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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ___________
Commission File No.: 00137846
QUOIN PHARMACEUTICALS LTD.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
State of Israel
Azrieli Center, Round Tower, 30th Floor
132 Menachem Begin Blvd
Tel Aviv, 6701101
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Dr. Michael Myers
Chief Executive Officer
(703) 9804182
mmyers@quoinpharma.com
42127 Pleasant Forest Court
Ashburn, VA 201487349
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
American Depositary Shares, each representing four
hundred (400) Ordinary Shares, no par value per share
QNRX
The Nasdaq Stock Market LLC
Ordinary Shares, no par value per share*
N/A
*
Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to requirements of the
Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the
annual report: 3,354,650,799 ordinary shares.
Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐No ☒
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Yes ☐No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or an emerging growth
company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Nonaccelerated filer ☒
Emerging Growth Company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the SarbanesOxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act).
Yes ☐ No ☒
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3
TABLE OF CONTENTS
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
8
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
8
ITEM 3.
KEY INFORMATION
8
A.
[Reserved]
8
B.
Capitalization and Indebtedness
8
C.
Reasons for the Offer and Use of Proceeds
8
D.
Risk Factors
8
ITEM 4.
INFORMATION ON THE COMPANY
42
ITEM 4A.
UNRESOLVED STAFF COMMENTS
52
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
52
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
67
A.
Directors and Senior Management
67
B.
Compensation
70
C.
Board Practices
74
D.
Employees.
88
E.
Share Ownership.
88
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
89
A.
Major Shareholders
89
B.
Related Party Transactions
90
C.
Interests of Experts and Counsel
91
ITEM 8.
FINANCIAL INFORMATION.
91
A.
Consolidated Statements and Other Financial Information.
91
B.
Significant Changes
92
ITEM 9.
THE OFFER AND LISTING
92
A.
Offer and Listing Details
92
B.
Plan of Distribution
92
C.
Markets
92
D.
Selling Shareholders
92
E.
Dilution
92
F.
Expenses of the Issue
92
ITEM 10.
ADDITIONAL INFORMATION
93
A.
Share Capital
93
B.
Memorandum and Articles of Association
93
C.
Material Contracts
98
D.
Exchange Controls
98
E.
Taxation.
98
F.
Dividends and Paying Agents
106
G.
Statement by Experts
106
H.
Documents on Display
106
I.
Subsidiary Information.
106
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
106
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
106
A.
Debt Securities.
106
B.
Warrants and Rights.
106
C.
Other Securities.
107
D.
American Depositary Shares
107
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
109
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
109
ITEM 15.
CONTROLS AND PROCEDURES
109
A.
Disclosure Controls and Procedures
109
B.
Management’s Annual Report on Internal Control over Financial Reporting
109
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4
C.
Attestation Report of the Registered Public Accounting Firm
110
D.
Changes in Internal Control over Financial Reporting
110
ITEM 16.
[Reserved]
110
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
110
ITEM 16B.
CODE OF ETHICS
110
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
110
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
111
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
111
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
111
ITEM 16G.
CORPORATE GOVERNANCE
112
ITEM 16H.
MINE SAFETY DISCLOSURE
114
ITEM 16I
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
114
ITEM 17.
FINANCIAL STATEMENTS
115
ITEM 18.
FINANCIAL STATEMENTS
115
ITEM 19.
EXHIBITS
115
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5
INTRODUCTION
Quoin Pharmaceuticals Ltd., formerly known as Cellect Biotechnology Ltd. (“Cellect”), is the holding company for Quoin
Pharmaceuticals, Inc., a Delaware corporation (“Quoin Inc.”). On October 28, 2021, Cellect completed the business combination
with Quoin Inc., in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 24,
2021 (the “Merger Agreement”), by and among Cellect, Quoin Inc. and CellMSC, Inc., a Delaware corporation and whollyowned
subsidiary of Cellect (“Merger Sub”), pursuant to which Merger Sub merged with and into Quoin Inc., with Quoin Inc. surviving
as a whollyowned subsidiary of Cellect (the “Merger”). Immediately after completion of the Merger, Cellect changed its name to
“Quoin Pharmaceuticals Ltd.”
Quoin Inc. is a specialty pharmaceutical company focused on developing and commercializing therapeutic products that treat rare
and orphan diseases. Its lead product is QRX003, a once daily, topical lotion comprised of a broadspectrum serine protease
inhibitor, formulated with the proprietary Invisicare® technology, to treat Netherton Syndrome (NS).
In this Annual Report, unless the context otherwise requires:
●
references to “Quoin Ltd.,” the “Company,” “us,” “we”, “our” and the “Registrant” refer to Quoin Pharmaceuticals Ltd., an Israeli
company, and its consolidated subsidiaries (unless otherwise indicated);
●
references to “ordinary shares,” “our shares” and similar expressions refer to the Registrant’s ordinary shares, no par value per share;
●
references to “dollars,” “U.S. dollars” and “$” refer to the currency of the United States of America;
●
references to the “Companies Law” refer to Israel’s Companies Law, 57591999;
●
references to the “SEC” are to the United States Securities and Exchange Commission; and
●
references to the “Nasdaq Rules” are to rules of The Nasdaq Stock Market LLC.
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CAUTIONARY NOTE REGARDING FORWARDLOOKING STATEMENTS
Certain information included in this Annual Report on Form 20F may be deemed to be “forwardlooking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forwardlooking statements are often
characterized by the use of forwardlooking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,”
“believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forwardlooking statements may include, but are not limited to, statements relating to our objectives, plans and strategies,
statements that contain projections of results of operations or of financial condition, expected capital needs and expenses,
statements relating to the research, development, completion and use of our products, and all statements (other than statements of
6
historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may
occur in the future.
Forwardlooking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based
these forwardlooking statements on assumptions and assessments made by our management in light of their experience and their
perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated
in these forwardlooking statements include, among other things:
●
our limited operating history and the difficulties encountered by a small developing company;
●
our history of losses and needs for additional capital to fund our operations and our inability to obtain additional capital on acceptable
terms, or at all;
●
our lack of revenue generated from product sales since inception, and potential inability to be profitable;
●
uncertainties of cash flows and inability to meet working capital needs;
●
our ability to obtain regulatory approvals;
●
our ability to obtain favorable preclinical and clinical trial results;
●
our ability to identify and develop potential product candidates;
●
additional costs or delays associated with unsuccessful clinical trials;
●
the inability to predict the timing of revenue from a future product;
●
the extensive regulatory requirements and future developmental and regulatory challenges we will still face even if we obtain approval
for a product candidate;
●
our ability to obtain or maintain orphan drug designation or exclusivity for our product candidates;
●
our ability to obtain Rare Pediatric Disease designation for our product candidates;
●
the potential oversight of programs or product candidates that may be more profitable or more successful;
●
our technology may not be validated and our methods may not be accepted by the scientific community;
●
the ability to conduct clinical trials, because of difficulties enrolling patients or other reasons;
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●
the requirements of being publicly traded may strain our resources;
●
potential adverse effects resulting from failure to maintain effective internal controls;
●
our obligations and governance practices as a “foreign private issuer” being different from those of U.S. domestic reporting companies
may result in less protection for investors;
●
our ability to comply with the applicable continued listing requirements of Nasdaq;
●
the potential negative impact on our securities price and trading volume if securities or industry analysts do not publish reports about
us or if they adversely change their recommendations about our business;
●
the potential volatility of the market price for our ADSs;
●
the potential dilution of our shareholders’ potential ownership due to future issuances of share capital;
●
the requirement for holders of ADSs to act through the depositary to exercise their rights;
●
the potential limitations on ADS holders with respect to the transfer of their ADSs;
●
the risks of securities class action litigation; and
●
those factors referred to in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5.
Operating and Financial Review and Prospects”, as well as in this Annual Report on Form 20F generally.
Readers are urged to carefully review and consider the various disclosures made throughout this Annual Report on Form 20F
which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of
operations and prospects.
You should not put undue reliance on any forwardlooking statements. Any forwardlooking statements in this Annual Report on
Form 20F are made as of the date hereof, and we undertake no obligation to publicly update or revise any forwardlooking
statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, the section of this Annual Report on Form 20F entitled “Item 4. Information on the Company” contains information
obtained from independent industry sources and other sources that we have not independently verified.
7
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8
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A.
[Reserved]
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
There is a high degree of risk associated with our Company and business. You should carefully consider the risks described
below, together with all of the other information in this Annual Report on Form 20F. The risks described below are not the only
risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also
materially and adversely affect our business operations. If any of the following risks occur, our business, operating results and
financial condition could be materially adversely affected and the trading price of our ADSs could decline.
Risk Factor Summary
The following is a summary of certain important factors that may make an investment in the Company speculative or risky.
Risks Related to Our Financial Position and Capital Requirements
●
We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be
considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small
developing company.
●
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses
for the foreseeable future.
●
We have never generated any revenue from product sales or any other sources since inception, and may never be
profitable.
●
We expect that we will need to raise additional capital, which may not be available on acceptable terms, or at all.
Risks Related to the Discovery and Development of Product Candidates
●
Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful
results from preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our
business may be materially harmed.
●
We may not be successful in our efforts to identify or develop potential product candidates.
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●
If future clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory
authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in
completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
●
Any of our product candidates may cause undesirable side effects or have other properties impacting safety that could
delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
●
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain
regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue
9
from a future product.
●
Even if we obtain regulatory approval for a product candidate, we will still face extensive regulatory requirements and our
products may face future development and regulatory challenges.
●
We may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates.
●
We may pursue Rare Pediatric Disease designation for QRX003 for the treatment of NS or other of our product
candidates. There is no assurance that we will obtain such designation. Moreover, a Rare Pediatric Disease designation
by the FDA does not guarantee that the NDA for the product will qualify for a priority review voucher upon approval,
and it does not lead to a faster development or regulatory review process, or increase the likelihood that any of our
product candidates will receive marketing approval.
●
We may use our financial and human resources to pursue a particular research program or product candidate and fail to
capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of
success.
●
We expect competition in the marketplace for our product candidates, should any of them receive regulatory approval.
●
We face significant competition from other biotechnology and pharmaceutical companies and our operating results will
suffer if we fail to compete effectively.
●
The commercial success of our product candidates will depend upon the acceptance of these product candidates by the
medical community, including physicians, patients and healthcare payors.
●
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell
our product candidates, we may be unable to generate any revenues.
●
If we obtain approval to commercialize any approved products outside of the United States and Europe, a variety of risks
associated with international operations could materially adversely affect our business.
●
Coverage and adequate reimbursement may not be available for our product candidates, if approved, which could make it
difficult for us to sell products profitably.
Risks Related to Our Reliance on Third Parties
●
We rely on third parties to conduct some aspects of our compound formulation, research and preclinical studies, and
those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such
formulation, research or testing.
●
We rely on thirdparty manufacturers to produce the supply of our preclinical product, clinical product candidates and
commercial supplies of any approved product candidates.
●
We rely on limited sources of supply for the drug substance of product candidates and any disruption in the chain of
supply may cause a delay in developing and commercializing these product candidates.
●
Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.
●
We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform
in an unsatisfactory manner, it may harm our business.
Risks Related to Our Intellectual Property
●
If we are unable to obtain or protect intellectual property rights related to our future products and product candidates,
we may not be able to compete effectively in our markets.
●
Thirdparty claims of intellectual property infringement may prevent or delay our development and commercialization
efforts.
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●
If we fail to obtain licenses or comply with our obligations in these agreements under which we license intellectual
property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we
could lose license rights that are important to our business.
●
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensees, which could be
expensive, time consuming and unsuccessful.
●
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or
disclosed confidential information of third parties.
Other Risks Related to Our Business Operations and Industry
●
Our future success depends on our ability to attract and retain key executives and to attract, retain and motivate qualified
personnel.
●
We may need to expand our organization and may experience difficulties in managing our growth, which could disrupt
our operations.
●
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements and insider trading.
●
Future relationships with customers and thirdparty payors as well as certain of our business operations may be subject,
directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information
privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face criminal
sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
●
Recent and future healthcare legislation may further impact our business operations.
●
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and
costs.
●
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware,
software, and Internet applications and related tools and functions could result in damage to our reputation and/or
subject us to costs, fines or lawsuits.
●
The coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse
effect on our business.
●
Business interruptions could delay us in the process of developing our future products.
Risks Related to Us Being an Israeli Company
●
Shareholders may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability
10
provisions of the U.S. federal securities laws, against us or our executive officers and directors, or asserting U.S.
securities laws claims in Israel.
●
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects
from the rights and responsibilities of shareholders of U.S. corporations.
●
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which
could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Risks Related to Ownership of Our ADSs and Ordinary Shares
●
We may not be able to raise additional funds unless we increase our authorized share capital.
●
We do not know whether a market for our securities will be sustained or what the trading price of our securities will be
and as a result it may be difficult for you to sell our securities held by you.
●
The requirements of being a publicly traded company may strain our resources and divert management’s attention.
●
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act
could have a material adverse effect on our business, results of operation or financial condition. In addition, current and
potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the
price of the ADSs.
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11
●
We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting
companies.
●
As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance
practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is
accorded to investors under rules applicable to domestic U.S. issuers.
●
We may be unable to comply with the applicable continued listing requirements of Nasdaq.
●
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our
market, or if they adversely change their recommendations or publish negative reports regarding our business or our
traded securities, our securities price and trading volume could be negatively impacted.
●
The market price for our ADSs is likely to be highly volatile.
●
We may be at risk of securities class action litigation.
●
Substantial future sales or perceived potential sales of our ordinary shares or ADSs in the public market could cause the
price of our ADSs decline.
●
Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence
over matters on which shareholders vote.
●
We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded
securities appreciate in value, our investors may not benefit from holding our securities.
●
If we pay dividends or other distributions, an ADS holder may not receive the same distributions or dividends as those
we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or
other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to
make them available to you.
●
Holders of ADSs must act through the depositary to exercise their rights.
●
You may be subject to limitations on transfer of your ADSs.
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Risks Related to Our Financial Position and Capital Requirements
We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in
light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.
Our wholly owned subsidiary, Quoin Inc., commenced operations in 2018. As such, we have a limited operating history and our
operations are subject to all of the risks inherent in the establishment of a new business enterprise, including a lack of operating
history. Since inception, our operations have been primarily limited to acquiring and licensing intellectual property rights,
undertaking research and conducting preclinical studies for our initial programs and negotiating and executing the Merger and
financings. We have not yet obtained regulatory approval for any product candidates. Consequently, any predictions about our
future success or viability, or any evaluation of our business and prospects, may not be accurate. The likelihood of our success
must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small
developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since
we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate
sufficient revenues to meet our expenses and support our anticipated activities. In addition, there is no guarantee that any of our
product candidates with ever receive approval from the U.S. Food and Drug Administration, or the “FDA.” We cannot be certain
that our business strategy will be successful or that we will be solvent at any particular time. Our likelihood of success must be
considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the
early stages of the development of any company. If we fail to address any of these risks or difficulties adequately, our business
will likely suffer. Because of the numerous risks and uncertainties associated with developing and commercializing our products,
we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable
12
and you may never receive a return on an investment in our securities. An investor in our securities must carefully consider the
substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of products in the
medical and pharmaceutical industries. We may never successfully commercialize our products and our business may fail.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the
foreseeable future.
To date, we have not commercialized any products and have not generated any revenue. We have devoted most of our financial
resources to research and development, including our preclinical development activities. To date, we have funded our operations
primarily through our founders’ funding expenditures and the sale of equity and convertible securities. We expect to continue to
incur substantial and increased expenses, losses and negative cash flows as we expand our development activities and advance
our preclinical programs. If our product candidates are not successfully developed or commercialized, including because of a lack
of capital, or if we do not generate enough revenue following marketing approval, we will not achieve profitability and our
business may fail. Even if we successfully obtain regulatory approval to market a product candidate, our revenues will also
depend upon the size of any markets in which our product candidates receive market approval and our ability to achieve sufficient
market acceptance and adequate market share for our products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we
incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:
●
initiate clinical development of our product candidates, including our first lead product—QRX003—a once daily,
topical lotion comprised of a broadspectrum serine protease inhibitor, formulated with the proprietary Invisicare®
technology, to treat Netherton Syndrome (“NS”);
●
implement effective internal control systems;
●
initiate the development of additional product candidates for other rare disease indications;
●
acquire or inlicense other products and technologies and advance those product candidates into clinical trials;
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●
seek marketing approvals for our product candidates that successfully complete clinical trials;
●
ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may
obtain marketing approval;
●
maintain, expand and protect our intellectual property portfolio;
●
hire additional clinical, regulatory, research, executive and administrative personnel; and
●
create additional infrastructure to support our operations and our product development and planned future
commercialization efforts.
We have never generated any revenue from product sales or any other sources since inception, and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic alliance partners, to
successfully complete the development of, obtain the necessary regulatory approvals for and commercialize our product
candidates. We do not anticipate generating revenues from sales of our products for the foreseeable future, if ever. Our ability to
generate future revenues from product sales depends heavily on our success in:
●
completing our research and preclinical development of product candidates;
●
initiating and completing clinical trials for product candidates with favorable results;
●
seeking, obtaining, and maintaining marketing approvals for product candidates that successfully complete clinical trials;
●
establishing and maintaining supply and manufacturing relationships with third parties;
●
launching and commercializing product candidates for which we may obtain marketing approval, with an alliance partner
or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;
●
maintaining, protecting and expanding our intellectual property portfolio; and
●
attracting, hiring and retaining qualified personnel.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict
the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our
expenses could increase beyond expectations if we are required by the FDA or other foreign regulatory agencies to perform
studies and trials in addition to those that we currently anticipate.
Even if one or more of the product candidates that we independently develop is approved for commercial sale, we may incur
significant costs associated with commercializing any approved product. Even if we are able to generate revenues from the sale of
any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
We expect that we will need to raise additional capital, which may not be available on acceptable terms, or at all.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our
research and development expenses to substantially increase in connection with our ongoing activities, particularly as we
13
advance our product candidates towards or through clinical trials. We may need to raise additional capital to support our
operations and such funding may not be available to us on acceptable terms, or at all. We cannot provide assurances
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that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly
than we currently anticipate. For example, our preclinical or clinical trials may encounter technical difficulties or be subject to
delays or other issues. Any of these events may increase our development costs more than we expect. In order to support our
longterm plans, we may need to raise additional capital or otherwise obtain funding through additional strategic alliances if we
choose to initiate preclinical or clinical trials for new product candidates other than programs currently partnered. In any event, we
will require additional capital to obtain regulatory approval for, and to commercialize, future product candidates.
Any additional fundraising efforts may divert our management from our daytoday activities, which may adversely affect our
ability to develop and commercialize future product candidates. In addition, we cannot guarantee that future financing will be
available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on
acceptable terms, we may be required to:
significantly delay, scale back or discontinue the development or commercialization of any future product candidates;
seek strategic alliances for research and development programs at an earlier stage than otherwise would be desirable or on terms
that are less favorable than might otherwise be available; or
relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would
seek to develop or commercialize ourselves.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing
development and commercialization efforts, which will have a material adverse effect on our business, operating results and
prospects.
Risks Related to the Discovery and Development of Product Candidates
Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful
results from preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our
business may be materially harmed.
We have no products approved for commercial marketing and most of our product candidates are in preclinical development or
about to enter into clinical testing in the first half of 2022 as is the case with our lead asset for Netherton Syndrome. In
March 2022, we submitted an Investigational New Drug (IND) application to the FDA, as well as a Scientific Advice Briefing
Document with the European Medicines Agency (the “EMA”), for QRX003, our investigational product for Netherton Syndrome,
a rare and genetic disease. There is no assurance that the FDA or the EMA will permit our clinical trials to proceed. For example,
while we have submitted in our IND a justification for the sufficiency of our nonclinical toxicology package to support initiation of
our clinical study of QRX003, there is no assurance that the FDA will agree with our assessment. Moreover, the clinical
development process can take several years, and there is no assurance that our clinical trials will be successful or that we will
obtain marketing approvals for any of our product candidates from either the FDA or the EMA. Our ability to achieve and sustain
profitability depends on obtaining regulatory approvals for and, if approved, successfully commercializing our product
candidates, either alone or with third parties. Before obtaining regulatory approval for the commercial distribution of our product
candidates, we or an existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the
safety and efficacy of our product candidates.
The success of our product candidates will depend on several factors, including the following:
●
successfully implementing preclinical studies which may be predictive of clinical outcomes;
●
successful enrollment in clinical trials and completion of those trials with favorable results;
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receipt of marketing approvals from applicable regulatory authorities;
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obtaining and maintaining patent and trade secret protection for current and future product candidates;
●
establishing and maintaining manufacturing relationships with third parties or establishing our own manufacturing
capability; and
●
successfully commercializing our products, if approved, including successfully establishing a sales force, marketing and
distribution infrastructure, whether alone or in collaboration with others.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
15
to successfully complete the development or commercialization of our product candidates, which would materially harm our
business.
We may not be successful in our efforts to identify or develop potential product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize our product candidates.
Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates
for clinical development for a number of reasons, including:
●
our research methodology may be unsuccessful in identifying potential product candidates; or
●
potential product candidates may be shown to have harmful side effects or may have other characteristics that may make
the products unsuitable for administration in patients in clinical trials, unlikely to receive marketing approval or
unmarketable.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have
a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new
product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on
potential programs or product candidates that ultimately prove to be unsuccessful.
If future clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory
authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development and commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities for the sale of product candidates, we must conduct extensive
clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical trials are expensive, difficult to
design and implement, can take many years to complete and are uncertain as to the outcome. A failure of one or more clinical trials
can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not be predictive of the success
of later clinical trials, and preliminary results or planned interim analyses of a clinical trial do not necessarily predict final results.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that
have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to
obtain marketing approval for their products.
Events which may result in a delay or unsuccessful completion of clinical development include:
●
delays in reaching an agreement with the FDA or other regulatory authorities on final trial design;
●
delays in obtaining from the FDA, or comparable foreign regulatory authority, authorization to administer an
investigational new drug product to humans through the submission or acceptance of an IND or similar foreign
application;
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imposition of a clinical hold of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
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delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical
trial sites;
●
our inability to adhere to clinical trial requirements directly or with third parties such as CROs;
●
clinical trial site or CRO noncompliance with good clinical practices (“GCPs”), good laboratory practices, or other
regulatory requirements;
●
inability or failure of clinical trial sites to adhere to the clinical trial protocol;
●
delays in obtaining required IRB approval at each clinical trial site, or an IRB reversing such approval resulting in the
suspension or termination of a trial at that ;
●
delays in recruiting and retaining suitable patients to participate in a trial particularly for a rare disease such as NS;
●
delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;
●
delays in having patients complete participation in a trial or return for posttreatment followup;
●
delays caused by patients dropping out of a trial due to protocol procedures or requirements, product side effects or
disease progression;
●
clinical sites dropping out of a trial to the detriment of enrollment;
●
time required to add new clinical sites; or
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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.
Accordingly, we cannot be sure that we will submit INDs on the expected timelines and we cannot be certain the FDA or foreign
regulatory agencies such as the EMA, will allow us to progress into clinical trials based on the submission of any IND.
If we are required to conduct additional clinical trials or other testing of any product candidates beyond those that are currently
contemplated, are unable to successfully complete clinical trials of any such product candidates or other testing, or if the results
of these trials or tests are not positive, are only modestly positive or if there are safety concerns, we may:
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●
be delayed in obtaining marketing approval for our future product candidates;
●
not obtain marketing approval at all;
●
obtain approval for indications or patient populations that are not as broad as originally intended or desired;
●
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
●
be subject to additional postmarketing testing requirements; or
●
have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know
whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
clinical trial delays also could shorten any periods during which we may have the exclusive right to
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commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our
ability to successfully commercialize our product candidates and may harm our business and results of operations. Any inability
to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate
revenues from product sales.
Any of our product candidates may cause undesirable side effects or have other properties impacting safety that could delay
or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt
clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other
regulatory authorities. While we have not yet initiated clinical trials for any of our product candidates, it is possible that there will
be side effects associated with their use. Results of our trials could reveal a high and unacceptable severity and prevalence of side
effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities
could order us to cease further development of or deny approval of our product candidates for any or all targeted indications.
Such side effects could also affect patient recruitment, the ability of enrolled patients to complete the trial or result in potential
product liability claims. Any of these occurrences may materially and adversely affect our business, financial condition, results of
operations and prospects.
Further, clinical trials by their nature test product candidates in only small samples of the potential patient populations. With a
limited number of patients and limited duration of exposure in such trials, rare and potentially severe side effects of our product
candidates may not be uncovered until a significantly larger number of patients are exposed to the product candidate.
If any of our product candidates receive marketing approval, and causes serious, unexpected, or undesired side effects, a number
of potentially significant negative consequences could result, including:
●
regulatory authorities may withdraw, suspend, or limit their approval of the product or impose restrictions on its
distribution in the form of a modified risk evaluation and mitigation strategy;
●
regulatory authorities may require the addition of labeling statements, such as black box warnings or contraindications;
●
we may be required to change the way the product is administered or conduct additional clinical trials or postmarketing
surveillance;
●
we could be sued and held liable for harm caused to patients; or
●
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could
substantially increase the costs of commercializing our future products and impair our ability to generate revenues from the
commercialization of these products.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain
regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue from a
future product.
We cannot commercialize a product until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the
product candidate. The regulatory authorities may not complete their review processes in a timely manner, or we may not be able
to obtain regulatory approval for many reasons including:
●
regulatory authorities disagreeing with the design or implementation of our clinical trials;
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●
such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
●
such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the
standard of care is potentially different from that of the United States;
●
unfavorable or unclear results from our clinical trials or results that may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory agencies for approval;
●
serious and unexpected drugrelated side effects experienced by participants in our clinical trials or by individuals using
drugs similar to our product candidates;
●
the population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full
population for which we seek approval;
●
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
●
such authorities may not agree that the data collected from clinical trials of our product candidates are acceptable or
sufficient to support the submission of a New Drug Application (“NDA”) or other submission or to obtain regulatory
approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical
studies or clinical trials;
●
such authorities may disagree regarding the formulation, labeling and/or the specifications of our product candidates;
●
such authorities may find deficiencies in the manufacturing processes, testing systems or facilities of our thirdparty
manufacturers with which we contract for clinical and commercial supplies;; or
●
regulations of such authorities may significantly change in a manner rendering our clinical data insufficient for approval.
Additional delays may result if an FDA advisory committee recommends restrictions on approval or recommends nonapproval. In
addition, we may experience delays or rejections based upon additional government regulation from future legislation or
administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the
review process.
Even if we obtain regulatory approval for a product candidate, we will still face extensive regulatory requirements and our
products may face future development and regulatory challenges.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses
or marketing of our product candidates, or impose ongoing requirements for potentially costly postapproval studies or post
market surveillance. The FDA may also require risk evaluation and mitigation strategies as a condition of approval of our product
candidates, which could include requirements for a medication guide, physician communication plans or additional elements to
ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Additionally, the
manufacturing processes, packaging, distribution, adverse event reporting, labeling, advertising, promotion, and recordkeeping
for the product will be subject to extensive and ongoing FDA regulatory requirements, in addition to other potentially applicable
federal and state laws. These requirements include monitoring and reporting of adverse events (“AEs”) and other postmarketing
information and reports, registration, as well as continued compliance with current good manufacturing practice (“cGMP”)
regulations. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for
certain changes to the approved product, product labeling or manufacturing process. If we or a regulatory agency discovers
previously unknown problems with a product such as AEs of unanticipated severity or frequency, or problems with the facility
where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing
facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
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If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory
agency may:
●
issue a warning or untitled letter asserting that we are in violation of the law;
●
seek an injunction or impose civil or criminal penalties or monetary fines;
●
suspend or withdraw regulatory approval;
●
suspend any ongoing clinical trials;
●
refuse to approve a pending NDA or supplements to an NDA submitted by us;
●
seize product or require a product recall; or
●
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response
and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to
commercialize our future products, if approved, and generate revenues.
We may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates.
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Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient
populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to
treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United
States, or if the disease or condition affects more than 200,000 individuals in the United States and there is no reasonable
expectation that the cost of developing the drug for the type of disease or condition will be recovered from sales of the product in
the United States.
Orphan drug designation entitles a party to financial incentives, such as tax advantages and user fee waivers. Additionally, if a
product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other
applications to market the same drug for the same indication for seven years, except in certain circumstances, such as a showing
of clinical superiority (i.e., another product is safer, more effective or makes a major contribution to patient care) over the product
with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. Competitors, however, may
receive approval of different products for the same indication for which the orphan product has exclusivity, or obtain approval for
the same product but for a different indication than that for which the orphan product has exclusivity.
We intend to apply for orphan drug designation in the United States for QRX003 for the treatment of NS. However, obtaining an
orphan drug designation can be difficult, and we may not be successful in doing so. Even if we obtain orphan drug designation
for a product candidate in specific indications, we may not be the first to obtain regulatory approval of the product candidate for
the orphandesignated indication. In addition, exclusive marketing rights in the United States may be limited if we seek approval
for an indication broader than the orphandesignated indication or may be lost if the FDA later determines that the request for
orphan designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet
the needs of patients with the rare disease or condition. Orphan drug designation does not ensure that we will receive marketing
exclusivity in a particular market, and we cannot assure you that any future application for orphan drug designation in any other
geography or with respect to any other future product candidate will be granted. Orphan drug designation neither shortens the
development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval
process.
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We may pursue Rare Pediatric Disease designation for QRX003 for the treatment of NS or other of our product candidates.
There is no assurance that we will obtain such designation. Moreover, a Rare Pediatric Disease designation by the FDA does
not guarantee that the NDA for the product will qualify for a priority review voucher upon approval, and it does not lead to a
faster development or regulatory review process, or increase the likelihood that any of our product candidates will receive
marketing approval.
Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying NDA for the treatment of a
rare pediatric disease, the sponsor of such an application may be awarded a transferable rare pediatric disease priority review
voucher that can be used to obtain priority review for a subsequent NDA or BLA. We intend to pursue Rare Pediatric Disease
designation for QRX003 for the treatment of NS, but there is no assurance that we will receive such designation. On December 27,
2020, the Creating Hope Reauthorization Act extended the Rare Pediatric Disease Priority Review Voucher Program, and after
September 30, 2024, the FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor
has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30,
2026, the FDA may not award any rare pediatric disease priority review vouchers. However, there is no guarantee that any of our
product candidates will be approved by that date, or at all, and, therefore, we may not be in a position to obtain a priority review
voucher prior to expiration of the program, unless Congress further reauthorizes the program. Additionally, designation of a drug
for a rare pediatric disease does not guarantee that an NDA will meet the other eligibility criteria for a rare pediatric disease priority
review voucher at the time the application is approved. Finally, a Rare Pediatric Disease designation does not lead to faster
development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to
capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
As a result of our limited financial and human resources, we will have to make strategic decisions as to which product candidates
to pursue and may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove
to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending on research and development programs and product candidates for
specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic
alliance, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate
in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
We expect competition in the marketplace for our product candidates, should any of them receive regulatory approval.
If successfully developed and approved, our product candidates may face competition. We may not be able to compete
successfully against organizations with competitive products, particularly large pharmaceutical companies. Many of our potential
competitors have significantly greater financial, technical and human resources than us, and may be better equipped to develop,
manufacture, market and distribute products. Many of these companies operate large, wellfunded research, development and
commercialization programs, have extensive experience in nonclinical and clinical studies, obtaining FDA and other regulatory
approvals and manufacturing and marketing products, and have multiple products that have been approved or are in latestage
development. These advantages may enable them to receive approval from the FDA or any foreign regulatory agency before us.
Currently, there are no approved products to treat NS. However, to our knowledge, there are a number of potentially competing
therapeutic products at various stages of development for the treatment of NS, including, but not limited to, candidates from
LifeMax Laboratories, PellePharma, Sixera Pharmaceuticals Krystal Biotech, QID Pharmaceuticals, Azitra and Dermadis. Currently,
to the best of our knowledge, there are no clinical trials in NS being conducted under an open IND.
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We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer
if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and
internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other
research institutions. Our competitors may have substantially greater financial, technical and other resources, such as larger
research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions
in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.
Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of
capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive
basis, drug products that are more effective or less costly than any product candidate that we may develop.
All of our programs are either preclinical or about to begin clinical development and targeted toward indications for which there
may be other product candidates in clinical development. We may face competition from other drugs currently approved or that
may be approved in the future for the same therapeutic indications as our product candidates. Our ability to compete successfully
will depend largely on our ability to leverage our experience in drug development to:
●
develop therapeutics that are superior to other products in the market;
●
attract qualified scientific, product development and commercial personnel;
●
obtain patent and/or other proprietary protection for our product candidates;
●
obtain required regulatory approvals; and
●
successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new therapeutics.
The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we
may develop and commercialize. We will not achieve our business plan if the acceptance of any of these products is inhibited by
price competition or the reluctance of physicians to switch from existing drug products to our products, or if physicians switch to
other new drug products or choose to reserve our future products for use in limited circumstances. The inability to compete with
existing or subsequently introduced drug products would have a material adverse impact on our business, financial condition and
prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in
license novel compounds that could make our product candidates less competitive. In addition, any new product that competes
with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to
overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent
protection, receiving FDA approval or discovering, developing and commercializing product candidates before we do, which
would have a material adverse impact on our business.
The commercial success of our product candidates will depend upon the acceptance of these product candidates by the
medical community, including physicians, patients and healthcare payors.
The degree of market acceptance of any product candidates will depend on a number of factors, including:
●
demonstration of clinical safety and efficacy compared to other products;
●
the relative convenience, ease of administration and acceptance by physicians, patients and healthcare payors;
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the prevalence and severity of any AEs;
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limitations or warnings contained in the FDAapproved label for such products;
●
availability of alternative treatments;
●
pricing and costeffectiveness;
●
the effectiveness of our, or any of our collaborators’, sales and marketing strategies;
●
our ability to obtain hospital or payor formulary approval;
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our ability to obtain and maintain sufficient thirdparty coverage and adequate reimbursement; and
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●
the willingness of patients to pay outofpocket in the absence of thirdparty coverage.
If a product is approved but does not achieve an adequate level of acceptance by physicians, patients and healthcare payors, we
may not generate sufficient revenues from such product and we may not become or remain profitable. Such increased competition
may decrease any future potential revenue for future product candidates due to increasing pressure for lower pricing and higher
discounts in the commercialization of our product.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell
our product candidates, we may be unable to generate any revenues.
We currently do not have an organization for the sales, marketing and distribution of pharmaceutical products and the cost of
establishing and maintaining such an organization may exceed the costeffectiveness of doing so. In order to market any products
that may be approved, we must build our sales, marketing, managerial and other nontechnical capabilities or make arrangements
with third parties to perform these services. With respect to future programs, we may rely completely on an alliance partner for
sales and marketing. In addition, we may enter into strategic alliances with third parties to commercialize other product candidates,
if approved, including in markets outside of the United States and Europe or for other large markets that are beyond our resources.
Although we intend to establish a sales organization if we are able to obtain approval to market any product candidates in the
United States, and Europe we will also consider the option to enter into strategic alliances for future product candidates in the
United States and Europe if commercialization requirements exceed our available resources. This will reduce the revenue generated
from the sales of these products.
Any future strategic alliance partners may not dedicate sufficient resources to the commercialization of our product candidates, if
approved, or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective
alliances to enable the sale of our product candidates, if approved, to healthcare professionals and in geographical regions,
including the United States and Europe, that will not be covered by our own marketing and sales force, or if our potential future
strategic alliance partners do not successfully commercialize the product candidates that may be approved, our ability to generate
revenues from product sales will be adversely affected.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties,
we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many
companies that currently have extensive and wellfunded marketing and sales operations. Without an internal team or the support
of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more
established companies.
If we obtain approval to commercialize any approved products outside of the United States and Europe, a variety of risks
associated with international operations could materially adversely affect our business.
If we obtain approval to commercialize any approved products outside of the United States and Europe, we expect that we will be
subject to additional risks related to entering into international business relationships, including:
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different regulatory requirements for drug approvals in foreign countries;
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differing payor reimbursement regimes, governmental payors or patient selfpay systems and price controls;
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reduced protection for intellectual property rights;
●
unexpected changes in tariffs, trade barriers and regulatory requirements;
●
economic weakness, including inflation, or political instability in particular foreign economies and markets;
●
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
●
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other
obligations incident to doing business in another country;
●
workforce uncertainty in countries where labor unrest is more common than in the United States;
●
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
●
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including
earthquakes, typhoons, floods and fires.
Coverage and adequate reimbursement may not be available for our product candidates, if approved, which could make it
difficult for us to sell products profitably.
Market acceptance and sales of any product candidates that we develop will depend on coverage and reimbursement policies and
may be affected by future healthcare reform measures. Government authorities and thirdparty payors, such as private health
insurers, government payors and health maintenance organizations, decide which drugs they will pay for and establish
reimbursement levels. We cannot be sure that coverage and adequate reimbursement will be available for any future product
candidates. In the United States, the Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of
Health and Human Services, decides whether and to what extent a new drug will be covered and reimbursed under Medicare.
Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to
predict what CMS will decide with respect to reimbursement for novel product candidates. Inadequate reimbursement amounts
may reduce the demand for, or the price of, our future products. Further, one payor’s determination to provide coverage for a
product does not assure that other payors will also provide coverage for the product. If reimbursement is not available, or is
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available only at limited levels, we may not be able to successfully commercialize product candidates that we develop and that may
be approved. Thus, even if we succeed in bringing a product to market, it may not be considered medically necessary or cost
effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis.
There have been a number of legislative and regulatory proposals to change the healthcare system in the United States and in
some foreign jurisdictions that could affect our ability to sell products profitably. These legislative and/or regulatory changes may
negatively impact the reimbursement for drug products, following approval. The availability of numerous generic treatments may
also substantially reduce the likelihood of reimbursement for our future products. We expect to experience pricing pressures in
connection with the sale of any products that we develop, due to the trend toward managed healthcare, the increasing influence of
health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, and
prescription drugs in particular, has and is expected to continue to increase in the future. For instance, government and private
payors who reimburse patients or healthcare providers are increasingly seeking greater upfront discounts, additional rebates and
other concessions to reduce prices for pharmaceutical products. If we fail to successfully secure and maintain reimbursement
coverage for our future products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of
our future products and our business will be harmed.
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In addition, in some nonU.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its
member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal
product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal
product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically,
products launched in the EU do not follow price structures of the U.S. and generally tend to be priced significantly lower.
Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct some aspects of our compound formulation, research and preclinical studies, and those
third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such formulation,
research or testing.
We do not expect to independently conduct all aspects of our drug development activities, compound formulation research or
preclinical studies of product candidates. We currently rely and expect to continue to rely on third parties to conduct some or all
aspects of our preclinical studies and formulation development.
Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements,
it could delay our product development activities. Our reliance on these third parties for research and development activities will
reduce our control over these activities but will not relieve us of our responsibilities.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in
accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be
delayed in completing, the necessary preclinical studies to enable us to select viable product candidates for IND submissions and
will not be able to, or may be delayed in our efforts to, successfully develop and commercialize such product candidates.
We rely on thirdparty manufacturers to produce the supply of our preclinical product, clinical product candidates and
commercial supplies of any approved product candidates.
Reliance on thirdparty manufacturers entails risks, including risks that we would not be subject to if we manufactured the product
candidates ourselves.
Thirdparty manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the
United States. If the FDA determines that our thirdparty manufacturers are not in compliance with FDA laws and regulations,
including those governing cGMPs, the FDA may not approve an NDA until the deficiencies are corrected or we replace the
manufacturer in our application with a manufacturer that is in compliance. Moreover, our failure, or the failure of our thirdparty
manufacturers and suppliers, to comply with applicable regulations could result in sanctions being imposed on us, including
clinical holds, fines, injunctions, civil penalties, seizures or recalls of product candidates or products, operating restrictions and
criminal prosecutions, any of which could significantly and adversely affect supplies of our products. In addition, approved
products and the facilities at which they are manufactured are required to maintain ongoing compliance with extensive FDA
requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures
conform to cGMP requirements. As such, our thirdparty manufacturers are subject to continual review and periodic inspections
to assess compliance with cGMPs. Furthermore, although we do not have daytoday control over the operations of our third
party manufacturers, we are responsible for ensuring compliance with applicable laws and regulations, including cGMPs.
Other risks of reliance on thirdparty manufacturers include:
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●
the inability to meet any product specifications and quality requirements consistently;
●
a delay or inability to procure or expand sufficient manufacturing capacity;
●
manufacturing and product quality issues related to scaleup of manufacturing;
●
costs and validation of new equipment and facilities required for scaleup;
●
the inability to negotiate manufacturing or supply agreements with third parties under commercially reasonable terms;
●
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or
damaging to us;
●
the reliance on a limited number of sources, and in some cases, single sources for raw materials, such that if we are
unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell future
product candidates in a timely fashion, in sufficient quantities or under acceptable terms;
●
the lack of qualified backup suppliers for any raw materials that are currently purchased from a single source supplier;
●
operations of our thirdparty manufacturers or suppliers could be disrupted by conditions unrelated to our business or
operations, including the bankruptcy of the manufacturer or supplier;
●
carrier disruptions or increased costs that are beyond our control; and
●
the failure to deliver products under specified storage conditions and in a timely manner.
Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to
successfully commercialize future products, if approved. Some of these events could be the basis for FDA action, including
injunction, recall, seizure or total or partial suspension of production.
We rely on limited sources of supply for the drug substance of product candidates and any disruption in the chain of supply
may cause a delay in developing and commercializing these product candidates.
We have established manufacturing relationships with a limited number of suppliers to manufacture raw materials and the drug
substance used to create our product candidates. The availability of such suppliers to manufacture raw materials and drug
substance for our product candidates in sufficient quantities for evaluation in preclinical or clinical studies or, if our product
candidates are approved, for commercial supple may be limited. Further, each supplier may require licenses to manufacture such
components if such processes are not owned by the supplier or in the public domain. Our ability to obtain the necessary drug
substance of product candidates could be adversely impacted by the Coronavirus pandemic. As part of any marketing approval, a
manufacturer and its processes are required to be qualified by the FDA prior to commercialization. If supply from any vendor
approved in the NDA is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would
need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies
outside of the United States may also require additional studies if a new supplier is relied upon for commercial production.
Switching vendors may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our
product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if
our suppliers fail to deliver the required commercial quantities of active pharmaceutical ingredients on a timely basis and at
commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable
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of production in a timely manner at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential
revenue.
Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.
Manufacturing of product candidates and conducting required stability testing, product, packaging, equipment and process
related issues may require refinement or resolution in order to proceed with any clinical trials and obtain regulatory approval for
commercial marketing. We may identify significant impurities, which could result in increased scrutiny by the regulatory agencies,
delays in clinical programs and regulatory approval, increases in our operating expenses, or failure to obtain or maintain approval
for product candidates or any approved products.
We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an
unsatisfactory manner, it may harm our business.
We intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we will have
agreements governing their activities, we have limited influence over their actual performance. We will control only certain aspects
of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials are conducted in
accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs will not relieve us
of our regulatory responsibilities.
We and our CROs will be required to comply with the FDA’s or other regulatory agency’s GCPs, for conducting, recording and
reporting the results of INDenabling studies and clinical trials to assure that data and reported results are credible and accurate
and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA and nonU.S. regulatory
agencies enforce these GCPs through periodic inspections of trial sponsors, CROs, principal investigators and clinical trial sites. If
we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and
the FDA or applicable nonU.S. regulatory agency may require us to perform additional clinical trials before approving any
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marketing applications for the relevant jurisdiction. Upon inspection, the FDA or applicable nonU.S. regulatory agency may
determine that our future clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficiently
large number of test subjects to evaluate the safety and effectiveness of a potential drug product. Accordingly, if our CROs fail to
comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials,
which would delay the regulatory approval process.
Our CROs will not be our employees, and we will not be able to control whether or not they devote sufficient time and resources
to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including
our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our
competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected
deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical
protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we
may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial
results and the commercial prospects for such products and any product candidates that we develop would be harmed, our costs
could increase, and our ability to generate revenues could be delayed.
We intend to rely on other third parties to package, store and deliver drug products to the clinical trial sites for any clinical trials
that we may conduct. Any performance failure on the part of these third parties could delay clinical development or marketing
approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving
us of potential product revenue.
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Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to our future products and product candidates, we
may not be able to compete effectively in our markets.
Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including
inlicenses of intellectual property rights of others, for our product candidates, methods used to develop and manufacture our
product candidates and methods for treating patients using our product candidates, as well as our ability to preserve our trade
secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary
rights of others. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific
questions and can be uncertain. The patent applications that we own or inlicense may fail to result in patents with claims that
cover the products in the United States or in other countries. There is no assurance that all of the potentially relevant prior art
relating to our patents and patent applications has been found; such prior art can invalidate a patent or prevent a patent from
issuing based on a pending patent application. Even if patents do successfully issue, third parties may challenge their validity,
enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they are
unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from
designing around our claims.
If the patent applications we hold or have inlicensed with respect to our programs or product candidates fail to issue or if their
breadth or strength of protection is threatened, it could dissuade companies from collaborating with us to develop product
candidates, and threaten our ability to commercialize, future products. We cannot offer any assurances about which, if any,
patents will issue or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. A
patent may be challenged through one or more of several administrative proceedings including postgrant challenges, re
examination or opposition before the USPTO or foreign patent offices. Any successful challenge of patents or any other patents
owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates
that we may develop.
Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some
remain so until issued, we cannot be certain that we were the first to file any patent application related to a product candidate.
Furthermore, in certain situations, if we and one or more third parties have filed patent applications in the United States and
claiming the same subject matter, an administrative proceeding, known as an interference, can be initiated to determine which
applicant is entitled to the patent on that subject matter. Such an interference proceeding provoked by third parties or brought by
us may be necessary to determine the priority of inventions with respect to our patents or patent applications, or those of our
licensors. An unfavorable outcome could require us to cease using the related technology or to require us to license rights to it
from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license at all, or on commercially
reasonable terms. Our defense of a patent or patent application in such a proceeding may not be successful and, even if
successful, may result in substantial costs and distract our management and other employees.
In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is
filed. Various extensions may be available however the life of a patent, and the protection it affords is limited. Once the patent life
has expired for a product, we may be open to competition from generic medications. Further, if we encounter delays in regulatory
approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect
proprietary knowhow that is not patentable, including processes for which patents are difficult to enforce and any other elements
of our drug discovery and development processes that involve proprietary knowhow, information or technology that is not
covered by patents. Although each of our employees agrees to assign their inventions to us through an employee inventions
agreement, and all of our employees, consultants, advisors and any third parties who have access to our proprietary knowhow,
information or technology are required to enter into confidentiality agreements, we cannot provide any assurances that all such
agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed or
that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information
and techniques. In addition, others may independently
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discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently
considering whether to make additional information publicly available on a routine basis, including information that we may
consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure
policies may change in the future, if at all.
Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws
of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property
both in the United States and abroad. If we are unable to prevent material disclosure of the nonpatented intellectual property
related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret
protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely
affect our business, results of operations and financial condition.
Thirdparty claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There
is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property
rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits. Numerous U.S. and foreign
issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing
development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk
increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be thirdparty
patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to
the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be
currently pending patent applications which may later result in patents that our product candidates may infringe. In addition, third
parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any thirdparty
patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any
molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to
block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such
patents expire. Similarly, if any thirdparty patents were held by a court of competent jurisdiction to cover aspects of our
formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may
be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until
such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of management or employee resources from our
business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble
damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses
from third parties, which may be impossible or require substantial time and monetary expenditure.
If we fail to obtain licenses or comply with our obligations in these agreements under which we license intellectual property
rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose
license rights that are important to our business.
We are a party to intellectual property license agreements that are important to our business and expect to enter into additional
license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose,
various obligations on us.
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We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates,
and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if
at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could
harm our business significantly. We cannot provide any assurances that thirdparty patents do not exist which might be enforced
against our future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on
our part to pay royalties and/or other forms of compensation to third parties.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensees, which could be expensive, time
consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensees. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and timeconsuming. In addition, in an infringement proceeding, a
court may decide that a patent of ours or of our licensees is not valid or is unenforceable, or may refuse to stop the other party
from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in
any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and
could put our patent applications at risk of not issuing.
Our defense in a lawsuit may fail and, even if successful, may result in substantial costs and distract our management and other
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employees. We may not be able to prevent, alone or with our licensees, misappropriation of our intellectual property rights,
particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a
risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also
be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed
confidential information of third parties.
We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject
to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed
confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former
employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these
claims. There is no guarantee of success in defending these claims, and if we are successful, litigation could result in substantial
cost and be a distraction to our management and other employees.
Other Risks Related to Our Business Operations and Industry
Our future success depends on our ability to attract and retain key executives and to attract, retain and motivate qualified
personnel.
We are highly dependent on principal members of our executive team, and any reduction or loss of their services may adversely
impact the achievement of our objectives. While we have entered into employment agreements with each of our executive officers,
any of them could leave our employment at any time. Recruiting and retaining other qualified employees for our business,
including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives
in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be
high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous
pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in preclinical studies and clinical
trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit any executive or key employee
or the loss of the services of any executive or key employee might impede the progress of our research, development and
commercialization objectives.
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We may need to expand our organization and may experience difficulties in managing our growth, which could disrupt our
operations.
In the future we may expand our employee base to increase our managerial, scientific, operational, commercial, financial and other
resources and we may hire more consultants and contractors. Future growth would impose significant additional responsibilities
on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and
contractors. Also, our management may need to divert a disproportionate amount of its attention away from our daytoday
activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage
the expansion of our operations, which may result in weaknesses in our infrastructure or give rise to operational mistakes, loss of
business opportunities, loss of employees or reduced productivity among remaining employees. Our expected growth could
require significant capital expenditures and may divert financial resources from other projects, such as the development of
additional product candidates. Moreover, if our management is unable to effectively manage our growth, our expenses may
increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement
our business strategy. Our future financial performance and our ability to commercialize product candidates and compete
effectively will depend, in part, on our ability to effectively manage any future growth.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional or
nonintentional failures to comply with the regulations of the FDA and nonU.S. regulators, to provide accurate information to the
FDA and nonU.S. regulators, to comply with healthcare fraud and abuse laws and regulations in the United States and abroad, to
report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud,
misconduct, kickbacks, selfdealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range
of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements.
Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could
result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct, but it is not always
possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business, including the imposition of civil, criminal and administrative penalties, damages, fines, possible exclusion from Medicare,
Medicaid and other government healthcare programs, additional reporting requirements and/or oversight, particularly if we
become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance, disgorgement,
imprisonment, and contractual damages. Even if we are ultimately successful in defending against any such action, we could be
required to divert financial and managerial resources in doing so and adverse publicity could result, all of which could harm our
business.
Future relationships with customers and thirdparty payors as well as certain of our business operations may be subject,
30
directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy
and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face criminal sanctions,
civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our
operations may be directly, or indirectly through our customers, further subject to various federal and state fraud and abuse laws,
including, without limitation, the federal AntiKickback Statute and the federal False Claims Act. These laws may impact, among
other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation
by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The healthcare laws
and regulations that may affect our ability to operate include:
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●
The federal AntiKickback Statute, which prohibits, among other things, persons and entities from knowingly and
willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the
referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under
a federal healthcare program, such as the Medicare and Medicaid programs. Remuneration has been interpreted broadly
to include anything of value. Although there are a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and those
activities may be subject to scrutiny or penalty if they do not qualify for an exemption or safe harbor. A conviction for
violation of the AntiKickback Statute requires mandatory exclusion from participation in federal healthcare programs.
This statute has been applied to arrangements between pharmaceutical manufacturers and those in a position to
purchase products or refer others, including prescribers, patients, purchasers and formulary managers. In addition, the
Affordable Care Act amended the Social Security Act to provide that the U.S. government may assert that a claim
including items or services resulting from a violation of the federal AntiKickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act penalties for which are described below.
●
Federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act
(“FCA”), which imposes criminal or civil penalties, including through civil whistleblower or qui tam actions, against
individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment to
the federal government, including Medicare or Medicaid, that are false or fraudulent or making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government. FCA liability is potentially significant in the
healthcare industry because the statute provides for treble damages and mandatory penalties per false claim or
statement.
●
The civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is
determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or
should know is for an item or service that was not provided as claimed or is false or fraudulent.
●
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes civil and criminal
penalties for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any
healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any money
or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g.,
public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing
a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare
benefits, items or services relating to healthcare.
●
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”),
and its implementing regulations, which imposes certain requirements on certain types of individuals and entities, such
as healthcare providers, health plans and healthcare clearing houses, known as “covered entities,” as well as their
“business associates,” independent contractors or agents of covered entities that receive or obtain individually
identifiable health information in connection with providing a service on behalf of a covered entity, relating to the
privacy, security and transmission of individually identifiable health information.
●
The federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program,
with specific exceptions, to report annually to CMS, information related to payments or other transfers of value made to
physicians, physician assistants, certain types of advance practice nurses and teaching hospitals, and further requires
applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and
investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and
completely the required information for all covered payments, transfers of value and ownership or investment interests
may result in civil monetary penalties.; and
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●
Many state and foreign law equivalents of each of the above federal laws, such as: antikickback and false claims laws
which may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that
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require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government; state laws that require drug manufacturers to
report information related to payments and other transfers of value to physicians and other healthcare providers or
marketing expenditures; state and local laws that require the registration of pharmaceutical sales representatives; and
state and foreign laws governing the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
In addition, the European Union (“EU”) has established its own data security and privacy legal framework, including but not
limited to Directive 95/46/EC (the “Data Protection Directive”). The European General Data Protection Regulation (“GDPR”)
contains new provisions specifically directed at the processing of health information, higher sanctions and extraterritoriality
measures intended to bring nonEU companies under the regulation. We anticipate that over time we may expand our business
operations to include additional operations in the EU, including potentially conducting preclinical and clinical trials. With such
expansion, we would be subject to increased governmental regulation in the EU countries in which we might operate, including
regulation due to the GDPR.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations or laws
that apply to us, we may be subject to penalties, including, without limitation, civil, criminal and administrative penalties, damages,
fines, possible exclusion from Medicare, Medicaid and other government healthcare programs, additional reporting requirements
and/or oversight, particularly if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
noncompliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, and
curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our
results of operations.
Recent and future healthcare legislation may further impact our business operations.
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals
to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and
payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated
goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has
been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of
2010 (the “ACA”) was enacted, which made a number of substantial changes in the way healthcare is financed by both
governmental and private insurers. The ACA included a number of provisions that may reduce the profitability of drug products,
including revising the rebate methodology for covered outpatient drugs under the Medicaid Drug Rebate Program, extending
Medicaid rebates to individuals enrolled in Medicaid managed care plans, and requiring drug manufacturers to pay an annual fee
based on their market share of prior year total sales of branded programs to certain federal health care programs.
Since its passage, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts
to repeal or replace certain aspects of the ACA. Former President Trump signed two Executive Orders and other directives
designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for
health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or replace all or part
of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain
taxes under the ACA have been signed into law. On December 22, 2017, former President Trump signed into law H.R. 1, “An Act to
provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” informally
titled the Tax Cuts and Jobs Act, which significantly revises the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the taxbased shared responsibility
payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate.” Additionally, on December 23, 2019, former President Trump signed a spending
bill that repealed the implementation of certain ACAmandated fees, including the socalled “Cadillac” tax on certain high cost
employer
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sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical
device excise tax on nonexempt medical devices. Further, the Bipartisan Budget Act of 2018 (the “BBA”), among other things,
amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the pointofsale discount that is owed by
pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans,
commonly referred to as the “donut hole.” On June 17, 2021, the United States Supreme Court dismissed a challenge on procedural
grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress.
Thus, the ACA will remain in effect in its current form. It is possible that the ACA will be subject to judicial or Congressional
challenges in the future. It is uncertain how any such challenges and the healthcare measures of the Biden administration will
impact the ACA and our business.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was
enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by
Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2
trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction
to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year,
which started in April 2013, and, due to subsequent legislative amendments, will remain in effect through 2030 with the exception
of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID 19 pandemic, unless additional
Congressional action is taken. The Medicare reductions phase back in starting with a 1% reduction in effect from April 1, 2022 to
June 30, 2022 before increasing to the full 2% reduction. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed
into law, which, among other things, also reduced Medicare payments to several categories of healthcare providers
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the
rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed
and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the
relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for products. While any proposed measures will require authorization through additional legislation to become effective, Congress
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and the Biden administration have each indicated that it will continue to seek new legislative and/or administrative measures to
control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to
control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, to encourage
importation from other countries and bulk purchasing.
We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and
lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction
in reimbursement from Medicare or other governmentfunded programs may result in a similar reduction in payments from private
payors.
We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and
regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. Such reforms could
have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may
obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and
costs.
The use of our product candidates in future clinical trials and the sale of any products for which we obtain marketing approval
exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare
providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. For example,
unanticipated adverse effects could result from the use of our future products or product candidates which may result in a
potential product liability claim. If we cannot successfully defend against product liability claims,
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we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may
result in:
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs due to related litigation;
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distraction of management’s attention from our primary business;
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substantial monetary awards to patients or other claimants;
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the inability to commercialize our product candidates; and
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decreased demand for our product candidates, if approved for commercial sale.
We plan to obtain product liability insurance relating to the use of our therapeutics in future clinical trials. However, such
insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage
is becoming increasingly expensive and in the future we may not be able to obtain or maintain insurance coverage at a reasonable
cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product
candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to
obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have
been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim
or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage,
could adversely affect our results of operations and business.
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware,
software, and Internet applications and related tools and functions could result in damage to our reputation and/or subject us
to costs, fines or lawsuits.
Our business depends on the continuous, effective, reliable, and secure operation of external computer hardware, software,
networks, Internet servers, and related infrastructure. To the extent that hardware or software malfunctions of these external
systems could cause our business to suffer. The integrity and protection of our employee and company data is critical to our
business and employees have a high expectation that we will adequately protect their personal information. The regulatory
environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining
compliance with applicable security and privacy regulations may increase our operating costs. Although the external computer
and communications systems we utilize is protected through physical and software safeguards, it is still vulnerable to fire, storm,
flood, power loss, earthquakes, telecommunications failures, physical or software breakins, software viruses, and similar events.
These events could lead to the unauthorized access, disclosure and use of nonpublic information. The techniques used by
criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and
remote areas of the world. As a result, because of our dependence on external providers, we may not be able to address these
threats proactively or implement adequate preventative measures. If our computer systems are compromised, we could be subject
to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our
business. In addition, any sustained disruption in internet access provided by other companies could harm our business.
The coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect
on our business.
In December 2019, a strain of coronavirus, COVID19, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the
World Health Organization declared COVID19 to be a pandemic. In an effort to contain and mitigate the spread of COVID19,
many countries, including the United States, Canada and China, have imposed unprecedented restrictions
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on travel, quarantines, and other public health safety measures. The extent to which the pandemic may impact our business will
depend on future developments, which are highly uncertain and cannot be predicted, but the development of clinical supply
materials could be delayed and enrollment of patients in our pending clinical trials may be delayed or suspended, as hospitals and
clinics in areas where we are conducting trials shift resources to cope with the COVID19 pandemic and may limit access or close
clinical facilities due to the COVID19 pandemic. Additionally, if trial participants are unable to travel to clinical study sites as a
result of quarantines or other restrictions resulting from the COVID19 pandemic, we may experience higher dropout rates or
delays in clinical studies once commenced.
Governmentimposed quarantines and restrictions may also require us to temporarily terminate our clinical sites once commenced.
We cannot predict the ultimate impact of the COVID19 pandemic as consequences of such an event are highly uncertain and
subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies or as a
whole; however, the COVID19 pandemic may materially disrupt or delay our business operations, further divert the attention and
efforts of the medical community to coping with COVID19, disrupt the marketplace in which we operate, and/or have a material
adverse effect on our operations.
Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the
spread of the coronavirus has had and may continue to have an adverse effect on the global markets and global economy
generally, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and
other aspects of the global economy. There have been business closures and a substantial reduction in economic activity in
countries that have been significantly affected by COVID19. Significant uncertainty remains as to the potential impact of the
COVID19 pandemic on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or
the time that it will take for economic activity to return to prior levels. The COVID19 pandemic could materially disrupt our
business and operations, interrupt our sources of supply, hamper our ability to raise additional funds or sell or securities, continue
to slow down the overall economy or curtail consumer spending.
Business interruptions could delay us in the process of developing our future products.
We are vulnerable to natural disasters such as earthquakes and wild fires, as well as other events that could disrupt our
operations. We do not carry insurance for earthquakes or other natural disasters and we may not carry sufficient business
interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse
effect on our business operations.
Risks Related to Us Being an Israeli Company
Shareholders may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of
the U.S. federal securities laws, against us or our executive officers and directors, or asserting U.S. securities laws claims in
Israel.
Service of process upon us in Israel or upon our nonU.S. resident directors and officers may be difficult to obtain within the
United States and it may be difficult to enforce judgments obtained in the United States against our nonU.S. directors and
executive officers. In addition, we have been informed by our legal counsel in Israel that it may be difficult to assert claims under
U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal
securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and
directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to
hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the
content of applicable U.S. law must be proved as a fact, which can be a timeconsuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered
against us or our officers and directors in Israel.
Moreover, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the
enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty
or security of the State of Israel or due to, among other reasons, absence of due process, or the existence of a
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judgment which is at variance with another judgment that was given in the same matter if a suit in the same matter between the
same parties was pending before a court or tribunal in Israel.
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the
rights and responsibilities of shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of
association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of
shareholders of U.S.based corporations. In particular, a shareholder of an Israeli company, such as us, has a duty to act in good
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faith and in a customary manner in exercising its rights and performing its obligations towards us and other shareholders and to
refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain
matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger, and approval of
related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from taking
advantage of other shareholders. In addition, a controlling shareholder (as defined below), or any shareholder who knows that it
possesses the power to determine the outcome of a shareholders’ vote, or who has the power to appoint or prevent the
appointment of one of our office holders (as defined below), or who holds any other power in our regard, has a duty to act in
fairness towards us. However, Israeli law does not define the substance of this duty of fairness. There is little Israeli case law
addressing the provisions described above, and these provisions may be interpreted to impose additional obligations and
liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which
could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires
special approvals for transactions involving directors, officers or significant shareholders, and regulates other matters that may be
relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from
the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies, and at least 30 days
from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each
class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer
receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in
such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than
2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not
have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those
who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer,
petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder
that accepts the offer may not seek appraisal rights).
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose
country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law
does not recognize taxfree share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for
tax deferral in certain circumstances, but makes the deferral contingent on the fulfillment of numerous conditions, including a
holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating
companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when
such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. Additional tax considerations
or exemptions from the foregoing may apply to certain nonIsraeli tax resident shareholders; please refer to the section headed
“Taxation” below.
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even
if such an acquisition or merger would be beneficial to us or to our shareholders.
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Risks Related to Ownership of Our ADSs and Ordinary Shares
We may not be able to raise additional funds unless we increase our authorized share capital.
As of April 12, 2012, we had 50,000,000,000 authorized ordinary shares, out of which 3,354,653,999 ordinary shares were issued and
outstanding (which excludes 2,641,693 shares held in treasury), and 8,825,290,117 ordinary shares reserved for purposes of our
Amended and Restated Equity Incentive Plan described below and for the exercise of our options and warrants. Any equity
financing necessary in order to fund our operations may require us to increase our authorized share capital prior to initiating any
such financing transaction. Increasing our share capital is subject to the approval of our shareholders. In the event we fail to
obtain the approval of our shareholders to such increase in our authorized share capital, our ability to raise sufficient funds, if at
all, might be adversely effected.
We do not know whether a market for our securities will be sustained or what the trading price of our securities will be and as
a result it may be difficult for you to sell our securities held by you.
Although our ADSs trade on Nasdaq, an active trading market for the ADSs may not be sustained. It may be difficult for you to
sell your ADSs without depressing the market price for the ADSs. As a result of these and other factors, you may not be able to
sell your ADSs. Further, an inactive market may also impair our ability to raise capital by issuing securities and may impair our
ability to enter into strategic partnerships or acquire companies or products by using our equity as consideration.
The requirements of being a publicly traded company may strain our resources and divert management’s attention.
As a publicly traded company, we have incurred, and will continue to incur, significant legal, accounting and other expenses that
we did not incur as a private company. In addition, the SarbanesOxley Act and the DoddFrank Wall Street Reform and Consumer
Protection Act (the “DoddFrank Act”), as well as rules subsequently implemented by the SEC and Nasdaq under such acts have
imposed various requirements on public companies. Shareholder activism, the current political environment and the current high
level of government regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to
additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our
management will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make some activities more timeconsuming and costly.
For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the SarbanesOxley Act could
have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential
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shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the
ADSs.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be
required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes
Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting. In
addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls
over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to
remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control
environment may cause investors to lose confidence in our reported financial information, which could have a material adverse
effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be
harmed.
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We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting
companies.
We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the
Securities and Exchange Commission (the “SEC”). Under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic
reporting companies. For example, we will not be required to issue quarterly reports or proxy statements that comply with the
requirements applicable to U.S. domestic reporting companies. Furthermore, although as an Israeli public company listed overseas
we will be required to disclose the compensation of our five most highly compensated officers on an individual basis, this
disclosure may not be as extensive as that required of U.S. domestic reporting companies. We will also have four months after the
end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or
promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from
the requirements to report transactions and shortswing profit recovery required by Section 16 of the Exchange Act. Also, as a
“foreign private issuer,” we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the
Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to
you in comparison to those applicable to a shareholder of a U.S. domestic reporting companies.
As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices
instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to
investors under rules applicable to domestic U.S. issuers.
As a “foreign private issuer,” we are permitted to follow certain home country corporate governance practices instead of those
otherwise required under the listing rules of Nasdaq for domestic U.S. issuers. For instance, we follow home country practice in
Israel with regard to, among other things, director nomination procedures, compensation committee matters and approval of
interested party transactions. In addition, we will follow our home country law instead of the listing rules of Nasdaq that require
that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control of us,
certain transactions other than a public offering involving issuances of a 20% or greater interest in the company, and certain
acquisitions of the stock or assets of another company. There are however, certain, home country practices that, in accordance
with Israeli law, we have opted not to follow – in particular those rules relating to the appointment of "External Directors" (see
“Board Practices – External Directors”). We may in the future elect to follow home country corporate governance practices in
Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements
that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection to you than what is accorded to
investors under the listing rules of Nasdaq applicable to domestic U.S. issuers.
We may be unable to comply with the applicable continued listing requirements of Nasdaq.
ADSs representing our ordinary shares are currently listed on Nasdaq. In order to maintain this listing, we must satisfy minimum
financial and other continued listing requirements and standards, including a minimum closing bid price requirement for our ADSs
of $1.00 per ADS. There can be no assurance that we will be able to comply with the applicable listing standards. For example, if
we were to fail to meet the minimum bid price requirement for 30 consecutive business days, we could become subject to delisting.
Although Nasdaq may provide us with a compliance period in which to regain compliance with the minimum bid price requirement,
we cannot assure you that we would be able to regain compliance within the period provided by Nasdaq. In order to regain
compliance with such requirement, the closing bid price of our ADSs would need to meet or exceed $1.00 per share for at least 10
consecutive business days during the compliance period. If we were not able to regain compliance within the allotted compliance
period for this requirement or any other applicable listing standard, including any extensions that may be granted by Nasdaq, our
ADSs would be subject to delisting. In the event that our ADSs are delisted from Nasdaq and are not eligible for quotation or
listing on another market or exchange, trading of our ADSs could be conducted only in the overthecounter market established
for unlisted securities such as OTC Markets. In such event, it could become more difficult to dispose of, or obtain accurate price
quotations for our ADSs, which could cause the price of our ADSs to decline further.
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If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market,
or if they adversely change their recommendations or publish negative reports regarding our business or our traded securities,
our securities price and trading volume could be negatively impacted.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot
provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us
adversely change their recommendation regarding the ADSs, or provide more favorable relative recommendations about our
competitors, the price of the ADSs would likely decline. If any analyst who may cover us were to cease coverage of our company
or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the
price of the ADSs or their trading volume.
The market price for our ADSs may be volatile.
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to numerous factors
including the following:
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our failure to obtain the approvals necessary to commence clinical trials;
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results of clinical and preclinical studies;
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announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;
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announcements of new products or product enhancements by us or others;
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adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and
marketing activities;
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changes or developments in laws, regulations or decisions applicable to our product candidates or patents;
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any adverse changes to our relationship with manufacturers or suppliers;
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announcements concerning our competitors or healthcare industries in general;
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achievement of expected product sales and profitability or our failure to meet expectations;
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our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability
actions or intellectual property infringement actions;
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any major changes in our board of directors, management or other key personnel;
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announcements by us of significant strategic partnerships, outlicensing, inlicensing, joint ventures, acquisitions or
capital commitments;
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expiration or terminations of licenses, research contracts or other collaboration agreements;
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public concern as to the safety of our products that we, our licensees or others develop;
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success of research and development projects;
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developments concerning intellectual property rights or regulatory approvals;
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variations in our and our competitors’ results of operations;
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changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs are
covered by analysts;
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future issuances of ordinary shares, ADSs or other securities;
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general market conditions and other factors, including factors unrelated to our operating performance, such as natural
disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and
votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an
emergency, including for example, the COVID19 pandemic), boycotts, adoption or expansion of government trade
restrictions, and other business restrictions; and
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the other factors described in this “Risk Factors” section.
These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs, which
would result in substantial losses by our investors. In addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance of any particular company. These market
fluctuations may also have a material adverse effect on the market price of the ADSs.
We may be at risk of securities class action litigation.
We may be at risk of securities class action litigation. This risk is especially relevant for us due to our dependence on positive
clinical trial outcomes and regulatory approvals of our product candidates. In the past, medical, biotechnology and pharmaceutical
companies have experienced significant stock price volatility, particularly when associated with such events such as clinical trials
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and product approvals. If we face such litigation, it could result in substantial costs, divert management’s attention and resources,
and have a material adverse effect on our business, operating results and prospects.
Substantial future sales or perceived potential sales of our ordinary shares or ADSs in the public market could cause the price
of our ADSs decline.
Substantial sales of our ADSs on Nasdaq may cause the market price of our ADSs to decline. Sales by us or our security holders
of substantial amounts of our ADSs or the perception that these sales may occur in the future, could cause a reduction in the
market price of our shares ADSs. The issuance of any additional ordinary shares or any additional ADSs, or any securities that are
exercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ADSs and
will have a dilutive effect on our existing shareholders and holders of ADSs.
Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over
matters on which shareholders vote.
We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise
additional capital by issuing equity securities, our shareholders may experience substantial dilution. Pursuant to our equity
incentive plan, our management may grant options to our employees, directors and consultants. We may sell ordinary shares
represented by ADSs, convertible securities or other equity securities in one or more transactions at prices and in a manner we
determine from time to time, any of which may result in material dilution to our existing shareholders. New investors could also be
issued securities with rights superior to those of our existing shareholders.
We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities
appreciate in value, our investors may not benefit from holding our securities.
We have not paid any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends on our
ordinary shares in the foreseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and
pay dividends. As a result, investors in our ADSs or ordinary shares will not be able to benefit from owning
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these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such
securities. We cannot assure you that you will ever be able to resell our securities at a price in excess of the price paid.
If we pay dividends or other distributions, an ADS holder may not receive the same distributions or dividends as those we
make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other
distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them
available to you.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on
ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these
distributions, if any, in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not
responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it
would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the
Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In these cases,
the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a
substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an
equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares,
rights or other securities received through such distributions. We also have no obligation to take any other action to permit the
distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from
such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the
depositary believes it is required to make such withholding. This means that you may not receive the same distributions or
dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any
value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may
cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary to exercise their rights.
Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the
underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law and our
articles of association, the minimum notice period required to convene a shareholders meeting is no less than 35 or 14
calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is
convened, holders of the ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their
ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may
not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will
make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we
cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote
their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote,
for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to
exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as
a holder of ADSs, they will not be able to call a shareholders meeting.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or
from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse
to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time
if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body,
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or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
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ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
Our legal and commercial name is Quoin Pharmaceuticals Ltd. We were incorporated under the laws of the State of Israel in 1986
and operate under the Companies Law. Our registered office is located in Azrieli Center, Round Tower, 30th Floor, 132 Menachem
Begin Blvd, Tel Aviv, 6701101, Israel and our telephone number is +972972 584488821. Our agent for service of process in the
United States is Corporation Services Company, 251 Little Falls Drive, Wilmington, Delaware 19808. We have been a public
company traded on the Tel Aviv Stock Exchange (“TASE”) from 1990 until September 2017 (when our shares were delisted from
TASE), and our American Depositary Shares (“ADS”) have been listed on the Nasdaq Capital Market since July 29, 2016. ADSs
listed on the Nasdaq Capital Market traded through the close of business on October 27, 2021 under the ticker symbol “APOP,”
and commenced trading on the Nasdaq Capital Market under the ticker symbol “QRNX” on October 29, 2021 in connection with
the Merger (as defined below). Each ADS represents 400 ordinary shares of Quoin Ltd.
We were incorporated under the name Montiger Ltd. Between 1986 and 2021 we underwent several name changes, including the
name change to Cellect Biotechnology Ltd. in July 2016 and most recently in October 2021 in connection with the business
combination with Quoin Inc.
On October 28, 2021, Cellect Biotechnology Ltd. (“Cellect”) completed the business combination with Quoin Inc. in accordance
with the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 24, 2021 (the “Merger Agreement”),
by and among Cellect, Quoin Inc. and CellMSC, Inc., a Delaware corporation and whollyowned subsidiary of Cellect (“Merger
Sub”), pursuant to which Merger Sub merged with and into Quoin Inc., with Quoin Inc. surviving as a whollyowned subsidiary of
Cellect (the “Merger”), and all officers and directors of Cellect resigned from their positions in connection with the Merger.
