The material employment terms for Mr. Fima,Kaufman, our Chief Executive Officer and Chief Technical Officer, are as follows: (1) ana gross annual salary of NIS 420,000 (approximately $127,000) in return for 90%564,000 ($160,000); (2) reimbursement of a full-time position; (2) an annual bonus, subject to achievement of objectives set by the board of directors,travel expenses of up to NIS 210,000 (approximately $64,000; and60,000 ($17,000); (3) all employee benefit plans, programs and arrangements, and all fringe benefits and perquisites that are made available to our senior executives. Separate from his holdings as a founding shareholder, we have issued Mr. Fima options to purchase 500,000 ordinary shares atOrdinary Shares (currently equivalent to 50,000 ADSs), vesting over three years from the date of his appointment as Chief Executive Officer, pursuant to which 1/12 will vest every quarter until fully vested, expiring one year following Mr. Kaufman’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our sale or change in control; (4) an annual performance bonus in the aggregate amount of NIS 2.32 (approximately $0.70) per share282,000 ($80,000), subject to his meeting certain performance milestones as determined by our board of directors on an annual basis; (5) termination of the employment relationship upon provision of six months’ advance notice by either party; (6) severance pay equal to 25% of the gross annual salary upon termination of Mr. Kaufman’s employment by us, not for cause, following three to twelve months of service, or 50% following twelve or more months of service (or 50% of these amounts upon Mr. Kaufman’s resignation); and (7) social benefits that we pay on behalf of officers, such as payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), pension, severance, risk insurance (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies, such as inclusion in connection withour directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings to the fullest extent permitted by the Companies Law.
Our other employees are employed under the terms prescribed in their respective employment contracts. The employees are entitled to the social benefits prescribed by law and as otherwise provided in their agreements. These agreements each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under currently applicable labor laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. See “Item 3.—Key Information—Risk“Risk Factors—Risks Related to Our Operations” for a further description of the enforceability of non-competition clauses. We also provide certain of our employees with a company car, which is leased from a leasing company.
Executive officers are also employed on the terms and conditions prescribed in employment agreements. These agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. See “Item 3.—Key Information—Risk“Risk Factors—Risks Related to Our Operations—If we are unable to attract and retain qualified employees, our ability to implement our business plan may be adversely affected.”
In June 2018, the board of directors of Ophectra adopted our Option and RSU Allocation Plan, as amended, in 2019, or the share option plan, to issue options to purchase our ordinary sharesOrdinary Shares and restricted stock units to our directors, officers, employees and consultants, and those of our affiliated companies (as such term is defined under share option plan), or the Grantees. The share option plan is administered by our Boardboard of directors or a committee that was designated by the Boardboard of directors for such purpose, or the Administrator.
Options pursuant to the first three tax tracks (under Section 102 of the ITO) can be granted to our employees and directors and the grant of options under Section 3(i) can be granted to our consultants and controlling shareholders (a controlling shareholder is defined under the Section 102 of the ITO is a person who holds, directly or indirectly, alone or together with a “relative,” (i) the right to at least 10% of the company’s issued capital or 10% of the voting power; (ii) the right to hold at least 10% of the company’s issued capital or 10% of the voting power, or the right to purchase such rights; (iii) the right to receive at least 10% of the company’s profits; or (iv) the right to appoint a company’s director). Grantees who are not Israeli residents may be granted options that are subject to the applicable tax laws in their respective jurisdictions.
We determine, in our sole discretion, under which of the first three tax tracks above the options are granted and we notify the Grantee in a grant letter, as to the elected tax track. As mentioned above, consultants and controlling shareholders can only be granted Section 3(i) options.
In the event of a (i) merger or consolidation in which we (in this context, specifically MeaTech 3DSteakholder Foods Ltd.) are not the surviving entity or pursuant to which the other company becomes our parent company or that pursuant to which we are the surviving company but another entity holds 50% or more of our voting rights, (ii) an acquisition of all or substantially all of our ordinary shares,Ordinary Shares, (iii) the sale of all or substantially all of our assets, or (iv) any other event with a similar impact, we may exchange all of our outstanding options granted under the share option plan that remain unexercised prior to any such transaction for options to purchase shares of the successor corporation (or those of an affiliated company) following the consummation of such transaction.
The exercise price of an option granted under the share option plan will be specified in the grant letter every Grantee received from us in which the Grantee notifies of the decision to grant him/her options under the share option plan, and will be denominated in our functional currency at the time of grant or the currency in which the Grantee is paid, at our discretion.
The Administrator may, in its absolute discretion, accelerate the time at which options granted under the share option plan or any portion of which will vest.
Unless otherwise determined by the Administrator, in the event that the Grantee’s employment was terminated, not for Cause (as defined in the share option plan), the Grantee may exercise that portion of the options that had vested as of the date of such termination until the end of the specified term in the grant letter or the share option plan. The portion of the options that had not vested at such date, will be forfeited and can be re-granted to other Grantees, in accordance with the terms of the share option plan.
C. Board Practices
Under our articles of association, our board of directors must consist of no less than three and no more than 11seven directors including(including the external directors, if any), divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors will be for a term of office that expires on the third annual general meeting following such election or re-election.
In addition, our articles of association allow our board of directors to appoint new directors to fill vacancies which can occur for any reason or as additional directors, provided that the number of board members shall not exceed the maximum number of directors mentioned above. The appointment of aA director by the board shall be in effectso appointed will hold office until the followingnext annual general meeting of our shareholders for the shareholderselection of the class of directors in respect of which the vacancy was created, or untilin the endcase of his tenurea vacancy due to the number of directors being less than the maximum number of directors stated in accordance with our articles of association.association, until the next annual general meeting of our shareholders for the election of the class of directors to which such director was assigned by our board of directors. Our board of directors may continue to operate for as long as the number of directors is no less than the minimum number of directors mentioned above.
In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. See “— External directors — Qualifications of external directors.” He or she must be able to thoroughly comprehend the financial statements of the company and initiate discussion regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting expertise and that Eli Arad Shirly Cohen and David Gerbi have such expertise.
Alternate Directors56
Our articles of association provide, as allowed by the Companies Law, that any director may, by written notice to us, appoint another person who is qualified to serve as a director to serve as an alternate director. An alternate director has the same rights and responsibilities as a director, except for the right to appoint an alternate director. The appointment of an alternate director does not negate the responsibilities of the appointing director, who will continue to bear responsibility for the actions of the alternate, giving consideration to the circumstances of the appointment. The Companies Law specifies certain qualifications for alternate directors, and provides that one director may not serve as an alternate on the board of directors for another director, nor as an alternate on a committee of which he or she is already a member. As of the date of this Annual Report on Form 20-F, no director has appointed any other person as an alternate director.
External Directors
AsThe Companies Law requires a public Israeli company we are required by the Companies Law to have at least two external directors who meet certain independence criteria to ensure that they are unaffiliated with usthe company and ourits controlling shareholder.
An external director must have either financial and accounting expertise or professional qualifications, as defined in the regulations promulgated under the Companies Law, and at least one of the external directors is required to have financial and accounting expertise. An external director is entitled to reimbursement of expenses and compensation as provided in the regulations promulgated under the Companies Law, but is otherwise prohibited from receiving any other compensation from us,the company, directly or indirectly, during his or her term and for two years thereafter.
Under the Companies Law, external directors must be elected at a shareholders’ meeting by a simple majority of the votes cast on the matter, provided that such majority includes a majority of the votes cast by non-controlling shareholders and shareholders who do not have a personal interest in the election (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder), unless the votes cast by such shareholders against the election did not exceed 2% of our aggregate voting rights. External directors serve for up to three terms of three years each, and our audit committee and board of directors may nominate them for additional terms under certain circumstances. Even if an external director is not nominated by our board of directors for reelection for a second or third term, shareholders holding at least 1% of our voting rights have the right to nominate the external director for reelection. In such a case, the reelection can be approved by a majority of the votes cast by non-controlling shareholders and shareholders who do not have a personal interest in the election (excluding a personal interest that did not result from the shareholder’s relationship with the controlling shareholder) and the votes cast by such shareholders approving the election exceed 2% of our aggregate voting rights. A term of an external director may be terminated prior to expiration only by a shareholder vote, by the same threshold required for election, or by a court, but in each case only if the external director ceases to meet the statutory qualifications for election or if the external director violates his or her duty of loyalty to us. If at the time of election of an external director all of the members of the board of directors (excluding controlling shareholders or relatives of controlling shareholders) are of the same gender, the external director to be elected must be of the other gender.
Under the Companies Law, each committee of a company’s board of directors that is authorized to exercise powers of the board of directors is required to include at least one external director, and all external directors must be members of the company’s audit committee and compensation committee.
We currently have two external directors: Eli Arad, whose first term commenced on February 21, 2018 and whose second term commenced on March 8, 2021, and David Gerbi, whose first term commenced on August 27, 2019. Our board of directors has determined that our external directors have accounting and financial expertise and/or possess the requisite professional qualifications as required under the Nasdaq Marketplace Rules.
Pursuant to regulations promulgated under the Companies Law, companiesas a company with shares traded on certain U.S. stock exchanges, including Nasdaq, may, subjectwe have elected no to certain conditions, ‘‘opt out’’ ofcomply with the requirements to appoint external directors and related rules concerning the composition of the audit committee and compensation committee of the board of directors. Such a company willWe are still be subject to the gender diversity rule under the Companies Law, which requires that if, at the time a director is to be elected or appointed, all members of the board of directors are of the same gender, the director to be appointed must be of the other gender. The conditions to the exemptions from the Companies Law requirements are that: (i) the company does not have a “controlling shareholder,” as such term is defined under the Companies Law, (ii) its shares are traded on certain U.S. stock exchanges, including Nasdaq, and (iii) it comply with the director independence requirements and the audit committee and compensation committee composition requirements under U.S. laws, including the rules of the applicable exchange, that are applicable to U.S. domestic issuers. If a company elects to opt out, the former external directors would continue to serve, but as regular directors, for a transition period.
CommitteesEmployment Agreements and Director Fees
We have entered into written employment agreements with each of our executive officers, which provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. See “Risk Factors — Risks relating to our operations — Under applicable employment laws, we may not be able to enforce covenants not to compete” for a further description of the enforceability of non-competition clauses.
The material employment terms for Mr. Kaufman, our Chief Executive Officer, are as follows: (1) a gross annual salary of NIS 564,000 ($160,000); (2) reimbursement of annual travel expenses of up to NIS 60,000 ($17,000); (3) options to purchase 500,000 Ordinary Shares (currently equivalent to 50,000 ADSs), vesting over three years from the date of his appointment as Chief Executive Officer, pursuant to which 1/12 will vest every quarter until fully vested, expiring one year following Mr. Kaufman’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our sale or change in control; (4) an annual performance bonus in the aggregate amount of NIS 282,000 ($80,000), subject to his meeting certain performance milestones as determined by our board of directors on an annual basis; (5) termination of the employment relationship upon provision of six months’ advance notice by either party; (6) severance pay equal to 25% of the gross annual salary upon termination of Mr. Kaufman’s employment by us, not for cause, following three to twelve months of service, or 50% following twelve or more months of service (or 50% of these amounts upon Mr. Kaufman’s resignation); and (7) social benefits that we pay on behalf of officers, such as payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), pension, severance, risk insurance (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies, such as inclusion in our directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings to the fullest extent permitted by the Companies Law.
The material terms for Mr. Kaiser, the Chairman of our board of directors, were as follows from his appointment in January 2022, until January 24, 2023: (1) an annual fee of $150,000, to be paid in four equal quarterly installments in USD or in NIS at the then-current exchange rate, which will automatically increase by an amount equal to seven percent at the end of each year of service; (2) reimbursement of annual travel expenses of up to $18,000; (3) options to purchase 350,000 Ordinary Shares (currently equivalent to 35,000 ADSs), vesting over three years from the date of his appointment as Chairman, pursuant to which 1/12 will vest every quarter until fully vested, expiring one year following Mr. Kaiser’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our sale or change in control; (4) an annual bonus equal to 50% of the bonus awarded to the Chief Executive Officer in the applicable year; (5) severance pay equal to 12.5% of Mr. Kaiser’s annual fee upon the involuntary termination of his directorship, not for cause, following three to twelve months of service, or 25% following twelve or more months of service (or 50% of these amounts upon Mr. Kaiser’s resignation); and (6) other benefits and perquisites consistent with our policies, such as inclusion in our directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings to the fullest extent permitted by the Companies Law.
Effective January 24, 2023, pursuant to approvals by our Compensation Committee, Board of Directors and a general meeting of our shareholders, the following amendments to the materials terms for Mr. Kaiser were adopted: his annual fee was adjusted to $290,000, automatically increased by an amount equal to seven percent at the end of each year of service commencing from the date of adjustment; his annual bonus shall be equal to 70% of the bonus awarded to the Chief Executive Officer in the applicable year; he received an allocation of restricted share units (RSUs) vesting into 1,340,000 ordinary shares (currently equivalent to 134,000 ADSs), vesting over three years from the date of adjustment, pursuant to which 1/12 will vest every quarter until fully vested, with no exercise price, issued under the Company’s 2022 Share Incentive Plan and the Capital Gains tax track pursuant to Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 and subject to acceleration upon termination pursuant to either our sale or change in control; and he received an allocation of performance share units (PSUs) vesting into 1,340,000 ordinary shares (currently equivalent to 134,000 ADSs), vesting upon achievement of any one of the following milestones: (i) engagement with a strategic partner / investor (a corporation operating in the field of food, healthcare, pharmaceuticals or printing) for an investment in the company or its subsidiaries, in cash in an amount of not less than five hundred thousand dollars; (ii) submission of a regulatory approval to the U.S. FDA, Singapore Food Agency or European Food Safety Authority, for the commercial sale or distribution of our products; or (iii) engagement with a strategic partner (as defined above) in a joint development agreement to collaborate to develop technology or products for the purpose of later commercialization.
In addition, we pay fees to our non-executive directors in return for their service on our board of directors, in accordance with our compensation policy.
Our other employees are employed under the terms prescribed in their respective employment contracts. The employees are entitled to the social benefits prescribed by law and as otherwise provided in their agreements. These agreements each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under currently applicable labor laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. See “Risk Factors—Risks Related to Our Operations” for a further description of the enforceability of non-competition clauses.
Executive officers are also employed on the terms and conditions prescribed in employment agreements. These agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. See “Risk Factors—Risks Related to Our Operations—If we are unable to attract and retain qualified employees, our ability to implement our business plan may be adversely affected.”
2018 Option and RSU Allocation Plan
In June 2018, the board of directors of Ophectra adopted our Option and RSU Allocation Plan, as amended, or the share option plan, to issue options to purchase our Ordinary Shares and restricted stock units to our directors, officers, employees and consultants, and those of our affiliated companies (as such term is defined under share option plan), or the Grantees. The share option plan is administered by our board of directors or a committee that was designated by the board of directors for such purpose, or the Administrator.
Under the share option plan, we may grant options to purchase Ordinary Shares and/or RSUs, or options, under four tracks: (i) Approved 102 capital gains options through a trustee, which was approved by the Israeli Tax Authority in accordance with Section 102(a) of the Israeli Income Tax Ordinance (New Version), 1961, or ITO, and granted under the tax track set forth in Section 102(b)(2) of the ITO. The holding period under this tax track is 24 months from the date of issuance of options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO, or any applicable tax ruling or guidelines; (ii) Approved 102 earned income options through a trustee, granted under the tax track set forth is Section 102(b)(1) of the ITO. The holding period under this tax track is 12 months from the date of issuance of options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO; (iii) Unapproved 102 options (the options will not be issued through a trustee and will not be subject to a holding period); and (iv) 3(i) options (the options will not be subject to a holding period). These options shall be subject to taxation pursuant to Section 3(i) of the ITO, or Section 3(i).
Options pursuant to the first three tax tracks (under Section 102 of the ITO) can be granted to our employees and directors and the grant of options under Section 3(i) can be granted to our consultants and controlling shareholders (a controlling shareholder is defined under the Section 102 of the ITO is a person who holds, directly or indirectly, alone or together with a “relative,” (i) the right to at least 10% of the company’s issued capital or 10% of the voting power; (ii) the right to hold at least 10% of the company’s issued capital or 10% of the voting power, or the right to purchase such rights; (iii) the right to receive at least 10% of the company’s profits; or (iv) the right to appoint a company’s director). Grantees who are not Israeli residents may be granted options that are subject to the applicable tax laws in their respective jurisdictions.
We determine, in our sole discretion, under which of the first three tax tracks above the options are granted and we notify the Grantee in a grant letter, as to the elected tax track. As mentioned above, consultants and controlling shareholders can only be granted Section 3(i) options.
The number of Ordinary Shares authorized to be issued under the share option plan will be proportionately adjusted for any increase or decrease in the number of Ordinary Shares issued as a result of a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the shares or other capital change), or issuance of rights to purchase Ordinary Shares or payment of a dividend. We will not issue fractions of Ordinary Shares and the number of Ordinary Shares shall be rounded up to the closest number of ordinary shares.
In the event of a (i) merger or consolidation in which we (in this context, specifically Steakholder Foods Ltd.) are not the surviving entity or pursuant to which the other company becomes our parent company or that pursuant to which we are the surviving company but another entity holds 50% or more of our voting rights, (ii) an acquisition of all or substantially all of our Ordinary Shares, (iii) the sale of all or substantially all of our assets, or (iv) any other event with a similar impact, we may exchange all of our outstanding options granted under the share option plan that remain unexercised prior to any such transaction for options to purchase shares of the successor corporation (or those of an affiliated company) following the consummation of such transaction.
The exercise price of an option granted under the share option plan will be specified in the grant letter every Grantee received from us in which the Grantee notifies of the decision to grant him/her options under the share option plan, and will be denominated in our functional currency at the time of grant or the currency in which the Grantee is paid, at our discretion.
The Administrator may, in its absolute discretion, accelerate the time at which options granted under the share option plan or any portion of which will vest.
Unless otherwise determined by the Administrator, in the event that the Grantee’s employment was terminated, not for Cause (as defined in the share option plan), the Grantee may exercise that portion of the options that had vested as of the date of such termination until the end of the specified term in the grant letter or the share option plan. The portion of the options that had not vested at such date, will be forfeited and can be re-granted to other Grantees, in accordance with the terms of the share option plan.
