set forth in this Agreement; and

 

NOW, THEREFORE , in consideration of the mutual promises and covenants set forth herein, the parties hereby agree as follows:

 

 
 

  

1 Transfer of the Transferred Shares and Issuance of the Issued Shares

 

1.1 At the Closing, Mainrom shall issue the Shareholders the Closing Issued Shares, and the Shareholders shall transfer the Transferred Shares as follows: (a) 80% (or a lower percentage if required, as shall be determined by Mainrom, in order to finalize the transaction) of the Transferred Shares held by each of the Shareholders (the " Closing Transferred Shares ") shall be transferred to Mainrom; and (b) 20% (or a higher percentage corresponding to the increase as set forth in (a) above) of the Transferred Shares held by each of the Shareholders (the " Additional Holdings ") shall be transferred to a trustee which shall be mutually agreed following signing and if no such agreement is reached, as shall be determined by Mainrom (the “ Additional Holdings Trustee ”) which shall hold such Additional Holdings in trust for the sole benefit of Mainrom, pursuant to a trust agreement containing the language provided for in Schedule ‎1.1 , and transfer the Additional Holdings to Mainrom upon the earlier of: (i) the issuance of the Additional Shares to the Shareholders; or (ii) at the lapse of a 28 months period commencing as of the date of the Closing (the " Trustee Transferred Shares ").

 

1.2 For avoidance of doubt, it is hereby clarified that each reference to Mainrom’s shares, under each definition (including Closing Issued Shares, Issued Shares and Additional Shares) shall refer to Mainrom's Ordinary voting Shares.

 

1.3 Subject to Kitov's completion of a milestone set forth in Schedule 1.3 attached hereto (the " Milestone ") within 28 months from the date of the Closing, Mainrom shall, within 14 days as of the completion of the Milestone, issue the Shareholders the Additional Shares.

 

1.4 The number of Transferred Shares to be transferred by each Shareholder to Mainrom and the number of Issued Shares to be issued by Mainrom to each Shareholder shall be as detailed in Schedule ‎1.4 attached hereto.

 

The Issued Shares shall have all the rights and privileges attached to the shares of Mainrom as set forth in Mainrom’s Articles of Association.

 

1.5 Following the Closing, Mainrom shall (1) grant options to purchase 1,194,616 ordinary shares of Mainrom under the terms and conditions set forth in Schedule ‎1.5B, to Lior Tamar Investments Ltd., or to any third party (which shall receive a part of options under this section (1) all as shall be designated by Lior Tamar Investments prior to April 22 th 2013 and (2) grant Simcha Rock, subject to the adoption by the company of a stock option plan under the provision of section 102 of the Israeli Income Tax Ordinance, an option to purchase 177,467 ordinary shares of Mainrom, and, upon achievement of the Milestone and subject thereto, an option to purchase additional 181,089 ordinary shares of Mainrom, all under the terms and conditions set forth in Schedule ‎1.5A .

 

2
 

  

2 Closing and Delivery

 

2.1 The closing of the Share Exchange under this Agreement (the “ Closing ”) shall take place within five (5) days of the completion of the Closing Conditions (as defined below) at the offices of Shibolet & Co. Advocates and Notaries in Tel Aviv, or at such other time or place as the Shareholders and Mainrom may mutually agree (such date is hereinafter referred to as the “ Closing Date ”). In the event that the Closing Conditions are met, the Share Exchange shall be deemed, for any and all purposes, to be effective as of the date of the Closing. In the event that all the Closing Conditions are not met or waived by the applicable party on or prior to May 31 2013, this Agreement shall terminate and shall be of no force and effect and none of the parties shall have any claims or demands against the other parties with respect hereto, except in the event of a party that has not acted in good faith in order to achieve such Closing Conditions which were not met.

 

2.2 At the Closing, the transactions set out in Sections ‎2.3, ‎2.4, ‎2.5 and ‎3 below shall occur, which transactions shall be deemed to take place simultaneously and automatically and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:

 

2.3 The Shareholders shall deliver to Mainrom the following documents:

 

2.3.1 Original share transfer deeds duly signed and executed by each Shareholder transferring, the respective number of Transferred Shares held by them to Mainrom.

 

2.3.2 True and correct copies of a resolution of Kitov's board of directors approving the transfer of the Transferred Shares to Mainrom, against issuance of the Issued Shares to the Shareholders.

 

2.3.3 Any and all approvals and/or waivers and/or consents and/or permits or the like required for the consummation of this Agreement executed by the Shareholders.

 

2.3.4 A waiver, in the form attached hereto as Schedule ‎2.3.4 , under which JPW PCH LLC's right to purchase assets from Kitov is terminated.

 

2.4 Mainrom shall deliver to the representative of the Shareholders the following documents:

 

2.4.1 Shareholders Register reflecting the issuance of the Closing Issued Shares issued to the Nominee Company ( Hevra Le'rishumim ). The shares will be issued to the Nominee Company for the benefit of a Trustee as shall be indicated by the Shareholders and if not indicated (with a valid bank account) prior to the Closing, as shall be determined by Mainrom.

 

2.4.2 A resolution of the board of directors of Mainrom issuing the Issued Shares to the Shareholders.

 

3
 

 

2.4.3 A resolution of the meeting of the Shareholders of Mainrom approving the transaction hereunder.

 

2.5 At the Closing, the Shareholders shall transfer to Mainrom the Closing Transferred Shares and shall transfer to the Trustee the Trustee Transferred Shares and Mainrom shall issue each of the Shareholder the Closing Issued Shares in accordance with the allocation among the Shareholders as detailed in Schedule ‎1.4 attached hereto.

 

3 Board Composition .

 

All of Mainrom's currently residing directors, excluding Issac Israel and the external directors, shall terminate their engagement as directors in Mainrom's board of directors (the " Board "). At the Closing (or prior thereto) three (3) directors as detailed in Schedule ‎3A , shall be appointed either by the Board or by the General Meeting of the Shareholders of Mainrom (the " General Meeting "). Attached hereto as Schedule ‎3B is a form of the declarations to be executed by such directors prior to the Execution Date.

 

The Shareholders, together and separately, hereby undertake and warrant to Roichman that until the completion of fund raising by Mainrom (either by way of a private placement or a public offering) in the aggregate amount of at least NIS 15,000,000, they shall vote, at every General Meeting at which the appointment of director(s) suggested by Roichman is on the Agenda of such General Meeting, for the appointment of a director to the Board, the identify of whom shall be delivered in advance of such vote in writing by Roichman to the Shareholders (the " Director Appointment Obligation "). Furthermore, the Shareholders, together and separately, hereby undertake that any sale and/or transfer of Mainrom's securities held by such Shareholders after the Closing, other than a sale during trade on the Tel Aviv Stock Exchange or the sale of all but not less than all of Mainrom’s outstanding share capital to a third party, shall be subject to the obligation of the purchaser of such securities towards Roichman to abide by the Director Appointment Obligation hereinabove.

 

4 Transfer of the Transferred Shares.

 

Mainrom shall receive the Transferred Shares on the basis of the representations and/or warranties to Mainrom with respect to the Transferred Shares and/or Kitov which are set out in Section ‎7 below.

 

5 Representations and Warranties of Mainrom and Haiku.

 

5.1 Mainrom hereby represent and warrant to the Shareholders and acknowledge that the Shareholders are entering into this Agreement in reliance thereon, as follows:

 

5.1.1 (i) this Agreement, when executed and delivered by Mainrom will constitute valid, binding and enforceable obligations of Mainrom, and (ii) the Issued Shares transferred by Mainrom are free and clear of any liens, claims, encumbrances or third party rights of any kind, including without limitation any rights of first refusal, co sale rights preemptive rights and/or other participation rights and are, duly registered in the name of Mainrom in Mainrom’s share register.

 

4
 

  

5.1.2 Mainrom's share capital on a pre-Closing, fully diluted basis, as filed with TASE, is attached to this Agreement as Schedule ‎5.1.2 (“ Mainrom's Capital ”). Except as set forth in Mainrom'e Capital, there are no outstanding nor promised options, warrants, securities convertible into, exchangeable or exercisable for or evidencing the right to subscribe for equity securities of Mainrom, rights (including conversion, anti-dilution, exchange or preemptive rights, rights of first refusal, share appreciation, profit sharing, phantom share rights, or any similar rights), proxy, voting, transfer restriction or shareholder agreements, or agreements of any kind, or claims, undertakings or promises of any nature whatsoever, orally or in writing, for the purchase, receipt or acquisition from Mainrom or from any other party, of any of its securities. All issued and outstanding securities of Mainrom were issued in accordance with all applicable laws and regulations.

 

5.1.3 Mainrom's public filings are and as of the Closing Shall be: (a) true and correct and accurately represent Mainrom's business, its capital, assets and obligations; (b) be drafted (if applicable) according to IFRS and the Israeli Securities Law, 1968 and the regulations promulgated thereunder and any applicable instruction and rules of the Israeli Securities Authority; (c) do not include any misleading fact and do not as of the Closing, omit any material and/or extraordinary transaction and/or action and/or event.

 

5.1.4 On October 23rd, 2012 the Tel Aviv district court approvad the settlement by and among Mainrom and its creditors under Section 350 of the Company's Law - 1999 (the " Settlement "). All publically available documents of Mainrom published by it as of the Settlement and up to the Closing Date, are true and accurate in all material respects.

 

5.1.5 The current financial obligations and other liabilities of Mainrom towards third parties and/or towards Roichman are as set out in Schedule ‎5.1.5 attached hereto (" Mainrom's Financial Obligations "). Mainrom's Financial Obligations towards Roichman arise from actual funds directly advanced by Roichman to Mainrom and, for clarification purposes, do not include in kind payments by Roichman. Following the Settlement, Mainrom has not conducted any activities other than as strictly required to meet its reporting obligations to the TASE and, other than as disclosed hereunder,

 

5.2 Haiku hereby represents and warrants to the Shareholders and acknowledges that the Shareholders are entering into this Agreement in reliance thereon, as follows: (i) this Agreement, when executed and delivered by Haiku will constitute valid, binding and enforceable obligations of Haiku; and (ii) Haiku is wholly owned by Roichman.

 

5
 

  

6 Representations and Warranties of Roichman.

 

Roichman hereby represents and warrants to the Shareholders and acknowledges that the Shareholders are entering into this Agreement in reliance thereon, as follows: (i) Roichman has full power and authority to enter into this Agreement and this Agreement, when executed and delivered by Roichman will constitute valid, binding and enforceable obligations of Roichman in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally; and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies; (ii) no other action, consent, approval or authorization is necessary for the due authorization of the execution, delivery and performance of this Agreement and the obligations of Roichman hereunder; and (iii) Roichman holds 5,418,886 ordinary shares, with no nominal value, of Mainrom, constituting on a fully diluted basis taking into account all convertible securities or rights thereto 71.25% of Mainrom's issued and outstanding share capital (the " Roichman Holdings "). The Roichman Holdings are free and clear of any liens, claims, encumbrances, debt or third party rights of any kind, including without limitation any other participation rights and are, duly registered in Roichman's name. To Roichman's best knowledge as the controlling shareholder of Mainrom, following the Settlement, Mainrom has not conducted any activities other than as reported in its filings and as required to meet its reporting obligations to the TASE and.

 

7 Representations and Warranties of Kitov and the Shareholders.

 

Kitov and each Shareholder, together and separately, hereby represent, warrant and undertake, separately to Mainrom, Roichman and Haiku and acknowledge that each of the above is entering into this Agreement in reliance thereon, as follows, as of the date of execution hereof and as of the Closing:

 

7.1 (i) this Agreement, when executed and delivered by Kitov and each Shareholder will constitute valid, binding and enforceable obligations of Kitov and such Shareholder; (ii) the execution, delivery and performance of the obligations of Kitov and each Shareholder hereunder have been duly authorized by all necessary corporate action; (iii) the Transferred Shares transferred by each Shareholders are free and clear of any liens, claims, encumbrances or third party rights of any kind, including without limitation any rights of first refusal, co sale rights preemptive rights and/or other participation rights and are, duly registered in the name of the Shareholders in Kitov's share register; and (iv) The current financial obligations and other liabilities of Kitov towards third parties and/or towards the Shareholders of Kitov are as set out in Schedule 7.1 0 attached hereto (the " Kitov Financial Obligations "). The Kitov Financial Obligations arise from actual funds directly advanced by the Shareholders to the Company and, for clarification purposes, do not include in kind payments by the Shareholders. Any other agreement and provision notwithstanding, no amount shall be repaid to the Shareholders until the full repayment of all amounts due to Haiku and Roichman as set forth in Section ‎11 below, other than as set forth in Schedule 7.1 attached hereto, there are no obligations and other liabilities of Kitov towards its Shareholders.

 

6
 

  

7.2 Immediately prior to the Execution Date and the Closing Date the authorized share capital of Kitov is as set forth in Schedule A Except as set forth in Schedule ‎7.2, the Company has not and shall not issue and there are no and there shall not, prior to the Closing Date, be any outstanding shares, options, warrants, preemptive rights or other rights or securities, of any nature whatsoever, convertible into or exchangeable for shares of Kitov, or any other rights, agreements, undertakings, promises or commitments to sell or acquire securities from Kitov. All issued and outstanding share capital of Kitov was duly authorized, and is validly issued and outstanding and is fully paid for and non-assessable, and was issued in compliance with all applicable laws concerning the issuance of securities.

 

7.3 Kitov and the Shareholders hereby undertake that no later than April 10 th , 2013 (the " Delivery Date "), they shall deliver to Mainrom the following: (i) the draft of the Kitov description (Mit'ar) (the " Mit'ar "); (ii) Kitov's Financial Statements as of December 31 st , 2012 attached to the Mit'ar (the " Financial Statements "); and (iii) Kitov's Valuation (the " Valuation " and together with Mit'ar and Financial Statements the " Disclosure Documents ").

 

7.4 Kitov further undertakes, represents and warrants that as of the Delivery Date the Disclosure Documents shall: (a) be true and correct and accurately represent Kitov's business, its capital, assets and obligations; (b) be drafted (if applicable) according to IFRS and the Israeli Securities Law, 1968 and the regulations promulgated thereunder and any applicable instruction and rules of the Israeli Securities Authority; (c) do not include any misleading fact and do not as of the Closing, omit any material and/or extraordinary transaction and/or action and/or event; and (d) represent that as of December 31 st , 2012 and until the Execution Date and the Closing, Kitov's business was and shall have been conducted in the ordinary course of business.

 

7.5 Should Kitov fail to deliver the Disclosure Documents until the lapse of the Delivery Date, Mainrom shall be entitled, at its sole discretion, and in addition to and without derogating from any other legal remedy, to terminate this Agreement and neither Kitov nor any of the Shareholders nor anyone on their behalf, shall have any claims and/or contents of any kind or type against Mainrom, its shareholders, directors, officers, advisors, employees and/or successors with respect to such termination.

