Check-Cap Announces Extraordinary General Meeting of Shareholders to be

held on August 13, 2015

 

ISFIYA, Israel, July 6, 2015 - Check-Cap Ltd. (Nasdaq:  CHEK, CHEKW), a clinical stage medical diagnostics company engaged in the development of an ingestible capsule for preparation-free, colorectal cancer screening, announced today that it will hold an Extraordinary General Meeting of Shareholders on August 13, 2015 (the "Meeting") for the following purposes:

 

 

About Check-Cap

 

Check-Cap is a clinical stage medical diagnostics company focused on the development of innovative imaging devices. The Company is developing an ingestible capsule for the identification of colorectal cancer and pre-cancerous lesions in the colon. Utilizing proprietary, ultra-low-energy X-ray-based technology, the capsule safely generates high-resolution, 3-dimensional imagery of the interior of the colon. Without requiring traditional bowel preparation or modifications to a person's diet and activities, Check-Cap's system is designed to be patient-friendly and to increase compliance with colorectal cancer screening recommendations.  The Check-Cap imaging system is not cleared for marketing in any jurisdiction.

Exhibit 99.3

 

Check-Cap Ltd.

Check-Cap Building

Abba Hushi Avenue

P.O. Box 1271

Isfiya, 30090

Mount Carmel, Israel

 

_____________________

 

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

 

Dear Shareholder:

 

We cordially invite you to attend an Extraordinary General Meeting of Shareholders of Check-Cap Ltd. to be held on Thursday, August 13, 2015, at 4:00 p.m. (Israel time) at our offices at the Check-Cap Building, Abba Hushi Avenue, P.O. Box 1271, Isfiya, 30090, Mount Carmel, Israel, for the following purposes.

 

1.

To approve the adoption of the Check-Cap Ltd. Compensation Policy for Executive Officers and Directors;

 

2.

To approve the adoption of the Check-Cap Ltd. 2015 Equity Incentive Plan and the Check-Cap Ltd. 2015 United States Sub-Plan to the 2015 Equity Incentive Plan for U.S. tax purposes; and

 

3.

To approve the terms of engagement of Mr. William Densel, as Chief Executive Officer.

 

The Board of Directors recommends that you vote in favor of each of the proposals, which are described in the attached Proxy Statement.

 

Shareholders of record at the close of business on July 6, 2015, are entitled to notice of and to vote at the meeting.  You can vote either by mailing in your proxy or in person by attending the meeting.  If voting by proxy, we will generally not be able to include your vote in the tally of ordinary shares voted at the meeting unless your proxy is received by our transfer agent or at our registered office in Israel at least 48 hours prior to the appointed time of the meeting.  If you attend the meeting, you may vote in person and your proxy will not be used.  If you are a beneficial owner of shares registered in the name of your broker, bank, trustee or nominee and you wish to vote in person at the meeting, you must first obtain a “legal proxy” from your broker, bank, trustee or nominee that holds your shares giving you the right to vote the shares at the meeting.  Detailed proxy voting instructions are provided both in the Proxy Statement and on the enclosed proxy card.

 

Sincerely,   Tomer Kariv Chairman of the Board of Directors

 

July 6, 2015

 

Check-Cap Ltd.

Check-Cap Building

Abba Hushi Avenue

P.O. Box 1271

Isfiya, 30090

Mount Carmel, Israel

 

_____________________

 

PROXY STATEMENT

 

EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

 

This Proxy Statement is being furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Check-Cap Ltd. to be voted at an Extraordinary General Meeting of Shareholders (the “Meeting”), and at any adjournment thereof, pursuant to the accompanying Notice of Extraordinary General Meeting of Shareholders.  The Meeting will be held on Thursday, August 13, 2015, at 4:00 p.m. (Israel time) at our offices at the Check-Cap Building, Abba Hushi Avenue, P.O. Box 1271, Isfiya, 30090, Mount Carmel, Israel.

 

This Proxy Statement, the attached Notice of Extraordinary General Meeting of Shareholders and the enclosed proxy card are being mailed to shareholders on or about July 9, 2015.

 

Purpose of the Extraordinary General Meeting

 

At the Meeting, shareholders will be asked to consider and vote upon the following: (1) approval of the adoption of the Check-Cap Ltd. Compensation Policy for Executive Officers and Directors; (2) approval of the adoption of the Check-Cap Ltd. 2015 Equity Incentive Plan and the Check-Cap Ltd. 2015 United States Sub-Plan to the 2015 Equity Incentive Plan for U.S. tax purposes; and (3) approval of the terms of engagement of Mr. William Densel, as Chief Executive Officer.

 

We are not aware of any other matters that will come before the Meeting.  If any other matters properly come before the Meeting, the persons designated as proxies intend to vote on such matters in accordance with the judgment and recommendation of the Board of Directors.

 

Recommendation of the Board of Directors

 

Our Board of Directors recommends a vote FOR each of the proposals set forth in this Proxy Statement.

 

Who Can Vote

 

You are entitled to notice of, and to vote in person or by proxy at, the Meeting, if you are a holder of record of our ordinary shares as of the close of business on July 6, 2015.  You are also entitled to notice of the Meeting and to vote at the Meeting if you held ordinary shares through a bank, broker or other nominee that is one of our shareholders of record at the close of business on July 6, 2015, or which appeared in the participant listing of a securities depository on that date.  See below “How You Can Vote.”

 

How You Can Vote

 

·

Voting in Person .  If you are a shareholder of record, i.e., your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company LLC, you may attend and vote in person at the Meeting.  If you are a beneficial owner of shares registered in the name of your broker, bank, trustee or nominee (i.e., your shares are held in “street name”), you are also invited to attend the Meeting; however, to vote in person at the Meeting as a beneficial owner, you must first obtain a “legal proxy” from your broker, bank, trustee or nominee that holds your shares giving you the right to vote the shares at the Meeting.

 

 

·

Voting by Proxy .  If you are a shareholder of record, these proxy materials are being sent directly to you by our transfer agent. You may submit your proxy by completing, signing and mailing the enclosed proxy card that was mailed to you in the enclosed, postage-paid envelope.  If your ordinary shares are held in “street name,” these proxy materials are being forwarded to you by the broker, trustee or nominee or an agent hired by the broker, trustee or nominee.  Please follow the voting instructions provided to you by your broker, trustee or nominee.  We will generally not be able to include your vote in the tally of ordinary shares voted at the Meeting unless your proxy is received by our transfer agent or at our registered office in Israel at least 48 hours prior to the designated time for the Meeting.

 

Change or Revocation of Proxy

 

If you are a shareholder of record, you may change your vote at any time prior to the exercise of authority granted in the proxy by delivering a written notice of revocation to our Chief Financial Officer, by granting a new proxy bearing a later date, or by attending the Meeting and voting in person.  Attendance at the Meeting will not cause your previously granted proxy to be revoked unless you specifically so request.

 

If your shares are held in “street name,” you may change your vote by submitting new voting instructions to your broker, bank, trustee or nominee or, if you have obtained a legal proxy from your broker, bank, trustee or nominee giving you the right to vote your shares, by attending the Meeting and voting in person.

 

Quorum

 

The presence, in person or by proxy, of two or more shareholders holding or representing, in the aggregate, at least twenty-five percent of our company’s voting rights will constitute a quorum at the Meeting.  No business will be considered or determined at the Meeting unless the requisite quorum is present within half an hour from the time designated for the Meeting.  If within half an hour from the time designated for the Meeting a quorum is not present, the Meeting will stand adjourned to the same day in the following week, at the same time and place.  At least two shareholders present, in person or by proxy, will constitute a quorum at the adjourned meeting.  This notice will serve as notice of such reconvened meeting if no quorum is present at the original date and time and no further notice of the reconvened meeting will be given to shareholders.