At the discretion of our board of directors, and subject to receipt of taxation authority approvals, we may allow Grantees to exercise their options on a cashless basis.
2022 Share Incentive Plan
We adopted the 2022 Share Incentive Plan, or the 2022 Plan, on June 10, 2022, and a general meeting of our shareholders approved the 2022 Plan on March 30, 2023. The 2022 Plan provides for the grant of equity-based incentive awards to our employees, directors, office holders, service providers and consultants in order to incentivize them to increase their efforts on behalf of the Company and to promote the success of the Company’s business.
Shares Available for Grants. The maximum number Shares (which means ordinary shares, of no par value, (including ordinary shares resulting or issued as a result of share split, reverse share split, bonus shares, combination or other recapitalization events, and including in the form of ADSs), or shares of such other class of shares as shall be designated by the board of directors of the Company in respect of the relevant award) available for issuance under the 2022 Plan is equal to the sum of (i) 8,500,000 Shares, (ii) 1,127,850 Shares, which represents the number of Shares available for issuance under the Option and RSU Allocation Plan, or the Prior Plan, on the effective date of the 2022 Plan, and (iii) an annual increase on the first day of each year beginning in 2023 and on January 1st of each calendar year thereafter and ending on January 1, 2032, equal to the lesser of (A) 5% of the outstanding ordinary shares of the Company on the last day of the immediately preceding calendar year, on a fully diluted basis; and (B) such amount as determined by our board of directors if so determined prior to January 1 of a calendar year. Shares issued under the 2022 Plan may be, in whole or in part, authorized but unissued Shares, (and, subject to obtaining a ruling as it applies to 102 awards) treasury shares (dormant shares) or otherwise Shares that shall have been or may be repurchased by the Company (to the extent permitted pursuant to the Companies Law).
Any Shares (a) underlying an award granted under the 2022 Plan or an award granted under the Prior Plan (in an amount not to exceed 8,498,490 Shares under the Prior Plan) that has expired, or was cancelled, terminated, forfeited, or settled in cash in lieu of issuance of Shares, for any reason, without resulting in the issuance of Shares; (b) if permitted by the Company, subject to an award that are tendered to pay the exercise price of an award; or withholding tax obligations with respect to an award; or if permitted by the Company, subject to an award that are not delivered to a Grantee because such Shares are withheld to pay the exercise price of such award; or withholding tax obligations with respect to such award may again be available for issuance under the 2022 Plan and for issuance upon exercise or (if applicable) vesting thereof for the purposes of the 2022 Plan, unless determined otherwise by the Board. Our board of directors may also reduce the number of ordinary shares reserved and available for issuance under the 2022 Plan in its discretion.
The maximum aggregate number of Shares that may be issued pursuant to the exercise of incentive stock options granted under the 2022 Plan, or the ISO Limit, shall be the sum of (a) the aggregate number of Shares set forth in clauses (a) and (b) in the above paragraph; and (b) any Shares underlying awards granted under the Prior Plan that are returned to the 2022 Plan (not to exceed 8,498,490 Shares). To the extent permitted under Section 422 of the United States Internal Revenue Code of 1986, and any applicable regulations promulgated thereunder, all as amended (the “Code”), any Shares covered by an award that has expired, or was cancelled, terminated, forfeited, or settled in cash without the issuance of Shares shall not count against the ISO Limit. Shares that actually have been issued under the 2022 Plan shall not become available for future issuance hereunder pursuant to incentive stock options.
Administration. Our board of directors, or a duly authorized committee of our board of directors, or the Administrator, or the Administrator, will administer the 2022 Plan. Under the 2022 Plan, the Administrator has the authority, subject to applicable law, to interpret the terms of the 2022 Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine and amend the terms of awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms of agreement for use under the 2022 Plan and take all other actions and make all other determinations necessary for the administration of the 2022 Plan.
The Administrator also has the authority to approve the conversion, substitution, cancellation or suspension under and in accordance with the 2022 Plan of any or all option awards or ordinary shares, and the authority to modify option awards to eligible individuals who are foreign nationals or are individuals who are employed outside Israel to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of the 2022 Plan but without amending the 2022 Plan; provided, that if the Administrator takes such action with respect to an award held by a U.S. service provider, it shall do so in accordance with the requirements of Section 409A of the Code, if applicable.
The Administrator also has the authority to amend and rescind rules and regulations relating to the 2022 Plan or terminate the 2022 Plan at any time before the date of expiration of its ten year term.
Eligibility. The 2022 Plan provides for granting awards under various tax regimes, including, without limitation, in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version) 5271-1961, and the regulations and rules promulgated thereunder, all as amended from time to time (the “Ordinance”), and Section 3(i) of the Ordinance and in compliance with Section 422 of the Code and Section 409A of the Code as they relate to U.S. service providers when granted Nonqualified Stock Options, and to U.S. service providers who are Employees when granted Incentive Stock Options.
Grants. All awards granted pursuant to the 2022 Plan will be evidenced by an award agreement, in a form approved, from time to time, by the Administrator in its sole discretion. The award agreement will set forth the terms and conditions of the award, including the type of award, number of shares subject to such award, vesting schedule and conditions (including performance goals or measures) and the exercise price, if applicable. Certain awards under the 2022 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards.
Unless otherwise determined by the Administrator and stated in the award agreement, and subject to the conditions of the 2022 Plan, awards vest and become exercisable under the following schedule: 25% of the shares covered by the award on the first anniversary of the vesting commencement date determined by the Administrator (and in the absence of such determination, the date on which such award was granted) and 6.25% of the Shares covered by the award at the end of each subsequent three-month period thereafter over the course of the following three years; provided that the grantee remains continuously as an employee or provides services to the company throughout such vesting dates.
Each award will expire ten years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the Administrator.
Awards. The 2022 Plan provides for the grant of stock options (including incentive stock options and nonqualified stock options), ordinary shares, restricted shares, RSUs, stock appreciation rights and other share-based awards.
Options granted under the 2022 Plan to the Company employees who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code, or may be non-qualified stock options. The exercise price of an option may not be less than the par value of the Shares (if the Shares bear a par value) for which such option is exercisable. The exercise price of an Incentive Stock Option may not be less than 100% of the fair market value of the underlying share on the date immediately preceding the day of the grant or such other amount as may be required pursuant to the Code, and in the case of Incentive Stock Options granted to ten percent stockholders, not less than 110%.
Nonqualified stock options may not be granted to a U.S. service provider unless (i) the Shares underlying such options constitute “service recipient stock” under Section 409A of the Code and such options meet the other requirements to be exempt from Section 409A of the Code or (ii) such options comply with the requirements of Section 409A of the Code. A nonqualified stock option may be granted with an exercise price lower than the minimum exercise price set forth above if (i) such option is granted pursuant to an assumption or substitution for another option in accordance with and pursuant to Section 409A of the Code or (ii) the Administrator expressly determined that the option will have a lower exercise price and the Option complies with Section 409A of the Code or meets another exemption under Section 409A of the Code.
Incentive stock options may be granted only to U.S. service providers who are employees of the Company. However, if for any reason an option (or portion thereof) does not qualify as an incentive stock option, then, to the extent of such non-qualification, such option (or portion thereof) shall be treated as a nonqualified stock option granted under the 2022 Plan.
An RSU may be awarded to any service provider, including under Section 102 of the Ordinance. Subject to Applicable Law, RSUs may be granted in consideration of a reduction in the recipient’s other compensation. No payment of exercise price shall be required as consideration for RSUs, unless included in the award agreement or as required by applicable law. The grantee shall not possess or own any ownership rights in the Shares underlying the RSUs. Settlement of vested RSUs shall be made in the form of Shares. Distribution to a grantee of an amount (or amounts) from settlement of vested RSUs can be deferred to a date after vesting as determined by the Administrator; provided, that no such deferral shall be made with respect to RSUs held by a U.S. service provider if such deferral would cause such RSUs to fail to qualify for an exemption under Section 409A of the Code and become subject to the requirements of Section 409A of the Code, unless expressly determined by the Administrator, or would violate the requirements of Section 409A. In no event shall any dividends or dividend equivalent rights be paid before the vesting of the portion of the RSUs to which such dividends or dividend equivalent rights relate, unless otherwise provided for in an award agreement or determined by the Committee. Any RSUs granted under the 2022 Plan that are not exempt from the requirements of Section 409A of the Code shall contain such restrictions or other provisions so that such RSUs will comply with the requirements of Section 409A of the Code.
Exercise. An award under the 2022 Plan may be exercised by providing the Company with a written or electronic notice of exercise and full payment of the exercise price for such shares underlying the award, if applicable, in such form and method as may be determined by the Administrator and permitted by applicable law. An award may not be exercised for a fraction of a share. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2022 Plan, the Administrator may, in its discretion, accept cash, provide for net withholding of shares in a cashless exercise mechanism or direct a securities broker to sell shares and deliver all or a part of the proceeds to the Company or the trustee. The exercise period of an award will be determined by the Administrator and stated in the award agreement, but will in no event be longer than ten (10) years from the date of grant of the award. Notwithstanding anything to the contrary, the Administrator may extend the periods for which awards held by any grantee may continue to vest and/or be exercisable; it being clarified that such awards may lose their entitlement to certain tax benefits under applicable law; if done so with respect to a U.S service provider, the Administrator shall act in accordance with Section 409A of the Code, as applicable.
Transferability. Other than by will, the laws of descent and distribution or as otherwise provided under the 2022 Plan, neither the options nor any right in connection with such options are assignable or transferable.
Termination of Employment. In the event of termination of a grantee’s employment or service with the Company or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination may be exercised within three months after such date of termination, unless otherwise determined by the Administrator, but in no event later than the date of expiration of the award as set forth in the award agreement. After such three-month period, all such unexercised awards will terminate and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
In the event of termination of a grantee’s employment or service with the Company or any of its affiliates due to such grantee’s death or permanent disability, or in the event of the grantee’s death within the three month period (or such longer period as determined by the Administrator) following his or her termination of service, all vested and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal guardian, estate or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within one year after such date of termination, unless otherwise provided by the Administrator, but in no event later than the date of expiration of the award as set forth in the award agreement. Any awards which are unvested as of the date of such termination or which are vested but not then exercised within the one year period following such date, will terminate and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Notwithstanding any of the foregoing, if a grantee’s employment or services with the Company or any of its affiliates is terminated for “cause” (as defined in the 2022 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Any Option that is intended to be an incentive stock option and is exercised later than three (3) months after the grantee ceases to be employed by the Company (or any parent or subsidiary), except in the case of death or “Disability” (as defined in Section 22(e)(3) of the Code), will be deemed a nonqualified stock option. If the grantee ceases to be employed by the Company (or any parent or subsidiary) due to disability, any option that is intended to be an incentive stock option and is exercised later than twelve (12) months after such termination date will be deemed a nonqualified stock option.
Voting Rights. Except with respect to restricted share awards, grantees will not have the rights as a shareholder of the Company with respect to any shares covered by an award until the award has vested and/or the grantee has exercised such award, paid any exercise price for such award and becomes the record holder of the shares. With respect to restricted share awards, grantees will possess all incidents of ownership of the restricted shares, including the right to vote and receive dividends on such shares.
Dividends. Grantees holding restricted share awards will be entitled to receive dividends and other distributions with respect to the shares underlying the restricted share award. Any stock split, stock dividend, combination of shares or similar transaction will be subject to the restrictions of the original restricted share award. Grantees holding RSUs will not be eligible to receive dividend but may be eligible to receive dividend equivalents.
Transactions. In the event of a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Company’s shares, the Administrator in its sole discretion may, and where required by applicable law shall, without the need for a consent of any holder, make an appropriate adjustment in order to adjust (i) the number and class of shares reserved and available for the outstanding awards, (ii) the number and class of shares covered by outstanding awards, (iii) the exercise price per share covered by any award, (iv) the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding awards, (v) the type or class of security, asset or right underlying the award (which need not be only that of the Company, and may be that of the surviving corporation or any affiliate thereof or such other entity party to any of the above transactions), and (vi) any other terms of the award that in the opinion of the Administrator should be adjusted; provided that any fractional shares resulting from such adjustment shall be rounded to the nearest whole share unless otherwise determined by the Administrator. In the event of a distribution of a cash dividend to all shareholders, the Administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised award shall be reduced by an amount equal to the per share gross dividend amount distributed by the Company, subject to applicable law.
In the event of a merger or consolidation of the Company or a sale of all, or substantially all, of the Company’s shares or assets or other transaction having a similar effect on the Company, or change in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances that our board of directors determines to be a relevant transaction, then without the consent of the grantee, (i) unless otherwise determined by the Administrator, any outstanding award will be assumed or substituted by such successor corporation, or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, (b) cancel the award and pay in cash, shares of the Company, the acquirer or other corporation which is a party to such transaction or other property as determined by the Administrator as fair in the circumstances, or (c) provide that the terms of any award shall be otherwise amended, modified or terminated, as determined by the Administrator to be fair in the circumstances. Changes with respect to awards held by U.S. service providers shall be made in accordance with the requirements of Section 409A of the Code or Section 424 of the Code, as applicable and to the extent necessary to avoid adverse tax consequences under Section 409A of the Code, a transaction or other event will not be deemed a Merger/Sale for purposes of awards granted to U.S. service providers unless the transaction or other event qualifies as a change in control event within the meaning of Section 409A of the Code.
C. Board Practices
Board of Directors
Our board of directors has establishedconsists of four directors, three of whom are deemed independent directors under the following committees. Each committee operates in accordance with a written charter that sets forthcorporate governance standards of the committee’s structure, operations, membershipNasdaq Marketplace Rules and the independence requirements responsibilities and authority to engage advisors.
Audit Committeeof Rule 10A-3 of the Exchange Act, as well as the standards of the Companies Law.
Under our articles of association, our board of directors must consist of no less than three and no more than seven directors (including the Companies Law,external directors, if any), divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third of the Exchange Acttotal number of directors constituting the entire board of directors. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors will be for a term of office that expires on the third annual general meeting following such election or re-election.
Our directors are divided among the three classes as follows:
the Class I directors are Messrs. Eli Arad and Nasdaq Marketplace Rules, we areDavid Gerbi and their respective terms will expire at the Company’s annual general meeting of shareholders to be held in 2026;
the Class II director is Ms. Sari Singer and her term will expire at the Company’s annual general meeting of shareholders to be held in 2024; and
the Class III director is Mr. Yaron Kaiser his term will expire at the Company’s annual general meeting of shareholders to be held in 2025.
Pursuant to our articles of association, the vote general required to establish an audit committee.
The responsibilitiesappoint a director is a simple majority vote of an audit committee underholders of our voting shares participating and voting at the Companies Law include identifying and addressing flawsrelevant meeting, provided that (i) in the business managementevent of a contested election, the method of calculation of the company, reviewing and approving related party transactions, establishing whistleblower procedures, overseeing the company’s internal audit systemvotes and the performance of its internal auditor, and assessingmanner in which the scope ofresolutions will be presented to our shareholders at the work and recommending the fees of the company’s independent accounting firm. In addition, the audit committee is required to determine whether certain related party actions and transactions are “material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies Law and to establish procedures for considering proposed transactions with a controlling shareholder.
In accordance with U.S. law and Nasdaq Marketplace Rules, our audit committee is also responsible for the appointment, compensation and oversight of the work of our independent auditors and for assistinggeneral meeting shall be determined by our board of directors in monitoringits discretion, and (ii) in the event that our financial statements,board of directors does not or is unable to make a determination on such matter, then the effectivenessdirectors will be elected by a plurality of the voting power represented at the general meeting in person or by proxy and voting on the election of directors.
Each director will hold office until the annual general meeting of our internal controls and our compliance with legal and regulatory requirements.
Undershareholders for the year in which such director’s term expires, unless the tenure of such director expires earlier pursuant to the Companies Law or unless such director is removed from office. Under our articles of association, the audit committee must consistapproval of the holders of at least three directors who meet certain independence criteria and must include all65% of the company’s external directors. The chairmantotal voting power of our shareholders is generally required to remove any of our directors from office.
In addition, our articles of association allow our board of directors to appoint new directors to fill vacancies which can occur for any reason or as additional directors, provided that the number of board members shall not exceed the maximum number of directors mentioned above. A director so appointed will hold office until the next annual general meeting of our shareholders for the election of the audit committeeclass of directors in respect of which the vacancy was created, or in the case of a vacancy due to the number of directors being less than the maximum number of directors stated in our articles of association, until the next annual general meeting of our shareholders for the election of the class of directors to which such director was assigned by our board of directors. Our board of directors may continue to operate for as long as the number of directors is required to be an external director. Underno less than the Nasdaq Marketplace Rules, weminimum number of directors mentioned above.
In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to maintain an audit committee consistinghave financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of at least three independent directors, allhis or her education, professional experience and skill, has a high level of whom are financially literateproficiency in and oneunderstanding of whom hasbusiness accounting matters and financial statements. He or relatedshe must be able to thoroughly comprehend the financial management expertise. Eachstatements of the memberscompany and initiate discussion regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the audit committee is required to be “independent” as such term is defined in Rule 10A-3(b)(1) undercompany and the Exchange Act.
Our audit committee currently consistsscope and complexity of Eli Arad, Shirly Cohen and David Gerbi. A majority of the members are external directors or independent directors as defined in the Companies Law. All of the members are also independent as defined in SEC rules and Nasdaq listing requirements.its operations. Our board of directors has determined that all members of our audit committee meetwe require at least one director with the requirements forrequisite financial literacy under the applicable rules and regulations of the SECaccounting expertise and Nasdaq Marketplace Rules. Our board of directors has determined that Eli Arad and David Gerbi are audit committee financial experts as defined by the SEC rules and have the requisite financial experience as defined by the Nasdaq Marketplace Rules.such expertise.
Under both the Companies Law and Nasdaq Marketplace Rules, we are required to establish a compensation committee.