 

8 Conditions to Closing by Mainrom

 

The obligations of Mainrom to receive the Transferred Shares and to issue the Issued Shares are subject to the fulfillment at or before the Closing of the following conditions precedent, any one or more of which may be waived in whole or in part in writing by Mainrom, which waiver shall be at the sole discretion of Mainrom (the “ Mainrom Closing Conditions ”):

 

8.1 The representations and warranties made by Kitov and the Shareholders in Section 6 of this Agreement shall have been true and correct when made and as of the Closing as if made on the date of the Closing;

 

8.2 Mainrom's board of directors shall have duly approved the transactions contemplated hereunder, including without limitation the issuance of the Issued Shares to the Shareholders.

 

7
 

  

8.3 The meeting of the shareholders of Mainrom shall have duly approved: (i) the transactions contemplated hereunder, including without limitation the issuance of the Issued Shares to the Shareholders; (ii) the increase of Mainrom's registered share capital and (iii) the purchase of: (i) a directors and officers (D&O) insurance Policy; and (ii) a professional indemnity insurance policy with an appropriate level of a "Run-off" cover for the benefit of its officers and directors which shall not in any way derogate from the representations regarding Mainrom's Financial Obligations.

 

8.4 Mainrom shall engage advisors, the identity of which shall be agreed between Mainrom and Kitov prior to the Closing, for purposes of IR/PR services for a minimal period commencing as of the Closing as shall be agreed among the parties.

 

8.5 The Valuation, as shall be submitted to the Tel Aviv Stock Exchange Ltd. (th e "Stock Exchange ") in accordance with the Stock Exchange rules and regulations, as in effect, for the purposes of determining the rate of Mainrom's public holdings with respect to the Stock Exchange's requirements (th e "Requirements "), shall reflect Kitov a valuation of at least US$40,000,000.

 

8.6 Mainrom shall have received the approval of the Stock Exchange for the issuance of the Issued Shares and the shares underlying the Closing Options and the Conversion Option.

 

8.7 All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by Kitov and/or the Shareholders, as applicable, prior to or at the Closing, shall have been performed or complied with by Kitov and/or the Shareholders, as applicable, prior to or at the Closing.

 

9 Conditions to Closing by the Shareholders

 

The obligations of the Shareholders to transfer the Transferred Shares to Mainrom are subject to the fulfillment at or before the Closing of the following conditions precedent (the “ Shareholders Closing Conditions ”; and together with Mainrom Closing Conditions, the “ Closing Conditions ”) any one or more of which may be waived in whole or in part in writing by Shareholders holding the majority of the shares of Kitov (the “ Majority Shareholders ”), which waiver shall be at the sole discretion of such Shareholders:

 

9.1 The representations and warranties made by Mainrom and Haiku in Section ‎5 of this Agreement shall have been true and correct when made and as of the Closing as if made on the date of the Closing;

 

9.2 The meeting of the shareholders of Mainrom shall have duly approved: (i) the transactions contemplated hereunder, including without limitation the issuance of the Issued Shares to the Shareholders; and (ii) the increase of the registered share capital of Mainrom.

 

9.3 Mainrom shall have no outstanding liabilities, other than the Mainrom Financial Obligations.

 

8
 

  

9.4 In connection with and for purposes of meeting the Requirements, Roichman's Holdings shall not exceed 3,800,000 ordinary shares of no nominal value of Mainrom in order for the public to hold at least 15% of the shares of Mainrom and conform with applicable TASE requirements.

 

9.5 A pre ruling from the Israeli Tax Authority in relation to the tax treatment of the Share Exchange event between the Shareholders and Mainrom in accordance with Section 104B(f) and 103 of the Tax Ordinance (and not the personal tax status of each Shareholder as a result thereof), shall have been received (the " Pre Ruling "). In the event that the Pre Ruling is not received by April 22nd, 2013, and unless this Shareholders Closing Condition was previously waived by the Majority Shareholders, Mainrom shall be entitled, at its sole discretion, and in addition to and without derogating from any other legal remedy of Mainrom, to terminate this Agreement and neither Kitov nor any of the Shareholders nor anyone on their behalf, shall have any claims and/or contents of any kind or type against Mainrom, its shareholders, directors, officers, advisors, employees and/or successors with respect to such termination

 

9.6 The approval by the Stock Exchange for the registration and trade of the Issued Shares,including without limitation shares resulting from the exercise of Mainrom's exercisable securities if any;

 

9.7 All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by Mainrom prior to or at the Closing, shall have been performed or complied with by Mainrom prior to or at the Closing;

 

9.8 All of the documents to be delivered by Mainrom to the Shareholders shall have been delivered to the Shareholders.

 

9.9 All of Mainrom's currently residing directors, excluding Issac Israel and the external directors, have terminated their engagement as directors in Mainrom's Board and Mainrom delivered a notice regarding their resignation to the Company Registrar.

 

10 Interim Period

 

10.1 During the period commencing as of the Execution Date and ending upon the earlier of the Closing Date or May 31 2013 (the " Interim Period "), Mainrom shall not perform, without the prior written approval of Kitov , any action other than as (1) may be required by law or agreement which was in effect prior to the date hereof (2) or contemplated hereunder or required for the consummation of the transaction contemplated hereunder or (3) in the ordinary course of operations of Mairom as a publically traded company with no business activity.

 

10.2 During the Interim Period, Kitov shall not perform, without the prior written approval of Mainrom, any action other than as (1) may be required by law or agreement which was in effect prior to the date hereof (2) or contemplated hereunder or required for the consummation of the transaction contemplated hereunder or (3) in the ordinary course of business of Kitov.

 

9
 

  

10.3 The above notwithstanding, During the Interim Period, neither Kitov nor any of the Shareholders perform, without the prior written approval of Mainrom, any of the following: (a) dividend or bonus share distribution; or (b) enter into negotiations, offering or soliciting third parties to acquire control of Kitov or its business activity (c) Issue or sell or transfer any shares or securities of Kitov.

 

10.4 Kitov shall provide Mainrom with any and all information and documents reasonably required by Mainrom in connection with the Disclosure Documents and/or any other disclosure requirements under law or demand by the Securities Authority.

 

10.5 The Parties acknowledge that certain Shareholders are entering into five (5) year Gain Recognition Agreements (“GRAs”) with the Internal Revenue Service of the United States in order to avoid immediate taxation by the United States as a result of the transactions contemplated in this Agreement.  Mainrom agrees that it will provide to any Shareholder entering into a GRA all information reasonably requested by the Shareholder in writing, including notice (within 21 days of written request from any Shareholder) of the occurrence of any of the following events with respect to Mainrom or Kitov during the tax period(s) specified by Shareholder: (a) any complete or partial disposition of any of the Transferred Shares or any of the Kitov securities, whether such disposition occurs directly or indirectly by transfer of the majority of Mainrom securities; (b) any disposition of substantially all of the assets of the Kitov; and (c) the entry of the Kitov into any partnership or joint venture arrangements, whether directly or indirectly.

 

10.6 Kitov and the Shareholders undertake that as of the Closing and immediately following the Closing the Kitov Financial Obligations shall not exceed the following: (i) NIS1,000,000 with respect to financial obligations towards third parties; and (ii) US$370,000 with respect to financial obligations towards the Shareholders.

 

10.7 The Mainrom Financial Obligations towards Roichman as set forth in Section ‎5.1.5 above and the Kitov Financial Obligations as set forth in Section ‎0 above shall be repaid to Roichman and the Shareholders simultaneously and pro-rata to their respective debt amounts set forth above as of the Closing. It is hereby clarified that the repayment of the above financial obligations shall be subject to and only following the payment in full of the Investments Consideration in Section ‎11.3 below.

 

11 Haiku and/or Roichman Obligations and Benefits

 

11.1 At the Closing, Haiku and/or Roichman (collectively the " Lender ") shall advance Mainrom a loan in the total amount of NIS 500,000 (the " Loan Amount "). The Loan Amount shall be repaid to the Lender by Mainrom at such time in which Mainrom and/or Kitov shall raise as of the Closing (either by way of a private placement or a public offering) an aggregate amount of at least NIS 500,000. Without derogating from any other legal rights and/or remedies available to the Lender in connection therewith, if the Loan will not be repaid when due, Lender may, at its sole discretion, convert the Loan Amount, into Mainrom's securities, at a conversion price reflecting a thirty (30) percent discount of the Applicable PPS (as defined below) (the " Conversion Option ").

 

10
 

  

For the purposes hereof, the " Applicable PPS " shall mean the average price of Mainrom's ordinary Shares in the Stock Exchange during the 30 trading days period prior to the conversion notice by Lender. The above Conversion Option shall be subject to the approval of the Stock Exchange and the approval of Mainrom's relevant organs, as legally required.

 

11.2 In addition to the foregoing, in the event that Mainrom offers its shares to the public and in such offer obtains preliminary obligations to purchase its securities under such public offering in an amount of at least NIS500,000, then in such event the Lender hereby irrevocably and unconditionally commits to participate in such public offering by placing orders to purchase the securities offered by Mainrom in such public offering in an amount of at least NIS750,000. Notwithstanding the foregoing, in the event that public offering includes options to purchase Mainrom's shares in consideration for a "premium", the Lender shall place orders to purchase the securities offered in such offering in an amount equal to NIS750,000 less the exercise price of the offered options which will be purchased by him in the event that all of the Lender's order is fulfilled in whole. For avoidance of doubt, in the event of such offering, the Loan Amount shall be repaid to the Lender immediately following such offer.

 

11.3 Without derogating from the foregoing, Haiku shall be entitled to receive, out of all funds raised by Mainrom, in a single or a series of transactions (in this Section the " Invested Amounts "), as follows: (i) 10% of all Invested Amounts up to an amount of NIS 9,000,000 in the aggregate; and (ii) 25% of all Invested Amounts exceeding NIS 9,000,000. Notwithstanding the foregoing the total cumulative amount to which Haiku shall be entitled under this Section ‎11.3shall not exceed NIS 2,500,000 (the “ Investments Consideration ”). VAT shall be added to all amount set forth above if applicable under any law.

 

11.4 In the event that Mainrom's Financial Obligations at the Execution Date exceed the amounts listed in Schedule ‎5.1.5 (the " Maximum Obligation "), i.e. that Mainrom's representation under Section ‎5.1.5 is found inaccurate, by more than NIS50,000, then Roichman shall indemnify the Shareholders, pro rata to their holdings in Mainrom at the Closing, in an amount equal to 70% of the sum of the excess of Mainrom's Financial Obligations, provided however that the indemnification amount shall not exceed NIS 1,000,000 (the " Indemnification Amount ").

 

Roichman indemnification obligations hereunder (the " Indemnification Obligation ") shall be limited as follows: (i) the Indemnification Obligation shall terminate upon the lapse of 18 month as of the Closing Date and to that extent the parties shall enter into a limitation agreement; (ii) no claim for indemnification shall be brought unless the Indemnification Amount shall exceed NIS100,000 (in which case the claim may be brought from the "first dollar"); and (iii) the Indemnification Obligation shall be limited to transfer by Roichman of its Mainrom shares. Any other provision notwithstanding the Shareholders and/or Kitov and/or Mainrom shall not be entitled to any monetary or other (except by Mainrom's shares as set forth in this sub-section (iii)) compensation from Roichman. For the purpose of this section ‎11.4, the value of Roichman's shares shall be determined according to the average of (i) the value of the shares in the transaction contemplated hereunder according to the Valuation, and (ii) the average value of the shares during a period of 30 trading adding prior to the time of indemnification.

 

11
 

  

12 Miscellaneous.

 

12.1 Duration . This agreement shall be valid and binding for a period until the earlier of (a) the Closing of the Share Exchange, or (b) three (3) months commencing as of the date hereof. Thereafter, in the event that the Share Exchange has not occurred prior thereto, this Agreement shall expire and shall be null and void.

 

12.2 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.

 

12.3 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 provision thereof, and the parties hereto irrevocably submit to the exclusive jurisdiction of the courts in Tel-Aviv, Israel in respect of any dispute or matter arising out of or connected with this Agreement.

 

12.4 Successors and Assigns. Except as otherwise expressly stated to the contrary herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns under law, heirs, executors, and administrators of the parties hereto.

 

12.5 Entire Agreement; Amendment and Waiver . This Agreement and the Schedules hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. All prior understandings and agreements among the Parties are void and of no further effect. Any term of this Agreement may be amended, waived, or discharged (either prospectively or retroactively, and either generally or in a particular instance), by a written instrument signed by all the Parties to this Agreement.

 

12.6 Notices, etc . All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be telecopied or mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed to such party’s address as set forth in Schedule ‎12.6 attached hereto or at such other address as the party shall have furnished to each other party in writing as above provided. Any notice sent in accordance with this Section 8.6 shall be effective (i) if mailed by registered or certified mail, five (5) business days after mailing, (ii) if sent by messenger, upon delivery, and (iii) if send via facsimile, upon transmission and telephonic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and telephonic confirmation of receipt, or upon receipt of a copy sent by mail as set forth above.

 

12
 

  

12.7 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 occurring. 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.

 

12.8 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.

 

12.9 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.

 

12.10 Heading, Preamble, and Schedules . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The Preamble and Schedules are an integral and inseparable part of this Agreement.

 

[Remainder of Page Left Intentionally Blank]

 

13
 

  

IN WITNESS WHEREOF the parties have signed this Agreement as of the date first hereinabove set forth

 

Kitov Pharmaceuticals Ltd.   Mainrom Line Logistics Ltd.
         
By: /s/ Morris Laster   By: /s/ Issac Israel
         
Name: Morris Laster, MD   Name: Issac Israel
         
Title: President   Title: CEO
         
SHAREHOLDERS:      
         
/s/ Morris Laster   /s/ Haiku Capital Ltd .
Morris Laster   Haiku Capital Ltd.
         
      /s/ Sheer Roichman
JPW PCH LLC   Sheer Roichman
By: /s/ J. Paul Waymack      
Name: J. Paul Waymack      
Title: CEO      

 

14
 

    

SCHEDULE A

 

The registered capital of the Company is NIS 200,000, divided to 20,000,000 shares in the value of NIS 0.01 per share.

 

List of shareholders (Outstanding Capital):

 

 

Shareholders Total Number of
Shares in the Company
Type of Shares Value of Each
Share
Dr Morris Laster 2,000,000 Ordinary NIS 0.01
JPW PCH LLC 8,000,000 Ordinary NIS 0.01
Total 10,000,000   NIS 100,000

 

15
 

   

SCHEDULE ‎1.1

 

Language for agreement with the Additional Holdings Trustee

 

The parties agree that the Additional Holdings are held pursuant to this [Trust Agreement] for the sole benefit of Mainrom, and that Mainrom shall have all beneficial rights, ownership or interest in and to the Additional Holdings and to any of the income, sales proceeds, dividends, distributions, economic or other benefits resulting from the ownership of the Additional Holdings. It is the intent of the parties that Mainrom shall be deemed to “control” the Additional Holdings and under all circumstances title to the Additional Holdings shall be distributed to Mainrom at such time as provided in [the Share Transfer Agreement and this Trust Agreement]

 

16
 

 

SCHEDULE 1.3

 

Milestone

 

The milestone will be met when the pivotal clinical trial has been completed, the data have been analyzed, and the data analyses have demonstrated that the reduction in blood pressure in the group treated with the Kitov drug KIT-302 was at least half of that achieved with amlodipine monotherapy.

