UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
OR
 
o
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ____________
 
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report _____________
 
Commission file number 0-30820
 
TIKCRO TECHNOLOGIES LTD.
(Exact name of Registrant as specified in its charter)
 
N/A
(Translation of Registrant’s name into English)
 
ISRAEL
(Jurisdiction of incorporation or organization)
 
16 Hatidhar St., Raanana 43652, Israel  
(Address of principal executive offices)
 
Izhak Tamir, T: +972-3-696-2121, F: +972-3-696-5678, 126 Yigal Allon Street, Tel Aviv 67443, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
              Name of each exchange on which registered
None
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares, no par value
(Title of Class)
 
 
 
 
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
 
8,898,861 Ordinary Shares, no par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
 
o  Yes   x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  
 
o  Yes   x No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
 
x  Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
 
x  Yes   o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  x
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP x
IFRS as issued by the IASB o
Other o
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17  o   Item 18 o
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
 
o  Yes   x No
 
 
 
 
 
 
1
1
1
1
A.
Selected Financial Data
1
B.
Capitalization and Indebtedness
3
C.
Reasons for the offer and use of proceeds
3
D.
Risk Factors
3
9
A.
History and Development of the Company
9
B.
Business Overview
9
C.
Organizational Structure
10
D.
Property, Plants and Equipment
10
Unresolved Staff Comments
10
10
A.
Operating Results
10
B.
Liquidity and Capital Resources
14
C.
Research and Development, Patents and Licenses
15
D.
Trend Information
15
E.
Off-balance Sheet Arrangements
15
F.
Tabular Disclosure of Contractual Obligations
15
15
A.
Directors and Senior Management
15
B.
Compensation
16
C.
Broad Practices
17
D.
Employees
22
E.
Share Ownership
22
 
 
i
 
 
23
A.
Major Shareholders
23
B.
Related Party Transactions
23
C.
Interests of Experts and Counsel
24
24
A.
Consolidated Statements and other Financial Information
24
B.
Significant Changes
24
24
A.
Offer and Listing Details
24
B.
Plan of Distribution
25
C.
Markets
25
D.
Selling Shareholders
25
E.
Dilution
25
F.
Expenses of the Issue
25
26
A.
Share Capital
26
B.
Memorandum and Articles of Association
26
C.
Material Contracts
31
D.
Exchange Controls
31
E.
Taxation
32
F.
Dividends and Paying Agents
41
G.
Statement by Experts
41
H.
Documents On Display
41
I.
Subsidiary Information
42
42
42
 
 
ii
 
 
 
42
42
42
42
43
44
44
44
44
44
44
44
     
 
45
45
45
45
 
 
iii
 

PART I
 
Unless the context otherwise requires, “Tikcro,” “us,” “we” and “our” refer to Tikcro Technologies Ltd., an Israeli company. References to “U.S. dollars,” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. As of December 31, 2012, the exchange rate published by the Bank of Israel was NIS 3.733 per $1.00.
 
Statements in this Annual Report concerning our business outlook or future economic performance; anticipated revenues, expenses or other financial items; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the United States Federal Securities Laws. In some cases, you can identify forward-looking statements by our use of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek” and “estimate” and similar expressions.  Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements.  Factors that could cause or contribute to such differences include, but are not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report as well as our reports on Form 6-K submitted to the Securities and Exchange Commission.
 
Identity of Directors, Senior Management and Advisors
 
Not applicable.
 
Offer Statistics and Expected Timetable
 
Not applicable.
 
Key Information
 
A. Selected Financial Data
 
We have derived the following selected financial data, with respect to the five years from 2008 to 2012, from the audited financial statements of Tikcro, which have been prepared in accordance with U.S generally accepted accounting principles.
 
The selected financial data set forth below as of December 31, 2011 and 2012 and for each of the years ended December 31, 2010, 2011 and 2012 are derived from our audited financial statements which are included elsewhere in this Annual Report.
 
The selected financial data as of December 31, 2008, 2009 and 2010 and for the years ended December 31, 2008 and 2009 are derived from our audited financial statements which are not included in this Annual Report .
 
You should read the selected financial data together with Item 5 “Operating and Financial Review and Prospects” and our financial statements included elsewhere or incorporated by reference in this Annual Report.
 
In July 2008, we acquired a minority stake in BioCancell Therapeutics, Inc., an Israel-based clinical-stage biopharmaceutical company ,which stake has been substantially liquidated in 2012. Please see Item 4.A “Information on the Company -- History and Development of the Company—Recent Developments” for more information.
 
 
1
 

   
Years Ended December 31,
 
   
2008
   
2009
   
2010
   
2011
   
2012
 
   
(in thousands, except share and per share data)
 
Statement of Operations Data:
                             
Research and development
  $ -     $ -     $ -     $ 92     $ 40  
General and administrative expenses
    678       448       471       541       401  
Consulting services
    (20 )     (61 )     (82 )     (76 )     (41 )
                                         
Operating loss
  $ (658 )   $ (387 )   $ (389 )   $ (557 )   $ (400 )
Financial income (expenses), net
    652       3,282       (389 )     (2,303 )     (158 )
Income (loss) Before Taxes
    (6 )     2,895       (778 )     (2,860 )     (558 )
Tax Expenses
    -       -       -       (54 )     34  
Net income (loss)
  $ (6 )   $ 2,895     $ (778 )   $ (2,914 )   $ (592 )
Basic net earnings (loss) per share
    * )   $ 0.35     $ (0.09 )   $ (0.34 )   $ (0.07 )
Diluted net earnings (loss) per share
    * )   $ 0.34     $ (0.09 )   $ (0.34 )   $ (0.07 )
Number of shares used in computing basic net earnings (loss) per share
    8,166,999       8,347,179       8,475,833       8,562,402       8,649,048  
Number of shares used in computing diluted net earnings (loss) per share
    8,166,999       8,392,283       8,475,833       8,562,402       8,649,048  
 
 
*)
Represents an amount lower than $0.01.
 
   
December 31,
 
   
2008
   
2009
   
2010
   
2011
   
2012
 
   
(in thousands)
 
Balance Sheet Data:
                             
Cash and cash equivalents, marketable securities and deposits
  $ 7,803     $ 7,432     $ 7,270     $ 6,985     $ 9,234  
Investment in Biocancell - Short-term
    -       -       -       3,033       243  
Investment in Biocancell - Long-term
    2,910       6,164       5,625       -       -  
Working capital
    7,514       7,201       7,108       9,881       9,337  
Total assets
    10,733       13,645       13,051       10,183       9,508  
Shareholders' equity
    10,424       13,365       12,733       9,881       9,337  
 
 
2
 
 
B. Capitalization and Indebtedness
 
Not applicable.
 
C. Reasons for the offer and use of proceeds
 
Not applicable.
 
D. Risk Factors
 
We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition and results of operations.
 
Risks relating to our business
 
We currently conduct no significant business activities and may not consummate transactions with operating companies.
 
Our business plan is to enter into one or more transactions with businesses without limitation as to their industry, revenues or losses. It is not possible at this time to predict when we will enter into any such transaction or what will be the industry, operating history, revenues, if any, future prospects or other characteristics of any such business.
 
Our activities are limited to attempting to locate such a candidate and to the funding and supporting early stage technology projects. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in consummating transactions with operating companies.  If we do enter into a transaction with an operating company, it is likely to have no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics. In the event that we complete a transaction with one or more operating companies, the success of our operations will be dependent upon the management of such target company or companies and numerous other factors. Since 2008, the only significant transaction that we consummated was with BioCancell, our stake in which has been substantially liquidated in 2012. There is no assurance that we will be able to negotiate additional transactions on terms favorable to us, or at all.
 
We source and fund early stage technology projects, which involves a high risk of loss.
 
We provide funding for early-stage biotechnology projects. Since we invest at an early stage, the risk of loss is high. In 2011 and 2012, we recorded aggregate research and development expenses of $92,000 and $40,000, respectively, related to such projects (not including funding provided by the Israeli government).
 
Our shareholders may be subject to dilution of the value of our shares if we conduct a business combination or other type of acquisition.
 
A business combination or the acquisition of stakes in operating companies, which are among the business alternatives considered by us, may involve the issuance of a significant number of additional shares. Depending upon the value of the assets acquired in such transaction, the per share value of our ordinary shares may significantly increase or decrease.
 
 
3
 
 
Conditions and changes in the national and global economic and political environments may adversely affect our business and financial results.
 
Current global financial conditions have been characterized by increased volatility and several financial institutions have either gone into bankruptcy or have had to be rescued by governmental authorities. With major financial institutions de-levering their balance sheets, credit was constricted in recent years, and may likely remain so for an extended period. In addition, recent concerns regarding the possibility of sovereign debt defaults by European Union member countries has disrupted financial markets throughout the world, and may lead to weaker consumer demand in the European Union, the United States, and other parts of the world. If economic growth further declines, this may have a negative impact on our financial condition and share price, which may impact our ability to obtain financing and other sources of funding in the future on terms favorable to us, if at all. If such increased levels of volatility and market turmoil continue, it may materially adversely affect our results of operations.
 
The growth of our business depends on our obtaining additional financing, which may be unavailable to us.
 
In order to acquire stakes in and to fund additional operating companies, we will need to raise additional funds through public or private debt or equity financings. We may be unable to obtain additional financing on acceptable terms or at all, which would harm our financial condition and results of operations.
 
We may be deemed an “investment company” under the Investment Company Act of 1940.
 
We may be deemed an “investment company” under the Investment Company Act of 1940, unless we qualify for an exemption. Even after we acquired a minority stake in BioCancell and although we may acquire stakes in additional operating companies, we may be deemed an investment company if we do not have sufficient control over such companies or qualify for another exemption under the Investment Company Act of 1940. If we are deemed an investment company, we could be found to be in violation of the Investment Company Act of 1940. A violation of that law could make it more difficult for us to register securities and raise funding and subject us to other material adverse consequences.
 
We might lose money from the investment of our cash.
 
We invest the majority of our cash on hand in financial instruments. If the obligor of any of the instruments we hold defaults or undergoes a reorganization in bankruptcy, we may lose all or a portion of our investment.  This would harm our financial condition.  For information on the types of our investments as of December 31, 2012, see Item 11 “Quantitative and Qualitative Disclosures About Market Risk--Interest Rate Risk Management.”
 
We are subject to costs and risks associated with complying with extensive corporate governance and disclosure requirements.
 
As a foreign private issuer in Israel subject to U.S. federal securities laws, we are required to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, various SEC regulations and the Israeli Companies Law. Section 404 of the Sarbanes-Oxley Act requires management’s annual review and evaluation of our internal control over financial reporting and attestation of the effectiveness of these controls by our management. There is no guarantee that these efforts will result in management assurance that our internal control over financial reporting is adequate in future periods. The additional management attention and costs relating to compliance with the Sarbanes-Oxley Act and other corporate governance requirements could materially and adversely affect our financial results.
 
 
4
 
 
Risks relating to our presence in Israel
 
Our incorporation in Israel may limit our ability to find a target for a business combination or other transactions outside Israel.
 
We are incorporated and headquartered in Israel.  A state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Ongoing violence between Israel and the Palestinians, as well as tension between Israel, Iran, Syria and Lebanon, may have a material adverse effect on our business, financial conditions and results of operations.  In past years there was a high level of violence between Israel and the Palestinians, including rocket attacks on certain areas of the country.  Recent political events in various countries in the Middle East and Northern Africa, including Egypt and Syria, have shaken the stability of those countries. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons.  Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us. We cannot predict the effect on us of the increase in the degree of terror attacks against Israel, political instability in the region or military action elsewhere in the Middle East.  Furthermore, several countries restrict doing business with Israel and Israeli companies, and additional companies may restrict doing business with Israel and Israeli companies as a result of an increase in hostilities or due to disagreement with Israel’s policies.
 
It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities law claims in Israel.
 
Service of process upon our directors and officers named herein may be difficult to effect within the United States because some of these people reside outside the United States. Any judgment obtained in the United States against us or these individuals or entities may not be enforceable within the United States.
 
It may be difficult to assert U.S. securities law claims in original actions instituted in Israel.  Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim.  In addition, even if any Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim.  If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process.  Certain matters of procedure will also be governed by Israeli law.  There is little binding case law in Israel addressing these matters.
 
 
5
 
 
Subject to specified time limitations and legal procedures
   
Under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including judgments based upon the civil liability provisions of the U.S. securities laws and including a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
 
 
·
subject to limited exceptions, the judgment is final and non-appealable;
 
 
·
the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;
 
 
·
the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
 
 
·
the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts;
 
 
·
adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
 
 
·
the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
 
 
·
the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
 
 
·
an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.
 
If a foreign judgment is enforced by an Israeli court, it generally will be payable in new Israeli shekels, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action to recover an amount in non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in new Israeli shekels at the rate of exchange on the date of payment, but the judgment debtor also may make payment in non-Israeli currency. Pending collection, the amount of the judgment of an Israeli court stated in new Israeli shekels ordinarily will be linked to the Israel Consumer Price Index plus interest at the annual rate (set by Israeli law) prevailing at that time.  Judgment creditors bear the risk of unfavorable exchange rates.
 
Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.
 
Provisions of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us.  The Israeli Companies Law generally provides that a merger be approved by the board of directors and a majority of the shares present and voting on the proposed merger.  For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares not held by the other party to the merger (or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against the merger.  Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the surviving company.  Finally, a merger may not be completed unless at least (i) 50 days have passed since the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.
 
 
6
 
 
The Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the company.  Similarly, an acquisition of shares must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. In any event, if as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s shares, the acquisition must be made by means of a tender offer for all of the shares.
 
Finally, Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation, to taxation prior to the sale of the shares received in such stock-for-stock swap.
 
The described restrictions could prevent or make more difficult an acquisition of Tikcro, which could depress our share price.
 
Risks relating to the market for our ordinary shares
 
Holders of our ordinary shares who are U.S. residents face certain potentially adverse U.S federal income tax consequences.
 
As a consequence of our ownership of relatively substantial cash and investment assets, it is likely that we would be classified for U.S. federal income tax purposes as having been a passive foreign investment company, or PFIC, for each year since 2003, although the determination of PFIC status is made separately for each year and our PFIC status could change. Classification as a PFIC could result in a reduction in the after-tax return to U.S. holders of our ordinary shares, which could, in turn, cause a reduction in the value of our ordinary shares.  Classification as a PFIC also triggers the application of certain United States income tax reporting requirements.
 
U.S. residents should carefully read Item 10.E “Taxation – United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of our ordinary shares and the consequences of PFIC status.
 
The trading market for our ordinary shares has low liquidity, which could make it difficult for our shareholders to sell their shares at desired prices and amounts.
 
Our ordinary shares currently are traded on the Pink Sheets Electronic Quotation Service. Currently, we do not meet the initial listing conditions of the Nasdaq Stock Market. The market for shares quoted on the Pink Sheets is typically less liquid than that for shares listed on the Nasdaq Stock Market. This could make it more difficult for our shareholders to sell their shares at desired prices and amounts.
 
 
7
 
 
The market price of our ordinary shares is subject to fluctuations.
 
The market value of our ordinary shares has fluctuated over time. The following factors, among others, may significantly impact the market price of our ordinary shares:
 
•
low trading volume of our ordinary shares;
 
•
the market price of BioCancell on the Tel Aviv Stock Exchange, which influences the value of warrants of BioCancell that we hold;
 
•
political, economic or other developments affecting Israel;
 
•
global economic and other external factors; and
 
•
quarter-to-quarter fluctuations in our financial results.
 
Two shareholders may be able to control us.
 
Eric Paneth, one of our directors, beneficially owns approximately 13.0% of our outstanding ordinary shares. Izhak Tamir, our Chairman of the Board, beneficially owns approximately 11.9% of our outstanding ordinary shares. Currently, Messrs. Paneth and Tamir are not party to a shareholders agreement. However, if Messrs. Paneth and Tamir act together, they effectively may have the power to control the outcome of all matters submitted for the vote of our shareholders, including the election of directors and the approval of significant change in control transactions. Their combined equity interest in us may have the effect of making certain transactions more difficult and may result in delaying, deferring or preventing a change in control of Tikcro unless approved by one or both of them.
 
Our shareholder bonus rights plan may delay, prevent or make more difficult a hostile acquisition of Tikcro, which could depress our share price.
 
In September 2005, we adopted a shareholder bonus rights plan pursuant to which share purchase bonus rights were distributed to our shareholders. These rights generally will be exercisable and transferable apart from our ordinary shares ten business days after a person or group acquires beneficial ownership of 15% or more of our ordinary shares, or commences a tender or exchange offer upon consummation of which that person or group would hold such a beneficial interest.  Once these rights become exercisable and transferable, the holders of rights, other than the person or group triggering their transferability, will be generally entitled to purchase our ordinary shares at a discount from the market price. The rights will expire on December 31, 2015. While these rights remain outstanding, they may make an acquisition of us more difficult and result in delaying or preventing a change in control of Tikcro. On November 20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares, thereby crossing the 15% ownership threshold. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and confidentiality agreement that we entered into with Mr. Bronson, which shall remain in effect until terminated by either party.

 
8
 
 
Information on the Company
 
A.  History and Development of the Company
 
We were incorporated on December 14, 1999 under the laws of the State of Israel. We are governed by the Israeli Companies Law, 5759-1999.  In September 2003, we changed our name from “Tioga Technologies Ltd.” to “Tikcro Technologies Ltd.”  Our principal executive offices are located at 16 Hatidhar St., Raanana 43652, Israel and our telephone number is (972-9)7442440.
 
Principal Capital Expenditures
 
We did not have any capital expenditures in 2010, 2011 or 2012.
 
B. Business Overview
 
General
 
Our business plan is to enter into one or more transactions with a wide variety of businesses without limitation as to their industry, revenues or losses. It is not possible at this time to predict when we will enter into any such transactions or what will be the industry, operating history, revenues, future prospects or other characteristics of any such business. Our ability to effect additional transactions is dependent on our ability to raise additional funds to pursue our business plan.

Biotechnology Projects

We also provide funding for early-stage biotechnology projects. The amount of funding we provide is immaterial and the risk of loss is high, but if the project succeeds we would be well-positioned to take a significant equity interest. We usually require the participation of Israeli government research funds, which exceed the amount of our funding by three times or more. In 2012, we recorded aggregate research and development expenses of $40,000 related to such projects. See Item 3.D “Risk Factors” above. Among these projects are molecular biomarkers in the oncology field and new molecules in several fields of oncology, cardiology and orthopedics.
 