The responsibilities of a compensation committee under the Companies Law include recommending to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of directors and officers based on specified criteria, reviewing modifications to and implementing such compensation policy from time to time, and approving the actual compensation terms of directors and officers prior to approval by the board of directors.External Directors
The Companies Law stipulates that the compensation committee must consist ofrequires a public Israeli company to have at least threetwo external directors who meet certain independence criteria and must include all of the company’s external directors, whoto ensure that they are required to constitute a majority of its members. The chairman of the compensation committee must be an external director. The remaining members are required to meet certain independence criteria and be paid in accordanceunaffiliated with the regulations governing the compensation ofcompany and its controlling shareholder. An external directors.
Under Nasdaq Marketplace Rules, we are required to maintain a compensation committee consisting of at least two independent directors; each of the members of the compensation committee is required to be independent under Nasdaq Marketplace Rules relating to compensation committee members, which are different from the general test for independence of boarddirector must have either financial and committee members.
Our compensation committee currently consists of Eli Arad, Shirly Cohen and David Gerbi. All members are external directorsaccounting expertise or independent directorsprofessional qualifications, as defined in the regulations promulgated under the Companies Law, and independent as defined in SEC rules and regulations, and Nasdaq Marketplace Rules.
Internal Auditor
Underat least one of the Companies Law, the board ofexternal directors is required to appoint an internal auditor recommended by the audit committee. The rolehave financial and accounting expertise. An external director is entitled to reimbursement of the internal auditor is to examine, among other things, whether the company’s actions comply with applicable lawexpenses and proper business procedures. The internal auditor may not be an interested party, a director or an officer of the company, or a relative of any of the foregoing, nor may the internal auditor be our independent accountant or a representative thereof. Our current internal auditor is Mr. Daniel Spira, CPA, who is Vice President of the Israel Institute of Internal Auditors.
Fiduciary Duties and Approval of Related Party Transactions
Fiduciary duties of directors and officers
Israeli law imposes a duty of care and a duty of loyalty on all directors and officers of a company. The duty of care requires a director or officer to act with the level of care with which a reasonable director or officercompensation as provided in the same position would have actedregulations promulgated under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, under the circumstances, to obtain information on the advisability of a given action brought for his approval or performed by virtue of his position and other important information pertaining to such action. The duty of loyalty requires the director or officer to act in good faith and for the benefit of the company.
Approval of related party transactions
Under the Companies Law, but is otherwise prohibited from receiving any other compensation from the company, directly or indirectly, during his or her term and for two years thereafter.
Pursuant to regulations promulgated under the Companies Law, as a company with shares traded on Nasdaq, we have elected no to comply with the requirements to appoint external directors and related party transaction may be approved only if it is forrules concerning the benefitcomposition of the company. A transactionaudit committee and compensation committee of the board of directors. We are still subject to the gender diversity rule under the Companies Law, which requires that is not an extraordinary transaction in whichif, at the time a director is to be elected or officer has a personal interest requires the approvalappointed, all members of the board of directors unless the articles of associationare of the company provide otherwise. Ifsame gender, the transaction is an extraordinary transaction, itdirector to be appointed must be approved byof the other gender. The conditions to the exemptions from the Companies Law requirements are that: (i) the company does not have a “controlling shareholder,” as such term is defined under the Companies Law, (ii) its shares are traded on certain U.S. stock exchanges, including Nasdaq, and (iii) it comply with the director independence requirements and the audit committee and the board of directors, and, under certain circumstances, by the shareholders of the company. An “extraordinary transaction” is a transaction other than in the ordinary course of business, other than on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities.
Pursuant to the Companies Law, extraordinary transactions in which a controlling shareholder has a personal interest require the approval of the audit committee, or the compensation committee if the transaction is in connection with employment or service with the company, the board of directors and the shareholders of the company. The shareholder approval must be by a simple majority of all votes cast, provided that (i) such majority includes a simple majority of the votes cast by non-controlling shareholders having no personal interest in the matter or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company.
The Companies Law prohibits any director who has a personal interest in an extraordinary transaction from being present for the discussion and voting pertaining to such transaction in the audit committee or board of directors. Nevertheless, a director who has a personal interest may be present at the meeting and vote on the matter if a majority of the directors or members of the audit committee have a personal interest in the approval of such transaction; in this case, however, the transaction also requires shareholder approval.
Director and officer compensation
Under the Companies Law, we are required to approve, at least once every three years, a compensation policy with respect to our directors and officers. Following the recommendation of our compensation committee, the compensation policy must be approved by our board of directors and our shareholders. The shareholder approval must be by a simple majority of all votes cast, provided that (i) such majority includes a simple majority of the votes cast by non-controlling shareholders having no personal interest in the matter or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company. In general, the terms of compensation of directors, the chief executive officer and any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders. The compensation terms of other officers who report directly to the chief executive officer require the approval of the compensation committee and the board of directors.
Directors’ Service Contracts
There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
D. Employees
As of December 31, 2020, we had 26 employees based at our office and laboratory in Ness Ziona, Israel.
Local laborcomposition requirements under U.S. laws, govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions of employment and include equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining agreements. We generally provide our employees with benefits and working conditions beyond the required minimums. We believe we have a good relationship with our employees, and have never experienced any employment-related work stoppages.
E. Beneficial Ownership of Executive Officers and Directors
The beneficial ownership of our ordinary shares (including ordinary shares represented by ADSs) is determined in accordance withincluding the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrantsapplicable exchange, that are currently exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any,applicable to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.U.S. domestic issuers.
Unless otherwise noted below, each shareholder’s address is c/o MeaTech 3D Ltd., 18 Einstein St., P.O. Box 4061 Ness Ziona 7414001, Israel.
| | | Shares Beneficially Owned | |
| Name of Beneficial Owner | | Number | | | Percentage | |
| Directors and executive officers | | | | | | |
Sharon Fima(1) | | | 3,731,067 | | | | 3.0 | % |
Omri Schanin(2) | | | 3,522,733 | | | | 2.9 | % |
| Guy Hefer | | | — | | | | — | |
Dan Kozlovski(4) | | | 33,340 | | | | * | |
Steven H. Lavin(5) | | | 2,846,856 | | | | 2.3 | % |
Daniel Ayalon(6) | | | 447,776 | | | | * | |
| David Gerbi | | | — | | | | — | |
| Eli Arad | | | — | | | | — | |
| Shirly Cohen | | | — | | | | — | |
| Sari Singer | | | — | | | | — | |
| | | | | | | | | |
| All directors and executive officers as a group (10 persons) | | | 10,581,772 | | | | 8.5 | % |
* Less than one percent (1%).
| (1) | Consists of 3,522,733 ordinary shares and options to purchase 208,334 ordinary shares exercisable within 60 days of the date of this annual report, with an exercise price of NIS 2.32 (approximately $0.71). These options expire on May 17, 2024.
|
| (2) | Consists of ordinary shares.
|
| (3) | Consists of options to purchase 100,000 ordinary shares exercisable within 60 days of the date of this annual report, with an exercise price of NIS 1.90 (approximately $0.58). These options expire on August 5, 2024.
|
| (4) | Consists of options to purchase 33,340 ordinary shares exercisable within 60 days of the date of this annual report, with an exercise price of NIS 1.90 (approximately $0.58). These options expire on August 5, 2024.
|
| (5) | Consists of 2,752,938 ordinary shares and RSUs vesting into 93,918 ordinary shares at a conversion price of NIS 0.30 (approximately $0.09) within 60 days of the date of this annual report. The amounts are based on Mr. Lavin’s 99% ownership of the shares of EL Capital Investments, LLC, described in Footnote 2 above, and his 1/3 ownership of the shares of Silver Road Capital Ltd., which, to the best of our knowledge, holds 1,343,329 of our ordinary shares.
|
| (6) | The amount is based on Mr. Ayalon’s 1/3 ownership of the shares of Silver Road Capital Ltd., which, to the best of our knowledge, holds 1,343,329 of our ordinary shares.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares, including ordinary shares represented by ADSs, as of the date of this Annual Report on Form 20-F, by each person or entity who we know beneficially owns 5% or more of the outstanding ordinary shares. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
None of our shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
As of the date of this Annual Report on Form 20-F, there are four shareholders of record of our ordinary shares, of whom one is in the United States. The number of record holders is not representative of the number of beneficial holders of our ordinary shares, as most of the shares we have issued, including those represented by ADSs are currently recorded in the name of our Israeli share registrar, the Tel Aviv Stock Exchange Nominee Co. Ltd. Based upon a review of the information provided to us by The Bank of New York Mellon, the depositary of the ADSs, as of April 14, 2021, there were 22 holders of record of the ADSs on record with the Depository Trust Company. These numbers are not representative of the number of beneficial holders of our ADSs nor is it representative of where such beneficial holders reside, since many of these ADSs were held of record by brokers or other nominees.
| | | Shares Beneficially Owned | |
| Name of Beneficial Owner | | Number | | | Percentage | |
| 5% or greater shareholders | | | | | | |
Psagot Investment House Ltd. (1) | | | 9,952,712 | | | | 7.8 | % |
| Shimon Cohen | | | 6,426,966 | | | | 5.2 | % |
| (1) | Consists of 5,095,712 ordinary shares held jointly with Pareto Optimum, LP, warrants to purchase 2,428,500 ordinary shares at an exercise price of NIS 5.00 (approximately $1.54) within 60 days of the date of this prospectus, and warrants to purchase 2,428,500 ordinary shares at an exercise price of NIS 6.00 (approximately $1.84) within 60 days of the date of this prospectus. The general partner in Pareto Optimum, LP, is Psagot Hedge Fund Management Ltd., which is owned by Psagot Compass Investments Ltd., a subsidiary of Psagot Investment House Ltd. Psagot Investment House Ltd. is indirectly fully owned by Apax Europe VII-A L.P., Apax Europe VII-B L.P. and Apax Europe VII-1 L.P., or the Apax Europe VII Funds, through Himalaya AP.PS Ltd. and various holding companies which are indirectly controlled, managed and/or advised by Apax Partners Europe Managers Ltd., or APEM. APEM is the investment manager of the Apax Europe VII Funds with respect to various investments, including Psagot Investment House Ltd. APEM is fully owned by Messrs. Martin Halusa and Nico Hansen, and as such, and as such, Messrs. Halusa and Hansen may be deemed to beneficially own the ordinary shares jointly beneficially owned by Psagot Investment House Ltd. and Pareto Optimum, LP. The shareholder’s business address is 14 Ehad Ha’am St., Tel Aviv Israel 6514211.
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B. Related Party Transactions
The following is a description of the material transactions we entered into with related parties since we were incorporated in 2018. We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third parties.
Upon the consummation of this offering, we will have adopted a related party transaction policy that provides that our Board of Directors, acting through our Audit Committee, is responsible for the review, approval, or ratification of related party transactions between us and related persons. Under Israeli law, related party transactions are subject to special approval requirements, see “Management — Fiduciary duties and approval of specified related party transactions and compensation under Israeli law.”
Employment Agreements and Director Fees
We have entered into written employment agreements with each of our executive officers, which provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. See “Risk Factors — Risks relating to our operations — Under applicable employment laws, we may not be able to enforce covenants not to compete” for a further description of the enforceability of non-competition clauses.
The material employment terms for Mr. Kaufman, our Chief Executive Officer, are as follows: (1) a gross annual salary of NIS 564,000 ($160,000); (2) reimbursement of annual travel expenses of up to NIS 60,000 ($17,000); (3) options to purchase 500,000 Ordinary Shares (currently equivalent to 50,000 ADSs), vesting over three years from the date of his appointment as Chief Executive Officer, pursuant to which 1/12 will vest every quarter until fully vested, expiring one year following Mr. Kaufman’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our sale or change in control; (4) an annual performance bonus in the aggregate amount of NIS 282,000 ($80,000), subject to his meeting certain performance milestones as determined by our board of directors on an annual basis; (5) termination of the employment relationship upon provision of six months’ advance notice by either party; (6) severance pay equal to 25% of the gross annual salary upon termination of Mr. Kaufman’s employment by us, not for cause, following three to twelve months of service, or 50% following twelve or more months of service (or 50% of these amounts upon Mr. Kaufman’s resignation); and (7) social benefits that we pay on behalf of officers, such as payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), pension, severance, risk insurance (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies, such as inclusion in our directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings to the fullest extent permitted by the Companies Law.
The material terms for Mr. Kaiser, the Chairman of our board of directors, were as follows from his appointment in January 2022, until January 24, 2023: (1) an annual fee of $150,000, to be paid in four equal quarterly installments in USD or in NIS at the then-current exchange rate, which will automatically increase by an amount equal to seven percent at the end of each year of service; (2) reimbursement of annual travel expenses of up to $18,000; (3) options to purchase 350,000 Ordinary Shares (currently equivalent to 35,000 ADSs), vesting over three years from the date of his appointment as Chairman, pursuant to which 1/12 will vest every quarter until fully vested, expiring one year following Mr. Kaiser’s cessation of service in all then-applicable capacities, but in any case after four years, with an exercise price of $0.519 per ordinary share (currently equivalent to $5.19 per ADS) and subject to acceleration upon termination pursuant to our sale or change in control; (4) an annual bonus equal to 50% of the bonus awarded to the Chief Executive Officer in the applicable year; (5) severance pay equal to 12.5% of Mr. Kaiser’s annual fee upon the involuntary termination of his directorship, not for cause, following three to twelve months of service, or 25% following twelve or more months of service (or 50% of these amounts upon Mr. Kaiser’s resignation); and (6) other benefits and perquisites consistent with our policies, such as inclusion in our directors’ and officers’ liability insurance policy, and provision of indemnification, exculpation and exemption undertakings to the fullest extent permitted by the Companies Law.
Effective January 24, 2023, pursuant to approvals by our Compensation Committee, Board of Directors and a general meeting of our shareholders, the following amendments to the materials terms for Mr. Kaiser were adopted: his annual fee was adjusted to $290,000, automatically increased by an amount equal to seven percent at the end of each year of service commencing from the date of adjustment; his annual bonus shall be equal to 70% of the bonus awarded to the Chief Executive Officer in the applicable year; he received an allocation of restricted share units (RSUs) vesting into 1,340,000 ordinary shares (currently equivalent to 134,000 ADSs), vesting over three years from the date of adjustment, pursuant to which 1/12 will vest every quarter until fully vested, with no exercise price, issued under the Company’s 2022 Share Incentive Plan and the Capital Gains tax track pursuant to Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 and subject to acceleration upon termination pursuant to either our sale or change in control; and he received an allocation of performance share units (PSUs) vesting into 1,340,000 ordinary shares (currently equivalent to 134,000 ADSs), vesting upon achievement of any one of the following milestones: (i) engagement with a strategic partner / investor (a corporation operating in the field of food, healthcare, pharmaceuticals or printing) for an investment in the company or its subsidiaries, in cash in an amount of not less than five hundred thousand dollars; (ii) submission of a regulatory approval to the U.S. FDA, Singapore Food Agency or European Food Safety Authority, for the commercial sale or distribution of our products; or (iii) engagement with a strategic partner (as defined above) in a joint development agreement to collaborate to develop technology or products for the purpose of later commercialization.
In addition, we pay fees to our non-executive directors in return for their service on our board of directors, in accordance with our compensation policy.
Our other employees are employed under the terms prescribed in their respective employment contracts. The employees are entitled to the social benefits prescribed by law and as otherwise provided in their agreements. These agreements each contain provisions standard for a company in our industry regarding non-competition, confidentiality of information and assignment of inventions. Under currently applicable labor laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. See “Risk Factors—Risks Related to Our Operations” for a further description of the enforceability of non-competition clauses.
Executive officers are also employed on the terms and conditions prescribed in employment agreements. These agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. See “Risk Factors—Risks Related to Our Operations—If we are unable to attract and retain qualified employees, our ability to implement our business plan may be adversely affected.”
2018 Option and RSU Allocation Plan
In June 2018, the board of directors of Ophectra adopted our Option and RSU Allocation Plan, as amended, or the share option plan, to issue options to purchase our Ordinary Shares and restricted stock units to our directors, officers, employees and consultants, and those of our affiliated companies (as such term is defined under share option plan), or the Grantees. The share option plan is administered by our board of directors or a committee that was designated by the board of directors for such purpose, or the Administrator.
Under the share option plan, we may grant options to purchase Ordinary Shares and/or RSUs, or options, under four tracks: (i) Approved 102 capital gains options through a trustee, which was approved by the Israeli Tax Authority in accordance with Section 102(a) of the Israeli Income Tax Ordinance (New Version), 1961, or ITO, and granted under the tax track set forth in Section 102(b)(2) of the ITO. The holding period under this tax track is 24 months from the date of issuance of options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO, or any applicable tax ruling or guidelines; (ii) Approved 102 earned income options through a trustee, granted under the tax track set forth is Section 102(b)(1) of the ITO. The holding period under this tax track is 12 months from the date of issuance of options to the trustee or such period as may be determined in any amendment of Section 102 of the ITO; (iii) Unapproved 102 options (the options will not be issued through a trustee and will not be subject to a holding period); and (iv) 3(i) options (the options will not be subject to a holding period). These options shall be subject to taxation pursuant to Section 3(i) of the ITO, or Section 3(i).
Options pursuant to the first three tax tracks (under Section 102 of the ITO) can be granted to our employees and directors and the grant of options under Section 3(i) can be granted to our consultants and controlling shareholders (a controlling shareholder is defined under the Section 102 of the ITO is a person who holds, directly or indirectly, alone or together with a “relative,” (i) the right to at least 10% of the company’s issued capital or 10% of the voting power; (ii) the right to hold at least 10% of the company’s issued capital or 10% of the voting power, or the right to purchase such rights; (iii) the right to receive at least 10% of the company’s profits; or (iv) the right to appoint a company’s director). Grantees who are not Israeli residents may be granted options that are subject to the applicable tax laws in their respective jurisdictions.
We determine, in our sole discretion, under which of the first three tax tracks above the options are granted and we notify the Grantee in a grant letter, as to the elected tax track. As mentioned above, consultants and controlling shareholders can only be granted Section 3(i) options.