 

17
 

 


SCHEDULE 1.4

 

Allocation Table in connection with the Transferred Shares to be transferred by Shareholders to Mainrom & the Issued Shares to be issued by Mainrom to the Shareholders

 

18
 

 

SCHEDULE 1.5A

 

Terms and Conditions of the Options of Mainrom granted to Simcha Rock at the Closing

 

19
 

 

SCHEDULE 1.5B

Terms and Conditions of the Options of Mainrom granted to Lior Tamar Investments Ltd. at the Closing

 

Option Holder(s)   Lior Tamar Investments Ltd. (" Lior Tamar "), and/or any other third party as may be designated by Lior Tamar.
Number of Options   Options to purchase 1,194,616 ordinary shares of Mainrom (the " Options ").
Exercise Period   Five (5) years as of the date of execution by both parties of an Option Agreement to this effect.
Exercise Price  

NIS 0.10 per share.

 

Vesting   All Options shall be fully vested and exercisable immediately upon the date of grant of such Options.
Adjustments Dividend Distribution: In the event of dividend distribution during the Exercise Period, the Exercise Price shall be decreased by an amount equal to the dividend amount in NIS.
Bonus Shares Issuance: In the event of a bonus shares issuance during the Exercise Period, the rights of the Option Holder(s) shall be preserved in a manner that immediately after the business day preceding the "ex-dividend" date for the issuance of the bonus shares (in this section the " Determining Date "),  the shares that the Option Holder(s) is entitled to pursuant to the exercise of the Options, shall be increased by an amount equal to the number of the bonus shares such Option Holder(s) would have been entitled to had it exercised its Options immediately prior to the Determining Date allowing it to participate in the issuance of the bonus shares.
Offer of securities
by way of a rights
issue:
In the event of an offer of securities by way of a rights issue during the Exercise Period, the number of shares the Option Holder(s) is entitled to pursuant to the exercise of Options will be adjusted according to the benefit pursuant to the rights issue, as reflected in the ratio between the price of the share as set on the TASE on the last trading day immediately prior to the "ex" day and the price of the share on the "ex-rights" day.
Transfer   The Options, in whole or in part, may be transferred to any third party designated by the Option Holder(s), provided an appropriate transfer deed is executed by the parties thereto and delivered to the registered office of Mainrom.

 

20
 

 

SCHEDULE 2.3.4

 

Agreement to Terminate JPW PCH LLC's right to purchase assets from Kitov

 

21
 

 

SCHEDULE 3A

Directors to be appointed to Mainrom's board of directors at the Closing

 

1. Dr. Paul Waymack;
2. Dr. Morris Laster; and
3. Mr. Simcha Rock

 

22
 

 

SCHEDULE 3B

Directors' Declarations according to applicable law

 

23
 

 

SCHEDULE 5.1.2

 

Mainrom Share Capital

 

Shareholders   Securities
Allocation
    Securities Type
Sheer Roichman     5,418,886     Ordinary
Public     2,186,837     Ordinary
Mainrom Line Logistics Ltd.     270     Ordinary
Total     7,605,993      

 

24
 

 

SCHEDULE 5.1.5

 

Mainrom's Obligations

 

25
 

 

SCHEDULE 7.1

 

Kitov's Total Obligations and Liabilities

 

26
 

  

SCHEDULE 12.6

 

List of Addresses

 

Name   Address
Kitov Pharmaceuticals Ltd.  

11 Reuven Shari str., Jerusalem 7246, Israel

 

Morris Laster  

11 Reuven Shari str., Jerusalem 7246, Israel

 

JPW PCH LLC

 

 

1615 Suter's Lane NW,

Washington DC, 20007, United States

 

Mainrom Line Logistics Ltd.   Capital Point, 132 Menachem Begin str., Tel-Aviv 67021, Israel
Sheer Roichman   7 Ophir str., Tel-Aviv, Israel
Haiku Capital Ltd.   7 Ophir str., Tel-Aviv, Israel

 

27

 

 

 

EXHIBIT 10.5

 

[Unofficial English translation from Hebrew]

 

Appendix H

 

                           , 2013

 

To:

Mr. / Mrs.                                

 

Form of Letter of Exemption

 

On March 20, 2013, the Company's Audit Committee and Board of Directors decided to exempt all Company officeholders specified in Appendix A to this Letter of Exemption from their liability towards it, in whole or part, due to damage caused due to the violation of the duty of care towards the Company (hereinafter: the "Exemption Decision" ), excluding damage due to the violation of the duty of care of a director in a distribution, as this term is used in the Companies Law, 5729 – 1999 (hereinafter: the "Companies Law" ).

 

Subsequently, on ________________, 2013, the Company's General Meeting approved, with the legally required majority, the Exemption Decision. We hereby inform you that since you serve and/or served and/or may serve as an Officeholder in the Company and/or in the Company's subsidiary and/or related company and/or are employed and/or were employed and/or may be employed by the Company and/or its subsidiary and/or related company, the Company hereby confirms and undertakes towards you, subject to the provisions of an law, as follows:

 

Subject to the provisions of Sections 259 and 263 of the Companies Law, or any legal provision that replaces them, the Company releases you in advance from any liability towards it for any damage caused to it and/or that was caused to it, whether directly or indirectly, due to the violation of your duty of care towards it in your actions made in good faith by force of your service as an officeholder and/or employee in the Company and/or in its subsidiaries and/or associate companies, as these may be from time to time, except for the violation of the duty of care in a distribution.

 

The Company's undertakings under this Letter of Exemption shall be interpreted broadly and in accordance with the purpose for which they are designed, insofar as permitted by law. In case of any contradiction between any provision of this Letter of Exemption and a provision of law that may not be stipulated, changed or added to, such provision of law shall prevail, but this shall not adversely affect or derogate from the effect of the other provisions of this Letter of Exemption.

 

The provisions of this Letter of Exemption shall not derogate from the provisions of any Letter of Indemnity you are given by the Company, if any.

 

"Action" or any derivative for the purposes of this Letter of Exemption -

  as defined in the Companies Law, also including decisions and/or omissions and including all actions you have performed prior to the date of this Letter of Exemption in the periods of your employment and/or service as a Company officeholder and/or in the period of your service as an officeholder, employee or agent of the Company in any other corporation whose securities the Company holds directly and/or indirectly.

 

 
 

 

 

"Officeholder"  for the purposes of this Letter of Exemption -   as this term is used in the Companies Law, including any employee to whom the Company decides to grant a Letter of Indemnity.

 

   
   
Mainrom Line Logistics Ltd.  

 

2
 

 

Appendix A to the Letter of Exemption

 

3

 

 

 

 

Exhibit 10.6

[Unofficial English translation from Hebrew]

 

Appendix G

 

__________, 2013

 

Mr./Ms. __________

 

Form of Letter of Indemnity

 

On March 20, 2013 the Company’s Audit Committee and Board of Directors decided that the Company would indemnify and undertakes in advance to indemnify the officers listed in Appendix A to this Letter of Indemnity, as specified in this Letter of Indemnity (hereinafter: “the Indemnity Decision” ).

 

Following the approval of the Indemnity Decision on __________, 2013 by the Company’s general meeting by majority required by law, we hereby notify you that since you are and/or you were and/or may be a office holder of the Company and/or in subsidiaries and/or associated companies of the Company and/or you are employed and/or was employed and/or may be employed by the Company and/or by subsidiaries and/or associated companies of the Company, the Company approves and undertakes towards you, subject to the provisions of any law, as follows:

 

1. Undertaking to Indemnify

 

Subject to the provisions of the law, the Company undertakes to indemnify you for any liability or expense as specified in Clause 2 below, imposed on you or incurred by you as a result of any of the following:

 

1.1. Your actions and/or their derivatives in your capacity as an officer and/or employee of the Company and/or its subsidiaries and/or associated companies, as will be from time to time.

 

1.2. Your actions and/or their derivatives in your capacity as an officer, employee or agent of the Company in any other corporation in which the Company is, directly or indirectly, the holder of securities (hereinafter: “Another Corporation” ).

 

In this Letter of Indemnity:

 

“Officer” - A “senior officer” – as this term is defined in Clause 37(d) to the Securities Law-1968 (hereinafter: the “Securities Law” ) and/or any other law applying to the activity of the Company and its senior officers, as well as any employee and/or service provider to whom the Company decides to grant a letter of indemnity.
   
An “action” or its derivative - As the meaning of this term in the Companies Law-1999 (hereinafter: the “Companies Law” ) including a decision and/or default in this sense and including all the actions taken by you prior to the date of this Letter of Indemnity during the periods of your employment in the Company and/or its subsidiaries and/or associated companies and/or during the periods of your capacity as an officer in the Company and/or its subsidiaries and/or associated companies and/or in Another Corporation as defined above.
   
“Claim” - Including civil action, administrative action, criminal action, derivative action, class action, applications for arrangement, creditors’ claims, claim for financial compensations and application for declaratory relief.

 

 
 

 

  

2. Causes of Indemnity

 

The undertaking for indemnity as mentioned in Clause 1 above will apply to any liability or expense that can be indemnified by law, and according to the Company’s Articles of Association, as specified below:

 

2.1 Financial obligation imposed on you according to a court decision in favor of another person, including a decision given as a compromise or arbitral decision approved by court, which is connected directly or indirectly to one or more of the events specified in the Addendum to this Letter of Indemnity (hereinafter: “the Addendum” ) or any part thereof (hereinafter: the “Determinant Events” ), on condition that the maximum amount of indemnity for each of the Determinant Events will not exceed the sum stipulated in the Addendum, linked to the increase in CPI from the date of approval of this Letter of Indemnity by the Company until the date of actual indemnity, for each of the Determinant Events, in relation to each Event and each Officer of the Company separately (hereinafter: the “Final Liability” ).

 

2.2 Reasonable litigation costs, including lawyer’s fees which occurred in connection with an inquiry or proceeding conducted against you by an authority which is authorized to conduct an inquiry or proceeding, and which ended without indictment against you 1 and without imposing a financial obligation on you as an alternative to criminal proceedings, or which ended without indictment against you but with the imposition of a financial obligation as an alternative to criminal proceedings in an offense which does not require the proof of criminal intent or in connection with a financial sanction.

In this Clause –

Ending a proceeding without indictment in a matter where a criminal investigation has been initiated – means closing the case under Clause 62 to the Law of Criminal Procedure [Consolidated Version]-1982 (in this sub-clause – the Law of Criminal Procedure), or a stay of proceedings by the Attorney General under Clause 231 to the Law of Criminal Procedure;

"Financial Obligation as an alternative to Criminal Proceedings" – financial obligation imposed by the law as an alternative to criminal procedure, including an administrative fine under the Administrative Offenses Act-1985, a fine for an offense which has been determined as a finable offense under the provisions of the Law of Criminal Procedure, a financial sanction or ransom.

 

 

1 Including in case of recourse after filing an indictment and subject to the terms of indemnity specified in Clause 5 below.

 

2
 

   

2.3 Reasonable litigation costs, including lawyer’s fees, which were incurred by you or you were obligated by court to incur, in a proceeding filed against you by the Company or Another Corporation, as the case may be, or in the name of any of them or by another person 2 , or a criminal charge from which you were acquitted, or a criminal charge where you were convicted of an offense which does not require proof of criminal intent.

 

2.4 Expenses incurred by you in connection with a proceeding in your matter, including reasonable litigation costs, and including lawyer’s fees.

In this Clause 2.4, “proceeding” – a proceeding under Chapter H3 to the Securities Law (Financial Sanction by the Securities Authority), a proceeding under Chapter H4 to the Securities Law (Administrative Enforcement by the Administrative Enforcement Committee), a proceed under Chapter I1 to the Securities Law (Arrangement to Refrain from Proceedings or Discontinuation of Legal Proceedings subject to Conditions) and a proceeding under Mark D (Financial Sanction by the Securities Authority) to Chapter Four (Remedies, Financial Sanction and Registration of a Company in Violation) of Part Nine to the Companies Law.

  

2.5 Payment to the party offended by the violation, as mentioned in Clause 52(54)(a)(1)(a) to the Securities Law under Chapter H4 to the Securities Law (Administrative Enforcement by the Administrative Enforcement Committee).

 

2.6 Liability or another expense which can be indemnified according to any law.

 

3. Amount of Indemnity

 

3.1. Accumulative indemnity sum

The total accumulative sum of indemnification paid by the Company to all the Officers in the Company according to all the Letters of Indemnity that were and will be issued by the Company according to the Indemnity Decision (hereinafter: “letters of indemnity” ) will not exceed a sum equal to 25% of the Company’s determinant equity (hereinafter: “maximum indemnity sum” ). In this matter, “the Company’s determinant equity” means the sum of the Company’s equity attributed to the Company’s shareholders according to its latest audited or reviewed consolidated financial statements, as the case may be, as of the date of indemnification.

 

 

2 Including a plaintiff in a derivative action, as this term means in the Companies Law

 

3
 

  

It is hereby clarified that the payment of the indemnity sum mentioned above will not prejudice your right to receive insurance benefits, including for the Determinant Events in the Letter of Indemnity as insured in an insurance company, which the Company will receive for you from time to time, if any, as part of any liability insurance of Officers in the Company, on condition that no double compensation will be paid to you for any liability or expense which can be indemnified as mentioned in Clause 2 above, and subject to the provisions of Clause 5.6 below.

 

Without derogating from the provisions of Clause 5.6 below, it is explicitly emphasized that the Company’s payments will form an "additional layer" beyond the total amount of insurance benefits paid by the insurer, as much as these are paid. It is also emphasized that this undertaking to indemnify is not a contract in favor of any third party including any insurer and it cannot be assigned, and no insurer will have the right to require the Company's participation in a payment obligated by an insurer according to an insurance agreement made with him, except for the deductible indicated in such agreement.

 

In case the total amount of indemnification the Company is about to pay at any time, in addition to the total amount of indemnification the Company has paid until that date according to the letters of indemnity, exceeds the maximum indemnity sum, the maximum indemnity sum, or its balance as the case may be, will be divided between the Company's Officers who will be entitled to indemnity sums as mentioned above for claims they had submitted to the Company according to the letters of indemnity and which were not paid to them prior to that date (hereinafter: "the eligible Officers" ), in a way that the indemnity sum actually received by each of the eligible Officers will be calculated according to the pro rata ratio between the indemnity sum which would have been owed to each of the eligible Officers and the accumulative indemnity sum owed to all the eligible Officers at that date for such claims, if not for the maximum indemnity sum limit.

 

Has the Company paid indemnity sums to its Officers at the maximum indemnity sum, the Company will not bear additional indemnity sums unless the payment of these additional sums is approved by Company authorized organs according to the law at the time of payment of the additional indemnity sums, and subject to an amendment in the Company's Articles of Association, if such is required by law.

 

It should be clarified that this Letter of Indemnity does not limit the Company or prevent it from increasing the maximum indemnity sum due to Events the subject of indemnity, whether due to decrease in the insurance sum according to liability of Officers, or because the Company cannot obtain an insurance of Officers that covers the Events the subject of indemnity under reasonable terms, or for any other reason, on condition that such decision is made through the proper channels as stipulated in the Companies Law.