Immediately after completion of the Merger, Cellect changed its name to “Quoin Pharmaceuticals, Ltd.”
Concurrently with the Merger, Cellect completed the sale of its subsidiary, Cellect Biotherapeutics Ltd., to EnCellX, Inc. (the
“Share Transfer”) and entered into a Contingent Value Rights Agreement dated as of October 28, 2021 (the “CVR Agreement”).
Upon the closings of the Merger and Share Transfer, the holders of Cellect’s ordinary shares immediately prior to the Merger,
including the Depositary for the ADS, became entitled to one contingent value right (“CVR”) for each ordinary share outstanding.
Pursuant to the Deposit Agreement governing the ADS, on November 5, 2021, the Depositary distributed the CVRs pro rata to the
holders of record of the ADSs as of the close of business on October 27, 2021 (“Eligible ADS Holders”).
For a discussion of material cash requirements, including capital expenditures, see Item 5.B “Liquidity and Capital Resources”
below.
The SEC maintains an Internet web site at http://www.sec.gov that contains reports and other material that are filed through the
SEC’s Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system. Our website is located at www.quoinpharma.com.
The information on our website is not incorporated by reference into this Annual Report.
B.
Business Overview.
Company Overview
We are an emerging specialty pharmaceutical company dedicated to developing products that help treat rare and orphan diseases
for which there are currently no approved treatments. We believe the rare and orphan disease space represents an attractive
commercial opportunity for a number of reasons.
Our initial focus is on the development of products, using our proprietary owned and inlicensed technology, that could help
address rare skin diseases for which there are currently no approved treatments or cures. Our first lead product is
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QRX003, a once daily, topical lotion comprised of a broadspectrum serine protease inhibitor, formulated with the proprietary
Invisicare® technology, to treat Netherton Syndrome. In addition, we intend to pursue the clinical development of QRX003 in
other rare dermatological diseases including Peeling Skin Syndrome, SAM Syndrome, and Palmoplantar Keratoderma. We are also
developing QRX004 as a potential treatment for Dystrophic Epidermolysis Bullosa. In addition, we are also developing QRX006 as
a potential therapy for an, as of yet, undisclosed rare skin disease. A provisional patent application for QRX006 was filed with the
USPTO in May 2021.
Netherton Syndrome
NS is a rare autosomal recessive genetic disease caused by a mutation in the SPINK5 gene and has an incidence of approximately
1/200,000 births. The SPINK5 gene encodes a protein, called lymphoepithelial kazal type related inhibitor (“LEKTI”) that serves as
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a brake system on the activity of certain proteases (enzymes that digest proteins) in the skin called Kallikreins. The absence of the
LEKTI protein as a result of the genetic defect that causes NS leads to unregulated protease activity in the skin by the Kallikreins,
resulting in too few layers of the outer skin (stratum corneum), thereby leading to a highly defective and compromised skin barrier.
Newborns with NS have reddened skin (erythroderma) and sometimes a thick parchmentlike covering of skin (collodion
membrane). The skin is red and scaly all over. Hair shafts are fragile and break easily due to trichorrhexis or “bamboo hair,”
resulting in short sparse hair. In older children and adults the scaling may have a distinctive circular pattern (ichthyosis linearis
circumflexa). Another characteristic of NS is a predisposition to allergies, asthma, and eczema.
Babies with NS may be born prematurely. Trouble gaining weight in infancy and childhood is common and can be severe. Infants
may also have recurrent skin infections and septicemia. They may develop hypernatremia (elevated sodium levels in the blood)
due to excessive loss of fluid from the skin surface. Because hairs may not be affected at birth, and then may be sparse in all
babies in the first months of life, the characteristic hair defect that is diagnostic of NS may not be detected initially.
Infants with NS may be misdiagnosed as having congenital ichthyosiform erythroderma (“CIE”), atopic dermatitis or psoriasis.
Atopic dermatitis (red, itchy patches of skin) may be present and a cradle caplike scale and redness may appear on the face, scalp
and eyebrows.
Unmet Medical Needs in NS
The target indication for QRX003 is the treatment of NS. There are currently no approved therapies to treat NS. In the absence of
an approved therapeutic product, only certain symptoms of NS can be treated, generally by the regular use of emollients and
moisturizing creams and lotions. Other topical agents must be used with caution because the skin in NS patients may allow
ingredients from some topically applied medications to be absorbed into the bloodstream, which may pose a danger to the patient.
Use of topical keratolytic agents, such as urea or lactic acid derivatives, may be limited by skin irritation and is generally be
reserved for older children or adults. Base line treatment may also include oral antihistamines, which can help to control the itchy,
eczematous component, and topical or systemic antibiotics as needed. Oral and topical steroids are beneficial in reducing
inflammation and the eczematous component of the disease. However, the welldocumented side effects of longterm steroid use
need to be considered. There is a critical need for a new and effective treatment for NS
Rationale for Developing QRX003 as a Potential Treatment for NS
QRX003 is a oncedaily topical lotion being developed for the treatment of NS. The active ingredient in QRX003 is a competitive
broadspectrum serine protease inhibitor whose mechanism of action is to target the Kallikreins responsible for the process of skin
shedding. As a result of the genetic mutation of the SPINK5 gene, that causes NS, these Kallikreins go unregulated and become
hyperactive resulting in the uncontrolled desquamation that leads to the highly defective skin barrier in NS patients. When
applied daily to the skin, QRX003 is designed to act to regulate the activity of these Kallikreins, leading to a more normalized skin
shedding process and the formation of a stronger and more effective skin barrier.
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Regulatory Status of QRX003 for the Treatment of NS
On November 29, 2019 we submitted a preIND (“PIND”) meeting request to the FDA regarding the proposed development of
QRX003 as a potential treatment for NS. On December 20, 2019, we received a letter from the FDA stating that written responses to
the questions we posed in the PIND submission would be given inlieu of an inperson meeting. We subsequently submitted a
background package to the FDA on December 26, 2019 that provided information on the product and the proposed clinical plan
along with a series of questions we wished to obtain agency feedback on. We received those written responses from the FDA on
January 30, 2020. The feedback provided by the FDA has provided us with a clear path forward for the development of QRX003 as
a potential treatment for NS.
With regard to the proposed clinical program, the agency confirmed that in the case of a rare disease, findings from a single Phase
3 trial along with supportive data could be used to establish efficacy. With regard to INDenabling nonclinical studies, while the
agency stated that the typical battery toxicology studies would apply to this product candidate, the agency expressed a
willingness to consider the sufficiency of alreadyconducted studies in the public literature in the absence of GLP toxicity studies
in animals. In response to our query, the agency stated that the QRX003 may be a candidate for one or more expedited programs.
We submitted an IND in March 2022 to the FDA to initiate a clinical study of QRX003 in adult NS patients. In March 2022, we
submitted a briefing document to the EMA seeking guidance regarding the clinical and regulatory development of QRX003 for the
EU. We also intend to apply for Orphan Drug status as well as Pediatric Disease designation for QRX003 at a later date. To date,
no NS patients have been tested with QRX003.
Safety of QRX003 in the Treatment of NS
The safety of QRX003 in NS patients has not been assessed as of yet.
Commercial Strategy
QRX003 has the potential to become the first approved treatment for NS to reach the market both in the U.S. and Europe and may
therefore likely be used in a large proportion of patients. We currently anticipate that QRX003, if approved, would be applied once
daily to the diseased skin over the patient’s entire body. Because NS is a chronic disease and does not spontaneously resolve, we
believe there is an opportunity for the product, should it be approved, for longterm chronic use.
We intend to selfcommercialize QRX003, and other rare disease products the company may develop, if approved, in both the U.S.
and Europe. Because of the very low number of patients and the fact that diagnosis and treatment are generally provided by a
relatively small number of boardcertified dermatologists in major urban areas, this concentration of care will enable us to market
QRX003 with a small, dedicated salesforce to target patients and caregivers. Outside of the U.S and in Europe, we have currently
established marketing partnerships for QRX003 that cover approximately 60 different countries including Australia, New Zealand,
the Middle East, Central and Eastern Europe, Turkey and some countries in Latin America.
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Once the commercial infrastructure has been established for QRX003 for Netherton Syndrome, the subsequent approval and
addition of new rare disease indications or products will not result in a significant increase in the size of that infrastructure. In
particular, it is highly likely that physicians who treat patients with Netherton Syndrome would also treat patients with Peeling
Skin Syndrome, SAM Syndrome, Palmoplantar Keratoderma and Epidermolysis Bullosa, enabling our sales personnel to discuss
several products, once approved, with each treating physician.
A key element of our commercial strategy will be to add new products to our portfolio beyond those which we develop ourselves.
This will be achieved through inlicensing, acquisition or the establishment of research partnerships with universities or other
institutions. While it is intended that that these products will treat rare and orphan diseases, we may widen our scope of interest
beyond rare skin diseases as we believe this will not add significant incremental burden to an already established commercial
infrastructure.
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Pricing
We have not conducted a formal pricing analysis of QRX003 in NS. We anticipate that pricing at launch may be influenced by the
product label negotiated with the FDA, pharmacoeconomic data developed to support pricing and the potential for greater sales
under negotiated government contracts.
Competition
Currently, there are no approved products to treat NS. However, to our knowledge, there are a number of therapeutic products at
various stages of development for the treatment of NS, including candidates from LifeMax Laboratories, PellePharma, Krystal
Biotech, Sixera Pharmaceuticals, QID Pharmaceuticals, Azitra and Dermadis. Currently, to the best of our knowledge there are no
active studies on NS patients being conducted under an open IND.
Manufacturing
Our manufacturing strategy is to contract with third parties to manufacture our clinical and commercial API and drug product
supplies. The formulation and processes used to manufacture our products are proprietary, and are covered by multiple issued
U.S. patents and counterparts in other regions of the world, and we have agreements with various thirdparty manufacturers and
suppliers, such as Ferndale Contract Manufacturing and TopChem Pharmaceuticals Limited, that are intended to restrict these
manufacturers from using or revealing any unpublished proprietary information.
Exclusive Licensing Agreement with Skinvisible Pharmaceuticals, Inc.
In October 2019, we entered into an Exclusive Licensing Agreement the (as amended from time to time, the “License Agreement”)
with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted us an exclusive royaltybearing license
relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including
those related to QRX003. Once the License Fee (as defined below) is fully paid, the grant of the rights under the License
Agreement fully come into effect. Until then our rights will be limited to R&D, clinical trial and regulatory submission uses only.
We are required to pay Skinvisible a onetime nonrefundable, noncreditable license fee of $1 million dollars (the “License Fee”).
In addition, we agreed to pay Skinvisible a single digit royalty percentage of our net sales revenues for any licenses product
relating the patent rights licensed to us under the License Agreement. We also agreed to pay Skinvisible 25% of any revenues we
receive as royalties in the event that we sublicense any licensed products to a third party. The License Agreement also requires
that we make a $5 million payment to Skinvisible upon receiving approval in the US for the first drug product developed using
intellectual property licensed thereunder.
Employees
As of December 31, 2021, we had four employees.
Regulatory
General
Government authorities in the United States and other countries extensively regulate, among other things, the preclinical and
clinical testing, manufacturing, labeling, storage, recordkeeping, advertising, promotion, export, marketing and distribution of
pharmaceutical products. In the United States, pharmaceutical products are subject to rigorous review under the Federal Food,
Drug, and Cosmetic Act, and other federal statutes and regulations.
FDA Approval Process
To obtain approval of our product candidates from the FDA, we must, among other requirements, demonstrate in preclinical
studies and wellcontrolled clinical trials that the product is safe and effective for its intended use and that the
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manufacturing facilities, processes and controls are adequate to preserve the drug’s identity, strength, quality and purity. The
drug approval process generally includes:
●
preclinical laboratory tests, in vitro and in vivo preclinical studies and formulation and stability studies;
●
the submission to the FDA of an application for human clinical testing, which is known as an investigational new drug
application (“IND”);
●
adequate and wellcontrolled human clinical trials to demonstrate the safety and effectiveness of the drug;
●
the submission to the FDA of a new drug application (“NDA”) for a drug; and
●
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to
assess compliance with current GMP, (“cGMP”), requirements to assure that the facilities, methods and controls are
adequate to preserve the drug’s identity, strength, quality and purity;
●
the approval by the FDA of an NDA.
Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. Preclinical
trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or
guidelines, including Good Laboratory Practice (“GLP”). Violations of these regulations can, in some cases, lead to invalidation of
the studies, requiring them to be replicated. Before human clinical testing can begin, a sponsor must submit the results of the
preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND, a request for
authorization from the FDA to administer an investigational new drug product to humans.
A 30 day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If
the FDA has neither commented on nor questioned the IND within this 30 day period, the clinical trial proposed in the IND may
begin. Clinical trials involve the administration of the investigational drug to healthy volunteers or patients under the supervision
of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good
clinical practices (“GCP”), an international standard meant to protect the rights and health of patients and to define the roles of
clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the
parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S.
patients and subsequent protocol amendments must be submitted to the FDA as part of the IND. Clinical trials must be conducted
under the supervision of one or more qualified investigators pursuant to protocols detailing, among other things, the objectives of
the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. For
each institution where a clinical trial will be conducted, an institutional review board (“IRB”) must review and approve the clinical
trial protocol and informed consent form required to be provided to each trial subject or his or her legal representative prior to a
clinical trial commencing, and conduct ongoing monitoring of the study until completed or termination to assure that appropriate
steps are taken to protect the human subjects participating in the research.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it
believes that the clinical trial either is not being conducted in accordance with FDA regulations or presents an unacceptable risk to
the clinical trial patients. Imposition of a clinical hold may be full or partial. The IRB will also monitor the clinical trial until
completed. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply
with the IRB’s requirements, or may impose other conditions. Additionally, some clinical trials are overseen by an independent
group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This
group provides authorization for whether a trial may move forward at designated checkpoints based on access to certain data from
the trial.
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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
Phase 1: In Phase 1 studies, the product candidate is initially introduced into healthy human volunteers and tested for
safety, dosage and tolerability, absorption, distribution, metabolism and excretion and, effect on the body.
Phase 2: Phase 2 studies are conducted in a limited patient population. These studies continue to evaluate safety while
gathering preliminary data on effectiveness in patients with the targeted disease or condition.
Phase 3: Phase 3 trials further evaluate efficacy and safety in an expanded patient population, generally at geographically
dispersed clinical study sites. These clinical trials are intended to establish the overall riskbenefit ratio of the product
candidate and provide, if appropriate, an adequate basis for product labeling. In most cases, the FDA requires two
adequate and wellcontrolled Phase 3 clinical trials to demonstrate the safety and efficacy of the drug. In rare instances, a
single Phase 3 trial may be sufficient when either
(1) the trial is a large, multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a
clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious
outcome and confirmation of the result in a second trial would be practically or ethically impossible or (2) the single trial
is supported by other confirmatory evidence. Approval on the basis of a single trial may be subject to a requirement for
additional postapproval studies.
Postapproval studies, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These
studies are used to gather additional information about a product’s safety and/or efficacy in patients affected by the
therapeutic indication.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is
required before marketing and distribution of the product may begin in the United States. The NDA must include the results of all
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preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture,
and controls. The submission of most NDAs is subject to the payment of a substantial application user fee. . Under an approved
NDA, the applicant is also subject to an annual program fee. These fees typically increase annually. An NDA for a drug that has
been designated as an orphan drug is not subject to an application fee, unless the NDA includes an indication for other than a rare
disease or condition.
Pursuant to the current Prescription Drug User Fee Act (“PDUFA”), goals, FDA’s goal for acting on the submission of an NDA for
a new molecular entity is ten months from the date the FDA files the NDA. The FDA conducts a preliminary review of an NDA
within 60 days after submission to determine whether it is sufficiently complete to permit substantive review, before determining
whether to file the NDA. This twomonth preliminary review effectively extends the typical NDA review period to twelve months.
In rare cases, the FDA may request additional information rather than file an NDA. In this event, the NDA must be resubmitted
with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
The FDA may also refer applications for novel pharmaceutical products, as well as pharmaceutical products that present difficult
questions of safety or efficacy, to be reviewed by an advisory committee, typically a panel that includes clinicians, statisticians
and other experts. for review, evaluation, and a recommendation as to whether the NDA should be approved. The FDA is not
bound by the recommendation of an advisory committee, but generally follows such recommendations. Before approving an NDA,
the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the
facility or the facilities at which the pharmaceutical product is manufactured. The FDA will not approve the product unless
compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and
effective in the respective claimed indication.
Following the FDA’s evaluation of an NDA, it will issue an approval letter or a complete response letter (“CRL”). An approval
letter authorizes the sponsor to begin commercial marketing of the drug for specific indications. A CRL means that the review cycle
of the application is complete and the application will not be approved in its present form. A CRL describes the specific
deficiencies in the NDA identified by the FDA and may recommend actions that the applicant might take, including providing
additional clinical data, such as an additional Phase 3 trial or other significant and time
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consuming requirements related to clinical trials, nonclinical studies or manufacturing, to resolve the deficiencies . If a CRL is
issued, the sponsor must resubmit the NDA addressing all of the deficiencies identified in the letter, or withdraw the application.
Even if the sponsor submits the recommended data and information, the FDA may decide that the NDA does not satisfy the
criteria for approval.
As condition to a product’s regulatory approval, the FDA may require a sponsor to conduct Phase 4 studies designed to further
assess the drug’s safety and effectiveness after NDA approval, or may require other testing and surveillance programs to monitor
the safety of the approved product. The FDA may also place other conditions on approval including the requirement for a risk
evaluation and mitigation strategy (“REMS”) to assure the safe use of the drug. A REMS could include medication guides,
communication plans to healthcare professionals or other elements to assure safe use, such as provider certification or training,
restricted distribution methods, and patient registries.
There are a variety of regulations governing clinical trials and requirements for obtaining marketing approval for pharmaceutical
products outside the United States. Whether or not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in
those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than
that required for FDA approval. In the EU, Canada and Australia, regulatory requirements and approval processes are similar, in
principle, to those in the United States.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDAregulated products, including drugs and biologic products, are required to register and disclose
certain clinical trial information on the website www.clinicaltrials.gov. Information related to the product, patient population, phase
of investigation, trial sites and investigators, and other aspects of a clinical trial are then made public as part of the registration.
Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of clinical trials
can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this
publicly available information to gain knowledge regarding the progress of clinical development programs as well as clinical trial
design.
Pediatric Information
Under the Pediatric Research Equity Act (“PREA”), NDAs or supplements to NDAs must contain data to assess the safety and
effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations and to support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant full or partial
waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any product with
orphan product designation except a product with a new active ingredient that is a molecularly targeted cancer product intended
for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the
growth or progression of a pediatric cancer.
The Best Pharmaceuticals for Children Act (“BPCA”) provides a sixmonth extension of any patent or nonpatent exclusivity for a
drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use
of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for
pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe.
Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Expedited Programs
FDA is required to facilitate the development, and expedite the review, of drug products that are intended for the treatment of a
serious or lifethreatening disease or condition for which there is no effective treatment and which demonstrate the potential to
48
address unmet medical needs for the condition. Fast track designation may be granted for products that are intended to treat a
serious or lifethreatening disease or condition for which there is no effective treatment and preclinical or clinical data demonstrate
the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific
indication for which it is being studied. Any product submitted to FDA for marketing,
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including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and
review, such as priority review.
Priority review may be granted for products that are intended to treat a serious or lifethreatening condition and, if approved,
would provide a significant improvement in safety and effectiveness compared to available therapies. FDA will attempt to direct
additional resources to the evaluation of an application designated for priority review in an effort to facilitate the review.
FDA is also required to expedite the development and review of applications for approval of products that are intended to treat a
serious or lifethreatening disease or condition where preliminary clinical evidence indicates that the drug may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy
program, the sponsor of a new product candidate may request that FDA designate the product candidate for a specific indication
as a breakthrough therapy concurrent with, or after, the submission of the IND for the product candidate. FDA must determine if
the product candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. The FDA
may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the
development process, providing timely advice to the product sponsor regarding development and approval, involving more senior
staff in the review process, assigning a cross disciplinary project lead for the review team and taking other steps to design the
clinical studies in an efficient manner.
Orphan Drug Designation
Pursuant to the Orphan Drug Act, FDA may grant special status, or orphan designation, to a drug intended to treat a rare disease
or condition, which is a defined as a disease or condition that affects fewer than 200,000 individuals in the United States, or there
is no reasonable expectation that the sales of the product will offset the cost of developing and making the drug available in the
United States. A request for orphan drug designation must be submitted before the NDA is submitted. Following the grant of
orphan designation, FDA will publicly disclose the identity of the therapeutic drug candidate and its potential orphan use. Orphan
designation does not shorten the duration of the regulatory review and approval process.
If a drug candidate with orphan designation subsequently receives the first FDA approval for the disease or condition for which it
has orphan designation, the drug is entitled to a sevenyear period of market exclusivity subject to certain exceptions (e.g., clinical
superiority of a subsequent product). This means that FDA may not approve another drug application authorizing another
manufacturer to market the same drug for the same indication for seven years. This does not preclude competitors from receiving
approval of the same product that has orphan exclusivity for a different indication or a different product for the same indication for
which the orphan product has exclusivity. The orphan designation of a drug also provides the sponsor with certain financial
incentives including tax credits and waiver of PDUFA fees.
Rare Pediatric Disease Priority Review Voucher Program
Under the Rare Pediatric Disease Priority Review Voucher program, the FDA may award a priority review voucher to the sponsor of
an approved marketing application for a product that treats or prevents a rare pediatric disease. The voucher entitles the sponsor
to priority review of one subsequent marketing application.
A voucher may be awarded only for an approved rare pediatric disease product application. A rare pediatric disease product
application is an NDA for a product that treats or prevents a serious or lifethreatening disease in which the serious or life
threatening manifestations primarily affect individuals aged from birth to 18 years; in general, the disease must affect fewer than
200,000 such individuals in the U.S.; the NDA must be deemed eligible for priority review; the NDA must not seek approval for a
different adult indication (i.e., for a different disease/condition); the product must not contain an active ingredient that has been
previously approved by FDA; and the NDA must rely on clinical data derived from studies examining a pediatric population such
that the approved product can be adequately labeled for the pediatric population. Before NDA approval, FDA may designate a
product in development as a product for a rare pediatric disease, but such designation is not required to receive a voucher.
To receive a rare pediatric disease priority review voucher, a sponsor must notify the FDA, upon submission of the NDA, of its
intent to request a voucher. If the FDA determines that the NDA is a rare pediatric disease product application and
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grants priority review, and if the NDA is approved, the FDA will award the sponsor of the NDA a voucher upon approval of the
NDA. The FDA may revoke a rare pediatric disease priority review voucher if the product for which it was awarded is not marketed
in the U.S. within 365 days of the product’s approval.
The voucher, which is transferable to another sponsor, may be submitted with a subsequent NDA or biologics license application
(“BLA”) and entitles the holder to priority review of the accompanying NDA or BLA. The sponsor submitting the priority review
50
voucher must notify FDA of its intent to submit the voucher with the NDA or BLA at least 90 days prior to submission of the NDA
or BLA and must pay a priority review user fee in addition to any other required user fee. FDA must take action on an NDA or BLA
under priority review within six months of receipt of the NDA or BLA.
The Rare Pediatric Disease Priority Review Voucher program was reauthorized in the Creating Hope Reauthorization Act in
December 2020, allowing a product that is designated as a product for a rare pediatric disease prior to October 1, 2024 to be eligible
to receive a rare pediatric disease priority review voucher upon approval of a qualifying NDA or BLA prior to October 1, 2026.
PostMarketing Obligations
All approved drug products are subject to continuing regulation by the FDA, including recordkeeping requirements, reporting of
adverse experiences with the product, sampling and distribution requirements, notifying the FDA and gaining approval for certain
manufacturing or labeling changes, complying with certain electronic records and signature requirements, submitting periodic
reports to the FDA, maintaining and providing updated safety and efficacy information to the FDA, and complying with FDA
promotion and advertising requirements. Failure to comply with the statutory and regulatory requirements can subject a
manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product,
injunctive action, criminal prosecution, or civil penalties.
The FDA may require postmarketing studies or clinical trials to develop additional information regarding the safety of a product.
These studies or trials may involve continued testing of a product and development of data, including clinical data, about the
product’s effects in various populations and any sideeffects associated with longterm use. The FDA may require postmarketing
studies or trials to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may require
periodic status reports if new safety information develops. Failure to conduct these studies in a timely manner may result in
substantial civil fines.
Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies,
and to list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United States and abroad in
order to assure compliance with the applicable cGMP regulations and other requirements. Facilities also are subject to inspections
by other federal, foreign, state or local agencies. In complying with the cGMP regulations, manufacturers must continue to assure
that the product meets applicable specifications, regulations and other postmarketing requirements. Any thirdparty
manufacturers must also maintain compliance with all applicable regulations and requirements. Failure to comply with these
requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or
seizure of product.
Also, newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the
addition of new warnings and contraindications, additional preclinical or clinical studies, or even in some instances, revocation or
withdrawal of the approval. Violations of regulatory requirements at any stage, including after approval, may result in various
adverse consequences, including the FDA’s withdrawal of an approved product from the market, other voluntary or FDAinitiated
action that could delay or restrict further marketing, and the imposition of civil fines and criminal penalties against the NDA holder.
In addition, later discovery of previously unknown problems may result in restrictions on the product or NDA holder, including
withdrawal of the product from the market. Furthermore, new government requirements may be established that could delay or
prevent regulatory approval of our products under development, or affect the conditions under which approved products are
marketed.
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Data Privacy
Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and
federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries
also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most
healthcare providers who prescribe our product and from whom we obtain patient health information are subject to privacy and
security requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). We are not a HIPAA
covered entity and therefore, these privacy and security requirements do not apply to us. However, we could be subject to
criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not
authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. We are unable to predict whether our actions
could be subject to prosecution in the event of an impermissible disclosure of health information to us. The legislative and
regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on
privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states
requiring security breach notification. These laws could create liability for us or increase our cost of doing business.
Commercial Product Pricing
In the United States and some foreign jurisdictions, many of the markets in which we may do business in the future, the prices of
pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price
control mechanisms.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization
Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for
drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician
administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any
therapeutic class in certain cases. Cost reduction initiatives and other provisions of this and other more recent legislation could
decrease the coverage and reimbursement that is provided for any approved products. While the Medicare Modernization Act
applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment
limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare
Modernization Act or other more recent legislation may result in a similar reduction in payments from private payors.
Healthcare Reform
51
Healthcare reforms that have been adopted, and that may be adopted in the future, could result in further reductions in coverage
and levels of reimbursement for pharmaceutical products, increases in rebates payable under U.S. government rebate programs
and additional downward pressure on pharmaceutical product prices. On September 9, 2021, the Biden administration published a
wideranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and drug
payment. The Depart of Health and Human Services, or HHS, plan includes, among other reform measures, proposals to lower
prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support
market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. Many
similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers to
pay rebates on drugs whose prices increase greater than the rate of inflation, and cap outofpocket costs, have already been
included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other
statutory, regulatory, and administrative initiatives will be enacted and implemented.
European Regulatory Authorities
In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement
rules and control of national healthcare systems that fund a large part of the cost of such products to consumers. The approach
taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which
products may be marketed only once a reimbursement price has been agreed. Other
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52
member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward
pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products, as exemplified by the role of the National Institute for Health and Clinical
Excellence in the United Kingdom, which evaluates the data supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some countries crossborder imports from lowpriced markets (parallel
imports) exert commercial pressure on pricing within a country.
Environmental and Safety Laws
We are subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous
materials, including chemicals and radioactive and biological materials. Our operations produce such hazardous waste products.
Although we believe that our safety procedures for handling and disposing of these materials comply with the standards
prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be
eliminated. We generally contract with third parties for the disposal of such substances. We are also subject to various laws and
regulations governing laboratory practices and the experimental use of animals.
We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental
Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA
and/or the EPA may promulgate regulations that may affect our research and development programs.
C.
Organizational Structure
We have one whollyowned subsidiary, Quoin Pharmaceuticals, Inc., a Delaware corporation.
D.
Property, Plants and Equipment
Our principal location is at 42127 Pleasant Forest Ct, Ashburn, VA 20148. We may add new facilities as we add employees, and we
believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our
operations.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and related notes, which have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”), are included elsewhere in this annual report on Form 20F and reflect the operations of
Quoin Inc. since inception and include the accounts of Quoin Ltd since the closing of the Merger (as defined below). This
discussion and other parts of this annual report on Form 20F contain forwardlooking statements based upon current
expectations that involve risks and uncertainties. See “Cautionary Note Regarding ForwardLooking Statements,” Our actual
results and the timing of selected events could differ materially from those anticipated in these forwardlooking statements as a
result of several factors, including those set forth under “Risk Factors.”
A.
Operating Results
Overview
We are an emerging pharmaceutical company dedicated to the development and commercialization of therapeutic products that
treat rare and orphan diseases for which there are currently no approved treatments. Quoin’s first lead product, QRX003, is a once
daily topical lotion which is under development as a potential treatment for Netherton Syndrome, a
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53
rare hereditary skin disease. In addition to Netherton Syndrome, we intend to pursue the clinical development of QRX003 in other
rare dermatological diseases including Peeling Skin Syndrome, SAM Syndrome and Palmoplantar Keratoderma.
Our objective is to develop and commercialize proprietary therapeutic drug products. To this effect, we intend to develop and seek
marketing approvals from the FDA and other worldwide regulatory bodies for rare and orphan diseases. To achieve these
objectives, we plan to:
●
seek the necessary regulatory approvals to complete the clinical development of QRX003 and, if successful, file for
marketing approval in the United States and other territories;
●
prepare to commercialize QRX003 by establishing our own sales infrastructure in the U.S. and Europe and entering into
distribution partnerships in other territories such as Canada, Australia, the Middle East and Asia; and
●
Pursue business development activities by seeking partnering, licensing, merger and acquisition opportunities or other
transactions to further expand our pipeline and drugdevelopment capabilities and which take advantage of our financial
resources for the benefit of increasing stockholder value.
The ultimate impact of the COVID19 pandemic is still uncertain and subject to change. To the extent possible, we are conducting
business as usual, with necessary or advisable modifications to employee travel and with all of our employees and consultants
working remotely. We will continue to actively monitor the continually evolving situation related to COVID19 and may take
further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we
determine are in the best interests of our employees and other third parties with whom we do business.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain
marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to
significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other
product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our
operating activities through a combination of equity offerings, debt financings, government or other thirdparty funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing
arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on
favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a
negative impact on our financial condition and our ability to develop our product candidates.
Key Recent Events
On October 28, 2021, Cellect completed the business combination with Quoin Inc. in accordance with the terms of the Merger
Agreement, by and among Cellect, Quoin Inc. and Merger Sub, which was a whollyowned subsidiary of Cellect, pursuant to
which Merger Sub merged with and into Quoin Inc., with Quoin Inc. surviving as a whollyowned subsidiary of Cellect (the
“Merger”). Immediately after completion of the Merger, Cellect changed its name to “Quoin Pharmaceuticals Ltd.” We have
accounted for the transaction as a reverse recapitalization with Quoin Inc. as the accounting acquirer. Because Quoin Inc. is the
accounting acquirer, its historical financial statements became our historical financial statements and such assets and liabilities
continued to be recorded at their historical carrying values. The impact of the recapitalization has been retroactively applied to all
periods presented.
In addition, on October 28, 2021, Cellect sold the entire share capital of its subsidiary, Cellect Biotherapeutics Ltd., which
essentially included all of Cellect’s then existing net assets, to EnCellX Inc. (“EnCellX”), a newly formed U.S. privately held
company based in San Diego, CA (the “Share Transfer”), pursuant to an Amended and Restated Share Transfer Agreement. We
have no interests in EnCellX subsequent to the closing of the Merger.
On October 28, 2021, we also completed the private placement transaction with an investor (the Investor”) for an aggregate
purchase price of approximately $17.0 million (comprised of the set off of approximately $5 million of notes issued in
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connection with the bridge loan that the Investor previously made to Quoin Inc. (the “Bridge Financing”) and approximately $12
million in cash from the Investor (the “Primary Financing”).
Components of Our Results of Operations
Operating Expenses
Our current operating expenses consist of two components – research and development expenses, and general and administrative
expenses.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses include personnel costs
associated with research and development activities, including thirdparty contractors to perform research, conduct clinical trials
and manufacture drug supplies and materials. We utilize outside consultants and third parties to conduct the majority of our
research and development, under the supervision of our management team.
54
Future research and development expenses may include:
●
employeerelated expenses, such as salaries, bonuses and benefits, consultantrelated expenses, sharebased
compensation, overhead related expenses and travel related expenses for our research and development personnel;
●
expenses incurred under agreements with CROs, as well as consultants that support the implementation of the clinical
studies described above;
●
manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies
required to support the NDA filing as well as manufacturing drug product for commercial launch;
●
formulation, research and development expenses related to QRX003; and other products we may choose to develop; and
●
costs for sponsored research.
Research and development activities will continue to be central to our business plan. Products in later stages of clinical
development generally have higher development costs than those in earlier stages of clinical development, primarily due to the
increased size and duration of laterstage clinical trials. We expect our research and development expenses to be significant over
the next several years as personnel and compensation costs increase and we conduct latestage clinical studies and prepare to
seek regulatory approval for QRX003 and any other future product.
The duration, costs and timing of clinical trials of QRX003 and any other future product will depend on a variety of factors that
include, but are not limited to:
●
the number of trials required for approval;
●
the per patient trial costs;
●
the number of patients that participate in the trials;
●
the number of sites included in the trials;
●
the countries in which the trial is conducted;
●
the length of time required to enroll eligible patients;
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●
the number of doses that patients receive;
●
the dropout or discontinuation rates of patients;
●
the potential additional safety monitoring or other studies requested by regulatory agencies;
●
the duration of patient followup;
●
the timing and receipt of regulatory approvals; and
●
the efficacy and safety profile of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for the founders and executive officers, professional fees
and other corporate expenses, including significant costs incurred in 2021 in connection with the Merger and associated
regulatory filings.
We anticipate that our general and administrative expenses will increase in the future to support our continued research and
development activities. These increases will likely include increased costs related to the hiring of personnel, including
compensation and employeerelated expenses, and fees to outside consultants, lawyers and accountants. Additionally, we
anticipate increased costs associated with being a public company, including compliance with The Nasdaq Capital Market and
SEC requirements, insurance and investor relations costs.
Other Expenses
Other expenses consist primarily of noncash costs associated with the financing arrangements entered into during 2020 and 2021,
including fair value adjustments to notes payable and warrants and interest expense associated with debt instruments. The
majority of such costs will cease upon conversion of the debt instruments and exchange of the warrants, most of which occurred
at the Merger date.
Comparison of PeriodtoPeriod Results of Operations
The following table presents consolidated statement of operations data for the years ended December 31, 2021, 2020 and 2019:
2021
2020
2019
Operating Expenses
General and administrative
$
4,499,923
$
1,425,855
$
1,514,752
Research and development
1,562,927
244,155
45,650
Total operating expenses
6,062,850
1,670,010
1,560,402
55
Other Expenses
Fair value adjustments to debt
1,250,000
378,333
—
Warrant liability expense
12,784,329
—
—
Financing expense
275,000
—
—
Interest expense
1,090,409
47,021
—
Total other expenses
15,399,738
425,354
—
Net loss
$ (21,462,588)
$
(2,095,364)
$
(1,560,402)
Year ended December 31, 2021 compared to the year ended December 31, 2020
The following table sets forth our results of operations for the year ended December 31, 2021, compared to the year ended
December 31, 2020:
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56
2021
2020
Change
Operating Expenses
General and administrative
$
4,499,923
$
1,425,855
$
3,074,068
Research and development
1,562,927
244,155
1,318,772
Total operating expenses
6,062,850
1,670,010
4,392,840
Other Expenses
Fair value adjustments to debt
1,250,000
378,333
871,667
Warrant liability expense
12,784,329
—
12,784,329
Financing expense
275,000
—
275,000
Interest expense
1,090,409
47,021
1,043,388
Total other expenses
15,399,738
425,354
15,611,663
Net loss
$ (21,462,588)
$
(2,095,364)
$
(20,004,503)
General and Administrative Expenses
General and administrative expenses were approximately $4.5 million and $1.4 million, in the years ended December 31, 2021 and
2020, respectively, representing an increase of $3.1 million, or 216%. Approximately $1.5 million of the increase related to
professional fees associated with the Merger and costs of becoming a public company. In addition, there were increases in wages
associated with the hiring of our CFO and bonuses paid to executives associated with completion of the Merger.
Research and Development Expenses
Our research and development expenses during the years ended December 31, 2021 and 2020 were approximately $1.6 million and
$244,000, respectively, representing an increase of $1.3 million, or approximately 640%. The increase was primary due to increased
expenditures on our development programs following the completion of financings in late 2020 and 2021. Also, included in the
2021 expenses were approximately $555,000 of compensation costs related to managing the development programs. We expect to
significantly increase our research and development efforts by conducting the remaining studies necessary for the development
and approval of QRX003, see “Components of Our Results of Operations – Research and Development Expenses” above.