 

Abstentions and broker non-votes will be counted towards the quorum.  Broker non-votes occur when brokers that hold their customers’ shares in street name sign and submit proxies for such shares and vote such shares on some matters but not on others.  This occurs when brokers have not received any instructions from their customers, in which case the brokers, as the holders of record, are permitted to vote on “routine” matters, but not on non-routine matters.

 

Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for quorum or voting purposes.

 

Vote Required for Approval of the Proposals

 

Each ordinary share entitles the holder to one vote.

 

Proposals 1 and 3 :  The affirmative vote of the holders of a majority of the ordinary shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, is required to approve each of the proposals, provided that either of the following two voting requirements are met: (i) the shares voting in favor of the proposal (excluding abstentions) include at least a majority of the shares voted by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the proposal, or (ii) the total number of shares voted against the proposal by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the matter, does not exceed two-percent of our outstanding voting rights.

 

 

Proposal 2 :  The affirmative vote of the holders of a majority of the ordinary shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, is required to approve the proposal.

 

We are unaware of any shareholder that would be deemed to be a controlling shareholder of our company as of the current time for purposes of Proposals 1 and 3.   A shareholder who signs and returns a proxy card will be deemed to be confirming that such shareholder, and any related party of such shareholder, is not a controlling shareholder for purposes of Proposals 1 and 3.  If you believe that you, or a related party of yours, may be deemed to be a controlling shareholder and you wish to participate in the vote on any of Proposals 1 and 3, you should contact our Chief Financial Officer, Lior Torem, at liort@check-cap.com or +972-(0)4-8303401.

 

The Israeli Companies Law requires that each shareholder voting on each of Proposals 1 and 3 indicate on the proxy card, or, if voting in person at the Meeting, inform us prior to voting on the matter at the Meeting, whether or not the shareholder has a personal interest in such proposal.  Otherwise, the shareholder is not eligible to vote on the proposal and his or her vote will not be counted for the purposes of the proposal.  Under the Israeli Companies Law, a “personal interest” of a shareholder in an act or transaction of a company (i) includes a personal interest of (a) any spouse, sibling, parent, grandparent or descendant of the shareholder, any descendant, sibling or parent of a spouse of the shareholder and the spouse of any of the foregoing; and (b) a company with respect to which the shareholder (or any of the foregoing relatives of the shareholder) owns at least 5% of the outstanding shares or voting rights, serves as a director or chief executive officer or has the right to appoint one or more directors or the chief executive officer; and (ii) excludes a personal interest arising solely from the ownership of shares.  Under the Israeli Companies Law, in the case of a person voting by proxy, “personal interest” includes the personal interest of either the proxy holder or the shareholder granting the proxy, whether or not the proxy holder has discretion how to vote.

 

In tabulating the voting results for any particular proposal, shares that constitute broker non-votes and abstentions are not considered votes cast on that proposal.  Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for voting purposes.

 

Cost of Soliciting Votes for the Meeting

 

We will bear the cost of soliciting proxies from our shareholders.  Proxies will be solicited by mail and may also be solicited in person, by telephone or electronic communication, by our directors, officers and employees.  We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their expenses in accordance with the regulations of the U.S. Securities and Exchange Commission (the “SEC”) concerning the sending of proxies and proxy material to the beneficial owners of our shares.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information as of June 30, 2015 (unless otherwise indicated below) regarding the beneficial ownership by (i) each person known to us to beneficially own more than 5% of our outstanding ordinary shares; (ii) each of our directors; and (iii) all of our current directors and executive officers as a group.

 

The percentage of beneficial ownership of our ordinary shares is based on 10,789,673 ordinary shares outstanding as of June 30, 2015.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting power or investment power with respect to securities.  All options and warrants currently exercisable or exercisable into ordinary shares within 60 days of June 30, 2015 are deemed to be outstanding and beneficially owned by the shareholder holding such options or warrants for the purpose of computing the number of shares beneficially owned by such shareholder.  Such shares are also deemed outstanding for purposes of computing the percentage ownership of the person holding the option or warrant.  They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other shareholder.

 

Except as described in the footnotes below, we believe each shareholder has voting and investment power with respect to the ordinary shares indicated in the table as beneficially owned.

 

 

*Less than 1% of our ordinary shares.

 

(1)

Includes ordinary shares directly held by Pontifax (Cayman) II, L.P., Pontifax (Israel) II, L.P. and Pontifax (Israel) II—Individual Investors, L.P (collectively, the “Pontifax Funds”).  Pontifax Management II L.P. is the general partner of the Pontifax Funds and Pontifax Management 2 G.P. (2007) Ltd. is the general partner of Pontifax Management II L.P.  Tomer Kariv and Ran Nussbaum are Managing Partners of each of the Pontifax Funds and Pontifax Management II L.P. and are directors of Pontifax Management 2 G.P. (2007) Ltd. and share voting and dispositive power with respect to the shares.  The principal business office of each of the foregoing entities and persons is 8 Hamanofim Street, Beit Ofek, Herzliya Pituach, Israel.  Includes (i) 1,385,610 outstanding ordinary shares; (ii) 749,334 ordinary shares subject to warrants that are currently exercisable; and (iii) 239,391.5 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table.

 

(2)

Based solely on information contained in a Schedule 13G/A filed by Shanghai Fosun Pharmaceutical Group Co. Ltd. with the SEC on May 15, 2015.  Includes: (i) 666,667 outstanding ordinary shares; (ii) 886,152 ordinary shares subject to warrants that are currently exercisable; and (iii) 333,333.5 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table.

 

(3)

Based solely on information contained in a Schedule 13G filed by Quant Global Capital Advisors, LLC with the SEC on March 6, 2015.  Includes: (i) 833,333 outstanding ordinary shares; and (ii) 416,666.5 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table.

 

(4)

Includes: (i) 319,553 ordinary shares are directly held by Yoav Kimchy; (ii) 107,384 ordinary shares subject to options held by Yoav Kimchy that are currently exercisable; and (iii) 319,553 ordinary shares are directly held by Sigalit Kimchy.  Yoav Kimchy, our chief technology officer and a director, and Sigalit Kimchy are husband and wife.

 

 

(5)

Includes: (i) 484,871 outstanding ordinary shares directly held by Docor International B.V. (“Docor”); (ii) 110,769 ordinary shares subject to warrants that are currently exercisable directly held by Docor; and (iii) 62,499.5 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table, directly held by Docor.  Docor is a wholly-owned subsidiary of Crecor B.V.  Each of Crecor B.V. and Alon Dumanis may be deemed to be the beneficial owner of the aggregate ordinary shares beneficially owned by Docor.  Alon Dumanis disclaims beneficial ownership of the ordinary shares.  In addition, Alon Dumanis directly holds options to purchase 10,082 ordinary shares that are exercisable within 60 days of this table.

 

(6)

Includes: (i) 166,667 outstanding ordinary shares held by Esco Ventures Pte Ltd.; (ii) 83,333.5 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table, held by Esco Ventures Pte Ltd.; and (iii) 10,082 ordinary shares subject to options that are exercisable within 60 days of this table, held directly by XiangQian (XQ) Lin.  Mr. Lin has advised us that Esco Ventures Pte Ltd. is wholly-owned by him and that he possesses the ultimate voting and investment power over the shares beneficially owned by Esco Ventures Pte Ltd.