 

3.2. Amount of Indemnity for the Determinant Events

Subject to the provisions of Clause 3.1 above, the undertaking to indemnify for each of the Determinant Events will be limited, in relation to each Officer of the Company and to each Event separately, to the sum of liability or expense that can be indemnified as mentioned above, but not more than the maximum indemnity sum in relation to each of the Determinant Events.

 

4
 

  

4. Interim Payments

On the occurrence of an Event for which you are likely to be entitled for indemnity as mentioned above, the Company will, from time to time, make available for you the required amounts to cover the expenses and other types of payments involved in handling each legal proceeding against you, in connection with that Event, including investigation procedures, in a way you will not be required to pay them or finance them yourself, including making guarantees and collaterals available for you, all subject to the terms and provisions stipulated in this Letter of Indemnity. It should be emphasized that the Company will not require that you make any guarantees available to it as condition for transferring the said amounts.

 

If the Company pays to you or instead of you any amounts as part of this Letter of Indemnity in connection with a legal proceeding as mentioned above, and later it turns out that you are not entitled to indemnity by the Company for such amounts, the provisions of Clause 5.8 below will apply.

 

5. Terms of Indemnity

Without derogating from the aforesaid, the indemnity according to this Letter of Indemnity is subject to the following conditions:

 

5.1. Notice of Indemnity

You will notify the Company in writing of any claim and/or legal proceeding and/or administrative proceeding and/or inquiry by an authority which is authorized to conduct an inquiry or proceeding, that will be initiated against you and/or of any warning in writing or any apprehension or threat that such proceedings will be initiated against you in connection with any Event for which the indemnity is likely to apply (jointly and severally, hereinafter: “the Proceeding” ), and this immediately after it first becomes known to you, and in time to leave reasonable time to respond to such Proceeding, as required by any law (hereinafter: “the Notice of Indemnity” ), and forward to the Company, or whoever instructed by it, every document which will be delivered to you and/or be at your disposal in connection with such Proceeding.

Failure to deliver the Notice of Indemnity as stipulated above will not exempt the Company from its undertakings according to this Letter of Indemnity, except in case where the non-delivery of the Notice of Indemnity as aforesaid will fundamentally harm the Company’s right to defend itself in its name (if it is also sued in that Proceeding) and/or in your name against the Claim and at the said extent of harm.

 

5
 

  

5.2. Handling the Defense

Provided it does not contradict the relevant provisions of the law or the terms of the Officers’ liability insurance policy purchased by the Company, the Company may undertake the handling of your defense in that Proceeding and/or hand over the said handling to any attorney of the Company’s choice for that purpose (except for an attorney who will not be acceptable to you for reasonable grounds). The Company and/or the said attorney will act within the abovementioned handling to bring this Proceeding to completion, will provide you with current reporting of the progress of the Proceeding and will consult with you as to its conduct; the attorney appointed by the Company as mentioned above will act and be loyal to the Company and you. Whenever there is apprehension, in your opinion or in the Company’s opinion or the attorney’s opinion, of a conflict of interests between you and the Company in defending against such Proceeding, you will notify the Company or the Company will notify you, or the said attorney will notify you, as the case may be, of such conflict of interests and you will be entitled to appoint an attorney on your behalf to handle your defense, and the provisions of this Letter of Indemnity will apply to expenses you will incur in connection with the appointment of this attorney. Notwithstanding the provisions of this Clause, if the Company’s Directors & Officers insurance policy applies to the same matter, you and the Company will comply with the provisions of the policy in everything connected to disputes with the insurer as to the identity of the representing attorney, if the policy’s provisions so require, in a way that the handover of the handling to the other representing attorney will not enable the insurer to be released of its undertaking according to the policy or reduce it in any way. The Company may not bring the abovementioned Proceeding to completion by way of a compromise and/or settlement and/or agree to a compromise and/or settlement as a result of which it will be required to pay sums it will not be indemnified for according to this Letter of Indemnity, and which will also not be paid within an insurance of the Company’s Officers liability that will be purchased, if purchased, by the Company and/or its subsidiary and/or associated company and/or Another Corporation, unless you have given your prior written consent to the obtained compromise. Furthermore, the Company may not bring the dispute the subject of the abovementioned Proceeding to a decision by way of arbitration or compromise or mediation unless you have given your prior written consent to that, provided that you will not refuse to give your consent unless for reasonable grounds which will be forwarded to the Company in writing. To remove doubt, even if the dispute in the Proceeding will be brought to solution by way of arbitration or compromise or mediation or in any other way, the Company will bear all the related expenses.

 

Notwithstanding the aforesaid, the Company may not bring the abovementioned Proceeding to completion by way of a compromise and/or settlement and/or bring the dispute the subject of the abovementioned Proceeding to a decision by way of arbitration or compromise or mediation in cases of criminal charges against you, unless you have given your prior written consent to that. You may refuse to give your consent as mentioned in this paragraph at your sole discretion and without being required to explain such refusal.

 

6
 

  

If, within 7 days from the date of the Company receiving the Notice of Indemnity (or a shorter period of time if required for submitting your Statement of Defense or your response to the Proceeding), as mentioned above, the Company does not assume the handling of your defense against such Proceeding, or if you object to being represented by the Company’s attorneys for reasonable grounds or fear of conflict of interests, you will have the right to hand over your representation to an attorney of your choice, and the provisions of this Letter of Indemnity will apply to expenses you will incur for appointing such attorney.

 

5.3. Cooperation with the Company

At the Company’s request you will sign every document appointing it and/or any attorney, as mentioned above, to handle your defense in that Proceeding in your name and represent you in everything connected to it, as aforesaid.

You will cooperate with the Company and/or with any attorney as aforesaid and comply with all the instructions of the insurers according to the Officers liability policy in which the Company and/or you will be engaged in connection with the defense in the Proceeding, provided that the Company or the insurance company will see that all your related expenses are covered, in a way that you will not be required to pay for them or finance them yourself, and this subject to the provisions of Clauses 1 and 3 above.

No waiver, delay, refraining from action or extension by the Company or by you will not be, under any circumstances, construed as waiver of your rights under this Letter of Indemnity and any law, and will not prevent the Company or you from taking all the legal and other required steps to exercise your said rights.

 

5.4. Cover of Liabilities

Whether the Company acts according to the provisions of Clause 5.2 above or not, it will see that the liabilities and expenses mentioned in Clause 2 above are covered, in a way that you will not be required to pay or finance them yourself, and this without derogating from the indemnity undertaken to you according to the provisions of this Letter of Indemnity and/or the insurance policy acquired by the Company from time to time, if any, and all subject to the provisions of Clauses 1 and 3 above.

 

5.5. Non-application of the Indemnity in case of a compromise or admission

The indemnity in connection with any Proceeding against you, as mentioned in this Letter of Indemnity, will not apply to any amount owed by you to the plaintiff following a compromise or arbitration, unless the Company has agreed in writing to such compromise or settlement or arbitration, as the case may be, however the Company will not refrain from giving its consent as aforesaid unless for reasonable grounds.

Furthermore, the indemnity will not apply in case you admit the criminal charges in an offense which does not require the proof of criminal intent or in a Proceeding, as defined in Clause 2.4 above, unless your admission has been approved by the Company in advance and in writing.

 

7
 

  

5.6. Non-application of the Indemnity in case of third party indemnification or insurance

The Company will not be required to pay sums, according to this Letter of Indemnity, for any Event, as much as such sums were actually paid to you or for you or instead of you in any way within the Company’s Officers liability insurance, or within any third party’s indemnification apart from the Company. To remove doubt it should be clarified that the Maximum Indemnity Sum according to this Letter of Indemnity will apply beyond and in addition to the sum paid (if and as much as paid) within the insurance and/or indemnification or anyone apart from the Company, on condition that you will not be paid double compensation for any liability or expense that can be indemnified as mentioned in Clause 2 above, and that in case you receive indemnification from the Company’s insurer under the Directors & Officers liability policy or under any other indemnity agreement, for the matter the subject of indemnity, the indemnity given will be the difference between the amount of liability and/or expense that can be indemnified as mentioned in Clause 2 above, and the amount received under the insurance policy or the other indemnity agreement for that matter, provided that the sum of indemnity the Company has undertaken does not exceed the Maximum Indemnity Sum. Furthermore, it should be clarified that the provisions of this Clause will not apply to the applicable deductible under the terms of the Directors & Officers liability policy made by the Company.

 

Concerning the matter of the Company’s undertaking for indemnity for an action you have done or will do within your capacity as an Officer and/or employee of the Company’s subsidiary and/or associated company and/or Another Corporation (jointly and severally, hereinafter: “the Liable Corporation” ) the following provisions will also apply:

 

(a) The Company will not be required to pay according to this Letter of Indemnity sums which you will be entitled to receive and will actually receive from the Liable Corporation within an insurance policy made by the Liable Corporation and/or according to a prior undertaking to indemnify or according to an indemnity permit given by the Liable Corporation.
(b) If your demand to receive indemnity and/or insurance coverage for an action you took in the capacity of your position in the Liable Corporation, and which can be indemnified according to this Letter of Indemnity, is rejected by the Liable Corporation or the Liable Corporation’s insurance company, as the case may be, the Company will pay you, according to this Letter of Indemnity, sums you will be entitled to receive according to this Letter of Indemnity, if you are entitled to such sums, and you will assign to the Company your rights to receive sums from the Liable Corporation and/or according to the Liable Corporation’s insurance policy, and authorize the Company to collect these sums in your name, as much as such authorization is required to fulfill the provisions of this Clause. In this matter you undertake to sign every document required by the Company in order to assign your said rights and authorize the Company to collect the said sums in your name.
(c) For the avoidance of doubt, it is clarified that this Letter of Indemnity does not grant the Liable Corporation and/or any third party any rights against the Company, including, but without derogating from the generality of the aforesaid, the right to claim and/or demand any payment from the Company as participation in the indemnity and/or insurance coverage provided to you by the Liable Corporation for an action you took in the capacity of your position in the Liable Corporation.

 

8
 

  

5.7. Payment of Indemnity

On your request to make any payment in connection with any Event according to this Letter of Indemnity, the Company will take all the necessary actions according to the law for its payment, and will act for the arrangement of any approval required in connection therewith, if required. If any approval is required for said payment, and such payment is not approved for any reason whatsoever, this payment or any part thereof not approved as aforesaid will be subject to a court’s approval, and the Company will act to obtain it.

 

5.8. Return of already paid indemnity sums

If the Company pays you or instead of you any sums within this Letter of Indemnity in connection with a Proceeding as mentioned above, and later it turns out that you are not entitled to indemnity from the Company for such sums, these sums will be considered a loan given to you by the Company, which will bear interest at the minimum rate as stipulated by law from time to time, in order not to become a taxable benefit in the hands of the loan receiver, and you will be required to return these sums to the Company plus VAT on the interest according to the law, when you are required in writing by it to do so, and according to the composition of payments determined by the Company (provided the said sums are paid in full to the Company not later than three (3) months from the date the Company found out you were not entitled to be indemnified for the said sums).

 

Had the obligation, for which the sum was paid, been cancelled or reduced for any reason whatsoever – you will assign your full rights for return of the sum by the plaintiff in the Proceeding and do everything necessary for such assignment to be valid and exercisable by the Company, and once you do so, you will be exempt from returning the sum, the right for the return of which has been assigned to the Company. If you fail to do so, you will be obligated to return to the Company the sum or a part thereof, as the case may be, plus linkage differences and interest, at the rates and for the period you will be entitled for the return of the sum by the plaintiff.

 

5.9. Providing collaterals to the insurer

Notwithstanding the provisions of this Letter of Indemnity above (including Clause 4 above) and since, as specified in Clause 3.1 above, the Company’s payments will form an “additional layer” beyond the insurance benefits paid to you by the insurer, if any, then in any event in which you might be entitled for indemnity, where you will be required to incur expenses and various payments involved in handling legal proceedings conducted against you and connected to the same Event, you will approach the insurer first to receive the sums required to cover the said expenses and payments. For that purpose, the Company hereby undertakes to provide the insurer with all the collaterals required by it, as much as required, in order to receive the said sums, provided that the amount of such collaterals will not exceed the Maximum Indemnity Sum, as defined above.

 

9
 

  

If, at a later stage, it turns out you are not entitled to the sums you are about to receive, if any, from the insurer, you will be required to immediately return to it the said sums, in order to release the collaterals provided to the insurer by the Company. If you fail to do so, the collaterals which have been provided by the Company to the insurer and exercised by it will be considered as a loan under the terms, mutatis mutandis, specified in Clause 5.8 above.

 

6. Indemnity Period

The Company’s undertakings according to this Letter of Indemnity will remain in your favor, in favor of your estate, heirs and other successors according to the law, indefinitely, and it will not be revoked nor modified but in your favor, and this after the termination of your employment in the Company and/or your position as an Officer in the Company and/or its subsidiaries and/or associated companies and/or in the Other Corporation as defined above, as the case may be, regardless of the date of discovery of the Event for which you are entitled for indemnity according to this Letter of Indemnity, provided that the actions for which the indemnity is given have been done during the period of your employment in the Company and/or your position as an Officer in the Company and/or its subsidiaries and/or associated companies and/or in the said Other Corporation.

 

7. This Letter of Indemnity is subject to every law and the Company’s Articles of Association. The Company’s undertakings according to this Letter of Indemnity will be interpreted widely and in the method intended for exercising them, as permitted by law, for the purpose they have been made. In case of a contradiction between any provision of this Letter of Indemnity and a provision of the law which cannot be conditioned, modified or added, the said provision of the law shall prevail, but it will not compromise or derogate from the effect of the other provisions of this Letter of Indemnity.

 

8. This Letter of Indemnity will enter into force on you signing a copy thereof where you need to sign, and handing over the signed copy to the Company.

 

9. Nothing contained in this Letter of Indemnity can derogate from the provisions of the Letter of Exemption provided to you by the Company, if at all. Furthermore, for the avoidance of doubt it is hereby clarified that the indemnity undertaking under this Letter of Indemnity does not derogate from the Company’s right to determine any additional indemnity, retroactively or in advance, and/or expand any existing indemnity, all subject to obtaining approvals as required by any law.

For the avoidance of doubt, it is hereby clarified that the undertaking contained in this Letter of Indemnity does not cancel or derogate from or waive any other indemnity the Officer is entitled to receive from any other source according to any law or according to any of the Company’s previous undertaking or agreement, provided that the Company will not be obligated to indemnify the Officer with more than the actual liability and expenses caused to that Officer for any Event, even according to the previous undertakings (if and as much as in effect) as well as according to this Letter of Indemnity, provided that the total sum of indemnity (except for sums received from the insurance policy) will not exceed the Maximum Indemnity Sum as defined above.

 

10
 

  

10. The Addendum to this Letter of Indemnity forms an integral part thereof.

 

11. The law applicable to this Letter of Indemnity is the Israeli law, and the competent court in Tel Aviv has the sole jurisdiction to hear in disputes arising from the application of this Letter of Indemnity.