The number of Ordinary Shares authorized to be issued under the share option plan will be proportionately adjusted for any increase or decrease in the number of Ordinary Shares issued as a result of a distribution of bonus shares, change in our capitalization (split, combination, reclassification of the shares or other capital change), or issuance of rights to purchase Ordinary Shares or payment of a dividend. We will not issue fractions of Ordinary Shares and the number of Ordinary Shares shall be rounded up to the closest number of ordinary shares.
In the event of a (i) merger or consolidation in which we (in this context, specifically Steakholder Foods Ltd.) are not the surviving entity or pursuant to which the other company becomes our parent company or that pursuant to which we are the surviving company but another entity holds 50% or more of our voting rights, (ii) an acquisition of all or substantially all of our Ordinary Shares, (iii) the sale of all or substantially all of our assets, or (iv) any other event with a similar impact, we may exchange all of our outstanding options granted under the share option plan that remain unexercised prior to any such transaction for options to purchase shares of the successor corporation (or those of an affiliated company) following the consummation of such transaction.
The exercise price of an option granted under the share option plan will be specified in the grant letter every Grantee received from us in which the Grantee notifies of the decision to grant him/her options under the share option plan, and will be denominated in our functional currency at the time of grant or the currency in which the Grantee is paid, at our discretion.
The Administrator may, in its absolute discretion, accelerate the time at which options granted under the share option plan or any portion of which will vest.
Unless otherwise determined by the Administrator, in the event that the Grantee’s employment was terminated, not for Cause (as defined in the share option plan), the Grantee may exercise that portion of the options that had vested as of the date of such termination until the end of the specified term in the grant letter or the share option plan. The portion of the options that had not vested at such date, will be forfeited and can be re-granted to other Grantees, in accordance with the terms of the share option plan.
At the discretion of our board of directors, and subject to receipt of taxation authority approvals, we may allow Grantees to exercise their options on a cashless basis.
2022 Share Incentive Plan
We adopted the 2022 Share Incentive Plan, or the 2022 Plan, on June 10, 2022, and a general meeting of our shareholders approved the 2022 Plan on March 30, 2023. The 2022 Plan provides for the grant of equity-based incentive awards to our employees, directors, office holders, service providers and consultants in order to incentivize them to increase their efforts on behalf of the Company and to promote the success of the Company’s business.
Shares Available for Grants. The maximum number Shares (which means ordinary shares, of no par value, (including ordinary shares resulting or issued as a result of share split, reverse share split, bonus shares, combination or other recapitalization events, and including in the form of ADSs), or shares of such other class of shares as shall be designated by the board of directors of the Company in respect of the relevant award) available for issuance under the 2022 Plan is equal to the sum of (i) 8,500,000 Shares, (ii) 1,127,850 Shares, which represents the number of Shares available for issuance under the Option and RSU Allocation Plan, or the Prior Plan, on the effective date of the 2022 Plan, and (iii) an annual increase on the first day of each year beginning in 2023 and on January 1st of each calendar year thereafter and ending on January 1, 2032, equal to the lesser of (A) 5% of the outstanding ordinary shares of the Company on the last day of the immediately preceding calendar year, on a fully diluted basis; and (B) such amount as determined by our board of directors if so determined prior to January 1 of a calendar year. Shares issued under the 2022 Plan may be, in whole or in part, authorized but unissued Shares, (and, subject to obtaining a ruling as it applies to 102 awards) treasury shares (dormant shares) or otherwise Shares that shall have been or may be repurchased by the Company (to the extent permitted pursuant to the Companies Law).
Any Shares (a) underlying an award granted under the 2022 Plan or an award granted under the Prior Plan (in an amount not to exceed 8,498,490 Shares under the Prior Plan) that has expired, or was cancelled, terminated, forfeited, or settled in cash in lieu of issuance of Shares, for any reason, without resulting in the issuance of Shares; (b) if permitted by the Company, subject to an award that are tendered to pay the exercise price of an award; or withholding tax obligations with respect to an award; or if permitted by the Company, subject to an award that are not delivered to a Grantee because such Shares are withheld to pay the exercise price of such award; or withholding tax obligations with respect to such award may again be available for issuance under the 2022 Plan and for issuance upon exercise or (if applicable) vesting thereof for the purposes of the 2022 Plan, unless determined otherwise by the Board. Our board of directors may also reduce the number of ordinary shares reserved and available for issuance under the 2022 Plan in its discretion.
The maximum aggregate number of Shares that may be issued pursuant to the exercise of incentive stock options granted under the 2022 Plan, or the ISO Limit, shall be the sum of (a) the aggregate number of Shares set forth in clauses (a) and (b) in the above paragraph; and (b) any Shares underlying awards granted under the Prior Plan that are returned to the 2022 Plan (not to exceed 8,498,490 Shares). To the extent permitted under Section 422 of the United States Internal Revenue Code of 1986, and any applicable regulations promulgated thereunder, all as amended (the “Code”), any Shares covered by an award that has expired, or was cancelled, terminated, forfeited, or settled in cash without the issuance of Shares shall not count against the ISO Limit. Shares that actually have been issued under the 2022 Plan shall not become available for future issuance hereunder pursuant to incentive stock options.
Administration. Our board of directors, or a duly authorized committee of our board of directors, or the Administrator, or the Administrator, will administer the 2022 Plan. Under the 2022 Plan, the Administrator has the authority, subject to applicable law, to interpret the terms of the 2022 Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine and amend the terms of awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and vesting schedule applicable to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to an award, prescribe the forms of agreement for use under the 2022 Plan and take all other actions and make all other determinations necessary for the administration of the 2022 Plan.
The Administrator also has the authority to approve the conversion, substitution, cancellation or suspension under and in accordance with the 2022 Plan of any or all option awards or ordinary shares, and the authority to modify option awards to eligible individuals who are foreign nationals or are individuals who are employed outside Israel to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of the 2022 Plan but without amending the 2022 Plan; provided, that if the Administrator takes such action with respect to an award held by a U.S. service provider, it shall do so in accordance with the requirements of Section 409A of the Code, if applicable.
The Administrator also has the authority to amend and rescind rules and regulations relating to the 2022 Plan or terminate the 2022 Plan at any time before the date of expiration of its ten year term.
Eligibility. The 2022 Plan provides for granting awards under various tax regimes, including, without limitation, in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version) 5271-1961, and the regulations and rules promulgated thereunder, all as amended from time to time (the “Ordinance”), and Section 3(i) of the Ordinance and in compliance with Section 422 of the Code and Section 409A of the Code as they relate to U.S. service providers when granted Nonqualified Stock Options, and to U.S. service providers who are Employees when granted Incentive Stock Options.
Grants. All awards granted pursuant to the 2022 Plan will be evidenced by an award agreement, in a form approved, from time to time, by the Administrator in its sole discretion. The award agreement will set forth the terms and conditions of the award, including the type of award, number of shares subject to such award, vesting schedule and conditions (including performance goals or measures) and the exercise price, if applicable. Certain awards under the 2022 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards.
Unless otherwise determined by the Administrator and stated in the award agreement, and subject to the conditions of the 2022 Plan, awards vest and become exercisable under the following schedule: 25% of the shares covered by the award on the first anniversary of the vesting commencement date determined by the Administrator (and in the absence of such determination, the date on which such award was granted) and 6.25% of the Shares covered by the award at the end of each subsequent three-month period thereafter over the course of the following three years; provided that the grantee remains continuously as an employee or provides services to the company throughout such vesting dates.
Each award will expire ten years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the Administrator.
Awards. The 2022 Plan provides for the grant of stock options (including incentive stock options and nonqualified stock options), ordinary shares, restricted shares, RSUs, stock appreciation rights and other share-based awards.
Options granted under the 2022 Plan to the Company employees who are U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code, or may be non-qualified stock options. The exercise price of an option may not be less than the par value of the Shares (if the Shares bear a par value) for which such option is exercisable. The exercise price of an Incentive Stock Option may not be less than 100% of the fair market value of the underlying share on the date immediately preceding the day of the grant or such other amount as may be required pursuant to the Code, and in the case of Incentive Stock Options granted to ten percent stockholders, not less than 110%.
Nonqualified stock options may not be granted to a U.S. service provider unless (i) the Shares underlying such options constitute “service recipient stock” under Section 409A of the Code and such options meet the other requirements to be exempt from Section 409A of the Code or (ii) such options comply with the requirements of Section 409A of the Code. A nonqualified stock option may be granted with an exercise price lower than the minimum exercise price set forth above if (i) such option is granted pursuant to an assumption or substitution for another option in accordance with and pursuant to Section 409A of the Code or (ii) the Administrator expressly determined that the option will have a lower exercise price and the Option complies with Section 409A of the Code or meets another exemption under Section 409A of the Code.
Incentive stock options may be granted only to U.S. service providers who are employees of the Company. However, if for any reason an option (or portion thereof) does not qualify as an incentive stock option, then, to the extent of such non-qualification, such option (or portion thereof) shall be treated as a nonqualified stock option granted under the 2022 Plan.
An RSU may be awarded to any service provider, including under Section 102 of the Ordinance. Subject to Applicable Law, RSUs may be granted in consideration of a reduction in the recipient’s other compensation. No payment of exercise price shall be required as consideration for RSUs, unless included in the award agreement or as required by applicable law. The grantee shall not possess or own any ownership rights in the Shares underlying the RSUs. Settlement of vested RSUs shall be made in the form of Shares. Distribution to a grantee of an amount (or amounts) from settlement of vested RSUs can be deferred to a date after vesting as determined by the Administrator; provided, that no such deferral shall be made with respect to RSUs held by a U.S. service provider if such deferral would cause such RSUs to fail to qualify for an exemption under Section 409A of the Code and become subject to the requirements of Section 409A of the Code, unless expressly determined by the Administrator, or would violate the requirements of Section 409A. In no event shall any dividends or dividend equivalent rights be paid before the vesting of the portion of the RSUs to which such dividends or dividend equivalent rights relate, unless otherwise provided for in an award agreement or determined by the Committee. Any RSUs granted under the 2022 Plan that are not exempt from the requirements of Section 409A of the Code shall contain such restrictions or other provisions so that such RSUs will comply with the requirements of Section 409A of the Code.
Exercise. An award under the 2022 Plan may be exercised by providing the Company with a written or electronic notice of exercise and full payment of the exercise price for such shares underlying the award, if applicable, in such form and method as may be determined by the Administrator and permitted by applicable law. An award may not be exercised for a fraction of a share. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2022 Plan, the Administrator may, in its discretion, accept cash, provide for net withholding of shares in a cashless exercise mechanism or direct a securities broker to sell shares and deliver all or a part of the proceeds to the Company or the trustee. The exercise period of an award will be determined by the Administrator and stated in the award agreement, but will in no event be longer than ten (10) years from the date of grant of the award. Notwithstanding anything to the contrary, the Administrator may extend the periods for which awards held by any grantee may continue to vest and/or be exercisable; it being clarified that such awards may lose their entitlement to certain tax benefits under applicable law; if done so with respect to a U.S service provider, the Administrator shall act in accordance with Section 409A of the Code, as applicable.
Transferability. Other than by will, the laws of descent and distribution or as otherwise provided under the 2022 Plan, neither the options nor any right in connection with such options are assignable or transferable.
Termination of Employment. In the event of termination of a grantee’s employment or service with the Company or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination may be exercised within three months after such date of termination, unless otherwise determined by the Administrator, but in no event later than the date of expiration of the award as set forth in the award agreement. After such three-month period, all such unexercised awards will terminate and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
In the event of termination of a grantee’s employment or service with the Company or any of its affiliates due to such grantee’s death or permanent disability, or in the event of the grantee’s death within the three month period (or such longer period as determined by the Administrator) following his or her termination of service, all vested and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal guardian, estate or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within one year after such date of termination, unless otherwise provided by the Administrator, but in no event later than the date of expiration of the award as set forth in the award agreement. Any awards which are unvested as of the date of such termination or which are vested but not then exercised within the one year period following such date, will terminate and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Notwithstanding any of the foregoing, if a grantee’s employment or services with the Company or any of its affiliates is terminated for “cause” (as defined in the 2022 Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2022 Plan.
Any Option that is intended to be an incentive stock option and is exercised later than three (3) months after the grantee ceases to be employed by the Company (or any parent or subsidiary), except in the case of death or “Disability” (as defined in Section 22(e)(3) of the Code), will be deemed a nonqualified stock option. If the grantee ceases to be employed by the Company (or any parent or subsidiary) due to disability, any option that is intended to be an incentive stock option and is exercised later than twelve (12) months after such termination date will be deemed a nonqualified stock option.
Voting Rights. Except with respect to restricted share awards, grantees will not have the rights as a shareholder of the Company with respect to any shares covered by an award until the award has vested and/or the grantee has exercised such award, paid any exercise price for such award and becomes the record holder of the shares. With respect to restricted share awards, grantees will possess all incidents of ownership of the restricted shares, including the right to vote and receive dividends on such shares.
Dividends. Grantees holding restricted share awards will be entitled to receive dividends and other distributions with respect to the shares underlying the restricted share award. Any stock split, stock dividend, combination of shares or similar transaction will be subject to the restrictions of the original restricted share award. Grantees holding RSUs will not be eligible to receive dividend but may be eligible to receive dividend equivalents.
Transactions. In the event of a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Company’s shares, the Administrator in its sole discretion may, and where required by applicable law shall, without the need for a consent of any holder, make an appropriate adjustment in order to adjust (i) the number and class of shares reserved and available for the outstanding awards, (ii) the number and class of shares covered by outstanding awards, (iii) the exercise price per share covered by any award, (iv) the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding awards, (v) the type or class of security, asset or right underlying the award (which need not be only that of the Company, and may be that of the surviving corporation or any affiliate thereof or such other entity party to any of the above transactions), and (vi) any other terms of the award that in the opinion of the Administrator should be adjusted; provided that any fractional shares resulting from such adjustment shall be rounded to the nearest whole share unless otherwise determined by the Administrator. In the event of a distribution of a cash dividend to all shareholders, the Administrator may determine, without the consent of any holder of an award, that the exercise price of an outstanding and unexercised award shall be reduced by an amount equal to the per share gross dividend amount distributed by the Company, subject to applicable law.
In the event of a merger or consolidation of the Company or a sale of all, or substantially all, of the Company’s shares or assets or other transaction having a similar effect on the Company, or change in the composition of the board of directors, or liquidation or dissolution, or such other transaction or circumstances that our board of directors determines to be a relevant transaction, then without the consent of the grantee, (i) unless otherwise determined by the Administrator, any outstanding award will be assumed or substituted by such successor corporation, or (ii) regardless of whether or not the successor corporation assumes or substitutes the award (a) provide the grantee with the option to exercise the award as to all or part of the shares, and may provide for an acceleration of vesting of unvested awards, (b) cancel the award and pay in cash, shares of the Company, the acquirer or other corporation which is a party to such transaction or other property as determined by the Administrator as fair in the circumstances, or (c) provide that the terms of any award shall be otherwise amended, modified or terminated, as determined by the Administrator to be fair in the circumstances. Changes with respect to awards held by U.S. service providers shall be made in accordance with the requirements of Section 409A of the Code or Section 424 of the Code, as applicable and to the extent necessary to avoid adverse tax consequences under Section 409A of the Code, a transaction or other event will not be deemed a Merger/Sale for purposes of awards granted to U.S. service providers unless the transaction or other event qualifies as a change in control event within the meaning of Section 409A of the Code.
C. Board Practices
Board of Directors
Our board of directors consists of four directors, three of whom are deemed independent directors under the corporate governance standards of the Nasdaq Marketplace Rules and the independence requirements of Rule 10A-3 of the Exchange Act, as well as the standards of the Companies Law.
Under our articles of association, our board of directors must consist of no less than three and no more than seven directors (including the external directors, if any), divided into three classes with staggered three-year terms. Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors will be for a term of office that expires on the third annual general meeting following such election or re-election.
Our directors are divided among the three classes as follows:
the Class I directors are Messrs. Eli Arad and David Gerbi and their respective terms will expire at the Company’s annual general meeting of shareholders to be held in 2026;
the Class II director is Ms. Sari Singer and her term will expire at the Company’s annual general meeting of shareholders to be held in 2024; and
the Class III director is Mr. Yaron Kaiser his term will expire at the Company’s annual general meeting of shareholders to be held in 2025.
Pursuant to our articles of association, the vote general required to appoint a director is a simple majority vote of holders of our voting shares participating and voting at the relevant meeting, provided that (i) in the event of a contested election, the method of calculation of the votes and the manner in which the resolutions will be presented to our shareholders at the general meeting shall be determined by our board of directors in its discretion, and (ii) in the event that our board of directors does not or is unable to make a determination on such matter, then the directors will be elected by a plurality of the voting power represented at the general meeting in person or by proxy and voting on the election of directors.
Each director will hold office until the annual general meeting of our shareholders for the year in which such director’s term expires, unless the tenure of such director expires earlier pursuant to the Companies Law or unless such director is removed from office. Under our articles of association, the approval of the holders of at least 65% of the total voting power of our shareholders is generally required to remove any of our directors from office.
In addition, our articles of association allow our board of directors to appoint new directors to fill vacancies which can occur for any reason or as additional directors, provided that the number of board members shall not exceed the maximum number of directors mentioned above. A director so appointed will hold office until the next annual general meeting of our shareholders for the election of the class of directors in respect of which the vacancy was created, or in the case of a vacancy due to the number of directors being less than the maximum number of directors stated in our articles of association, until the next annual general meeting of our shareholders for the election of the class of directors to which such director was assigned by our board of directors. Our board of directors may continue to operate for as long as the number of directors is no less than the minimum number of directors mentioned above.
In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. He or she must be able to thoroughly comprehend the financial statements of the company and initiate discussion regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting expertise and that Eli Arad and David Gerbi have such expertise.
External Directors
The Companies Law requires a public Israeli company to have at least two external directors who meet certain independence criteria to ensure that they are unaffiliated with the company and its controlling shareholder. An external director must have either financial and accounting expertise or professional qualifications, as defined in the regulations promulgated under the Companies Law, and at least one of the external directors is required to have financial and accounting expertise. An external director is entitled to reimbursement of expenses and compensation as provided in the regulations promulgated under the Companies Law, but is otherwise prohibited from receiving any other compensation from the company, directly or indirectly, during his or her term and for two years thereafter.