 

(7)	Includes: (i) 265,928 outstanding ordinary shares; and (ii) 398,008 ordinary shares subject to options that are currently exercisable.

 

(8)

Includes: (i) 356,075 outstanding ordinary shares held by Counterpoint Ventures Fund LP and Counterpoint Ventures Fund II LP (together, the “Counterpoint Funds”); (ii) 21,250 ordinary shares issuable upon exercise of the Series A Warrants, which are exercisable within 60 days of this table, held by the Counterpoint Funds; and (iii) 18,025 ordinary shares subject to options that are currently exercisable or exercisable within 60 days of this table, held directly by Mr. Robb.  Mr. Robb has advised us that the general partner of each of the Counterpoint Funds is Lion Development LLC, which is 99% controlled by Mr. Walter Robb, and as such, Walter Robb possesses the ultimate voting and investment power over the shares beneficially owned by the Counterpoint Ventures entities.

 

(9)	See footnotes (1)-(8) for certain information regarding beneficial ownership.

 

PROPOSAL 1

APPROVAL OF COMPENSATION POLICY FOR EXECUTIVE OFFICERS AND DIRECTORS

(Item 1 on the Proxy Card)

 

Under the Israeli Companies Law, the board of directors of an Israeli public company is required to establish a compensation policy regarding the terms of service and employment of office holders.  The term “office holder,” as defined in the Israeli Companies Law, includes directors, executive officers and any manager directly subordinate to the chief executive officer.

 

The Companies Law requires the compensation policy to serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification and any benefit, monetary payment or obligation of payment in respect of employment or engagement, including and any severance payment or benefit.  The compensation policy must be determined and later reevaluated according to certain factors, including: (i) the advancement of a company’s objectives, business plan and its long-term strategy; (ii) the creation of appropriate incentives for executives, while considering (among other things) the company’s risk management policy; (iii) the size and the nature of the company’s operations; and (iv) with respect to variable compensation, the contribution of the office holder towards the achievement of the company’s long-term goals and the maximization of its profits, all with a long-term objective and in accordance with the position of the office holder.

 

The compensation policy must refer to the following factors:

 

·

the knowledge, skills, expertise, professional experience and accomplishments of the relevant office holder;

 

·

the office holder’s roles and responsibilities and prior compensation agreements with him or her;

 

 

·

the ratio of the cost of the offered terms to the cost of compensation of the other employees of the company (including any employees employed through manpower companies), specifically to the cost of the average and median salaries of such employees and the impact of the disparities between them upon work relationships in the company;

 

·

with respect to variable compensation - the possibility of reducing variable compensation at the discretion of the board of directors, and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and

 

·

with respect to severance compensation, the period of employment or service of the office holder, the terms of his or her compensation during such period, the company’s performance during such period, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.

 

The compensation policy must include the following principles:

 

·

the link between variable compensation (e.g., bonuses) and long-term performance and measurable criteria (i.e., variable compensation must be determined based on long-term performance and measurable criteria).  Only “non-material” portion of variable compensation may be determined based on criteria that is not measurable, taking into account office holders contribution to the company;

 

·

the ratio of variable to fixed compensation, and the ceiling for the value of variable compensation, which is determined at the time of payment, except that the ceiling for equity-based compensation is determined at the time of grant;

 

·

the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;

 

·

the minimum holding or vesting period for variable, equity-based compensation, while taking into account long-term objectives; and

 

·

maximum limits for severance compensation.

 

The compensation policy must be approved by the board of directors, after considering the recommendation of the compensation committee.  In addition, the compensation policy must be approved by the shareholders by a special majority, as described below.  However, if the compensation policy is not approved by the shareholders, the board of directors may nonetheless approve the compensation policy, provided that the compensation committee and thereafter the board of directors determine, following additional discussion concerning the compensation policy and for specified reasons, that the approval of the compensation policy is beneficial to the company.  A compensation policy that is for a period exceeding three years is required to be approved (under the same process) every three years.  In addition, the board of directors is required to periodically examine the compensation policy and the need to adjust the policy in the event of a material change in the circumstances prevailing at the time of the adoption of the compensation policy or for other reasons.  Under the Israeli Companies Law, a compensation policy must be adopted within nine months of a company’s initial public offering.

 

Accordingly, on July 1, 2015, following the recommendation of our Compensation Committee, our Board of Directors approved the Check-Cap Ltd. Compensation Policy for Executive Officers and Directors, in the form attached as Appendix A to this Proxy Statement, in accordance with the provisions of the Israeli Companies Law.

 

When considering the proposed Compensation Policy, our Compensation Committee and Board considered various factors, including the considerations, principles and provisions set forth in the Israeli Companies Law, and reviewed various data and information they deemed relevant, with the advice and assistance of legal and other advisors.

 

It is therefore proposed that at the Meeting, the following resolution be adopted:

 

Under the Israeli Companies Law, the approval of a compensation policy requires the affirmative vote of the holders of a majority of the ordinary shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, provided that either of the following two voting requirements are met: (i) the shares voting in favor of the proposal (excluding abstentions) include at least a majority of the shares voted by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the proposal, or (ii) the total number of shares voted against the proposal by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the matter, does not exceed two-percent of our outstanding voting rights.

 

The Israeli Companies Law requires that each shareholder voting on the proposal indicate on the proxy card, or, if voting in person at the Meeting, inform us prior to voting on the matter at the Meeting, whether or not the shareholder has a personal interest in such proposal.  Otherwise, the shareholder is not eligible to vote on the election of the external directors and his or her vote will not be counted for the purposes of the proposal.  For details regarding the meaning of “personal interest,” see “Vote Required for Approval of the Proposals.”

 

The Board of Directors recommends a vote FOR the foregoing resolution. 

 

PROPOSAL 2

APPROVAL OF 2015 EQUITY INCENTIVE PLAN AND U.S. SUB-PLAN FOR U.S. TAX PURPOSES

(Item 2 on the Proxy Card)

 

On June 23, 2015, our Board of Directors approved and adopted the Check-Cap Ltd. 2015 Equity Incentive Plan (the “2015 Israeli Plan”) and the Check-Cap Ltd. 2015 United States Sub-Plan to Check-Cap Ltd. 2015 Equity Incentive Plan (the “2015 U.S. Sub-Plan” and together with the 2015 Israeli Plan, the “2015 Plan”), attached as Appendix B to this Proxy Statement.  As of such date, we ceased to grant options under our existing option plan, the Check-Cap LLC 2006 Unit Option Plan (which we had assumed from Check-Cap LLC) (the “2006 Plan”) and all subsequent equity-based awards shall be made under the 2015 Plan.

 

In accordance with the exemption available to foreign private issuers under NASDAQ Listing Rules, we do not follow the NASDAQ Listing Rules with regard to the requirement to obtain shareholder approval for (among other things) the adoption or material amendment of equity-based compensation plans pursuant to which stock may be acquired by officers, directors, employees, or consultants and instead, follow Israeli law and practice.  Under Israeli law, the approval of the Board of Directors is generally required for the adoption of equity-based compensation plans.  However, according to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), in order for a grant of options to qualify as an “incentive stock option” within the meaning of Section 422 of the Code (“ISO”), which confer certain U.S. tax benefits on U.S. employees, the option must (among other requirements) be granted pursuant to a plan which is approved by the shareholders of the granting company within 12 months before or after the date such plan is adopted.  Accordingly, at the Meeting, we are seeking shareholder approval of the 2015 Plan for U.S. federal tax purposes.  If this Proposal is not approved by our shareholders at the Meeting, then the 2015 Plan will continue to be in effect, but we will be unable to grant to our U.S. employees options that qualify as ISOs for U.S. federal tax purposes.