 

In witness whereof, the Company has signed:

 

Date: ___________  
  Kitov Pharmaceuticals Holdings Ltd.

 

I, the undersigned, hereby confirm the receipt of this Letter of Indemnity and give my consent to its provisions, including those of Clause 5.8 above.

 

 

 

11
 

  

 

 

Addendum  
  Determinant Events

Final

Liability
(in NIS
million) 3

1 Any claim or demand filed by a client, supplier, contractor or any other third party, which has any kind of business with the Company, its subsidiaries, associated companies or Another Corporation as defined above (in this Addendum, jointly and/or severally, hereinafter: “the Company” ) including in connection with holding negotiations with them and/or any claim and/or demand which has been filed against the Officer by any person and/or corporation and/or entity and/or authority acting according to the law. 2
2 Any claim or demand filed in connection with a transaction, whether or not it is during the Company’s normal course of business, including for credit receiving, sale, lease, transfer or acquisition of assets or liabilities, including securities, and receiving and/or giving an option for sale, lease, transfer or acquisition of assets or liabilities  as aforesaid (including, but without derogating from the generality of the aforesaid, goods, real estate, securities or rights, or giving or receiving a right in any of them), negotiating for engagement in a transaction, and receiving and/or giving an option for sale, lease, transfer or acquisition of assets or liabilities as mentioned above, pledge of assets and liabilities and giving or receiving collaterals including engagements in financing agreements with banks and/or other financial entities for the purpose of financing transactions or engagements in process, managing real estate of any type and for any purpose and every action related thereto, including conducting negotiation in connection with the acquisition of the real estate, its establishment, operation and sale, and every other matter connected with the aforesaid, directly or indirectly, and all whether these transactions and/or actions are completed or not, for any reason whatsoever. 2
3 Any claim or demand filed by employees, consultants, agents, freelance contractors, concessionaires, clients, distributors, marketers, suppliers and all kinds of service providers or other individuals, or an entity which is employed or provides services to the Company, in connection with compensations owed to them or damages or liabilities caused to them in connection with their employment by the Company or their engagement with the Company, including Events relating to the terms of employment of employees and with employer-employee relations, including conducting negotiations in connection with terms of employment or termination thereof, promotion of employees, handling pension arrangements, insurance and saving funds, granting securities and other benefits. 2

 

 

3 The sums specified above are linked to the increase in CPI from the date of approval of this Letter of Indemnity by the Company to the date of actual indemnity.

 

12
 

  

4

Any claim or demand in connection with non-disclosure or failure to provide any type of information at the due time according to the law, or in connection with misguided or faulty disclosure of information as aforesaid, to third parties including holders of the Company’s securities, or potential holders of securities, including in everything relating to the issuance , allocation, distribution, acquisition, holding or in affinity to the Company’s securities, or any other investment activity which involves or is affected by the Company’s securities. Without derogating from the generality of the aforesaid, this Event will also apply in connection with an offer of securities to the public according to a prospectus, private offer, exchange tender-offer or any other offer of securities.

Any claim or demand in connection with non-disclosure or failure to provide any type of information at the due time according to the law, or in connection with misguided or faulty disclosure of information as aforesaid, to third parties including Income Tax, VAT, Social Security, an investment center, local authorities, the Ministry of Environmental Protection and any other governmental or institutional entity or a professional or another association.

15
5 Any claim or demand in connection with any Event which results from or is connected to an offer and/or issue of the Company’s securities to the public and/or to employees and/or a private placement and/or a purchase offer and/or an exchange tender-offer and/or in any other way, in Israel or outside of Israel (including, inter alia, but not limited to, claims based on a prospectus and/or a prospectus draft for supplement and/or a supplemental notice and/or a shelf prospectus and/or a shelf offering and/or outline report and/or a private offering report and/or a purchase offer outline and/or another report published by the Company (in this Clause, hereinafter: the “Report” ), or on the disclosure or non-disclosure of details contained therein, or on the reporting or non-reporting on any matter following the offering according to the report, or on the compliance or non-compliance with provisions of the relevant Securities Laws), and including any claim or demand in connection with all the subjects that required a presentation and/or disclosure in the report including every draft thereof, which occurred prior to the report date, or thereafter during the period starting with the report date and ending at the end of the period for submitting orders and/or at the end of the acceptance period (as the case may be), which was not disclosed as required by Law in the Report or in later reports published the Company and/or a controlled entity (therefore: “Missing or Misleading Report” ) provided that immediately after learning about the existence of the Missing or Misleading Report, the Officer has acted as required by law. For the purposes of this Clause, “reports” – including periodic reports, immediate reports, financial statements and any other report the Company or the Officer are required to provide by any law. 15
6 Any claim or demand submitted in connection with a cause committed or allegedly committed, or abuse in connection with a third party’s intellectual proprietary right by the Company or anyone on its behalf. 2
7 Decisions and/or actions relating to the Consumer Protection Act and/or orders and/or regulations under it. 1

 

13
 

  

8 Any act relating to the submission of offers for tenders and/or concessions and/or licenses, of any kind and type whatsoever. 1
9 Any claim or demand submitted by a lender or creditor or in connection with money lent by them, or debts of the Company to them. 10
10 Any claim or demand submitted by a third party for personal injuries, including death, or damage to a business or personal asset, including the loss of its use in the course of any action or omission attributed to the Company, or respectively to its Officers, employees, agents or other persons acting or claiming to be acting on the Company’s behalf and/or in the capacity of their position in the Company. 10
11 Any claim or demand submitted directly or indirectly in relation to an omission, in full or in part, by the Company, or by the Company’s Officers, managers or employees, in everything connected to the payment, report, or documents records, of one of the State’s authorities, a foreign authority, a municipal authority, or any other payment required by the laws of the State of Israel and any other country, including payments for income tax, sales tax, betterment tax, transfer tax, excise, VAT, stamp duty, customs, social security, salaries or delay of salaries or other delays, including any type of interest and additions due to linkage. 5
12 Any claim or demand submitted by purchasers, owners, lessors, lessees or other holders of the Company’s assets or products, or individuals engaged in these products, for damages or losses in connection with the use of said assets or products. 5
13

Any administrative, public or judicial act, orders, judgments, claims, demands, petitions, instructions, contentions, seizures, investigation procedures, or notices of non-compliance or violations from a government authority or other bodies claiming potential responsibility or liability (including due to expenses of enforcement, investigations, responses of government authorities, cleaning, removal or repair, due to damages to natural resources, damages to the ground, physical injuries or fines or donations, indemnity, recuperation payments, compensation) resulting thereof, whether in Israel or outside of Israel, which are based on or connected to:

(a) Emergence of liquid runoff, emission, leak, flooding, spill, disposal, release, filtration or migration, on the ground and/or underground and/or above ground (jointly, hereinafter: "Pollution" ) or a risk of Pollution or exposure to any type of hazardous, toxic, explosive or radioactive material, waste or other substances, which should be regulated according to environmental laws, in every place owned, operated, rented or managed by the Company.

(b) Creation circumstances of any type of violation of environmental laws, environmental licenses, permits or additional approvals required according to environmental laws.

5

 

14
 

  

14 Any administrative action, public action, judicial action, managerial action, orders, judgments, claims, demands, letters of demand, instructions, contentions, investigations, procedures (including administrative procedures, subject to the law) or notices of non-compliance or violation of an act of a governmental authority or any other entity claiming non-compliance with provisions of a law, regulation, order, decree, rule, practice, instruction, licensing or judgment, by the Company or the Company's Officers in the capacity of their position in the Company. 5
15 Any claim or demand in connection with a change in the Company's structure or it reorganization or any decision relating thereto, including but without derogating from the generality of the aforesaid, merger, split, change in the Company's equity, establishment of subsidiaries, their dissolution or sale to third parties. 5
16 Any claim or demand in connection with a decision or activity of the Company or its Officer in the capacity of their position in the Company, after conducting the appropriate examinations and consultation for this type of decision or activity, including decisions made by the Company's Board of Directors or any of its committees. 10
17 Any claim or demand in connection with an expression, saying, including expression of a position or opinion or vote, including during meetings of the Board of Directors, its committees, general meetings of corporations and/or other organs of corporations, made in good faith by the Officer in the capacity of their position in the Company. 5
18 Any claim or demand in connection with an opinion of the Company's Board of Directors to offerees in a purchase offer, concerning the profitability of a special purchase offer pursuant to Section 329 to the Companies Law-1999, or refrainment from giving such opinion, and in expressing any opinion and/or presentation as required by law. 5
19 Any claim or demand relating to the Events specified above, in connection with the position of the Officer in the Company's subsidiaries and/or associated companies and/or Another Corporation, and all whether it has been done in the capacity of their position in the Company and/or employment in one of the abovementioned companies. 5
20 All the actions relating to an insurance-related transaction or actions which have resulted in failure to make proper insurance arrangements, including engagement with reinsurers and/or agents and/or with insurers and/or insurants and/or with other customers. 5
21 Any action relating to distribution, as defined in the Companies Law, including distribution of dividends to the Company's shareholders, purchase of the Company's shares and/or convertible securities by the Company, provided that the indemnity for such action does not create violation of any law. 5
22 Any claim or demand filed in relation to the sale, purchase or holding of marketable securities for or on behalf of the Company and/or the management of portfolios and/or accounts with brokers and/or banks and/or deposits. 2

 

15
 

  

23 Any claim or demand filed in relation to investments the Company considers and/or performs with any securities, which takes place before and/or after the investment, for the purpose of engagement in a transaction, its execution, development, follow-up and supervision, and claims relating to a purchase and/or sale (by the Company and/or its subsidiaries), directly or indirectly, of assets (including shares) and rights, in Israel and outside of Israel, or investment in the securities of different corporations, or receiving rights in different corporations, including the purchase and/or sale of control cores, and all whether or not carried out during the Company's normal course of business, and including, without derogating from the generality of the aforesaid, the decisions, agreements, notes, disclosure documents, negotiations and reporting related thereto, and every other matter in connection with the aforesaid, directly or indirectly, and all whether acquisitions and/or sales as mentioned above are completed or not, for any reason whatsoever. 5
24 Any claim or demand on the part of holders of the Company's securities, including shareholders in the Company, including future holders of securities (including shares) of the Company or creditors of the Company, for violation of the Companies Law, the Securities Law or any other law providing them with a cause of action. 10
25 Any claim or demand filed in connection with the appointment or request for appointment of a receiver to the assets of the Company and/or its subsidiaries and/or associated companies or any part of their assets, and/or a request for dissolution against the Company and/or its subsidiaries and/or associated companies, and/or any procedure to obtain a compromise or arrangement with creditors of the Company and/or its subsidiaries and/or associated companies. 5
26 Actions relating to, inter alia and without derogating from the generality of the aforesaid, the purchase or sale of companies, legal entities or assets, and Events in connection with, directly or indirectly, antitrust including cartels, monopolies, splits or mergers as well as legal and other consequences which are likely to result from them. 10
27 Any claim or demand filed in connection with the management of funds, bookkeeping, loans and credit facilities, transactions in financial instruments, collaterals, guarantees, trusts, management and financial consultation agreements, etc. 5
28 Any claim or demand filed in connection with a report or notice submitted pursuant to the Companies Law-1999 and/or the Securities Law-1968, including regulations enacted under them, or according to similar laws and regulations outside of Israel, or according to rules or instructions applicable in the Stock Exchange in Israel or outside of Israel, and/or refrainment from submitting a report or notice as aforesaid. 10
29 Any claim or demand filed in connection with the preparation and/or certification of periodic reports and/or interim reports and/or immediate reports and/or business plans and/or budgets and/or forecasts and/or work plans and/or procedures and/or in-house instructions and/or in-house internal audits. 15

 

16
 

  

30 Any claim or demand relating to the Company’s internal audit and procedures of reporting and disclosure in the Company’s periodic and immediate reports, including in the Company financial statements and the report of the Board of Directors and management on the effectiveness of the internal audit on the financial reporting and disclosure, in the personal declarations of the Company’s CEO and/or the most senior Officer in Finance and/or the Company’s auditor as to the effectiveness of the internal audit and the disclosure and control processes attached to the periodic reports, and in everything relating to violation of provisions of the applicable law. 15
31 Any claim or demand filed in connection with an Event, which have affected or are likely to fundamentally affect the Company’s property, rights, liabilities  or profitability. 15

 

      For the purposes of this Addendum, the term “company” – includes any corporation controlled by it.

 

17
 

   

Appendix A to the Letter of Indemnity

 

18

   

 

EXHIBIT 10.7

[Unofficial English translation from Hebrew]

 

KITOV PHARMACEUTICAL HOLDINGS LTD.

 

Stock Option Plan

 

(Pursuant to the Amendment to the Income Tax Ordinance Law (No. 132), 5762 – 2002)

 

This Plan, as updated from time to time, will be titled the 2013 Kitov Pharmaceutical Holdings Ltd. Stock Option Allocation Plan (hereinafter: the "Plan" ).

 

1. Preamble

 

On October 31, 2013, the Company's Board of Directors, by virtue of its powers pursuant to the Company's Articles of Association, resolved that the Company shall offer its employees, office holders and consultants, at its sole discretion and from time to time, a stock option plan to purchase the Company's ordinary shares of no par value.

 

The shares allocated under the Plan shall be equal in rights to the Company's existing ordinary shares.

 

2. Definitions

 

For the purposes of the Plan and its related documents, including the Option Grant Deed, the following definitions shall apply:

 

2.1 "Option" – an option to purchase the Exercise Shares, under the terms stated therein and pursuant to the provisions of this Plan.

 

2.2 "102 Option" – an Option granted to an Employee (as this term is defined below) subject to the provisions of Section 102 of the Ordinance.

 

2.3 "3(i) Option" – an Option granted pursuant to the provisions of Section 3(i) of the Ordinance to a non-Employee.

 

2.4 "Material Event" – any of the following events: (1) the Company becoming a private company whose shares are not trade on the Stock Exchange; (2) structural change of the company, including statutory consolidation and/or consolidation by way of exchange of shares and/or in any other way, a split and/or any arrangement as a result of which the Company is not the surviving entity, or resulting in a change of control in the Company; (3) any arrangement between the Company and its creditors and/or shareholders and/or option holders; (4) sale or transfer in any other way of all or most of the Company's assets (in case of doubt, the Company's Board of Directors shall decide whether or not all or most of the Company's consolidated assets have been sold); (5) the Company's liquidation.