We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses
set out above. The license from Skinvisible was obtained in October 2019, see “Item 5.C – Research and Development, Patents and
Licenses." Amortization of intangible assets was $104,000 in each of the years ended December 31, 2021 and 2020.
Other Expenses:
Interest Expense
In the fourth quarter of 2020, we issued convertible promissory notes in an initial bridge financing with an aggregate face value of
$1,213,333 (the “2020 Notes”) with a 20% coupon interest. In 2021, we issued additional convertible promissory notes in a
subsequent Bridge Financing (the “Bridge Notes”) with an aggregate face value of $5,000,000 with a 15% coupon interest.
Interest expense was $1,090,000 and $47,000 in the years ended December 31, 2021, 2020 respectively. Interest on the Bridge
Notes was paid in October 2021 upon closing of the Primary Financing, and interest on the 2020 Notes remained unpaid and
included as a liability on our consolidated balance sheet as of December 31, 2021. We recorded $697,000 in the year ended
December 31, 2021 in connection with the estimated settlement of amounts due under the 2020 Notes. See “Item 5.B – Liquidity
and Capital Resources.”
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Fair value adjustment to convertible notes payable
57
We elected to value the 2020 Notes and the Bridge Notes at fair value, which was remeasured at each reporting period. In the year
ended December 31, 2021 we incurred a fair value adjustment of $1,250,000 related to the Bridge Notes and in the year ended
December 31, 2020 we incurred a fair value adjustment of $378,000 related to the 2020 Notes. The Bridge Notes and 2020
Notes were converted into equity in October 2021 on the closing of the Primary Financing.
Warrant liability expense
We record our warrants at fair value, which was remeasured at each reporting period. In year ended December 31, 2021, we
incurred a fair value adjustment of $0.4 million related to the warrants associated with the 2020 Notes and $12.4 million related to
warrants associated with the Bridge Notes. The Bridge Note warrants which were exchanged for the Investor Exchange Warrants
(as defined below) with a fixed exercise price of $3.98 per share and reclassified as an equity instrument in October 2021 upon
closing of the Primary Financing. We did not have any such expense in the year ended December 31, 2020.
Net Loss
We recorded a net loss of $21.5 million in for the year ended December 31, 2021, as compared to a net loss of $2.1 million for
the year ended December 31, 2020, representing an increase approximately of $20.0 million. The increase was primarily due to
financing related charges aggregating $15.4 million, including warrant expense of $12.8 million, in the year ended December 31,
2021 compared to $425,000 in the year ended December 20, 2020, as well increases in research and development expense and
general and administrative expense as the Company used more resources to develop and implement its business plan.
EquityBased Compensation Expense
Quoin Inc. did not have a share incentive plan from inception up to the year ended December 31, 2021. Upon closing of the Merger
in October 2021, options held by former Cellect option holders under Cellect Ltd. Employee Shares Incentive Plan (the “2014 Plan”)
fully vested and expire between January and October 2022. The incremental value of the stock options at the closing of the Merger
was not significant and no expense incurred in the year ended December 31, 2021. The 2014 Plan was amended and restated and
initial grants were made to Company officers and directors, approved at the Company Annual General Meeting held on April 12,
2022.
Income Taxes
For the years ended December 31, 2021and 2020, no income tax expense or benefit was recognized. Our deferred tax assets are
comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we
have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our
inception.
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Year ended December 31, 2020 compared to the year ended December 31, 2019
The following table sets forth our results of operations for the year ended December 31, 2020, compared to the year ended
December 31, 2019:
2020
2019
Change
Operating Expenses
General and administrative
$ 1,425,855
$
1,514,752
$
(88,897)
Research and development
244,155
45,650
198,505
Total operating expenses
1,670,010
1,560,402
109,608
Other Expenses
Fair value adjustment to bridge note payable
378,333
—
378,333
Financing expense
—
—
—
Interest expense
47,021
—
47,021
Total other expenses
425,354
—
425,354
Net loss
$ (2,095,364)
$
(1,560,402)
$ (534,962)
General and Administrative Expenses
General and administrative expenses were $1.4 million and $1.5 million, in the years ended December 31, 2020 and December 31,
2019, respectively, representing a decrease of $89,000. The decrease was primarily due to reduced travel and conference related
expenditures as a result of the COVID19 pandemic.
Research and Development Expenses
Our research and development expenses during the years ended December 31, 2020 and 2019 were approximately $244,000 and
$46,000, respectively representing an increase of $199,000 or approximately 535%. The increase was primary due to increased
expenditures on our development programs, and increased amortization of intangible assets described below.
We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses
set out above. The license from Skinvisible was obtained in October 2019, see “Item 5.C – Research and Development, Patents and
Licenses." Amortization of intangible assets was $104,000 in the year ended December 31, 2020, and $21,000 in the year ended
December 31, 2019, representing an increase of $83,000 or almost 400% in the year ended December 31, 2020. The reason for such
increase was a full year of expense in 2020 as compared to three months in 2019.
Other expenses:
Interest Expense
58
In the fourth quarter of 2020, we issued the 2020 Notes convertible promissory notes in an initial bridge financing with an
aggregate face value of $1,213,333 with a 20% coupon interest. Interest expense was $47,000 in the year ended December 31, 2020.
We did not have any interest expense in the year ended December 31, 2019. See “Item 5.B – Liquidity and Capital Resources.”
Fair value adjustment to convertible notes payable
We elected to value the 2020 Notes and the Bridge Notes at fair value, which was remeasured at each reporting period. In the year
ended December 31, 2020 we incurred a fair value adjustment of $378,000 related to the 2020 Notes. We did not have any such
expense in the year ended December 31, 2019.
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59
Income Taxes
For the years ended December 31, 2020 and 2019, no income tax expense or benefit was recognized. Our deferred tax assets are
comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we
have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our
inception.
Net Loss
We recorded a net loss of $2.1 million in for the year ended December 31, 2020, as compared to a net loss of $1.6 million for the year
ended December 31, 2019, representing an increase of $0.53 million or approximately 34%. The increase in net loss was primarily
due to increases in interest expense, the fair value adjustment to the 2020 Notes and a modest increase in operating expenses.
Critical Accounting Policies and Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to accrued expenses, valuation allowance on deferred tax assets and valuation of
intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes
being different from those on which we based our assumptions. These estimates and judgments are regularly reviewed by
management on an ongoing basis at the end of each quarter prior to the public release of our financial results.
Critical accounting policies are those that, in management’s view, are most important to the portrayal of a company’s financial
condition and results of operations and most demanding on their calls on judgment, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in subsequent periods. We believe our most critical
accounting policies and estimates relate to:
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could materially
differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and
controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. In
addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility
associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of
future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes
and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following
areas, among others: settlement of debt or other obligations, fair value of debt instruments and warrants, research and
development expense recognition, intangible asset estimated useful lives and impairment assessments, allowances of deferred tax
assets, contingency recognition, and cash flow assumptions regarding going concern considerations.
Longlived assets:
Longlived assets are comprised of acquired technology and licensed rights to use technology, which are considered platform
technology with alternative future uses beyond the current products in development. Such intangible assets are being amortized
on a straightline basis over their expected useful life of 10 years.
The Company assesses the impairment for longlived assets whenever events or circumstances indicate the carrying value may
not be recoverable. Factors we consider that could trigger an impairment review include the following:
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●
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business,
60
●
Significant underperformance relative to expected historical or projected development milestones,
●
Significant negative regulatory or economic trends, and
●
Significant technological changes which could render the platform technology obsolete.
The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated
fair value. During the years ended December 31, 2021, 2020 and 2019, there were no impairment indicators which required an
impairment loss measurement.
Research and development:
Research and development costs are expensed as incurred. Research and development expenses include personnel costs
associated with research and development activities, including thirdparty contractors to perform research, conduct clinical trials
and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including
contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These
estimates include the level of services performed by third parties, patient enrollment in clinical trials when applicable,
administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts
invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be
recognized as expense in future periods as the related services are rendered.
Fair value of financial instruments:
The Company considers its cash, accounts payable, accrued expenses and the convertible and bridge notes payable to meet the
definition of financial instruments. The convertible and bridge notes payable are recorded at fair value and the warrants are
recorded at fair value. The carrying amounts of the remaining financial instruments approximated their fair values due to the short
maturities.
The Company measures fair value as required by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”).
ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair
value, and expands disclosures about fair value measurements. ASC Topic 820 clarifies that fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants. The significant assumptions that were used in fair value calculations are summarized as follows:
The fair value of the convertible notes payable issued in 2020 was determined to be $1,213,333, resulting in a charge to operations
of $378,333 during 2020. The fair value adjustment from December 31, 2020 to their conversion to ADS’s at the Merger date was
not material. The initial fair value of the Bridge Notes issued in 2021 was determined to be approximately $5,000,000, resulting in a
charge to operations of $1,250,000 during 2021. The fair value adjustment from the Bridge Notes issuances to their conversion to
ADS’s upon the Merger date was not significant. The Bridge Notes and 2020 Notes were converted into ADS’s at the Merger
date.
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The Company utilized a Monte Carlo simulation model for periods prior to Merger and Primary Financing, and a Black Scholes
model to determine the fair value of 2020 Notes warrants at December 31, 2021. The significant estimates used in the determining
the fair value of such warrants were as follows:
12/31/2021 (1)
12/31/2020
Stock price
$
1.82
$
3.98
Initial exercise price
$
3.98
$
3.98
Contractual Term
5.0
5.0
Volatility
89.2 %
98 %
Discount rate
1.26 %
0.81 %
(1) The warrants issued during 2020 were not exchanged for fixed term warrants until 2022, therefore the existing warrants were
still considered outstanding at December 31, 2021 and classified as a liability instrument.
The Company utilized a Monte Carlo simulation model to determine the fair value of the Bridge Financing warrants. The significant
estimates used in such calculation of the fair value of such warrants were as follows:
Transaction Date
Merger Date
March May 2021
10/28/2021
Stock price
$
3.98 (post exchange ratio)
$
11.64 (post exchange ratio)
Initial exercise price
$
3.98 (post exchange ratio)
$
3.98 (post exchange ratio)
Contractual Term
5.0
5.0
Volatility
92 %
103 %
Discount rate
0.98 %
1.14 %
New accounting pronouncements:
The Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on
the Company’s financial position, results of operations or cash flows except as discussed below.
Debt with Conversion and Other Options and Derivatives and Hedging
The FASB recently issued ASU 202006, Debt – Debt with Conversion and Other Options (Subtopic 470 20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in
an Entity’s Own Equity, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities
61
and equity. The guidance in ASU 202006 simplifies the accounting for convertible debt instruments and convertible preferred
stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash conversion
features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 47020 applies to convertible
instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted
for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 81540 for
freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in
shareholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in
more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as
well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 202006 further
revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible
instruments by using the ifconverted method. In addition, entities must presume share settlement for purposes of calculating
diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 202006 are effective for public entities,
excluding smaller reporting companies as defined, for fiscal years beginning after December 15, 2021. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than
fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact this standard will have on its
financial statements.
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62
Earnings Per Share
In May 2021, the FASB issued ASU 202104, Earnings Per Share (Topic 260), DebtModifications and Extinguishments
(Subtopic 47050), CompensationStock Compensation (Topic 718), and Derivatives and HedgingContracts in Entity’s Own
Equity (Subtopic 81540). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding
equityclassified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15,
2021, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the impact of
the adoption of this pronouncement is significant to the consolidated financial statements.
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of
Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a
material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
B. Liquidity and Capital Resources
We expect to continue to incur significant and increasing operating losses at least for the foreseeable future. We do not expect to
generate product revenue unless and until we successfully complete development of and obtain regulatory approval for QRX003,
or any other future products. Our net losses may fluctuate significantly from quartertoquarter and yeartoyear, depending on the
timing of planned clinical trials and our expenditures on other research and development activities. We anticipate that our
expenses will increase substantially in 2022 as we advance the clinical development of QRX003 and begin to operate as a publicly
traded company.
Future Funding Requirements
The Company expects to receive additional funding through the mandatory exercise provision of the Series C Warrant issued to
the Investor as of March 2022 which would result in proceeds of approximately $9.5 million. In the event the requirements of the
mandatory exercise provision of such warrant are not met, the Company has a written commitment from the Investor to provide
funding equal to the $9.5 million expected upon exercise of the Series C Warrant, at prevailing market rates. As such, the Company
believes that it has sufficient resources to affect its business plan for at least one year from the issuance of its consolidated
financial statements. The Company is also in the process of negotiating a line of credit with a bank which has not yet been closed
as of April 13, 2022 and is likely to be conditional on additional equity funding which could be satisfied by the aforementioned
Investor funding, as well as the achievement of clinical development milestones.
We will need to obtain further funding through public or private offerings of our capital stock, debt financing, collaboration and
licensing arrangements or other sources, the requirements for which will depend on many factors, including:
●
the scope, timing, rate of progress and costs of our drug development efforts, preclinical development activities, the
timing of laboratory testing and clinical trials for our product candidates;
●
the number and scope of clinical programs we decide to pursue;
●
the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;
●
the scope and costs of development and commercial manufacturing activities;
●
the cost and timing associated with commercializing our product candidates, if they receive marketing approval;
●
the extent to which we acquire or inlicense other product candidates and technologies;
●
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property
rights and defending intellectual propertyrelated claims;
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63
●
our ability to establish and maintain collaborations on favorable terms, if at all;
●
our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including
personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA
approval;
●
our implementation of operational, financial and management systems; and
●
the costs associated with being a public company.
Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient
amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or
commercialization of QRX003, any future product, or potentially discontinue operations.
To the extent that we raise additional capital through the sale of our equity or convertible debt securities, and pursuant to the
exercise of warrants issued to our investors in connection with the 2020 Notes, the Bridge Financing and the Primary Financing,
the ownership interest of our equity holders will be diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional
debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with
third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or
proposed products, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds
through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or
future commercialization efforts or grant rights to develop and market any future product that we would otherwise prefer to
develop and market ourselves.
Summary Statement of Cash Flows
As of December 31, 2021, we had approximately $7.5 million in cash.
The table below presents our cash flows for the years ended December 31, 2021, 2020 and 2019 ($000):
2019
2020
2021
Net cash used in operating activities
$
(1,299)
$
(1,339)
$
(5,720)
Net cash used in investing activities
—
(125)
(625)
Net cash provided by financing activities
1,299
1,787
13,504
Net increase in cash and cash equivalents
$
—
$
324
$
7,159
Operating Activities
Net cash used in operating activities was $5.7 million, $1.3 million and $1.3 million for the years ended December 31, 2021, 2020 and
2019, respectively. The increase in 2021 was primarily due to the increase in research and development and general and
administrative expenses, including significant expenses incurred in connection with the Merger and associated regulatory filings
and increased compensation costs.
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Investing Activities
Net cash used by investing activities was $625,000 and $125,000 in the years ended December 31, 2021 and 2020, respectively, each
representing payments under the Skinvisible license agreement (see “Item 5.C – Research and Development, Patents and
Licenses"). We did not have any cash flows from investing activities for the year ended December 31, 2019.
Financing Activities
Net cash from financing activities was $13.5 million, $1.8 million and $1.3 million during the years ended December 31, 2021, 2020
and 2019, respectively. Prior to the initial 2020 Note financing commencing October 2020, all expenditures of the Company were
paid for by Company officers. For 2020, financing activities primarily represented net proceeds received from the 2020 Notes and
net increase of amounts due to Company officers. For 2021, such amounts primarily represented net proceeds received from the
Bridge Financing and Primary Financing. Since the closing of the Primary Financing in October 2021, the Company has been
repaying amounts due to officers at the aggregate rate of $50,000 per month.
2020 Notes
On October 2, 2020, Quoin Inc. commenced an offering of promissory notes (the “2020 Notes” or “Convertible Notes Payable”)
and warrants. The 2020 Notes were issued at a 25% original issue discount and bear interest at a rate of 20% per annum. The 2020
Notes are due one year from their respective dates of issuance. In October through December 2020, Quoin Inc. received an
aggregate of approximately $910,000 pursuant to this offering, resulting in the issuance of 2020 Notes with an aggregate face value
64
of $1,213,313 and an original issue discount of $303,333. Approximately 23% of such financing was received from parties who are
related to or affiliated with members of Quoin Inc.’s board of directors. No additional funding from the 2020 Notes was received in
the year ended December 31, 2021.
Based upon the terms agreed to in March 2021 in the Primary Financing, the 2020 Notes were mandatorily convertible into 64,784
ADS’s in the Primary Financing, subject to adjustment.
The Company elected to account for the Convertible Notes Payable using the fair value model due to the short maturity. The fair
value of the Convertible Notes Payable was estimated to be approximately $1.2 million at the date of issuance, resulting in a
$378,000 expense recognized in the fourth quarter of 2020. There was no material change in the fair value from issuance until the
conversion to equity on the Merger date.
The noteholders also were entitled to receive warrants exercisable at any time after the issuance date for a number of shares of
Quoin Inc.’s common stock that equates to 100% of the “as if converted” shares as if the 2020 Notes principal and interest were
convertible at the lowest price any securities are sold, convertible, or exercisable into in the Primary Financing or the next round of
financing (whichever is lower). The exercise price was based on a valuation equal to the next financing round and since the
number of shares issuable upon the exercise of the warrants and exercise price were not knowable at the time they were not
recognized as of December 31, 2020.
After entering into the Merger Agreement in March 2021, the terms of the warrants became measurable and were exercisable for
367,356 ADS’s at an initial exercise price of $3.98 per share. The Company determined that these warrants met the criteria to be
recorded as a liability instrument. Each holder agreed to exchange its warrant for the warrant (an “Exchange Warrant”) with
substantially the same terms as an Investor Exchange Warrant and with a number of shares issuable upon the exercise of an
Exchange Warrant as upon the exercise of the original warrant and the same exercise price as under the original warrant and a
contractual term of 5 years. The Exchange Warrants have been determined to warrant equity classification and, as such only the
fair value change through the exchange date will be included in warrant liability expense in the accompanying statement of
operations.
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At the closing of the Merger, 64,784 ADS’s were issued upon the conversion of the principle of the Convertible Notes Payable. In
addition, effective as of March 13, 2022, the Company exchanged noteholders’ warrants for Exchange Warrants exercisable for
367,356 ADS’s, in the aggregate, at the exercise price of $3.98 per ADS.
In December 2021, the Company concluded that the calculation of ADS’s due to the 2020 Noteholders did not account for accrued
interest due when the ADS’s were issued. The Company reached cash settlements with, and plans to issue additional ADS’s to,
the 2020 Noteholders to account for this. The estimated amount required to settle these obligations was determined to be
approximately $744,000 at December 31, 2021 and is included in accrued liabilities in the consolidated balance sheet; and $697,000
is included in interest expense in the consolidated statement of operations for the year ended December 31, 2021.
Interest expense, at the stated interest rate, recognized in the year ended December 31, 2021, 2020 and 2019 was approximately
$202,000, $47,000, and $0, respectively.
Bridge Financing
In connection with the Merger Agreement and the Securities Purchase Agreement (described below), Quoin Inc. entered into a
“Bridge Purchase Agreement” on March 24, 2021 with the Investor, pursuant to which the Investor agreed to purchase, and
Quoin Inc. agreed to issue notes (the “Bridge Notes”) in the aggregate principal amount of up to $5.0 million in exchange for an
aggregate purchase price of up to $3.8 million together with warrants. The Bridge Notes were purchased in three closings: (i) the
first purchase of $2.0 million on March 25, 2021 (Quoin Inc. received proceeds of $1.5 million less fees of $90,000); (ii) the second
purchase of $1.7 million in April 2021 (Quoin Inc. received proceeds of $1.25 million); and (iii) a third purchase of $1.3 million in
May 2021 (Quoin Inc. received proceeds of $1.0 million less fees of $185,000). The Bridge Notes were secured by a lien on
Quoin Inc.’s current and future assets, were senior to all other outstanding and future indebtedness of Quoin Inc. and included
covenants limiting future indebtedness, among others.
The Bridge Notes were issued with a 25% original issue discount, at an interest rate of 15% per annum and had a maturity date of
the earliest to occur of: (i) December 25, 2021, (ii) the date on which Quoin Inc.’s equity is registered under the Exchange Act or is
exchanged for equity so registered or (iii) immediately prior to the closing of the Merger
The Bridge Notes were offset against the purchase price under the Securities Purchase Agreement related to the Primary
Financing and converted into 1,257,721 ADS’s (including shares held in escrow for the benefit of the Investor) upon the closing of
the Primary Financing. The accrued interest amounting to $393,611 was paid in cash. Interest expense, at the stated interest rate,
recognized in the year ended December 31, 2021 was $393,611.
Upon the funding of each Bridge Note tranches described above, the Investor received warrants (the “Bridge Warrants”) to
purchase a number of shares of Quoin Inc.’s common stock equal to the aggregate principal amount of the Bridge Notes. Upon the
closing of the Primary Financing, the Bridge Warrants were exchanged for Investor Exchange Warrants as described below.
Primary Financing
On October 28, 2021, the Company completed the private placement transaction with the Investor for an aggregate purchase price
of approximately $17.0 million (comprised of (x) the set off of approximately $5 million of Bridge Notes, and (y) approximately $12
million in cash from the Investor) (the “Primary Financing”), and the Investor paid the Company approximately $11,504,000, which
was net of $393,611 in accrued interest on the Bridge Notes. The Company incurred an additional approximate $1.4 million in costs
associated with the Primary Financing, which resulted in the net proceeds of approximately $10.1 million. The Company issued
4,276,252 ADS’s to the Investor, consisting of 833,773 delivered to the Investor on or after the Merger closing and 3,442,479
initially held in an escrow account for the benefit of the Investor as per the terms of the Securities Purchase Agreement. All such
escrow shares were released to the Investor prior to December 31, 2021.
65
In addition, pursuant to the terms of the Securities Purchase Agreement related to the Primary Financing, Quoin Ltd. issued to the
Investor warrants to purchase 1,238,429 ADS’s (the “Investor Exchange Warrants”) at an exercise price of $3.98
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per ADS, in exchange for Bridge Warrants. The Investor Exchange Warrants and ordinary shares underlying the Investor
Exchange Warrants were registered with the SEC on the Registration Statement on Form F4. An amendment to the Investor
Exchange Warrants was entered into in September 2021, which replaced reset provisions with a fixed number of shares and
exercise price.
Quoin Ltd. also issued to the Investor, effective as of March 13, 2022, the 136th trading day following the consummation of the
Merger (i) Series A Warrant to purchase 4,276,252 ADS’s (the “Series A Warrant”) (ii) Series B Warrant to purchase 4,276,252
ADS’s (the “Series B Warrant”) and (iii) Series C Warrant to purchase 2,389,670 ADS’s (“Series C Warrant” and, together with the
Series A Warrant and Series B Warrant, the “Investor Warrants”). The exercise price for the Investor Warrants is $3.98 per ADS,
with Series A Warrant having a fiveyear maturity and Series B Warrant and Series C Warrant having a twoyear maturity. The
Company has the right to require the mandatory exercise of the Series C Warrant, subject to an effective registration statement
being in place for the resale of the shares underlying such warrants and the satisfaction of equity market conditions as defined in
the Series C Warrant. As of April 13, 2022, not all of the market related conditions were met. Upon the exercise of the Series C
Warrant in full the Investor will be granted an additional Series A Warrant to purchase 2 389 670 ADS’s and an additional Series B
66
Warrant in full, the Investor will be granted an additional Series A Warrant to purchase 2,389,670 ADS s and an additional Series B
Warrant to purchase 2,389,670 ADS’s at an exercise price of $3.98 per ADS.
C.
Research and Development, Patents and Licenses
We devote substantial research and development resources to developing new products, see description of our research and
development activities, expenses and material agreements in “Item 5.A – Operating Results.”
Skinvisible:
On October 17, 2019, Quoin Inc. entered into an exclusive license agreement with Skinvisible Inc. (“Skinvisible”), pursuant to
which Skinvisible granted a license to use certain patented technology for the development of products for commercial sale in the
orphan rare skin disease field, and for the use of a proprietary polymer deliver system technology. This technology is currently
being used in the development of QRX003. In exchange for the license, Quoin Inc. agreed to pay Skinvisible $1,000,000, as well as
development and sales milestone payments and a single digit royalty on all net sales, as defined.
The development milestones required payments upon achieving development milestones for the first Rare Skin Disease drug
product developed using the licensed technology and the first two Ketamine products, as defined. Payments were originally due
upon successful completions of certain clinical milestones ($7.5 million) and obtaining US and EU regulatory approval ($15
million). The sales milestones required for every licensed product commercialized by Quoin Inc. are $10 million upon achievement
of $100 million in sales being achieved in the annual period; $25 million upon achievement of $250 million in sales and $50 million
upon the achievement of $400 million in sales in an annual period. On January 27, 2021, Quoin Inc. and Skinvisible entered into an
amendment which modified the clinical milestone payment requirements such that $750,000 would be payable to Skinvisible upon
achievement of specified clinical milestones, and $21.75 million upon regulatory approval in the U.S. and EU respectively. No
development milestones, sales milestones or royalty payments were due through in 2019, 2020 or 2021.
The agreement has a termination clause that is triggered if no product has commenced clinical testing 12 months after the date of
the agreement or the latest subsequent amendment. On April 19, 2021, Quoin Inc. and Skinvisible entered into another amendment
which established the development deadline as December 31, 2022. Should the Company not commence clinical testing as defined
by the development deadline, the license agreement will terminate immediately except in certain circumstances as specified in the
agreement.
The license fee was originally due in two equal installments of $500,000 payable no later than December 31, 2019 and June 30, 2020,
which were not paid. The agreement was subsequently amended for payment due on July 31, 2020. On July 31, 2020, the agreement
was amended to further extend the payment until September 30, 2020. On September 30, 2020, the agreement was again amended,
requiring payment of the license fee only when outside financing is received, as defined in the agreement. On June 21, 2021, the
parties entered into an additional amendment which modified the payment terms and required a payment of $107,500 on June 26,
2021, a payment of $250,000 within 10 days of the Primary
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Financing, and the remaining $250,000 upon the earlier of approval of an Investigatory New Drug application by the FDA or
December 31, 2021. This amendment also eliminated the $750,000 clinical milestone payments described above and reduced the
milestone payment upon regulatory approval of the product containing the Skinvisible technology in either the U.S. or E.U.,
whichever happens first to a total of $5,000,000.
At December 31, 2021 and December 31, 2020, the license acquisition liability due was $250,000 and $875,000 respectively. The
remaining license acquisition liability has not been paid in accordance with the terms but has not impaired the Company’s rights to
the technology as the Company is in the process of renegotiating this payment with Skinvisible.
67
The major research and development vendors utilized by the Company include the following:
Quoin Inc. entered into three consulting agreements with Axella Research LLC (“Axella”) to provide regulatory and pre
clinical/clinical services with respect to QRX003 and QRX004. The combined fees of the three agreements are approximately
$270,000, payable as milestones under the three agreements are met. Quoin Inc. has also engaged Axella for additional services
pursuant to separate work orders. Further, Quoin Inc. has two options to pay the milestones due 1) one half in equity (at a pre
negotiated valuation) and onehalf in cash or 2) entirely in cash, in which case a discount of approximately 20% would be
applicable. We recognized research and development expenses for services provided and milestones met of approximately
$247,000, $50,000 and $25,000 for the years ended December 31, 2021, 2020 and 2019, respectively, and have accrued expenses of
$193,537, $105,052 and $24,940 at December 31, 2021, 2020 and 2019, respectively.
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of three years with Therapeutics Inc. for
managing preclinical and clinical development for new products in the field of dermatology. The agreement required the execution
of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs
incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. The first work
order was entered into in late 2020 for a clinical study at an expected estimated cost of approximately $3.5 million and expected
timing through the first quarter of 2023. For the year ended December 31, 2021, we incurred approximately $340,000 of research and
development costs related to this agreement.
In November 2021, we entered into a commitment with Queensland University of Technology for research related services
associated with Netherton Syndrome of approximately $250,000 for an expected period of eighteen months, of which an initial
$25,000 expense was incurred in 2021.
D.
Trend Information
We are a development stage company, and it is not possible for us to predict with any degree of accuracy the outcome of our
research, development or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any
significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our
liquidity or capital resources or that would cause financial information to not necessarily be indicative of future operating results
or financial condition. However, to the extent possible, certain trends, uncertainties, demands, and commitments are described in
this Item 5.
E.
Critical Accounting Estimates
See “Item 5.A. – Critical Accounting Policies and Use of Estimates.”
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
Directors and Senior Management
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We are managed by a board of directors, which is currently comprised of seven members, and our senior management. Each of our
members of senior management is appointed by our board of directors. The table below sets forth the name, age and position of
each of our directors and senior management.
Name
Age
Position(s)
Dr. Michael Myers(1)
60
Chairman of the Board of Directors and Chief Executive Officer
Denise Carter
53
Director and Chief Operating Officer
Gordon Dunn
57
Chief Financial Officer
Joseph Cooper(2)(3)(5)
64
Director
James Culverwell(2)(3)
65
Director
Dr. Dennis H. Langer(2)(4)
70
Director
Natalie Leong(2)(3)(5)
37
Director
Michael Sember(2)(4)
72
Director
(1)
The shareholder approval of Dr. Myers serving as our Chairman of the Board of Directors while serving as our Chief Executive Officer was
obtained at our 2022 annual general meeting of shareholders held on April 12, 2022 (the “2022 AGM”).
(2)
Indicates an independent director under Nasdaq rules.
(3)
Member of our Audit Committee.
(4)
Member of our Compensation Committee.
(5)
Member of Nominating and Governance Committee.
Set forth below is a biographical summary of each of the abovenamed directors and senior management.
Dr. Michael Myers, Chief Executive Officer and Director. Dr. Myers is the cofounder of Quoin Inc. and has served as director
and Chief Executive Officer of Quoin Inc. since its inception. Dr. Myers has served as director and Chief Executive Officer of
Quoin Ltd. since October 28, 2021. Dr. Myers has 35 years of industry experience in the drug delivery and specialty pharmaceutical
sectors. He has served CEO of Innocoll, Inc. and was responsible for taking that company public in 2014. During his tenure as
CEO of Innocoll, Dr. Myers raised over $160 million in public and private funding and was the inventor of the company’s lead
commercial product. He has also served as President of the drug delivery division of West Pharmaceutical Services, President of
pharmaceutical operations for Fuisz Technologies (Biovail) and has held executive positions in Flamel Technologies and Elan
Corporation. He is listed as an inventor on numerous patents and has led the development and commercialization of a number of
highly successful pharmaceutical products. Dr. Myers earned his Ph.D. in Chemistry from the University College Cork, Ireland.
Dr. Myers serves on the Board of Directors of Sonoran Bioscience in addition to the Board of Advisers for a number of Penn State
startup companies.
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Denise Carter, Chief Operating Officer and Director. Ms. Carter is the cofounder of Quoin Inc. and has served as director and
Chief Operating Officer of Quoin Inc. since its inception. Ms. Carter has served as director and Chief Operating Officer of
Quoin Ltd. since October 28, 2021. Ms. Denise Carter has over 30 years of experience in the drug delivery and specialty
pharmaceutical industries. Prior to Quoin, Ms. Carter was executive vice president of business development and corporate affairs
at Innocoll, Inc., vice president of business development of the drug delivery division of West Pharmaceuticals, and she has held
executive positions at Eurand and Fuisz Technologies (Biovail.) Ms. Carter earned her MBA from Wharton School of Business,
University of Pennsylvania and a B.S. in Chemistry from the College of William and Mary.
Gordon Dunn, Chief Financial Officer. Mr. Dunn has served as Chief Financial Officer of Quoin Ltd. since November 1, 2021.
Mr. Dunn has over 30 years of finance experience. He served as Chief Financial Officer of Qured, a UKbased healthcare provider,
from March 2020 to October 2021, and as Chief Financial Officer of UResearch, an online company information platform, from
July 2017 to March 2020. Mr. Dunn also served as Chief Financial Officer of Anton Corporation, a film and media finance company,
from September 2016 to July 2017, and as Chief Financial Officer of Innocoll AG from 20122016. Prior to these roles, he had deep
experience in investment banking and private equity, serving as Portfolio Manager of NewSmith Asset Management, a private
equity fund from 2004 to 2014, and as Director of Investment Banking and CoHead of Private Equity at Merrill Lynch, in addition
to other roles, from 1994 to 2003. Mr. Dunn was an associate at Morrison & Foerster LLP from 1991 to 1993. Mr. Dunn earned his
JD from New York University School of Law and a BA from Stanford University.
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Joseph Cooper, Director. Mr. Cooper has served as director of Quoin Inc. since May 2021. Mr. Cooper has served as director of
Quoin Ltd. since October 28, 2021. Mr. Cooper brings more than 30 years of experience in operational, corporate development and
general management roles within the pharmaceutical industry. He currently serves Chief of Strategy and Corporate Development
for Resonea, Inc. Previously he has held a series of general management, operational and strategic roles within pharmaceutical
companies including serving 15 years as Executive Vice President of Corporate Development with Medicis Pharmaceutical and
previously with Schein Pharmaceuticals and GD Searle. He is a founding board member of First Place AZ, a nonprofit dedicated to
developing new housing options for adults with autism and related disorders and has served as a past board member and chair of
the Research and Medical Affairs Committee for the Southwest Autism Research & Resource Center. Mr. Cooper holds an MBA
from the WP Carey School of Business at Arizona State University and a BA from Northeastern Illinois University. He serves on
the board of Sonoran Biosciences, and has previously served on the board of Bioenvision and as a board observer for several
specialty pharmaceutical companies.
James Culverwell, Director. Mr. Culverwell has served as director of Quoin Inc. since April 2021. Mr. Culverwell has served as
director of Quoin Ltd. since October 28, 2021. Mr. Culverwell was for 25 years a leading healthcare investment analyst, formerly
SVP and Global Coordinator Healthcare at Merrill Lynch. He is currently chairman of HOX Therapeutics, a company involved in
prostate cancer research, and is a director of TC Biopharm, a NASDAQ listed company developing treatments for cancer based on
gamma delta Tcells. He also serves on the board of directors of Safeguard Biosystems, a high throughput molecular diagnostics
company. He has been a nonexecutive director in early stage life science companies, both private and public, including Innocoll,
Atlantic Healthcare, ToHealth, Bioco, and Amryt Pharmaceuticals. He received an MSc with honors from the University of
Aberdeen.
Dennis H. Langer, M.D., J.D., Director. Dr. Langer has served as director of Quoin Inc. since 2019. Dr. Langer has served as
director of Quoin Ltd. since October 28, 2021 Dr. Langer is a Director of Myriad Genetics, Inc., and Brooklyn
ImmunoTherapeutics, Inc., and several private health care companies. He has served as a Director of several public and private
biotechnology, specialty pharmaceutical and diagnostic companies, including Sirna Therapeutics, Inc. (acquired by Merck &
Co., Inc.), Ception Therapeutics, Inc. (acquired by Cephalon, Inc.), Transkaryotic Therapies, Inc. (acquired by Shire plc),
Pharmacopeia, Inc. (acquired by Ligand, Inc.), and Cytogen Corporation (acquired by EUSA Pharma, Inc.). He was a Managing
Partner at Phoenix IP Ventures, LLC from 20052010. From 20042005, he was President, North America for Dr. Reddy’s
Laboratories, Inc. Dr. Langer was with GlaxoSmithKline from 19942004, where he served as Senior Vice President, Project, Portfolio
and Alliance Management, Senior Vice President, Product Development Strategy, and Senior Vice President, Healthcare Services
R&D. He also served as President and CEO at Neose Technologies, Inc. from 19911994. Previously, Dr. Langer held R&D and
marketing positions at Eli Lilly, Abbott, and Searle. During the past five years, Dr. Langer served as a Director of Dicerna
Pharmaceuticals, Inc. and Pernix Therapeutics, Inc., both public companies. Dr. Langer serves on the Dean’s Advisory Board of
Harvard Law School. He received an M.D. from Georgetown University School of Medicine, a J.D. from Harvard Law School, and a
B.A. in Biology from Columbia University.
Natalie Leong, Director. Ms. Leong has served as director of Quoin Inc. since April 2021. Ms. Leong has served as director of
Quoin Ltd. since October 28, 2021. Ms. Leong has been Head of Finance and subsequently Head of Product for LoanStreet since
October 2019. In this and other advisory roles for startups, Ms. Leong specializes in valuations, product development life cycles,
financial operations and internal controls. Ms. Leong has worked with companies across Asia, Australia, Europe and the US in
valuation and implementation of transactions through sale, IPO, float and raising capital from various sources. She has broad
experience analyzing business plans, performing market analyses, preparing financial projections and developing valuation models
to advise clients throughout the process of equity transactions, mergers and acquisitions and corporate restructurings. From
May 2016 to July 2019, Ms. Leong served as the lead for the Asset Liability Committee for the US at RBC Capital Markets, liaising
with Heads of businesses, US CFO, US CRO, and US Treasurer and authoring the CFO’s presentation to the Board. In addition,
she led FPA for fixed income and origination businesses. From October 2011 to May 2016, Ms. Leong worked as the VP of Capital
Insights at National Australia Bank. During these years, Ms. Leong managed and presented at the Group Capital Committee
(Group and Divisional CFOs, Treasurer, MD M&A, MD Credit. From February 2008 to October 2011, Ms. Leong specialized in
internal controls across retail, corporate and wholesale banking at National Australia Bank. Ms. Leong earned her MBA at The
Wharton School, University of Pennsylvania. She earned a B.Comm degree (Finance and Economics) and a B.A. degree (French
and Literature) from the University of Melbourne in 2007.