Pursuant to regulations promulgated under the Companies Law, as a company with shares traded on Nasdaq, we have elected no to comply with the requirements to appoint external directors and related rules concerning the composition of the audit committee and compensation committee of the board of directors. We are still subject to the gender diversity rule under the Companies Law, which requires that if, at the time a director is to be elected or appointed, all members of the board of directors are of the same gender, the director to be appointed must be of the other gender. The conditions to the exemptions from the Companies Law requirements are that: (i) the company does not have a “controlling shareholder,” as such term is defined under the Companies Law, (ii) its shares are traded on certain U.S. stock exchanges, including Nasdaq, and (iii) it comply with the director independence requirements and the audit committee and compensation committee composition requirements under U.S. laws, including the rules of the applicable exchange, that are applicable to U.S. domestic issuers.
Committees of the Board of Directors
Our board of directors has established the following committees. Each committee operates in accordance with a written charter that sets forth the committee’s structure, operations, membership requirements, responsibilities and authority to engage advisors.
Audit Committee
Under the Companies Law, the Exchange Act and Nasdaq Marketplace Rules, we are required to maintain an audit committee.
The responsibilities of an audit committee under the Companies Law include identifying and addressing flaws in the business management of the company, reviewing and approving related party transactions, establishing whistleblower procedures, overseeing the company’s internal audit system and the performance of its internal auditor, and assessing the scope of the work and recommending the fees of the company’s independent accounting firm. In addition, the audit committee is required to determine whether certain related party actions and transactions are “material” or “extraordinary” for the purpose of the requisite approval procedures under the Companies Law and to establish procedures for considering proposed transactions with a controlling shareholder.
In accordance with U.S. law and Nasdaq Marketplace Rules, our audit committee is also responsible for the appointment, compensation and oversight of the work of our independent auditors and for assisting our board of directors in monitoring our financial statements, the effectiveness of our internal controls and our compliance with legal and regulatory requirements.
Under the Companies Law, the audit committee must consist of at least three directors who meet certain independence criteria. Under the Nasdaq Marketplace Rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. Each of the members of the audit committee is required to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
Our audit committee currently consists of Eli Arad, Sari Singer and David Gerbi. All members are independent directors as defined in the Companies Law, SEC rules and Nasdaq listing requirements. Our board of directors has determined that all members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq Marketplace Rules. Our board of directors has determined that Eli Arad and David Gerbi are audit committee financial experts as defined by the SEC rules and have the requisite financial experience as defined by the Nasdaq Marketplace Rules.
Compensation Committee
Under both the Companies Law and Nasdaq Marketplace Rules, we are required to establish a compensation committee.
The responsibilities of a compensation committee under the Companies Law include recommending to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of directors and officers based on specified criteria, reviewing modifications to and implementing such compensation policy from time to time, and approving the actual compensation terms of directors and officers prior to approval by the board of directors.
The Companies Law stipulates that the compensation committee must consist of at least three directors who meet certain independence criteria. Under Nasdaq Marketplace Rules, we are required to maintain a compensation committee consisting of at least two independent directors; each of the members of the compensation committee is required to be independent under Nasdaq Marketplace Rules relating to compensation committee members, which are different from the general test for independence of board and committee members.
Our compensation committee currently consists of Eli Arad, Sari Singer and David Gerbi. All members are independent directors as defined in the Companies Law, SEC rules and regulations, and Nasdaq Marketplace Rules.
Director Nominations
We do not have a standing nominating committee. In accordance with Rule 5605(e)(2) of the Nasdaq Rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. Our board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. As we do not have a standing nominating committee, we will not have a nominating committee charter in place.
Our board of directors will consider candidates for nomination who have a high level of personal and professional integrity, strong ethics and values and the ability to make mature business judgments. In general, in identifying and evaluating nominees for director, our board of directors will also consider experience in corporate management such as serving as an officer or former officer of a publicly held company, experience as a board member of another publicly held company, professional and academic experience relevant to our business, leadership skills, experience in finance and accounting or executive compensation practices, whether candidate has the time required for preparation, participation and attendance at board meetings and committee meetings, if applicable, independence and the ability to represent the best interests of our stockholders.
Internal Auditor
Under the Companies Law, the board of directors is required to appoint an internal auditor recommended by the audit committee. The role of the internal auditor is to examine, among other things, whether the company’s actions comply with applicable law and proper business procedures. The internal auditor may not be an interested party, a director or an officer of the company, or a relative of any of the foregoing, nor may the internal auditor be our independent accountant or a representative thereof. Our current internal auditor is Mr. Daniel Spira, CPA, who is a member of the board of directors of the Institute of Internal Auditors in Israel and Chairman of its Auditing and Knesset Relations Committee.
Fiduciary Duties and Approval of Related Party Transactions
Fiduciary duties of directors and officers
Israeli law imposes a duty of care and a duty of loyalty on all directors and officers of a company. The duty of care requires a director or officer to act with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances. The duty of care includes, among other things, a duty to use reasonable means, under the circumstances, to obtain information on the advisability of a given action brought for his approval or performed by virtue of his position and other important information pertaining to such action. The duty of loyalty requires the director or officer to act in good faith and for the benefit of the company.
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
Under the Companies Law, a company may approve an act specified above which would otherwise constitute a breach of the office holder’s fiduciary duty, provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses to the company his or her personal interest in the transaction (including any significant fact or document) a reasonable time before the approval of such act. Any such approval is subject to the terms of the Companies Law, setting forth, among other things, the appropriate bodies of the company required to provide such approval, and the methods of obtaining such approval.
The Companies Law requires that an office holder promptly disclose to the company any direct or indirect personal interest that he or she may have and all related material information or documents known to him or her relating to any existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and, in any event, no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction.
If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
the office holder’s relatives (spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of these people); or
any company in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager.
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third party in which the office holder has a personal interest, which is not an extraordinary transaction, requires approval by the board of directors or a committee authorized by the board of directors. If the transaction considered is an extraordinary transaction with an office holder or third party in which the office holder has a personal interest, then audit committee approval is required prior to approval by the board of directors. Under specific circumstances, shareholder approval may also be required. For the approval of compensation arrangements with directors and executive officers, see “Item 6.B. Compensation—Compensation of Directors and Executive Officers.”
Any persons who have a personal interest in the approval of a transaction that is brought before a meeting of the board of directors or the audit committee may not be present at the meeting or vote on the matter. However, if the chairman of the board of directors or the chairman of the audit committee, as applicable, has determined that the presence of an office holder with a personal interest is required, such office holder may be present at the meeting for the purpose of presenting the matter. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting of the board of directors or the audit committee (as applicable) and vote on the matter if a majority of the members of the board of directors or the audit committee (as applicable) have a personal interest in the approval of such transaction. If a majority of the directors at a board of directors meeting have a personal interest in the transaction, such transaction also generally requires approval of the shareholders of the company.
A “personal interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the company, including the personal interest of such person’s relative or the interest of any other corporate body in which the person and/or such person’s relative is a director or general manager, a 5% shareholder or holds 5% or more of the issued and outstanding share capital of the company or of its voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest also includes (i) a personal interest of a person who votes according to a proxy of another person, including in the event that the other person has no personal interest, and (ii) a personal interest of a person who gave a proxy to another person to vote on his or her behalf regardless of whether the discretion of how to vote lies with the person voting.
An “extraordinary transaction” is defined under the Companies Law as any of the following:
a transaction other than in the ordinary course of business;
a transaction that is not on market terms; or
a transaction that may have a material impact on the company’s profitability, assets or liabilities.
Disclosure of Personal Interests of a Controlling Shareholder and Approval of Transactions
Pursuant to the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder or employee of the company, regarding his or her terms of employment, require the approval of each of (i) the audit committee (or the compensation committee with respect to the terms of the engagement as an office holder or employee, including insurance, indemnification and compensation), (ii) the board of directors and (iii) the shareholders, in that order. In addition, the shareholder approval must fulfill one of the following requirements:
a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company.
Such majority determined in accordance with the majority requirement described above is hereinafter referred to as the Compensation Special Majority Requirement.
Any such transaction for which the term is more than three years must be approved in the same manner every three years, unless with respect to certain transactions as permitted by the Companies Law, the audit committee has determined that a longer term is reasonable under the circumstances. In addition, transactions with a controlling shareholder or a controlling shareholder’s relative who serves as an executive officer in a company, directly or indirectly (including through a corporation under his control), involving the receipt of services by a company or their compensation can have a term of five years from the company’s initial public offering under certain circumstances.
The Companies Law requires that every shareholder that participates, in person or by proxy, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate generally results in the invalidation of that shareholder’s vote.
Disclosure of Compensation of Executive Officers
For so long as we qualify as a foreign private issuer, we are not required to comply with the proxy rules applicable to U.S. domestic filers, including the requirement applicable to emerging growth companies to disclose the compensation of our chief executive officer and other two most highly compensated executive officers on an individual, rather than an aggregate, basis. Nevertheless, regulations promulgated under the Companies Law require us to disclose in the proxy statement for the annual general meeting of our shareholders (or to include a reference therein to other previously furnished public disclosure) the annual compensation of our five most highly compensated executive officers on an individual, rather than an aggregate, basis. This disclosure will not be as extensive as that required of a U.S. domestic issuer.
Compensation of Directors and Executive Officers
Directors. Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. If the compensation of our directors is inconsistent with our compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, and provided that shareholder approval is obtained by the Compensation Special Majority Requirement.
Executive Officers (other than the Chief Executive Officer). The Companies Law requires the approval of the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors and (iii) if such compensation arrangement is inconsistent with the company’s compensation policy, the company’s shareholders (the Compensation Special Majority Requirement). However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
Chief Executive Officer. The Companies Law requires the approval of the compensation of a public company’s chief executive officer in the following order: (i) the company’s compensation committee, (ii) the company’s board of directors and (iii) the company’s shareholders (the Compensation Special Majority Requirement). However, if the shareholders of the company do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide a detailed report for their decision. The approval of each of the compensation committee and the board of directors should be in accordance with the company’s compensation policy; however, in special circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). In addition, the compensation committee may waive the shareholder approval requirement with regards to the approval of the engagement terms of a candidate for the chief executive officer position, if the compensation committee determines that the compensation arrangement is consistent with the company’s compensation policy, and that the chief executive officer did not have a prior business relationship with the company or a controlling shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede the company’s ability to employ the chief executive officer candidate.
Compensation Policy
Under the Companies Law, we are required to approve, at least once every three years, a compensation policy with respect to our directors and officers. Following the recommendation of our compensation committee, the compensation policy must be approved by our board of directors and our shareholders. The shareholder approval must be by a simple majority of all votes cast, provided that (i) such majority includes a simple majority of the votes cast by non-controlling shareholders having no personal interest in the matter or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company.
Directors’ Service Contracts
There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
Under the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, when voting at meetings of shareholders on the following matters:
an amendment to the articles of association;
an increase in the company’s authorized share capital;
a merger; and
the approval of related party transactions and acts of office holders that require shareholder approval.
A shareholder also has a general duty to refrain from discriminating against other shareholders.
The remedies generally available upon a breach of contract also apply to a breach of the shareholder duties mentioned above, and in the event of discrimination against other shareholders, additional remedies may be available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or any other power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. The company may not exculpate in advance a director from liability arising from a breach of his or her duty of care in connection with a prohibited dividend or distribution to shareholders.
As permitted under the Companies Law, our articles of association provide that we may indemnify an office holder in respect of the following liabilities, payments and expenses incurred for acts performed by him or her as an office holder, either in advance of an event or following an event:
financial liability that was imposed upon him in favor of another person pursuant to a judgment, including a compromise judgment or an arbitrator’s award approved by a court;
| • | reasonable litigation expenses, including attorneys’ fees paid by an officeholder following an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or proceeding, and which ended without the filing of an indictment against him and without any financial obligation being imposed on him as an alternative to a criminal proceeding, or which ended without the filing of an indictment against him but with the imposition of a financial obligation as an alternative to a criminal proceeding for an offense which does not require proof of mens rea or in connection with a financial sanction; |
| • | reasonable litigation expenses, including attorneys’ fees paid by the officeholder or which he was required to pay by a court, in a proceeding filed against him by the Company or on its behalf or by another person, or in criminal charges from which he was acquitted, or in criminal charges in which he was convicted of an offense which does not require proof of mens rea; |
a financial obligation imposed on the officeholder for the benefit of all of the parties damaged by the violation of an administrative proceeding;
expenses incurred by an officeholder in connection with an Administrative Proceeding conducted in his regard, including reasonable litigation expenses, and including attorneys’ fees;
expenses incurred by an officeholder in connection with a proceeding under the Antitrust Law, 5748-1988 and/or in connection with it (a “Proceeding Under the Antitrust Law”), conducted regarding him, including reasonable litigation expenses, and attorneys' fees; and
any other liability or expense in respect of which it is permitted or shall be permitted by Law to indemnify an officeholder.
As permitted under the Israeli Companies Law, our articles of association provide that we may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder:
Breach of the duty of care to the Company or to any other person;
Breach of the fiduciary duty to the Company, provided that the officeholder acted in good faith and had reasonable grounds to assume that his act would not adversely affect the Company’s best interests;
financial liability imposed upon him in favor of another person;
financial liability imposed on the officeholder for the benefit of all of the parties damaged by the violation of an administrative proceeding;
expenses incurred or to be incurred by an officer in connection with an Administrative Proceeding, including reasonable litigation expenses, and including attorneys’ fees;
Expenses incurred or to be incurred in connection with a proceeding under the Antitrust Law, including reasonable litigation expenses, and including attorneys’ fees; and
any other event in respect of which it is permitted and/or shall be permitted by Law to insure the liability of an officeholder.
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine, monetary sanction or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the board of directors and, with respect to directors or controlling shareholders, their relatives and third parties in which controlling shareholders have a personal interest, also by the shareholders.
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by law. Our office holders are currently covered by a directors’ and officers’ liability insurance policy. As of the date of this annual report, no claims for directors’ and officers’ liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our office holders, including our directors, in which indemnification is sought.
D. Employees
As of December 31, 2022, we had 49 employees based at our office and laboratory in Rehovot, Israel and Peace of Meat employed 32 employees based at its office and laboratory in Antwerp, Belgium. On March 7, 2023, we announced a strategic restructuring for Peace of Meat, including targeted layoffs in areas of the business that were unrelated to its updated focus, and on April 4, 2023, we announced the expected liquidation of Peace of Meat, as a result of which it will no longer employ employees.
Local labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, Social Security payments or regional equivalents, and other conditions of employment and include equal opportunity and anti-discrimination laws. None of our employees is party to any collective bargaining agreements. We generally provide our employees with benefits and working conditions beyond the required minimums. We believe we have a good relationship with our employees, and have never experienced any employment-related work stoppages.
E. Beneficial Ownership of Executive Officers and Directors
The beneficial ownership of our ordinary shares (including ordinary shares represented by ADSs) is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise noted below, each shareholder’s address is c/o Steakholder Foods Ltd., 5 David Fikes St., Rehovot 7638205, Israel.
| | | Shares Beneficially Owned | |
| Name of Beneficial Owner | | Number | | | Percentage(1) | |
| Directors and executive officers | | | | | | |
Arik Kaufman(2) | | | 491,600 | | | | * | |
Guy Hefer(3) | | | 333,330 | | | | * | |
Dan Kozlovski(4) | | | 133,340 | | | | * | |
Yaron Kaiser(5) | | | 3,003,610 | | | | 1.7 | % |
David Gerbi(6) | | | 218,510 | | | | * | |
Eli Arad(7) | | | 167,010 | | | | * | |
Sari Singer(8) | | | 168,460 | | | | * | |
| All directors and executive officers as a group (7 persons) | | | 4,515,860 | | | | 2.6 | % |
| * | Less than one percent (1%). |
| (1) | Based on 172,071,117 Ordinary Shares outstanding as of March 22, 2023. |
| (2) | Consists of 283,270 Ordinary Shares and options to purchase 208,330 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of $0.519. These options expire on March 16, 2026. |
| (3) | Consists of options to purchase 187,500 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of NIS 3.49 ($0.96), expiring on March 24, 2025, and options to purchase 145,830 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of $0.716, expiring on July 20, 2025. |
| (4) | Consists of options to purchase 133,340 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of NIS 1.90 ($0.52). These options expire on August 5, 2024. |
| (5) | Consists of 1,435,280 Ordinary Shares based on information provided to us by Mr. Kaiser, options to purchase 116,660 Ordinary Shares exercisable within 60 days of the date of this annual report, with an exercise price of $0.519, expiring on March 16, 2026, restricted share units vesting into 111,670 Ordinary Shares within 60 days of the date of this annual report, and performance share units that may vest into 1,340,000 Ordinary Shares within 60 days of this annual report if their associated performance targets are met during such period. |
| (6) | Consists of 96,450 Ordinary Shares, RSUs vesting into 7,490 Ordinary Shares within 60 days of the date of this annual report and options to purchase 114,570 Ordinary Shares within 60 days of the date of this annual report with an exercise price of $0.716. These options expire on July 20, 2025. |
| (7) | Consists of 44,950 Ordinary Shares, RSUs vesting into 7,490 Ordinary Shares within 60 days of the date of this annual report and options to purchase 114,570 Ordinary Shares within 60 days of the date of this annual report with an exercise price of $0.716. These options expire on July 20, 2025. |
| (8) | Consists of 44,910 Ordinary Shares, RSUs vesting into 8,980 Ordinary Shares within 60 days of the date of this annual report and options to purchase 114,570 Ordinary Shares within 60 days of the date of this annual report with an exercise price of $0.716. These options expire on July 20, 2025. |
F. Action to Recover Erroneously Awarded Compensation
Not applicable.