  

 
 

 

2.5 "Stock Exchange" – the Tel Aviv Stock Exchange Ltd;

 

2.6 The "Companies Law" – the Companies Law, 5759 – 1999;

 

2.7 The "Securities Law" – the Securities Law, 5728 – 1968.

 

2.8 "Related Company" – an "Employing Company" as this term is defined in Section 102(a) of the Ordinance;

 

2.9 "Controlling Shareholder" – as this term is defined in Section 32(9) of the Ordinance;

 

2.10 "Board of Directors" – the Board of Directors of Kitov Pharmaceutical Holdings Ltd;

 

2.11 The "Company" – Kitov Pharmaceutical Holdings Ltd;

 

2.12 The "Committee" – the Company's Compensation Committee, whose powers shall be as detailed in this Plan below;

 

2.13 "Consultant" – any person or cooperation engaged by the Company or any of its subsidiaries for the provision of services, including any employee of any such person, to which Option Grant Deeds were allocated under this Plan;

 

2.14 "Option Deed" - an option certificate granted to the Offeree exercisable into the Exercise Shares, pursuant to the terms stated therein and subject to the provisions of the Plan;

 

2.15 "Maturity Date" – the date on which the Offeree's right to exercise the Option is formed (end of the vesting period of each Option portion);

 

2.16 "Grant Date" – the date determined by the Company's Board of Directors as the allocation date, and without any such express decision, the date on which the Company's Board of Directors decided to allocate the options to the benefit of the offeree;

 

2.17 "Termination of Engagement Date" – the earlier of the date of the termination of the engagement between the Company and the Offeree and/or the date on which an advance notice of the termination of such engagement with the Offeree is given.

 

2.18 "Exercise Price" – the price per each share under the option;

 

2
 

 

2.19 "Option Grant Deed Exercise" – the exercise of the Option Grant Deed into the Exercise Shares, all pursuant to the Option Grant Deed and to the provisions of the Plan;

 

2.20 "Exercise Shares" – Company ordinary shares of no par value received from the exercise of the Option Grant Deed, in whole or in part;

 

2.21 "Trustee" – an accountant, attorney or trust firm determined by the Company and approved by the tax authorities as the Plan Trustee pursuant to the provisions of Section 102 of the Ordinance;

 

2.22 "Offeree" – any employee, service provider or Consultant of the Company or of a Related Company granted Options by virtue of the Plan;

 

2.23 "Termination of the Engagement for Special Causes" – the termination of the engagement with the Offeree for any of the following causes: (1) conviction of a felony entailing moral turpitude, related to the Offeree's work in the Company, or one with a material effect on the Company and/or related companies; (2) the violation of the duty of care or fiduciary duty towards the Company and/or towards related companies; (3) theft, dishonesty or forgery of any Company document; (4) use for private purposes of any of the Company's assets or any information that is the Company's property; (5) any action performed by the Offeree which may adversely affects the Company's reputation; (6) material breach of the letter of appointment, engagement agreement or employment agreement between the Offeree and the Company; (7) under circumstances justifying the rejection and/or reduction of his right to severance pay pursuant to Sections 16 and 17 of the Severance Pay Law, 5725 – 1963; (8) violation of the non-disclosure obligation of the Offeree and/or violation of the non-compete obligation of the Offeree; (9) any other circumstance defined in the engagement agreement or employment agreement as a "cause."

 

2.24 "Employee" – a person engaged by the Company or a related company of the Company, including an office holder or director, excluding however a Controlling Shareholder (or any person that would become a Controlling Shareholder following the grant of the Options under the Plan);

 

2.25 The "Ordinance" - the Income Tax Ordinance (New Version), 5721 – 1961;

 

3
 

 

2.26 The "Plan" – this Plan, as updated from time to time, shall be titled the "Option Allocation Plan for Employees, Office Holders and Consultants of Kitov Pharmaceutical Holdings Ltd." or the "Plan";

 

2.27 "Vesting Period" – the period of formulating the entitlement to exercise the option into a share, at the end of which the Offeree will be entitled to exercise the Option Grant Deeds into the Exercise Shares;

 

2.28 "Lock-Up Period" – the lock-up period required pursuant to Section 102 of the Ordinance with respect to the taxation plan selected by the Company for the Offerees under Section 102 of the Ordinance;

 

3. Purpose of the Plan

 

The purpose of the Plan is to encourage the Offerees' identification with the Company, through their participation in the Company and in the results of its operations. Granting the Option Grant Deeds, pursuant to the Plan, may provide an incentive to Company Office Holders and Consultants as well as to ensure the continuation of the provision of their services to the Company, thereby leading to the development and growth of the Company's businesses.

 

4. The Proposed Plan

 

4.1 The Company shall grant the Offerees non-tradable and non-transferrable Option Grant Deeds (excluding transfer to heirs in case of death as provided in Section 7.11 below), exercisable into the Exercise Shares. Each option will be exercisable into the Exercise Shares.

 

4.2 The terms of the Option Grant Deeds shall be as detailed in this Plan.

 

4.3 The Plan shall be managed and supervised by the Company's Board of Directors. Subject to any law, the Board of Directors shall be entitled to delegate the powers vested in it pursuant to this Plan, in whole or part, to a compensation committee appointed by it, in which case any reference to the Board of Directors in this Plan, with respect to the powers vested in it, shall be interpreted as referring to the Compensation Committee.

 

4.4 Subject to the provisions of any law, the Board of Directors, at its sole discretion, shall have the authority to determine with respect to any Offeree separately:

 

4.4.1 The number of options granted to the Offeree;

 

4.4.2 The Exercise Price of each Option;

 

4.4.3 The vesting period;

 

4
 

 

4.4.4 The date of grant of the Options granted to the Offeree;

 

4.4.5 Selection of the taxation plan applicable

 

4.4.6 To accelerate, or to postpone (with the Offeree's approval) the vesting period and/or the Offeree's entitlement to exercise the options, in whole or part;

 

4.4.7 Any other matter required in the Company's Board of Directors' opinion for the Plan's operation;

 

These details shall be included in the Option Grant Deed delivered to any Offeree.

 

4.5 Any Exercise Share under an Option, which for any reason is not exercised and expires, will return to the Exercise shares pool under the Plan, as determined from time to time by the Board of Directors, and shall be re-issuable. The Company shall retain an adequate quantity of Company ordinary shares in its registered capital so that it shall be able at any given moment to comply with the exercise of Option Grant Deeds allocated under the Plan.

 

4.6 The Company may, at any time, at its sole discretion, change the terms of the Plan and/or to replace it and/or to terminate it with respect to future allocations, as it sees right. It is further clarified that the Company shall be entitled to change the terms of the Plan with respect to allocations performed to Offerees, as long as the terms of the Options already allocate as foregoing shall not be changed in a way that would materially adversely affect the Offerees' rights, without the Offerees' consent. The Company's Board of Directors shall determine at its sole discretion whether any change would materially adversely affect the Offerees' rights.

 

4.7 The Plan will be managed by the Board of Directors. The Board of Directors shall have full discretion on all matters related to all parameters required in order to implement the Plan, as well as full authority to interpret the provisions of the Plan or any part thereof, as well as the provisions of the Option Grant Deeds granted under the Plan.

 

4.8 All decisions and resolutions of the Board of Directors with respect to the Plan's implementation shall be final and shall bind all Offerees as well as any other holder of the Company's Option Grant Deeds.

 

4.9 This Plan exhausts all rights of the Offerees holding Option Grant Deeds or Exercise Shares under it. This Plan replaces and supersedes any right to shares and/or options that any of the Offerees had prior to joining the Plan.

  

5
 

 

4.10 The Company's Board of Directors is empowered to grant certain Offerees Options with terms differing from those determined by the Plan, all as determined by the Option Grant Deed. Any terms not specifically determined in the Option Grant Deed shall be pursuant to the provisions of the Plan. In case of any contradiction between the provisions of the plan and the Option Grant Deed granted to the Offeree, the provisions of the Option Grant Deed shall prevail, subject to the Board of Directors' approval.

 

5. The Offerees

 

5.1 Pursuant to the Plan, the Options shall be offered to the Offerees at the Board of Director's exclusive discretion. The Options shall be offered to the Offerees of the Company or of Related Companies on an individual and personal basis, subject to the provisions of any law, pursuant to the recommendation of the Company's CEO and the Board of Director's approval with respect to each and every Offeree, as long as: (1) Employees receive only a "102 Option"; (2) non-Employees receive only a 3(i) Option.

 

5.2 The Option Grant Deed shall be granted to any Offeree provided however that on the Grant Date as foregoing, such Offeree is an Employee or an Office Holder in the Company and/or a consultant contractually engaged with the Company or with a Related Company, and provided that he accepts and approves with his signature his unconditional agreement to the terms of allocation of the Options under the Plan.

 

5.3 It is clarified that Options granted pursuant to the provisions of Section 102 of the Ordinance shall not be granted to Offerees who are not Employees or Office Holders in the Company or in a Related Company and as long as they are not Controlling Shareholders in the Company or will become Controlling Shareholders in the Company following the allocation.

 

  6. Option Grant

 

6.1 Upon the recommendation of the Company's CEO, and following the approval of the Company's Board of Directors and any other approval required pursuant to any law, each Offeree shall be granted an Option Grant Deed subject to the Plan terms. The Option Grant Deed shall include details with respect to: (1) the number of shares under the Option granted to the Offeree; (2) the exercise price of each Option; (3) the vesting period; (4) the Grant Date; (5) the taxation plan applicable to the Option; and (6) any other matter necessary in the opinion of the Board of Directors.

 

6
 

 

6.2 The Options granted to the benefit of an Offeree shall be allocated to the Trustee and shall be kept in trust to the benefit of the Offeree until the Options' Exercise Date. Notwithstanding the foregoing, the Company's Board of Directors, at its sole discretion, shall be allowed to determine that Options allocated not pursuant to Section 102 of the Ordinance, shall be directly held by the Offeree and not through a trustee, or that the vesting period in the Trustee's holding of such Options will be shorter.

 

6.3 Exercise Shares exercised by the Offeree and bonus shares, if any are allocated on account of the Exercise Shares allocated to the Offeree, shall also be held by the Trustee throughout the Lock-Up Period. Bonus shares allocated for Options or Exercise Shares allocated pursuant to Section 102 of the Ordinance, shall be subject to the provisions of Section 102 of the Ordinances and the rules thereunder for all intents and purposes.

 

6.4 A notice with respect to the grant of the Option Grant Deed shall be delivered to the Offeree and to the Trustee.

 

7. Option Terms

 

7.1 The Options shall be granted to the Offerees either for consideration or for no consideration, as determined by the Company's Board of Directors.

 

7.2 Each Option will be exercisable into one Exercise Share. Each Option Grant Deed shall state the maximum number of Exercise Shares the Offeree is entitled to exercise at the lapse of the vesting period (hereinafter: the "Maximum Number of Shares ").

 

7.3 Each Option Grant Deed shall state the Exercise Price of the Option into an Exercise Share.

 

7.4 It is hereby clarified that in the event that an Oferee is gramnted Certain Option Grant Deeds at different grant dates, the maturity date, exercise price etc. of each Option Grant Deed, shall be as set forth in the Option Grant Deed pursuant to which the Options were granted.

 

7.5 It is clarified that the Option Grant Deed shall not grant its holder any right to the Company's profits or any other right as a shareholder in the Company prior to the exercise of the Option into the Exercise Shares.

 

7
 

 

7.6 The Offeree's entitlement to exercise the Option Grant Deed into Exercise Shares shall be formed throughout the exercise period of the Option, subject to the Offeree's continued employment or engagement with or by the Company. The maturity dates shall be as determined by the Option Grant Deed.

 

7.7 Option Grant Deeds not exercised into shares shall automatically expire within 10 (ten) years of the allocation date, or any other date set in the Option Grant Deed, and shall have no value (hereinafter: the "Expiry of the Exercise Period" ).

 

7.8 If the Company's engagement with the Offeree is terminated for any reason, the following shall apply:

 

7.8.1 If the engagement with the Offeree is terminated before he fully exercises the Option Grant Deed, then the Offeree shall be entitled to exercise all of the then vested Options not yet exercise by that date, within a period of 90 days from the date of the termination of the engagement. If Option Grant Deeds exercisable as foregoing are not exercised by the end of such 90 days period, then the Option Grant Deed shall expire and shall have no value. For the removal of doubt, in the 90-day period commencing as of the date of the termination of the engagement, the Offeree's entitlement to exercise the unvested Options into the Exercise Shares shall not continue to mature.

 

7.8.2 Unvested Options at the date of Termination of Engagement (un-vested options) shall automatically expire and shall have no force and effect.

 

7.8.3 Notwithstanding the provisions of Subsection 7.8.1 above, if the engagement is Termination of the Engagement for Special Causes as provided in Section 2.23 above, then all Options granted to the Offeree not yet exercised shall immediately expire, including any vested options, and shall be invalidated.

 

7.8.4 It is clarified that an Offeree with whom the engagement was terminated prior to the forming of his entitlement to the Maximum Number of Exercise Shares shall not be entitled to make the claim against the Company that he was prevented from continuing to cumulate Exercise Shares as of the Termination Of The Engagement until the accumulation of the Maximum Number of Share, and he shall not be entitled to any compensation for the shares that would have been cumulated to his benefit if it were not for the termination of the engagement with him.

 

8
 

 

7.8.5 For the purposes of this Section 7, the term "Termination of Engagement" shall also include temporary termination of engagement due to the loss of earning capacity and retirement for reasons of age after the retirement age, as determined pursuant to the Retirement Age Law, 5764 - 2004.

 

7.9 It is prohibited to sell, assign, transfer, pledge, foreclose or make any other disposition in the Option Grant Deeds, except under a will or under the inheritance laws. The transfer of Option Grant Deeds pursuant to a last will or inheritance laws shall be valid and shall bind the Company only after it is issued approvals establishing, to the Company's satisfaction, the transferee's right, and only after receiving the transferee's written consent to comply with all provisions of the Plan and to pay all payments required in connection with the transfer of the Option Grant Deeds, in a form prepared by the Company.

 

7.10 Subject to all provisions of the Plan, no person except for the Offeree, shall have any rights in connection with the Option Grant Deeds allocated to the Offeree under the Plan and during the Offeree's lifetime the Options, granted in the Option Grant Deed, shall be exercisable solely by the Offeree.

 

7.11 Notwithstanding the foregoing, if an Offeree passes away, the then vested Option Grant Deeds bequeathed to his heirs shall be exercisable by the heirs or by the executor of the testator's estate, until the later of one year after the date of death or the last date on which the testator would have been entitled to exercise these. All or any Nonvested Option Grant Deeds bequeathed to heirs, on the date of death, shall expire and shall be invalidated.

 

7.12 For the avoidance of doubt it is hereby clarified that the Options and/or the Exercise Shares are special and unique benefits and that they are not and shall not be considered a salary component for any intent or purpose, including for the purpose of calculating severance pay pursuant to the Severance Pay Law, 5723 – 1963, and the regulations enacted under it.

 

7.13 Adjustments

 

In case of the distribution of a dividend in cash, bonus shares, issue of rights and consolidation of capital, the following rules shall apply :

 

9
 

 

In case of the distribution of a dividend in cash, bonus shares, rights issue and consolidation of share capital, the following rules shall apply:

 

7.13.1 In case the Company distributes a dividend, as this term is defined in the Companies Law, in cash only, with the determining date for entitlement to the distribution of such dividend is after the grant date of the Option Grant Deed, the exercise price of the Options shall be adjusted so that the exercise price of the Options shall equal the previous exercise rate, without linkage differences, if any, on the effective date of the distribution, deducting the Net Distribution Amount (defined below) for each Exercised Share, however the exercise price shall not be less than the Company's shares' nominal value at that time, subject to the instructions of the Stock Exchange's as in effect from time to time. The adjustment of the exercise price as set forth herein above shall be subject to the receipt of all permits and approvals required pursuant to any applicable law, including the approval of the Tax Authority.