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Michael Sember, Director. Mr. Sember has served as director of Quoin Inc. since May 2021. Mr. Sember has served as director of
Quoin Ltd. since October 28, 2021. Mr. Sember has over 40 years of global experience in the pharmaceutical industry. He is an
accomplished executive, entrepreneur, leader and mentor. Sember has been the COO or CEO of seven diverse companies ranging
from drug discovery tools providers to therapeutically focused biotechnology companies to medical devices. Mr. Sember has also
been active as a consultant to numerous companies, as well as active in industry organizations and community affairs. Most
recently he served as a mentor to companies formed from inventions discovered at the University of Arizona. Currently,
Mr. Sember serves as the Chair of the Screening Panel and Board member for the Desert Angels, a Tucson based group of angel
investors. Desert Angels was recently ranked as number 1 in the Southwest and number 8 in the Country based on deal activity.
The foundation of Mr. Sember’s career was established at Marion Laboratories (later Marion Merrell Dow). Mr. Sember performed
in a wide range of functions from sales to clinical research and later to R&D program management. Following Marion Merrell Dow,
Mr. Sember was Executive VP of Corporate Business Development for Élan Corporation, responsible for strategic collaborations
and mergers and acquisitions. Mr. Sember has extensive public and private board experience. He has broad experience in capital
raises for both established and startup companies. Mr. Sember earned a Bachelor of Science degree from the University of
Pittsburgh and an MBA from Rockhurst University.
Family Relationships
There are no family relationships among any of the individuals listed in this Section A (Directors and Senior Management).
Arrangements Involving Directors and Senior Management
There are no arrangements or understandings, of which we are aware, relating to the election of our directors or the appointment
of our executive officers.
B.
Compensation
Aggregate Executive Compensation
The aggregate remuneration paid or accrued by us for the year ended December 31, 2021 to all persons listed in Section A
(Directors and Senior Management) above, was approximately $2,164,000. This sum includes $88,000 paid for automobiles made
available to our executive officers, and other fringe benefits pursuant to employment agreements with executive officers. See
Item 6.B below for the description of employment agreements with our executive officers.
Dr. Myers and Ms. Carter do not receive compensation for their service as our directors. See Item 6.C “Board Practices
Remuneration of Directors” below.
The term “office holder” under the Companies Law means a director, a Chief Executive Officer, or another officer who occupies a
general or chief management position, or serves in a position directly secondary to or directly reporting to the Chief Executive
Officer.
Individual Compensation of Executive Officers
The table below presents the compensation granted to our five most highly compensated office holders during or with respect to
the year ended December 31, 2021. We refer to the three individuals currently employed as Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer for whom disclosure is provided herein as our “Covered Office Holders.” All amounts specified
below are in terms of cost to Quoin Ltd., as recorded in our financial statements.
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For purposes of the table and the summary below “compensation” includes base salary, bonuses, retirement or termination
payments, benefits and perquisites such as office allowance and automobile allowance, and any undertaking to provide such
compensation. No equitybased compensation was granted to our Covered Office Holders in 2021.
All Other
Base Salary
Bonus(1)
Compensation(2)
Total(3)
Name and Principal Position
($)
($)
($)
($)
Dr. Michael Myers, Chief Executive Officer
$
518,500
$
427,500
$
44,000
$
990,000
Denise Carter, Chief Operating Officer
$
416,000
$
342,000
$
44,000
$
802,000
Gordon Dunn, Chief Financial Officer
$
60,000
$
57,000
—
$
117,000
(1)
Amounts reported in this column refer to cash bonuses for the year ended December 31, 2021 (including transaction cash bonuses paid in
2021). Discretionary cash bonuses are our contractual arrangements and were granted in recognition of the applicable Covered Officer
Holder’s promotion of our longterm goals, strategy and operating plan, the need to form appropriate incentives for our officers, and their
contribution to the achievement of our objectives in accordance with their respective corporate roles. In addition, amounts reported in this
column include a transaction bonus related to the completion of the Merger and private placement transactions discussed in Item 5 of this
Annual Report.
(2)
Amounts reported in this column include amounts paid as office allowance, automobile allowance.
At the 2022 AGM, our shareholders approved option grants to Dr. Myers and Ms. Carter (shareholder approval was not required
for the grant to Mr. Dunn) as follows:
●
an option to purchase up to 1,071,429 ADSs to Dr. Myers, at an exercise price per ADS of USD $1.40, to vest over a four
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year period, with 25% of the ADSs to be vested one year from the date of such grant, and the balance vesting on an
annual basis thereafter (25% each year); and
●
an option to purchase up to 1,071,429 ADSs to Ms. Carter, at an exercise price per ADS of USD $1.40, to vest over a four
year period, with 25% of the ADSs to be vested one year from the date of such grant, and the balance vesting on an
annual basis thereafter (25% each year).
In addition, our board has approved the grant of an option to purchase up to 892,857 ADSs to Mr. Dunn, at an exercise price per
ADSs of USD $1.40, to vest over a fouryear period, with 25% of the ADS to be vested one year from the date of such grant, and
the balance vesting on an annual basis thereafter (25% each year).
Compensation of Directors
Under our nonemployee directors’ compensation program, nonemployee directors are entitled to receive the following cash
compensation for their services:
●
each nonemployee director receives an annual base retainer of $60,000.
●
each committee chairperson receives an additional retainer of $15,000 for his or her service as a chairperson.
●
each member of a standing committee receives an additional retainer of $5,000 for such service on a standing committee.
In addition to cash compensation, our nonemployee directors are also entitled to equity awards under our director compensation
policy. Each nonemployee director who first joins the Board of Quoin Ltd. is automatically granted an inaugural award of options
to purchase ordinary shares represented by ADSs of Quoin Ltd. valued at $165,000. In addition, each nonemployee director
receives an annual award of options valued at $60,000.
Nonemployee directors who joined the Board of Directors of Quoin Ltd. subsequent to the execution of the Merger Agreement
received their cash and equity compensation on a prorated basis in 2021.
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At the 2022 AGM, our shareholders approved, pursuant to and in line with our nonemployee directors’ compensation program,
the following option grants to each of our nonemployee directors:
●
as an inaugural grant, an option to purchase 117,857 ADS under the Amended and Restated Equity Incentive Plan, at an
exercise price per ADS of USD $1.40, to vest over a threeyear period, with one third of such options to be vested
one year from the date of such grant and the balance vesting on annual basis thereafter (onethird every year), all in
accordance with and subject to the terms and conditions of the Amended and Restated Equity Incentive Plan; and
●
as an annual grant for 2022, an option to purchase 42,857 ADS under the Amended and Restated Equity Incentive Plan,
at the same exercise price and as per the same vesting schedule as set forth above.
The following table sets forth information concerning the compensation awarded to, earned by or paid to nonemployee directors
for the year ended December 31, 2021.
Fees Earned
or Paid in
Cash
Total
Name
($)
($)
Joseph Cooper
$
45,000
$
45,000
James Culverwell
$
60,000
$
60,000
Dr. Dennis H. Langer
$
60,000
$
60,000
Natalie Leong
$
45,000
$
45,000
Michael Sember
$
45,000
$
45,000
Agreements with Executive Officers
We maintain written employment agreements with our Covered Office Holders that contain customary provisions, including non
compete and confidentiality agreements.
Dr. Myers. Pursuant to his Executive Employment Agreement with Quoin Inc., dated March 9, 2018, which was amended as of
November 9, 2021 (as amended, the “Myers Agreement”), Dr. Myers is entitled to an annual base salary of $550,000, which
accrued monthly until paid by Quoin Inc. Dr. Myers may also receive, subject to employment by us on the applicable date of
bonus payout, an annual target discretionary bonus of not less than 45% of his annual base salary, payable at the discretion of
the board of directors after approval of our compensation committee, subject to shareholder approval by a Special Majority for
Compensation Matters. See “Board Practices—Compensation Committee and Compensation Policy.” Pursuant to the Myers
Agreement, Dr. Myers is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees
generally, and to receive paid time off annually in accordance with our policies in effect from time to time. Additionally, the Myers
Agreement provides Dr. Myers with a monthly office allowance of $2,500 and a monthly automobile allowance of $1,500.
Ms. Carter. Pursuant to her Executive Employment Agreement with Quoin Inc., dated March 9, 2018, which was amended as of
November 9, 2021 (as amended, the “Carter Agreement”), Ms. Carter is entitled to an annual base salary of $440,000, which
accrued monthly until paid by Quoin Inc. Ms. Carter may also receive, subject to employment by us on the applicable date of
bonus payout, an annual target discretionary bonus of not less than 45% of her annual base salary, payable at the discretion of
the board of directors after approval of our compensation committee, subject to shareholder approval by a Special Majority for
Compensation Matters. See “Board Practices—Compensation Committee and Compensation Policy.” Pursuant to the Carter
Agreement, Ms. Carter is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees
generally, and to receive paid time off annually in accordance with Quoin’s policies in effect from time to time. Additionally, the
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Carter Agreement provides Ms. Carter with a monthly office allowance of $2,500 and a monthly automobile allowance of $1,500.
Mr. Dunn. Pursuant to his Service Agreement with Quoin Inc., dated November 1, 2021 (as amended, the “Dunn Agreement”),
Mr. Dunn is entitled to an annual base salary of $360,000. In addition, Mr. Dunn is entitled to receive (i) a signing bonus equal to
onetwelfth of his annual base salary, and (ii) subject to employment by us on the applicable date
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of bonus payout, an annual target discretionary bonus of not less than 45% of his annual base salary, payable at the discretion of
the Board, which will be prorated for 2021. Under the Dunn Agreement, upon our adoption of a stock option plan, we are obligated
to grant an option to Mr. Dunn to purchase our ordinary shares, with $1.25 million grant date value, subject to the terms of such
plan. Mr. Dunn is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees
generally and paid time off annually in accordance with our policies in effect from time to time.
Compensation Upon Termination of Employment
Pursuant to each of the Myers Agreement and the Carter Agreement, Dr. Myers and Ms. Carter, respectively, are entitled to the
following benefits upon termination of their employment:
●
Termination for any reason: Upon the termination of such executive’s employment for any reason, such executive will
receive (i) his or her Base Salary (as defined in the Myers Agreement or the Carter Agreement, as applicable) through
the Exit Date (as defined in the Myers Agreement or the Carter Agreement, as applicable), (ii) any Bonuses (as defined in
the Myers Agreement or the Carter Agreement, as applicable) to which he or she is entitled and has already earned for
the prior fiscal year, and (iii) any other accrued or vested benefits or reimbursements through the Exit Date to which such
executive is entitled to contractually or by operation of law.
●
Termination upon death or Disability: In the event of the executive’s termination due to his or her death or Disability (as
defined in the Myers Agreement or the Carter Agreement, as applicable), then, in addition to the payments set forth
above, the executive will receive his or her pro rata portion of the Bonus such executive would have been entitled to
receive for the fiscal year in which the Exit Date occurs, based upon the percentage of the fiscal year that elapsed
through the Exit Date. Additionally, in the event of termination due to Disability, the executive will receive, for a period of
24 months following the Exit Date, such executive monthly COBRA premium.
●
Termination without Cause or for Good Reason: In addition to the payments set forth in the first bullet above, if
Dr. Myers or Ms. Carter is terminated by the Company without Cause (as defined in the Myers Agreement or the Carter
Agreement, as applicable), or Dr. Myers or Ms. Carter terminates his or her employment for Good Reason (as defined in
the Myers Agreement or the Carter Agreement, as applicable), he or she will be entitled to receive (i) his or her Base
Salary for 2 years from the Exit Date and 2 times the current years’ Bonus, and (ii) continuation of such executive’s
medical benefits for 2 years from the Exit Date (unless the executive becomes employed elsewhere during such 2 year
period and is eligible to receive comparable medical benefits).
As a condition precedent to receiving any of the foregoing benefits, Dr. Myers and/or Ms. Carter, as applicable, must first sign a
Release (as defined in the Myers Agreement or the Carter Agreement, as applicable).
Mr. Dunn, pursuant to the Dunn Agreement, is also entitled to the following benefits upon termination of his employment:
●
Garden Leave: During any period of notice to terminate Mr. Dunn’s employment, Mr. Dunn will continue to be entitled to
his basic salary and contractual benefits in the usual course.
●
Payment in lieu of notice: Upon the termination of Mr. Dunn’s employment at any time, Mr. Dunn will receive payment
equal to his basic salary as of the termination date which he would have been entitled to receive under the Dunn
Agreement during the notice period referred to in the bullet below, less income tax and national insurance contributions.
Payment in lieu of notice will not include (i) any bonus or commission payments that might otherwise have been paid to
Mr. Dunn during the period for which such payment in lieu of notice is made, (ii) benefits Mr. Dunn would have been
entitled to during such time, and (iii) holiday entitlement that would have accrued during such time.
●
Termination: Subject to successful completion of the probationary employment period as set forth in the Dunn
Agreement, and except in connection with certain “for cause” events, as set forth in Section 20.2 of the Dunn
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Agreement, the Company may terminate Mr. Dunn’s employment by giving at least 12 months’ prior written notice, and is
obligated to continue paying Mr. Dunn his basic salary and other benefits during such notice period.
The foregoing descriptions of the Myers Agreement, the Carter Agreement and the Dunn Agreement do not purport to be
complete and are qualified in their entirety by reference to the complete text of the Myers Agreement, the Carter Agreement and
the Dunn Agreement, attached to this Annual Report as Exhibits 4.17, 4.18 and 4.19, respectively, and incorporated herein by
reference.
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C.
Board Practices
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law,
relating to matters such as audit and compensation committees, internal auditor and approvals of interested parties transactions.
These matters are in addition to the Nasdaq rules and relevant provisions of U.S. securities laws. Under applicable Nasdaq rules, a
foreign private issuer such as us may generally follow its home country rules of corporate governance in lieu of comparable
Nasdaq rules, except for certain matters such as composition and responsibilities of the audit committee and the independence of
its members. See Item 3.D—“Risk Factors—As a “foreign private issuer,” we are permitted, and intend, to follow certain home
country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in
less protection than is accorded to investors under rules applicable to domestic U.S. issuers.” above. For information regarding
home country rules followed by us see Item 16.G—”Corporate Governance” below.
Board of Directors
Under the Companies Law and our articles of association, our board of directors directs our policy and supervises the
performance of our Chief Executive Officer. Our board of directors may exercise all powers and may take all actions that are not
specifically granted to our shareholders or to management. Our executive officers are responsible for our daytoday management
and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves
at the discretion of, our board of directors. All of our other executive officers are also appointed by our board of directors, and are
subject to the terms of any applicable employment or service agreements that we may enter into with them or with certain entities
through which we receive their services.
All of our directors other than Dr. Michael Myers and Denise Carter, are independent under the Nasdaq rules.
Under our articles of association, our board of directors must consist of at least five and not more than eight directors (including
External Directors, if and to the extent any External Directors are appointed – see External Directors below). Our board of directors
currently consists of seven members.
Other than External Directors (if and to the extent "External Directors" are appointed), our directors are elected by an ordinary
resolution at the annual and/or a special general meeting of our shareholders. Because our ordinary shares do not have cumulative
voting rights in the election of directors, the holders of a majority of the voting rights represented at a shareholders meeting have
the power to elect all of our directors, subject to the special approval requirements for External Directors, if and to the extent
External Directors are appointed.
In addition, our articles of association allow our board of directors to appoint directors from time to time, until that director’s
dismissal by a resolution at an annual or special general meeting of shareholders, or the conclusion of that director’s term of office
in accordance with our articles of association or any applicable law, subject to the maximum number of directors allowed under our
articles of association. If required to be appointed, External Directors are elected for an initial term of three years by a special
majority at an annual or special general meeting of shareholders, and may be reelected for up to two additional threeyear terms
and, under certain circumstances, for an indefinite number of additional threeyear terms. External Directors, if required to be
appointed, may be removed from office only under the limited circumstances set forth in the Companies Law.
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Under the Companies Law, our board of directors must determine the minimum number of directors who are required to have
"accounting and financial expertise," as that term is defined under Section 240 of the Companies Law and regulations promulgated
pursuant thereto. In determining the number of directors required to have such expertise, our 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 the minimum number of directors of our company who are required to have accounting and financial expertise is
three. Our board of directors has determined that James Culverwell, Joseph Cooper and Natalie Leong possess such accounting
and financial expertise.
Chairman of the Board
Our articles of association provide that the Chairman of the board of directors is appointed by the members of the board of
directors and serves as Chairman of the board of directors throughout his term as a director, unless resolved otherwise by the
board of directors. Under the Companies Law, the Chief Executive Officer or a relative of the Chief Executive Officer may not serve
as the Chairman of the board of directors, and the Chairman or a relative of the Chairman may not be vested with authorities of the
Chief Executive Officer, unless such service or the vesting of such authority is approved, for a period not greater than three years,
by a majority vote of the shares present and voting at an annual or special general meeting of shareholders, provided that either:
●
such majority includes at least a majority of the shares held by all shareholders who are not controlling
shareholders and do not have a personal interest in such appointment, present and voting at such meeting (not
including abstaining shareholders); or
●
the total number of shares of noncontrolling shareholders and shareholders who do not have a personal
interest in such appointment voting against such appointment does not exceed 2% of the aggregate voting
rights in the company.
A "controlling shareholder" under the Companies Law generally means a person (where a corporation and its affiliates, as well as
an individual and family members sharing a residence or dependent upon each other for their livelihood, are deemed to be a single
person), or persons acting together (whether by means of any trust, syndicate, voting arrangement or other arrangement) which,
whether directly or indirectly, enjoys a de facto ability to direct a company’s affairs, other than by exercise of official duty as a
director or officer of the company or from any other position with the company, with holdings by such person or persons of 50%
or more of the rights to (x) vote in a shareholders’ meeting, or (y) appoint the company’s directors or its chief executive officer,
creating a rebuttable presumption of "control."
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In addition, a person subordinated, directly or indirectly, to the Chief Executive Officer may not serve as the Chairman of the board
of directors; the Chairman of the board of directors may not be vested with authorities that are granted to those subordinated to
the Chief Executive Officer; and the Chairman of the board of directors may not serve in any other position in the company or a
controlled company, other than as a director or Chairman of a controlled company.
Dr. Michael Myers has served as the chief executive officer and chairman of the board of Quoin Pharmaceuticals, Inc., a Delaware
company and our whollyowned subsidiary, since its inception. Effective as of the closing of the Merger on October 28, 2021,
Dr. Myers was appointed to our board of directors and employed as our Chief Executive Officer, and has been acting as chairman
pro tempore of our board of directors. Based on the recommendation of our nominating and governance committee, our board of
directors has recommended that our shareholders ratify and approve the service of Dr. Myers as both Chief Executive Officer and
Chairman of the Board, for a threeyear period commencing on October 28, 2021, and which was so ratified and approved at the
annual general meeting of shareholders on April 12, 2022.
External Directors
Subject to certain exceptions referred to below, under the Companies Law, an Israeli company whose shares have been offered to
the public or whose shares are listed for trading on a stock exchange in or outside of Israel is required to appoint to its board of
directors at least two "external directors" as that term is defined under the Companies Law ("External Directors"). External
Directors must meet stringent standards of independence, must possess certain professional qualifications, must be elected and
can only be dismissed in a prescribed manner, and may be compensated for their service
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only within certain defined parameters, all of the above as set forth in the Companies Law and regulations promulgated thereunder.
Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market
Outside of Israel), 57602000 (“Regulation 5D”), allows public companies satisfying certain conditions set out in those regulations,
to "opt out" from having to appoint External Directors to its board of directors, and exempts such companies from the
requirements under the Companies Law to appoint External Directors to committees of the board of directors (including the audit
and compensation committees). A public company may be exempted under Regulation 5D if its securities are not listed in Israel
and are listed on certain foreign exchanges, including Nasdaq, and the company: (x) satisfies the laws and regulations (including
listing standards) regarding the appointment of independent directors and the composition of audit and compensation committees
which apply to companies that are organized in the country in which the qualified foreign exchange operates; and (y) has no
controlling shareholder, provided that (z) if at the time of the election or appointment of any director the members of the Board are
of one gender, a director of the opposite gender shall be elected or appointed.
For so long as we do not have a controlling shareholder, we believe we will satisfy the conditions set out in Regulation 5D and,
accordingly, pursuant to a resolution of our board of directors adopted on March 3, 2022, we have "opted out" from the
requirements of the Companies Law that would otherwise have required us to appoint External Directors to our board of directors
and appoint External Directors to various committees of the board.
At any point in time, should we cease to satisfy the conditions set out in Regulation 5D, or should our board adopt a resolution to
cease to avail ourselves of Regulation 5D, we will then convene a general meeting of shareholders to elect External Directors to
our board of directors as required under the Companies Law, and following such election, we will reconstitute the membership of
our audit committee, compensation committee, and any other committees exercising a power of our board of directors (to the extent
necessary and applicable), in the manner prescribed under the Companies Law.
We set down below certain of the rules and requirements under the Companies Law relating to External Directors in the event we
cease to satisfy the conditions set out in Regulation 5D or in the event, due to a board resolution, we decide to "optin" to the
appointment of External Directors.
According to the Companies Law and the regulations promulgated thereunder, an External Director must have either "accounting
and financial expertise" or "professional expertise," as those terms are defined in such regulations. At least one of our External
Directors (if and to the extent we are required to appoint External Directors), must have “financial and accounting expertise” as
defined under the Companies Law, unless a member of the audit committee, who is an independent director with financial and
accounting expertise under the Nasdaq Capital Market rules and has independence from any controlling shareholder of the
Company in the manner required of External Directors, has “financial and accounting expertise.” An External Director is considered
to have “professional expertise” if he or she holds an academic degree in certain fields or has at least five years of experience in
certain senior positions.
The provisions of the Companies Law set out special approval requirements for the election and term of service of External
Directors. External Directors must be elected by a majority vote of the shares present and voting at a general meeting of
shareholders, provided that either:
●
such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and
do not have a personal interest in the election of the External Director (other than a personal interest not deriving from a
relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions; or
●
the total number of shares voted by shareholders who are not controlling shareholders and who do not have a personal
interest in the election of the External Director (other than a personal interest not deriving from a relationship with a
controlling shareholder), against the election of the External Director, does not exceed 2% of the aggregate voting rights
in the company.
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The initial term of an External Director is three years. Thereafter, an External Director may be reelected by shareholders to serve in
that capacity for up to two additional threeyear terms, except as provided below, provided that either:
●
his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the
company’s aggregate voting rights and is approved at a shareholders meeting by a majority of those shareholders who
are not controlling shareholders and do not have a personal interest in such election (other than a personal interest not
deriving from a relationship with a controlling shareholder), provided that the total number of shares held by
shareholders voting for such reelection who are not controlling shareholders and do not have a personal interest in
such reelection (other than a personal interest not deriving from a relationship with a controlling shareholder) exceeds
2% of the aggregate voting rights in the company. In such event, the External Director so reappointed may not be a
Related or Competing Shareholder, as defined below, or a relative of such shareholder, at the time of the appointment, and
is not and has not had any affiliation with a Related or Competing Shareholder, at such time or during the two years
preceding such person’s reappointment to serve an additional term as external director. The term “Related or Competing
Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstanding
shares or voting rights of the company, provided that, at the time of the reappointment, such shareholder, the controlling
shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with the
company or are competitors of the company; or
●
his or her service for each such additional term is recommended by the board of directors and is approved at a
shareholders meeting by the same majority required for the initial election of an External Director (as described above).
The term of office for External Directors for Israeli companies traded on certain foreign stock exchanges, including the Nasdaq
Capital Market, may be extended for an indefinite number of additional threeyear terms, in each case provided that the audit
committee and the board of directors of the company confirm that, in light of the External Director’s expertise and special
contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to
the company, and provided that the External Director is reelected subject to the same shareholder vote requirements as if elected
for the first time (as described above). Prior to the approval of the reelection of the External Director at a general meeting of
shareholders, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why
the board of directors and audit committee recommended the extension of his or her term.
An External Director may be removed from office before the expiration of his or her term only upon his or her disqualification to
serve as a director of the Company, or by the determination of either: (1) a court, or (2) a special general meeting of shareholders
acting to dismiss the External Director by the same shareholder vote percentage required for the External Director’s election, that
the statutory qualifications required of an External Director have ceased to apply, or that the External Director has violated his or
her duty of loyalty to the company. If any of the conditions which the Companies Laws requires of an External Director ceases to
exist, that External Director must inform the Company forthwith, and his or her term will expire effective from the Company’s receipt
of such notice. If an External Directorship becomes vacant and there are fewer than two External Directors on the board of
directors at the time, then the board of directors is required under the Companies Law to call a shareholders meeting as soon as
practicable to appoint a replacement External Director.
External Directors may be compensated only in accordance with regulations adopted under the Companies Law.
Each committee of the board of directors that is authorized to exercise the powers of the board of directors must include at least
one External Director, the audit committee and the compensation committee must include all External Directors then serving on the
board of directors, and the audit and compensation committee must meet certain composition requirements (as will be described
below), all of the above being applicable to us only in the event that we cease to satisfy the conditions set out in Regulation 5D,
or if our board of directors adopts a resolution to cease to avail ourselves of Regulation 5D.
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Committees of the Board of Directors
Our board of directors has established three standing committees, the audit committee, the compensation committee and the
nominating and governance committee.
Audit Committee
Our audit committee consists of James Culverwell, Joseph Cooper and Natalie Leong. James Culverwell serves as Chairman of the
audit committee.
Under the Companies Law and our articles of association, the audit committee must be comprised of at least three directors. The
audit committee elects its own Chairman. The audit committee may not include the Chairman of the board of directors, a controlling
shareholder of the company, certain relatives of a controlling shareholder, a director employed by or providing services on a
regular basis to a controlling shareholder or to an entity controlled by a controlling shareholder, or a director most of whose
livelihood depends on a controlling shareholder.
If we cease to satisfy the conditions set out in Regulation 5D, or if our board resolution adopts a resolution to cease to avail
ourselves of Regulation 5D, then the Chairman of the audit committee must be an External Director, all the External Directors must
be members of the audit committee, and a majority of the audit committee’s members must be either External Directors or
independent directors (either as "independent director" is defined under the Companies Law, or in keeping with Nasdaq Capital
Market rules regarding independent directors, provided that such independent director has independence from any controlling
shareholder of the Company in the manner required of External Directors).
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Under the Nasdaq corporate governance rules, we are required to maintain an audit committee consisting of at least three
independent directors, each of whom is financially literate and one of whom has accounting or related financial management
expertise.
All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the
SEC and Nasdaq corporate governance rules. Our board of directors has determined that each member of the audit committee is an
audit committee financial expert, as defined by the SEC rules, and have the requisite financial sophistication as required by the
Nasdaq Capital Market corporate governance rules.
Each of the members of the audit committee is deemed “independent” as such term is defined in Rule 10A3(b)(1) under the
Exchange Act, according to which an audit committee member is barred from accepting any consulting, advisory or other
compensatory fee from the company or any subsidiary thereof, other than in the member’s capacity as a member of the board of
directors, and may not be an affiliated person of the company or any subsidiary of the company apart from his or her capacity as a
member of the board of directors and any committee of the board of directors.
On March 3, 2022, our board of directors adopted an amended and restated audit committee charter that sets forth the
responsibilities of the audit committee consistent with the rules of the SEC and Nasdaq listing rules, as well as the requirements
for such committee under the Companies Law, including the following:
●
overseeing our independent registered public accounting firm and recommending the engagement, compensation or
termination of engagement of our independent registered public accounting firm to the board of directors in accordance
with Israeli law;
●
recommending the engagement or termination of the person filling the office of our internal auditor; and
●
recommending the terms of audit and nonaudit services provided by the independent registered public accounting firm
for preapproval by our board of directors.
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters
involving our accounting, auditing, financial reporting, internal control and legal compliance functions by preapproving the
services performed by our independent accountants and reviewing their reports regarding our accounting practices and
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systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent
accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of
management.
Under the Companies Law, our audit committee is responsible for:
●
determining whether there are deficiencies in the business management practices of our company, including in
consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors
to improve such practices;
●
determining the approval process for transactions that are ‘nonnegligible’ (i.e., transactions with a controlling
shareholder that are classified by the audit committee as nonnegligible, even though they are not deemed extraordinary
transactions), as well as determining which types of transactions would require the approval of the audit committee,
which determination may be based on annually predetermined criteria;
●
determining whether to approve certain related party transactions (including transactions in which an office holder has a
personal interest and whether such transaction is extraordinary or material under the Companies Law) (see “—Approval
of Related Party Transactions under Israeli Law”);
●
examining the work plan of the internal auditor before its submission to our board of directors and proposing
amendments thereto or, upon a decision of the board of directors, acting as the corporate body to approve such work
plan;
●
examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient
resources and tools at his disposal to fulfill his responsibilities;
●
examining the scope of our external auditor’s work and compensation and submitting a recommendation with respect
thereto to our board of directors; and
●
establishing procedures for the handling of employees’ complaints as to the management of our business and the
protection to be provided to such employees.
Compensation Committee and Compensation Policy
Under the Companies Law, the board of directors of a public company must appoint a compensation committee. Under the
corporate governance rules of Nasdaq, we are required to maintain a compensation committee consisting of at least two
independent directors .
On March 3, 2022, our board of directors adopted an amended and restated compensation committee charter that sets forth the
responsibilities of the compensation committee consistent with the rules of the SEC and Nasdaq listing rules, as well as the
requirements for such committee under the Companies Law.
If we cease to satisfy the conditions set out in Regulation 5D, or if due to a resolution adopted by the board of directors we cease
to avail ourselves of Regulation 5D, then:
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●
the compensation committee must consist of no less than three members;
●
all the External Directors must be members of the compensation committee,
●
a majority of the compensation committee’s members must be External Directors,
●
the chairman of the compensation committee must be an External Director; and
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any person not qualified to be a member of the audit committee (as described above) will not be qualified to be a member of the
compensation committee, and the compensation of any member serving on the compensation committee will be subject to the
same regulations governing the compensation payable to External Directors.
Our compensation committee consists of Dennis Langer and Michael Sember. Dennis Langer serves as Chairman of the
compensation committee.
●
Under the Companies Law and Nasdaq rules, our compensation committee is responsible for, among other things:
recommending to our board of directors a policy regarding the terms of engagement of the company’s office holders, to
which we refer as a "compensation policy";
●
recommending whether the compensation policy should continue in effect, if the thencurrent policy has a term of greater
than three years (approval of either a new compensation policy or the continuation of an existing compensation policy
must in any case occur every three years);
●
recommending to the board of directors updates to the compensation policy from time to time;
●
assessing implementation of the compensation policy;
●
the initial approval of transactions regarding the terms of compensation for all office holders, subject to further approvals
that may be required by the board of directors and/or a general meeting of shareholders, depending on the
circumstances;
●
deciding, under the special circumstances set forth in the Companies Law, whether to exempt the approval of terms and
conditions of a Chief Executive Officer’s service from the requirement of shareholder approval;
●
approving nonmaterial amendments to the compensation arrangement of an office holder who is not a director;
●
making other determinations that the Companies Law assigns to a compensation committee;
●
reviewing and recommending for approval by the board of directors the overall compensation policies with respect to our
Chief Executive Officer and other executive officers;
●
reviewing and recommending for approval by the board of directors the corporate goals and objectives relevant to the
compensation of our Chief Executive Officer and other executive officers;
●
evaluating the performance of our Chief Executive Officer and other executive officers in light of such goals and
objectives;
●
reviewing and approving the granting of options and other incentive awards, including the exercise of authorities
delegated by the board of directors regarding the grant of equity incentives under our equity compensation plans;
●
reviewing, evaluating and making recommendations regarding the compensation and benefits for our nonemployee
directors;
●
overseeing our compliance with SEC and Nasdaq rules related to shareholder approval of certain executive compensation
matters and equity compensation plans;
●
considering and implementing policies with respect to oversight, assessment and management of risks associated with
our compensation polices; and
●
reviewing and establishing appropriate insurance coverage for our office holders.
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Under Israeli law, the compensation policy serves as the basis for decisions concerning the financial terms of employment or
engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of
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payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement
of the company’s objectives, the company’s business plan and its longterm strategy, and creation of appropriate incentives for
office holders. It also considers, among other things, the company’s risk management, size and the nature of its operations. The
compensation policy further provides a framework for the consideration of, among other things, the following additional factors:
●
the knowledge, skills, expertise and accomplishments of the relevant office holder;
●
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
●
the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other
employees of the company, including those employed through manpower companies, in particular the ratio between such
cost and the average and median compensation of the other employees of the company, as well as the impact such
disparities may have on the work relationships in the company;
●
the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of
setting a limit on the exercise value of noncash variable equitybased compensation; and
●
as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation
during such service period, the company’s performance during that period of service, the person’s contribution towards
the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the
person is leaving the company.
The compensation policy must also include:
●
a link between variable compensation and longterm performance and measurable criteria;
●
the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
●
the conditions under which an office holder would be required to repay compensation paid to him or her if it was later
shown that the data upon which such compensation was based was inaccurate and was required to be restated in the
company’s financial statements;
●
the minimum holding or vesting period for variable, equitybased compensation; and
●
maximum limits for severance compensation.
The compensation policy must be approved by the company’s board of directors after considering the recommendations of the
compensation committee. In addition, the compensation policy needs to be approved by the company’s shareholders by a simple
majority, provided that (1) such majority includes a majority of the votes cast by the shareholders who are not controlling
shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded) or (2) the
votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter and voted
against the compensation policy, constitute two percent or less of the aggregate voting rights in the company (a "Special Majority
for Compensation Matters").
If and to the extent the compensation policy is not approved by a Special Majority for Compensation Matters at a duly convened
general meeting of shareholders, it may be possible under the Companies Law for the company to approve such compensation
policy by the compensation committee and the board of directors making a determination, after reexamining the compensation
policy and based on detailed reasoning that, notwithstanding the opposition or lack of approval by the general meeting of
shareholders, the adoption of the compensation policy is nonetheless in the company’s best interest.
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A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure
every three years. A compensation policy does not, in and of itself, grant any rights to our directors or officers.
Following the recommendation of our compensation committee, our board of directors has approved the compensation policy for
our office holders by way of a board resolution dated March 4, 2022, subject to that policy’s approval by a Special Majority for
Compensation Matters, and, that policy, in turn, was so approved by the Company’s shareholders at our annual general meeting
held on April 12, 2022.
Our compensation policy is designed to promote retention and motivation of directors and executive officers, incentivize superior
individual excellence, align the interests of our directors and executive officers with our longterm performance and provide a risk
management tool. To that end, a portion of our executive officer compensation package is targeted to reflect our short and long
term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy includes
measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the longterm, such as
limits on the value of cash bonuses and equitybased compensation, limitations on the ratio between the variable and the total
compensation of an executive officer and minimum vesting periods for equitybased compensation.
Our compensation policy also addresses our executive officers’ individual characteristics (such as their respective position,
education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation
among our executive officers and considers the internal ratios between compensation of our executive officers and directors and
other employees. Pursuant to our compensation policy, the compensation that may be granted to an executive officer may include:
base salary, annual bonuses and other cash bonuses (such as a signing bonus and special bonuses with respect to any special
achievements, such as outstanding personal achievement, outstanding personal effort or outstanding company performance),
equitybased compensation, benefits and retirement and termination of service arrangements.
Nominating and Governance Committee
Our nominating and governance committee consists of Natalie Leong and Joseph Cooper, with Natalie Leong serving as
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chairperson. Our board of directors adopted, on March 3, 2022, an amended and restated nominating and governance committee
charter, consistent with the rules of the SEC and Nasdaq listing rules, setting forth the responsibilities of the committee, which
include:
●
evaluating our corporate leadership structure, and reviewing important issues and developments in corporate
governance, and developing appropriate recommendations for the Board; and
●
overseeing and assisting our board in reviewing and recommending nominees for election as directors and members of
committees of our board.
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with
the recommendation of the audit committee. An internal auditor may not be:
●
a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
●
a person (or a relative of a person) who has the power to appoint a director or the chief executive officer of the company;
●
an office holder (including a director) of the company (or a relative thereof); or
●
a member of the company’s independent accounting firm, or anyone on his or her behalf.
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The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business
procedures. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well
as to review the internal auditor’s work plan. On March 6, 2022, we appointed Edo Pollack as our internal auditor. Edo Pollack is a
Certified Public Accountant (CPA) and partnerincharge of the Israel office of Eisner Advisory Group LLC.