 

A general description of the principal terms of the 2015 Plan is set forth below.  This description is qualified in its entirety by the terms of the 2015 Plan, a copy of which is attached to this Proxy Statement as Appendix B and is incorporated by reference herein.

 

Summary of the 2015 Plan

 

Awards under the 2015 Plan .   Awards under the 2015 Plan may be options granted pursuant to Section 102 of the Israeli Income Tax Ordinance (New Version), 1960, as amended (the “Ordinance” and “Section 102 Options”) or Section 3(i) of the Ordinance (“Section 3(i) Options”), ISOs and options not intended to qualify as ISOs (“Non-statutory Stock Options”), stock appreciation rights (“SARs”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), or any combination of the foregoing.

 

Unless the Administrator (as defined below) determines otherwise and subject to applicable law, Section 102 Options may be granted only to Israeli employees, executives and directors (excluding controlling shareholders) and Section 3(i) Options may be granted to consultants, controlling shareholders and non-Israeli employees, executives and directors, in each case of our company or any subsidiary.  The Section 102 Options may be granted either pursuant to Section 102(c) of the Ordinance, which are not required to be held in trust by a trustee, or pursuant to Section 102(b), which are required to be held in trust for a specified period to qualify for certain tax benefits.  Options granted pursuant to Section 102(b) shall be designated to qualify for capital gain tax treatment in accordance with Section 102(b)(2) of the Ordinance or ordinary income tax in accordance with Section 102(b)(1) of the Ordinance and thereafter, only such type of Section 102(b) options shall be granted until the Administrator has determined otherwise in accordance with applicable law (which may not be prior to one year after the first grant of such type of Section 102(b) options).

 

Unless the Administrator determines otherwise and subject to applicable law, ISOs may be granted only to non-Israeli employees and Non-statutory Stock Options may be granted to non-Israeli employees and consultants, in each case of our company or any subsidiary.  To the extent that the aggregate fair market value of the ordinary shares with respect to which ISOs are exercisable for the first time by a participant during any calendar year under all company plans exceeds $100,000, then unless the Administrator determines otherwise at any time and subject to applicable law, such options shall be treated as Non-statutory Stock Options.

 

Shares Subject to the 2015 Plan .  The aggregate number of our ordinary shares that may be issued under each of the 2015 Israeli Plan and 2015 U.S. Sub-Plan is equal to the sum of: (i) 2,029,268, constituting the currently remaining shares authorized but unissued under the 2006 Plan, which are being “rolled over” to the 2015 Plan; and (ii) any ordinary shares under outstanding options under the 2006 Plan as of the date of the adoption of the 2015 Plan) (i.e., up to 1,685,364 ordinary shares) that are cancelled, forfeited or expire without being exercised following the date of adoption of the 2015 Plan and which are being “rolled-over” to the 2015 Plan, or in the case of the 2015 Israeli Plan, such other number of ordinary shares as our Board of Directors shall determine from time to time.

 

Administration of the 2015 Plan .  The Plan 2015 will be administered by the Board of Directors or, subject to applicable law, a committee appointed by the Board of Directors (“Committee” and the “Administrator”).  Subject to the provisions of the 2015 Plan and, in the case of a Committee, the specific duties delegated by the Board of Directors, and subject to the approval of any relevant authorities and compliance with all applicable laws, the Administrator shall have the full power and authority at its sole discretion, from time to time and at any time, among other things:

 

·

To determine whether and to what extent awards are to be granted to participants under the 2015 Plan and to select the eligible recipients of awards under the 2015 Plan;

 

·

To approve forms of agreement for use under the 2015 Plan;

 

·

To determine the terms and conditions of any award under the 2015 Plan, including the exercise price, the time or times and the extent to which the awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award or the ordinary shares relating thereto, based in each case on such factors as the Administrator, at its sole discretion, shall determine;

 

·

To determine the fair market value of the shares covered by each award;

 

·

To make an election as to the type of Section 102 Option;

 

 

·

To prescribe, amend and rescind rules and regulations relating to the 2015 Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

 

·

To authorize conversion or substitution under the 2015 Plan of any or all awards and to cancel or suspend awards, as necessary, provided the material interests of the participants are not harmed;

 

·

To construe and interpret the terms of the Plan and awards granted pursuant to the 2015 Plan; and

 

·

To alter, revise or otherwise adjust the terms of the 2015 Plan and the award agreement, as may be required pursuant to any applicable laws of local or foreign jurisdictions.

 

Term of Awards .  The term of each option shall be stated in the award agreement but in no event may it be more than ten years from the date of grant.  Unless the Administrator determines otherwise and subject to applicable law, no ISO may be granted under the 2015 Plan to a grantee who possess more than 10% of the total combined voting power of our company or any of our affiliate (a “10% Shareholder”) unless the option terminates on a date that is not later than the day preceding the fifth anniversary of the date of grant.  Unless otherwise specified in the applicable award agreement, the term of a SAR will be ten years.

 

Exercise Price .  The exercise price of any award under the 2015 Plan shall be determined by the Administrator, subject to applicable law.  Unless the Administrator determines otherwise and subject to applicable law, in the case of ISOs and Non-Statutory Stock Options, the exercise price per share shall be no less than the fair market value per ordinary share on the date of grant and in the case of an ISO granted to a 10% Shareholder, no less than 110% of the fair market value per ordinary share on the date of grant.

 

Non-Transferability of Awards .   Unless the Administrator determines otherwise and subject to applicable law: (i) options and SARs may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant.  For as long as options or shares purchased upon the exercise of options are held by a trustee on behalf of the participant, all rights of the participant with respect to such options and shares shall be personal, and may not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution; (ii) RSUs may not be sold, pledged, transferred, assigned or encumbered; and (iii) RSAs may not be sold, transferred, pledged, assigned or otherwise disposed of during the restricted period, provided that the Administrator may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part.

 

Termination of Employment or Service .

 

Options and SARs .  If a participant ceases to be an employee or consultant, in the absence of specified period in the award agreement and unless the Administrator determines otherwise, such participant may exercise his/her options (to the extent vested on the date of such termination) or SARs within three months following such termination (but in no event later than the expiration date of the option or SAR).  If a participant retires, he/she may continue to enjoy such rights with respect to awards under the 2015 Plan, on such terms and conditions as the Administrator may determine.  If the participant’s employment or service is terminated as a result if his/her death or permanent disability, the participant (or, if the participant died, the participant’s estate or any person who acquired the right to exercise the option by bequest or inheritance), may exercise his/her options (to the extent vested on the date of such termination) and/or SARs within such additional period of time following such termination as specified in the award agreement (which may not be less than six months), or in the absence of a specified period in the award agreement, until 12 months following such termination or any longer period determined by the Administrator, but in no event later than the expiration date of the option or SAR.

 

RSAs .  If a participant’s service of employment is terminated prior to the restricted period, subject to the terms of the award agreement or as otherwise determined by the Administrator, the participant’s restricted stock and any associated dividends that remain subject to forfeiture will then be forfeited automatically.

 

RSUs .  If a participant’s service of employment is terminated prior to the RSU vesting, subject to the terms of the award agreement or as otherwise determined by the Administrator, the participant’s RSUs that remain subject to forfeiture will then be forfeited automatically.