BioCancell
 
BioCancell, a company headquartered in Israel and listed on the Tel Aviv Stock Exchange, is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapies for treating solid cancer tumors.     In July 2008, we acquired from BioCancell in a privately negotiated transaction, 837,521 shares of its common stock for consideration of $0.5 million, at a price of $0.60 per share. As part of the transaction we also received a four-year convertible note due June 2012 in the principal amount of $2.0 million, bearing interest at 10% per year and convertible into up to 3,464,385 shares of common stock, as well as a five-year warrant expiring June 2013 to purchase up to 4,301,906 shares of BioCancell common stock for an exercise price of $0.716 per share. Following a financing round that BioCancell held in January 2012, our full-ratchet anti-dilution adjustment provision was triggered, and as a result additional 1,025,979 shares of common stock were issued to us for no additional consideration, our convertible note became convertible, at a conversion price of NIS 1.00 per share, and our warrant expiring June 2013 entitles us to purchase up to 4,301,906 shares of  common stock for an exercise price that was reduced to  NIS 1.00 per share. In July 2012, our convertible note in BioCancell was repaid in full, including accrued interest, in the total gross amount of approximately $2.48 million. In July 2012, following another financing round of Biocancell,  our full-ratchet anti-dilution adjustment provision was triggered again, and as a result an additional 125,147 shares of common stock were due to us for no additional consideration, and our warrant expiring June 2013 entitles us to purchase up to 4,301,906 shares of  common stock for an exercise price that was reduced to NIS 0.87 per share. The additional shares were not issued yet, although BioCancell acknowledges that this issuance is due pending certain Israeli regulatory approvals. In November 2012, BioCancell held another financing round at a share price of  NIS 0.42. BioCancell declined to effect our full-ratchet anti-dilution adjustment provision. According to BioCancell, this provision is not in effect after the July 2012 financing round. We believe that this provision continues to be in effect as of November 2012 since other shareholders that invested prior to July 2012 were granted anti-dilution protection that covered the November 2012 financing. We agreed with BioCancell to have this matter resolved through an arbitration process, which is currently on-going.
 
 
9
 
 
As of March 31, 2013, we held 385,005 ordinary shares of BioCancell, constituting approximately 0.4% of its outstanding share capital. If we exercise the warrants we hold in full, we will hold an aggregate of approximately 7.9% of BioCancell’s outstanding share capital (or 6.5% on a fully diluted basis). We no longer designate a director on BioCancell's board of director or provide consulting services to BioCancell.
 
C. Organizational Structure
 
We do not have any significant subsidiaries.
 
D. Property, Plants and Equipment
 
We do not have any material fixed assets.
 
ITEM 4A.
Unresolved Staff Comments
 
Not applicable.
 
Operating and Financial Review and Prospects
 
A.  Operating Results
 
Our operating and financial review and prospects should be read in conjunction with our audited financial statements, accompanying notes thereto and other financial information appearing elsewhere in this Annual Report.
 
 
10
 
 
Overview
 
Our plan of operation is to explore the best course of action for Tikcro, including to attempt to merge or effect a business combination with a domestic or foreign, private or public operating company or to acquire minority stakes in one or more operating companies in new areas of operations.
 
In July 2008, we acquired a minority stake in BioCancell.  In exchange for $2.5 million in funding, BioCancell issued to us 837,521 shares of common stock, a convertible note in the principal amount of $2.0 million convertible into up to 3,464,385 shares of common stock, and a warrant to purchase up to 4,301,906 shares of common stock. In July 2012, our convertible note in Biocancell was repaid in full, including accrued interest, in the total gross amount of approximately $2.48 million.
 
We also provide funding for early-stage biotechnology projects. The amount of funding we provide is immaterial and the risk of loss is high, but if the project succeeds we would be well-positioned to take a significant equity interest. In 2011 and 2012, we recorded aggregate research and development expenses of $92,000 and $40,000, respectively, related to such projects.

In 2010, we had financial expenses, net of $389,000, mainly from a decrease in the value of our investment in BioCancell, and expenses of $389,000 resulting in the net loss of $778,000. In 2011, we had financial expenses, net of $2,303,000, mainly from a decrease in the value of our investment in BioCancell, expenses of $557,000 and tax expenses due to tax withheld on payments on interest of $54,000, resulting in the net loss of $2,914,000. In 2012, we had financial expenses, net of $158,000, mainly from payment of interest on the BioCancell note and on marketable securities, income of $641,000, offset by revaluation of the investment in BioCancell, expenses of $799,000, and tax expenses due to tax withheld on payments on interest of $109,000, resulting in a net loss of $592,000.

Application of Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

For additional information regarding our significant accounting policies please refer to Note 2 of our financial statements as of December 31, 2012 included in this report. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical.  These policies are most important for the fair portrayal of our financial condition and results of operations and are those that require our management to make difficult, subjective and complex judgments, estimates and assumptions, based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles and does not require management’s judgment in its application.  There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.
 
We are also subject to risks and uncertainties that may cause actual results to differ from estimates and assumptions. Certain of these risks, uncertainties and assumptions are discussed in Item 3.D “Risk Factors.” To facilitate the understanding of our business activities, described below are certain accounting policies that are relatively more important to the portrayal of our financial condition and results of operations and that require management’s subjective judgments. We base our judgments on past experience and various other assumptions that are believed to be reasonable under the circumstances.
 
 
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On an on-going basis, to fully understand and evaluate our reported financial results, we believe it is important to understand the significant estimates and judgments applied as they relate to our policies for income taxes and for valuation of our holdings in BioCancell, which is measured at fair value at each reporting date, with gains and losses being recorded as our audited financial statements, which are included elsewhere in this Annual Report.
 
Income Taxes
 
Based on the guidance in ASC 740 “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We accrue interest and penalties related to unrecognized tax benefits in the provision for income tax.
 
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different.  We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate.  To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related interest.
 
Investment in BioCancell
 
We elected to apply the fair value option for our holdings in BioCancell’s common stock, and warrant in accordance with ASC No. 825, “Financial Instruments”. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as expansion of the use of fair value measurement being consistent with the FASB’s measurement objectives for accounting for financial instruments. ASC No. 825 provides companies with an option to report selected financial assets and financial liabilities at fair value, which can be elected on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date.
 
Our holding in BioCancell's shares of common stock is based on quoted prices in an active market. Our holdings in BioCancell's and warrants were measured using a binominal model for evaluating derivatives, combined with other market-based analysis. The following are the main factors used in the valuations: average returns of notes of similar traded firms, historical volatility of the issuer's stock price (calculated upon actual historical stock price movements), applicable currency exchange rates, and risk free interest rates (based on the yield from U.S. treasury bonds with an equivalent term). In addition, we have taken into account the probability of the full ratchet mechanism in the warrants being triggered.
 
 
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Results of Operations
 
The table below sets forth, for the periods indicated, financial data (in thousands of dollars) which we believe to be significant in analyzing our results of operations.
 
   
Years Ended December 31,
 
   
2010
   
2011
   
2012
 
Statement of Operations Data:
                 
Research and development
  $ -     $ 92     $ 40  
General and administrative expenses, net
    471       541       401  
Consulting Services
    (82 )     (76 )     (41 )
Operating loss
    (389 )     (557 )     (400 )
Financial income (expenses), net
    (389 )     (2,303 )     (158 )
Income before Taxes
    (778 )     (2,860 )     (558 )
Tax expenses
    -       (54 )     (34 )
Net income (loss)
  $ (778 )   $ (2,914 )   $ (592 )
 
Consulting Services.   We received consulting fees in accordance with an agreement with BioCancell signed in July 2008, pursuant to which we provided funding to BioCancell. The fees from such consulting fees were $82,000 in 2010, $76,000 in 2011 and $41,000 in 2012, and are presented as "Consulting Services" under operating expenses
 
Research and development expenses. In 2011 we had expenses of $92,000 related to our investments in early-stage biotechnology projects.  In 2012, we had expenses of $40,000 related to such projects.
 
General and administrative expenses . General and administrative expenses rose in 2011 from $471,000 in 2010 to $541,000 in 2011 mainly due to an increase in salary expenses. General and administrative expenses decreased in 2012 from $541,000 in 2011 to $401,000 in 2012 mainly due to a decrease in legal expenses and management fees.
 
Financial income, net .  Financial income consists primarily of mark-to-market of the investment in BioCancell and also interest on marketable securities and bank deposits. In 2010 and 2011, our financial expense included expense from the mark to market adjustment of our investment in BioCancell in the amount of $524,000 and $2.6 million, respectively. In 2012, our financial expense included expense from the mark-to-market adjustment of our investment in BioCancell in the amount of $799,000.
 
Tax .  We had expenses of $54,000   in 2011 and $34,000 in 2012,  due to tax withheld  on interest payments.

Net income .  In 2010, we had net loss of $778,000 as a result of financial expenses in the amount of $389,000 and operating loss in the amount of $389,000. In 2011, we had net loss of $2,914,000 as a result of financial expenses in the amount of $2,303,000 and operating loss in the amount of $557,000. In 2012, we had net loss of $592,000 as a result of financial expenses in the amount of $158,000, tax expenses in the amount of $34,000 and operating loss in the amount of $400,000.
 
 
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Impact of Inflation, Devaluation and Fluctuation of Currencies on Results of Operations Liabilities and Assets
 
A devaluation of the new Israeli shekel in relation to the U.S. dollar would have the effect of decreasing the dollar value of our assets in new Israeli shekels to the extent the underlying value is new Israeli shekel-based. Such a devaluation also would have the effect of reducing the U.S. dollar amount of any of our liabilities which are payable in new Israeli shekels (unless such payables are linked to the U.S. dollar).
 
We may have from time to time expenses denominated in new Israeli shekels. Such expenses would decrease as a result of a devaluation of the new Israeli shekel in relation to the U.S. dollar. The value of the U.S. dollar declined against the NIS 2010, which caused our NIS denominated expenses to increase. The value of the U.S. dollar remained stable against the NIS in 2011 and 2012. We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate fluctuations.
 
The following table presents information about the rate of inflation in Israel, the rate of devaluation of the new Israeli shekel against the U.S. dollar, and the rate of inflation of Israel adjusted for the devaluation:
 
Years Ended
December 31,
 
Israeli Inflation
Rate
 
NIS-USD
 Devaluation Rate
 
Israel Inflation Adjusted
for Devaluation
2008
 
3.8
 
(1.1)
 
4.9
2009
 
3.9
 
(0.7)
 
4.6
2010
 
2.7
 
(6.0)
 
8.7
2011
 
2.2
 
7.6
 
(5.4)
2012
 
1.5
 
(2.3)
 
3.8
 
B. Liquidity and Capital Resources
 
We had working capital of $7.1 million as of December 31, 2010, $9.9 million as of December 31, 2011 and $9.3 million as of December 31, 2012.  We believe that we have sufficient working capital for at least the next 12 months.
 
In 2010, we had net loss of $778,000 and we used $238,000 of cash from operations. In 2011, we had net loss of $2.9 million and we used $193,000 of cash from operations. In 2012, we had net a loss of $592,000 and we generated net cash of $195,000 from operations.
 
We generated net cash of $234,000 from investment activities in 2010. We did not generate any cash from investment activities in 2011. We generated net cash of $4.3 million from investment activities in 2012.
 
In 2010, 2011 and 2012, we did not have any cash flow from financing activities.
 
 
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C. Research and Development, Patents and Licenses
 
Research and development expenses include funding for early-stage biotechnology projects and are charged to the statement of operations, as incurred.
 
D. Trend Information
 
None.
 
E. Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
F. Tabular Disclosure of Contractual Obligations
 
As of December 31, 2012, we had no contractual obligations of the type required to be disclosed in this section.
 
Directors, Senior Management and Employees
 
A. Directors and Senior Management and Employees
 
The following table lists our current directors and senior managers as of April 15, 2013:
 
Name
Age
Position
Izhak Tamir
60
Chairman of the Board
Eric Paneth
61
Director
Liat Hadad
41
External Director
Yiftach Atir
63
External Director
Aviv Boim
45
Chief Executive Officer
 
The business experience of each of our directors and executive officers is as follows:
 
Izhak Tamir has served as Chairman of our Board of Directors since January 2000 and served as our Chief Executive Officer from August 2003 to December 2007. He has served as President and a Director of Orckit Communications Ltd. ("Orckit") since it was co-founded by him and by Mr. Paneth in 1990 and as Orckit’s Chairman of the Board from July 2008 to September 2011. Mr. Tamir has served as Chairman of the Board of Orckit-Corrigent Ltd., a subsidiary of Orckit, since 2001, as Chief Executive Officer of Orckit-Corrigent Ltd. since May 2007 and as a Director of Gilat Satellite Networks Ltd. from 2005 to 2012. From 1987 until 1989, Mr. Tamir was employed by Comstream Inc., in San Diego, California.  From 1985 until 1987, he was vice president of A.T. Communication Channels Ltd., a subsidiary of Bezeq.  From 1978 to 1985, he was a senior engineer in the Israeli Government. Mr. Tamir holds an engineering degree from the Technion, and an M.B.A. from Tel Aviv University.
 
 
15
 
 
Eric Paneth has served as one of our Directors since January 2000 and served as our Chief Executive Officer from November 2008 to October 2010.  Mr. Paneth also served as Chief Executive Officer of Orckit from its founding in 1990 until 2012 and as the Chairman of the Board of Directors of Orckit from 1990 to 2008 and again since 2012.  From 1975 until 1983, Mr. Paneth was a senior engineer in the Israeli Government, and from 1985 to 1990, he was a technical department head in the Israeli Government.  From 1983 until 1985, he was employed by Linkabit Inc. in San Diego, California.  Mr. Paneth holds an advanced engineering degree from the Technion.
 
Liat Hadad has served as one of our external directors since September 2009. Ms. Hadad has served as director of business development at Israeli Biomedical Innovations since March 2010. From May 2009 to March 2010, she served as director of business development at McCann Erickson Digital Israel. From 2001 to 2008, Ms. Hadad served as an associate in the Life Sciences Division of Giza Venture Capital. From 1999 to 2001, she was a Business Development and Marketing Manager at Girafa.com Ltd. From 1996 to 1998, she was a System Integrations Project Manager at IBM Israel. Ms. Hadad is also a program coordinator at Tzeva, the coordinator of the ORT project as part of a community involvement program. Ms. Hadad has a B.A. in sociology, anthropology and political science from Tel Aviv University, a B.A. in life sciences from the Open University and an Executive M.B.A. in entrepreneurial studies, marketing and finance from Tel Aviv University.
 
Yiftach Atir has served as one of our external directors since September 2006. Mr. Atir has been a private consultant since January 2003.  He also served as a director of Radware Ltd. and Aran Research and Development (1982) Ltd.  From August 2000 to January 2003, Mr. Atir served as the managing director of Koor Corporation Venture Capital.  Prior thereto, he served as a managing director in Evergreen Venture Capital Funds, a management company for a group of technology focused venture capital funds, where he had been employed since November 1994.  Prior to joining Evergreen, Mr. Atir served as a Brigadier General in the Intelligence Corps of the Israel Defense Forces.  Mr. Atir has a B.A. in political science from Haifa University and an M.B.A. from Tel Aviv University and an M.A in Hebrew literature from Ben Gurion University.
 
Aviv Boim has served as our Chief Executive Officer since October 2010.  He joined Tikcro in January 2008 as Chief Executive Officer and served in the capacity of our representative to the board of directors of BioCancell from 2008 to 2012. From 1998 to 2007, he served as the Chief Financial Officer of Orckit. From August 1996 to February 1998, Mr. Boim was a banker with BT Alex. Brown Incorporated, an investment banking firm. From August 1993 until August 1996, Mr. Boim was a vice president of Giza Ltd., Tel Aviv, an investment banking firm. Mr. Boim holds a B.A. and an M.A. in economics and management from Tel Aviv University and an L.L.B. from Tel Aviv University Law School.
 
There are no family relationships between any director or senior manager. There are no arrangements or understandings between any director or senior manager and any other person pursuant to which the director or senior manager was selected.
 
B. Compensation
 
The aggregate direct remuneration, including fringe benefits commonly provided by companies in Israel, paid or accrued by us to all persons as a group (five persons) who served in the capacity of director or executive officer in the year ended December 31, 2012, was approximately $262,000. The foregoing amounts consist of the fees paid to our directors and chief executive officer. In 2012, our statutory external directors were paid cash compensation of NIS 36,250 (approximately $9,700) per year and NIS 1,855 (approximately $500) per meeting and our other directors were paid only a participation fee in the amount of $1,000 for attendance at each meeting of the board of directors or committee thereof.  Mr. Tamir does not receive any additional compensation for serving as our Chairman of the Board.
 
 
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C. Board Practices
 
 
Israeli Companies Law
 
We are subject to the provisions of the Israeli Companies Law, 5759-1999, and the regulations adopted thereunder.
 
 
Board of Directors
 
According to the Companies Law and our articles of association, the oversight of the management of our business is vested in our board of directors.  The board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. As part of its powers, our board of directors may cause us to borrow or secure payment of any sum or sums of money for our purposes, at times and upon terms and conditions as it thinks fit, including the grant of security interests in all or any part of our property.  Our board of directors may consist of not less than three and no more than 15 directors and as of the date hereof,   consists of four directors, including our external directors.
 
Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations, that our board of directors should have.  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 one director with the requisite financial and accounting expertise and that Yiftach Atir has such expertise.
 
According to the Companies Law, a company’s chairman of the board may not serve as its chief executive officer, unless otherwise approved by the shareholders for periods of up to three years.  Our directors are elected at annual meetings of our shareholders by a vote of the holders of a majority of the ordinary shares voting thereon. Generally, our directors hold office until the next annual meeting of shareholders following the annual meeting at which they were elected. Directors may be removed earlier from office by resolution passed at a general meeting of our shareholders.   Pursuant to the Israeli Companies Law, external directors are elected by shareholders for a three-year term and may be re-elected by shareholders for up to two additional three-year term.
 
Unless otherwise unanimously decided by our directors, a quorum at a meeting of the board of directors is constituted by the presence of a majority of the directors then in office who are lawfully entitled to participate in the meeting, but not less than two directors.  A resolution proposed at a meeting of the board of directors is deemed adopted if approved by a majority of the directors present and voting on the matter.
 
There are no arrangements or understandings between us and any of our directors for benefits upon termination of service.
 
 
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External Directors
 
Qualifications of External Directors
 
Under the Companies Law, companies incorporated under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered to the public in or outside of Israel are required to appoint at least two external directors. External directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. The Companies Law provides that a person may not be appointed as an external director if (i) the person or the person’s relative or affiliate has, as of the date of the person’s appointment to serve as an external director, or had, during the two years preceding that date any affiliation with the company, any controlling shareholder thereof, or any affiliate thereof, or (ii) in a company that does not have a 25% shareholder, if such person has an affiliation with any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company.
 
The term affiliation includes:
 
 
• 
an employment relationship;
 
 
• 
a business or professional relationship;
 
 
• 
control; or
 
 
• 
service as an office holder.
 
The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports directly to the chief executive officer.
 
No person can serve as an external director if the person’s position or other business creates, or may create conflict of interests with the person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder may not give any direct or indirect benefit to the former external director.
 
Election Of External Directors
 
External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:
 
 
•
at least a majority of the shares of non-controlling shareholders voted at the meeting vote in favor of the election; or
 
 
•
the total number of shares voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.
 
 
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The initial term of an external director is three years and may be extended for up to two additional three year terms. Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each only if the audit committee and the board of directors confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional periods is beneficial to the company. Reelection of an external director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for their initial term; or (2) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company. External directors may be removed from office only by the same percentage of shareholders as is required for their election, or by a court, and then only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. Each committee of a company’s board of directors is required to include at least one external director, except for the audit committee which is required to include all the external directors. On December 31, 2012, Liat Hadad commenced her second term as an external director and Yiftach Atir commenced his third term as an external director.
 
 
Audit Committee
 
Under the Companies Law, our board of directors is required to appoint an audit committee, comprised of at least three directors including all of the external directors. The members of the audit committee must satisfy certain independence standards under the Companies Law, and the chairman of the audit committee is required to be an external director. Our audit committee consists of Mr. Atir (Chairman), Ms. Hadad and Mr. Paneth.
 