The Chairman of the board of directors is the direct supervisor of the internal auditor, unless the board of directors shall determine
otherwise, in accordance with our articles of association and the Companies Law (and, in this regard, we have not determined
otherwise). The internal auditor is required to submit his or her findings to the Chairman of the Board, the Chief Executive Officer,
and the Chairman of the audit committee. The internal auditor may not be dismissed or suspended without his consent, other than
by a decision of the board of directors requiring a quorum of the majority of the members of the board, after the board of directors
has heard the audit committee’s position on the matter and the internal auditor has been afforded a reasonable opportunity to
bring his position before the audit committee and the board of directors.
Approval of Related Party Transactions under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. An "office holder" under the Companies
Law means a director, a Chief Executive Officer, or other officer who occupies a general or chief management position, or serves in
a position directly secondary to or directly reporting to the Chief Executive Officer. Each person listed in the table under “Directors
and Senior Management” above is an office holder.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act
with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances.
The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
●
information on the advisability of a given action brought for his or her approval or performed by virtue of his or her
position; and
●
all other important information pertaining to any such action.
The duty of loyalty includes a duty to:
●
refrain from any conflict of interest between the performance of his or her duties to the company and his or her other
duties or personal affairs;
●
refrain from any activity that is competitive with the company;
●
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or
others; and
●
disclose to the company any information or documents relating to the company’s affairs which the office holder received
as a result of his or her position as an office holder.
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she
may be aware of and all related material information or documents concerning any existing or proposed transaction with 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. As used in the context of the Companies Law, a
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"personal interest" includes an interest of any person in an act or transaction of a company, including a personal interest of such
person’s "relative," or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder,
director or chief executive officer, or in which he or she has the right to appoint at least one director or the chief executive officer,
but excluding a personal interest stemming from ownership of shares in the company. A "personal interest" is furthermore deemed
to include, in a proposal brought before a meeting of shareholders, the personal interest of a shareholder for whom a vote is being
cast by power of attorney, as well as the personal interest of a person voting by virtue of a power of attorney, even if the person
granting such power of attorney has no personal interest in the matter. A "relative" (in this context, and generally in the context of
the Companies Law) means (a) a spouse, sibling, parent, grandparent, child or descendant, (b) a spouse’s child or descendant,
parent or sibling, or (c) the spouse of any of the foregoing. An office holder is not, however, obligated to disclose a personal
interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an "extraordinary
transaction."
Under the Companies Law, an "extraordinary transaction" is defined 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 a company’s profitability, assets or liabilities.
A director and any other office holder who has a personal interest in a transaction which is considered at a meeting of the board of
directors or the audit committee may generally (unless it is with respect to a transaction which is not an extraordinary transaction)
not be present at such a meeting or vote on that matter, unless a majority of the directors or members of the audit committee, as
applicable, have a personal interest in the matter. If a majority of the members of the audit committee or the board of directors have
a personal interest in the matter, then all of the directors may participate in the deliberations of the audit committee or board of
directors, as applicable, with respect to such transaction and vote on the approval thereof and, in such case, shareholder approval
is also required.
Generally speaking, any transaction between the Company and an office holder, or between the Company and a person or entity in
whom the office holder has a personal interest, requires approval by the board of directors; if such transaction is an extraordinary
transaction, it requires approval first by the company’s audit committee, and subsequently by the board of directors. A transaction
regarding the terms of compensation of an office holder who is not a director requires approval first by the company’s
compensation committee, then by the company’s board of directors, and, if such compensation transaction is not consistent with
the company’s compensation policy, or if the office holder is the Chief Executive Officer, the subsequent approval of a Special
Majority for Compensation Matters at a general meeting of shareholders as defined in Compensation Committee and
Compensation Policy above. Arrangements regarding the terms of compensation of a director require the approval of the
compensation committee, followed by the board of directors, followed by a simple majority at a general meeting of shareholders;
however, under certain circumstances, a Special Majority for Compensation Matters is required.
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Under Israeli law, the disclosure requirements regarding personal interests that apply to directors and other office holders also
apply to a controlling shareholder of a public company, and certain transactions with controlling shareholders, transactions in
which a controlling shareholder has a personal interest, and arrangements regarding the terms of service or employment of a
controlling shareholder require certain specified approvals. For these purposes (and throughout this section regarding the
disclosure of personal interests and approval of transactions regarding controlling shareholders), a "controlling shareholder" is
deemed to include any shareholder holding 25% or more of the voting rights in the company if no other shareholder owns more
than 50% of the voting rights in the company, and two or more shareholders with a personal interest in the approval of the same
transaction are deemed to be one shareholder for such purpose. The approval of the audit committee or the compensation
committee, as the case may be, followed by the board of directors and further followed by a general meeting of shareholders of
the company, in that order, is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly,
for the provision of services to the company, (c) the
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terms of engagement and compensation of a controlling shareholder or his or her relative as an office holder, (d) the employment
of a controlling shareholder or his or her relative by the company, other than as an office holder or (e) a private placement in which
a controlling shareholder has a personal interest. The approval by the shareholders of such transactions at a general meeting
requires one of the following special majorities:
●
at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who
are present and voting at the meeting approving the transaction, excluding abstentions; or
●
the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are
present and voting at the meeting do not exceed 2% of the aggregate voting rights in the company.
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To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is
required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of
the transaction is reasonable given the circumstances related to that transaction.
Transactions regarding the terms of compensation of a controlling shareholder to be approved in accordance with the procedure
described above may not be inconsistent with the company’s compensation policy.
Under the Companies Regulations (Relief from Related Party Transactions), 57602000, the following types of extraordinary
transactions require approval of the audit committee and board of directors only, and do not require shareholder approval: (i) the
extension of a previously approved extraordinary transaction, which does not involve any significant change in the terms of the
existing transaction, other than a change solely for the benefit of the company; (ii) an extraordinary transaction from which the
company stands only to benefit; (iii) an extraordinary transaction is in accordance with the terms of a framework agreement, which
itself was duly approved in the manner of an extraordinary transaction with a controlling shareholder; (iv) an extraordinary
transaction with a controlling shareholder or a person in which the controlling shareholder has a personal interest, the purpose of
which is a transaction of theirs with a third party or a joint proposal to enter into a transaction with a third party, and the terms of
the transaction that apply to the company are not significantly different from the terms that apply to the controlling shareholder or
an entity controlled by him or her (taking into account the extent their respective portions in the transaction); (v) an extraordinary
transaction by and among companies controlled by the controlling shareholder, or between the company and the controlling
shareholder or a person in which the controlling shareholder has a personal interest, and the transaction is on market terms, within
the ordinary course of business, and is without injury to the company’s interests; or (vi) at the time of the extraordinary
transaction’s approval by the audit committee and the board of directors, the aggregate voting rights of shareholders who do not
have personal interest in the approval of such transaction do not exceed 2% of the voting rights in the company. Employment and
compensation arrangements for an office holder who is a controlling shareholder of a public company, or the provision of directors
and officers insurance for the chief executive officer, do not require shareholder approval if certain criteria regarding caps on
compensation are met. Furthermore, these relief regulations allow for a company to enter an insurance policy for its office holders
by approval of the compensation committee alone, if such insurance policy is consistent with the company’s existing and duly
approved compensation policy, is under market terms, and is not likely to substantially impact the company’s assets, liabilities or
profitability.
Shareholder Duties
Under the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other
shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a general
meeting or class meeting of shareholders with respect to the following matters:
●
an amendment to the company’s articles of association;
●
an increase of the company’s authorized share capital;
●
a merger; or
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●
the approval of related party transactions and acts of office holders that require shareholder approval.
In addition, a shareholder also has a general duty to refrain from taking advantage of other shareholders.
Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder,
any shareholder who is aware that his or her vote would determine the outcome of a shareholder vote at a general meeting or class
meeting of shareholders, and any shareholder who, by virtue of the articles of association, has the power to appoint or to prevent
the appointment of an office holder of the company or other power regarding the company. The Companies Law does not define
(and there is little Israeli case law defining) the substance of the duty of fairness, except that the Companies Law states that the
remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
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 out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred
for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an
event, provided its articles of association include a provision authorizing such indemnification, which ours do:
●
financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or
arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such
liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of
directors, can be reasonably foreseen based on the company’s activities when the undertaking to indemnify is given, and
to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and
such undertaking shall detail the abovementioned foreseen events and amount or criteria;
●
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation
or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding,
provided that (a) no indictment was filed against such office holder as a result of such investigation or proceeding; and
(b) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal
proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with
respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and
86
●
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in
proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal
proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require
proof of criminal intent.
Under the Companies Law and the Israeli Securities Law 57281968 (the “Israeli Securities Law”), a company may insure an office
holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in
the company’s articles of association:
●
a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable
basis to believe that the act would not harm the company;
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●
a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent
conduct of the office holder; and
●
financial liability imposed on the office holder in favor of a third party.
Under our articles of association, we may insure an office holder against the aforementioned liabilities as well as the following
liabilities:
●
a breach of duty of care to the company or to a third party;
●
any other action against which we are permitted by law to insure an office holder;
●
expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under
any applicable law including Parts 8(3), 8(4) and 9(1) of the Israeli Securities Law, and a proceeding according to
Section D of Chapter 4 in Part 9 of the Companies Law, including reasonable litigation expenses and attorney fees;
●
a payment to a person injured by a violation of Section 52BBB(a)(1)(a) of the Israeli Securities Law; and
●
expenses incurred in connection with a proceeding under the Economic Competition Law 57481988, including
reasonable litigation expenses and attorney fees.
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
●
a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the
company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would
not harm the company;
●
a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent
conduct of the office holder;
●
an act or omission committed with intent to derive illegal personal benefit; or
●
a fine, civil fine, or other financial sanction levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by
the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances,
also by the shareholders. See “—Approval of Related Party Transactions under Israeli Law.”
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be
permitted by the Companies Law and the Israeli Securities Law.
Upon the recommendation of our compensation committee, our board of directors has approved, and our shareholders have
approved, at the annual general meeting held on April 12, 2022, the form of indemnification and release agreement to be entered
into with each of our current and future directors and executive officers exculpating them, to the fullest extent permitted by law and
our articles of association, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association.
This indemnification will be limited to events determined as foreseeable by the board of directors based on our activities, and to an
amount or according to criteria determined by the board of directors and our compensation committee as reasonable under the
circumstances.
Under the form of indemnification and release agreement so approved, the maximum indemnification amount will be limited to an
amount which shall not exceed the greater of (a) 25% of our total shareholders’ equity according to our most
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88
recent financial statements as of the time of the actual payment of the indemnification and (b) $35 million. Such maximum amount is
in addition to any amount paid (if paid) under insurance and/or by a thirdparty pursuant to an indemnification arrangement.
In the opinion of the SEC, indemnification of directors and officers for liabilities arising under the Securities Act, however, is
against public policy and therefore unenforceable.
We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain
such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law.
D.
Employees.
As of December 31, 2021, we had four fulltime employees. These employees are comprised of Dr. Michael Myers, Chief Executive
Officer, Denise Carter, Chief Operating Officer, Gordon Dunn, Chief Financial Officer, and an administrative assistant. Our
employees are not represented by any collective bargaining agreements, and we have never experienced an organized work
stoppage. Gordon Dunn is located in the United Kingdom. Our other employees are located in the United States of America.
E.
Share Ownership.
Stock Option Plans
Amended and Restated Equity Incentive Plan
Upon the recommendation of our Compensation Committee, our board of directors, and our shareholders at the 2022 AGM, have
approved and adopted an amendment and restatement of our 2014 Global Incentive Option Scheme, which has been renamed as
our Amended and Restated Equity Incentive Plan (the “Equity Incentive Plan”). The number of shares reserved for issuance under
the Equity Incentive Plan has been increased to 15% of our outstanding ordinary shares on a fullydiluted basis, and will provide
for the grant of options to our directors, officers, employees, consultants, advisers and service providers. The approved changes
to the 2014 Global Incentive Option Scheme related to (i) the number of shares authorized for issuance under this plan, as
described above, and (ii) the name of the plan, as well as certain related conforming changes.
As of April 12, 2022, options to purchase 1,606,133,600 ordinary shares were outstanding and up to 220,858,000 ordinary shares
were available for issuance under the Equity Incentive Plan. Of such outstanding options, options to purchase 23,276,800 ordinary
shares were exercisable as of April 12, 2022, with a weighted average exercise price of $0.05 per ordinary share.
The Equity Incentive Plan provides for options to be granted at the determination of our board of directors, which has the power
to administer the Equity Incentive Plan, either directly or upon the recommendation of the Compensation Committee of the Board
of Directors in accordance with applicable law and Quoin’s Amended and Restated Articles of Association. Upon termination of
employment for any reason, other than in the event of death or disability or for ”Cause” (as defined in the Equity Incentive Plan),
all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 days following
termination, subject to the terms of the Equity Incentive Plan and the governing option agreement. If we terminate a grantee for
Cause the grantee’s right to exercise all vested and unvested the options granted to him or her will expire immediately. Upon
termination of employment due to death or disability, all the vested options at the time of termination will be exercisable for
12 months after date of termination, subject to the terms of the Equity Incentive Plan and the governing option agreement.
Options granted under the Equity Incentive Plan are subject to applicable vesting schedules.
In the event that options allocated under the Equity Incentive Plan expire or otherwise terminate in accordance with the provisions
of the Equity Incentive Plan, such expired or terminated options will become available for future grant awards and allocations
under the Equity Incentive Plan.
See also “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” below.
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ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
The following table sets forth information relating to the beneficial ownership of our ordinary shares as of April 12, 2022 by:
●
each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding ordinary
shares;
●
each of our directors and executive officers; and
●
all of our directors and officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and generally means sole or shared power to vote or
direct the voting or to dispose or direct the disposition of any ordinary shares. Unless otherwise indicated in the footnotes to this
table, we believe that each of the persons named in this table has sole voting and investment power with respect to the shares
indicated as being beneficially owned.
Except as indicated by footnote, the beneficial ownership information is based upon 3,354,653,999 ordinary shares outstanding as
of April 12, 2022. Ordinary shares that may be acquired by a person within 60 days of April 12, 2022, pursuant to the exercise of
options or warrants, are deemed to be outstanding for purpose of computing the percentage ownership of such person, but are
not deemed to be outstanding for purposes of computing the percentage ownership of ordinary shares of any other person shown
in the table. Each ADS represents 400 ordinary shares of Quoin Ltd.
Name
Number of Ordinary Shares Beneficially Owned
Percentage Owned
Principal Shareholders:
Altium Growth Fund, LP(1)
6,783,977,200
9.99 %
89
Goldman Sachs & Co. LLC(2)
580,219,600
17.3 %
Executive Officers and Directors:
Michael Myers(3)
600,730,400
17.9 %
Denise Carter(3)
600,730,400
17.9 %
Gordon Dunn
—
*
James Culverwell(4)
19,074,800
*
Joseph Cooper
—
*
Dennis Langer(5)
21,006,400
*
Natalie Leong
—
*
Michael Sember
—
*
All directors and officers as a group (8 persons)
1,241,542,000
36.6 %
*
Less than 1%
(1)
Altium Capital Management, LP (“Altium Capital”), the investment manager of Altium Growth Fund, LP (the “Fund”), has voting and
investment power over these securities. Jacob Gottlieb is the managing member of Altium Capital Growth GP, LLC (“Altium Growth”),
which is the general partner of the Fund. Each of the Fund and Jacob Gottlieb disclaims beneficial ownership over these shares. Consists of
1,238,429 ADSs issuable upon exercise of Investor Exchange Warrants, 6,665,922 ADSs issuable upon exercise of Series A Warrant
(including 2,389,670 ADSs issuable upon exercise of an additional Series A Warrant issuable upon the cash exercise of the Series C
Warrant), 6,665,992 ADSs issuable upon exercise of Series B Warrant (including 2,389,670 ADSs issuable upon exercise of an additional
Series B Warrant issuable upon the cash exercise of the Series C Warrant), and 2,389,670 ADSs issuable upon exercise of the Series C
Warrant, issued pursuant to the terms of the Securities Purchase Agreement entered into between the Fund, Cellect and Quoin Inc. The
Fund cannot exercise the Investor Exchange Warrants or the Series A Warrant to the extent the Fund, together with its affiliates, would
beneficially own, after any such exercise, more than 4.99% of the outstanding ordinary shares (the “4.99% Warrant Blocker”). In addition,
the Fund cannot exercise the Series B Warrant or the Series C Warrant to the extent the Fund, together with its affiliates, would beneficially
own, after any such exercise, more than 9.99% of the outstanding ordinary shares (the “9.99% Warrant Blocker”, and together with the
4.99%, the “Warrant Blockers”). The percentage
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set forth in this table gives effect to the Warrant Blockers, but the number of ordinary shares beneficially owned by the Fund set forth in
this table does not give effect to the Warrant Blockers. The address of the Fund, Altium Capital and Altium Growth is c/o Altium Capital
Management, LP, 152 West 57th Street, 20th Floor, New York, NY 10019.
(2)
Based on Schedule 13G/A filed with the SEC on March 10, 2022 by The Goldman Sachs Group, Inc. (“GS Group”) and Goldman Sachs &
Co. LLC (“GS LLC”). The securities are held directly by GS LLC, a broker or dealer registered under Section 15 of the Investment
Company Act of 1940 and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. GS LLC is a
subsidiary of GS Group, and GS Group may be deemed to beneficially own the securities. The address of GS Group and GS LLC is 200
West Street, New York, NY 10282.
(3)
Includes ADSs held in escrow.
(4)
Consists of 7,119 ADSs outstanding and 40,568 ADSs issuable upon exercise of warrants
(5)
Consists of 7,831 ADSs outstanding and 44,685 ADSs issuable upon exercise of warrants.
At the closing of the Merger on October 28, 2021 and pursuant to the terms of the Merger Agreement, the former holders of
common stock of Quoin Inc. (including shares acquired by, and held in escrow on behalf of, Altium Growth Fund, LP) owned in
the aggregate approximately 88% of the ordinary shares, with Cellect’s stockholders immediately prior to the Merger owning
approximately 12% of the ordinary shares.
Bank of New York Mellon, or BNY, is the holder of record for our ADR program, pursuant to which each ADS represents 400
ordinary shares. As of April 12, 2022, BNY held 3,354,291,340 ordinary shares representing 99.99% of the outstanding share capital
held at that date. Certain of these ordinary shares were held by brokers or other nominees. As a result, the number of holders of
record or registered holders in the United States is not representative of the number of beneficial holders or of the residence of
beneficial holders.
None of our shareholders has different voting rights from other shareholders. To our knowledge, we are not owned or controlled,
directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a
subsequent date, result in a change of control of us.
B.
Related Party Transactions
The following is a description of the transactions with related parties, to which we are party and which have been in effect within
the past three fiscal years and up to the date of this annual report on Form 20F.
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. See “Board Practices—Approval of Related Party Transactions under Israeli Law.”
On October 2, 2020, Quoin Inc. commenced an offering of convertible notes and warrants. From October through December 2020,
Quoin Inc. received an aggregate of approximately $910,000 in the initial bridge financing, and issued 2020 Notes with an
aggregate face value of $1,213,333. Approximately 22% of the initial bridge financing was received from parties who are related to
or affiliated with members of our board of directors. See “Item 5. Operating and Financial Review and Prospects” for additional
information about 2020 Notes.
During 2021, Quoin Inc. incurred $108,000 of consulting expenses, primarily from a related party company controlled by Dennis
Langer, our director, with approximately $8,000 paid to Dr. Myers’ son who consults Quoin Inc. on research and development
matters from time to time.
90
Due to the limited funding of Quoin Inc. prior to the Merger and private placements, as described in this annual report, the
compensation, including salary, office and car allowances and other benefits, due to Dr. Myers Ms. Carter under their respective
employment agreements, as well as reimbursement of expenses and other amounts paid by Dr. Myers and Ms. Carter to third
parties on behalf of Quoin Inc., were not paid by Quoin Inc. to Dr. Myers and Ms. Carter, and have been accruing as indebtedness
to Dr. Myers and Ms. Carter. Following the closing of the Merger and private placements,
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91
Quoin Inc. began making payments of $25,000 per month to each of Dr. Myers and Ms. Carter to repay the abovedescribed non
interestbearing indebtedness. After taking into account $125,000 repaid to each of Dr. Myers and Ms. Denise Carter from
October 28, 2021 until February 2022, Quoin Inc. was indebted to each of Dr. Myers and Ms. Carter in the aggregate amount of $
2,508,701 and $2,115,032, respectively.
Indemnification Agreements
Our articles of association permit us to exculpate, indemnify and insure our directors and other office holders to the fullest extent
permitted by the Companies Law and we have obtained and maintain directors’ and officers’ insurance covering our directors and
other office holders. Upon the recommendation of our compensation committee, our board of directors has approved, and our
shareholders have approved at the Annual General Meeting held on April 12, 2022, the form of indemnification and release
agreement to be entered into with each of our current and future directors and other office holders , exculpating them to the fullest
extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by the
law and our articles of association, including with respect to liabilities resulting from this offering, to the extent such liabilities are
not covered by insurance. See “Exculpation, Insurance and Indemnification of Directors and Officers.”
Employment Agreements and Bonuses
We have employment agreements with our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, and granted
bonuses to such officers. See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
Options
In April 2022, we granted options to purchase our ordinary shares to certain of our officers and directors. See “Item 6. Directors,
Senior Management and Employees—B. Compensation” and “Item 7. Major Shareholders and Related Party Transactions—A.
Major Shareholders”. We describe our option plan under “Item 6. Directors, Senior Management and Employees—E. Share
Ownership” and “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
Descriptions provided above are summaries of the terms of agreements (if any) and do not purport to be complete and are
qualified in their entirety by the complete agreements.
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION.
A.
Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our
business. We are currently not a party to any material legal or administrative proceedings and except as set forth below, are not
aware of any pending or threatened material legal or administrative proceedings against us.
On February 12, 2020, we received a letter from counsel to Kishore Shah and Aruna Shah seeking payment of certain amounts
based on a Securities Purchase Agreement with Polytherapeutics, Inc. dated March 24, 2018 (the “Polytherapeutics Agreement”).
The amount requested was originally payable, under the terms of the Polytherapeutics Agreement, over a period of 36 months for
consulting services to be provided by Kishore Shah (the “Consultant”). The Consultant has not provided any services and has
not complied with other technical requirements under the Research
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Agreement with the Consultant, and therefore is considered to be in breach of contract. The Company and the Consultant have
had communications with respect to the duration, commencement date and payment of the consulting services, but a revised
agreement has not been reached. No lawsuits have been filed as of the financial statement issuance date. Should a formal claim or
lawsuit be filed, the Company believes it has meritorious defenses.
92
Dividends
Currently, we do not intend to pay cash dividends. 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. In addition, the distribution of dividends is limited by Israeli law, which permits the
distribution of dividends, generally, only out of distributable profits. See “Item 10. Additional Information—B. Memorandum and
Articles of Association—Dividends.” See “Item 10. Additional Information—E. Taxation—Israeli Tax Considerations.”
If we pay any dividends, we will also pay such dividends to the ADS holders to the same extent as holders of our ordinary shares,
subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. No dividends will accrue for
any unexercised warrants. Cash dividends on our ordinary shares, if any, will be paid to ADS holders in U.S. dollars.
B.
Significant Changes
No significant change, other than as otherwise described in this Annual Report on Form 20F, has occurred in our operations since
the date of our consolidated financial statements included in this Annual Report on Form 20F.
ITEM 9.
THE OFFER AND LISTING
A.
Offer and Listing Details
From 1990 to September 3, 2017, our shares were traded on the TASE. On July 29, 2016, our ADSs commenced trading on the
Nasdaq Capital Market under the symbol “APOP”, and, in connection with the closing of the Merger, our trading symbol changed
to “QNRX”.
B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs are listed on the Nasdaq Capital Market.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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ITEM 10.
ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
Our registration number with the Israeli Registrar of Companies is 520036484.
Articles of Association
The following are summaries of material provisions of our articles of association and the Israeli Companies Law, as amended (the
“Companies Law”), insofar as they relate to the material terms of our ordinary shares.
Purposes and Objects of the Company
Our purpose is set forth in Section 2 of our articles of association and includes every lawful purpose.
Voting Rights
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a
shareholders meeting. Shareholders may vote at shareholders meetings either in person, by proxy or by written ballot. Israeli law
does not allow public companies to adopt shareholder resolutions by means of written consent in lieu of a shareholders meeting.
The board of directors shall determine and provide a record date for each shareholders meeting and all shareholders at such record
date may vote. Unless stipulated differently in the Companies Law or in the articles of association, all shareholders’ resolutions
shall be approved by a simple majority vote. As a general rule, an amendment to our articles of association requires the prior
approval of a simple majority of our shares represented and voting at a general meeting.
Transfer of Shares
93
Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our articles of
association, unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares
are traded. The ownership or voting of our ordinary shares by nonresidents of Israel is not restricted in any way by our articles of
association or Israeli law, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.
Amendment of Share Capital
Our articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of
the Companies Law and must be approved by a resolution duly passed by our shareholders at a general or special meeting by
voting on such change in the capital. In addition, transactions that have the effect of reducing capital, such as the declaration and
payment of dividends in the absence of sufficient retained earnings and profits, or an issuance of shares for less than their
nominal value (which would be applicable to our company should our articles be changed so as to permit the issue of shares
having a nominal value, however our shares currently have no nominal value), require a resolution of our board of directors and
court approval.
Dividends
Under Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no
reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable
obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained
earnings or earnings generated over the two most recent years legally available for distribution according to our
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94
then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months
prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most
recent years legally available for distribution, we may seek the approval of the court in order to distribute a dividend. The court
may approve our request if it determines that there is no reasonable concern that the payment of a dividend will prevent us from
satisfying our existing and foreseeable obligations as they become due.
Shareholders Meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event
no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting
of shareholders are referred to as special meetings. Our board of directors may call special meetings whenever it sees fit, at such
time and place, within or outside of Israel, as it may determine. In addition, the Companies Law and our articles of association
provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our
directors or one quarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of
our issued share capital and 1% of our outstanding voting rights, or (b) 5% of our outstanding voting rights.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate
and vote at general meetings of a company are the shareholders of record on a date to be decided by the board of directors which
for us, as a company listed on an exchange outside Israel, may be between four and forty days prior to the date of the meeting.
The Companies Law and our articles of association require that resolutions regarding the following matters must be passed at a
general meeting of our shareholders:
●
amendments to our articles of association;
●
appointment or termination of our auditors;
●
appointment and dismissal of External Directors, if and to the extent any are required to be appointed;
●
approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;
●
increases or reductions of our authorized share capital;
●
a merger; and
●
authorizing the Chairman of the board of directors or his relative to serve as the company’s Chief Executive Officer or be
vested with such authority; or authorizing the company’s Chief Executive Officer or his relative to serve as the Chairman
of the board of directors or be vested with such authority.
Under the Companies Law and our articles of association, notice of any annual or special shareholders meeting be provided at
least 14 days prior to the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval
of office holders’ compensation or transactions with office holders or interested or related parties, approval of a merger, or
authorization of the Chairman of the board or his relative to serve as or be vested with authorities of the Chief Executive Officer, or
of the Chief Executive Officer to serve as or be vested with authorities of the Chairman of the board, notice must be provided at
least 35 days prior to the meeting.
Quorum
The quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or
by other voting instrument in accordance with the Companies Law and our articles of association, who hold or
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represent, in the aggregate, at least 25% of the total outstanding voting rights, within half an hour from the time the meeting was
designated to start.
A meeting adjourned for lack of a quorum will be adjourned for one week, to the same day in the following week and at the same
time and place, or to a later date if so specified in the notice of the meeting, or to another day or place determined by our board of
directors in a notice to shareholders. At the reconvened meeting, if a quorum is not present within half an hour from the scheduled
time, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.
Resolutions
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise
required by applicable law. Under the Companies Law, certain actions require the approval of a special majority, including: (i) an
extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest, or any
transaction regarding the terms of employment or other engagement of a controlling shareholder or a controlling shareholder’s
relative, other than certain exceptions as provided by regulatory relief – all as described in "Approval of Related Party
Transactions under Israeli Law – Disclosure of Personal Interest of Controlling Shareholders and Approval of Certain
Transactions" above, (ii) matters related to the compensation of our Chief Executive Officer, other than special circumstances
under which our compensation committee can exempt such transactions from shareholder approval, as described in "Board
Practices – Compensation Committee and Compensation Policy" above, (iii) compensation arrangements or grants that are
exceptions to the guidelines under our compensation policy, (iv) authorization of our Chief Executive Officer to serve as or be
vested with the authorities of the Chairman of our board of directors, or for the Chairman of our board of directors to serve as or
be vested with the authorities of our Chief Executive Officer, and (v) appointment of External Directors, if any are appointed (see
“Board Practices – External Directors” above).
The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the
company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power – see
Shareholder Duties above for more details.
Dissolution
Generally under Israeli law, a resolution for the voluntary winding up of a company requires the approval of holders of 75% of the
voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our
ordinary shares (including holders of entitlements to shares, after deducting the nominal value (if any) of such shares and the
price which would have been paid in order to exercise the right to such shares), in proportion to their shareholdings. This right, as
well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a
class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general
meetings, its register of shareholders and material shareholders, articles of association, financial statements and any document it is
required by law to file publicly with the Israeli Companies Registrar. Any of our shareholders may request to review any document
in our possession that relates to any action or transaction with a related party, interested party, or office holder that requires
shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request
was not made in good faith, that the document contains a trade secret or patent, or that the document’s disclosure may otherwise
prejudice our interests.
Acquisitions under Israeli Law
Full Tender Offer
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A person wishing to acquire shares of a public Israeli company, and who would as a result hold over 90% of the target company’s
issued and outstanding share capital, is required by the Companies Law to make a tender offer to all of the company’s
shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a
public Israeli company, and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of
shares, is required to make a tender offer to all of the shareholders who hold shares of that class for the purchase of all of the
issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and
outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be
transferred to the acquirer by operation of law, provided that a majority of the offerees that do not have a personal interest in such
tender offer, have accepted the tender offer. Alternatively, if shareholders who do not accept the tender offer represent less than
2% of the company’s issued and outstanding share capital (or less than 2% of the applicable class of shares), approval by a
majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer. A
shareholder whose shares are so transferred may petition the court regarding the fair value to be paid in consideration of such
shares, within six months from the date of acceptance of the full tender offer; this right of petition applies to all offeree
shareholders, unless the acquirer stipulated in the tender offer that a shareholder accepting the offer may not seek appraisal rights,
and prior to the acceptance of the full tender offer, the acquirer and the company disclosed the information required by law in
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connection with a full tender offer. To the extent a court so petitioned determines that the offered value was less than the fair value
per share, the court may order the difference to be paid.
Special Tender Offer
The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a "special
tender offer" complying with the relevant provisions of the Companies Law if, as a result of the acquisition, the purchaser would
become a holder of 25% or more of the voting rights in the company, if there did not previously exist a holder of 25% or more of
the voting rights in the company, or if, as a result of the acquisition, the purchaser would become a holder of more than 45% of the
voting rights in the company, if there did not previously exist a holder of more than 45% of the voting rights in the company. This
requirement does not apply if the acquisition: (a) occurs in the context of a private placement by the company that received
shareholder approval as a private placement giving the offeree 25% or 45% of the company’s voting rights (as the case may be);
(b) is from a holder of 25% or more of the voting rights in the company and results in the acquirer becoming a holder of 25% or
more of the voting rights in the company; or (c) is from a holder of more than 45% of the voting rights in the company and results
in the acquirer becoming a holder of more than 45% of the voting rights in the company.
In the event that a special tender offer is made, the target company’s board of directors is required to express its opinion on the
advisability of the offer, or may abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for
its abstention.
A special tender offer must be directed to all offerees, and the offerees may give notice of their agreement or opposition to the
special tender offer. The special tender offer will be consummated only if: (a) at least 5% of the voting rights attached to the
company’s outstanding shares will be acquired by the offeror, and (b) among those shareholders who gave notice of their position
(excluding any controlling shareholders of the offeror, holders of 25% or more of the voting rights in the target company, and any
person having a personal interest in the acceptance of the tender offer, including relatives or corporations under the control of any
of the above), the number of shares whose holders agreed to the offer exceeds the number of shares whose holders objected to
the offer.
If a special tender offer is accepted by the procedure described above, then shareholders who did not respond to or who objected
the offer may accept the offer within four days of the last day set for the acceptance of the offer.
An office holder in a company which is the target of a special tender offer who, in his or her capacity as an office holder, performs
an act or omits to act for in order to cause the failure of an existing or foreseeable special tender offer, or to impair the likelihood of
its acceptance, is liable to the offeror and offerees for damages, unless such office holder acted in good faith and had reasonable
grounds to believe that such act or omission was beneficial to the company. As a safe harbor, office holders of the target company
may negotiate with a potential purchaser in order to improve the terms of a special tender offer, or negotiate with third parties in
order to obtain a competing offer.
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In the event that a special tender offer is accepted, the purchaser, any person or entity controlling or controlled by the purchaser,
or under common control with the purchaser, may not make a subsequent tender offer for the purchase of shares of the target
company, and may not enter into a merger with the target company, for a period of one year from the date of the offer, unless the
purchaser or such person or entity undertakes to effect such an offer or merger as a special tender offer in compliance with the
Companies Law requirements.
Under regulations enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to
companies whose shares are listed for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the
rules of the stock exchange include provisions limiting the percentage of control which may be acquired, or provide that the
purchaser is required to make a tender offer to the public. However, the opinion of the Israeli Securities Authority (the "ISA") is
that such exemption does not apply with respect to companies whose shares are listed for trading on stock exchanges in the
United States, including Nasdaq, which, in the ISA’s opinion, do not provide for sufficient legal restrictions on obtaining control
or an obligation to make a tender offer to the public.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain conditions
described under the Companies Law are met, by each party’s shareholders by a majority vote as described below.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the
shares voted at the shareholders meeting held by shareholders who are not the other party to the merger, or held by any person
who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party to the
merger (including relatives or entities in control of the above), vote against the merger. If the transaction would have been
approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a
court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds
that the merger is fair and reasonable, taking into account the relative value of the merger parties and the consideration offered to
the shareholders. If the nonsurviving entity of the merger has more than one class of shares, the merger must be approved by
each class of shareholders. If a merger is with a company’s controlling shareholder, or if a controlling shareholder has a personal
interest in the merger, then the merger will be subject to the special majority approval required for an extraordinary transaction with
a controlling shareholder (see: Approval of Related Party Transactions under Israeli Law – Declaration of Personal Interest of
Controlling Shareholders and Approval of Certain Transactions). In the context of mergers (as well as other related party
transactions), a "controlling shareholder" under Israeli law is deemed to include any shareholder holding 25% or more of the
voting rights in the company if no other shareholder owns more than 50% of the voting rights in the company, and two or more
shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder for such purpose.
The Companies Law requires the board of directors of a merging company to discuss and determine whether, in its view, there
exists a reasonable concern that as a result of the proposed merger, the surviving company will not be able to satisfy its
obligations towards its creditors, and if not, the board of directors may not approve the merger. The Companies Law requires each
merging company to inform its secured creditors of the proposed merger plan. Upon the request of a creditor of either party to the
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proposed merger the co rt ma dela or pre ent the merger if it concl des that there e ists a reasonable concern that as a res lt
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proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result
of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further
give instructions to secure the rights of creditors.
A merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger is
filed with the Israeli Registrar of Companies, and 30 days have passed from the date the merger was approved by the shareholders
of each merging company.
Antitakeover Measures
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares,
including shares providing certain preferred rights, distributions or other matters, and shares having preemptive rights. As of the
date of this Annual Report, we do not have any authorized or issued classes of shares other than our ordinary shares.
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In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the
specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing
a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an
amendment to our articles of association which requires the prior approval of the holders of a majority of our shares at a general
meeting. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as described
above.
C.
Material Contracts
We have not entered into any material contract within the two years prior to the date of this Annual Report on Form 20F, other
than contracts entered into in the ordinary course of business, contracts entered into in connection with the Merger and related
private placements, as described in Forms 6K filed with the SEC, or as otherwise described herein in (i) “Item 4. Information on the
Company—A. History and Development of the Company” above, (ii) “Item 4. Information on the Company—B. Business
Overview” above, (iii) “Item 6. Directors, Senior Management and Employees” above, (iv) “Item 7. Major Shareholders and Related
Party Transactions—A. Major Shareholders” above, (v) “Item 7. Major Shareholders and Related Party Transactions—B. Related
Party Transactions” above, and (vi) “Item 18. Financial Statements” below.
D.
Exchange Controls
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our
ordinary shares or the proceeds from the sale of the shares, except, under certain circumstances, for shareholders who are subjects
of countries that are, or have been, in a state of war with Israel. Israeli residents have an obligation to file reports with the Bank of
Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed
by administrative action at any time.
The ownership or voting of our ordinary shares by nonresidents of Israel, except with respect to citizens of countries that are in a
state of war with Israel, is not restricted in any way by our memorandum of association or amended and restated articles of
association or by the laws of the State of Israel.
E.
Taxation.
The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership or
disposition of our ordinary shares or ADSs or warrants (all referred to in this section as “the Shares”). You should consult your
own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise
under the laws of any state, local, foreign, including Israeli, or other taxing jurisdiction.
Israeli Tax Considerations
The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership and
disposition of our Shares.