 

M&A Transaction.   In the event of a Transaction (as defined in the 2015 Plan, which generally includes (among others) a sale of all or substantially all of our assets or shares, a merger, consolidation or amalgamation with or into another company or a scheme of arrangement for effecting any of the foregoing or such other transaction determined as such by the Administrator, all subject to the conditions and limitations in the 2015 Plan), unless otherwise determined by the Administrator, in its sole discretion, any award granted under the 2015 shall be assumed or substituted by the company or a successor company, under terms determined by the Administrator or the terms of the 2015 Plan applied by the successor company to such assumed or substituted awards, all in accordance with the terms of the 2015 Plan.  Regardless of whether or not the awards are assumed or substituted, the Administrator may, at its sole discretion, among other things, provide for the exercise of any exercisable and vested awards, the cancellation of unexercised and unvested awards, the acceleration of unvested awards, or the cancellation of awards for payment in cash, shares or other property of our company or the acquiring company or other party to the Transaction, under such terms as the Administrator may determine, all in accordance with the terms of the 2015 Plan

 

Term and Termination of the 2015 Plan .  The 2015 Plan became effective upon its adoption by our Board of Directors and shall continue in effect for a term of ten years.  Our Board of Directors may at any time amend, alter, suspend or terminate the 2015 Plan.  No amendment, alteration, suspension or termination of the 2015 Plan shall impair the rights of any participant, unless mutually agreed otherwise in writing between the participant and the Administrator.

 

We believe that equity based-compensation is an important component of overall compensation in order to attract and retain the long-term service of the best personnel, while providing our personnel additional incentive to promote the success of our business.

 

It is therefore proposed that at the Meeting, the following resolution be adopted:

 

Under the Israeli Companies Law, the affirmative vote of the holders of a majority of the ordinary shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, is required to approve the foregoing resolution.

 

The Board of Directors recommends a vote FOR the foregoing resolution.

 

PROPOSAL 3

APPROVAL OF TERMS OF ENGAGEMENT OF CHIEF EXECUTIVE OFFICER

(Item 3 on the Proxy Card)

 

At the Meeting, shareholders will be asked to approve the terms of engagement of Mr. William Densel, as our Chief Executive Officer, effective as of the Meeting.  Mr. Densel was elected by our shareholders as our President of U.S. Operations at an extraordinary general meeting held on May 19, 2015 and has served in such capacity since such date, initially as a consultant and since July 1, 2015, as an employee of the U.S. subsidiary, Check-Cap U.S. Inc. (the “U.S. Subsidiary”).  In addition, since July 1, 2015, Mr. Densel has served as the President and Chief Executive Officer of the U.S. Subsidiary.  On July 1, 2015, the U.S. Subsidiary and Mr. Densel entered into an employment agreement with respect to such positions.

 

If this Proposal is approved at the Meeting, Mr. Densel shall serve as our Chief Executive Officer in his capacity as an employee of the U.S. Subsidiary (as part of the services to be provided to us by the U.S. Subsidiary under the services agreement to be entered into between us and the U.S. Subsidiary) and his current employment agreement with the U.S. Subsidiary will amended to reflect his employment terms approved at the Meeting.

 

 

Mr. Densel has a 25-year leadership career, including in his recent roles as Chief Executive Officer of Beacon Endoscopic, Inc. (2013), which was acquired by Covidien plc. in less than one year after he began to serve in such capacity; as General Manager, CardioSCORE for BG Medicine Inc. (2012-2013); and in his roles at Dune Medical Devices, Inc. (2009-2011), lastly as Chief Executive Officer.  Mr. Densel has effectively led teams and utilized his influence across key decision makers in larger organizations such as Cytyc Corporation (2006-2009), which was acquired by Hologic in 2007, where he served in several positions, including Vice President, Marketing – GYN Surgical, Vice President, Emerging Surgical Technologies and Senior Director, Neuroscience; Boston Scientific Corporation (2004-2006), where he served as Director, New Market Development & Strategic Planning – Endosurgery; and Genzyme Biosurgery, where he served in various positions, lastly as Senior Director, Marketing and Business Development - General and GYN Surgery (1993-2004). Mr. Densel has launched several new medical devices during his career, affording him extensive FDA and clinical trial experience.  Mr. Densel served in the U.S. Navy from 1989 to 1993, lastly as Lieutenant, Special Operations.  Mr. Densel has a BA degree in Economics from Duke University.

 

Our Compensation Committee and Board of Directors have approved, subject to shareholder approval, the payment of the following compensation and benefits to Mr. Densel, in consideration for his services as Chief Executive Officer:

 

·

an annual base salary of US$350,000, paid in monthly installments of US$29,167 each;

 

·

an annual bonus of up to 50% of the annual base salary.  The bonus shall be subject to the achievement of certain criteria for each 12 month-period (or such shorter or longer period determined by our Compensation Committee and Board of Directors ), as shall be determined by our Compensation Committee and Board of Directors, in accordance with our compensation policy, as in effect from time to time.  The Board of Directors and Compensation Committee may determine that Mr. Densel shall be entitled to certain portion(s) of the bonus upon partial achievement of the criteria and that the bonus shall be conditioned upon the achievement of a minimum threshold of the criteria.  The Board of Directors and Compensation Committee may further determine that in the event that Mr. Densel’s employment terminates prior to the end of a full 12-month period, he shall be entitled to the relative portion of the bonus, based on the actual employment term during the 12-month period.  In the event of termination for “cause” (as such term is defined in Mr. Densel’s employment agreement), he shall not be entitled to any bonus for the 12-month period during which his employment was terminated.  Mr. Densel shall be required to repay any amounts paid to him as a bonus, if subsequently it transpires that such amounts were paid on the basis of figures that were incorrect and were restated in the U.S. Subsidiary’s or our financial statements, all in accordance with applicable law and the U.S. Subsidiary’s or our compensation policy;

 

·

the following additional options to purchase our ordinary shares, at an exercise price equal to the higher of: (i) the average closing price of our ordinary shares over the 30 trading days immediately prior to the date of grant; and (ii) the closing price of our ordinary shares on the trading day immediately prior to the date of grant. These options would be subject to the terms and conditions of the 2015 Plan and the option agreement to be entered into with Mr. Densel.  To the extent that any of these additional options have not vested upon a Transaction (as such term is defined in the 2015 Plan), then subject to Mr. Densel’s continuing employment through the effective date of such Transaction, the unvested additional options shall automatically vest and become exercisable:

 

(i)

options to purchase up to 324,750 ordinary shares.  The options shall vest over a period of four years commencing on the date of grant, such that 25% of the options (i.e., options to purchase 81,187 ordinary shares) shall vest on the first anniversary of the date of grant and thereafter, the remaining options will vest in monthly installments, such that options to purchase 6,753 ordinary shares shall vest on the 13-month anniversary of the date of grant and additional options to purchase 6,766  ordinary shares shall vest at the end of each subsequent month thereafter for the remaining 35 months, subject to Mr. Densel’s continuing employment as our Chief Executive Officer on each applicable vesting date; and

 

 

(ii)

options to purchase up to 425,000 ordinary shares.  The options shall vest over a period of four years commencing on the date of grant, such that on each of the four anniversaries after the date of grant a number of options will vest and become exercisable calculated as follows: (a) 425,000 multiplied by a quotient equal to the aggregate number of our Series A Warrants and Long Term Incentive Warrants that have been exercised prior to the applicable anniversary measurement date (to be adjusted to reflect any stock splits, reverse splits, bonus shares and the like) divided by 8,500,000, less (b) the aggregate number of such options that vested prior to such vesting measurement date, provided that in no event shall more than 106,250 of such options vest during any 12-month period of his employment (to be accumulated on a `carry-forward` basis).  Furthermore, no portion of these options shall vest if Mr. Densel’s employment is terminated for any reason prior to the first anniversary of the date of grant of such options and no portion of these options shall vest unless all criteria set by our Compensation Committee and Board of Directors for the applicable 12-month period have been fully achieved.  In the event that Mr. Densel’s employment is terminated prior to the lapse of four years from the date of grant of these options (but following the initial anniversary thereof), then the number of these options that shall vest since the last anniversary measurement shall be calculated, using the above formula ( mutatis mutandis ), on the effective date of such termination.  In the event that Mr. Densel’s employment continues following the lapse of four years from the date of grant of these options, then to the extent that these options have not then vested in their entirety, these options will continue to vest in accordance with the formula described above.