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares, including ordinary shares represented by ADSs, as of the date of this Annual Report on Form 20-F, by each person or entity who we know beneficially owns 5% or more of the outstanding ordinary shares. For purposes of the table below, we deem ordinary shares issuable pursuant to options or warrants that are currently exercisable or exercisable within 60 days of the date of this Annual Report on Form 20-F, if any, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
None of our shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
As of the date of this Annual Report on Form 20-F, there are five shareholders of record of our ordinary shares, of whom two are in the United States. The number of record holders is not representative of the number of beneficial holders of our ordinary shares, as most of the shares we have issued, including those represented by ADSs are currently recorded in the name of our ADS registrar, The Bank of New York Mellon. Based upon a review of the information provided to us by The Bank of New York Mellon, as of March 1, 2023, there were 25 holders of record of the ADSs on record with the Depository Trust Company. These numbers are not representative of the number of beneficial holders of our ADSs nor is it representative of where such beneficial holders reside, since many of these ADSs were held of record by brokers or other nominees.
| | | Ordinary Shares Beneficially Owned | |
| Name of Beneficial Owner | | Number | | | Percentage | |
| 5% or greater shareholders | | | | | | |
| Shimon Cohen | | | 12,175,320 | | | | 7.1 | % |
(1) Based on 172,071,117 Ordinary Shares outstanding as of March 22, 2023.
(2) This information is based solely on a Schedule 13D filed with the SEC on September 22, 2022, pursuant to which Shimon Cohen reported that he is the direct and beneficial owner of 12,175,320 Ordinary Shares, which represents (i) 305,616 ADSs held by Mr. Cohen in his individual capacity and (ii) 437,245 ADSs, 222,068 ADSs and 252,603 ADSs held indirectly by Mr. Cohen through S.C. Ma’agarei Enosh Ltd., Reshet Bitachon Ltd. and Ma’agarim Proyektim Ltd., respectively, each of which Mr. Cohen is the sole owner, manager and shareholder. The address for Shimon Cohen is 20 Derech HaShalom, Tel Aviv, 61250 Israel.
B. Related Party Transactions
The following is a description of the material transactions we entered into with related parties since the beginning of 2020. We believe that we have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained from unaffiliated third parties.
Our Board of Directors, acting through our Audit Committee, is responsible for the review, approval, or ratification of related party transactions between us and related persons. Under Israeli law, related party transactions are subject to special approval requirements, see “Management — Fiduciary duties and approval of specified related party transactions and compensation under Israeli law.”
Employment Agreements and Director Fees
We have entered into written employment agreements with each of our executive officers, which provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. See “Risk factors - Risks relating to our operations - Under applicable employment laws, we may not be able to enforce covenants not to compete” for a further description of the enforceability of non-competition clauses. For further information, see “Management - Employment and Consulting Agreements.”
The material employment terms for Sharon Fima, our Chief Executive Officer and Chief Technical Officer, as well as a director, are as follows: (1) an annual salary of NIS 420,000 (approximately $127,000) in return for 90% of a full-time position; (2) an annual bonus, subject to achievement of pre-set objectives, of up to NIS 210,000 (approximately $64,000); and (3) all employee benefit plans, programs and arrangements, and all fringe benefits and perquisites that are made available to our senior executives. Separate from his holdings as a founding shareholder, we have issued Mr. Fima options to purchase 500,000 ordinary shares at an exercise price of NIS 2.32 (approximately $0.70) per share in connection with his employment, one-third of which will vest after one year and the rest in eight equal quarterly tranches.
The material employment terms for Omri Schanin, our Deputy Chief Executive Officer and Chief Operations Officer, as well as a director, are as follows: (1) an annual salary of NIS 414,000 (approximately $125,000) in return for 90% of a full-time position; (2) an annual bonus, subject to achievement of pre-set objectives, of up to NIS 140,000 (approximately $43,000); and (3) all employee benefit plans, programs and arrangements, and all fringe benefits and perquisites that are made available to our senior executives. Separate from his holdings as a founding shareholder, we have issued Mr. Schanin options to purchase 250,000 ordinary shares at an exercise price of NIS 3.49 (approximately $1.06) per share in connection with his employment, one-third of which will vest after one year and the rest in eight equal quarterly tranches.
The material employment terms for Guy Hefer, our Chief Financial Officer, are as follows: (1) an annual salary of NIS 420,000 (approximately $127,000) in return for a full-time position; (2) an annual bonus, subject to achievement of pre-set objectives, of up to NIS 140,000 (approximately $43,000); and (3) all employee benefit plans, programs and arrangements, and all fringe benefits and perquisites that are made available to our senior executives. We have issued Mr. Hefer options to purchase 250,000 ordinary shares at an exercise price of NIS 3.49 (approximately $1.06) per share in connection with his employment, one-third of which will vest after one year and the rest in eight equal quarterly tranches.
On March 4, 2020, we entered into a Chairman Agreement, or the Chairman Agreement, with Steven H. Lavin, pursuant to which Mr. Lavin agreed to serve as the Chairman of the Board of Directors for a term of three years. Mr. Lavin is entitled to receive a monthly fee in the amount of $15,000 and was granted a one-time award of 1,127,057 RSUs. The Chairman Agreement may be terminated by us or Mr. Lavin party upon 90 days’ prior written notice, provided that if it is terminated by the company without cause, or by Mr. Lavin for good reason, then all RSUs shall automatically become fully exercisable.
In addition, we pay fees to our non-executive directors in return for their service on our board of directors, in accordance with our compensation policy. Mr. Danny Ayalon receives a monthly fee of $2,500, while other non-executive directors receive fees set forth in the Israeli Companies Regulations (Rules Regarding External Director Payment and Expenses), 2000.
Directors and Officers Insurance Policy and Indemnification and Exculpation Agreements
In accordance with our articles of association, we have obtained Directors and Officers insurance for our executive officers and directors, and provide indemnification, exculpation and exemption undertakings to each of our directors and officers to the fullest extent permitted by the Companies Law.
Private Issuances of Securities
In January 2020, following the closing of the merger between MeaTech and Ophectra, we issued former shareholders of MeaTechSteakholder Innovations warrants to receive ordinary shares, including to the following relatedthen-related parties: (1) warrants to receive 1,036,098 ordinary shares each to Sharon Fima, then our Chief Executive Officer and Chief Technical Officer, and Omri Schanin, then our Deputy Chief OperatingExecutive Officer; and (2) warrants to receive 1,291,158 ordinary shares to Liran Damati, then a substantial shareholder. The warrants havehad no exercise price and vestvested upon the achievement of certainpre-defined milestones (for further details, see “Item 4.—Information on the Company—Historyin 2020 and Development of the Company”).2021.
In May 2020, pursuant to approvals of our audit committee, board of directors and a general meeting of our shareholders: (1) we issued 1,043,846 ordinary shares and options to purchase 6,030,286 ordinary shares at an exercise price of NIS 3.36 (approximately $1.03)$0.92) per share in return for a private investment of $750,000 by EL Capital Investments LLC, a company controlled by Mr. Steven Lavin, who was concurrently appointed to our board of directors as its chairman; and (2) we issued options to purchase 1,967,327 ordinary shares at an exercise price of NIS 2.49 (approximately $0.76)$0.68) per share and options to purchase 1,967,328 ordinary shares at an exercise price of NIS 3.486 (approximately $1.07)$0.96) to Silver Road Capital Ltd., in return for international investor relation consulting services. Twothe majority of ourwhose shares were owned by directors at the time, Mr. Steven Lavin and Mr. Daniel Ayalon, each own 1/3Ayalon.
Engagement with BlueSoundWaves
On October 6, 2021, we entered into a services and collaboration agreement, or the Services and Collaboration Agreement, with BlueOcean Sustainability Fund, LLC, or BlueSoundWaves, pursuant to which BlueSoundWaves provides us with marketing and promotional services, strategic consulting advice, and partner and investor engagement services in the United States. As consideration for such services, BlueSoundWaves received (i) an option to purchase 6,215,770 ordinary shares, currently equal to 621,577 ADSs, and (ii) 1,243,150 of our ordinary restricted shares, currently equal to 124,315 ADSs.
BlueOcean Sustainability Management Fund LP, a Cayman partnership, and the managing partner of BlueSoundWaves holds all of the outstanding sharesshare capital of Silver Road Capital.BlueOcean Kayomot Ltd., an Israeli company. Messrs. Kaufman and Kaiser are directors of BlueOcean Kayomot Ltd. and founding partners of BlueSoundWaves. Mr. Kaufman also serves as the chief executive officer of BlueOcean Kayomot Ltd. See Item 10.C for additional discussion of the Services and Collaboration Agreement.
C. Interests of Experts and Counsel
Not applicable.
A. Consolidated Statements and other Financial Information
See “Item 18.—Financial Statements” in this Annual Report on Form 20-F.
Legal Proceedings
From time to time, we may be party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations.
In November 2020, the ISA initiated an administrative proceeding claiming negligent misstatement regarding certain immediate and periodic reports published by our predecessor (Ophectra) during the years 2017 and 2018, prior to the merger with MeaTech. These reports relate to Ophectra’s activities prior to establishment of the settlement fund in connection with the merger. In February 2021, the trustee of the settlement fund informed us that the ISA views us as a party to this proceeding, notwithstanding the settlement and establishment of the settlement fund. This proceeding is of an administrative nature and carries a potential penalty in the form of a monetary fine which, under applicable Israeli law, could be as high as NIS 5 million. We were advised that the maximum fine likely to be imposed in this case, if any, is $0.26 million (NIS 0.85 million). In April 2021, following negotiations with the ISA, we agreed to settle the matter for $0.21 million (NIS 0.7 million). The settlement is subject to approval of the ISA’s Enforcement Committee.
In February 2021, a civil claim was lodged for which the settlement fund is a respondent, relating to Ophectra's activities prior to establishment of the settlement fund, in an amount of USD 0.8 million (NIS 2.5 million). We believe that there is a low probability of a final judgment against the settlement fund. against the settlement fund, relating to Ophectra's activities prior to establishment of the settlement fund, in an amount of $0.75 million (NIS 2.5 million). As described in “Item 4.—Information on the Company—History and Development of the Company” above, we do not bear any liability for such claims beyond the exercise value of the Therapin asset, which was the sole asset we retained from Ophectra in the merger.
Dividend Distributions
We have never declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We currently intend to reinvest any future earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our Board of Directors may deem relevant.
B. Significant Changes
Since December 31, 2020,2022, the following significant changes have occurred:
PeaceFundraising Round
On January 9, 2023, we consummated an underwritten public offering of Meat Acquisition
For information on our acquisition1,550,000 American Depositary Shares (“ADSs”) at a price of Peace$1.00 per ADS and pre-funded warrants to purchase 4,950,000 ADSs at a purchase price of Meat in February 2021, see “Item 4.—Information on the Company—History$0.9999 per warrant and Developmentan exercise price of $0.0001 per warrant, for total immediate gross proceeds of approximately $6.5 million. As part of the Company—Peaceoffering, we issued warrants to purchase 6,500,000 ADSs, exercisable immediately for a period of Meat Acquisition.”five years, with an exercise price of $1.00 per ADS. Underwriting discounts and other offering expenses totaled approximately $0.7 million. In addition, we granted the underwriters a 45-day option to purchase up to an additional 975,000 ADSs and/or warrants at the public offering price, less discounts and commissions, solely to cover over-allotments, if any, which was not exercised.
Initial Public Offering
In March 2021,connection with the offering, we sold 2,721,271 ADSs, each representing ten ordinary shares, no par value,entered into an agreement with an existing investor to reduce the exercise price of outstanding warrants to purchase up to 1,857,143 ADS which were issued in our U.S. initial publicJuly 2022 registered direct offering at a public offering price of $10.30(the “Prior Warrants”) from $3.50 per ADS for aggregate gross proceeds of $28 million. The net proceeds to us, after deducting underwriting discounts$1.00 per ADS, and commissions and estimated offering expenses payable by us, were approximately $24.7 million. The effective dateto extend the term of the registration statement on Form F-1 (File No. 333-229155)Prior Warrants until January 10, 2028.
Appointment of Chief Financial Officer
On March 2, 2023, we announced that our Vice President of Finance, Mr. Eitan Noah, will be assuming the position of Chief Financial Officer, as our current Chief Financial Officer, Guy Hefer, has decided to step down from his role for personal reasons, all effective April 5, 2023.
Eitan Noah, B.A., CPA, has been our U.S. initial public offeringVice President of ADSsFinance since January 2021. He is an integral member of our finance team, demonstrating exceptional leadership and financial acumen during his tenure, with a deep understanding of our operations, financials, and strategic priorities. Before joining us, Mr. Noah was March 11, 2021. H.C. Wainwright & Co.Director of Finance at Inception XR, Inc. acted as, and Controller and FP&A Manager at Fluence Corp. Ltd. Prior to that, he was a senior associate at PwC Israel. He holds a Bachelor’s degree in Economics from the sole underwriterBen-Gurion University of the Negev, Israel, and is a certified practicing accountant in the offering.Israel.
A. Offer and Listing Details
ADSs
The ADSs, representing our ordinary shares, have been tradingtraded on Nasdaq under the symbol “MITC” sincebetween March 12, 2021. Prior to that date, there was no public trading market for2021 and August 2, 2022, and have traded under the ADSs.symbol “STKH” since then.
Ordinary Shares
Our ordinary shares have been tradingwere traded on the TASE sincebetween January 26, 2020.2020 and August 3, 2021, when we voluntarily de-listed them from trade on the TASE. Our ordinary shares were traded under the symbol “MEAT” until March 2021, whenand thereafter under the symbol was changed to “MITC.” No trading market currently exists forSome of our ordinary shares inare traded over the United States.counter under the symbol MTTCF.
B. Plan of Distribution
Not applicable.
C. Markets
For a description of our publicly-traded ADSs, see “Item 9.— Offer and Listing Details —ADSs.” For a description of our publicly-traded ordinary shares, see “Item 9.— Offer and Listing Details —Ordinary Shares.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
A. Share Capital
Not applicable.
B. Articles of Association
The information set forth in our prospectus dated March 12, 2021,January 9, 2023, filed with the SEC pursuant to Rule 424(b), under the headings “Description of Share Capital” is incorporated herein by reference.
C. Material Contracts
On October 6, 2021, we entered into the Services and Collaboration Agreement with BlueSoundWaves, a sustainability focused fund led by led by Ashton Kutcher, Guy Oseary and Effie Epstein. Pursuant to the Services and Collaboration Agreement, BlueSoundWaves provides us marketing and promotional services, strategic consulting advice, and partner and investor engagement services in the United States.
As consideration for such services, BlueSoundWaves received (i) an option to purchase 6,215,770 ordinary shares, currently equal to 621,577 ADSs, and (ii) 1,243,150 of our ordinary restricted shares, currently equal to 124,315 ADSs. The exercise price per ordinary share of the ordinary share option and restricted ordinary share option is the greater of (a) the closing price per ADS on October 5, 2021 ($6.65) divided by the number of ordinary shares represented by the ADS and (b) the closing price per ADS on the day prior to the exercise of the options less a discount ranging from 25% to 75% depending on how much higher the exercise price is compared to the price determined under subsection (a) of this paragraph. The options granted pursuant to this agreement will vest over a three-year period, with one-third vesting on the first anniversary of the Services and Collaboration Agreement with the remaining amount vesting in equal quarterly installments for the remaining period. If either party provides notice to terminate the agreement, the quarterly vesting will be cancelled. A percentage of the options described above will immediately vest and be exercisable upon the occurrence of certain trading milestones, investment milestones or change of control event. We have also agreed to reimburse BlueSoundWaves its reasonable out of pocket expenses which have been previously approved.
The Services and Collaboration Agreement will remain in effect until terminated in accordance with its terms. Each party has the right to terminate upon 60 days prior written notice after the 12-month anniversary of the effective date. Either party may also terminate the Services and Collaboration Agreement upon the occurrence of a material breach which remains uncured 30 days after the breaching party has received notice of the breach. Any portion of the vested options to purchase ordinary shares or restricted ordinary shares will expire on the second anniversary of the termination of the Services and Collaboration Agreement, or otherwise expire on the 10th anniversary.
For other agreements with related parties, see “Item 7.—Major Shareholders and Related Party Transactions—Related Party Transactions.”
D. Exchange Controls
Non-residents of Israel who purchase our ordinary shares outside of Israel with U.S. dollars or other foreign currency will be able to convert dividends (if any) thereon, and any amounts payable upon the dissolution, liquidation or winding up of the affairs of the Company, as well as the proceeds of any sale in Israel of the ordinary shares to an Israeli resident, into freely repatriable dollars, at a rate of exchange prevailing at the time of conversion, pursuant to regulations issued under the Currency Control Law, 1978, provided that Israeli income tax has been withheld by the Company with respect to such amounts.
E. Taxation
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares or ADSs. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli tax considerations and government programs
The following is a summary of the current tax regime in the State of Israel, which applies to us and to persons who hold our ordinary shares or ADSs.
This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include traders in securities or persons who do not hold our ordinary shares or ADSs as a capital asset. Some parts of this discussion are based on a new tax legislation which has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax considerations.
HOLDERS AND 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 OUR ORDINARY SHARES OR ADSs, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General corporate tax structure in Israel
Israeli resident companies are generally subject to corporate tax on both ordinary income and capital gains, currently at the rate of 23% of a company’s taxable income. Capital gains derived by an Israeli resident company are subject to tax at the prevailing corporate tax rate.
Taxation of our shareholders
Capital gains
Capital gains tax is generally imposed on the disposal of capital assets by an Israeli resident, and on the disposal of capital assets by a non-resident of Israelnon-Israeli resident if those assets (i) are located in Israel, (ii) are shares or a right to shares in an Israeli resident corporation, (iii) represent, directly or indirectly, rights to assets located in Israel, or (iv) a right in a foreign resident corporation, which in its essence is the owner of a direct or indirect right to property located in Israel (with respect to the portion of the gain attributed to the property located in Israel)., unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The ITO distinguishes between “Real Capital Gain” and “Inflationary Surplus.” Real Capital Gain is the excess of the total capital gain over Inflationary Surplus. The Inflationary Surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s 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. Inflationary Surplus is not currently subject to tax in Israel under certain conditions.Israel.
Real Capital Gain accrued by individuals on the sale of our ordinary shares or ADSs will be taxed at the rate of up to 25%. However, if the individual shareholder is a “Substantial Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. In addition, capital gains generated by an individual claiming deduction of financing expenses in respect of such gain will be taxed at the rate of up to 30%.
Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income in 2020,2022, a tax rate of 23% for corporations and a marginal tax rate of up to 47% for individuals.individuals, unless contrary provisions in a relevant tax treaty applies. In addition, a 3% excess tax (as discussed below) is levied on individuals whose total taxable income in Israel in 2020 exceeds2022 exceeded NIS 651,601 ($192,000).663,240.
Notwithstanding the foregoing, generally, capital gain derived from the sale of our ordinary shares or ADSs by a shareholder who is a non-resident of Israel maynon-Israeli resident (whether an individual or a corporation) should be exempt from Israeli taxation,capital gain tax, provided, that all of the following conditions are met: among others, that:(i) the ordinary shares or ADSs were purchased upon or after the listing of the securities on the stock exchange, and (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributable, (iii)attributable. However, non-Israeli entities (including corporations) will not be entitled to the foregoing exemption if the seller isIsraeli residents, whether directly or indirectly: (i) have a corporation, nocontrolling interest of more than 25% in such non-Israeli entity or (ii) are the beneficiaries of, its means of controlor are held, directly and indirectly, by shareholders who are Israeli residents, and (iv) if the seller is a corporation, there are no Israeli residents that are directly or indirectly entitled to, 25% or more of the revenues or profits of such non-Israeli entity. In addition, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the corporation.shares or ADSs are deemed to be business income. In addition, the sale of ordinary shares or ADSs may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, the U.S.-Israel Tax Treaty, or the Treaty, generally exempts U.S. residents (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset from Israeli capital gains tax in connection with such sale, providedexchange or disposition unless either (i) the U.S. treaty resident did not own,owns, directly or indirectly, 10% or more of the Israeli resident company’s voting powerrights at any time within the 12-month period preceding such sale;sale, exchange or disposition; (ii) the seller, if an individual, ishas been present in Israel for less thana period or periods aggregating to 183 days or more during the relevant taxable year; and (iii) the capital gain from the sale, exchange or disposition was not derived through a permanent establishment of the U.S. resident in Israel.Israel; (iv) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel, or (v) the capital gains arising from such sale, exchange or disposition is attributed to royalties. In any such case, the sale, exchange or disposition of such shares or ADSs would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Treaty does not provide such credit against any U.S. state or local taxes.
UponIn some instances where our shareholders may be liable for Israeli tax on the sale of securities,their shares or ADSs, the payment of the consideration may be subject to withholding tax at source in Israel. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding tax at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli residents, and, in the absence of such declarations or exemptions, may require the purchaser the Israeli stockbroker or the Israeli financial institution through whichof the shares are held is obligated, subject to the above exemptions, to withhold tax from the Real Gain at the rate of 25% or 23% in respect of an individual or corporation, respectively.source.
Upon the sale of securities traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advance payment must be made on January 31 and July 31 of every tax year, in respect of sales of securities made within the previous six months by Israeli residents for whom tax has not already been deducted. However, if all tax due was withheld at source according to applicable provisions of the ITO and the regulations promulgated thereunder, there is no need to file a return and no advance payment must be paid.paid, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and an advance payment does not need to be made, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below). Capital gains are also reportable on the annual income tax return.
Dividends
A shareholderIsraeli residents who is an Israeli resident individualare individuals are generally will be subject to Israeli income tax for dividends paid (other than bonus shares or share dividends) at a rate of 25% on dividends we pay. However, a, or 30% tax rate will apply if the recipient of such dividend recipient is a Substantial Shareholder, as defined above, at the time of distribution or at any time during the preceding 12 month12-month period. If the recipient of the dividend is an Israeli resident corporation, such dividendcorporations are generally will not be included inexempt from Israeli corporate tax on the company's taxable income, provided that the sourcereceipt of the dividend is income that was derived or accrued within Israel.dividends paid on shares of Israeli resident corporations.
Dividends distributed by an Israeli resident company to a non-resident of Israel (either individualNon-Israeli residents (whether individuals or corporation)corporations) are generally subject to Israeli income tax on the receipt of dividends paid on ordinary shares at the rate of 25% (30% ifor 30% (if the dividend recipient is a Substantial Shareholder at the time of distribution or at any time during the preceding 12-month period). These rates may beSuch dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether the recipient is a Substantial Shareholder or not), unless a reduced rate is provided under the provisions of an applicable tax treaty.treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). Under the U.S.- Israel Treaty and subject to the followingeligibility to the benefits under such treaty, the maximum rate of tax rates will applywithheld at source in respectIsrael on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-Israel Treaty) is 25%. However, for dividends distributednot generated by an Israeli resident companyApproved Enterprise, Benefited Enterprise or Preferred Enterprises (which are benefitted tax regimes under the Law for Encouragement of Capital Investments-1959) and paid to a U.S. resident: (i) if, during that portion of the taxable year which precedes the payment of the dividend and during the whole of its prior taxable year (if any), the U.S. resident is a corporation that holds at leastholding 10% or more of the outstanding voting sharescapital throughout the tax year in which the dividend is distributed as well as during the previous tax year, the maximum rate of the Israeli corporation andwithholding tax is generally 12.5%, provided that not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxablepreceding year (if any) consists of certain types of interestdividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise, Benefited Enterprise or dividends,Preferred Enterprise are not entitled to such reduction under such tax treaty but are subject to withholding tax at the tax rate is 12.5%; (ii) if bothof 15% or 20% for such a United States corporate shareholder, provided that the conditions mentionedrelated to the holding of 10% of our voting capital and to our gross income for the previous year (as set forth in section (i) abovethe previous sentence) are met and the dividend is paid from an Israeli resident company’s income that was entitled to a reduced tax rate applicable to a Benefited or Privileged Enterprise under the Encouragement Law the tax rate is 15%; and (iii) in all other cases, the tax rate is 25%.met. The reducedaforementioned rates under the U.S.-Israel Treaty willwould not apply if the dividend income is attributable toderived through a permanent establishment of the U.S. treaty resident in Israel. We are obligated to withhold tax upon the distribution of dividends.
Foreign exchange regulations70
Non-residentsIf the dividend is attributable partly to income derived from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly to other sources of Israelincome, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. U.S. residents (for purposes of the U.S.-Israel Treaty) who hold our ordinary sharesare subject to Israeli withholding tax on a dividend may be entitled to a credit or ADSs are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, in non-Israeli currency at the prevailing rate of exchange. However, Israelideduction for United States federal income tax is generally requiredpurposes up to have been paid orthe amount of the taxes withheld, on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated, and these controls may be restored at any time by administrative action.subject to detailed rules contained in U.S. tax law.
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel in respect of such income, provided, inter alia, that (i) such income was not derived from a business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not obliged to pay excess tax (as further explained below).
Excess Tax
Individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income exceeding NIS 663,240 for 2022 (which amount is linked to the annual change in the Israeli consumer price index), including, but not limited to, dividends, interest and capital gain.
Estate and gift tax
Israeli law presently does not impose estate or gift taxes.
Material United States federal income tax considerations
The following discussion describes material United States federal income tax considerations relating to the acquisition, ownership, and disposition of shares or ADSs by a U.S. Holder (as defined below) that acquires our shares or ADSs in this offering and holds them as a capital asset. This discussion is based on the tax laws of the United States, including the Code, Treasury regulations promulgated or proposed thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof. These tax laws are subject to change, possibly with retroactive effect, and subject to differing interpretations that could affect the tax consequences described herein. In addition, this section is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreements will be performed in accordance with its terms. This discussion does not address the tax consequences to a U.S. Holder under the laws of any state, local or foreign taxing jurisdiction.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our shares or ADSs that, for United States federal income tax purposes, is:
an individual who is a citizen or resident of the United States,
a domestic corporation (or other entity taxable as a corporation);
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if (1) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more United States persons have the authority to control all substantial decisions of the trust or (2) a valid election under the Treasury regulations is in effect for the trust to be treated as a United States person.
A “Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income tax purposes).
This discussion does not address all aspects of United States federal income taxation that may be applicable to U.S. Holders in light of their particular circumstances or status (including, for example, banks and other financial institutions, insurance companies, broker and dealers in securities or currencies, traders that have elected to mark securities to market, regulated investment companies, real estate investment trusts, partnerships or other pass-through entities, corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt organizations, pension plans, persons that hold our shares as part of a straddle, hedge or other integrated investment, persons subject to alternative minimum tax or whose “functional currency” is not the U.S. dollar).
If a partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) holds our shares or ADSs, the tax treatment of a person treated as a partner in the partnership for United States federal income tax purposes generally will depend on the status of the partner and the activities of the partnership. Partnerships (and other entities or arrangements so treated for United States federal income tax purposes) and their partners should consult their own tax advisors.
In general, and taking into account the earlier assumptions, for United States federal income and Israeli tax purposes, a holder that holds ADRs evidencing ADSs will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income or Israeli tax.
This discussion addresses only U.S. Holders and does not discuss any tax considerations other than United States federal income tax considerations. Prospective investors are urged to consult their own tax advisors regarding the United States federal, state, and local, and non-United States tax consequences of the purchase, ownership, and disposition of our shares or ADSs.
We do not expect to make any distribution with respect to our shares or ADSs. However, if we make any such distribution, under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible in income for a U.S. Holder and subject to United States federal income taxation. Dividends paid to a noncorporate U.S. Holder that constitute qualified dividend income will be taxable at a preferential tax rate applicable to long-term capital gains of, currently, 20 percent, provided that the U.S. Holder holds the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. If we are treated as a PFIC, dividends paid to a U.S. Holder will not be treated as qualified dividend income. If we are not treated as a PFIC, dividends we pay with respect to the shares or ADSs generally willmay be qualified dividend income, provided that the holding period requirements are satisfied by the U.S. Holder.
A U.S. Holder must include any Israeli tax withheld from the dividend payment in the gross amount of the dividend even though the holder does not in fact receive it. The dividend is taxable to the holder when the holder, in the case of shares, or the Depositary, in the case of ADSs, receives the dividend, actually or constructively. Because we are not a United States corporation, the dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution includible in a U.S. Holder’s income will be the U.S. dollar value of the NIS payments made, determined at the spot NIS/U.S. dollar rate on the date the dividend distribution is includible in income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in income to the date the payment is converted into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Dividends paid with respect to our ordinary shares or ADSs will be treated as foreign source income, which may be relevant in calculating the holder’s foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if holders do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.
To the extent a distribution with respect to our shares or ADSs exceeds our current or accumulated earnings and profits, as determined under United States federal income tax principles, the distribution will be treated, first, as a tax-free return of the U.S. Holder’s investment, up to the holder’s adjusted tax basis in its shares or ADSs, and, thereafter, as capital gain, which is subject to the tax treatment described below in “—Gain on Sale, Exchange or Other Taxable Disposition.”
Subject to certain limitations, the Israeli tax withheld in accordance with the Treaty and paid over to Israel will be creditable or deductible against a U.S. Holder’s United States federal income tax liability.
Subject to the discussion below under “Information reporting and backup withholding,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business (or, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
Gain on sale, exchange or other taxable disposition
Subject to the PFIC rules described below under “—Passive Foreign InvestmentCompany Considerations,” a U.S. Holder that sells, exchanges or otherwise disposes of shares or ADSs in a taxable disposition generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. Dollar value of the amount realized and the holder’s tax basis, determined in U.S. Dollars, in the shares or ADSs. Gain or loss recognized on such a sale, exchange or other disposition of shares or ADSs generally will be long-term capital gain if the U.S. Holder’s holding period in the shares or ADSs exceeds one year. Long-term capital gains of non-corporate U.S. Holders are generally taxed at preferential rates. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. A U.S. Holder’s ability to deduct capital losses is subject to limitations.
Subject to the discussion below under “Information reporting and backup withholding,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
such gain is effectively connected with your conduct of a trade or business in the United States (or, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base that such holder maintains in the United States); or
you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.
For a cash basis taxpayer, units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement date of the purchase or sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such a purchase or sale. An accrual basis taxpayer, however, may elect the same treatment required of cash basis taxpayers with respect to purchases and sales of our ordinary shares that are traded on an established securities market, provided the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. An accrual basis taxpayer who does not make such election may recognize exchange gain or loss based on currency fluctuations between the trade date and the settlement date. Any foreign currency gain or loss a U.S. Holder realizes will be U.S. source ordinary income or loss.
The determination of whether the ADSs or ordinary shares are traded on an established securities market is not entirely clear under current U.S. federal income tax law. Please consult your tax advisor regarding the proper treatment of foreign currency gains or losses with respect to a sale or other disposition of our ordinary shares.
Passive foreign investment company considerations
Based on our income and assets, we believe that we shouldmay be treated as a PFIC for the preceding taxable year. However, the determination of our PFIC status is made annually based on the factual tests described below. Consequently, while we may be treated as a PFIC in future years, we cannot estimate with certainty at this stage whether or not we are likely to be treated as a PFIC for the current or future taxable years. If we were classified as a PFIC in any taxable year, a U.S. Holder would be subject to special rules with respect to distributions on and sales, exchanges and other dispositions of the shares or ADSs. We will be treated as a PFIC for any taxable year in which at least 75 percent of our gross income is “passive income” or at least 50 percent of the average percentage of our gross assets during the taxable year, assuming we were not a controlled foreign corporation, or CFC, for the year being tested, based on the average of the fair market values of the assets determined at the end of each quarterly period, are assets that produce or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. However, rents and royalties received from unrelated parties in connection with the active conduct of a trade or business are not considered passive income for purposes of the PFIC test. In determining whether we are a PFIC, a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly, at least a 25% interest (by value) is taken into account.
Excess distribution rules
If we were a PFIC with respect to a U.S. Holder, then unless the holder makes one of the elections described below, a special tax regime would apply to the U.S. Holder with respect to (a) any “excess distribution” (generally, aggregate distributions in any year that are greater than 125% of the average annual distribution received by the holder in the shorter of the three preceding years or the holder’s holding period for the shares or ADSs) and (b) any gain realized on the sale or other disposition of the shares or ADSs. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the U.S. Holder’s holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. If we were determined to be a PFIC, this tax treatment for U.S. Holders would apply also to indirect distributions and gains deemed realized by U.S. Holders in respect of stock of any of our subsidiaries determined to be PFICs. In addition, dividend distributions would not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “Dividends”.
A U.S. Holder that holds the shares or ADSs at any time during a taxable year in which we are classified as a PFIC generally will continue to treat such shares or ADSs as shares or ADSs in a PFIC, even if we no longer satisfy the income and asset tests described above, unless the U.S. Holder elects to recognize gain, which will be taxed under the excess distribution rules as if such shares or ADSs had been sold on the last day of the last taxable year for which we were a PFIC.
Certain elections by a U.S. Holder would alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment of the shares or ADSs, as described below. However, we do not currently intend to provide the information necessary for U.S. Holders to make “QEF elections,” as described below, and the availability of a “mark-to-market election” with respect to the shares or ADSs is a factual determination that will depend on the manner and quantity of trading of our shares or ADSs, as described below. A mark-to-market election cannot be made with respect to the stock of any of our subsidiaries.
QEF election
If we were a PFIC, the rules above would not apply to a U.S. Holder that makes an election to treat our shares or ADSs as stock of a “qualified electing fund” or QEF. A U.S. Holder that makes a QEF election is required to include in income its pro rata share of our ordinary earnings and net capital gain as ordinary income and long-term capital gain, respectively, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. A U.S. Holder makes a QEF election generally by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return for the year beginning with which the QEF election is to be effective (taking into account any extensions). A QEF election can be revoked only with the consent of the IRS. In order for a U.S. Holder to make a valid QEF election, we must annually provide or make available to the holder certain information. WhileWe cannot provide any assurances that we intend towill provide to U.S. Holders the information required to make a valid QEF election, we cannot provide any assurances that we will in fact provide such information.election.
Mark-to-market election
If we were a PFIC, the rules above also would not apply to a U.S. Holder that makes a “mark-to-market” election with respect to the shares or ADSs, but this election will be available with respect to the shares or ADSs only if they meet certain minimum trading requirements to be considered “marketable stock” for purposes of the PFIC rules. In addition, a mark-to-market election generally could not be made with respect to the stock of any of our subsidiaries unless that stock were itself marketable stock, and the election may therefore be of limited benefit to a U.S. Holder that wants to avoid the excess distribution rules described above. Shares or ADSs will be marketable stock if they are regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on a non-U.S. exchange or market that meets certain requirements under the Treasury regulations. Shares or ADSs generally will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded.
A U.S. Holder that makes a valid mark-to-market election for the first tax year in which the holder holds (or is deemed to hold) our shares or ADSs and for which we are a PFIC will be required to include each year an amount equal to the excess, if any, of the fair market value of such shares or ADSs the holder owns as of the close of the taxable year over the holder’s adjusted tax basis in such shares or ADSs. The U.S. Holder will be entitled to a deduction for the excess, if any, of the holder’s adjusted tax basis in the shares or ADSs over the fair market value of such shares or ADSs as of the close of the taxable year, but only to the extent of any net mark-to-market gains with respect to such shares or ADSs included by the U.S. Holder under the election for prior taxable years. The U.S. Holder’s basis in such shares or ADSs will be adjusted to reflect the amounts included or deducted pursuant to the election. Amounts included in income pursuant to a mark-to-market election, as well as gain on the sale, exchange or other taxable disposition of such shares or ADSs, will be treated as ordinary income. The deductible portion of any mark-to-market loss, as well as loss on a sale, exchange or other disposition of our shares or ADSs to the extent that the amount of such loss does not exceed net mark-to-market gains previously included in income, will be treated as ordinary loss.
The mark-to-market election applies to the taxable year for which the election is made and all subsequent taxable years, unless the shares cease to be treated as marketable stock for purposes of the PFIC rules or the IRS consents to its revocation. The excess distribution rules described above generally will not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. However, if we were a PFIC for any year in which the U.S. Holder owns the shares or ADSs but before a mark-to-market election is made, the interest charge rules described above would apply to any mark-to-market gain recognized in the year the election is made.
PFIC reporting obligations
A U.S. Holder of PFIC shares must generally file an annual information return on IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
U.S. Holders are urged to consult their tax advisors as to our status as a PFIC, and the tax consequences to them if we were a PFIC, including the reporting requirements and the desirability of making, and the availability of, a QEF election or a mark-to-market election with respect to the shares or ADSs.