The role of the audit committee is to examine deficiencies in the management of the company’s business, in consultation with the internal auditor and the company’s independent accountants, suggest remedial action, approve specified related party transactions and assess the company's internal audit system and the performance of its internal auditor. Our audit committee currently consists of our two external directors.
 
Our audit committee also has the authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the appointment and, where appropriate, replacement of our independent auditors and to pre-approve audit engagement fees and all permitted non-audit services and fees. Our audit committee also serves as our qualified legal compliance committee, responsible for investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar violations by us or any of our agents.
 
Compensation Committee
 
Under a recent amendment to the Israeli Companies Law, the board of directors of a public company is required to establish a compensation committee. The compensation committee needs to have at least three directors who satisfy certain independence qualifications, and the chairman of the compensation committee is required to be an outside director. Under the Israeli Companies Law, the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to the approval thereof by the board of directors. Our compensation committee consists of Mr. Atir (Chairman), Ms. Hadad and Mr. Paneth.
 
 
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Internal Auditor
 
Our board of directors has appointed an internal auditor.  Under the Companies Law, the role of the internal auditor is to examine, among other things, whether the company’s actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party, an office holder or a relative of any of the foregoing, nor may the internal auditor be the company’s independent accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager.
 
Fiduciary Duties of Office Holders
 
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.  The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances.  The duty of care includes a duty to use reasonable means to obtain:
 
 
•
information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and
 
 
•
all other important information pertaining to these actions.
 
The duty of loyalty of an office holder includes a duty to:
 
 
•
refrain from any conflict of interest between the performance of his duties in the company and the performance of his other duties or his personal affairs;
 
 
•
refrain from any activity that is competitive with the company;
 
 
•
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and
 
 
•
disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his position as an office holder.
 
 
20
 
 
Approval of Specified Related Party Transactions Under Israeli Law
 
Transactions with an Office Holder
 
The Companies Law requires that an office holder of a company disclose to the company any personal interest that he may have and all related material information known to him, in connection with any existing or proposed transaction by the company.  The disclosure is required to be made promptly and in any event no later than the board of directors meeting in which the transaction is first discussed.  If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
 
 
•
the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of these people; or
 
 
•
any corporation in which the office holder is a 5% or greater shareholder, director or general manager or in which he has the right to appoint at least one director or the general manager.
 
Under the Companies Law, an extraordinary transaction is a transaction:
 
 
• 
other than in the ordinary course of business;
 
 
• 
otherwise than on market terms; or
 
 
•
that is likely to have a material impact of the company’s profitability, assets or liabilities.
 
Once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest.  A transaction that is adverse to the company’s interest may not be approved.
 
If the transaction is an extraordinary transaction, approval of both the audit committee and the board of directors is required.  Under specific circumstances, shareholder approval may also be required.  A person who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee generally may not be present at this meeting or vote on this matter, unless a majority of the members of the board of directors or the audit committee, as the case may be, has a personal interest in the matter.  If a majority of members of the board of directors have a personal interest therein, shareholder approval is also required.
 
 
Office Holder Compensation
 
A recent amendment to the Israeli Companies Law imposes new approval requirements for the compensation of office holders. Every public company is required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph). In general, all office holders’ terms of compensation are required to comply with the company's compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder are required to be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same threshold noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.
 
 
21
 
 
Transactions with a Controlling Shareholder
 
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company.  A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including, for this purpose, a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company.  Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest require the approval of the audit committee, the board of directors and the shareholders of the company in that order.  The shareholder approval must be by a majority of the shares voted on the matter, provided that either:
 
 
•
at least a majority of the shares of shareholders who have no personal interest in the transaction and who vote on the matter vote in favor thereof; or
 
 
•
the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent of the voting rights in the company.
 
In addition, any such transaction whose term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.
 
Shareholders generally have the right to examine any document in the company’s possession pertaining to any matter that requires shareholder approval.
 
D. Employees
 
We had two employees as of December 31, 2010 and one employee as of December 31, 2011, and 2012.
 
E. Share Ownership
 
As of March 31, 2013, Mr. Eric Paneth beneficially owned 1,156,602 ordinary shares, or approximately 13.0% of our outstanding ordinary shares, Mr. Izhak Tamir beneficially owned 1,061,701 ordinary shares, or approximately 11.9% of our outstanding ordinary shares, and Mr. Aviv Boim beneficially owned 885,287 ordinary shares, or approximately 9.9% of our outstanding ordinary shares (of which 103,489 are restricted shares issued under the 2003 Plan). None of our other directors beneficially owns 1% or more of our outstanding ordinary shares.
 
 
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Share Incentive Plans
 
We have two share incentive plans pursuant to which options may be granted to our directors, officers, employees, consultants and contractors. These share incentive plans are administered by our board of directors, which determines the optionees, dates of grant and the exercise price of options.  Unless otherwise decided by our board of directors, options granted under the share incentive plans are non-assignable except by the laws of descent.  Under the share incentive plans, the grantee is responsible for all personal tax consequences of the grant and the exercise thereof.  The plan adopted in 2003 (the “2003 Plan”) allows us to grant options to qualified persons pursuant to the “capital gains route” under Section 102 of the Israeli Income Tax Ordinance.  In December 2007, our Board of Directors amended the 2003 Plan to also enable the granting of restricted shares or restricted share units, or RSUs. Restricted shares are grants of our ordinary shares that are subject to certain re-sale restrictions for a specified period of time, and RSUs are rights to receive our ordinary shares under certain conditions, for no consideration. The other terms and conditions of the 2003 Plan that are applicable to options also apply to restricted stock and RSUs, to the extent applicable.
 
As of March 31, 2013, we had outstanding (i) options to purchase a total of 133,334 ordinary shares, all of which were held by our directors, and (ii) 103,489 restricted shares that are subject to contractual restrictions on transfer and are subject to repurchase by us for no consideration under certain circumstances.
 
Major Shareholders and Related Party Transactions
 
A. Major Shareholders
 
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of March 31, 2013 (unless otherwise specified), by each person who is known to own beneficially more than 5% of the outstanding ordinary shares.  The voting rights of all major shareholders are the same as for all other shareholders.
 
Identity of Person or Group
 
Amount Owned
   
Percent of Class (1)
 
Steven N. Bronson (2)
    1,500,094       16.9 %
Eric Paneth
    1,156,602       13.0 %
Izhak Tamir
    1,061,701       11.9 %
Aviv Boim (3)
    885,287       9.9 %
_______________
(1)
Based on 8,898,861 ordinary shares outstanding on March 31, 2013.
(2)
Includes (i) 1,400,422 ordinary shares held jointly by Mr. Bronson and his spouse, (ii) 58,806 ordinary shares held in Mr. Bronson's IRA and (iii) 40,866 ordinary shares held in Mr. Bronson's spouse's IRA (with respect to which Mr. Bronson has voting and dispositive power). Based on a Schedule 13D/A filed February 5, 2013. Mr. Bronson has undertaken to us not to vote in excess of 1,334,829 ordinary shares, or 14.9% of our outstanding shares, until the 30 th day following the termination of a confidentiality and standstill agreement between us, dated February 1, 2013, which may be terminated by either party upon ten business days' notice.  Based on a Schedule 13D/A filed by Mr. Bronson on February 19, 2010, he beneficially owned 1,198,755 ordinary shares, or 13.9% of our outstanding shares, at that time.
(3)
Includes 103,489 restricted shares issued under the 2003 Plan.
 
As of March 31, 2013, there were 47 holders of record of our ordinary shares in the United States who collectively held approximately 83% of our outstanding ordinary shares.  The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held of record by brokers or other nominees.
 
B. Related Party Transactions
 
We entered into an agreement with Mr. Steven Bronson, one of our major shareholders, as of February 1, 2013, pursuant to which Mr. Bronson undertook to maintain the confidentiality of non-public information that we may provide to him about our business.  Mr. Bronson also undertook not to be the beneficial owner of more than 1,500,094 of our ordinary shares and not to vote more than 1,334,829 of our ordinary shares, or 14.99% of our outstanding ordinary shares.  We undertook to postpone the "Distribution Date" under our shareholder bonus rights plan for 30 business days following the termination of the agreement.  This agreement will be in effect until either of the parties elects to terminate it.
 
 
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C. Interests of Experts and Counsel
 
Not applicable.
 
Financial Information
 
A. Consolidated Statements and other Financial Information
 
See financial statements under Item 18.
 
Legal Proceedings
 
In 2013, we demanded that BioCancell effect a full ratchet anti-dilution adjustment under our 2008 transaction agreements, in respect of a November 2012 financing round it held at a price per share of NIS 0.42. BioCancell refused to implement this provision, claiming that it terminated as of its July 2012 financing, which had at a price per share of NIS 0.87. We agreed to resolve this dispute by an arbitration process, which is currently on-going.
 
Other than this matter, we are currently not party to any legal proceedings.
 
  Significant Changes
 
No significant change has occurred since December 31, 2012, except as otherwise disclosed in this Annual Report.
 
The Offer and Listing
 
A.  Offer and Listing Details
 
Our ordinary shares are currently quoted on the Pink Sheets Electronic Quotation Service under the symbol TIKRF.  The Pink Sheets typically has lower liquidity than the Nasdaq Stock Market.
 
 
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The following table sets forth, for the periods indicated, the high and low sales prices of our ordinary shares as reported on  the OTC Bulletin Board or the Pink Sheets.
 
Calendar Year
Price Per Share
 
High
 
Low
       
2008
1.14
 
0.40
2009
0.95
 
0.45
2010
0.96
 
0.63
2011
0.78
 
0.44
2012
0.55
 
0.42
   
Calendar Quarter
Price Per Share
 
High
 
Low
2011
     
First Quarter
0.72
 
0.66
Second Quarter
0.78
 
0.65
Third Quarter
0.70
 
0.52
Fourth Quarter
0.55
 
0.44
 2012
     
First Quarter
0.55
 
0.42
Second Quarter
0.50
 
0.42
Third Quarter
0.50
 
0.43
Fourth Quarter
0.48
 
0.35
 2013
     
First Quarter
0.70
 
0.45
Second Quarter (through April 18, 2013)
0.55
 
0.52

B. Plan of Distribution
 
Not applicable.
 
C. Markets
 
Our ordinary shares are quoted on the Pink Sheets Electronic Quotation Service under the symbol TIKRF.
 
D. Selling Shareholders
 
Not applicable.
 
E. Dilution
 
Not applicable.
 
F. Expenses of the Issue
 
Not applicable.
 
 
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ITEM 10.
Additional Information
 
A. Share Capital
 
Not applicable.
 
B. Memorandum and Articles of Association
 
Objects and Purposes
 
We were organized under Israeli law on December 14, 1999 as a private company, and on June 30, 2000 became a public company. Our registration number with the Israeli registrar of companies is 51-286883-7. Our object is to engage, directly or indirectly, in any lawful undertaking or business whatsoever, including, without limitation, as stipulated in section 2 of our memorandum of association, which was filed with the Israeli registrar of companies.
 
Transfer of Shares and Notices
 
Fully paid ordinary shares may be freely transferred pursuant to our articles of association unless the transfer is restricted or prohibited by another instrument. Unless otherwise prescribed by law, shareholders of record are entitled to at least 21 calendar days’ prior notice of any general shareholders meeting.
 
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or articles of association or by the laws of the State of Israel.
 
Dividend and Liquidation Rights
 
Our board of directors is authorized to declare dividends, subject to applicable law. Dividends may be paid only out of profits and other surplus, as defined in the Companies Law, as of the end of the most recent financial statements or as accrued over a period of two years, whichever is higher. Alternatively, if we do not have sufficient profits or other surplus, then permission to effect a distribution can be granted by order of an Israeli court.  In any event, a distribution is permitted only if there is no reasonable concern that the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
 
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to their respective holdings.  Dividend and liquidation right may be affected by the grant of preferential dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
 
Voting, Shareholders’ Meetings and Resolutions
 
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.  No cumulative voting is permitted.
 
 
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We have two types of general shareholders meetings: the annual general meetings and extraordinary general meetings. These meetings may be held either in Israel or in any other place the board of directors determines. An annual general meeting must be held in each calendar year, but not more than 15 months after the last annual general meeting.  Our board of directors may convene an extraordinary meeting, from time to time, at its discretion and is required to do so upon the request of any two directors, at least 25% of the directors, or shareholders holding at least 5% of our ordinary shares.  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 between them at least 25% of the outstanding voting shares unless otherwise required by applicable rules.  A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the chairman may designate with the consent of the holders of a majority of the voting power represented at the meeting and voting on the matter adjourned.  At such reconvened meeting the required quorum consists of any two members present in person or by proxy.
 
Under the Companies Law and our articles of association, all resolutions of the shareholders require a simple majority of the shares present, in person or by proxy, and voting on the matter.
 
These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
 
Duties of Shareholders
 
Under the Companies Law, each and every shareholder has a duty to act in good faith in exercising his rights and fulfilling his obligations towards us and other shareholders and to refrain from abusing his power in Tikcro, such as in voting in the general meeting of shareholders on the following matters:
 
 
·
any amendment to the articles of association;
 
 
·
an increase of our authorized share capital;
 
 
·
a merger; or
 
 
·
approval of certain actions and transactions which require shareholder approval.
 
In addition, each and every shareholder has the general duty to refrain from depriving other shareholders of their rights.
 
Furthermore, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint or to prevent the appointment of an office holder in Tikcro or any other power toward Tikcro is under a duty to act in fairness towards us.  The Companies Law does not describe the substance of this duty of fairness.
 
 
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Mergers and Acquisitions under Israeli Law; Anti-takeover Provisions
 
The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to a merger have the transaction approved by its board of directors and a vote of the majority of its shares.  For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares held by parties other than the other party to the merger, or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party, vote against the merger.  Upon the request of a creditor of either party of the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger.  In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that a proposal of the merger has been filed with the Israeli Registrar of Companies by each merging company and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.
 
The Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company and there is no existing 25% or greater shareholder in the company.  An acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company.  This requirement does not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders.  The tender offer may be consummated only if (i) at least 5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
 
If as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares.  If as a result of a full the tender offer the acquirer would own more than 95% of the outstanding shares, then all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer, but the acquirer will be entitled to stipulate that tendering shareholders forfeit their appraisal rights.  If as a result of a full tender offer the acquirer would own 95% or less of the outstanding shares, then the acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.
 
Finally, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does U.S. tax law.  For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
 
Our articles of association provide that our board of directors may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of Tikcro, including, without limitation, the adoption of a shareholder rights plan. In September 2005, our board of directors adopted a shareholder bonus rights plan pursuant to which share purchase bonus rights were distributed on September 26, 2005, at the rate of one right for each of our ordinary shares held by shareholders of record as of the close of business on that date.
 
 
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The rights plan is intended to help ensure that all of our shareholders are able to realize the long-term value of their investment in Tikcro in the event of a potential takeover which does not reflect the full value of Tikcro and is otherwise not in the best interests of Tikcro and its shareholders. The rights plan is also intended to deter unfair or coercive takeover tactics.
 
Each right initially will entitle shareholders to buy one-half of one of our ordinary shares for $7.50 (after giving effect to our 1-for-3 reverse split in 2006). The rights generally will only be exercisable and transferable apart from our ordinary shares ten business days after a person or group becomes an “acquiring person” by acquiring beneficial ownership of 15% or more of our ordinary shares, subject to certain exceptions set forth in the rights plan, or commencing a tender or exchange offer upon consummation of which such person or group would become an “acquiring person,” or on such later date as may be determined by our audit committee and board of directors. Subject to certain conditions described in the rights plan, once the rights become exercisable, the holders of rights, other than the acquiring person, will be entitled to purchase ordinary shares at a discount from the market price.
 
The rights will expire on December 31, 2015 and are generally redeemable by our board of directors, at a nominal amount per right, at any time until the tenth business day following public disclosure that a person or group has become an “acquiring person”,
 
On November 20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares, thereby crossing the 15% ownership threshold. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and confidentiality agreement that we entered into with Mr. Bronson, which shall remain in effect until terminated by either party.
 
Modification of Class Rights
 
Our articles of association provide that the rights attached to any class (unless otherwise provided by the terms of that class), such as voting, rights to dividends and the like, may be varied by a shareholders resolution, subject to the sanction of a resolution passed by the holders of a majority of the shares of that class at a separate class meeting.
 
Indemnification, Exculpation and Insurance of Office Holders
 
Exculpation of Office Holders
 
Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from liability to the company, in whole or in part, for a breach of his duty of care (except in connection with distributions), provided the articles of association of the company allow it to do so.  Our articles of association   allow us to exempt our office holders to the fullest extent permitted by law.
 
 
29
 
 
Insurance of Office Holders
 
Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into an insurance   contract which would provide coverage for any monetary   liability incurred by   any of our office holders, with respect to an act performed in the capacity of an office holder for:
 
 
•
a breach of his duty of care to us or to another person;
 
 
•
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or
 
 
•
a financial liability imposed upon him in favor of another person.
 
Indemnification of Office Holders
 
The Companies Law and our articles of association provide that a company may indemnify an office holder against the following obligations and expenses imposed on the office holder with respect to an act performed in the capacity of an office holder:
 
 
•
a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator’s award approved by the court; such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that our undertaking to indemnify is limited to events that our board of directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a sum or criterion that our board of directors determines to be reasonable under the circumstances.
 
 
•
reasonable litigation expenses, including attorneys’ fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and
 
 
•
reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him by a court in connection with:
 
 
•
proceedings we institute against him or that are instituted on our behalf or by another person;
 
 
•
a criminal charge from which he is acquitted; or
 
 
•
a criminal proceeding in which he is convicted of an offense that does not require proof of criminal intent.
 
 
30
 
 
Limitations on Exculpation, Insurance and Indemnification
 
The Companies Law provides that a company may not exculpate or indemnify an office holder, or enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:
 
 
•
a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
 
 
•
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly;
 
 
•
any act or omission done with the intent to derive an illegal personal benefit; or
 
 
•
any fine levied against the office holder.
 
In addition, under the Companies Law, exculpation of, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our board of directors and, if the beneficiary is a director, by our shareholders.
 
Our articles of associations also provide that, subject to the provisions of applicable law, we may procure insurance for or indemnify any person who is not an office holder, including without limitation, any of our employees, agents, consultants or contractors.
 
In accordance with the foregoing provisions, we have obtained liability insurance in favor of our directors and officers and have granted them letters of indemnification and exculpation.
 
C. Material Contracts
 
On September 12, 2005, we entered into a bonus rights agreement, amended as of December 10, 2012, with a trustee on behalf of our shareholders, which is summarized above under Item 10.B “—Mergers and Acquisitions under Israeli Law; Anti-Takeover Provisions” and is incorporated by reference as an exhibit to this Annual Report.
 
On February 1, 2013, we entered into an agreement with Mr. Steven Bronson which is summarized above under Item 7.B “Major Shareholders and Related Party Transactions— Related Party Transactions”.
 
For information regarding our agreements with BioCancell, see Item 4.B “Business Overview - General.”
 