 

·

health insurance and other benefits.  Mr. Densel will be entitled to participate in health insurance, dental insurance, retirement plans (including, without limitation, 401(k) retirement plan and life and disability insurance) and any other benefit plan established by us or the U.S. Subsidiary for senior management in the United States, on a basis consistent with the terms, conditions and overall administration of such insurance and benefit plans. To the extent such plans are not established by us or the U.S. Subsidiary, Mr. Densel shall be entitled to reimbursement of his expenses for the procurement of such plans in an amount equal to the lower of: (i) 100% of the annual payment for such insurance and benefit plans; and (ii) US$25,000 per year, subject to and against receipt of proper invoices;

 

·

annual vacation of 20 working days (in addition to up to 10 days for public holidays).  Mr. Densel shall be entitled to transfer unused vacation days from one 12-month period to the subsequent 12-month period, provided that: (i) the number of unused vacation days so transferred to any subsequent 12-month period shall not exceed 40 unused vacation days; and (b) the aggregate number of unused vacation days at any specific time shall not exceed 60 days; and

 

·

if Mr. Densel’s employment is terminated by the U.S. Subsidiary without “cause” (as such term is defined in Mr. Densel’s employment agreement), other than due to death or disability, he shall be entitled to receive, during the six month period following the termination date, the base salary, payable monthly, any pro-rata portion of his bonus and health insurance (as described above), subject to Mr. Densel executing a waiver and release of any claims in connection with his employment and the termination thereof.

 

Each of the U.S. Subsidiary and Mr. Densel shall be entitled to terminate his employment agreement upon 90 days prior written notice, except that the U.S. Subsidiary will be entitled to terminate his employment agreement immediately for “cause” (as such term is defined in Mr. Densel’s employment agreement).  The U.S. Subsidiary may also terminate his employment agreement immediately if by any reason of injury, illness or other physical or mental impairment, Mr. Densel is unable to perform a significant and substantial part of his duties and responsibilities for an aggregate period of 90 days during any consecutive 180 day period.

 

Mr. Densel’s employment agreement includes standard confidentiality, intellectual property, non-competition and non-solicitation provisions.  In addition, Mr. Densel will continue to benefit from the directors’ and officers’ indemnification and exculpation agreement that we previously entered into with him.

 

The Israeli Companies Law provides that compensation of executive officers must generally be consistent with a company’s compensation policy, which must be adopted within nine months of a company’s initial public offering.  Our Compensation Committee and Board of Directors have determined that the terms of Mr. Densel’s engagement as our Chief Executive Officer are consistent with the Compensation Policy for Executive Officers and Directors that is being presented to our shareholders for approval at the Meeting (see Proposal 1).

 

However, we are seeking shareholder approval of the proposed terms of Mr. Densel’s engagement as our Chief Executive Officer also in the event that our shareholders do not approve the proposed Compensation Policy for Executive Officers and Directors at the Meeting.  Therefore,   in approving the proposed engagement terms, our Compensation Committee and Board of Directors took into account a number of considerations, as required by the Israeli Companies Law, including: Mr. Densel’s education, expertise, professional experience, past achievements and skill set within our industry, as detailed above; the responsibilities and duties to performed by Mr. Densel; the estimation of Mr. Densel’s expected contributions to our future growth; the incentive the compensation will create for him to advance our long-term business objectives and the interests of our shareholders; the ratio of the cost of Mr. Densel’s terms of engagement to the cost of the salary of other company employees (including any employees employed through manpower companies); the ratio between the fixed components and variable components of the proposed compensation, with respect to the performance-based variable compensation, the maximum value at the time of payment and with respect to equity-based variable compensation, the maximum value of the options at the date of grant; with respect to the severance payment, we considered his overall compensation and expected contributions to obtaining our long-term objectives and future growth, as well as certain other factors prescribed by the Israeli Companies Law.  In addition, the Compensation Committee and Board of Directors reviewed comparable industry data, data of peer companies in our industry and the compensation for comparably situated executive officers.   The Compensation Committee directly engaged the services of CompVision, a provider of consulting services relating to human capital and compensation.  CompVision has advised us that Mr. Densel’s compensation package is within the acceptable and reasonable ranges relative to his position in companies similar to our size and in our industry.  No member of the Compensation Committee or any of our executive officers has any affiliation with CompVision.  CompVision reported directly to the Compensation Committee.

 

Based on the factors outlined above, our Compensation Committee and Board of Directors views the proposed terms of engagement of Mr. Densel as Chief Executive Officer as fair and reasonable under the circumstances.

 

It is therefore proposed that at the Meeting, the following resolution be adopted:

 

Under the Israeli Companies Law, the approval of the remuneration of the chief executive officer requires the affirmative vote of the holders of a majority of the ordinary shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, provided  that either of the following two voting requirements are met: (i) the shares voting in favor of the proposal (excluding abstentions) include at least a majority of the shares voted by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the proposal, or (ii) the total number of shares voted against the proposal by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in the matter, does not exceed two-percent of our outstanding voting rights.

 

The Israeli Companies Law requires that each shareholder voting on the proposal indicate on the proxy card, or, if voting in person at the Meeting, inform us prior to voting on the matter at the Meeting, whether or not the shareholder has a personal interest in such proposal.  Otherwise, the shareholder is not eligible to vote on the election of the external directors and his or her vote will not be counted for the purposes of the proposal.  For details regarding the meaning of “personal interest,” see “Vote Required for Approval of the Proposals.”

 

The Board of Directors recommends a vote FOR the foregoing resolution.

 

OTHER MATTERS

 

Our Board of Directors does not intend to bring any matters before the Meeting other than those specifically set forth in the Notice of Extraordinary General Meeting of Shareholders and knows of no matters to be brought before the Meeting by others.  If any other matters properly come before the Meeting, it is the intention of the persons named in the accompanying proxy to vote such proxy in accordance with the judgment and recommendation of the Board of Directors.

 

WHERE YOU CAN FIND MORE INFORMATION

 

Our Annual Report on Form 20-F for the year ended December 31, 2014 filed with the SEC on April 25, 2015, is available for viewing and downloading on the SEC’s website at www.sec.gov as well as under the Investors section of the Company’s website at http://ir.check-cap.com/ .

We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers.  We fulfill these requirements by filing reports with the SEC.  Our filings with the SEC may be inspected without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549.  Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  Our SEC filings are also available to the public on the SEC’s website at www.sec.gov .  As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements.  The circulation of this Proxy Statement should not be taken as an admission that we are subject to those proxy rules.

 

By Order of the Board of Directors,   Tomer Kariv Chairman of the Board of Directors

 

Date: July 6, 2015

 

 

________________________________

 

2.2.