This discussion does not purport to constitute a complete analysis of all potential tax consequences applicable to investors upon
purchasing, owning or disposing of our Shares. In particular, this discussion does not take into account the specific
circumstances of any particular investor (such as taxexempt entities, financial institutions, certain financial companies, broker
dealers, investors that own, directly or indirectly, 10% or more of our outstanding voting rights, all of whom are subject to special
tax regimes not covered under this discussion). To the extent that issues discussed herein are based on legislation that has yet to
be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with
any such interpretation in the future.
You are urged to consult your own tax advisors as to the Israeli or other tax consequences of the purchase, ownership, and
disposition of the Shares, including, in particular, the effect of any foreign, state or local taxes.
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General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2022 tax year.
Taxation of Shareholders
Capital Gains
Capital gains tax is imposed on the disposition of capital assets by an Israeli resident and on the disposition of such assets by a
nonIsraeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli company, or
(iii) represent, directly or indirectly, rights to assets located in Israel, unless an exemption is available or unless an applicable
double tax treaty between Israel and the seller’s country of residence provides otherwise. The Israeli Income Tax Ordinance
distinguishes between “Real Gain” and the “Inflationary Surplus”. “Real Gain” is the excess of the total capital gain over
Inflationary Surplus generally computed on the basis of the increase in the Israeli Consumer Price Index between the date of
purchase and the date of disposition. Inflationary Surplus is not subject to tax.
Taxable capital gain accrued by individuals on the sale of the Shares are taxed at the rate of 25%. However, if the individual
shareholder is a “Substantial Shareholder” at the time of sale or at any time during the preceding 12month period, such gain will
be taxed at the rate of 30%. In this regard, broadly, a "Substantial Shareholder" is considered to be a person who alone, or together
with his relative or another person who collaborates with him on a regular basis, holds, directly or indirectly, at least 10% of any
our means of control. In this context “means of control” generally includes the right to vote, receive profits, nominate a director or
an officer, receive assets upon liquidation, or instruct someone who holds any of these rights regarding the manner in which he or
she is to exercise such right(s), and all regardless of the source of such rights).
The term “Israeli resident” is generally defined under Israeli tax legislation with respect to individuals as a person whose center of
life is in Israel. The Ordinance provides that in order to determine the center of life of an individual, account will be taken of the
individual’s family, economic and social connections, including: (a) place of permanent home; (b) place of residential dwelling of
the individual and the individual’s immediate family; (c) place of the individual’s regular or permanent occupation or the place of
his permanent employment; (d) place of the individual’s active and substantial economic interests; and I place of the individual’s
activities in organizations, associations and other institutions. The center of life of an individual will be presumed to be in Israel if:
(a) the individual was present in Israel for 183 days or more in the tax year; or (b) the individual was present in Israel for 30 days or
more in the tax year, and the total period of the individual’s presence in Israel in that tax year and the two previous tax years is
425 days or more. The presumption in this paragraph may be rebutted either by the individual or by the assessing officer.
Capital gains derived by corporations are subject to tax at the same rate as the corporate tax rate. Under Israeli tax legislation, a
corporation will be considered as an “Israeli Resident” if it meets one of the following criteria: (a) it was incorporated in Israel; or
(b) the control and management of its business are exercised in Israel.
Despite the above, capital gains generated from the sale of our Shares by a nonIsraeli shareholder may be exempt from Israeli tax
under the Israeli Income Tax Ordinance provided that the following cumulative conditions are met: (i) the Shares were purchased
by the selling shareholder upon or after the registration of the Shares on the nonIsraeli stock exchange (on July 29, 2016) and
(ii) the selling shareholder does not have a permanent establishment in Israel to which the generated capital gain is attributed.
However, a seller of our Shares that is a nonIsraeli resident corporation will not be entitled to this exemption if Israeli residents:
(i) hold a 25% or more interest in such nonIsraeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the
income or profits of such nonIsraeli corporation, whether directly or indirectly. In addition, this exemption would not be available
to a person whose gains from selling or otherwise disposing of our Shares are deemed to be business income.
Likewise, capital gains generated from the sale of our Shares by a nonIsraeli shareholder who purchased the Shares before the
registration of the Shares on the nonIsraeli stock exchange may also be exempt from Israeli tax under the Israeli Income Tax
Ordinance provided that the following cumulative conditions are met: (i) the Shares were purchased on January 1, 2009 or
afterwards; (ii) the Shares were not purchased from a related party (as defined for this purpose) and
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were not purchased as part of an exempted reorganization for Israeli tax purposes; (iii) the Shares are not registered for trade on an
Israeli stock exchange at the date of the sale; and (iv) on the day of the purchase of the Shares and in the two years preceding its
sale – the bulk of the value of the assets held by the Israeli company, directly or indirectly, are not rights in, or attached or related
to, or in connection with the use of or proceeds from, immovable property or natural resources in Israel.
In addition, the sale of the Shares may be also exempt from Israeli capital gains tax under the provisions of an applicable double tax
treaty. For example, the Convention Between the Government of the United States of America and the Government of the State of
Israel with Respect to Taxes on Income, (the "U.S.Israel Double Tax Treaty"), should exempt a U.S. resident from Israeli capital
gain tax in connection with the sale of our Shares, provided that: (i) the U.S. resident owned, directly or indirectly, less than 10% of
our voting power at any time within the 12month period preceding such sale; (ii) the U.S. resident, being an individual, is present
in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived
through a permanent establishment of the U.S. resident in Israel. A U.S. resident not exempt from Israeli capital gains tax may be
limited under U.S. law in its ability to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such
sale, exchange or disposition even if such U.S. resident is eligible for benefits under the U.S.Israel Double Tax Treaty. The U.S.
Israel Double Tax Treaty does not relate to U.S. state or local taxes.
There may be some other circumstances in which exemptions (or partial exemptions) may apply, so that any nonIsraeli
shareholder who does not meet the aforementioned exemption criteria (whether under the Israeli internal tax law or the relevant tax
treaty) should consult their own tax advisors.
Payers of consideration for the purchase of our Shares, including the actual purchaser, the Israeli stockbroker or the financial
institution through which the Shares are held, may be obligated to withhold tax upon the sale of Shares at a rate of 25% (for
individuals) or 23% (for corporations) of the consideration. However, where the seller of our Shares is a nonIsraeli resident, there
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is usually an exemption from such withholding duty (based on a declaration of tax status to be provided by the seller).
Upon the sale of traded securities, a detailed return, including a computation of the tax due, must be filed and an advance payment
must be paid to the Israeli Tax Authority on January 31 and July 31 of every tax year in respect of sales of traded securities made
within the previous six months. This will apply to the sale of our Shares. However, if all tax due was withheld at source according
to applicable provisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder, such return need not be
filed, and no advance payment must be paid. Capital gains are also reportable on annual income tax returns.
Dividends
Dividends distributed by an Israeli company to a shareholder who is an Israeli resident individual will generally be subject to
income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Substantial Shareholder, as defined
above, at the time of distribution or at any time during the preceding 12month period. If the recipient of the dividend is an Israeli
resident corporation, dividends will generally be exempted from Israeli income tax provided that the income from which such
dividend is distributed was derived or accrued within Israel.
Dividends distributed by an Israeli company to a nonIsraeli resident (either an individual or a corporation) are generally subject to
Israeli withholding tax at the rate of 25% (30% if the dividend recipient is a Substantial Shareholder at the time of distribution or at
any time during the preceding 12month period). These rates may be reduced under the provisions of an applicable double tax
treaty. For example, under the U.S.Israel Double Tax Treaty, the following tax rates will apply in respect of dividends distributed
by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation that holds during that portion of the
taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10%
of the outstanding shares of the voting stock of the Israeli company paying the dividend and not more than 25% of the gross
income of such Israeli company for such prior taxable year (if any) consists of certain types of interest or dividends the tax rate is
12.5%; (ii) if both the conditions mentioned in clause (i) above are met and the dividend is paid from an Israeli resident company’s
income which was entitled to a reduced tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is
15%; and (iii) in most other cases,
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the tax rate is 25%. The aforementioned lower rates under the U.S.Israel Double Tax Treaty will not apply if the dividend income is
attributed to a permanent establishment of the U.S. resident in Israel.
Surtax
Individual holders who are subject to tax in Israel (whether any such individual is an Israeli resident or nonIsraeli resident) and
who have taxable income that exceeds a certain threshold in a tax year ((NIS 663,240 for 2022, linked to the Israeli Consumer Price
Index) will be subject to an additional tax at the rate of 3% on his or her taxable income for such tax year that is in excess of such
amount. For this purpose, taxable income includes taxable capital gains from the sale of securities and taxable income from interest
and dividends, subject to the provisions of an applicable double tax treaty.
Estate and Gift Tax
Israel does not currently impose estate or gift taxes if the Israeli Tax Authority is satisfied that the gift was made by an Israeli
resident individual in good faith and on condition that the recipient of the gift is not a nonIsraeli resident. If the gift giver is a
nonIsraeli resident individual, then he should be exempted under the aforementioned capital gains tax exemptions provided for a
regular sale of shares.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR ISRAELI TAX CONSEQUENCES
OF PURCHASING, HOLDING, AND DISPOSING OF OUR SHARES, INCLUDING THE CONSEQUENCES OF ANY
PROPOSED CHANGE IN APPLICABLE LAWS.
U.S. Federal Income Tax Considerations
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH HOLDER SHOULD CONSULT WITH HIS OR HER
OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND SALE OF ORDINARY SHARES, AMERICAN DEPOSITORY SHARES AND WARRANTS, INCLUDING THE
EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax
consequences to a “U.S. Holder” arising from the purchase, ownership and disposition of the ordinary shares, ADSs and
warrants. For this purpose, a “U.S. Holder” is a beneficial owner of ordinary shares or ADSs or warrants that is: (1) an individual
citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or
meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or entity treated as a
corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state therein, or the
District of Columbia; (3) an estate, the income of which is includable in gross income for U.S. federal income tax purposes
regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; and (5) a trust that has a
valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations. A “nonU.S. Holder” is a
beneficial owner of ordinary shares or ADSs or warrants that is not a U.S. Holder.
This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S.
federal income tax considerations that may be relevant to a decision to purchase our ordinary shares or ADSs or warrants. This
summary generally considers only U.S. Holders that will own our ordinary shares or ADSs or warrants as capital assets (generally,
property held for investment). Except to the limited extent discussed below, this summary does not consider the U.S. federal tax
consequences to a person that is a nonU.S. Holder, nor does it describe the rules applicable to determine a taxpayer’s status as a
U.S. Holder. This summary is based on the provisions of the Code, final, temporary and proposed U.S. Treasury regulations
promulgated thereunder, administrative and judicial interpretations thereof, and the U.S./Israel Double Tax Treaty, all as in effect as
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of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing
interpretations. We will not seek a ruling from the Internal Revenue Service, or IRS, with regard to the U.S. federal income tax
treatment of an investment
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in our ordinary shares or ADSs or warrants and, therefore, can provide no assurances that the IRS will agree with the conclusions
set forth below.
This discussion does not address all of the tax considerations that may be relevant to a particular U.S. Holder based on such
holder’s particular circumstances, or to U.S. Holders that are subject to special treatment under U.S. federal income tax law,
including: (1) banks, life insurance companies, regulated investment companies, or other financial institutions or “financial
services entities”; (2) brokers or dealers in securities or foreign currency; (3) persons who acquired our ordinary shares or ADSs
or warrants in connection with employment or other performance of services; (4) U.S. Holders that are subject to the U.S.
alternative minimum tax; (5) U.S. Holders that hold our ordinary shares or ADSs or warrants as a hedge or as part of a hedging,
straddle, conversion or constructive sale transaction or other riskreduction transaction for U.S. federal income tax purposes;
(6) taxexempt entities; (7) real estate investment trusts; (8) U.S. Holders that expatriate out of the United States or former longterm
residents of the United States; or (9) U.S. Holders having a functional currency other than the U.S. dollar. This discussion does
not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly, indirectly or constructively, at any time,
ordinary shares or ADSs or warrants representing 10% or more of our voting power or value. This discussion also does not
address any U.S. state or local or nonU.S. tax considerations, any U.S. federal estate, gift, generationskipping, transfer, or
alternative minimum tax considerations, or any U.S. federal tax consequences other than U.S. federal income tax consequences.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs or
warrants, the tax treatment of such entity or arrangement treated as a partnership and each person treated as a partner thereof
generally will depend upon the status and activities of the entity and such person. A holder that is treated as a partnership for U.S.
federal income tax purposes and partners thereof should consult their own tax advisors regarding the U.S. federal income tax
considerations applicable to the purchase, ownership and disposition of our ordinary shares or ADSs or warrants.
Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of
purchasing, holding or disposing of our ordinary shares or ADSs or warrants, including the effects of applicable state, local,
foreign or other tax laws and possible changes in the tax laws.
U.S. Tax Status of the Company
Although the Company is incorporated under Israeli law, as a result of the consummation of the Merger, the Company should be
treated, pursuant to Section 7874 of the Code, as a U.S. corporation for all purposes under the Code. As a result, since the
Company is and will be treated as a U.S. corporation for U.S. federal income tax purposes and, we do not intend to treat the
Company as a “passive foreign investment company,” as such rules apply only to nonU.S. corporations that are treated as such
for U.S. federal income tax purposes. Since the Company is a taxable corporation in Israel, it would likely be subject to income
taxation in both the United States and Israel on the same income, which could reduce the amount of income available for
distribution to shareholders. The ability of the Company to take foreign tax credits against its U.S. tax liability in respect of taxes
paid in Israel may be limited.
The remainder of this discussion assumes that the Company is treated as a U.S. corporation for all U.S. federal income tax
purposes. If, for some reason (e.g., future repeal of Section 7874 of the Code), we were no longer treated as a U.S. corporation
under the Code, the U.S. federal income tax consequences described herein could be materially and adversely affected.
Taxation of Dividends Paid on Ordinary Shares or ADSs
We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, a U.S. Holder will be required
to include in gross income as ordinary income the amount of any distribution paid on ordinary shares or ADSs (including the
amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current
or accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which
exceeds our current and accumulated earnings and profits will be treated first as a nontaxable return of capital, reducing the U.S.
Holder’s tax basis for the ordinary shares or ADSs to the extent thereof, and then as capital gain. Corporate holders generally will
not be allowed a deduction for dividends received.
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In general, preferential tax rates for “qualified dividend income” and longterm capital gains are applicable for U.S. Holders that are
individuals, estates or trusts. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “domestic
corporation.”.
As indicated above, we believe we should be treated as a domestic corporation and our dividends will therefore be qualified
dividend income. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our ordinary shares or
ADSs for at least 61 days of the 121day period beginning on the date which is 60 days before the exdividend date, or (2) to the
extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during which
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the U.S. Holder has diminished its risk of loss on our ordinary shares or ADSs are not counted towards meeting the 61day
holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section
163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our ordinary shares or ADSs will be measured by the amount of the fair market value
of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash
distributions paid by us in NIS will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of
exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in
such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS
into U.S. dollars or otherwise disposes of it, any subsequent gain or loss in respect of such NIS arising from exchange rate
fluctuations will be U.S. source ordinary exchange gain or loss.
U.S. Holders’ eligibility to claim a foreign tax credit with respect to any Israeli withholding tax imposed on dividends paid by us
may be limited. The foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code in the
presence of the U.S.Israel Double Tax Treaty, are not entirely clear at this time. U.S. Holders should consult their own tax advisors with
respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.Israel Double Tax Treaty. and to determine
whether, and to what extent, they are entitled to such credits.
Taxation of the Disposition of Ordinary Shares or ADSs or Warrants
Upon the sale, exchange or other taxable disposition of our ordinary shares or ADSs or warrants, a U.S. Holder generally will recognize capital
gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis for the ordinary shares or ADSs or warrants
in U.S. dollars and the amount realized on the disposition in U.S. dollars (or its U.S. dollar equivalent determined by reference to
the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss
realized on the sale, exchange or other disposition of ordinary shares or ADSs or warrants will be longterm capital gain or loss if
the U.S. Holder has a holding period of more than one year at the time of the disposition. U.S. Holders should consult their own
tax advisors regarding the U.S. federal income tax consequences of receiving currency other than U.S. dollars upon the disposition
of their ordinary shares.
Gain realized by a U.S. Holder on a sale, exchange or other disposition of ordinary shares or ADSs or warrants will generally be
treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other
disposition of ordinary shares or ADSs or warrants is generally allocated to U.S. source income. The deductibility of a loss
realized on the sale, exchange or other disposition of ordinary shares or ADSs or warrants is subject to limitations.
A U.S. Holder’s eligibility to claim a foreign tax credit with respect to any Israeli withholding tax imposed on gain from the sale or
other disposition of our ordinary shares or ADSs or warrants may be limited. The foreign tax credit rules are complex, and their
application in connection with Section 7874 of the Code in the presence of the U.S.Israel Double Tax Treaty are not entirely clear
at this time. U.S. Holders should consult their own tax advisors with respect to any benefits they may be entitled to under the
foreign tax credit rules and the U.S.Israel Double Tax Treaty.
Exercise or Lapse of a Warrant
A U.S. Holder generally will not recognize gain or loss upon the exercise of a warrant for cash. An ordinary share or ADS acquired
pursuant to the exercise of a warrant for cash generally will have a tax basis equal to the U.S. Holder’s tax basis in the warrant,
increased by the amount paid to exercise the warrant. Subject to the discussion under the heading “Passive
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Foreign Investment Companies” below, the holding period of such share or ADS generally begins on the day after the date of
exercise of the warrant and will not include the period during which the U.S. Holder held the warrant. If a warrant is allowed to
lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant. U.S. Holders
should consult their own tax advisors regarding the U.S. federal income tax consequences of the exercise of a warrant, including
with respect to whether the exercise is a taxable event, and their holding period and tax basis in the ordinary shares or ADSs
received.
Tax on Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a 3.8% Medicare tax on their net investment
income (including dividends on and gains from the sale or other disposition of our ordinary shares and ADSs or warrants), or in
the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies
only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Tax Consequences for NonU.S. Holders of Ordinary Shares or ADSs or Warrants
Taxation of Dividends Paid on Ordinary Shares or ADSs
In general, any distributions we make to a nonU.S. Holder on ordinary shares or ADSs, to the extent paid out of our current or
accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal
income tax purposes and, provided such dividends are not effectively connected with the nonU.S. Holder’s conduct of a trade or
business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%,
unless such nonU.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides
proper certification of its eligibility for such reduced rate (usually on an IRS Form W8BEN or W8BENE, as applicable). Any
distribution on our ordinary shares or ADSs not constituting a dividend for U.S. federal income tax purposes will be treated first as
reducing (but not below zero) the nonU.S. Holder’s adjusted tax basis in its shares of such stock and, to the extent such
distribution exceeds the nonU.S. Holder’s adjusted tax basis in such stock, as gain realized from the sale or other disposition of
such stock, which will be treated as described under “Gain on Sale, Exchange or Other Taxable Disposition of Ordinary Shares,
ADSs, and Warrants” below. The full amount of any distributions to you may, however, be subject to U.S. withholding tax unless
the applicable withholding agent elects to withhold a lesser amount based on a reasonable estimate of the amount of the
distribution that would be treated as a dividend for U.S. federal income tax purposes. In addition, if we determine that we are
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classified as a “United States real property holding corporation” (see “Gain on Sale, Exchange or Other Taxable Disposition of
Ordinary Shares, ADSs, and Warrants” below), we will withhold 15% of any distribution that exceeds our current and accumulated
earnings and profits.
Dividends we pay to a nonU.S. Holder that are effectively connected with such nonU.S. Holder’s conduct of a trade or business
within the United States (and if a tax treaty applies are attributable to a U.S. permanent establishment or fixed base maintained by
the nonU.S. Holder) will generally not be subject to U.S. withholding tax, provided such nonU.S. Holder complies with certain
certification and disclosure requirements (usually by providing an IRS Form W8ECI). Instead, such dividends will generally be
subject to U.S. federal income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to U.S.
Holders. If the nonU.S. Holder is a corporation, dividends that are effectively connected income may also be subject to a “branch
profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).
Exercise or Lapse of a Warrant
The U.S. federal income tax treatment of a nonU.S. Holder’s exercise of a warrant or the lapse of a warrant held by a nonU.S.
Holder generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. Holder, as
described under “Exercise of a Warrant” above. Accordingly, a nonU.S. Holder generally will not be subject to U.S. federal income
tax on the exercise of a warrant in exchange for ordinary shares or ADSs. However, if a cashless exercise of warrants results in a
taxable exchange, as described above in “Exercise of a Warrant” above,” the rules described below under “— Gain on Sale,
Exchange or Other Taxable Disposition of Ordinary Shares, ADSs, and Warrants” would apply.
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Gain on Sale, Exchange or Other Taxable Disposition of Ordinary Shares, ADSs, and Warrants
A nonU.S. Holder generally will not be subject to U.S. federal income or withholding tax on the proceeds from the disposition of,
our ordinary shares or ADSs or warrants, unless:
●
the gain is effectively connected with the conduct of a trade or business by the nonU.S. Holder within the United States
(and, if an applicable tax treaty so requires, is attributable to a U.S. permanent establishment or fixed base maintained by
the nonU.S. Holder);
●
the nonU.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of
disposition and certain other conditions are met; or
●
we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time
during the shorter of the fiveyear period ending on the date of disposition or the period that the nonU.S. Holder held
our ordinary shares or ADSs, and, in the case where our ordinary shares or ADSs are regularly traded on an established
securities market, the nonU.S. Holder has owned, directly or constructively, more than 5% of our regularlytraded stock
at any time within the shorter of the fiveyear period preceding the disposition or such nonU.S. Holder’s holding period
for the stock disposed of by the nonU.S. holder. There can be no assurance that our ordinary shares or ADSs will be
treated as regularly traded on an established securities market for this purpose.
Gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates. Any gains
described in the first bullet point above of a nonU.S. Holder that is a foreign corporation may also be subject to an additional
“branch profits tax” at a 30% rate (or lower applicable treaty rate). Gain described in the second bullet point above will generally be
subject to a flat 30% U.S. federal income tax, although the gain may be offset by some United States source capital losses realized
during the same taxable year. NonU.S. Holders are urged to consult their tax advisors regarding possible eligibility for benefits
under income tax treaties.
If the third bullet point above applies to a nonU.S. Holder, gain recognized by such holder on the sale, exchange or other
disposition of our ordinary shares, ADSs, or warrants will be subject to tax at generally applicable U.S. federal income tax rates. In
addition, a buyer of our ordinary shares, ADSs, or warrants from such holder may be required to withhold U.S. income tax at a rate
of 15% of the amount realized upon such disposition. We will be classified as a United States real property holding corporation if
the fair market value of our “United States real property interests” equals or exceeds 50% of the sum of the fair market value of our
worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal
income tax purposes. NonU.S. Holders are urged to consult their own tax advisors regarding the application of these rules.
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding at a rate of 24% with respect to dividends and proceeds from a disposition of
ordinary shares or ADSs or warrants. In general, backup withholding will apply only if a U.S. Holder fails to comply with specified
identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such
as corporations and taxexempt organizations.
In general, nonU.S. Holders will not be subject to backup withholding with respect to the payment of dividends and proceeds
from a disposition of ordinary shares or ADSs or warrants, provided that the applicable withholding agent does not have actual
knowledge or reason to know the holder is a United States person, and the holder either certifies its nonU.S. status, such as by
furnishing a valid IRS Form W8BEN, W8BENE or W8ECI, or otherwise establishes an exemption. However, information returns
are required to be filed with the IRS in connection with any payments of dividends on our ordinary shares or ADSs paid to the
nonU.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition
of our ordinary shares or ADSs or warrants within the United States or conducted through certain U.S.related brokers generally
will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification
described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder
otherwise establishes an exemption. Proceeds
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of a disposition of our ordinary shares or ADSs or warrants conducted through a nonU.S. office of a nonU.S. broker generally
will not be subject to backup withholding or information reporting.
Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a holder,
provided that the required information is timely furnished to the IRS.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We are subject to certain information reporting requirements of the Exchange Act, applicable to foreign private issuers and under
those requirements will file reports with the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC. We maintain a
corporate website www.quoinpharma.com. Information contained on, or that can be accessed through, our website and the other
websites referenced above do not constitute a part of this Annual Report on Form 20F. We have included these website
addresses in this Annual Report on Form 20F solely as inactive textual references.
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 will be exempt from the reporting and shortswing profit recovery
provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file quarterly
and current reports with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under
the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as
required by the SEC, an Annual Report on Form 20F containing financial statements audited by an independent registered public
accounting firm, and may submit to the SEC, on a Form 6K, unaudited quarterly financial information.
I.
Subsidiary Information.
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our
financial position, results of operations or cash flows due to adverse changes in financial market prices and rates, including
interest rates and foreign exchange rates, of financial instruments. However, our exposure to market risk for changes in interest
rates is not significant as we have no outstanding interestbearing debt instruments, and we do not hold any interestgenerating
securities. See “Item 5.B–Liquidity and Capital Resources” above.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities.
Not applicable.
B.
Warrants and Rights.
Not applicable.
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C.
Other Securities.
Not applicable.
D.
American Depositary Shares
Fees and Expenses
Persons depositing or withdrawing ordinary shares or ADS holders must
pay:
For:
$5.00 (or less) per 400 ADSs (or portion of 400 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
107
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 has 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 bookentry 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 feeattracting 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
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108
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 dealers 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 currency itself or through any of its affiliates and, in those cases, acts as principal for its own account
and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation,
transaction 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 the most favorable to ADS holders, subject
to the depositary’s obligations under the deposit agreement. The methodology used to determine exchange rates used in currency
conversions is available upon request.
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PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
See Notes 4 and 17 to Consolidated Financial Statements included elsewhere in this annual report on Form 20F.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
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A.
There are no material modifications to the rights of security holders.
B. – E.
Not applicable
ITEM 15.
CONTROLS AND PROCEDURES
A.
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of
December 31, 2021, or the “Evaluation Date.” Based on such evaluation, those officers have concluded that, as of the Evaluation
Date, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis,
information required to be included in periodic filings under the Exchange Act and that such information is accumulated and
communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
B.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, are responsible for establishing and
maintaining adequate internal control over our financial reporting, as defined in Rules 13a15(f) and 15d15(f) of the Exchange Act.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes policies and procedures that:
●
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset
dispositions;
●
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial
statements in accordance with generally accepted accounting principles;
●
provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our
management and board of directors (as appropriate); and
●
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or
disposition of assets that could have a material effect on our financial statements.
Due to its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the
framework for Internal ControlIntegrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway
Commission (COSO) (2013).
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Based on our assessment and this framework, our management concluded that our internal control over financial reporting was
effective as of December 31, 2021.
C.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal
control over financial reporting because Quoin Ltd. is not an accelerated filer or a large accelerated filer.
D.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2021, there were no changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.
[Reserved]
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that each of the following three members of our audit committee, James Culverwell, Joseph
Cooper and Natalie Leong, is an audit committee financial expert, as defined in the rules promulgated under the Exchange Act, and
is independent in accordance with applicable Exchange Act rules and the Nasdaq rules.
ITEM 16B.
CODE OF ETHICS
Our board of directors has ratified the adoption of a Code of Ethics, which became effective upon the closing of the Merger. It is
applicable to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, controller or
principal accounting officer, or other persons performing similar functions, which is a “code of ethics” as defined in Item 16B of
Form 20F promulgated by the SEC. The full text of the Code of Ethics is posted on our website at www.quoinpharma.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this a part of this Annual
Report on Form 20F and is not incorporated by reference herein.
If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from a provision of the Code
of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and
110
regulations of the SEC. We have not granted any waivers under our Code of Business Conduct and Ethics.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s shareholders appointed Deloitte, Brightman Almagor Zohar, as the Company’s independent registered public
accounting firm for the year ended December 31,2020. The Company’s shareholders appointed Friedman LLP as the Company’s
independent registered public accounting firm for the year ended December 31, 2021.
The following table provides information regarding fees paid by us to Friedman LLP and Deloitte, Brightman Almagor Zohar for all
services, including audit services, for the years ended December 31, 2021 and 2020, as applicable:
2021
2020
(in thousands)
Audit fees (1)
$
229
$
120
Auditrelated fees
$
5
—
Tax fees (2)
$
18
$
15
All other fees
$
—
—
Total
$
252
$
135
(1) Includes professional services rendered in connection with the audit of our annual financial statements and the review of
our interim financial statements.
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(2) Includes professional fees related to tax returns.
PreApproval of Auditors’ Compensation
Our audit committee has a preapproval policy for the engagement of our independent registered public accounting firm to perform
certain audit and nonaudit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the
independence of our auditors, the audit committee preapproves annually a catalog of specific audit and nonaudit services in the
categories of audit services, auditrelated services and tax services that may be performed by our independent registered public
accounting firm. If a type of service, that is to be provided by our auditors, has not received such general preapproval, it will
require specific preapproval by our audit committee. The policy prohibits retention of the independent registered public
accounting firm to perform the prohibited nonaudit functions defined in applicable SEC rules.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
In connection with the closing of the Merger, Brightman Almagor Zohar & Co., a Firm in the Deloitte Global Network (“Deloitte
Israel”) and the Company came to a mutual understanding that Deloitte Israel will not continue to serve in its position as external
auditor of the Company. On March 4, 2022, the Audit Committee recommended the appointment of Friedman LLP (“Friedman”) as
the Company’s new independent registered public accounting firm, and on March 6, 2022 our board of directors recommended the
approval of such appointment by the shareholders, which appointment was obtained at our 2022 AGM held on April 12, 2022,
effective as of that date. As described below, the change in independent registered public accounting firm is not the result of any
disagreement with Deloitte Israel.
On March 29, 2021, the audit report of Deloitte Israel on the financial statements of the Company, as of and for the years ended
December 31, 2020 and December 31, 2019, did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principles, except for an explanatory paragraph regarding the Company’s
ability to continue as a going concern. As discussed in Note 1b to the financial statements, the Company had an accumulated
deficit of NIS 118,941 at December 31, 2020 and incurred a net loss of NIS 18,077 and negative cash flows from operating activities
of NIS 15,486 during the year then ended. In addition, the Company had not yet generated revenues from its operations and was
dependent on external sources for financing its operations. These conditions raised substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans regarding these matters were also described in Note 1b. The financial
statements did not include any adjustments that might result from the outcome of this uncertainty.
During the years ended December 31, 2020 and 2019 and through the subsequent interim period preceding the expiry of Deloitte
Israel’s engagement as external auditor, there were: (i) no disagreements with Deloitte Israel on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, which if not resolved to Deloitte Israel’s satisfaction
would have caused it to make reference thereto in connection with its reports on the financial statements for such years, and
(ii) no reportable events of the type described in Item 16F(a)(1)(v) of Form 20F.
During the years ended December 31, 2020 and 2019 and through the subsequent interim period preceding Friedman’s
appointment as external auditor neither the Company nor anyone on its behalf consulted with Friedman with respect to any of
(i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion
that might be rendered on the Company’s financial statements; or (iii) any matter that was either the subject
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of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation SK) or an event of the type described in Item 16F(a)(1)(v) of
Form 20F.
The Company provided Deloitte Israel with a copy of the foregoing disclosure and requested Deloitte Israel to furnish the
Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made
therein. A copy of such letter, dated April 13, 2022, furnished by Deloitte Israel is filed as Exhibit 16.1 to this Annual Report on
Form 20F.
ITEM 16G.
CORPORATE GOVERNANCE
The SarbanesOxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as
us, to comply with various corporate governance practices. In addition, we are required to comply with the Nasdaq Capital Market
rules. Under those rules, we may elect to follow certain corporate governance practices permitted under the Companies Law in lieu
of compliance with corresponding corporate governance requirements otherwise imposed by the Nasdaq Capital Market rules for
U.S. domestic issuers.
In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the Nasdaq Capital Market rules,
we have elected to follow the provisions of the Companies Law, rather than the Nasdaq Capital Market rules, with respect to the
following requirements:
Distribution of certain reports to shareholders. As opposed to the listing rules of the Nasdaq, which require listed issuers to
make certain reports, such as annual reports, interim reports and quarterly reports, available to shareholders in one of a number of
specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted
business practice in Israel is not to distribute such reports to shareholders, but to make such reports available through a public
website. In addition to making such reports available on a public website, we plan to make our audited financial statements
available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private
issuer, we are generally exempt from the SEC’s proxy solicitation rules.
Nomination of directors. With the exception of our External Directors (should any be appointed) and directors elected by our
board of directors due to vacancy, our directors are elected by an annual meeting of our shareholders to hold office until the next
annual meeting following his or her election. See “Board Practices – Board of Directors.” Upon the recommendation of our
Nominating and Governance Committee, nominations for directors, which are presented to our shareholders by our board of
directors, are generally made by the board of directors itself, in accordance with the provisions of our articles of association and
the Companies Law.
Composition of Compensation Committee and Audit Committee. Pursuant to Regulation 5D, we have opted out from having to
appoint External Directors to the Board, and have elected to satisfy Nasdaq rule requirements in lieu of the Companies Law
requirements regarding the composition of our audit committee and compensation committee. If, at any point in time, we should
cease to satisfy the conditions set out in Regulation 5D, including, among other things, if we should become aware that a person
or persons have become a "controlling shareholder" of us (as that term is defined under the Companies Law: see "Board
Practices – Chairman of the Board"), or should our board of directors adopt a resolution to cease to avail ourselves of
Regulation 5D, we will then convene a general meeting of shareholders to elect External Directors to our board of directors as
required under the Companies Law, and following such election, we will reconstitute the membership of our audit committee,
compensation committee, and any other committees exercising a power of our board of directors (to the extent necessary and
applicable), in the manner prescribed under the Companies Law and Nasdaq listing standards, as applicable. For more details on
those requirements, see "Board Practices – External Directors; Audit Committee; Compensation Committee and Compensation
Policy").
Compensation of officers. We follow the provisions of the Companies Law with respect to matters in connection with office holder
compensation and any required approval by our shareholders of such compensation. Israeli law and our articles of association do
not require that the independent members of our board of directors, determine an executive officer’s compensation, as is generally
required under the listing rules of the Nasdaq with respect to the Chief Executive Officer and all other executive officers of a
company. Our compensation committee has been established and conducts itself in accordance with the provisions governing the
responsibilities of a compensation committee as set forth in the
Table of Contents
Companies Law. Compensation of our office holders is determined and approved by our compensation committee, and in general,
by our board of directors as well, and in certain circumstances by our shareholders, as detailed below under the caption
“— Shareholder Approval.” Thus, we will seek shareholder approval for all corporate actions with respect to office holder
compensation (including the compensation required to be approved for our Chief Executive Officer) requiring such approval under
the requirements of the Companies Law, rather than seeking approval for such corporate actions in accordance with listing rules of
the Nasdaq. See “Board Practices — Compensation Committee and Compensation Policy” below.
Independent directors. Israeli law does not require that a majority of the directors serving on our board of directors be
“independent,” as defined under the Nasdaq Capital Market Listing Rule 5605(a)(2). We are required, however, to ensure that all
members of our audit committee are “independent” under the applicable the Nasdaq Capital Market criteria for independence, and
we are required to ensure that applicable Nasdaq listing standards regarding the composition of our audit and compensation
committees are satisfied in order to continue to avail ourselves of Regulation 5D as described above. Our board of directors has
affirmatively determined that each of: Joseph Cooper, James Culverwell, Dr. Dennis H. Langer, Natalie Leong, and Michael Sember
113
qualifies as “independent” under the Nasdaq Capital Market independence standards.
Shareholder approval. Generally, we will seek shareholder approval for all corporate actions requiring such approval under the
requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with the Nasdaq Capital
Market Listing Rule 5635. In particular, under the Nasdaq Capital Market rule, shareholder approval is generally required for: (i) an
acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting
rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be
received; (ii) the issuance of shares leading to a change of control; and (iii) issuances of 20% or more of the shares or voting
rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by
directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares.
By contrast, under the Companies Law, shareholder approval is required for, among other things: (a) transactions with directors
concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that
they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all
required, (b) extraordinary transactions with our controlling shareholders, if any, which require the special approval described
under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (c) terms of office and
employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require
the special approval described under “Disclosure of personal interests of controlling shareholders and approval of certain
transactions, (d) private placements in which a controlling shareholder has a personal interest, (e) approval of transactions with
our Chief Executive Officer with respect to his or her compensation, whether or not in accordance with our compensation policy, or
transactions with any of our office holders with respect to their compensation, if not in accordance with our compensation policy,
(f) approval of our compensation policy, (g) approval of a merger, (h) approval of an increase in our authorized share capital, or any
other amendment to our articles of association, and (i) the appointment or dismissal of our external auditors. In addition, certain
forms of shareholder participation may be required in order to give effect to a acquisitions of our shares under certain
circumstances (see Acquisitions under Israeli Law: "Full Tender Offer" and "Special Tender Offer").
Quorum requirement. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an
ordinary meeting of shareholders consists of at least two shareholders present in person, by proxy or by voting instrument who
hold or 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
provided under Nasdaq Listing Rule 5260(c).