D. Exchange Controls
 
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions.  However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
 
 
31
 
 
E. Taxation
 
The following is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
 
United States Federal Income Tax Consequences
 
The following summary describes the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) arising from the purchase, ownership or disposition of our ordinary shares. This summary is based on the Internal Revenue Code of 1986, as amended, or the “Code,” the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change (possibly with retroactive effect) or different interpretations. For purposes of this summary, a “U.S. Holder” will be deemed to refer only to any of the following holders of our ordinary shares:
 
 
·
an individual who is either a U.S. citizen or a resident of the U.S. for U.S. federal income tax purposes;
 
 
·
a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the U.S. or any political subdivision thereof;
 
 
·
an estate the income of which is subject to U.S. federal income tax regardless of the source of its income; and
 
 
·
a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
 
This summary does not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their particular circumstances, including potential application of the U.S. federal alternative minimum tax, or any aspect of state, local or non-U.S. federal tax laws or U.S. federal tax laws other than U.S. federal income tax laws. In addition, this summary is directed only to U.S. Holders that hold our ordinary shares as “capital assets” within the meaning of Section 1221 of the Code and does not address the considerations that may be applicable to particular classes of U.S. Holders, including financial institutions, regulated investment companies, real estate investment trusts, pension funds, insurance companies, broker-dealers, tax-exempt organizations, grantor trusts, partnerships or other pass-through entities, partners or other equity owners in partnerships or other pass-through entities, U.S. Holders whose functional currency is not the U.S. dollar, U.S. Holders who have elected mark-to-market accounting, U.S. Holders who acquired our ordinary shares through the exercise of options or otherwise as compensation, U.S. Holders who hold our ordinary shares as part of a “straddle,” “hedge” or “conversion transaction,” U.S. Holders selling our ordinary shares short, U.S. Holders deemed to have sold our ordinary shares in a “constructive sale,” and U.S. Holders, directly, indirectly or through attribution, of 10% or more (by vote or value) of our outstanding ordinary shares. If a partnership (including for this purpose any entity, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ordinary shares, the U.S. federal income tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership.
 
 
32
 
 
Each U.S. Holder should consult with its own tax advisor as to the particular tax consequences to it of the purchase, ownership and sale of our ordinary shares, including the effects of applicable tax treaties, state, local, foreign or other tax laws and possible changes in the tax laws.
 
Sale, Exchange or Other Taxable Disposition of Ordinary Shares
 
Subject to the discussion below under “Passive Foreign Investment Company Status,” a U.S. Holder’s sale, exchange or other taxable disposition of ordinary shares generally will result in the recognition by such U.S. Holder of capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s tax basis in the ordinary shares disposed of (determined in U.S. dollars).  This gain or loss will be long-term capital gain or loss if such ordinary shares have been held or are deemed to have been held for more than one year at the time of the disposition.  Individual U.S. Holders are subject to a maximum tax rate of 15% (for tax years beginning before 2013) or 20% (for tax years beginning after 2012 on long-term capital gains).  For tax years beginning after 2012, a noncorporate U.S. Holder may be subject to an additional tax based on its “net investment income” (generally, gross income from interest, dividends, annuities, royalties and rents and gain from the sale of property (other than property held in the active conduct of a trade or business that does not regularly trade financial instruments or commodities), less the amount of deductions properly allocable to such income or gain). Such tax is equal to 3.8% of the lesser of an individual U.S. Holder’s (i) net investment income, or (ii) the excess of such U.S. Holder’s “modified adjusted gross income” (adjusted gross income plus the amount of any foreign earned income excluded from income under Section 911(a)(1) of the Code, net of deductions and exclusions disallowed with respect to such foreign earned income) over a specified threshold amount ($250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return and $200,000 in any other case). In the case of a U.S. Holder which is an estate or trust, the tax is equal to 3.8% of the lesser of (i) undistributed net investment income, or (ii) the excess of adjusted gross income (as defined in Section 67(e) of the Code) over the dollar amount at which the highest tax bracket applicable to an estate or trust begins.  Short-term capital gains generally are taxed at the same rates applicable to ordinary income.  If the U.S. Holder’s holding period on the date of the taxable disposition is one year or less, such gain or loss is treated as a short-term capital gain or loss.  See “Israeli Tax Considerations — Capital Gains Tax” for a discussion of taxation by Israel of capital gains realized on sales of our ordinary shares.  Any capital loss realized upon the taxable disposition of ordinary shares generally is deductible only against capital gains and not against ordinary income, except that non-corporate U.S. Holders generally may deduct annually from ordinary income up to $3,000 of capital losses in excess of capital gains.  In general, any capital gain or loss recognized by a U.S. Holder upon the taxable disposition of ordinary shares will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes, although the tax treaty between the United States and Israel may permit gain derived from the taxable disposition of ordinary shares by a U.S. Holder to be treated as foreign-source income for U.S. foreign tax credit purposes under certain circumstances.
 
A U.S. Holder’s tax basis in his, her or its ordinary shares generally will be equal to the U.S. dollar purchase price paid by such U.S. Holder to acquire such ordinary shares.  The U.S. dollar cost of an ordinary share purchased with foreign currency generally will be equal to the U.S. dollar value of the purchase price on the date of purchase or, in the case of ordinary shares that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase.  Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue Service. The holding period of each ordinary share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder’s purchase of such ordinary share and will include the day on which the ordinary share is sold by such U.S. Holder.
 
 
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In the case of a U.S. Holder who uses the cash basis method of accounting and who receives NIS in connection with a taxable disposition of ordinary shares, the amount realized will be based on the “spot rate” of exchange on the settlement date of such taxable disposition.  If such U.S. Holder subsequently converts NIS into U.S. dollars at a conversion rate other than the spot rate in effect on the settlement date, he, she or it may have a foreign currency exchange gain or loss treated as ordinary income or loss for U.S. federal income tax purposes.  A U.S. Holder who uses the accrual method of accounting may elect the same treatment required of cash method taxpayers with respect to a taxable disposition of ordinary shares, provided that the election is applied consistently from year to year.  Such election may not be changed without the consent of the U.S. Internal Revenue Service.  If an accrual method U.S. Holder does not elect to be treated as a cash method taxpayer (pursuant to U.S. Treasury Regulations applicable to foreign currency transactions), such U.S. Holder may be deemed to have realized an immediate foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the U.S. dollar value of the NIS on the date of taxable disposition and the settlement date.  Any such currency gain or loss  generally would be treated as U.S.-source ordinary income or loss and would be subject to tax in addition to any gain or loss recognized by such U.S. Holder on the taxable disposition of ordinary shares.
 
Treatment of Distributions
 
For U.S. federal income tax purposes, the amount of any distribution with respect to our ordinary shares will equal the amount of cash distributed, the fair market value of any property distributed and the amount of any Israeli taxes withheld on such distribution as described below under “Israeli Tax Considerations -- Tax on Dividends.” Other than distributions in liquidation or in redemption of our ordinary shares that are treated as exchanges, a distribution with respect to our ordinary shares to a U.S. Holder generally will be treated as a dividend to the extent the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of any distribution that exceeds these earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis in his, her or its ordinary shares (but not below zero), and then generally as capital gain from a deemed sale or exchange of such ordinary shares. Corporate U.S. Holders generally will not be allowed a deduction under Section 243 of the Code for dividends received on our ordinary shares and thus will be subject to tax at the rate applicable to their taxable income. A noncorporate U.S. Holder’s “qualified dividend income” generally is subject to tax at a rate of 15%   for tax years beginning before 2013 and 20% for tax years beginning after 2012, and for tax years beginning after 2012, also may be subject to the additional tax on “net investment income” described above in “Sale, Exchange or Other Taxable Disposition of Ordinary Shares.”. For this purpose, “qualified dividend income” generally includes dividends paid by a foreign corporation if, among other things, the noncorporate U.S. Holder meets certain minimum holding period requirements and either (a) the stock of such corporation is readily tradable on an established securities market in the U.S.,  or (b) such corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has indicated that the income tax treaty between the U.S. and Israel is satisfactory for this purpose. Dividends paid by us will not qualify for the 15% (through 2012) or 20% (after 2012) U.S. federal income tax rate, however, if we are treated, for the tax year in which the dividends are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal income tax purposes. See the discussion below under the heading “Passive Foreign Investment Company Status.”
 
 
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A dividend paid by us in NIS will be included in the income of U.S. Holders at the U.S. dollar amount of the dividend, based on the “spot rate” of exchange in effect on the date of receipt or deemed receipt of the distribution, regardless of whether the payment is in fact converted into U.S. dollars.  U.S. Holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that U.S. dollar value. Any gain or loss upon the subsequent conversion of the NIS into U.S. dollars or other disposition of the NIS will constitute foreign currency gain or loss taxable as ordinary income or loss and will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes.
 
Dividends received with respect to our ordinary shares will constitute “portfolio income” for purposes of the limitation on the deductibility of passive activity losses and, therefore, generally may not be offset by passive activity losses. Dividends received with respect to our ordinary shares also generally will be treated as “investment income” for purposes of the investment interest deduction limitation contained in Section 163(d) of the Code, and as foreign-source passive income for U.S. foreign tax credit purposes or, in the case of a U.S. Holder that is a financial services entity, financial services income. Subject to certain limitations, U.S. Holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability any Israeli income tax withheld from distributions on our ordinary shares which constitute dividends under U.S. income tax law. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only if the U.S. Holder elects to do so with respect to all foreign income taxes in such year. In addition, special rules may apply to the computation of foreign tax credits relating to “qualified dividend income,” as defined above. The calculation of foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign income taxes, the availability of deductions involve the application of complex rules that depend on a U.S. Holder’s particular circumstances.
 
U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of their receipt of any distributions with respect to our ordinary shares.
 
Passive Foreign Investment Company Status
 
Generally, a foreign corporation is treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for any tax year if, in such tax year, either (i) 75% or more of its gross income (including its pro rata share of the gross income of any company in which it owns 25% or more of the shares by value) is passive in nature (the “Income Test”), or (ii) the average percentage of its assets during such tax year (including its pro rata share of the assets of any company in which it owns 25% or more of the shares by value)  which produce, or are held for the production of, passive income (determined by averaging the percentage of the fair market value of its total assets which are passive assets as of the end of each quarter of such year) is 50% or more (the “Asset Test”).   Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions.
 
There is no definitive method prescribed in the Code, U.S. Treasury Regulations or administrative or judicial interpretations thereof for determining the value of a publicly-traded foreign corporation’s assets for purposes of the Asset Test.  The legislative history of the U.S. Taxpayer Relief Act of 1997 (the “1997 Act”) indicates that for purposes of the Asset Test, “the total value of a publicly-traded foreign corporation’s assets generally will be treated as equal to the sum of the aggregate value of its outstanding stock plus its liabilities.”  It is unclear, whether other valuation methods could be employed to determine the value of our assets for purposes of the Asset Test.
 
 
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Based on the composition of our gross income, the composition and value of our gross assets and the amount of our liabilities during each year since 2003, we believe that we are likely to be treated as having been a PFIC in each such year, including 2012.  There also can be no assurance that we will not be deemed a PFIC in 2013 or any other future tax year.
 
If we are treated as a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder’s holding period of ordinary shares and the U.S. Holder does not make a QEF Election or a “mark-to-market ”  election (both as described below):
 
 
·
The U.S. Holder would be required to (a) report as ordinary income any so-called “excess distributions” allocated to the current tax year,(b) pay tax on amounts allocated to each prior tax year in which we were a PFIC at the highest rate applicable to ordinary income in effect for such prior year, and (c) pay an interest charge on the resulting tax at the rate applicable to deficiencies of U.S. federal income tax. “Excess distributions” with respect to any U.S. Holder are amounts received by such U.S. Holder with respect to our ordinary shares in any tax year that exceed 125% of the average distributions received by such U.S. Holder from us during the shorter of (i) the three previous years, or (ii) such U.S. Holder’s holding period of our ordinary shares before the then-current tax year.  Excess distributions must be allocated ratably to each day that a U.S. Holder has held our ordinary shares.
 
 
·
The entire amount of any gain realized by such U.S. Holder upon the sale or other disposition of our ordinary shares also would be treated as an “excess distribution” subject to tax as described above.
 
 
·
The tax basis of ordinary shares acquired from a decedent who was a U.S. Holder generally would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis, if lower.
 
Although we generally will be treated as a PFIC as to any U.S. Holder if we are a PFIC for any year during the U.S. Holder’s holding period, if we cease to be a PFIC, the U.S. Holder may avoid the consequences of PFIC classification for subsequent years if such U.S. Holder elects to recognize gain based on the unrealized appreciation in such U.S. Holder’s ordinary shares through the close of the tax year in which we cease to be a PFIC.
 
A U.S. Holder who beneficially owns shares of a PFIC must file U.S. Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with the U.S. Internal Revenue Service for each tax year in which such U.S. Holder recognizes gain upon a disposition of our ordinary shares, receives certain distributions from us or makes the QEF Election or mark-to-market election described below
 
 
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For any tax year in which we are treated as a PFIC, a U.S. Holder may elect to treat his, her or its ordinary shares as an interest in a qualified electing fund (a “QEF Election”), in which case the U.S. Holder would be required to include in income currently his, her or its proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of our earnings and profits are actually made to the U.S. Holder.  Any gain subsequently recognized by the U.S. Holder upon the sale of his, her or its ordinary shares, however, generally would be taxed as capital gain and the denial of the basis step-up at death described above would not apply.
 
A U.S. Holder may make a QEF Election with respect to a PFIC for any tax year of the U.S. Holder.  The election is effective for the tax year for which it is made and all subsequent tax years of the U.S. Holder.  Procedures exist for both retroactive elections and the filing of protective statements.  A  QEF Election is made by completing U.S. Internal Revenue Service Form 8621 and attaching it to a timely-filed (including extensions) U.S. federal income tax return for the first tax year to which the election will apply.  A U.S. Holder must satisfy certain additional filing requirements each year the election remains in effect. Upon the request of a U.S. Holder who wishes to make a QEF Election, we will provide to such U.S. Holder the information required to make the QEF Election and to make subsequent annual filings.
 
As an alternative to a QEF Election, a U.S. Holder generally may elect to mark his, her or its ordinary shares to market annually, recognizing ordinary income or loss (subject to certain limitations) equal to the difference, as of the close of each tax year, between the fair market value of his, her or its ordinary shares and the adjusted tax basis of such shares.  If a mark-to-market election with respect to ordinary shares is in effect on the date of a U.S. Holder’s death, the normally available step-up in tax basis to fair market value generally will not be available.  Rather, the tax basis of ordinary shares in the hands of a U.S. Holder who acquires them from a decedent will be the lesser of the decedent’s tax basis or the fair market value of the ordinary shares. Once made, a mark-to-market election generally continues, unless revoked with the consent of the U.S. Internal Revenue Service.
 
The implementation of many aspects of the Code’s PFIC rules requires the issuance of Treasury Regulations which in many instances have yet to be promulgated and which may have retroactive effect when promulgated.  We cannot be sure that any of these regulations will be promulgated or, if so, what form they will take or what effect they will have on the foregoing discussion.  For example, under legislation enacted in 2010, U.S. Holders are required to file a special information return for each year in which we are treated as a PFIC. The U.S. Internal Revenue Service has revised Form 8621 by adding a new Part I to implement this requirement, but this new Part I is not required to be completed until the related Treasury Regulations are published.  Accordingly, Part I of Form 8621 has been marked “Reserved For Future Use” and will be revised when Part I becomes effective and is required to be completed.
 
Due to the complexity of the PFIC rules and the uncertainty of their application in many circumstances, U.S. Holders should consult their own tax advisors regarding our status as a PFIC and, if we are treated as a PFIC, compliance with the applicable reporting requirements and the eligibility, manner and advisability of making a QEF Election or a mark-to-market election.
 
 
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Information Reporting and Backup Withholding
 
Payments in respect of our ordinary shares that are made in the U.S. or by certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding tax at a rate which currently is 28%.  Information reporting will not apply, however, with respect to payments to certain U.S. Holders, including corporations and tax-exempt organizations.  In addition, backup withholding will not apply to a U.S. Holder that (i) is a corporation or comes within certain exempt categories, and demonstrates that fact when so required, or (ii) furnishes a correct taxpayer identification number and other required certifications. U.S. Holders required to establish their exemption from backup withholding generally must provide a certification on IRS Form W-9 (or substitute form). The backup withholding tax is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service.  U.S. Holders should consult their own tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable.
 
The foregoing discussion of certain U.S. federal income tax considerations is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Each U.S. Holder should consult with his, her or its own tax advisor regarding U.S. federal, state, local and non-U.S. income and other tax consequences of the acquisition, ownership and disposition of our ordinary shares.
 
 
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Israeli Tax Considerations
 
The following is a summary of the principal tax laws applicable to companies in Israel, with special reference to their effect on us.  This section also contains a discussion of certain Israeli tax consequences to persons holding ordinary shares.  This summary does not discuss all the provisions of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to certain types of investors subject to special treatment under Israeli law, such as traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting share capital.  To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in this discussion will be accepted by the tax authorities or the courts. The discussion should not be construed as legal or professional tax advice and is not exhaustive of all possible tax considerations.
 
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
 
General Corporate Tax Structure
 
Generally, Israeli companies are subject to Corporate Tax on taxable income at the rate of 24% for the 2011 tax year, 25% for the 2012 tax year and 25% for the   2013 tax year. Following an amendment to the Israeli Income Tax Ordinance [New Version], 1961, or the Tax Ordinance, which came into effect on January 1, 2012, the corporate tax rate is scheduled to remain at the rate of 25% for future tax years. Israeli companies are generally subject to capital gains tax at the corporate tax rate.
 
Capital Gains Tax on Sales of Our Ordinary Shares
 
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of any capital assets located in Israel, including shares in Israeli companies by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price that is attributable to the increase in the Israeli consumer price index, or in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
 
Provisions of Israeli tax law may treat a sale of securities listed on a stock exchange differently than the sale of other securities. In the past, the Israeli Tax Authority, or the ITA, has indicated that it does not recognize the OTC Bulletin Board or the Pink Sheets as a “stock exchange” for purposes of the Tax Ordinance. However, the current position of the ITA is to view securities quoted on the OTC Bulletin Board or the Pink Sheets as listed on a “stock exchange” where such securities were previously delisted from a “stock exchange” (such as the Nasdaq Global Market or the Tel Aviv Stock Exchange), such as our ordinary shares.
 
 
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As of January 1, 2012, the tax rate generally applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 30%. However, the above tax rates may not apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of listed shares.
 
The tax basis of listed shares acquired prior to January 1, 2003 will be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003.  However, a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
 
As of January 1, 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which is in excess of NIS 800,000. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.
 
Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock exchange outside of Israel, provided that such capital gains are not derived from a permanent establishment in Israel and that such shareholders did not acquire their shares prior to the issuer’s initial public offering. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of 25% or more in such non-Israeli corporation, or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
 
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
 
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on income, as amended, known as the U.S.-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who holds the ordinary shares as a capital asset and who qualifies as a resident of the United States within the meaning of the treaty and who is entitled to claim the benefits afforded to a resident by the treaty generally will not be subject to Israeli capital gains tax.  This exemption does not apply if: (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our issued voting power during any part of the twelve-month period preceding the applicable sale, exchange or disposition, subject to specific conditions, or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel. In these cases, the sale, exchange or disposition would be subject to Israel tax, to the extent applicable, as mentioned above. However, under the U.S.-Israel Tax Treaty, the treaty U.S. resident would be permitted to claim a credit for the capital gains tax paid in Israel against the U.S. federal income tax imposed with respect to the applicable sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
 
 
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Tax on Dividends to Non-Israeli Resident Shareholders
 
Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel.  These sources of income include passive income such as dividends.  On distributions of dividends other than bonus shares, or stock dividends, income tax is generally applicable at the rate of 25%, or 30% for a shareholder that is considered a significant shareholder at any time during the 12-month period preceding such distribution.  A different rate may be provided in a treaty between Israel and the shareholder’s country of residence.  Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident (as defined in the treaty) is 25%, and in certain circumstances if such shareholder is a U.S. corporation holding at least 10% of our issued voting power during the part of the tax year which precedes the date of payment of the dividend as well as the previous tax year, and not more than 25% of our gross income consists of interest or dividends,   the maximum Israeli tax on dividends paid to such corporation is 12.5%.
 