“ Applicable Law ” shall mean any applicable law, rule, regulation, statute, extension order, judgment, order or decree of any federal, state or local governmental, regulatory or adjudicative authority or agency, of any jurisdiction, and the rules and regulations of any stock exchange or trading or quotation system on which the securities of the Company are then traded, listed or quoted.

 

2.3.

“ Board ” means the Board of Directors of the Company.

 

2.4.

“ CEO ” means the Chief Executive Officer of the Company

 

2.5.

“ Committee ” means the Compensation Committee of the Board, within the meaning of the Companies Law.

 

2.6.

“ Companies Law ” means the Israeli Companies Law, 5759-1999 together with the regulations promulgated thereunder, all as amended from time to time.

 

2.7.

“ Director ” means any member of the Board of Directors of the Company.

 

2.8.

“ Executive ” means any Office Holder who does not serve solely as a director.

 

2.9.

“ Office Holders ” means as set forth in the Companies Law, regardless of whether such Office Holder is employed by the Company or an Affiliate thereof.

 

 

2.10.

“ Person ” means (whether or not a capitalized term) any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, estate, unincorporated organization or other entity.

 

2.11.

“ Terms of Office and Engagement ” means as defined in the Companies Law.

 

2.12.

Terms not otherwise defined herein shall have the meaning ascribed to them in the Companies Law, unless the context dictates otherwise. To the extent any provision herein conflicts with the conditions of any Applicable Law, the provisions of the Applicable Law shall prevail over this Policy and the Board is empowered hereunder to interpret and enforce such prevailing provisions.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  References to any law or regulation, rule or ordinance, including any section or other part thereof, shall refer to that as amended from time to time and shall include any successor law.  The use of captions and titles in this Policy is for the convenience of reference only and shall not affect the meaning of any provision of this Plan.

 

2.13.

Nothing in this Policy shall confer upon any person, including, any Office Holder, any rights, entitlements, benefits or remedies whatsoever, including any right or entitlement to any compensation, remuneration or benefits of any kind or nature or to interfere with or limit in any way the right and authority of the Company or any its Affiliates to determine any compensation, remuneration or benefits or to terminate the service or employment of any Office Holder.  The Terms of Office and Engagement of an Office Holder shall only be as set in an agreement between such Office Holder and the Company or its Affiliates or in a written undertaking of the Company or its Affiliates or in a resolution of the relevant organ of the Company or such Affiliate setting forth the Terms of Office and Engagement and their applicability to the relevant Office Holder, and, in each case, as prescribed by Applicable Law.  No representation or warranty is made by the Company in adopting this Policy, and no custom or practice shall be inferred from this Policy or the implementation thereof, which is specific and applied on a case-by-case basis.

 

2.14.

To the extent that an Office Holder’s engagement or service is effected pursuant to an agreement between the Company or any Affiliate thereof, on the one hand, and an Affiliate of the Office Holder, on the other hand, then this Policy shall apply, mutatis mutandis , to the same extent as if the service or engagement would have been made pursuant to an agreement with the Office Holder personally.  To the extent that an Office Holder’s engagement or service (including, a Director in his capacity as such or in other capacities) is not through employment relations with the Company or any Affiliate thereof then this Policy shall apply, mutatis mutandis .

 

2.15.

This Policy shall not apply, and shall have no effect with respect to or derogate from, any Terms of Office and Engagement of any Office Holder which are in effect prior to the date of adoption of this Policy.

 

2.16.

To the extent that after the date on which this Policy is approved in accordance with the Companies Law relief is granted as to the mandatory or minimum requirements prescribed by Applicable Law to be included in a Compensation Policy as of the date hereof, or any limitation contained in this Policy is more stringent than that required by Applicable Law, than such relief or less stringent limitation shall be deemed incorporated by reference into this Policy notwithstanding anything else to the contrary, unless otherwise determined by the Board.

 

 

3.	Administration

 

3.1.

To the extent permitted under the Companies Law, this Policy shall be administered by the Board, unless and to the extent an action necessary for the administration of this Policy is required under the Companies Law to be taken by the Committee (and in any such event, all references herein to the Board shall be construed as references to the Committee).

 

3.2.

Subject to the terms and conditions of this Policy and any mandatory provisions of Applicable Law, and in addition to the Board’s powers provided elsewhere in this Policy and by the Companies Law, the Board shall have full authority in its discretion, from time to time and at any time, to determine any of the following:

 

(b)

prescribe, amend and rescind rules and regulations relating to and for carrying out the Policy, as it may deem appropriate; and

 

(c)

any other matter which is necessary or desirable for, or incidental to, the administration of the Policy and any determination made pursuant thereto.

4.	General Considerations

 

4.1.

This Policy is made, and the Terms of Office and Engagement determined pursuant hereto shall be determined, on the basis of various considerations, including those listed below.

4.1.1.

The Compensation Policy was designed, among other things, to ensure the Company’s ability to recruit and retain the highly talented management personnel that have appropriate qualifications is one of the key elements to the Company.  The Company believes that in order to attract and retain competent and skilled Office Holders that would support the efforts to create shareholder value, the levels of Terms of Office and Engagement should generally be within a range of between average and above average levels in comparable companies.  In certain circumstances, in order to attract unique talents that are considered by the Company as such, the Terms of Office and Engagement may exceed the above levels.

 

4.1.2.

Promoting the Company’s objectives, its business plan and its long-term strategy.  The Company believes that attracting and retaining Office Holders that have appropriate qualifications is one of the key elements to the Company's success. In order to attract and retain Office Holders that possess skills, experience, professional capabilities and motivation that would support the Company’s efforts to increase shareholder value, the Terms of Office and Engagement under which such Office Holders are retained should be competitive, should reflect the anticipated contribution of such Office Holders to the Company and its business, should reflect the scope of authority and responsibilities of the Office Holder and should create adequate incentives for such Office Holders to dedicate their full attention, skills and efforts to the success and growth of the Company.

 

 

4.1.3.

Creating appropriate incentives to the Company’s Office Holders, considering, among other factors, the Company’s risk management policy.  In this respect, the Company will strive to create balanced compensation arrangements under which an Office Holder will be motivated to contribute to the achievement of corporate targets by creating a link between performance and compensation.  On the other hand, attention will be given to the need to allocate an appropriate portion to compensation that is not based on performance with a view to maintaining caution as to the tolerance of risk management.  In addition, the Company believes that the Terms of Office and Engagement should reflect a balance between short-term and long-term achievements, between personal performance of an Office Holder and performance of the Company or specific divisions or regions of the Company, between past performance and future performance and taking into account various other considerations that are appropriate in each individual case.  Moreover, the Company believes that the Terms of Office and Engagement of each Office Holder are both a reflection of the Company’s general policies and the individual circumstances relating to the retention of such Office Holder, and therefore, there may be variations between the Terms of Office and Engagement of different Office Holders.

 

4.1.4.

The size of the Company and the nature of its operations.  The Company is a clinical stage medical diagnostics company engaged in the development of an ingestible imaging capsule that utilizes low-dose X-rays for the screening for colorectal cancer.  In addition, the Company operates in an environment and markets that are dynamic and are continuously in flux offering multiple and different challenges.  Accordingly, in connection with the determination of the Terms of Office and Engagement of each Office Holder, appropriate attention should be given to the particular circumstances and challenges of such Office Holder.

 

4.1.5.

The Terms of Office and Engagement of an Office Holder should generally be determined after consideration is given to the terms offered to comparable Office Holders in comparable companies, to the extent such information is readily available, with a view to the Company’s ability to offer competitive terms and retain competent and capable Office Holders.

 

4.2.