 

"Net Distribution Amount Per Share" means the amount of distribution by the Company for each share, minus the income tax amount deducted by the Company from Israeli resident individuals who are not material shareholders, as this term is defined in Section 88 of the Income Tax Ordinance [New Version] 5721 – 1961, pursuant to law.

 

7.13.2 If the Company distributes to its shareholders bonus shares, or in case of a stock split, each Offeree shall be entitled to receive when exercising the shares, in addition to the Exercise Shares resulting from the exercise of the Options, and for no additional payment, Exercise Shares in an amount to which he would have been entitled to if he had exercised its Options immediately prior to the issuance of the bonus shares, allowing it to participate in the issuance of the bonus shares. It is clarified that the exercise price of the Options shall not change in case of the issue of a bonus share, but that payment for each share shall decrease accordingly.

 

If the Company offers its shareholders any securities by way of a rights issue during the Exercise Period, the exercise price of the Option Grant Deeds shall not be adjusted, however the number of exercise shares under the Option Grant Deeds, yet to be exercised into the Exercise Shares, on the effective date for the rights offered in the rights issue (the "Effective Date") shall be adjusted in accordance with the benefit pursuant to the rights issue as reflected in the ratio between the price of the share as set on the Stock Exchange on the last trading day immediately prior to the "ex" day and the price of the share on the "ex-rights" day.

 

10
 

 

If the Company consolidates the ordinary shares in its issued share capital into shares of a higher par value, or divides them in a subdivision into shares of a smaller par value, then the number of Exercise Shares allocated following the exercise of Option Grant Deeds will decrease or increase as relevant.

 

7.14 Without derogating from the foregoing, any grant of an Option shall be approved and implemented subject to the provisions of any law, as these may be in effect from time to time, including the Companies Law, the Securities Law and the regulations enacted under them.

 

8. Exercise of the Options and Price

 

8.1 Without derogating from the provisions of Section 7.7 above and subject to the provisions of any law, the Option Grant Deeds will be exercisable by the Offeree at any time, commencing as of the lapse of the vesting period and until the lapse of the exercise period.

 

8.2 Insofar as pursuant to the regulations or instructions of the Stock Exchange or the provisions of any law, certain actions must be taken by the Offeree in order to exercise the Option, then the Offeree shall perform such necessary actions and the allocation of Exercise Shares in case of the Options' exercise shall be stipulated on performing such actions. Without derogating from the generality of the foregoing, as long as the Company is required pursuant to the provisions of the regulations and instructions of the Stock Exchange to allocate the shares in the name of a nominee company, the Company shall not be required to allocate the shares as long as it is not provided the Offeree's bank account details.

 

8.3 An Offeree desiring to exercise vested Options into shares shall submit to the Trustee and/or the Company a request in the format agreed upon with the Trustee and the Company (hereinafter: the "Exercise Notice" ). Each Offeree submitting to the Trustee and/or the Company an Exercise Notice must state the number of Options that he desires to exercise. In the Exercise Notice, the Offeree shall be entitled to request only the exercise of that quantity of Options which pursuant to the provisions of this Plan he is entitled to exercise on the exercise date, in whole or part as he decides. An Offeree who desires to exercise his Options and to sell the Exercise Shares in the Stock Exchange shall be allowed to instruct the Trustee to transfer to the Company the exercise amount out of the sale's consideration.

 

11
 

 

8.4 The date on which the Trustee and/or the Company receive, as required in the Option Grant Deed, an Exercise Notice meeting all the above conditions, shall be considered the exercise date for all intents and purposes (hereinafter: the "Exercise Date" ).

 

8.5 The exercise of the right under the Option is stipulated on paying the Company the exercise price in accordance with the exercise price stated in the Option Grant Deed, and the payment of all taxes as applicable on the Exercise Date. The Company shall allocate the Exercise Shares for the Option specified in the Exercise Notice pursuant to the Company's procedures and subject to the provisions of any law. In case of a grant pursuant to the provisions of Section 102 of the Ordinance, the share shall be allocated in the name of the Trustee who shall hold it pursuant to the provisions of Section 102 of the Ordinance.

 

8.6 Exercise Notices filed on dates that do not allow the exercise of the Option Grant Deed or that do not specify the correct or any number of shares shall not be accepted and shall have no effect. The Offeree, desiring to exercise Options he holds, shall sign any document required pursuant to any law or in the opinion of the Company or the Trustee for the purpose of allocating the shares pursuant to the Option terms.

 

8.7 No option exercise shall be performed on the effective date for a bonus share distribution, an offer by way of rights, a dividend distribution, a capital consolidation, capital split or capital reduction (each of the foregoing, hereinafter: a "Company Event" ). If the "ex" day of a Company Event is before the effective date of a Company Event, the exercise of options on the "ex" day as foregoing shall not be possible.

 

8.8 Insofar as the exercise of the option into a share is a tax event, the exercise is stipulated on the Company being satisfied that tax had been or will be paid by the Offeree. The Company shall be allowed to demand from the Offeree in this case collaterals for the payment of tax.

 

8.9 An Option Grant Deed that was fully exercised shall be canceled and shall not grant the Offeree any right. An Option Grant Deed that was partially exercised shall be canceled to the extent that it refers to that exercised component.

 

12
 

 

9. Rights of the Exercise Shares

 

9.1 The Exercise Shares are the Company's ordinary shares and shall be equal in their rights for all intents and purposes to ordinary shares of that class already existing in the Company's capital. The foregoing shares shall be entitled to any dividend or other right the effective date for the right to receive occurs on the date of allocation of the Exercise Shares or following it.

 

9.2 As long as the Exercise Shares are registered in the Trustee's name, the dividend amount shall be paid to the Trustee (following deduction of tax as legally required) who shall transfer it to the Offeree following the deduction of tax at source as legally required.

 

9.3 For the avoidance of doubt it is hereby clarified that the Exercise Shares shall not be a separate class of shares but an integral part of the Company's ordinary share capital.

 

9.4 Any change in the Company's Articles of Association causing a change in the rights of its shares shall also apply to the Option Grant Deeds and to the shares allocated under this Plan, and the Plan's provisions shall apply mutatis mutandis as required by the change of the regulations.

 

9.5 Without derogating from the provisions of Section 7.7 above and subject to the provisions of the Company's Articles of Association and the provisions of any law (including a lock-up by the Stock Exchange), an Offeree shall be allowed, at any time, to instruct the Trustee to sell the Exercise Shares he holds in trust. An Offeree desiring to sell the Exercise Shares shall submit to the Trustee a written request in the format agreed upon with the Trustee (hereinafter: the "Sale Notice" ). If the Offeree desires to sell his shares prior to the end of the Lock-Up Period, then the provisions of Section 102(b)(4) of the Ordinance shall apply (see Section 11.5 below).

 

10. Taxation

 

10.1 The Options granted under the Plan may be granted pursuant to the provisions of Section 102 of the Ordinance, in a trustee plan, or Section 3(i) of the Ordinance. A grant to an employee and/or Office Holder, except for a Controlling Shareholder in the Company (as this term is used in Section 102 of the Ordinance) shall be performed and taxed pursuant to Section 102 of the Ordinance, and a grant to any non-employee, i.e. a consultant and/or officeholder who is a Controlling Shareholder (as this term is used in Section 102 of the Ordinance) shall be performed and taxed pursuant to Section 3(i) of the Ordinance.

 

13
 

 

10.2 Any tax applicable to the Options and/or to their exercise into the Exercise Shares and/or to their sale and/or to the receipt of a dividend by their virtue shall apply to the Offerees alone, and in case of their death, to their heirs, without the Company bearing it directly or indirectly and without any requirement for the Company to gross it up. The applicable tax shall be deducted from the consideration of the sale on the date of obligation by the Trustee or the Company, as relevant.

 

10.3 In case the Company decides to grant Options pursuant to the provisions of Section 102 of the Ordinance, it has the option of selecting one of 2 taxation plans: (1) the capital profit plan through a trustee; (2) the work income plan through a trustee; (3) the work income plan, without a trustee. The Company intends to contact the Income Tax Commission with a request for its approval of allocation as part of the Plan pursuant to Section 102 of the Income Tax Ordinance in the capital profit plan. The Company does not undertake to apply to the Plan any specific taxation plan, and it shall be allowed to change its selection with regard to the taxation plan applied to future allocations, subject to any law.

 

10.4 An allocation shall be performed no earlier than 30 days after the date on which the Company files with the tax assessment officer a request for the approval of this Plan, unless the tax assessment officer's approval is received for the allocation of the Options before this 30-day period transpires.

 

10.5 Subject to receiving the commission's approval of this Plan, the tax liability of the Offerees pursuant to Section 102 of the Ordinance, from the sale of the Exercise Shares (or that of their heirs in case of death) shall be determined in this case pursuant to the provisions of Section 102 of the Ordinance and the Income Tax Rules (Tax Reliefs in Allocation of Shares to Employees), 5763 – 2003.

 

10.6 The tax liability of the Offerees pursuant to Section 3(i) of the Ordinance, from the sale of the Exercise Shares (or that of their heirs in case of death) shall be determined pursuant to Section 3(i) of the Ordinance.

 

10.7 Before the tax is paid, it shall not be possible to transfer, assign, pledge, foreclose or otherwise willingly pledge the Exercise Shares or the rights deriving from them, and no power of attorney or transfer Option Grant Deed shall be given for them, whether with immediate effect or with a future effective date, except for a transfer by power of a last will or pursuant to law and subject to the Plan's terms; in case the shares are transferred by power of a last will or pursuant to law as foregoing, then the provisions of Section 102, as relevant, shall apply to the Offeree's heirs or transferees.

 

14
 

 

10.8 The results of any future change in the taxation arrangement applicable to the allocation of the Exercise Shares to the Offerees shall be applied to the Offerees pursuant to the provisions of any law, and they shall bear their full cost, unless explicitly determined otherwise in the changed arrangement.

 

10.9 Without derogating from the Offeree's duty to pay all taxes applicable pursuant to the foregoing, the Company and/or the Trustee, as relevant, shall be allowed to deduct tax at source pursuant to any law from all payments due to the Offeree (including dividend money, sale of Exercise Shares etc.) as well as amounts for fees, charges and other expenses which in the discretion of the Board of Directors and/or the Trustee are required pursuant to any law.

 

11. Trust

 

11.1 The Options and/or Exercise Shares allocated under Section 102 to the Trustee to the benefit of an Offeree who is an Employee or an Office Holder, excluding a Controlling Shareholder in the Company (as this term is used in Section 102 of the Ordinance), shall be held in trust at least during the Lock-Up Period, and also after this period until the earlier of the date of the sale of the Exercise Shares or the date of the release of the shares from the trust.

 

11.2 The Options and/or Exercise Shares allocated to the Trustee to the benefit of an Offeree who is not an Employee or an Office Holder as foregoing shall be held in trust until the earlier of the date of the sale of the Exercise Shares or the date of the release of the Exercise Shares from the trust, this under the condition that the tax was paid on the exercise date of the Option Grant Deeds.

 

11.3 If the Offeree terminates is employment and/or service for the Company, then the Board of Directors shall be allowed to stipulate further holding of the Exercise Shares by the Trustee to the benefit of an Offeree on the Offeree's participation in the Trustee's fees.

 

11.4 If bonus shares are allocated for the Exercise Shares allocated to the Offeree, then the bonus shares shall be transferred by the Company to the Trustee. To such allocated bonus shares shall apply the provisions of Section 102 of the Ordinance and the rules enacted under it for all intents and purposes.

 

11.5 At the end of the Lock-Up Period, any Offeree (or his heir) shall be entitled to demand from the Trustee, at any time, to transfer to his name the Option or the Exercise Shares he is entitled to, or to sell the Exercise Shares as detailed below:

 

15
 

 

11.5.1 The Offeree shall be entitled to give the Trustee an order in writing to sell the Exercise Shares, in whole or part, held in trust for him by the Trustee (hereinafter: a "Sale Order" ). The Offeree shall send to the Company a copy of the Sale Order when delivering it to the Trustee. Upon receiving the Sale Order, the Trustee shall take those actions necessary in order to execute it, in coordination with the Company. The remainder of the consideration received from the sale (after deduction of taxes as foregoing and after deduction of the exercise price) shall be paid by the Trustee directly to the Offeree.

 

11.5.2 Alternatively, the Offeree may give the Trustee a written order to transfer the Exercise Shares under his name (hereinafter: a "Transfer Order" ). The Offeree shall transfer to the Company a copy of the Transfer Order when delivering it to the Trustee. Upon receiving the Transfer Order, the Trustee shall take those actions necessary in order to execute it, in coordination with the Company. Subject to the payment of the full tax as foregoing to the Company's full satisfaction, and pursuant to the Trustee's instructions, the Company shall transfer the Exercise Shares to the Offeree's name.

 

12. Change of Structure or Control

 

12.1 Without derogating from the provisions of Section 4.6 above, in any case of a Material Event, the Board of Directors, at its absolute discretion, shall be allowed to adjust and change the Options' terms under the Plan for all Offerees or for certain Offerees at the sole discretion of the Board of Directors, inter alia by: (a) accelerating the maturity dates with respect to Options that have yet to mature, so that it will be possible to exercise these immediately shortly before the occurrence of the Material Event; (b) replacing the vested Options with the securities of the buyer (or absorbing) corporation (hereinafter: the "Buyer Corporation" ) and/or of another corporation belonging to the Buyer Corporation's group of companies, or with financial or other compensation, as long as the conversion rate and/or the financial compensation are determined at a conversion rate determined for all shareholders. If the Buyer Corporation refuses to replace the Options with its securities and/or the securities of a corporation in its group, then the Company's Board of Directors shall be allowed to order the giving of financial compensation to the Option holders, equal in economic value to the consideration received by the other shareholders, with the required adjustments and deducting the exercise price.

 

16
 

 

12.2 The non-vested Options shall expire shortly before the Material Event or shall be exercised pursuant to the Board of Directors' decision.

 

12.3 The Board of Directors shall be allowed to demand from the Offerees that they exercise all vested Options shortly before the occurrence of the Material Event, and any Option not exercised as foregoing shall expire and shall be invalidated.

 

13. Changes in the Company's Share Capital

 

The offer of the Option Grant Deeds and/or the Exercise Shares allocated to the Offerees under them shall not restrict the Company in any way with respect to the creation of additional and/or other share classes in the future, including share classes preferable in any way to the ordinary shares currently in existence which are offered to the Offerees under this Plan, and shall not grant any of the Offerees any right to any compensation in case of the creation of such an additional share class or to the equalization of rights between share classes.

 

14. The Plan's Period of Effect

 

The Option Plan shall be in effect commencing as of the date of the adoption of the Plan and until October 31, 2023. Notwithstanding the foregoing, the Options granted until the Plan's expiry date as foregoing, whether or not they matured by that date, shall remain in effect and shall not expire until their expiry date as provided in Section 7.7 above.