A non-resident of Israel who receives interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempted from the duty to file tax returns in Israel with respect to such income, provided such income was not derived from a business conducted in Israel by the taxpayer and the taxpayer has no other taxable sources of income in Israel.
 
F. Dividends and Paying Agents
 
Not applicable.
 
G. Statement by Experts
 
Not applicable.
 
H. Documents On Display
 
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and fulfill the obligations with respect to such requirements by filing reports with the Securities and Exchange Commission.  You may read and copy any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.  Copies of such material may be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at such address, at prescribed rates.  The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.  The address of this web site is http://www.sec.gov.  Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room.
 
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act.  In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
 
 
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I. Subsidiary Information
 
Not applicable.
 
ITEM 11.
Quantitative and Qualitative Disclosures about Market Risk
 
General
 
We are exposed to market risk, including movements in interest rates and foreign currency exchange rates.  Our financial results may be negatively impacted by foreign currency fluctuations   because we generate most of our financial income in U.S. dollars but incur some of our expenses in new Israeli shekels. Because our financial results are reported in U.S. dollars, our results of operations may be impacted by fluctuations in the rates of exchange between the U.S. dollar and new Israeli shekels as our financial results are converted into U.S. dollars.
 
We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations.  At December 31, 2012, we did not own any market risk sensitive instruments. However, we may in the future undertake hedging or other similar transactions or invest in market risk sensitive instruments if our management determines that it is necessary to offset these risks.
 
Interest Rate Risk Management
 
As of December 31, 2012, we had $9.2 million of cash and short-term investments, primarily all of which was linked to the U.S. dollar.
 
ITEM 12.
Description of Securities other than Equity Securities
 
None.
 
PART II
 
ITEM 13.
Defaults, Dividend Averages and Delinquencies
 
Not applicable.
 
ITEM 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
 
On December 31, 2012, our shareholders approved an amendment to our memorandum and articles of association increasing our share capital to 90,000,000 ordinary shares, no par value.
 
ITEM 15.
Controls and Procedures
 
Disclosure Controls and Procedures
 
We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of December 31, 2012. The evaluation was performed with the participation of our senior management and under the supervision and with the participation of our principal executive and financial officer. Based on this evaluation, our principal executive and financial officer has concluded that our disclosure controls and procedures are effective to alert him on a timely basis to material information required to be included in our periodic reports with the Securities and Exchange Commission.
 
 
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Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and our board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
 
Our management conducted an evaluation, pursuant to Rule 13a-15(c) under the Exchange Act, of the effectiveness, as of the end of the period covered by this Annual Report, of our internal control over financial reporting based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, management assessed the effectiveness of our internal control over financial reporting as at December 31, 2012 and concluded that our internal control over financial reporting was effective as of December 31, 2012.
 
Attestation Report of the Registered Public Accounting Firm
 
Not applicable.
 
Changes in Financial Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during 2012 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
 
Our board of directors has determined that we require one director with "financial and accounting expertise", as defined under the Companies Law, and that Yiftach Atir has such expertise.  Mr. Atir qualifies as an "external director" under the Companies Law and as an "independent director" under the Nasdaq Listing Rules.  We do not believe that Mr. Atir satisfies all the qualifications of an "audit committee financial expert", as defined in Item 16A of Form 20-F, but we believe that his qualifications are sufficient for the scope and complexity of our operations.
 
 
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ITEM 16B.
CODE OF ETHICS
 
Our board of directors has adopted a Code of Ethics.  We will provide a copy of our Code of Ethics free of charge to any person who requests one. Such requests may be sent   to our offices at 126 Yigal Allon Street, Tel Aviv, Israel, Attention: Chief Executive Officer.
 
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
For 2011 and 2012, our independent accountant was Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. These accountants billed the following fees to us for professional services in each of the last two fiscal years:
 
   
Year Ended December 31,
 
   
2011
   
2012
 
Audit Fees
  $ 39,500     $ 32,500  
Tax Fees
    5,500       5,500  
All Other Fees
    0       0  
                Total
  $ 45,000     $ 38,000  
 
“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, consents and assistance with and review of documents filed with the SEC.
 
“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice, other than in connection with the audit.  Tax compliance involves preparation of original and amended tax returns, tax planning and tax advice.
 
Our Audit Committee pre-approves the engagement of our independent accountant to perform audit and non-audit services.
 
ITEM 16D.
EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.
 
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
None.
 
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
 
None.
 
ITEM 16G.
CORPORATE GOVERNANCE
 
Not Applicable.
 
MINE SAFETY DISCLOSURE
 
Not Applicable.
 
 
44
 
 
PART III
 
ITEM 17.
Financial Statements
 
We have responded to Item 18 in lieu of this item.
 
ITEM 18.
Financial Statements
 
The Financial Statements required by this item are found at the end of this Annual Report, beginning on page F-1.
 
ITEM 19.
Exhibits
 
The exhibit lists required by this Item is incorporated by reference to the Exhibit Index, which appears following the signature page of this Annual Report.
 
 
45
 
 
SIGNATURE
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
 
 
TIKCRO TECHNOLOGIES LTD.
 
       
  By:
/s/ Aviv Boim
 
   
Aviv Boim
 
   
Chief Executive Officer
 

Date:  April 30, 2013
 
 
46
 
 
Exhibit Index
 
Exhibit No.
 
Exhibit
1.1
 
Memorandum of Association, as amended (a)
1.2
 
Amended and Restated Articles of Association (a)
1.3
 
Bonus Rights Agreement, dated as of September 12, 2005, between Tikcro Technologies Ltd. and American Stock Transfer & Trust Company, as Rights Agent (b)
1.4
 
Amendment No. 1, dated December 10, 2012, to the Bonus Rights Agreement, dated as of September 12, 2005, between Tikcro Technologies Ltd. and American Stock Transfer & Trust Company, as Rights Agent (c)
4.1
 
Share Incentive Plan, as amended (d)
4.2
 
Tikcro 2003 Stock Option Plan, as amended (e)
8.1
 
List of Subsidiaries (a)
12.1
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act (a)
13.1
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act (a)
14.1
 
Consent of Independent Registered Public Accounting Firm (a)
101.1
 
Interactive Data Files  in XBRL format of the following materials from our Annual Report on Form 20-F for the year ended December 31, 2012 are furnished herewith: (i) the Balance Sheets, (ii) the Statements of Operations, and (iii) the Statements of Changes in Shareholders' Equity, (iv) the Statements of Cash Flows and (v) Notes to Financial Statements (a)
________________________
 
(a)
Included herewith.
 
(b)
Incorporated by reference to Tikcro’s Report on Form 6-K filed with the Securities and Exchange Commission on September 14, 2005.
 
(c)
Incorporated by reference to Tikcro’s Report on Form 8-A/A filed with the Securities and Exchange Commission on December 11, 2012.
 
(d)
Incorporated by reference to Tikcro’s Registration Statement on Form S-8 (File No. 333-12904).
 
(e)
Incorporated by reference to Tikcro’s Annual Report on Form 20-F for the year ended December 31, 2007 (File No. 0-30820).
 
 
47
 
 
 
 
TIKCRO TECHNOLOGIES LTD.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2012

IN U.S. DOLLARS

INDEX


 
 
 
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

TIKCRO TECHNOLOGIES LTD.
 
We have audited the accompanying balance sheets of Tikcro Technologies Ltd. ("the Company") as of December 31, 2011 and 2012, and the related statements of operations, comprehensive loss, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2011 and 2012, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
 
Tel-Aviv, Israel
KOST FORER GABBAY & KASIERER
April 30, 2013
A Member of Ernst & Young Global
 
 
F - 2
 
TIKCRO TECHNOLOGIES LTD.
 
BALANCE SHEETS
U.S. dollars in thousands, except share and per share data

   
December 31,
 
   
2011
   
2012
 
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 4,712     $ 9,234  
Marketable securities (Note 3)
    2,273       -  
Other current assets
    165       31  
Investment in BioCancell (Note 5)
    3,033       243  
                 
Total current assets
    10,183       9,508  
                 
Total assets
  $ 10,183     $ 9,508  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES: (Note 10a)
  $ 302     $ 171  
                 
Total current liabilities
    302       171  
                 
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
               
                 
SHAREHOLDERS' EQUITY (Note 7):
               
Share capital -
               
Ordinary shares of NIS 0.1 par value - Authorized: 16,666,667 shares at December 31, 2011 and 2012; Issued: 10,095,912 at December 31, 2011 and 10,345,912 at 2012; Outstanding: 8,648,861 at December 31, 2011 and 8,898,861 at December 31, 2012.
    -       -  
Additional paid-in capital
    146,601       146,653  
Treasury shares, at cost, 1,447,051 Ordinary shares at December 31, 2011 and 2012
    (1,065 )     (1,065 )
Accumulated other comprehensive income
    4       -  
Accumulated deficit
    (135,659 )     (136,251 )
                 
Total shareholders' equity
    9,881       9,337  
                 
Total liabilities and shareholders' equity
  $ 10,183     $ 9,508  
 
The accompanying notes are an integral part of the financial statements.
 
 
F - 3
 
TIKCRO TECHNOLOGIES LTD.
 
STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except per share and per share data
 
   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
                   
Operating costs and expenses:
                 
                   
Research and development (Note 2g)
  $ -     $ 92     $ 40  
General and administrative expenses
    471       541       401  
Consulting services (Note 9)
    (82 )     (76 )     (41 )
 
                       
Operating loss
    389       557       400  
Financial expenses, net (Note 10b)
    (389 )     (2,303 )     (158 )
                         
Loss before taxes
    (778 )     (2,860 )     (558 )
                         
Tax expenses
    -       54       34  
                         
Net loss
  $ (778 )   $ (2,914 )   $ (592 )
 
                       
Net loss per share:
                       
                         
Basic and diluted net loss per share
  $ (0.09 )   $ (0.34 )   $ (0.07 )
                         
Weighted average number of shares used in computing basic and diluted loss per share
    8,475,833       8,562,402       8,649,048  
 
The accompanying notes are an integral part of the financial statements.

 
F - 4
 
TIKCRO TECHNOLOGIES LTD.
 
STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands

   
Year ended
December 31,
 
   
2010
   
2011
   
2012
 
                   
Net loss
  $ (778 )   $ (2,914 )   $ (592 )
                         
Other comprehensive loss:
                       
Unrealized gains (losses) on available-for-sale securities:
                       
Changes in unrealized gains
    15       (11 )     -  
Less: reclassification adjustments for gains on available-for-sale securities
    -       -       4  
                         
Comprehensive loss
  $ (763 )   $ (2,925 )   $ (588 )
 
 
F - 5
 
TIKCRO TECHNOLOGIES LTD.
 
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share data

   
Outstanding
   
Additional
   
Accumulated other
               
Total
 
   
Ordinary shares
   
paid-in
   
comprehensive
   
Treasury
   
Accumulated
   
shareholders'
 
   
Number
   
Amount
   
capital
   
income
   
shares
   
deficit
   
Equity
 
                                           
Balance at January 1, 2010
    8,556,836     $ -     $ 146,397     $ -     $ (1,065 )   $ (131,967 )   $ 13,365  
                                                         
Issuance of shares (Note 7)
    92,025       -       -       -       -       -       -  
Stock based compensation
    -       -       131       -       -       -       131  
Comprehensive loss
                            15                       15  
Net loss
    -       -       -       -       -       (778 )     (778 )
                                                         
Balance at December 31, 2010
    8,648,861       -       146,528       15       (1,065 )     (132,745 )     12,733  
                                                         
Stock based compensation
    -       -       73       -       -       -       73  
Comprehensive loss
                            (11 )                     (11 )
Net loss
    -       -       -       -       -       (2,914 )     (2,914 )
                                                         
Balance at December 31, 2011
    8,648,861       -       146,601       4       (1,065 )     (135,659 )     9,881  
                                                         
Issuance of shares (Note 7)
    250,000       -       -       -       -       -       -  
Stock based compensation
    -       -       52       -       -       -       52  
Comprehensive loss
                            (4 )                     (4 )
Net loss
    -       -       -       -       -       (592 )     (592 )
                                                         
Balance at December 31, 2012
    8,898,861     $ -     $ 146,653     $ -     $ (1,065 )   $ (136,251 )   $ 9,337  
 
The accompanying notes are an integral part of the financial statements.
 
 
F - 6
 
TIKCRO TECHNOLOGIES LTD.
 
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
Cash flows from operating activities :
                 
                   
Net loss
  $ (778 )   $ (2,914 )   $ (592 )
       Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
                       
Decrease (increase) in other current assets
    (69 )     (9 )     134  
Increase (decrease) in other current liabilities
    38       (16 )     (131 )
Accrued interest on marketable securities and deposits
    (38 )     -       -  
            Amortization of premium on marketable securities, net
    52       81       19  
Decrease in fair value of investment in BioCancell
    524       2,592       799  
            Fair value of shares received in connection with BioCancell investment related to consulting services
    (52 )     -       (29 )
Gain on sale of BioCancell shares
    (46 )     -       -  
Stock based compensation
    131       73       52  
                         
Net cash provided by (used in) operating activities
    (238 )     (193 )     252  
                         
Cash flows from investing activities :
                       
                         
Purchase of available-for-sale marketable securities
    (2,402 )     -       -  
Proceeds from sale of available-for-sale marketable securities
    -       -       2,250  
Proceeds from realization of bank deposits
    2,523       -       -  
Proceeds from sale of BioCancell shares
    113       -       20  
Proceeds from maturity of BioCancell convertible note
    -       -       2,000  
                         
Net cash provided by investing activities
    234       -       4,270  
                         
Increase (decrease) in cash and cash equivalents
    (4 )     (193 )     4,522  
Cash and cash equivalents at the beginning of the year
    4,909       4,905       4,712  
                         
Cash and cash equivalents at the end of the year
  $ 4,905     $ 4,712     $ 9,234  
 
The accompanying notes are an integral part of the financial statements.

 
F - 7
 
TIKCRO TECHNOLOGIES LTD.
 
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
                   
Supplemental disclosure of cash flows activities:
                 
                   
Cash transactions  during the year for:
                 
                   
Taxes paid
  $ -     $ (46 )   $ (117 )
 
The accompanying notes are an integral part of the financial statements.

 
F - 8
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1:-
GENERAL

Tikcro Technologies Ltd. ("the Company" or "Tikcro") was incorporated in 1999, under the laws of Israel.

The Company has no significant business activities other than its holdings in BioCancell Therapeutics, Inc. ("BioCancell"), see Note 5.

The Company also provides funding for early-stage biotechnology projects. The amount of funding is immaterial and the risk of loss is high, but if the project succeeds the Company would be well-positioned to take a significant equity interest.

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

 
a.
Basis of presentation:

The financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), followed consistently.

 
b.
Use of estimates:

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
On an ongoing basis, the Company's management evaluates estimates, including those related to fair values of investment in BioCancell, and fair values of stock-based awards. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 
c.
Financial statements in U.S. dollars:

A substantial portion of the Company's cash flow transactions is incurred in dollars. Investing activities and equity transactions are made in dollars. The Company's management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar.

Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into U.S. dollars in accordance with Accounting Standards Codification ("ASC") No. 830. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.

 
F - 9
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
d.
Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less.

 
e.
Marketable securities:

The Company accounted for investments in marketable securities in accordance with ASC No. 320, "Investments - Debt and Equity Securities".

Management determined the appropriate classification of its investments at the time of purchase and reevaluated such determinations at each balance sheet date.

The Company classified all of its marketable securities as available for sale. Available for sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in "accumulated other comprehensive income (loss)" in shareholders' equity. Realized gains and losses on sale of investments are included in "financial income (expenses), net" and are derived using the specific identification method for determining the cost of securities.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortizations together with interest are included in "financial income (expenses), net".

The Company recognized an impairment charge when the fair value of a debt security is below its cost basis of such security and such decline is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the decline, the reason for the decline in value, the potential recovery period and the Company's intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. For securities that are deemed other-than-temporarily impaired, the amount of impairment is recognized in the statement of operations and is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. For the three years ended December 31, 2012, the Company did not identify any other-than-temporary impairment loss.

 
f.
Investment:

The Company adopted ASC No. 825, "Financial Instruments" as of the date of the investment in BioCancell and elected to apply the fair value option to its investment. The primary reasons for electing the fair value option were simplification and cost-benefit considerations, as well as expansion of the use of fair value measurement being consistent with the FASB's measurement objectives for accounting for financial instruments. The losses and gains due to changes in fair value for items measured at fair value pursuant to election of the fair value option were included in financial income (expenses), net. Refer also Note 5.

 
F - 10
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
g.
Research and development expenses:

Research and development expenses include funding for few early-stage biotechnology projects performed by research facilities, and are charged to the statement of operations, as incurred.

 
h.
Income taxes:

The Company account for income taxes in accordance with ASC No. 740, "Income Taxes". This ASC prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it not is more likely than not that a portion or all of the deferred tax assets will be realized.

Based on ASC No. 740 a two-step approach is used to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. When necessary, The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income tax.

 
i.
Accounting for stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC No. 718, "Compensation-Stock Compensation". ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's income statements.

The Company recognizes compensation expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 
F - 11
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, and the expected option term. No options were granted during 2010, 2011 and 2012. The Company grants restricted shares and values them based on the market value of the underlying shares at the date of grant.

 
j.
Fair value of financial instruments:

The Company measures its cash equivalents, deposits, marketable securities and investment at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data.

Level 3 - Unobservable inputs which are supported by little or no market activity and significant to the overall fair value measurement.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 
k.
Basic and diluted net earnings (loss) per share:

Basic net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings (loss) per share are computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with ASC No. 260, "Earnings per Share".

The total number of shares excluded from the calculation of the diluted net earnings (loss) per share, because they had anti-dilutive effect, for the years ended December 31, 2010 and 2011 and 2012, were 265,384, 376,673 and 264,793, respectively.

 
F - 12
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 
l.
Concentrations of credit risks:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents.

Cash and cash equivalents are invested in major banks in Israel and the U.S., mainly in U.S. dollars. Such funds in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the institutions in which the Company invests and the financial institutions that hold the Company's investments are financially sound and, accordingly, low credit risk exists with respect to these investments.

In addition, with respect to the Company's investment in Biocancell, refer to Note 5.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

 
m.
Treasury shares:

The Company repurchases Ordinary shares on the open market which are held as treasury shares. The Company presents the cost of repurchased treasury shares as a reduction in shareholders' equity.
 
NOTE 3:-
MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities:
 
   
December 31, 2011
 
               
Estimated
 
         
Gross
   
fair
 
   
Amortized
   
unrealized
   
market
 
   
cost
   
Gains
   
value
 
Available-for-sale:
                 
Corporate debentures
  $ 2,269     $ 4     $ 2,273  
 
As of December 31, 2011 the marketable securities had contractual maturities of up to six months.