Non-corporate U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of shares or ADSs. A United States person that is an individual, estate or trust is encouraged to consult its tax advisors regarding the applicability of this Medicare tax to its income and gains in respect of any investment in our shares or ADSs.
Information reporting with respect to foreign financial assets
Individual U.S. Holders may be subject to certain reporting obligations on IRS Form 8938 (Statement of Specified Foreign Financial Asset) with respect to the shares or ADSs for any taxable year during which the U.S. Holder’s aggregate value of these and certain other “specified foreign financial assets” exceed a threshold amount that varies with the filing status of the individual. This reporting obligation also applies to domestic entities formed or availed of to hold, directly or indirectly, specified foreign financial assets, including the shares or ADSs. Significant penalties can apply if U.S. Holders are required to make this disclosure and fail to do so.
Information reporting and backup withholding
In general, information reporting, on IRS Form 1099, will apply to dividends in respect of shares or ADSs and the proceeds from the sale, exchange or redemption of shares of ADSs that are paid to a holder of shares or ADSs within the United States (and in certain cases, outside the United States), unless such holder is an exempt recipient such as a corporation. Backup withholding (currently at a 24% rate) may apply to such payments if a holder of shares or ADSs fails to provide a taxpayer identification number (generally on an IRS Form W-9) or certification of other exempt status or fails to report in full dividend and interest income.
Backup withholding is not an additional tax. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed the U.S. Holder’s income tax liability by filing a refund claim with the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and under those requirements will file reports with the SEC. Those reports may be inspected without charge at the locations described below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to 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 SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
We maintain a corporate website at www.meatech3d.com.www.steakholderfoods.com. We intend to post our Annual Report on Form 20-F on our website promptly following it being filed with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference.
Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this Annual Report on Form 20-F.
With respect to references made in this Annual Report on Form 20-F to any contract or other document of MeaTech,Steakholder Foods, such references are not necessarily complete and you should refer to the exhibits attached or incorporated by reference to this Annual Report on Form 20-F for copies of the actual contract or document.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
Not applicable.
| | | QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK |
For quantitative and qualitative information regarding our market risk, see “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources — Quantitative and Qualitative Disclosures About Market Risk” and Note 2223 to our financial statements.
| | ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
The Bank of New York Mellon is the depositary of the ADSs. Each ADS represents ten ordinary shares (or a right to receive ten ordinary shares) deposited with Bank Leumi, as custodian for the depositary in Israel.. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs are administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.
A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs. A copy of the deposit agreement has beenwas filed as Exhibit 4.1 to our amended registration statement on Form F-1 filed with the SEC on March 5, 2021 and is incorporated by reference herein.
Fees and Expenses
Pursuant to the terms of the deposit agreement, the holders of the ADSs will be required to pay the following fees:
Persons depositing or withdrawing ordinary
shares or ADS holders must pay | | For: |
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | | Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates |
| | | |
| $.05 (or less) per ADS | | Any cash distribution to ADS holders |
| | | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs | | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
| | | |
| $.05 (or less) per ADS per calendar year | | Depositary services |
| | | |
| Registration or transfer fees | | Transfer and registration of ordinary shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares |
| | | |
| Expenses of the depositary | | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars |
| | | |
| Taxes and other governmental charges the depositary or the custodian have to pay on any ADSs or ordinary shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | | As necessary |
| | | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | | As necessary |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be most favorable to ADS holders, subject to its obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
PART II
| | | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
| | ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Initial Public Offering
In March 2021, we sold 2,721,271 ADSs, each representing ten ordinary shares, no par value, in our U.S. initial public offering at a public offering price of $10.30 per ADS. Gross proceeds, including proceeds generated from the partial exercise of the underwriter’s option to purchase additional ADSs, were $28 million. Net proceeds to us, after deducting underwriting discounts and commissions and estimated offering expenses payable by us were approximately $24.7 million. The effective date of the registration statement on Form F-1 (File No. 333-253257) for our U.S. initial public offering of ADSs was March 11, 2021. The offering closed on March 17, 2021. H.C. Wainwright, Inc. acted as the sole underwriter in the offering.
The net proceeds from our initial public offering are held in cash and cash equivalents and we expect they will meet our capital requirements until December,the fourth quarter of 2022. We do not currently have any specific commitments or plans for acquisitions; to the extent we do engage in acquisitions, we will do so after ensuring that we will have sufficient funds available to meet our capital requirements, and such acquisitions are likely to affect our projected cash needs. None of the net proceeds of our initial public offering were paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.
| | ITEM 15. | CONTROLS AND PROCEDURES |
| A. | Disclosure Controls and Procedures |
We have performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on our evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report are effective. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in our reports.
This Annual Report on Form 20-F does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
| B. | Management’s Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and 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 assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. 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 policies or procedures may deteriorate.
Our management assessed our internal control over financial reporting as of December 31, 2022, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment.
Based on its assessment, our management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards. We reviewed the results of our management’s assessment with the Audit Committee of our Board of Directors.
| C. | Attestation Report of the Registered Public Accounting Firm |
This Annual Report on Form 20-F does not include an attestation report of the company’s registered public accounting firm as the company is considered an emerging growth company.
| D. | Changes in Internal Control over Financing Reporting |
There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 20-F 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 all members of our audit committee are financially literate as determined in accordance with Nasdaq rules and that Messrs. Eli Arad and David Gerbi are qualified to serve as “audit committee financial experts” as defined by SEC rules. The audit committee financial experts are independent directors.
We have adopted an Unethicala Code of Business Conduct Reporting Procedureand Ethics (the “Code of Conduct”Ethics”) that is applicable to all of theour directors, executives and other employees, and independent contractorsthose of the Company.our affiliates. A copy of the Code of Conduct is available on our website at www.meatech3d.com. Thewww.steakholderfoods.com. Any waivers of the Code of Ethics for directors and officers require the approval of the audit committee of our board of directors is responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for directors and officers.directors. We expect that any amendments to the Code of Conduct will be disclosed on our website.
| | ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees Paid to Independent Registered Public Accounting Firm
Our auditors for the years ended December 31, 2020 and 2019 were Somekh Chaikin, Registered Public Accounting Firm, a member firm of KPMG International. We expect that Somekh Chaikin will serveInternational, located in Tel Aviv, Israel (PCAOB ID 1057), has served as our auditorsindependent registered public accounting firm for fiscal year2022 and 2021. AllFollowing are Somekh Chaikin’s fees for professional services in each of the services described in the following fee table were pre-approved by the audit committee.respective fiscal years:
| | | Year ended December 31, | |
| | | 2020 | | | 2019 | |
| | | USD, in thousands | |
| | | | |
Audit fees(1) | | | 145 | | | | 65 | |
Audit-related fees(2) | | | - | | | | - | |
Tax fees(3) | | | 10 | | | | - | |
Other fees(4) | | | - | | | | - | |
| Total | | | 155 | | | | 65 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | |
| | | USD, in thousands | |
| | | | |
Audit fees(1) | | | 295 | | | | 336 | |
Tax fees(2) | | | 25 | | | | 3 | |
| Total | | | 320 | | | | 339 | |
| (1) | Audit fees consist of fees billed or expected to be billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the Company audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the TASE and SEC. |
| | |
| (2) | Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and projects; review of security controls and operational effectiveness of systems; review of plans and control for shared service centers, due diligence related to acquisitions; accounting assistance and audits in connection with proposed or completed acquisitions; and employee benefit plan audits. |
| |
(3) | Tax fees include fees billed for tax compliance services that were rendered during the most recent fiscal year, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority; tax planning services; and expatriate tax planning and services. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Our Audit Committee has the sole authority to approve the scope of the audit and any audit-related services, as well as all audit fees and terms. The Audit Committee must pre-approve any audit and non-audit services provided by our independent registered public accounting firm. The Audit Committee will not approve the engagement of the independent registered public accounting firm to perform any services that the independent registered public accounting firm would be prohibited from providing under applicable laws, rules and regulations, including those of self-regulating organizations. The Audit Committee reviews and pre-approves the statutory audit fees that can be provided by the independent registered public accounting firm on an annual basis.
| | |
(4)ITEM 16D.
| No other fees were billed by the Company’s auditors to the Company during the years ended December 31, 2020 and 2019.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNot applicable.
| ITEM 16E.
| PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
| ITEM 16F.
| CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
| ITEM 16G.
| CORPORATE GOVERNANCE |
ITEM 16G. CORPORATE GOVERNANCENasdaq Listing Rules and Home Country Practices
The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, such as us, to comply with various corporate governance practices. As a foreign private issuer, we are permitted to follow certain Israeli corporate governance practices instead of Nasdaq rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirements. Pursuant to the “foreign private issuer exemption”:
We are not required to haveBelow is a nominating committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Our board of directors currently nominates director candidates, in compliance with the Companies Law.
We are not required to comply with specifications regarding the composition of our compensation committee under SEC and Nasdaq rules nor the requirement that it adopts a written charter addressing the committee’s purpose and responsibilities. Although we have adopted a formal written charter for our compensation committee, there is no requirement under the Companies Law to do so and the charters as adopted may not specify allconcise summary of the items enumeratedsignificant ways in which our corporate governance practices differ from the applicablecorporate governance requirements of Nasdaq Marketplace Rules.
We are not required to adopt a code of conduct applicable to all directors, officers and employees, and the Companies Law does not require us to do so. Although we have adopted a code of conduct, there is no requirement under the Companies Law to do so and the code as adopted may not specify all of the items enumerated in the applicable Nasdaq Marketplace Rules.
domestic U.S. listed companies:
| • | TheQuorum. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for aan ordinary meeting of our shareholders will beconsists of at least two shareholders present in person or by proxy or by a voting instrument, who hold in the aggregateor represent between them at least 25% of the voting power of our shares (and, with respect to an adjourned meeting, generally one or more shareholders who hold or represent any number of shares), instead of 33 1/3% of the issued share capital (and in an adjourned meeting, with some exceptions, any number of shareholders) instead of 331∕3% of our issued share capital as requiredprovided under applicable Nasdaq Marketplace Rules.Listing Rule 5260(c).
|
| • | Shareholder Approval. Although the Nasdaq Listing Rules generally require shareholder approval of equity compensation plans and material amendments thereto, we follow Israeli practice, which is to have such plans and amendments approved only by the board of directors, unless such arrangements are for the compensation of chief executive officer or directors, in which case they also require the approval of the compensation committee and the shareholders. In addition, rather than follow the Nasdaq Listing Rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if: (a) the securities issued amount to 20% or more of our outstanding voting rights before the issuance; (b) some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and (c) transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights. |
| • | Executive Sessions. While the Nasdaq Listing Rules require that “independent directors,” as defined in the Nasdaq Listing Rules, must have regularly scheduled meetings at which only “independent directors” are present. Israeli law does not require, nor do our independent directors necessarily conduct, regularly scheduled meetings at which only they are present. |
We intend to seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, including (i) in connection with equity-based compensation to officers and directors; and (ii) certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company), rather than seeking approval for corporate actions in accordance with the applicable Nasdaq Marketplace Rules.
| ITEM 16H.
| MINE SAFETY DISCLOSURE |
Not applicable.
As permitted by the Companies law, our Board is not comprised of a majority of independent directors as would be required in accordance with applicable Nasdaq Marketplace Rules.
As permitted by the Companies law, our Board has not adopted a policy of conducting regularly scheduled meetings at which only our independent directors are present in accordance with applicable Nasdaq Marketplace Rules.
As opposed to making periodic reports to shareholders and proxy solicitation materials available to shareholders in a manner specified by the SEC and Nasdaq Marketplace Rules, the generally accepted practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. We intend to mail such reports to shareholders only upon request.
In all other respects, we intend to comply with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other Nasdaq Capital Market corporate governance rules. Following the closing of this offering, we will also comply with Israeli corporate governance requirements under the Companies Law applicable to public companies. Accordingly, our shareholders may not be afforded the same protections as provided under Nasdaq Marketplace Rules.
ITEM 16H. MINE SAFETY DISCLOSURE | ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS | ITEM 17. | FINANCIAL STATEMENTS |
The Registrant has responded to Item 18 in lieu of responding to this Item.
ITEM 18. FINANCIAL STATEMENTS
| ITEM 18.
| FINANCIAL STATEMENTS |
See the financial statements beginning on page F-1. The following financial statements and financial statement schedules are filed as part of this Annual Report on Form 20-F together with the report of the independent registered public accounting firm.
Steakholder Foods Ltd. (formerly known as MeaTech 3D Ltd.)
Index to Consolidated Financial Statements
Financial InformationStatements of MeaTech 3DSteakholder Foods Ltd. | Page |
| | |
| F-2 |
| | |
Consolidated Financial Statements: | |
| F-3 |
| F-4 |
| F-5 |
| F-6 |
| F-7 |
F - 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
MeaTech 3DSteakholder Foods Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of MeaTech 3DSteakholder Foods Ltd. (“the Company”) as of December 31, 20202022 and 2019,2021, the related consolidated statements of incomeoperations and comprehensive loss, changes in capital (deficit),equity, and cash flows for each of the years in the two yearthree-year period ended December 31, 2020, and for the eight month period ended December 31, 2018,2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the years in the two yearthree-year period ended December 31, 2020, and for the eight month period ended December 31, 2018,2022, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1c to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1c. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Somekh Chaikin
Somekh Chaikin
Member Firm of KPMG International
We have served as the Company’s auditor since 2020.
Tel Aviv, Israel
April 21, 20214, 2023
MeaTech 3D Ltd.
Consolidated Statements of Financial Position
| | | | | | December 31 | | | December 31 | |
| | | | | | 2022 | | | 2021 | |
| | | | | | USD thousands | | | USD thousands | |
Current assets | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | 4 | | | | 6,284 | | | | 19,176 | |
Other investment | | 6 | | | | 136 | | | | 154 | |
Restricted deposits | | | | | | 24 | | | | - | |
Receivables | | 5 | | | | 670 | | | | 2,782 | |
Total current assets | | | | | | 7,114 | | | | 22,112 | |
| | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | |
| | | | | | | | | | | | |
Restricted deposits | | | | | | 331 | | | | 405 | |
Other investment | | 6 | | | | 1,156 | | | | 1,355 | |
Right-of-use asset | | 19 | | | | 3,400 | | | | 407 | |
Intangible assets | | 16 | | | | | | | | 13,453 | |
Fixed assets, net | | 7 | | | | | | | | 2,922 | |
| | | | | | | | | | | | |
Total non-current assets | | | | | | | | | | 18,542 | |
| | | | | | | | | | | | |
Total Assets | | | | | | | | | | 40,654 | |
| | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
| | | | | | | | | | | | |
Trade payables | | | | | | 745 | | | | 382 | |
Other payables | | 8 | | | | 2,303 | | | | 2,239 | |
Current maturities of lease liabilities | | 19 | | | | 394 | | | | 165 | |
Derivative instrument | | 9B | | | | 882 | | | | - | |
| | | | | | | | | | | | |
Total current liabilities | | | | | | 4,324 | | | | 2,786 | |
| | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | |
| | | | | | | | | | | | |
Long-term lease liabilities | | 19 | | | | 3,109 | | | | 246 | |
| | | | | | | | | | | | |
Total non-current liabilities | | | | | | 3,109 | | | | 246 | |
| | | | | | | | | | | | |
Capital | | | | | | | | | | | |
| | | | | | | | | | | | |
Share capital and premium on shares | | | | | | 73,234 | | | | 69,610 | |
Capital reserves | | | | | | 3,811 | | | | 3,708 | |
Currency translation differences reserve | | | | | | | ) | | | 1,275 | |
Accumulated deficit | | | | | | | ) | | | (36,971 | ) |
| | | | | | | | | | | | |
Total capital | | | | | | | | | | 37,622 | |
Total liabilities and capital | | | | | | | | | | 40,654 | |
| | | | | | December 31 | | | December 31 | |
| | | | | | 2020 | | | 2019 | |
| | | Note | | | USD thousands | | | USD thousands | |
Current assets | | | | | | | | | |
| | | | | | | | | | |
| Cash and cash equivalents | | 4 | | | | 13,556 | | | | 1,274 | |
| Receivables for the issue of capital | | | | | | - | | | | 222 | |
| Loans provided | | | | | | - | | | | 87 | |
| Other investment | | 5 | | | | 149 | | | | - | |
| Receivables | | 6 | | | | 131 | | | | | |
| Total current assets | | | | | | 13,836 | | | | | |
| | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | |
| | | | | | | | | | | | |
| Restricted deposits | | 22 | | | | 51 | | | | 42 | |
| Other investment | | 5 | | | | 2,513 | | | | | |
| Right-of-use asset | | 17 | | | | 168 | | | | 197 | |
| Fixed assets, net | | 7 | | | | 906 | | | | | |
| | | | | | | | | | | | |
| Total non-current assets | | | | | | 3,638 | | | | | |
| | | | | | | | | | | | |
| Total Assets | | | | | | 17,474 | | | | | |
| | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
| | | | | | | | | | | | |
| Trade payables | | | | | | 351 | | | | 69 | |
| Other payables | | 8 | | | | 996 | | | | 226 | |
| Current maturities of lease liabilities | | 17 | | | | 180 | | | | 109 | |
| Derivative instrument | | 9B |
| | | 316 | | | | | |
| | | | | | | | | | | | |
| Total current liabilities | | | | | | 1,843 | | | | | |
| | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | |
| | | | | | | | | | | | |
| Long-term lease liabilities | | 18 | | | | - | | | | 92 | |
| | | | | | | | | | | | |
| Total non-current liabilities | | | | | | - | | | | 92 | |
| | | | | | | | | | | | |
Capital | | 9 | | | | | | | | | |
| | | | | | | | | | | | |
| Share capital and premium on shares | | | | | | 30,481 | | | | 1,880 | |
| Capital reserves | | | | | | 3,319 | | | | 14 | |
| Currency translation differences reserve | | | | | | 780 | | | | 22 | |
| Accumulated deficit | | | | | | (18,949 | ) | | | | |
| | | | | | | | | | | | |
| Total capital | | | | | | 15,631 | | | | | |
| Total liabilities and capital | | | | | | 17,474 | | | | | |
The accompanying Notes are an integral part of the financial statements.