 

15. Miscellaneous

 

15.1 The Board of Directors may, from time to time, terminate or change this Plan, at any time and in any manner as it sees right. In any case, subject to the provisions of Section 12 above, the terms of the Options already allocated shall not be changed in any change that adversely affects the rights of the Offerees, without the Offerees' approval, whether or not the Options matured. For the avoidance of doubt it is clarified that such a decision by the Board of Directors shall not stop the maturity period of Options granted before the Board of Directors' decision to terminate or change the Plan as foregoing.

 

15.2 This Plan does not constitute any direct or indirect undertaking by the Company towards the Offerees to continue employing any Offeree under the Plan as an employee and/or officeholder and/or consultant of the Company.

 

17
 

 

15.3 Exclusive and sole jurisdiction in all matters related to this Plan and to the Options allocated under it shall be given to the court in Tel Aviv Jaffa, and the laws applied to it shall be the laws of the State of Israel.

 

15.4 Any consideration received by the Company as the result of the allocation and/or exercise of shares under this Plan may be used for any purpose at the decision of the Board of Directors, as made from time to time.

 

15.5 The terms of allocation of the Options under this Plan may differ from one Offeree to another, and may also differ between different allocation certificates applicable to a certain Offeree.

 

16. Required Approvals

 

The activation of the Plan is subject to its filing with the Tax Authority and to any additional approval required by any law.

 

   
  Kitov Pharmaceutical Holdings Ltd.

 

18

 

Exhibit 10.8

 

Loan Agreement

 

This Loan Agreement (the “ Agreement ”) is made as of the 12 day of August 2015 (the " Effective Date ") by and among Kitov Pharmaceuticals Holdings Ltd. , of 1 Azrieli Center 132 Menahem Begin Road Tel Aviv (the “ Company ”) and certain Lenders, as shall be specified in Exhibit A (the " Lenders ") (each of the Company and the Lenders, a “ Party ”, and together, the " Parties ").

 

WHEREAS , the Lenders are willing to advance a loan to the Company; and WHEREAS , the Parties wish to set forth the terms and conditions according to which such loan to the Company will be facilitated;

 

NOW, THEREFORE , in consideration for the promises, representations, covenants and undertakings set forth herein, the parties hereto hereby agree as follows:

 

1. Loan .

 

1.1. Each of the Lenders hereby undertakes to advance to the Company a loan in the amount set forth with respect to such Lender in Exhibit A and in an aggregate amount from all Lenders of up to US 500,000 (the " Principal Amount "), which shall be wired within 5 business days of the execution of this Agreement by such Lender (the " Loan Effective Date ") to the Company’s bank account at Bank Leumi, branch 968, account no. 56830059 (the " Bank Account ").

 

1.2. At any time until the earliest of (i) the completion of an initial public offering of its securities (which may be comprised of American Depositary Shares, amongst others) in the U.S. (the " US Offering "); or (ii) the completion of a uniform public offering on the Tel Aviv Stock Exchange (" TASE ") of the Company's securities (for removal of doubt, a uniform public offering does not include rights offering) (an " Israeli Offering "); or (iii) December 31, 2015, the Company shall have the option (the " the Additional Financing Option "), by three (3) days prior written notice, to request that the Lenders advance an additional principal amount equal, with respect to each Lender, to the Principal Amount advanced by such Lender to the Company according to the provisions of section 1.1 above (the " Additional Principal Amount "). In the event that the Company so elects to exercise its option and request the Additional Principal Amount, such Additional Principal Amount shall have the same terms and conditions as set forth in this Agreement in connection with the Principal Amount, including without limitation regarding the Allocation Fee, repayment and conversion and anywhere in this Agreement the term "Principal Amount" shall refer to the Principal Amount together with the Additional Principal Amount. It is hereby clarified that the Lenders shall not be entitled to any additional Warrants other than as set forth in Section ‎4 below in connection with the Additional Principal Amount.

 

1.3. The Principal Amount shall bear no interest and shall not be linked to any Index, however, upon the repayment of the loan to each Lender the Company shall pay such Lender an Allocation Fee (as defined below), which together with the Principal Amount advanced by such Lender shall be hereinafter defined with respect to such Lender as the " Loan Amount ".

 

2. Allocation Fee . Unless otherwise set forth in this Agreement, the Company shall pay the Lenders an Allocation Fee which shall be calculated as follows (together the " Allocation Fee "):

 

  1  

 

 

2.1. In the event that the Company completes a US Offering, the Allocation Fee paid to each Lender shall equal 33% of the Principal Amount advanced by each Lender (the “ US IPO Allocation Fee ”).

 

2.2. In the event the Company does not complete a US Offering and completes an Israeli Offering, the Allocation Fee paid to each Lender shall equal 50% of the Principal Amount advanced by each Lender (the “ Alternative Allocation Fee ”).

 

3. Repayment and Conversion .

 

3.1. The Company shall repay the loan, unless it has been converted or repaid by such date, within five (5) business days of the date of the earliest of: (i) the completion of the US Offering; or (ii) the completion of the Israeli Offering; or (iii) December 31, 2015, as follows:

 

3.1.1. In the event that the US Offering took place and a Lender placed an order to participate in the U.S. Offering, in accordance with its terms (the " US Order "), in an amount equal to or higher than the Loan Amount, and the Loan Amount has not yet been repaid to such Lender, the Loan Amount of such Lender shall be repaid by the Company to such Lender;

 

3.1.2. In the event that the Israeli Offering took place and a Lender placed an order as part of an Israeli Offering (the " Israeli Order ") to participate in the Israeli Offering, in accordance with its terms, in an amount equal to or higher than the Loan Amount, and the Loan Amount has not yet been repaid to such Lender the Loan Amount shall be repaid by the Company to such Lender;

 

3.1.3. In the event that either the US Offering or the Israeli Offering took place and a Lender: (i) did not place either a US Order or an Israeli Order; or (ii) placed a US Order or an Israeli Order to participate in an amount lower than the Loan Amount, in accordance with the terms of each offering:

 

3.1.3.1. with regard to the US Order or Israeli Order amount (if any), the Company shall repay the Lender such amount within five (5) business days;

 

3.1.3.2. with regard to the Loan Amount less the US Order or Israeli Order amount (if any), less the applicable US IPO Allocation Fee or the Alternative Allocation Fee, the Company may at its sole discretion either (a) repay such amount or (b) within forty five (45) days, convert such amount, into the Company's ordinary shares, with no nominal value (the " Conversion Shares ") at a conversion price to be determined as follows:

 

3.1.3.2.1. For a US Offering the Conversion price shall equal the closing price of the US Offering.

 

3.1.3.2.2. For the Israeli Offering: (i) in the event that the amount raised by the Company within the framework of a Prospectus from third parties other than the Lenders, is equal to or greater than USD 1,000,000 (at the USD/NIS exchange rate as known on the consummation date of the Israeli Offering), the conversion price shall equal the closing price of the Company shares offered in the Israeli Offering; (ii) in the event that the amount raised by the Company within the framework of a Prospectus from third parties other than the Lenders is less than USD 1,000,000, the conversion price shall equal to 60% of the weighted average of Company shares on the TASE during the 10 day period preceding the closing date of the Israeli Offering.

 

  2  

 

 

3.1.3.3. In the event the Company does not complete the US Offering or the Israeli Offering by December 31, 2015, the Company shall repay each of the Lenders 125% of the Principal Amount as full repayment of the loan.

 

3.1.4. Each Lender acknowledges that the Conversion Shares as provided in Section ‎3.1.3.2 above shall be subject to restrictions on resale pursuant to applicable US law and regulations and the provisions of Section 15 of the Securities Law, 5728 – 1968, and the regulations and instructions enacted under it, if and as applicable.

 

3.1.5. Each Lender acknowledges that the Conversion Shares as provided in Section ‎3.1.3.2.2 above shall be subject to restrictions on resale pursuant to the provisions of Section 15 of the Securities Law, 5728 – 1968, and the regulations and instructions enacted under it.

 

3.1.6. The issuance of the Conversion shares shall be subject to the approval of the relevant Company organs and, if applicable, the approval of the TASE for the listing for trade of the Conversion Shares.

 

3.2. The Lender undertakes to transfer to the Company any evidence required by the Company in order to establish that the Lender placed either a U.S. Order or an Israeli Order to participate in either the US Offering or the Israeli Offering, as applicable, including without limitation bank printouts or a stock exchange member printout.

 

3.3. It is hereby clarified that the Company and/or anyone on the Company's behalf including without limitation the Company's underwriters does not undertake any obligation in connection with the participation of any of the Lenders in the US Offering and each of the Lenders shall have no claim against the Company and/or anyone on its behalf in connection with its participation or the lack thereof in the US Offering.

 

4. Warrants

 

4.1. In consideration for the Principal Amount by each Lender, the Company shall issue each Lender, within 45 business days of the Loan Effective Date, warrants to purchase ordinary shares of the Company with no nominal value in an amount as set forth next to each Lender's name in Exhibit A up to an aggregate amount of 1,000,000 ordinary shares to all Lenders (the “ Initial Warrant ”), so that for each US1 lent by each Lender the Company shall issue such Lender 2 Initial Warrants. The Initial Warrant shall be fully vested at the date of grant and exercisable by each Lender at any time until its expiration on August 31, 2016, all according to the Warrant Certificate attached as Schedule ‎4.1 hereto which shall include customary adjustments. The exercise price of each Initial Warrant shall equal NIS 1.8.

 

4.2. In consideration for the Additional Financing Option, the Company shall issue the Lender, within 45 business days of the Loan Effective Date, additional warrants to purchase up to an additional 1,000,000 ordinary shares of the Company with no nominal value (the “ the Additional Financing Warrants ”) as set forth next to each Lenders name in Exhibit A. The Additional Financing Warrants shall have the same terms and conditions as the Initial Warrant all according to the Warrant Certificate attached as Schedule ‎4.2 hereto which shall include customary adjustments.

 

4.3. The issuance of the Initial Warrants and the Additional Financing Warrants shall be subject to the approvals of the Company's relevant organs and the approval of the TASE for the listing for trade of the Company's shares upon and subject to the exercise of the Warrants.

 

  3  

 

 

4.4. Each Lender acknowledges that the Initial Warrants, the Additional Financing Warrants and the shares as a result of the exercise thereof shall be subject to restrictions on resale pursuant to the provisions of Section 15 of the Securities Law, 5728 – 1968, and the regulations and instructions enacted under it.

 

5. Miscellaneous

 

5.1. Each of the Lenders hereby undertake to execute any document as shall be required by the Company in connection with the issuance of the Conversion Shares or the Warrants or the Additional Warrants and by executing this Agreement hereby undertakes and declares that there are no agreements, weather written or oral, between each of the Lenders and any of the Company's shareholders or between the Lenders amongst themselves or with others, regarding the sale or purchase of the Company's securities or the Company's voting rights.

 

5.2. The Company hereby undertakes that until the full repayment of the Principal Amount together with the applicable Allocation Fee if any, the Company shall not receive any loans other than: (i) the Additional Principal Amount as set forth in this Agreement; or (ii) loans advanced by related parties; or (iii) loans which shall be used according to the terms thereof for the repayment of the Principal Amount together with the applicable Allocation Fee if any or any part thereof. This undertaking may be waived in whole or in part by the Lenders who advanced at least 50% of the Principal Amount (the " Majority Lenders ").

 

5.3. The Company hereby undertakes that until the full repayment of the Principal Amount actually advanced to the Company, the Company's shareholder's equity as reflected in the Company's last published financial statements (the " Financial Statements ") shall not be less than minus US 500,000 (-500,000 US). In the event that the Company's shareholders' equity as reflected in the Financial Statements shall be lower than the said amount at any time, each Lender can notify the Company by written notice of its wish for immediate repayment of its portion of the then unpaid outstanding Principal Amount and such repayment shall be the Lenders' sole remedy with respect thereto.

 

5.4. Each of the Lenders declares and confirms that he was given the opportunity to ask questions and receive answers with respect to the Company, its status and its business.

 

5.5. Each Lender represents and warrants that such Lender is not a “U.S. Person,” as defined in Rule 902 under the Securities Act of 1933, as amended, and, at the time of each of the origination of contact concerning the transactions contemplated by this Agreement and the execution and delivery of this Agreement, such Lender was outside of the United States.

 

5.6. 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. The competent courts in Tel-Aviv-Jaffa, Israel shall have sole and absolute jurisdiction over all matters pertaining to this Agreement.

 

5.7. None of the rights, privileges, or obligations set forth in, arising under, or created by this Agreement may be assigned or transferred by either party without the prior consent in writing of the other party.

 

5.8. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. The preamble hereto constitutes an integral part hereof. Any term of this Agreement 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 the Company and the Majority Lenders.

 

  4  

 

 

5.9. Any notice sent to the Company or the Majority Lenders with respect to this Agreement shall be effective: (i) if mailed, seven (7) business days after mailing; (ii) if sent by messenger, upon delivery; and (iii) if sent via facsimile or e-mail, upon transmission and electronic confirmation of receipt or (if transmitted and received on a non-business day) on the first business day following transmission and electronic confirmation of receipt.

 

5.10. 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 theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any of the Parties, shall be cumulative and not alternative.

 

5.11. 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.

 

5.12. This Agreement may be executed in any number of counterparts, which may be faxed counterparts, each of which shall be deemed an original and enforceable against the Parties executing such counterpart, and all of which when taken together shall constitute one and same instrument.

 

 

 

IN WITNESS WHEREOF the Parties have signed this Convertible Loan Agreement as of the date first hereinabove set forth.

 

 

___________________________________

Kitov Pharmaceuticals Holdings Ltd.

 

By: /s/ Simcha Rock                             

 

Title: CFO                                              

 

  5  

 

 

Exhibit A

[LENDER SIGNATURE PAGES TO KITOV LOAN AGREEMENT]

 

 

Name of Lender : ______________________

 

Principal Amount : USD_________________

 

Initial Warrants : _______________________

 

Additional Warrants : ________________________

 

 

IN WITNESS WHEREOF, the undersigned have caused this Loan Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Signature of Authorized Signatory of Lender: __________________________________

 

Name of Authorized Signatory: _____________________________________________

 

Title of Authorized Signatory: ______________________________________________

 

Email Address of Authorized Signatory: ______________________________________

 

Facsimile Number of Authorized Signatory: ___________________________________

 

Address for Notice to Lender: ___________________________________

 

 

 

 

Date: _______________ 2015

 

 

  6  

Exhibit 21.1

 

List of Subsidiaries

 

Kitov Pharmaceuticals Ltd. (incorporated under the laws of the State of Israel)

 

 

 

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

The Board of Directors

Kitov Pharmaceuticals Holdings Ltd:

 

 

We consent to the use of our report included herein and to the reference to our firm under the heading “Experts” in the prospectus.

 

Our report dated July 19, 2015 contains an explanatory paragraph that states that the Company’s recurring losses from operations and negative cash flows, raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements and consolidating information do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ Somekh Chaikin

 

Somekh Chaikin

Certified Public Accountants (Isr.)

Member firm of KPMG International

 

Tel Aviv, Israel

September 24, 2015