 
F - 13
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 4:-
FAIR VALUE MEASUREMENTS

In accordance with ASC No. 820 and ASC No. 825, the Company measures its investment, which is comprised from investments in Ordinary shares and warrants (see also Note 5) at fair value.

The warrants of Biocancell are classified within Level 3 because they are valued using valuation techniques. Some of the inputs to these models are unobservable in the market and are significant, which are based on internal valuation uses the Black and Scholes model. The main variables for the valuations are: historical volatility of the investee's stock price, applicable currency exchange rates and risk free interest rates. Key assumptions in determining the estimated fair value of the warrants as of December 31, 2012 include (a) the risk free interest rate of 0.12%, (2011: 0.07% and 0.20% for the convertible note and warrants, respectively) and (b) a volatility of 82.2% (2011: 51.5%) (c) probability of the full ratchet mechanism. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. Expected volatility was calculated based upon actual historical stock price movements.

The Company's financial assets measured at fair value on a recurring basis consisted of the following types of instruments:

   
As of December 31, 2011
 
   
Fair value measurements using input type
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Marketable securities- corporate debentures
  $ -     $ 2,273     $ -     $ 2,273  
Investment in BioCancell - investment in Ordinary shares
    265       -       -       265  
Investment in BioCancell - investment in convertible note and warrants (*)
    -       -       2,768       2,768  
                                 
Total financials assets
  $ 265     $ 2,273     $ 2,768     $ 5,306  

 
*)
Including accrued interest on the note.
   
As of December 31, 2012
 
   
Fair value measurements using input type
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Investment in BioCancell - investment in Ordinary shares
  $ 218     $ -     $ -     $ 218  
Investment in BioCancell - investment in warrants
    -       -       25       25  
                                 
Total financials assets
  $ 218     $ -     $ 25     $ 243  

During 2011, there have been no transfers in and/or out of Level 3. All changes in the Level 3 were as a result of changes in fair value.

During 2012, the convertible note was repaid (refer to Note 5), the remaining change is as a result of changes in fair value of the warrants.

 
F - 14
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 5:-
INVESTMENT IN BIOCANCELL
 
   
December 31,
 
   
2011
   
2012
 
             
Common stock (*)
  $ 265     $ 218  
Convertible note
    2,680       -  
Warrants
    88       25  
                 
Investment in BioCancell
  $ 3,033     $ 243  
 
 
(*)
The value of one share of common stock of BioCancell on April 25, 2013, was $ 0.24 (NIS 0.86). Following the sale of common shares subsequent to year-end (refer to Note 11) the investment of the remaining  347,609 common stock amounted to $83.

 
In July 2008, the Company signed an agreement with BioCancell Therapeutics, Inc. ("BioCancell"), an Israel-based clinical-stage biopharmaceutical company, whose Common stock is listed on the Tel Aviv Stock Exchange. As part of the agreement, the Company provided funding to BioCancell, was entitled to appoint one member to BioCancell's board of directors and provided BioCancell with certain consulting services. It was also agreed between Tikcro and two major shareholders of BioCancell, who held together with Tikcro more than 25% (but less than 50%) of the shares of BioCancell, to vote for one member of the board for each of these 3 shareholders. The agreement was terminated on July 27, 2011. Furthermore, no restrictions were made on the vote for other members of the board.

The initial investment included a purchase of 837,521 shares of Common stock of BioCancell at a price per share in NIS equal to $ 0.597 ($ 500 in total), a convertible note due in July 2012 in the principal amount of $2,000, bearing interest at 10% per year and convertible into up to 3,464,385 shares of common stock with a conversion price per share in NIS equal to $ 0.716, and a five-year warrant expiring June 2013 to purchase from BioCancell up to 4,301,906 shares of Common stock at a price per share in NIS equal to $ 0.716 (following the private placement in 2012, the exercise price was adjusted, as further noted below) . The interest accrued on the convertible note until September 30, 2010 was accumulated as part of the notes' value.
 
In July 2012, Tikcro's convertible note to BioCancell in the principal amount of $2,000 was repaid in full, including accrued interest, in the total amount of $2,480.

During 2010 and 2012, the Company sold 104,372 and 194,792 shares of Common stock of BioCancell for consideration of $113 and $20, respectively. Subsequent to December 31, 2012, the Company sold additional shares, refer to Note 11.

During 2010 and 2012 the Company received 191,817 shares of Common stock of BioCancell, in each of the years, for consulting services provided by the Company to BioCancell, in the value of $52 and $29, respectively.

In addition, Tikcro is entitled to a "full ratchet" anti-dilution protection in cases Biocancell issues additional securities, under terms stipulated in the agreement. Following a private placement that BioCancell effected in January 2012, the full-ratchet anti-dilution adjustment provision was triggered, and as a result additional 1,025,979 shares of Common stock were issued to the Company for no additional consideration. The convertible note became convertible, at a conversion price of NIS 1.00 per share, and the exercise price of the warrant was reduced to NIS 1.00 per share.
 
 
F - 15
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 5:-
INVESTMENT (Cont.)
 
In July 2012, following another financing round of Biocancell, the full-ratchet anti-dilution adjustment provision was triggered again, and as a result an additional 125,147 shares of common stock were due to the Company for no additional consideration, and the exercise price warrant was reduced to NIS 0.87 per share. The additional shares were not issued yet, although BioCancell acknowledges that this issuance is due pending certain Israeli regulatory approvals.
 
In November 2012, BioCancell held another financing round at a share price of NIS 0.42. BioCancell declined to affect the full-ratchet anti-dilution adjustment provision. The investment as of December 31, 2012 does not include the additional shares that may be issued to the Company as a result of this financing round. Refer to Note 6b for further details.
 
As a result of applying ASC No. 825, the Company has recorded the change in fair value of the investment as financial expenses in the amount of $ 524 $ 2,592 and $ 799 for the years ended December 31, 2010, 2011 and 2012 respectively.

The Company undertook to pay a fee of 4% of the net realized profits from securities held in portfolio companies.

NOTE 6:-
COMMITMENTS AND CONTINGENT LIABILITIES

 
a.
Directors and officers indemnification agreements:

The Company, from time to time, has entered into indemnification agreements with several of its directors and officers, in which the Company undertakes to indemnify them, to the fullest extent permitted by law, for acts taken or omitted by them in their respective capacities as directors or officers of the Company. Pursuant to these agreements, the obligations of the Company remain in effect even after the termination of the directors and officers services to or employment with the Company.

 
b.
Litigation:

In June 2009, one of the Company's shareholders holding 1,198,755 shares representing approximately 14% of the outstanding shares at that time filed a complaint in the District Court of Tel Aviv against the Company and certain of its present directors and a former officer requesting, among other things, an order that the Company call a meeting of shareholders to vote on (i) a proposal to amend the Company's articles of association to grant to its shareholders the power, normally conferred upon the board of directors, to determine plans of action for the Company and (ii) if such proposal is approved by the Company's shareholders, to approve a distribution of substantially all of the Company's cash and all of its securities in BioCancell.
 
In September 2011, the District Court at Tel Aviv dismissed the complaint. All claims sought against the Company and the directors were rejected.

 
F - 16
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 6:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In 2013, the Company demanded that BioCancell effects a full ratchet anti-dilution adjustment under the 2008 transaction agreements, in respect of a November 2012 financing round that BioCancell had at a price per share of NIS 0.42. BioCancell declined, claiming that the right for a full ratchet adjustment terminated as of its July 2012 financing, which was at a price per share of NIS 0.87. The Company agreed to resolve this disagreement through an arbitration process, which is currently on-going.

Other than this matter, the Company is currently not party to any legal proceedings.
 
NOTE 7:-
SHAREHOLDERS' EQUITY

 
a.
Ordinary shares:

The Ordinary shares confer upon the holders the right to receive notice to participate and vote in general meetings of the Company and the right to receive dividends, if declared.

 
b.
Stock option plans:

 
1.
Under the Company's stock option plan (as amended in December 2007) ("the Plan"), shares and options to purchase shares may be granted to employees, officers, consultants and directors of the Company.
 
2.
No options were granted, exercised or forfeited during 2010, 2011 and 2012. As of December 31, 2012, an aggregate of 1,891,356 Ordinary shares of the Company were reserved for issuance under the plan.
 
3.
Options granted generally become fully exercisable after three to four years and expire no later than 10 years from the approval date of the option plan under terms of grant. Any option forfeited or cancelled before expiration become available for future grants.

The following is a summary of the Company's stock options transactions in 2012:
 
   
Amount
   
Weighted
average
exercise
price
   
Weighted average
remaining contractual life
   
Aggregate intrinsic value *)
 
                         
Options outstanding at beginning of year
    133,334     $ 0.92       3.14     $ -  
Granted
    -     $ -       -     $ -  
Exercised
    -     $ -       -     $ -  
                                 
Options outstanding at end of year
    133,334     $ 0.92       2.14     $ -  
                                 
Vested and expected to vest at end of year
    133,334     $ 0.92       2.14     $ -  
                                 
Options exercisable at end of year
    133,334     $ 0.92       2.14     $ -  
 
 
*)
The options were out of the money as of December 31, 2012 and 2011 and their intrinsic value was considered as zero.
 
 
F - 17
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7:-
SHAREHOLDERS' EQUITY (Cont.)

The options outstanding as of December 31, 2012, have been separated into two exercise prices as follows:
 
             
         
Weighted average
 
   
Options
   
remaining
 
Exercise
 
outstanding and
   
Contractual
 
Price
  exercisable    
life (years)
 
             
$        0.87
    66,667       0.65  
$        0.97
    66,667       3.62  
                 
      133,334       2.14  

 
4.
The following table summarizes information relating to restricted shares, as well as changes to such awards during 2010, 2011 and 2012:

   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
                   
Outstanding at beginning of year
    181,808       132,050       243,339  
Granted
    73,620       250,000       -  
Vested
    (123,378 )     (138,711 )     (111,880 )
                         
Outstanding as of December 31,
    132,050       243,339       131,459  

The weighted average fair values at grant date of restricted shares granted for the years ended December 31, 2010 and 2011 were $ 0.6 and $ 0.51 respectively.

Restricted shares are subject to a repurchase right by the Company on certain occasions. Under the repurchase right, the Company may reacquire a pro-rata portion of the granted shares, for no consideration, if certain conditions occur including the employees' end of service with the Company.

As of December 31, 2012, there was $ 67 of total unrecognized compensation cost related to share-based compensation arrangement granted under the plan. That cost is expected to be recognized over a period of 1.25 year.

During 2010, the Company shortened the vesting schedule of certain restricted shares that, as of December 31, 2011, were fully vested. According to ASC No. 718, the change was treated as a modification. Accordingly, in the financial statements for the year ended December 31, 2010, the Company recorded incremental compensation costs based on fair value of the awards on the modification dates in the amount of $ 12, which were recognized over the remaining vesting period.
 
 
F - 18
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7:-
SHAREHOLDERS' EQUITY (Cont.)

 
c.
Shareholder bonus rights plan:

On September 12, 2005, the Company's Board of Directors adopted a Shareholder Bonus Rights Plan (the "Rights Plan") pursuant to which share purchase bonus rights (the "Right") were distributed on September 26, 2005, at the rate of one Right for each of the Company's Ordinary shares held by shareholders of record as of the close of business on that date.

The Rights Plan is intended to help ensure that all of the Company's shareholders are able to realize the long-term value of their investment in the Company in the event of a potential takeover which does not reflect the full value of the Company and is otherwise not in the best interests of the Company and its shareholders. The Rights Plan is also intended to deter unfair or coercive takeover tactics.

Each right will entitle shareholders to buy one-half of one of the Company's Ordinary shares. The Rights generally will be exercisable and transferable apart from the Company's Ordinary shares only if a person or group becomes an "Acquiring Person" by acquiring beneficial ownership of 15% or more of the Company's Ordinary shares, subject to certain exceptions set forth in the Rights Plan, or commences a tender or exchange offer upon consummation of which such person or group would become an Acquiring Person. Subject to certain conditions described in the Rights Plan, once the Rights become exercisable, the holders of Rights, other than the Acquiring Person, will be entitled to purchase Ordinary shares at a discount from the market price.

The Rights will expire on December 31, 2015 and are generally redeemable by the Company's Board of Directors, at $ 0.03 per Right, at any time until the tenth business day following public disclosure that a person or group has become an "Acquiring Person".

NOTE 8:-
TAXES ON INCOME

 
a.
Tax rates:

Taxable income of the Israeli companies is subject to the Israeli corporate tax at the rate as follows: 2010 - 25%, 2011 - 24%, 2012 – 25%.

 
F - 19
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 8:-
TAXES ON INCOME (Cont.)

 
b.
Significant components of the Company's deferred tax assets and liabilities are as follows:

   
December 31,
 
   
2011
   
2012
 
Deferred tax assets:
           
Net operating loss and capital loss carry forward
  $ 37,126     $ 38,083  
Valuation allowance
    (37,069 )     (38,083 )
                 
Deferred tax asset
    57        -  
                 
Deferred tax liability - increase in fair value of investment
    (57 )     -  
                 
Net deferred tax asset
  $ -       -  

Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax assets regarding the loss carry-forward and other temporary differences will not be realized in the foreseeable future.

 
c.
Net operating losses carry-forward:

The Company has accumulated operating losses for tax purposes as of December 31, 2012 in the amount of approximately $ 30,556 (denominated in NIS), which may be carried forward and offset against taxable income in the future for an indefinite period.

The Company has accumulated capital losses of approximately $ 121,137 (denominated in NIS), which may be carried forward and offset against capital gains.

 
d.
The main reconciling item from the statutory tax rate of the Company to the effective tax rate are valuation allowances provided for deferred tax assets. Tax expenses represent tax withheld from the Company.

 
e.
Tax reports filed by the Company in Israel through the year ended December 31, 2007 are considered final.

 
f.
As of December 31, 2011 and 2012, the Company did not have any unrecognized tax benefits or uncertain tax positions.

 
F - 20
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 9:-
RELATED PARTY TRANSACTIONS

The balances with and the results of operations from transactions with related parties were as follows:

   
December 31,
 
   
2011
   
2012
 
Balances:
           
             
Receivables **)
  $ 70     $ -  
 
   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
Transactions:
                 
                   
Administrative services *)
  $ 48     $ 25     $ -  
                         
Consulting services **)
  $ 82     $ 76     $ 41  
                         
Interest on convertible note (refer to Note 5)
  $ 41     $ 244     $ 621  

 
*)
In January 2000, Orckit Communications Ltd ("Orckit") executed a plan of separation which divided Orckit into two separate companies: (i) Tikcro, and (ii) Orckit. A portion of Orckit's and the Company's shares beneficially owned by shared owners. Orckit provided the Company with certain administrative services until June 30, 2011.

 
**)
Consulting services provided by the Company in connection with the investment in BioCancell, refer to Note 5. The consulting fees are recorded as on offset in the operating expenses in the statement of operations.
 
NOTE 10:-
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

 
a.
Other current liabilities:

   
December 31,
 
   
2011
   
2012
 
             
Tax authorities
  $ 109     $ -  
Director fees
    36       44  
Trade payables
    90       78  
Accrued expenses and other
    67       49  
                 
    $ 302     $ 171  

 
F - 21
 
TIKCRO TECHNOLOGIES LTD.
 
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10:-
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION  (Cont.)

 
b.
Financial expenses, net

   
Year ended December 31,
 
   
2010
   
2011
   
2012
 
                   
Financial expenses:
                 
Revaluation of investment
  $ (524 )   $ (2,592 )   $ (799 )
Other
    (4 )     (6 )     -  
                         
      (528 )     (2,598 )     (799 )
Financial income:
                       
Amortization of premiums, accretion of discounts and interest on marketable debt securities, net
    52       51       19  
Interest on convertible note
    41       244       622  
Gain on sale of BioCancell shares
    46       -       -  
                         
      139       295       641  
                         
    $ (389 )   $ (2,303 )   $ (158 )

NOTE 11:-
SUBSEQUENT EVENTS

Subsequent to December 31, 2012 the Company sold 1,408,544 shares of common stock of BioCancell for a total consideration of $388. The gain recognized by the Company on this sale was immaterial.
 
F - 22
Exhibit 1.1
 
 [AMENDED AND RESTATED VERSION]

December 31, 2012
 
THE COMPANIES ORDINANCE
COMPANY LIMITED BY SHARES
 
MEMORANDUM OF ASSOCIATION

Of

Tikcro Technologies Ltd .

1.            The name of the Company is: Tikcro Technologies Ltd.
 
2.
The objects for which the Company is established are:

 
(a)
(i)
To engage in the activity or business of developing, manufacturing, producing, processing, vending, purchasing, licensing (as licensor or licensee), leasing (as lessor or lessee), importing, exporting, supplying, distributing, acting as agent for or dealer in, or otherwise handling or dealing in any products, materials, goods, wares, merchandise and movable property of every kind and description, and to engage in the activity or business of furnishing, supplying, buying, selling, promoting, leasing (as lessor or lessee), licensing (as licensor or licensee), importing, exporting, distributing, acting as agent for or dealer in, or otherwise handling or dealing in, any service.

 
(ii)
To acquire, create, form, operate, encourage or otherwise promote or manage any kind of enterprise.

 
(b)
To engage, directly or indirectly, in any lawful undertaking or business whatsoever, mercantile, manufacturing or otherwise, in which it is lawful for a company to engage, or in which it would be lawful for an individual to engage, and to have and exercise all powers conferred by the State of Israel on companies organized for profit under the companies laws of the State of Israel.

 
(c)
To hold lands generally, purchase, take on lease or exchange or acquire with or without consideration any rights or interests in land, buildings, structures or plantations of any type or description whatsoever, to erect, construct, improve, repair, furnish, enlarge, alter or demolish any building or structure, sell, lease, exchange, mortgage or otherwise dispose of, with or without consideration, and generally to deal in lands, buildings, structures and plantations upon such terms and conditions as the Company may deem fit.
 
 
 
 
 
 
(d)
To form, promote, organize and assist or aid in forming, promoting or organizing of companies, syndicates or partnerships of all kinds for the purpose of acquiring and undertaking any property and liabilities of the Company and of advancing, directly or indirectly, the attainment of any of the objects thereof, or for any other purpose which the Company may think expedient, and to take or otherwise acquire, hold and dispose of shares, debentures and other securities in or of any such company and to subsidize or otherwise assist any such company.

 
(e)
To apply for, obtain, acquire, hold maintain, exploit and sell and transfer permits, licenses, leases and other rights and interests of any kind which entitle, permit or enable the Company to engage in any business or activity which the Company is authorized to engage in.

 
(f)
To carry on the business of owners, managers and operators of hotels, rest houses and recreation houses, cafes, pension houses, clubs, restaurants and bars.

 
(g)
To apply for, purchase or otherwise acquire and obtain, whether in Israel or abroad, any patents, patent rights, brevets d'Invention, licenses, protections and concessions and any rights of use or exploitation thereof thereunder (hereinafter collectively referred to as "patent rights") which, in the opinion of the Company, may appear likely to be advantageous to the company and to protect, prolong and renew the same, and also to use patent rights, to work in accordance therewith, to exploit and derive any benefit from the same, to enter into agreements and do all acts regarding the use or exploitation or derivation of any benefit whatsoever from patent rights, and to sell or otherwise transfer patent rights, and to grant licenses and privileges in respect of the same.