The Terms of Office and Engagement of an Office Holder may include a combination of various components, such as: salary and auxiliary payments and benefits, bonuses, equity or equity-linked awards, expense reimbursement, insurance, exculpation and indemnification, and compensation and benefits mandated by Applicable Law.  In each instance, the appropriate components should be considered, and not necessarily all of the above mentioned components need be included.

 

5.

Specific Considerations in the determination of Terms of Office and Engagement   With a view to achieving the general purpose and intent of the considerations as set forth in Section  ‎‎ 4, the Terms of Office and Engagement of an Office Holder shall be predominantly based on the following considerations:

 

5.1.

The education, qualification, skills, expertise, professional experience, accomplishments, references, reputation and achievements of the Office Holder;

The relevancy and applicability of the foregoing considerations shall be weighed in each particular instance, taking into account that the Company is or will be, in the relatively near future, operating in various jurisdictions, each of which may differ significantly in the norms of its employment practices.

 

The determination shall be made on the basis of all or part of the foregoing considerations and the weight of any particular consideration shall be as determined in the particular instance and based on the specific circumstances.

 

The Company may, but shall not be required to, obtain advice from advisors and professionals for the purpose of assessing and determining the above considerations as the Company deems necessary, including, for the purpose of gathering relevant data, market research, labor practices and economic/cost analysis.

 

6.1.

Fixed Compensation

 

6.1.1.

Base Salary

 

6.1.1.1.

The base salary of an Executive shall be determined during the course of negotiations for his employment in the Company, conducted by the person who will directly supervise him (for the CEO, the Chairman of the Board, and for the other Executives, the CEO).  The base salary will be determined personally for each Executive and shall express the skills of the candidate (including, among other things, his education, expertise, professional experience), his achievements, suitability with the intended position job requirements and the conditions in the relevant market for similar positions in similar companies, on the recruitment date.  The annual gross base salary (i.e., excluding any benefits and entitlements) shall not exceed US$450,000 for the CEO and US$330,000 for Executives other than the CEO.  The Executives’ salary may be linked to any relevant index.

 

6.1.1.2.

In order to retain Executives, the Executives’ base salary shall be reviewed annually, taking into consideration the challenges of the given year and the following year, the complexity of the Executives’ roles, their scope and importance to the Company’s performance, all based upon the general considerations specified above.

(a)

Pension

 

(b)

Further education fund

 

(c)

Severance pay

 

(d)

Managers insurance

 

(e)

Medical insurance (including vision and dental) and life insurance, including with respect to immediate family members

 

(f)

401(K) retirement plan

 

(g)

Disability insurance

 

(h)

Periodic medical examination

 

(i)

Leased car or company car (as well as bearing the cost of related expenses or reimbursement thereof), or the value of the use thereof, or transportation allowance

 

(j)

Telecommunication and electronic devices and communication expenses, including (without limitation) cellular telephone and other devices, personal computer/laptop, Internet, or the value of the use thereof

 

 

(k)

Paid vacation and the number of vacation days that may be accrued, including, if applicable, the redemption thereof

 

(l)

Sick days

 

(m)

Holiday and special occasion gifts

 

(n)

Recuperation pay

 

(o)

Expense reimbursement (including domestic and international travel expenses and per diem payments)

 

(p)

Payments or participation in relocation and related costs and expenses

 

(q)

Clothing allowance

 

(r)

Loans or advances (subject to Applicable Law)

 

(s)

Professional or academic courses or studies

 

(t)

Newspaper or online subscriptions

 

(u)

Professional literature

 

(v)

Professional membership dues or subscription fees

 

(w)

Professional advice or analysis (such as pension, insurance and tax)

 

(x)

Exculpation and indemnification

 

(y)

General directors’ and officers’ liability insurance covering persons serving at present or in the future, from time to time, as directors and officers of the Company and its subsidiaries (including those who also serve as officers, directors or employees of a controlling shareholder), including renewals thereof, with coverage substantially similar to the coverage in effect on the date of approval of this Policy, or as may be increased from time to time to reflect the circumstances at the time (including the Company’s activities, size and status, markets at which its shares are traded etc.) and at premiums that are substantially similar to the premiums in effect on the date of approval of this Policy, or as may be increased from time to time, subject to receipt of and in accordance with corporate approvals

 

(z)

Directors’ and officers' liability insurance with respect to specific events, such as public offerings, or with respect to periods to time following which the then existing insurance coverage ceases to apply, such as “run-off” coverage in connection with a change in control

 

(aa)

Non-solicitation and/or non-compete undertakings for a period of time after termination, and payment in consideration for such undertaking not exceeding the total amount of compensation (including benefits) that would have been payable to the Executive had he or she continued to be employed during the non-solicitation or non-compete period

 

 

(bb)

Other benefits generally provided to Company employees (or any applicable Affiliate or division)

 

(cc)

Other benefits or entitlements mandated by Applicable Law

 

(dd)

Other benefits and entitlements that are part of compensation practices in the industry, relevant geographical location, region of activity or jurisdiction

 

6.2.

Variable Compensation

 

6.2.1.

The Company believes that the Terms of Office and Engagement should reflect a balance between short-term and long-term achievements, between personal performance of an Office Holder and performance of the Company or specific divisions or regions of the Company, between past performance and future performance and taking into account various other considerations that are appropriate in each individual case. Therefore, the Company believes that annual variable compensation (which may include plan-based annual bonuses and the value of equity, as set forth in Sections ‎ 6.2.2.16 and ‎ 6.3 hereof, but excluding special bonuses and sign-on bonus) may constitute up to 85% and 75% of the overall (combined fixed and variable) annual compensation, for the CEO and for other Executives, respectively.

 

6.2.2.

Bonuses .  Bonuses may include plan-based annual bonuses and other bonuses:

6.2.2.1.

Annual Bonus

 

 

6.2.2.2.

Special Bonuses

6.2.2.3.

Sign-on Bonus

 

6.3.4.

With respect to an equity award under the Equity Plan that includes an exercise price – the exercise price shall not be lower than the average closing price of the Company’s ordinary shares on the NASDAQ Stock Market during the 30 trading days prior to the date of grant of the award.

 

The Terms of Office and Engagement of an External Director (as defined in the Companies Law) shall also be subject to and determined in accordance with the Companies Law.

 

 

8.	Recoupment

 

The Terms of Office and Engagement of an Office Holder shall include provisions that require an Office Holder to repay to the Company amounts paid to such Officer Holder as part of the Terms of Office and Engagement, if they were paid on the basis of figures that later transpire to be incorrect and were restated in the Company’s financial statements.  The Compensation Committee shall be entitled to determine the amounts and conditions of such repayment, which may include terms under which (i) repayment will be made either on a pre-tax basis or an after-tax basis, unless and to the extent the Office Holder was able to recoup tax payments made with respect to the amounts to be repaid, (ii) no repayment obligation shall arise after the lapse of a period of time to be set forth in the Terms of Office and Engagement of an Office Holder, being no less than three years from the date on which the original payments was due to be made, (iii) the period of time of no more than 12 months over which the repayment payments to the Company shall be made and the ability to make the repayment in installments or (to the extent permitted under Applicable Law) as a set-off against cash compensation paid by the Company to the Executive during such period , (iv) no repayment obligation shall arise in the event that the reason or basis for the restatement was due to changes in the Applicable Law, including generally acceptable accounting principles or financial reporting standards; and (v) such other provisions as determined in each case.  Nothing in this Section ‎ 8 shall derogate from or limit any other or similar provisions imposed on an Office Holder by Applicable Law, including, securities laws.

 

9.	Effectiveness; Term