 
(h)
To enter into any arrangements with the State of Israel, or with any other state or with any government or authority, whether supreme, municipal, local or otherwise, which may seem conducive to the Company's objects or any of them and to obtain from any such state, government or authority any concessions, grants, rights or privileges whatsoever as the Company may think fit or which seem to the Company capable of being turned to account, and to comply with, work, develop, carry out, exercise and turn to account any such arrangements, concessions, grants, rights or privileges.

 
(i)
To enter into any partnership or arrangement in the nature of a partnership, cooperation or union of interests with any company or person engaged or interested or about to become engaged or interested in the establishment, carrying on or conduct of any business or enterprise which the Company is authorized to establish, carry on or conduct, or from which the Company would or might derive any benefit, whether direct or indirect, and to subsidize or aid any company or person whatsoever.
 
 
2
 
 
 
(j)
To borrow and raise monies and secure the repayment thereof in the manner and on the terms as the Company may deem advisable, and particularly by the issue of debentures, debenture stock, bonds, obligations, mortgages and securities of all kinds and for that purpose to mortgage and charge in any manner whatsoever the Company's property, in whole or in part, present and future, whether movable or immovable, including its uncalled capital and any specific property and any of the rights of the Company.

 
(k)
To lend monies and to grant credits to any person in such manner and upon such conditions as the Company may deem expedient and to receive from those to whom the Company shall lend monies or grant credit or for whom the Company shall give guarantees, all such securities as the Company may deem fit, including debentures, debenture stocks, bonds, obligations, mortgages on immovables and movable property and other pledges and charges, including floating charges, and to sell, transfer, assign, surrender, release or discharge all such securities on such terms and conditions as the Company may deem fit.

 
(l)
To guarantee for any other person the payment of monies and the performance of agreements, contracts and undertakings and to secure the performance of the guarantee by securities (as hereinbefore specified) and to redeem, discharge and pay off all such securities.

 
(m)
To participate in the establishment, formation, management of businesses, concerns or transactions of any industrial enterprise and to participate in the supervision or control thereof and for such purpose to act as directors or sole director and to appoint managers, accountants or experts or attorneys and to remunerate them for their work.

 
(n)
To engage in the management of or consulting to businesses, transactions and ventures, whether commercial or otherwise, connected with the business of the Company or incidental thereto.

 
(o)
To undertake and engage in the business of agents and representatives and to receive monies, securities, assets and chattels of any kind for transfer, safeguarding or dealing as the Company will deem conducive to its principal objects, either with or without consideration and in any manner whatsoever.

 
(p)
To establish any trust for the issue, with preferred, deferred or other rights, of stock and securities or certificates or other documents based on or representing shares, stock or other assets allocated for the objects of any such trust, and to determine, arrange and, if the Company shall think fit, to undertake and to execute any such trust, and to issue, hold or transfer to others any stock, securities and certificates or other documents conferring preferred, deferred or other rights as aforesaid.
 
 
3
 
 
 
(q)
To act as trustee by virtue of any document creating or securing debentures, debenture stock, obligations or other securities and to undertake and execute any trust duties and to undertake to perform the duties of directors, receivers, treasurers, custodians and trust company and to act in any such capacity.

 
(r)
To undertake and perform the duties of trusteeships, the implementation of which may be desirable, whether for reward or otherwise.

 
(s)
To appoint any company or person as trustees for the holding of securities for the Company and for the protection of its interests.

 
(t)
To hold on behalf of others any property which the Company is entitled to acquire.

 
(u)
In connection with the principal objects of the Company or in relation thereto, to purchase or otherwise acquire and undertake whether as a going concern or otherwise, any business of any person or company or any property, assets, goodwill, rights and liabilities of the proprietors of that business, whether connected with or incidental to such business.

 
(v)
To amalgamate or merge with any company and to do all acts and things (whether by the formation of companies or otherwise) required or conducive to the amalgamation or merger of the activities of any companies, concerns, firms or industries of all kinds, and to establish concerns for the sale of their products.

 
(w)
To engage in the exploration and the exploitation of natural resources, including minerals, underground strata, subsea water, seas, lakes, rivers, brooks, wells, springs, pools, whether stagnant or running.

 
(x)
To deal in metals, salts, acids, alkalines and other chemicals, basic or compound, rubber, precious stones and pearls, electricity, electrical works, radio, leather, paper, glass, wood, stone, minerals, building materials of all kinds and raw materials of all kinds.

 
(y)
To deal in and grow plants, wild, cultivated and others, fruits and vegetables, animals of all descriptions, and in all kinds of food stuffs.

 
(z)
To carry on commercial and industrial agencies of all branches and kinds.

 
(aa)
To carry on the business of transportation of any kind by land, sea and air.
 
 
(bb)
To engage in industry and manufacture, build, erect, extend, improve, maintain and supervise, control and manage factories and workshops, laboratories and installations and to engage in research and experiments for the advancement of science and to deal in products of any kind.
 
 
4
 
 
 
(cc)
To build, construct, erect, expand, improve, develop, supervise or maintain stores, garages, workshops, works for the supply of light and heat, water works, shops, hotels, clubs, places of worship, reading rooms, restaurants, baths, bathing beaches, places of entertainment, parks, dwelling houses and other buildings and all constructions and other conveniences which the Company may think useful or necessary.

 
(dd)
To engage in all scientific, technical and other research and experiments, including such research and experiment for the purpose of improving or seeking to improve any inventions and patent rights which the Company shall be entitled to, or shall acquire or propose to acquire.

 
(ee)
To sell or otherwise liquidate the property or any investment of the Company.

 
(ff)
To insure the Company, its property, installations, undertakings, business and operations, in whole or in part, against all damage, loss, risk or liability.

 
(gg)
To provide for the welfare of employees or ex-employees of the Company and of their wives, families, relatives or dependents by building or contributing to the building of houses or flats or by grant of pensions, allowances, bonus or other payments or by creating, subscribing or contributing to provident funds, associations, institutions, funds or trusts or by establishing or subscribing or contributing towards places of instruction or rest, hospitals, dispensaries or by giving medical or other attendance or in any other manner as the Company shall think fit.

 
(hh)
To invest and deal with the monies of the Company not immediately required for the business of the Company in such manner as the Company may from time to time determine.

 
(ii)
To sell, lease, mortgage, abandon or otherwise transfer the Company's undertaking, in whole or in part, for such consideration as the Company may deem fit, and in particular in consideration for shares, debentures or securities of any company having objects wholly or partly similar to those of the Company.

 
(jj)
To distribute among its members in specie or kind the property or assets of the Company in whole or in part, or any proceeds of sale or disposal of any property or assets of the Company, but so that no distribution amounting to a reduction of capital shall be made except with the sanction required by law.

 
(kk)
To cause and procure the registration or recognition of the Company in, or under the laws of, any country or place in the world, to obtain and cause the enacting of any law, enactment, ordinance or administrative or judicial order or otherwise in Israel or any other country or place in the world in order to enable the Company to attain its objects and to take all such steps as may be necessary for the grant to the Company of rights and privileges in any part of the world.
 
 
5
 
 
 
(ll)
To engage in investment, subscription for purchase, purchase (including purchase by exchange) and holding of shares, stock, debentures, debenture stock, obligations, bonds and any securities issued or prepared in Israel or abroad by any Company, whether established in Israel or abroad and whether it engages in business in Israel or not, and to do the same by preliminary subscription for purchase, participation in syndicates, offer, purchase, exchange or otherwise, to guarantee subscription for purchase as aforesaid, to utilize and pursue all rights and powers conferred by virtue of the ownership thereof or incidental thereto and to purchase or otherwise acquire any hold shares, debentures, obligations, bonds or securities of any other kind, issued in Israel or abroad.

 
(mm)
To acquire in any manner movables or all kinds of rights or concessions which the Company may deem beneficial or advantageous for the objects of its business or for any other object and to sell, charge, give on lease or otherwise transfer such property and rights.

 
(nn)
To do in Israel as well as in any country or place in the world all acts and things which the Company is entitled - by virtue of law or of this Memorandum of Association to do in Israel, and to do all or any of the above acts or things as may appear to the Company conductive, useful or incidental to the attainment of the objects set out in this Memorandum either as principal, agent, trustee, contractor or otherwise and either alone or in conjunction with others.

 
(oo)
In connection with the objects of the Company to enter into all contracts and agreements and to sign all deeds, documents and instruments.

 
And it is hereby agreed that in this Memorandum of Association the following expressions shall have the following meanings:

 
"Person" includes, save where this expression relates to this Company, any company, co-operative society, partnership, any other corporation, body politic or public or other juristic person or body of person whether incorporated or unincorporated.

 
"To deal in" - "to carry on the business of" - "to engage in" - "to do" - "to act" - include to deal in and to do by way of promoting, founding, establishing, holding, carrying on, assisting, managing, developing, improving, advancing, producing, renewing, dealing in, quarrying, mining, pumping, producing, exploring, owning, taking on lease, giving on lease, hiring, letting, purchasing, selling, exchanging, participating, partitioning, encumbering, accepting encumbrances, accepting rights or benefits, granting rights or benefits, trading, supplying, marketing, carrying, importing, acting as commission agents and in any other way whatsoever.

 
"Property" - includes immovables and movables, rights, interests and privileges of any kind whatsoever, choses in possession or in action, permits, licenses, leases and concessions whether in existence or future, goodwill and the right to use the same.
 
 
 
6
 
 
 
AND it is hereby agreed and declared that, save where otherwise expressly provided, each of the objects and powers set out in each of the paragraphs of this Clause, expressly or impliedly, is an independent main object and shall in no ways be limited or restricted by reference to or inference from any of the other paragraphs of this Clause or the name of the Company.

3.
The liability of the members is limited.

4.
The share capital of the Company is 90,000,000 Ordinary Shares of no nominal value.

The rights and classes of the shares shall be set out in the Articles of Association of the Company as in force from time to time.

WE, the several persons, whose names and addresses are subscribed, are desirous of being formed into a Company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names.

 
7
 

SUBSCRIBERS

 
1.
G.L.E. Trust Services Ltd. – 99 Ordinary Shares
2 Ibn Gvirol St., Tel Aviv 64077 Israel
Trust Company

By: /s/ Yehuda M. Levy, Authorized Signatory
Witness to signature:  /s/ Noam Peskin

 
2.
G.L.E. Trust Assets Ltd. – 1 Ordinary Share
2 Ibn Gvirol St., Tel Aviv 64077 Israel
Trust Company

By: /s/ Yehuda M. Levy, Authorized Signatory
Witness to signature:  /s/ Noam Peskin
 
December 12, 1999
 
8
Exhibit 1.2
 
Effective December 31, 2012


THE COMPANIES LAW

A COMPANY LIMITED BY SHARES

AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF

TIKCRO TECHNOLOGIES LTD.
____________________


GENERAL PROVISIONS

1.            Object and Purpose of the Company

(a)           The object of the Company shall be  as set forth in the Company’s Memorandum of Association, as amended from time to time in accordance with applicable law.

(b)           In accordance with Section 11(a) of the Companies Law 5759 - 1999 (the “Companies Law”), the Company may contribute a reasonable amount to a worthy cause.

2.            Limitation of Liability

The liability of the shareholders is limited to the payment of the nominal value of the shares in the Company allotted to them and which remains unpaid, and only to that amount.  If the Company’s share capital shall include at any time shares without a nominal value, the shareholders’ liability in respect of such shares shall be limited to the payment of up to NIS 0.01 for each such share allotted to them and which remains unpaid, and only to that amount.

3.            Interpretation

(a)           Unless the subject or the context otherwise requires: words and expressions defined in the Companies Law in force on the date when these Articles or any amendment thereto, as the case may be, first became effective shall have the same meanings herein; words and expressions importing the singular shall include the plural and vice versa; words and expressions importing the masculine gender shall include the feminine gender; and words and expressions importing persons shall include bodies corporate.

(b)           The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof.
 
 
 
 

SHARE CAPITAL

4.              Share Capital

The share capital of the Company is 90,000,000 Ordinary Shares of no nominal value.

5.              Increase of Share Capital

(a)           The Company may, from time to time, by resolution of the shareholders (“Shareholders Resolution”), whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares.  Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide.

(b)           Except to the extent otherwise provided in such resolution, such new shares shall be subject to all the provisions applicable to the shares of the original capital.

6.              Special Rights; Modifications of Rights

(a)           Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by Shareholders Resolution, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution.

(b)           (i)           If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, by Shareholders Resolution, subject to the sanction of a resolution passed by the holders of a majority of the shares of such class by written consent or at a separate General Meeting of the holders of the shares of such class.

(ii)          The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class.

(iii)         Unless otherwise provided by these Articles, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposes of this Article 6(b), to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.

7.             Consolidation, Subdivision, Cancellation and Reduction of Share Capital

(a)           The Company may, from time to time, by Shareholders Resolution (subject, however, to the provisions of Article 6(b) hereof and to applicable law):

(i)           consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares,
 
 
- 2 -
 

(ii)          subdivide its shares (issued or unissued) or any of them, into shares of smaller nominal value than is fixed by these Articles of Association (subject, however, to the provisions of the Companies Law), and the Shareholders Resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares.

(iii)         cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled, or

(iv)         reduce its share capital in any manner, and with and subject to any incident authorized, and consent required, by law.

(b)           With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, including, inter alia , resort to one or more of the following actions:

(i)           determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value;

(ii)          allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

(iii)         redeem, in the case of redeemable preference shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

(iv)         cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board of Directors is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this sub-Article 7(b)(iv).

(c)            Notwithstanding the foregoing, if a class of shares has no par value, then any of the foregoing actions may be taken with respect to such class without regard to par value.
 
 
- 3 -
 
SHARES

8.            Issuance of Share Certificates; Replacement of Lost Certificates

(a)           Share certificates shall be issued under the seal or stamp of the Company and shall bear the signatures of two Directors (or if there be only one Director, the signature of such Director), or of any other person or persons authorized thereto by the Board of Directors.

(b)           Each member shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if reasonably requested by such member, to several certificates, each for one or more of such shares.

(c)           A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Registrar of Members in respect of such co-ownership.

(d)           If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors may think fit.

(e)           The Company may issue bearer shares.

9.              Registered Holder

Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or other claim to, or interest in such share on the part of any other person.

10.            Allotment of Shares

The unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 12(f) hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit. If a class of shares has no par value, then shares of such class may be allotted [ i.e., issued] without regard to par value.

11.            Payment in Installments

If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share of the person(s) entitled thereto.
 
 
- 4 -
 

 
12.            Calls on Shares

(a)           The Board of Directors may, from time to time, make such calls as it may think fit upon members in respect of any sum unpaid in respect of shares held by such members which is not, by the terms of allotment thereof or otherwise, payable at a fixed time, and each member shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed.  Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made.

(b)           Notice of any call shall be given in writing to the member(s) in question not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom such payment shall be made, provided, however, that before the time for any such payment, the Board of Directors may, by notice in writing to such member(s), revoke such call in whole or in part, extend such time, or alter such person and/or place.  In the event of a call payable in installments, only one notice thereof need be given.

(c)           If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board of Directors and of which due notice had been given, and all the provisions herein contained with respect to such calls shall apply to each such amount.

(d)           The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon.

(e)           Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board of Directors may prescribe.

(f)           Upon the allotment of shares, the Board of Directors may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof.

13.            Prepayment

With the approval of the Board of Directors, any member may pay to the Company any amount not yet payable in respect of his shares, and the Board of Directors may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors.  The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty.  Nothing in this Article 13 shall derogate from the right of the Board of Directors to make any call before or after receipt by the Company of any such advance.
 
 
- 5 -
 

14.            Forfeiture and Surrender

(a)           If any member fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board of Directors, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made.  Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call.

(b)           Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such member, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board of Directors may nullify such resolution of forfeiture, but no such nullification shall estop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount.

(c)           Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time.

(d)           The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share.

(e)           Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board of Directors thinks fit.

(f)           Any member whose shares have been forfeited or surrendered shall cease to be a member in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 12(e) above, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so.  In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing by the member in question (but not yet due) in respect of all shares owned by such member, solely or jointly with another, and in respect of any other matter or transaction whatsoever.

(g)           The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it thinks fit, but no such nullification shall estop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 14.
 
 
- 6 -
 

15.            Lien

(a)           Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each member (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not.  Such lien shall extend to all dividends from time to time declared in respect of such share.  Unless otherwise provided, the registration by the Company of a transfer of shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer.

(b)           The Board of Directors may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board of Directors may think fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such member, his executors or administrators.

(c)           The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such member  (whether or not the same have matured), or any specific part of the same (as the Company may determine), and the residue (if any) shall be paid to the member, his executors, administrators or assigns.

16.            Sale after Forfeiture or Surrender or in Enforcement of Lien

Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint some person to execute an instrument of transfer of the shares so sold and cause the purchaser's name to be entered in the Register of Members in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the Register of Members in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

17.            Redeemable Shares

The Company may, subject to applicable law, issue redeemable shares and redeem the same.

18.           [reserved]
 
 
- 7 -
 

TRANSFER OF SHARES

19.            Effectiveness and Registration

(a)           No transfer of shares shall be registered unless a proper instrument of transfer (in form and substance satisfactory to the Board of Directors) has been submitted to the Company or its agent, together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require.  Until the transferee has been registered in the Register of Members in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof.  The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer.

(b)           The Board of Directors may, in its discretion and to the extent that it deems necessary, close the Register of Members for the registration of transfer of shares for such periods as may be determined by the Board of Directors, and no transfers of shares shall be registered during any period in which the Register of Members is so closed.

20.            Record Date for General Meetings

Notwithstanding any provision to the contrary in these Articles, for the determination of the members entitled to receive notice of and to participate in and vote at a General Meeting, the Board of Directors may fix, in advance, a record date, which, subject to applicable law, shall not be earlier than ninety (90) days prior to the General Meeting.  No persons other than holders of record of shares as of such record date shall be entitled to notice of and to participate in and vote at such General Meeting. A determination of members of record with respect to a General Meeting shall apply to any adjournment of such meeting, provided that the Board of Directors may fix a new record date for an adjourned meeting.
 
TRANSMISSION OF SHARES

21.            Decedents' Shares

(a)           In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article 21(b) have been effectively invoked.

(b)           Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title), shall be registered as a member in respect of such share, or may, subject to the regulations as to transfer herein contained, transfer such share.
 
 
- 8 -
 

22.            Receivers and Liquidators

(a)           The Company may recognize the receiver or liquidator of any corporate member in winding-up or dissolution, or the receiver or trustee in bankruptcy of any member, as being entitled to the shares registered in the name of such member.

(b)           The receiver or liquidator of a corporate member in winding-up or dissolution, or the receiver or trustee in bankruptcy of any member, upon producing such evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a member in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares.

GENERAL MEETINGS

23.            Annual General Meeting

An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual General Meeting) and at such place either within or without the State of Israel as may be determined by the Board of Directors.

24.            Extraordinary General Meetings

All General Meetings other than Annual General Meetings shall be called "Extraordinary General Meetings."  The Board of Directors may, whenever it thinks fit, convene an Extraordinary General Meeting at such time and place, within or without the State of Israel, as may be determined by the Board of Directors, and shall be obliged to do so upon a requisition in writing in accordance with Sections 63(b)(1) or (2) of the Companies Law.

25.            Notice of General Meetings

The Company is not required to give notice under Section 69(b) of the Companies Law.

PROCEEDINGS AT GENERAL MEETINGS

26.            Quorum

(a)           Two or more members (not in default in payment of any sum referred to in Article 32(a) hereof), present in person or by proxy and holding shares conferring in the aggregate at least twenty-five percent (25%) of the voting power of the Company (subject to rules and regulations, if any, applicable to the Company), shall constitute a quorum at General Meetings.  No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business.
 
 
- 9 -
 

(b)           If within an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition under Sections 63(b)(1) or (2), 64 or 65 of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment.  No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called.  At such adjourned meeting, any two (2) members (not in default as aforesaid) present in person or by proxy, shall constitute a quorum (subject to rules and regulations, if any, applicable to the Company).

(c)           The Board of Directors may determine, in its discretion, the matters that may be voted upon at the meeting by proxy in addition to the matters listed in Section 87(a) to the Companies Law.

27.            Chairman

The Chairman, if any, of the Board of Directors shall preside as Chairman at every General Meeting of the Company.  If there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling to act as Chairman, the members present shall choose someone of their number to be Chairman.  The office of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).

28.            Adoption of Resolutions at General Meetings

(a)           A Shareholders Resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(b)           A Shareholders Resolution approving a merger (as defined in the Companies Law) of the Company shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(c)           Every question submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any member present in person or by proxy and entitled to vote at the meeting, the same shall be decided by such ballot.  A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands.  If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot.  The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another member may then demand such written ballot.  The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded.
 
 
- 10 -
 

(d)           A declaration by the Chairman of the meeting that a resolution has been carried unanimously, or carried by a particular majority, or lost, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.

29.            Resolutions in Writing

A resolution in writing signed by all members of the Company then entitled to attend and vote at General Meetings or to which all such members have given their written consent (by letter, facsimile [telecopier], telegram, telex or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board of Directors of the Company) shall be deemed to have been unanimously adopted by a General Meeting duly convened and held.

30.            Power to Adjourn

(a)           The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called.

(b)           It shall not be necessary to give any notice of an adjournment, whether pursuant to Article 26(b) or Article 30(a), unless the meeting is adjourned for thirty (30) days or more in which event notice thereof shall be given in the manner required for the meeting as originally called.

31.            Voting Power

Subject to the provisions of Article 32(a) and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every member shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote hereon is conducted by a show of hands, by written ballot or by any other means.

32.            Voting Rights

(a)           No member shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid, but this Article shall not apply to separate General Meetings of the holders of a particular class of shares pursuant to Article 6(b).

(b)           A company or other corporate body being a member of the Company may, by resolution of its directors or any other managing body thereof, authorize any person to be its representative at any meeting of the Company.  Any person so authorized shall be entitled to exercise on behalf of such member all the power which the latter could have exercised if it were an individual shareholder.  Upon the request of the Chairman of the meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him.
 
 
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(c)           Any member entitled to vote may vote either personally or by proxy (who need not be a member of the Company), or, if the member is a company or other corporate body, by a representative authorized pursuant to Article 32(b).

(d)           If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s); and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

PROXIES

33.            Instrument of Appointment

(a)           The instrument appointing a proxy shall be in writing and shall be substantially in the following form:

 
"I _____________________ of __________________________________
  (Name of Shareholder)                       (Address of Shareholder)
 
being a member of ___________________________ hereby appoint
                         (Name of the Company)
 
________________________of _____________________________
  (Name of Proxy)                                                                (Address of Proxy)
 
as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the _____ day of ___________, 19__ and at any adjournment(s) thereof.

 
Signed this ______ day of ____________, 19__.

_________________________
(Signature of Appointer)"

or in any usual or common form or in such other form as may be approved by the Board of Directors.  It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate body, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s).

(b)           The instrument appointing a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its Registered Office, or at its principal place of business or at the offices of its registrar and/or transfer agent or at such place as the Board of Directors may specify) not less than seventy two (72) hours (or such shorter period as determined by the Board of Directors) before the time fixed for the meeting at which the person named in the instrument proposes to vote.

(c)           For as long as any of the Company's securities are publicly traded on a U.S. market or exchange, all proxy solicitations by persons other than the Board of Directors shall be undertaken pursuant to the U.S. Proxy Rules, whether or not applicable to the Company under U.S. law.
 
 
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34.            Effect of Death of Appointor or Revocation of Appointment

A vote cast pursuant to an instrument appointing a proxy shall be valid notwithstanding the previous death of the appointing member (or of his attorney-in-fact, if any, who signed such instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written intimation of such death, revocation or transfer shall have been received by the Company or by the Chairman of the meeting before such vote is cast and provided, further, that the appointing member, if present in person at said meeting, may revoke the appointment by means of a writing, oral notification to the Chairman, or otherwise.

BOARD OF DIRECTORS
35.            Powers of Board of Directors

(a)            In General

The management of the business of the Company shall be vested in the Board of Directors, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting.  The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.

(b)            Borrowing Power

The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital for the time being.
 
 
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(c)            Reserves

The Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall think fit, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or redesignate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit.

(d)            Protective Measures

The Board of Directors may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of the Company, including without limitation the adoption of a “Shareholder Rights Plan.”

36.            Exercise of Powers of Directors

(a)           A meeting of the Board of Directors at which a quorum is present shall be competent to exercise all the authorities, powers and discretions vested in or exercisable by the Board of Directors, whether in person or by any other means by which the Directors may hear each other simultaneously.

(b)           A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present when such resolution is put to a vote and voting thereon.

(c)           A resolution  may be adopted by the Board of Directors without convening a meeting if all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Audit Committee, and in the absence of such determination - by the Chairman of the Board of Directors) have given their consent  (in any manner whatsoever) not to convene a meeting.  Such resolution shall be adopted if approved by a majority of the Directors entitled to vote thereon (as determined as aforesaid). The Chairman of the Board shall sign any resolutions so adopted, including the decision to adopt said resolutions without a meeting.

37.            Delegation of Powers

(a)           The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of two or more persons (all of whose members must be Directors), and it may from time to time revoke such delegation or alter the composition of any such committee.  Any Committee so formed (in these Articles referred to as a "Committee of the Board of Directors"), shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors.  The meetings and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by any regulations adopted by the Board of Directors under this Article.  Unless otherwise expressly provided by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall not be empowered to further delegate such powers.
 
 
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(b)           Without derogating from the provisions of Article 50, the Board of Directors may, subject to the provisions of the Companies Law, from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors may think fit, and may terminate the service of any such person.  The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and emoluments, of all such persons, and may require security in such cases and in such amounts as it thinks fit.

(c)           The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purpose(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it thinks fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.

38.            Number of Directors

Until otherwise determined by Shareholder Resolution of the Company, the Board of Directors shall consist of not less than three (3) nor more than fifteen (15) Directors.

39.            Election and Removal of Directors

(a)           Directors shall be elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy and voting on the election of directors, and each director shall serve, subject to Article 42 hereof, and with respect to a Director appointed pursuant to Article 41 hereof, subject to such Article, until the Annual General Meeting next following the Annual General Meeting at which such Director was appointed, or his earlier removal pursuant to this Article 39.  The shareholders shall be entitled to remove any Director(s) from office by resolution passed at a General Meeting.

(b)           Without derogating from the provisions of Article 33(c) above, a shareholder desiring to propose a candidate for election to the Board of Directors shall, as a condition to such proposal being considered by the Board of Directors, advise the Company of the identity of such candidate at least eight (8) weeks prior to the date of the General Meeting whereat such resolution is to be considered (or such shorter period as determined by the Board of Directors).

(c)           Notwithstanding anything to the contrary herein, the term of a Director may commence as of a date later than the date of the Shareholder Resolution electing said Director, if so specified in said Shareholder Resolution.
 
 
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40.            Qualification of Directors

No person shall be disqualified to serve as a Director by reason of his not holding shares in the Company or by reason of his having served as a Director in the past.

41.            Continuing Directors in the Event of Vacancies

In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, and may temporarily fill any such vacancy until the next Annual General Meeting, provided, however, that if they number less than a majority of the number provided for pursuant to Article 38 hereof, they may only act in an emergency, and may call a General Meeting of the Company for the purpose of electing Directors to fill any or all vacancies, so that at least a majority of the number of Directors provided for pursuant to Article 38 hereof are in office as a result of said meeting

42.            Vacation of Office

(a)           The office of a Director shall be vacated, ipso facto, upon his death, or if he  be found lunatic or become of unsound mind, or if he become bankrupt, or, if the Director is a company, upon its winding-up.

(b)           The office of a Director shall be vacated by his written resignation.  Such resignation shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

43.            Remuneration of Directors

No Director shall be paid any remuneration by the Company for his services as Director except as may be approved pursuant to the provisions of the Companies Law.

44.            Conflict of Interests

Subject to the provisions of the Companies Law, the Company may enter into any contract or otherwise transact any business with any Director in which contract or business such Director has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.

45.            Alternate Directors

(a)           A Director may, by written notice to the Company, appoint a natural person as an alternate for himself (in these Articles referred to as "Alternate Director"), remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever.  Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, and for all purposes.
 
 
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(b)           Any notice given to the Company pursuant to Article 45(a) shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

(c)           An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided,  however, that he may not in turn appoint an alternate for himself, and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors or any committee thereof while the Director who appointed him is present.

(d)           An Alternate Director shall alone be responsible for his own acts and defaults, and he shall not be deemed the agent of the Director(s) who appointed him.

(e)           The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the Director who appointed such Alternate Director ceases to be a Director.

(f)            Notwithstanding Article 45(a), (i) no person shall be appointed as the Alternate Director for more than one Director and (ii) except as otherwise specifically permitted by the Companies Law, (A) no External Director may appoint an Alternate Director and (B) no Director may serve as an Alternate Director.

PROCEEDINGS OF THE BOARD OF DIRECTORS

46.            Meetings

The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Board of Directors think fit. Notice of the meetings of the Board of Directors shall be sent to each Director at the last address that the Director provided to the Company.


47.            Quorum

Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence of a majority of the Directors then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Audit Committee and in the absence of such determination - by the Chairman of the Board of Directors), but shall not be less than two.

48.            Chairman of the Board of Directors

The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in its place.  The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the chairman of such meeting.  The Chairman shall not have a casting vote.
 
 
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49.            Validity of Acts Despite Defects

Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.

GENERAL MANAGER

50.            General Manager

The Board of Directors may from time to time appoint one or more persons, whether or not Directors, as General Manager(s) of the Company and may confer upon such person(s), and from time to time modify or revoke, such title(s) (including Managing Director, Director General or any similar or dissimilar title) and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe.  Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places.

MINUTES

51.            Minutes

(a)           Minutes of each General Meeting and of each meeting of the Board of Directors shall be recorded and duly entered in books provided for that purpose.  Such minutes shall, in all events, set forth the names of the persons present at the meeting and all resolutions adopted thereat.

(b)           Any minutes as aforesaid, if purporting to be signed by the chairman of the meeting or by the chairman of the next succeeding meeting, shall constitute prima facia evidence of the matters recorded therein.
 
 
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DIVIDENDS

52.            Declaration and Payment of Dividends

The Board of Directors may from time to time declare, and cause the Company to pay, such dividend as may appear to the Board of Directors to be justified.  The Board of Directors shall determine the time for payment of such dividends, and the record date for determining the shareholders entitled thereto.

53.
[Deleted]

54.            Amount Payable by Way of Dividends

Subject to the rights of the holders of shares with special rights as to dividends and without derogating from the provisions of Article 35(d) above, any dividend paid by the Company shall be allocated among the members entitled thereto in proportion to their respective holdings of the shares in respect of which such dividend is being paid.

55.            Interest

No dividend shall carry interest as against the Company.

56.            Payment in Specie

Upon the declaration of the Board of Directors, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock of the Company or of any other companies, or in any one or more of such ways.

57.            Capitalization of Profits, Reserves etc.

Upon the resolution of the Board of Directors, the Company -

(a)           may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and

(b)           may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum.
 
 
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58.            Implementation of Powers under Articles 56 and 57

For the purpose of giving full effect to any resolution under Articles 56 or 57, and without derogating from the provisions of Article 7(b) hereof, and subject to applicable law, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members upon the footing of the value so fixed, or that fractions of less value than the nominal value of one share may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors.

59.            Deductions from Dividends

The Board of Directors may deduct from any dividend or other moneys payable to any member in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.

60.            Retention of Dividends

(a)           The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.

(b)           The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22, entitled to become a member, or which any person is, under said Articles, entitled to transfer, until such person shall become a member in respect of such share or shall transfer the same.

61.            Unclaimed Dividends

All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed.  The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.
 
 
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62.            Mechanics of Payment

Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may by writing direct.  Every such check or warrant shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company.  Every such check or warrant shall be sent at the risk of the person entitled to the money represented thereby.

63.            Receipt from a Joint Holder

If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.

ACCOUNTS

64.            Books of Account

The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable law.  Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors.  No member, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors or by a Shareholders Resolution. The Company shall make copies of its annual financial statements available for inspection by the shareholders at the principal office s of the Company.  The Company shall not be required to send copies of its annual financial statements to shareholders, except upon request.

65.            Audit

At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors.
 
 
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66.            Auditors

The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law.  The Audit Committee of the Company shall have the authority to fix, in its discretion, the remuneration of the auditor(s) for the auditing services.

BRANCH REGISTERS

67.            Branch Registers

Subject to and in accordance with the provisions of the Companies Law and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.

RIGHTS OF SIGNATURE, STAMP AND SEAL

68.            Rights of Signature, Stamp and Seal

(a)           The Board of Directors shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority.

(b)           The Company shall have at least one official stamp.

(c)           The Board of Directors may provide for a seal.  If the Board of Directors so provides, it shall also provide for the safe custody thereof.  Such seal shall not be used except by the authority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.
 
 
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NOTICES

69.            Notices

(a)           Any written notice or other document may be served by the Company upon any member either personally or by sending it by prepaid mail  addressed to such member at his address as described in the Register of Members or such other address as he may have designated in writing for the receipt of notices and other documents.  Any written notice or other document may be served by any member upon the Company by tendering the same in person to the Secretary or the General Manager of the Company at the principal office of the Company or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its Registered Address.  The mailing date or publication date and the date of the meeting shall be counted as part of the days comprising any notice period.  Notice may be sent by cablegram, telex, telecopier (facsimile) or other electronic means and confirmed by registered mail as aforesaid.  If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article 69(a).

(b)           All notices to be given to the members shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Members, and any notice so given shall be sufficient notice to the holders of such share.

(c)           Any member whose address is not described in the Register of Members, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.

(d)           Notwithstanding anything to the contrary herein: notice by the Company of a General Meeting which is published in two daily newspapers in Israel, if at all, shall be deemed to have been duly given on the date of such publication to any member whose address as registered in the Register of Members (or as designated in writing for the receipt of notices and other documents) is located in the State of Israel, and notice by the Company of a General Meeting which is published in one daily newspaper in New York, New York, U.S.A. or in one international wire service shall be deemed to have been duly given on the date of such publication to any member whose address as registered in the Register of Members (or as designated in writing for the receipt of notices and other documents) is located outside Israel.

INSURANCE AND INDEMNITY

70.            Exculpation, Indemnity and Insurance

(a)           For purposes of these Articles, the term "Office Holder" shall mean every Director and every officer of the Company, including, without limitation, each of the persons defined as "Nosei Misra" in the Companies Law.

(b)           Subject to the provisions of the Companies Law, the Company may prospectively exculpate an Office Holder from all or some of the Office Holder’s responsibility for damage resulting from the Office Holder’s breach of the Office Holder’s duty of care to the Company.
 
 
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(c)           Subject to the provisions of the Companies Law, the Company may indemnify an Office Holder in respect of an obligation or expense specified below imposed on or  incurred by  the Office Holder in respect of an act performed in his capacity as an Office Holder, as follows:

(i)           a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator's award approved by court;

(ii)           reasonable litigation expenses, including attorney’s fees, expended by the Office Holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and

(iii)           reasonable litigation expenses, including attorneys' fees, expended by an Office Holder or charged to the Office Holder by a court, in a proceeding instituted against the Office Holder by the Company or on its behalf or by another person, or in a criminal charge from which the Office Holder was acquitted, or in a criminal proceeding in which the Office Holder was convicted of an offense that does not require proof of criminal intent.

The Company may undertake to indemnify an Office Holder as aforesaid, (aa) prospectively, provided, in respect of Article 70(c)(i) that the undertaking is limited to events which in the opinion of the Board of Directors are foreseeable in the light of the Company’s actual operations when the undertaking to indemnify is given, and to an amount  or criteria set by the Board of Directors as reasonable under the circumstances, and further provided that such events and amount of criteria are set forth in the undertaking to indemnify,  and (bb) retroactively.

(d)           Subject to the provisions of the Companies Law, the Company may enter into a contract for the insurance of all or part of the liability of any Office Holder imposed on the Office Holder in respect of an act performed in his capacity as an Office Holder, in respect of each of the following:

(i)           a breach of his duty of care to the Company or to another person;

(ii)           a breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable cause to assume that such act would not prejudice the interests of the Company;

(iii)          a financial obligation imposed on him in favor of another person.

(e)           The provisions of Articles 70(a), 70(b) and 70(c) above are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, and/or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law; provided that the procurement of any such insurance and/or the provision of any such indemnification shall be approved by the Audit Committee of the Company.
 
 
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(f)           The wording in this Article 70 is based on the Hebrew-language provisions of the Companies Law and shall not be construed to limit the amount or scope of indemnification payable by the Company to the extent such payment is permitted by applicable law.  Any amendment to the Companies Law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to this Article 70 shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by the Companies Law.

WINDING UP

71.             Winding Up

If the Company be wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the members shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made, provided, however, that if a class of shares has no par value, then the assets of the Company available for distribution among the members shall be distributed to them in proportion of their respective holdings of the shares in respect of which such distribution is made.
 
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Exhibit 8.1
 
Subsidiaries of Tikcro Technologies Ltd.
 
Name of Subsidiary
Jurisdiction of Incorporation
None
N/A

 
Exhibit 12.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 17 CFR 240.13a-14(a),
as adopted pursuant to §302 of the Sarbanes-Oxley Act

I, Aviv Boim, certify that:

 
1.
I have reviewed this annual report on Form 20-F of Tikcro Technologies Ltd.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
 
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f)) for the company and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
 
 
5.   I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: April 30, 2013

 
By:
/s/ Aviv Boim
   
Aviv Boim
Principal Executive Officer and
Principal Financial Officer


Exhibit 13.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of Tikcro Technologies Ltd. (the "Company") for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Aviv Boim, certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
April 30, 2013

 
By:
/s/ Aviv Boim                                                       
   
Aviv Boim
Principal Executive Officer and
Principal Financial Officer
 
Exhibit 14.1
 
Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-12904) pertaining to the Employees’ Share Purchase Plan and the Share Incentive Plan of Tikcro Technologies Ltd. of our report dated April [  ], 2013, with respect to the financial statements of Tikcro Technologies Ltd. included in this Annual Report on Form 20-F for the year ended December 31, 2012.
 
 
April 30, 2013
Tel-Aviv, Israel
 
/s/ KOST, FORER GABBAY & KASIERER
KOST, FORER GABBAY & KASIERER
A Member of Ernst & Young Global