Annual Shareholders Meeting. We are not required to and, in reliance on home country practice, we do not intend to comply with
Nasdaq Stock Market Rule 5620(a), which requires a listed company to hold its annual shareholders meeting within one year of the
company’s fiscal yearend. Under the Companies Law and our articles of association, we are required to hold an annual
shareholders meeting on an annual basis, and no later than 15 months after the previous annual shareholders meeting.
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114
Other than the foregoing home country practices, we otherwise comply with the rules generally applicable to U.S. domestic
companies listed on The Nasdaq Capital Market. We may in the future decide to use the foreign private issuer exemption with
respect to some or all of the other the Nasdaq Capital Market corporate governance rules. Following our home country corporate
governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital
Market may provide less protection to you than what is accorded to investors under the listing rules of the Nasdaq applicable to
domestic U.S. issuers.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Table of Contents
PART III
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements and related information pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this Annual Report on Form 20F
beginning on page F1.
115
ITEM 19.
EXHIBITS
Exhibit No.
Exhibit Description
1.1
Amended and Restated Articles of Association of Quoin Pharmaceuticals Ltd., adopted on
February 28, 2022 (incorporated by reference to Annex A included in Exhibit 99.1 to Form 6K filed
with the SEC on February 8, 2022)
1.2
Amendment to the Amended and Restated Articles of Association of Quoin Pharmaceuticals Ltd.,
adopted on April 12, 2022 (incorporated by reference to Annex A included in Exhibit 99.1 to Form 6
K filed with the SEC on March 8, 2022)
2.1
Form of Deposit Agreement between Cellect Biotechnology Ltd. (n/k/a Quoin Pharmaceuticals Ltd.),
The Bank of New York Mellon as Depositary, and owners and holders from time to time of ADSs
issued thereunder (incorporated by reference to Exhibit 4.1 to Registration Statement on Form F1/A
as filed with the SEC on July 26, 2016)
2.2
Specimen American Depositary Receipt (included in Exhibit 2.1)
2.3
Form of Primary Warrants for the Purchase Agreement (incorporated by reference to Exhibit B to
Exhibit 10.4 to Form 6K filed with the SEC on March 24, 2021)
2.4
Form of Exchange Warrant (incorporated by reference to Exhibit 99.1 to Form 6K filed with the SEC
on September 17, 2021)
2.5*
Form of Series A Warrant
2.6*
Form of Series B Warrant
2.7*
Form of Series C Warrant
2.8*
Description of Securities
2.9
Form of Warrant Agent Agreement between Cellect Biotechnology Ltd. and Computershare Inc., as
warrant agent, including the form of Warrant (incorporated by reference to Exhibit 4.6 of the
Registration Statement on Form F1 filed with the SEC on February 7, 2019).
4.1
Compensation Policy for Executives and Directors of Quoin Pharmaceuticals Ltd, adopted on April
12, 2022 (incorporated by reference to Annex B included in Exhibit 99.1 to Form 6K filed with the
SEC on March 8, 2022)
4.2
Amended and Restated Equity Incentive Plan of Quoin Pharmaceuticals Ltd., effective as of April
12, 2022 (incorporated by reference to Annex C included in Exhibit 99.1 to Form 6K filed with the
SEC on March 8, 2022)
4.3
Form of Indemnification and Release Agreement, entered into by and between Quoin
Pharmaceuticals Ltd. and each of the officers and directors of Quoin Pharmaceuticals Ltd. as of
April 12, 2022 (incorporated by reference to Annex D included in Exhibit 99.1 to Form 6K filed with
the SEC on March 8, 2022)
4.4
Agreement and Plan of Merger and Reorganization, dated as of March 24, 2021, by and among
Cellect Biotechnology Ltd., CellMSC, Inc. and Quoin Pharmaceuticals, Inc. (incorporated by
reference to Exhibit 10.1 of the Form 6K filed with the SEC on March 24, 2021).
4.5
Amendment made as of September 24, 2021, to the Agreement and Plan of Merger and
Reorganization, dated as of March 24, 2021, by and among Cellect Biotechnology Ltd., CellMSC,
Inc., and Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 99.2 to Form 6K filed
with the SEC on September 27, 2021)
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4.6
Amended and Restated Share Transfer Agreement, dated May 27, 2021 by and between Cellect
Biotechnology Ltd. and EnCellX Inc. (incorporated by reference to Exhibit 2.2 to Registration
Statement on Form F4 filed with the SEC on June 16, 2021)
4.7
Amendment made as of September 26, 2021, to the Amended and Restated Share Transfer
Agreement dated as of May 27, 2021, by and between EnCellX, Inc. and Cellect Biotechnology Ltd.
(incorporated by reference to Exhibit 99.3 to Form 6K filed with the SEC on September 27, 2021)
4.8
Securities Purchase Agreement, dated as of March 24, 2021, by and among Cellect Biotechnology
Ltd., Quoin Pharmaceuticals, Inc. and the investors named on the Schedule of Buyers attached
thereto (incorporated by reference to Exhibit 10.4 to Form 6K filed with the SEC on March 24, 2021)
4.9
Securities Purchase Agreement, dated as of March 24, 2021, by and among Quoin Pharmaceuticals,
Inc. and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference
to Exhibit 10.6 of the Form 6K filed with the SEC on March 24, 2021)
4.10
Registration Rights Agreement, dated as of March 24, 2021, by and between Cellect Biotechnology
Ltd. and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference
to Exhibit 10.5 to Form 6K filed with the SEC on March 24, 2021)
4.11
Amendment Agreement, dated as of September 17, 2021, by and among Quoin Pharmaceuticals, Inc.,
Cellect Biotechnology Ltd., and Altium Growth Fund, L.P. (incorporated by reference to Exhibit 99.1
to Form 6K filed with the SEC on September 17, 2021)
4.12
Letter Agreement, dated September 17, 2021, between Quoin Pharmaceuticals, Inc. and Cellect
Biotechnology Ltd. (incorporated by reference to Exhibit 99.2 to Form 6K filed with the SEC on
September 17, 2021)
4.13
Second Amendment Agreement, dated as of March 13, 2022, by and among Quoin Pharmaceuticals,
Inc., Quoin Pharmaceuticals Ltd., and Altium Growth Fund, L.P. (incorporated by reference to Exhibit
4.1 to Form 6K filed with the SEC on March 28, 2022)
4.14
Letter of Agreement among Cellect Biotechnology Ltd, Dr. Shai Yarkoni and EnCellX, Inc.
(incorporated by reference to Exhibit 2.5 to Registration Statement on Form F4 filed with the SEC on
July 16, 2021)
4.15
Form of Representative Agreement among Cellect Biotechnology Ltd, Eyal Leibovitz, as
Representative, and EnCellX, Inc. (incorporated by reference to Exhibit 2.6 to Registration Statement
on Form F4 filed with the SEC on August 6, 2021)
Form of Contingent Value Rights Agreement, by and among Cellect Biotechnology Ltd., Eyal
Leibovitz in the capacity of Representative and Computershare, Inc. in the capacity of Rights Agent
(incorporated by reference to Exhibit 4.14 to Registration Statement on Form F4 filed with the SEC
116
4.16
on August 6, 2021)
4.17
Executive Employment Agreement, dated March 9, 2018, by and between Quoin Pharmaceuticals,
Inc. and Dr. Michael Myers (incorporated by reference to Exhibit 10.1 to Form 6K filed with the SEC
on October 29, 2021)
4.18
Executive Employment Agreement, dated March 9, 2018, by and between Quoin Pharmaceuticals,
Inc. and Denise Carter (incorporated by reference to Exhibit 10.2 to Form 6K filed with the SEC on
October 29, 2021)
4.19
Service Agreement, dated November 1, 2021, by and between Quoin Pharmaceuticals, Inc. and
Gordon Dunn (incorporated by reference to Exhibit 10.1 to Form 6K filed with the SEC on November
23, 2021)
4.20
Research Agreement, dated November 1, 2021, by and between Quoin Pharmaceuticals, Inc. and
Queensland University of Technology (incorporated by reference to Exhibit 10.2 to Form 6K filed
with the SEC on November 23, 2021)
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117
4.21
License and Distribution Agreement, dated November 5, 2021, by and between Quoin
Pharmaceuticals, Inc. and AFT Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.3 to
Form 6K filed with the SEC on November 23, 2021)
4.22
Supply Agreement, dated September 15, 2021, by and between Quoin Pharmaceuticals, Inc. and
AFT Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.4 to Form 6K filed with the SEC
on November 23, 2021)
4.23
License and Distribution Agreement, dated November 7, 2021, by and between Quoin
Pharmaceuticals, Inc. and GenPharm Services FZ LLC (incorporated by reference to Exhibit 10.5 to
Form 6K filed with the SEC on November 23, 2021)
4.24
Supply Agreement, dated November 7, 2021, by and between Quoin Pharmaceuticals, Inc. and
GenPharm Services FZ LLC (incorporated by reference to Exhibit 10.6 to Form 6K filed with the SEC
on November 23, 2021)
4.25
Distribution Agreement, dated December 15, 2021, by and between Quoin Pharmaceuticals, Inc. and
Orpharm LLC (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to
Exhibits in Form 20F) (incorporated by reference to Exhibit 10.1 to Form 6K filed with the SEC on
December 20, 2021)
4.26
License and Distribution Agreement, dated as of January 24, 2022 between the Company and ELog
Logistica LTDA (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4
to Exhibits in Form 20F) (incorporated by reference to Exhibit 10.1 to Form 6K filed with the SEC on
January 31, 2022)
4.27
License and Distribution Agreement, dated as of February 1, 2022, by and between Quoin
Pharmaceuticals Ltd. and ErKim İlaç Sanayi ve Ticaret A.Ş, and the First Amendment to the License
and Distribution Agreement, dated as of February 17, 2022, by and between Quoin Pharmaceuticals,
Inc. and ErKim İlaç Sanayi ve Ticaret A.Ş (certain provisions of this exhibit have been omitted
pursuant to Instruction No. 4 to Exhibits in Form 20F) (incorporated by reference to Exhibit 10.4 to
Form 6K filed with the SEC on March 8, 2022)
4.28
License and Distribution Agreement, dated as of February 11, 2022, by and between Quoin
Pharmaceuticals Ltd. and Neopharm (Israel) 1996 Ltd. (certain provisions of this exhibit have been
omitted pursuant to Instruction No. 4 to Exhibits in Form 20F) (incorporated by reference to Exhibit
10.5 to Form 6K filed with the SEC on March 8, 2022)
4.29
Supply Agreement, dated as of February 11, 2022, by and between Quoin Pharmaceuticals Ltd. and
Neopharm (Israel) 1996 Ltd. (incorporated by reference to Exhibit 10.6 to Form 6K filed with the SEC
on March 8, 2022)
4.30*
Exclusive License Agreement, dated October 17, 2019, by and between Quoin Pharmaceuticals, Inc.
and Skinvisible Inc.
4.31*
Exclusive License Agreement Renewal, dated May 8, 2020, by and between Quoin Pharmaceuticals,
Inc. and Skinvisible Inc.
4.32*
First Amendment to the Exclusive License Agreement, dated July 31, 2020, by and between Quoin
Pharmaceuticals, Inc. and Skinvisible Inc.
4.33*
Second Amendment to the Exclusive License Agreement, dated September 30, 2020, by and between
Quoin Pharmaceuticals, Inc. and Skinvisible Inc.
4.34*
Third Amendment to the Exclusive License Agreement, dated January 27, 2021, by and between
Quoin Pharmaceuticals, Inc. and Skinvisible Inc.
4.35*
Fourth Amendment to the Exclusive License Agreement, dated April 19, 2021, by and between
Quoin Pharmaceuticals, Inc. and Skinvisible Inc.
4.36*
Fifth Amendment to the Exclusive License Agreement, dated June 14, 2021, by and between Quoin
Pharmaceuticals, Inc. and Skinvisible Inc.
4.37*
Quotation – Tech Transfer and Clinical Manufacture for QRX003 Topical Lotion, dated April 8, 2021,
by Ferndale Contract Manufacturing to Quoin Pharmaceuticals, Inc. (certain provisions of this
exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20F)
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118
4.38*
Development and Supply Agreement, dated January 13, 2021, by and between TopChem
Pharmaceuticals Limited and Quoin Pharmaceuticals Limited (certain provisions of this exhibit have
been omitted pursuant to Instruction No. 4 to Exhibits in Form 20F)
4.39*
Master Services Agreement, dated November 2, 2020, by and between Therapeutics, Inc. and Quoin
Pharmaceuticals, Inc.
4.40*
Term Sheet for Agreement, dated October 29, 2019, by and between Axella Research, LLC and Quoin
Pharmaceuticals, Inc. (certain provisions of this exhibit have been omitted pursuant to Instruction
No. 4 to Exhibits in Form 20F)
4.41*
Term Sheet for Agreement, dated January 11, 2020, by and between Axella Research, LLC and Quoin
Pharmaceuticals, Inc. (re: QRX003) (certain provisions of this exhibit have been omitted pursuant to
Instruction No. 4 to Exhibits in Form 20F)
4.42*
Term Sheet for Agreement, dated January 11, 2020, by and between Axella Research, LLC and Quoin
Pharmaceuticals, Inc. (re: QRX004) (certain provisions of this exhibit have been omitted pursuant to
Instruction No. 4 to Exhibits in Form 20F)
8.1*
Subsidiaries of Quoin Pharmaceuticals Ltd.
11.1*
Code of Ethics of Quoin Pharmaceuticals Ltd.
12.1*
Certification of the Chief Executive Officer pursuant to Rule 13a14(a) of the Securities Exchange Act
of 1934.
12.2*
Certification of the Chief Financial Officer pursuant to Rule 13a14(a) of the Securities Exchange Act
of 1934
13.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350
13.2*
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350
15.1*
Consent of Friedman LLP, Certified Public Accountants
16.1*
Consent of Brightman Almagor Zohar & Co., Certified Public Accountants (Isr.), a firm in the
Deloitte Global Network
101.1*
Information formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’
Equity, (iv) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial
Statements.
*
Filed herewith
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119
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20F and that it has duly caused and
authorized the undersigned to sign this Annual Report on Form 20F filed on its behalf.
QUOIN PHARMACEUTICALS LTD.
By: /s/ Dr. Michael Myers
Dr. Michael Myers
Chief Executive Officer
Date: April 13, 2022
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Contents
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 711)
F2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020
F4
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019
F5
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2021, 2020 and 2019
F6
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
F7
Notes to consolidated financial statements
F8 – F26
F1
Table of Contents
F2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Quoin Pharmaceuticals Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Quoin Pharmaceuticals Ltd. (the “Company”) as of December 31, 2021 and
2020, the related statements of operations, and shareholders’ equity (deficit), and cash flows for the years then ended, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s 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 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 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 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 financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the
accounts or disclosures to which they relate.
Assessment of the measurement of fair value of Warrants:
As discussed in Notes 4 and 5 to the financial statements, the Company issued warrants in connection with the Convertible
Notes Payable and the Bridge Financing. The warrants were initially classified as liabilities. The warrants estimated fair value upon
their dates of issuance, as well as from those issuance dates to either the warrant exchange on October 28, 2021 or December 31,
2021, as applicable, was $12.8 million and recorded on the statement of operations as warrant liability expense. The Company
utilizes a Monte Carlo simulation model to estimate the fair value.
Table of Contents
We identified the assessment of the measurement of warrant fair value as a critical audit matter that is challenging due to the high
degree of judgment, including the involvement of professionals with specialized skills and knowledge, as well as the complex
valuation methodology that incorporates assumptions to estimate the fair value.
The primary procedures we performed to address this critical audit matter included evaluating the design of the internal control
related to the Company’s process to measure the fair value and testing the valuation methodology and corresponding inputs used
by the valuation professionals with specialized skills including:
●
Evaluating the model and methodology used to calculate the fair value of the warrants
●
Evaluating and comparing the expected price volatility against a volatility range that was independently developed using
peer group volatility information, and
●
Independently developed a range of the fair value of the warrants
F3
Contracted Research & Development Cost Recognition:
As discussed in Note 3 to the financial statements, the Company records costs for clinical trial activities based upon estimates of
costs incurred through the balance sheet date for services performed by contract research organizations, clinical study sites and
other vendors.
Auditing the recognition of preclinical and clinical trial costs associated with contracted organizations is challenging due to the
significant judgment required to determine the nature and level of services that have been received, including determining the
progress to completion of specific tasks and activities conducted in relation to what has been invoiced and recorded.
The primary procedures we performed to address this critical audit matter included:
●
Obtained an understanding of the design and operating effectiveness of internal controls for preclinical and clinical cost
recognition
●
Tested the completeness and accuracy of the underlying data used in the estimates including, but not limited to, the
estimated costs per project milestone and duration
●
Assessed the reasonableness of the significant assumptions, corroborated the progress of the preclinical and clinical
trials with the Company’s operations personnel and to information obtained by the Company directly from third parties,
and to information in contracts or statements of work including costs for those activities and project duration
●
Examined subsequent invoicing received from such third parties
/s/ Friedman LLP
We have served as the Company’s auditor since 2020.
East Hanover, New Jersey
April 13, 2022
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QUOIN PHARMACEUTICALS LTD.
F4
Consolidated Balance Sheets
December 31,
2021
2020
ASSETS
Current assets:
Cash
$
7,482,773
$
323,832
Prepaid expenses
1,015,474
—
Deferred offering costs
—
141,338
Total current assets
8,498,247
465,170
Intangible assets, net
808,604
912,648
Other assets
50,000
—
Total assets
$
9,356,851
$
1,377,818
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
$
923,239
$
—
Accrued expenses
1,685,409
960,848
Accrued license acquisition
250,000
875,000
Accrued interest and amounts due under convertible notes payable
743,840
47,041
Due to officers
4,723,732
4,888,913
Convertible notes payable
—
1,213,313
Warrant liability
373,599
—
Total liabilities
8,699,819
7,985,115
Commitments and contingencies
Shareholders’ equity (deficit):
Ordinary shares, no par value, 12,500,000,000 ordinary shares authorized – 3,354,650,799 and
1,201,460,800 (8,386,627 and 3,003,651 ADSs) ordinary shares issued and outstanding at
December 31, 2021 and 2020, respectively
—
—
Treasury Stock, 2,641,693 ordinary shares, at cost
(2,932,000)
—
Additional paid in capital
31,659,017
100
Accumulated deficit
(28,069,985)
(6,607,397)
Total shareholders’ equity (deficit)
657,032
(6,607,297)
Total liabilities and shareholders’ equity (deficit)
$
9,356,851
$
1,377,818
The accompanying footnotes are an integral part of these statements
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QUOIN PHARMACEUTICALS LTD.
F5
Consolidated Statements of Operations
Years Ended December 31,
2021
2020
2019
Revenue
$
—
$
—
$
—
Operating expenses
General and administrative
4,499,923
1,425,855
1,514,751
Research and development
1,562,927
244,155
45,650
Total operating expenses
6,062,850
1,670,010
1,560,401
Other expenses
Fair value adjustment to convertible notes payable
1,250,000
378,333
—
Warrant liability expense
12,784,329
—
—
Financing expense
275,000
—
—
Interest expense
1,090,409
47,021
—
Total other expense
15,399,738
425,354
—
Net loss
$
(21,462,588)
$
(2,095,364)
$
(1,560,401)
Loss per ADS and ordinary share
Loss per ADS
Basic
$
(5.42)
$
(0.70)
$
(0.52)
Fullydiluted
$
(5.42)
$
(0.70)
$
(0.52)
Weighted average number of ADSs outstanding
Basic
3,962,264
3,003,652
3,003,652
Fullydiluted
3,962,264
3,003,652
3,003,652
Loss per ordinary share
Basic
$
(0.01)
$
(0.70)
$
(0.52)
Fullydiluted
$
(0.01)
$
(0.70)
$
(0.52)
Weighted average number of ordinary shares outstanding
Basic
1,584,905,594
1,201,460,800
1,201,460,800
Fullydiluted
1,584,905,594
1,201,460,800
1,201,460,800
The accompanying footnotes are an integral part of these statements
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QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Shareholders’ Equity (Deficit)
Years ended December 31, 2021, 2020 and 2019
Additional
Ordinary
No Par
Treasury
Paid in
Accumulated
Shares
Value
ADSs
Stock
Capital
Deficit
Total
Balance at December 31, 2018
1,201,460,800
$
—
3,003,652
$
100
$
(2,951,632)
$ (2,951,532)
Net loss
(1,560,401)
(1,560,401)
Balance at December 31, 2019
1,201,460,800
—
3,003,652
100
(4,512,033)
(4,511,933)
Net loss
—
—
—
(2,095,364)
(2,095,364)
Balance at December 31, 2020
1,201,460,800
—
3,003,652
100
(6,607,397)
(6,607,297)
Net loss
—
—
—
(21,462,588)
(21,462,588)
Conversion of “2020 Notes” into
ordinary shares
25,913,600
64,784
1,213,313
1,213,313
Sale of equity securities, including
conversion of “Bridge Notes”
1,710,500,800
4,276,252
17,000,000
17,000,000
Costs associated with sale of equity
securities
(1,897,126)
(1,897,126)
Merger recapitalization of Cellect
416,775,599
1,041,939
(2,932,000)
2,932,000
—
Reclassification of warrants upon
issuance of exchange warrants
12,410,730
12,410,730
Balance at December 31, 2021
3,354,650,799
$
—
8,386,627
(2,932,000)
$31,659,017
$ (28,069,985)
$
657,032
The accompanying footnotes are an integral part of these statements
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QUOIN PHARMACEUTICALS LTD.
F7
Consolidated Statements of Cash Flows
Years Ended December 31,
2021
2020
2019
Cash flows provided by (used in) operating activities
Net loss
$
(21,462,588)
$
(2,095,364)
$
(1,560,401)
Fair value adjustment to convertible notes payable
1,250,000
378,333
—
Warrant liability expense
12,784,329
—
—
Financing expense
275,000
—
—
Amortization of intangibles
104,043
104,043
20,710
Changes in assets and liabilities:
Increase in accounts payable and accrued expenses
1,347,801
227,313
240,833
Increase in accrued interest
696,799
47,042
—
Increase in prepaid expenses
(715,474)
—
—
Net cash used in operating activities
(5,720,090)
(1,338,633)
(1,298,858)
Cash flows used in investing activities
Payment for license acquisition
(625,000)
(125,000)
—
Net cash used in investing activities
(625,000)
(125,000)
—
Cash flows provided by financing activities:
Increase (decrease) in deferred offering costs
141,338
(141,338)
—
Increase in other assets
(50,000)
—
—
Increase in due to officers
139,285
1,068,823
1,298,818
Payments of amounts due to officers
(304,466)
(50,000)
—
Proceeds from issuance of “Bridge Notes”, net
3,475,000
909,980
—
Proceeds from sale of equity securities, net
10,102,874
—
—
Net cash provided by financing activities
13,504,031
1,787,465
1,298,818
Net change in cash
7,158,941
323,832
(40)
Cash beginning of year
323,832
—
40
Cash end of year
$
7,482,773
$
323,832
$
—
Supplemental information:
License acquisition payable
$
—
$
—
$
1,000,000
Interest paid
393,611
Exchange of “2020 Notes” for Ordinary shares
$
1,213,313
Exchange of “Bridge Notes” for Ordinary shares
$
5,000,000
Reclassification of warrant liability to equity upon issuance of “Exchage
Warrants”
$
12,410,730
The accompanying footnotes are an integral part of these statements
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
NOTE 1 – ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Quoin Pharmaceuticals Ltd. (“Quoin Ltd.”or the “Company”), formerly known as Cellect Biotechnology Ltd. (“Cellect”), is the
holding company for Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin Inc.”). On October 28, 2021, Cellect completed
the business combination with Quoin Inc., in accordance with the terms of the Agreement and Plan of Merger and Reorganization,
dated as of March 24, 2021 (the “Merger Agreement”), by and among Cellect, Quoin Inc. and CellMSC, Inc., a Delaware
corporation and whollyowned subsidiary of Cellect (“Merger Sub”), pursuant to which Merger Sub merged with and into Quoin
Inc., with Quoin Inc. surviving as a whollyowned subsidiary of Cellect (the “Merger”). Immediately after completion of the
Merger, Cellect changed its name to “Quoin Pharmaceuticals Ltd.” The Company has accounted for the transaction as a reverse
recapitalization with Quoin Inc. as the accounting acquirer. Because Quoin Inc. is the accounting acquirer, its historical financial
statements became the Company’s historical financial statements and such assets and liabilities continued to be recorded at their
historical carrying values. The impact of the recapitalization has been retroactively applied to all periods presented. All equity
related disclosures are presented in American Depositary Shares (“ADSs”), unless the context indicates otherwise. One ADS
represents 400 ordinary shares of the Company.
Quoin Inc. was incorporated in Delaware on March 5, 2018. Quoin Inc. is a specialty pharmaceutical company focused on
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developing and commercializing therapeutic products that treat rare and orphan diseases. The first lead product is QRX003, a once
daily, topical lotion comprised of a broadspectrum serine protease inhibitor, formulated with the proprietary Invisicare®
technology, to treat Netherton Syndrome (NS). In addition, the Company. intends to pursue the clinical development of QRX003 in
additional rare dermatological diseases, including Peeling Skin Syndrome, SAM Syndrome and Palmoplantar Keratoderma.
To date, no products have been commercialized and revenue has not been generated. The majority of the operating expenses since
inception have been associated with completing due diligence on various technologies, asset technology acquisitions,
negotiating and finalizing potential funding agreements, costs related to the Merger and building the pipeline of preclinical
product candidates. The founders of Quoin Inc. funded all related expenditures through September 2020.
On October 28, 2021, Cellect sold the entire share capital of its subsidiary, Cellect Biotherapeutics Ltd., which essentially included
all of Cellect’s then existing net assets, to EnCellX Inc. (“EnCellX”), a newly formed U.S. privately held company based in San
Diego, CA (the “Share Transfer”), pursuant to an Amended and Restated Share Transfer Agreement. Quoin Ltd. has no interests
in EnCellX subsequent to the closing of the Merger. See Note 12.
On October 28, 2021, the Company completed the private placement transaction with an investor (the Investor”) for an aggregate
purchase price of approximately $17.0 million (comprised of the set off of approximately $5 million of senior secured notes issued in
connection with the bridge loan that the Investor previously made to Quoin Inc. and approximately $12 million in cash from the
Investor (the “Primary Financing”). See Note 5 .
Immediately after the closing of the Merger, there were approximately 8,386,627 ADSs issued and outstanding. The former holders
of common stock of Quoin Inc. (including shares delivered to the Investor and the escrow account for the Investor) owned, in the
aggregate, approximately 88% of the ordinary shares, with Cellect’s shareholders immediately prior to the Merger owning
approximately 12% of ordinary shares.
NOTE 2 LIQUIDITY RISKS AND UNCERTAINTIES AND GOING CONCERN
The Company has incurred net losses every year since inception and had an accumulated deficit of approximately $28.1 million at
December 31, 2021. The Company funded its operations through the issuance of the 2020 Notes (as defined below) and the Bridge
Financing (as defined below) prior to the Merger and the Primary Financing completed on October 28, 2021, whereby the Company
received funding of approximately $12 million ($10.1 million after offering costs) at the
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
closing of the Merger. Further, the Company expects to receive additional funding through the mandatory exercise provision of the
Series C Warrant issued to the Investor in March 2022 which would result in proceeds of approximately $9.5 million. In the event
the requirements of the mandatory exercise provision of such warrant are not met (see Note 5), the Company has a written
commitment from the Investor to provide funding equal to the $9.5 million expected upon exercise of the Series C Warrant, at
prevailing market rates. As such, the Company believes that it has sufficient resources to affect its business plan for at least one
year from the issuance of these consolidated financial statements. The Company is also in the process of negotiating a line of
credit with a bank which has not yet been closed as of the financial statement filing date and is likely to be conditional on
additional equity funding which could be satisfied by the aforementioned Investor funding, as well as the achievement of clinical
development milestones.
Additional financing will be required to complete the research and development of the Company’s therapeutic targets and its other
operating requirements, which may not be available at acceptable terms, if at all. If the Company is unable to obtain the additional
funding when it becomes necessary, the development of its product candidates will be impacted and the Company would likely be
forced to delay, reduce, or terminate some or all of its development programs, all of which could have a material adverse effect on
the Company’s business, results of operations and financial condition.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“U.S. GAAP”), which have been consistently applied, reflecting the operations of Quoin Inc. since
inception and include the accounts of Quoin Ltd. since the date of the Merger.
Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from
those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in
developing the estimates and assumptions that are used in the preparation of these financial statements. In addition, other factors
may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the
assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The
estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management
must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others:
settlement of debt or other obligations, fair value of debt instruments and warrants, research and development expense
recognition, intangible asset estimated useful lives and impairment assessments, allowances of deferred tax assets, contingency
recognition, and cash flow assumptions regarding going concern considerations.
Other risks and uncertainties:
The Company is subject to risks common to development stage biopharmaceutical companies including, but not limited to, new
technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government
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regulations, product liability, preclinical and clinical trial outcome risks, regulatory approval risks, uncertainty of market
acceptance and additional financing requirements.
The Company’s products require approval or clearance from the U.S. Food and Drug Administration (“FDA”) prior to commencing
commercial sales in the United States. There can be no assurance that the Company’s products will receive
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
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all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the
Company may license or sell its products.
There can be no assurance that the Company’s products, if approved, will be accepted in the marketplace, nor can there be any
assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance
characteristics, or that such products will be successfully marketed.
The Company is also dependent on several third party suppliers, in some cases singlesource suppliers which include the supplier
of the active pharmaceutical ingredient (API) as well as the contract manufacturer of the drug substance for the expected clinical
development.
A novel strain of coronavirus (“COVID19”) created a global pandemic, which commenced in 2020. The Company’s operations, to
date, have not been dramatically affected by COVID19. However, the extent of any future impact on the Company’s operational
and financial performance will depend on the possibility of a resurgence and resulting severity of COVID19 with respect to the
Company’s access to API and drug substance, the potential disruption in global freight networks, as well as our ability to safely
and efficiently conduct planned clinical trials.
Cash and cash equivalents:
The Company considers all highly liquid investments and shortterm debt instruments with original maturities of three months or
less to be cash equivalents. The Company, from time to time during the periods presented, has had bank account balances in
excess of federally insured limits where substantially all cash is held in the United States. The Company has not experienced
losses in such accounts. The Company believes that it is not subject to unusual credit risk beyond the normal credit risk
associated with commercial banking relationships.
Longlived assets:
Longlived assets are comprised of acquired technology and licensed rights to use technology, which are considered platform
technology with alternative future uses beyond the current products in development. Such intangible assets are being amortized
on a straightline basis over their expected useful life of 10 years.
The Company assesses the impairment for longlived assets whenever events or circumstances indicate the carrying value may
not be recoverable. Factors we consider that could trigger an impairment review include the following:
●
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business,
●
Significant underperformance relative to expected historical or projected development milestones,
●
Significant negative regulatory or economic trends, and
●
Significant technological changes which could render the platform technology obsolete.
The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated
fair value. During the years ended December 31, 2021, 2020 and 2019, there were no impairment indicators which required an
impairment loss measurement.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Deferred Offering Costs:
Deferred offering costs are expenses directly related to the Primary Financing. These costs consisted of legal, accounting,
printing, and filing fees that the Company capitalized which were offset against the proceeds upon completion of the Primary
Financing.
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Research and development:
Research and development costs are expensed as incurred. Research and development expenses include personnel costs
associated with research and development activities, including thirdparty contractors to perform research, conduct clinical trials
and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including
contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These
estimates include the level of services performed by third parties, patient enrollment in clinical trials when applicable,
administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts
invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be
recognized as expense in future periods as the related services are rendered.
Income taxes:
The Company accounts for its income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company maintains a full valuation allowance on its existing deferred tax assets.
The Company also accounts for uncertain tax positions using the morelikelythannot threshold for financial statement
recognition and measurement of a tax position taken in the Company’s income tax returns. As of December 31, 2021 and 2020, the
Company had no uncertain tax positions which affected its financial position and its results of operations or its cash flows and will
continue to evaluate for uncertain tax positions in the future. If at any time the Company should record interest and penalties in
connection with income taxes, the interest and the penalties will be expensed within the interest and general and administrative
expenses, respectively.
Fair value of financial instruments:
The Company considers its cash, accounts payable, accrued expenses and the convertible and bridge notes payable to meet the
definition of financial instruments. The convertible and bridge notes payable are recorded at fair value, see Notes 4, 5 and 6. The
warrants are recorded at fair value, see Notes 4, 5 and 6. The carrying amounts of the remaining financial instruments approximated
their fair values due to the short maturities.
The Company measures fair value as required by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”).
ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair
value, and expands disclosures about fair value measurements. ASC Topic 820 clarifies that fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Earnings (loss) per share:
The Company reports loss per share in accordance with ASC 26010, Earnings Per Share, which provides for calculation of
“basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or
loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net earnings
(loss) per share gives effect to ordinary shares equivalents; however, potential common shares are excluded if their effect is anti
dilutive.
For the year ended December 31, 2021, the number of shares excluded from the diluted net earnings (loss) per share included
outstanding warrants to purchase 1,787,844 ADS or 715,137,600 Ordinary Shares and warrants to purchase 15,721,514 ADS or
6,288,605,600 Ordinary Shares issuable pursuant to Primary Financing.
For the year ended December 31, 2020, the number of shares issuable upon the conversion of both the Convertible Notes Payable
(as defined below) and the Bridge Notes (as defined below) as well as the warrants issued in connection with both of these
convertible instruments are not included in the denominator since their inclusion would be antidilutive.
New accounting pronouncements:
The Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on
the Company’s financial position, results of operations or cash flows except as discussed below.
Debt with Conversion and Other Options and Derivatives and Hedging
The FASB recently issued ASU 202006, Debt – Debt with Conversion and Other Options (Subtopic 470 20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 81540): Accounting for Convertible Instruments and Contracts in
an Entity’s Own Equity, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities
and equity. The guidance in ASU 202006 simplifies the accounting for convertible debt instruments and convertible preferred
stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash conversion
features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 47020 applies to convertible
instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted
for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 81540 for
freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in
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shareholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in
more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as
well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 202006 further
revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for
convertible instruments by using the ifconverted method. In addition, entities must presume share settlement for purposes of
calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 202006 are effective for
public entities, excluding smaller reporting companies as defined, for fiscal years beginning after December 15, 2021. For all other
entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact this standard will have on its
financial statements.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
Earnings Per Share
In May 2021, the FASB issued ASU 202104, Earnings Per Share (Topic 260), DebtModifications and Extinguishments (Subtopic
47050), CompensationStock Compensation (Topic 718), and Derivatives and HedgingContracts in Entity’s Own Equity
(Subtopic 81540). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity
classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the impact of the
adoption of this pronouncement is significant to the consolidated financial statements.
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of
Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a
material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
On October 2, 2020, Quoin Inc. commenced an offering of promissory notes (the “2020 Notes” or “Convertible Notes Payable”)
and warrants. The 2020 Notes were issued at a 25% original issue discount and bear interest at a rate of 20% per annum. The 2020
Notes are due one year from their respective dates of issuance. In October through December 2020, Quoin Inc. received an
aggregate of approximately $910,000 pursuant to this offering, resulting in the issuance of 2020 Notes with an aggregate face value
of $1,213,313 and an original issue discount of $303,333. Approximately 23% of such financing was received from parties who are
related to or affiliated with members of Quoin Inc.’s board of directors. No additional funding from the 2020 Notes was received in
the year ended December 31, 2021.
Based upon the terms agreed to in March 2021 in the Primary Financing (see Note 5), the 2020 Notes were mandatorily convertible
into 64,784 ADSs in the Primary Financing, subject to adjustment.
The Company elected to account for the Convertible Notes Payable using the fair value model due to the short maturity and likely
conversion at the date of the Merger. The fair value of the Convertible Notes Payable was estimated to be approximately $1.2
million at the date of issuance, resulting in a $378,000 expense recognized in the fourth quarter of 2020. There was no material
change in the fair value from issuance until the conversion to equity on the Merger date.
The noteholders also were entitled to receive warrants exercisable at any time after the issuance date for a number of shares of
Quoin Inc.’s common stock that equates to 100% of the “as if converted” shares as if the 2020 Notes principal and interest were
F13
convertible at the lowest price any securities are sold, convertible, or exercisable into in the Primary Financing or the next round of
financing (whichever is lower). The exercise price was based on a valuation equal to the next financing round and since the
number of shares issuable upon the exercise of the warrants and exercise price were not knowable at the time of the financing and
as of December 31, 2020 they were not recognized. After entering into the Merger Agreement in March 2021, the terms of the
warrants became measurable and were exercisable for 367,356 ADSs at an initial exercise price of $3.98 per ADS.
The Company determined that these warrants met the criteria to be recorded as a liability instrument. Each holder agreed to
exchange its warrant for warrants on substantially the same terms as the Investor Exchange Warrants (See Note 5) with the same
number of shares issuable upon the exercise of an Exchange Warrant as upon the exercise of the original warrant and the same
exercise price as under the original warrant and have a contractual term of 5 years
At the closing of the Merger, 64,784 ADSs were issued upon the conversion of the principle of the Convertible Notes Payable. In
addition, effective as of March 13, 2022, the Company exchanged noteholders’ warrants for warrants on substantially the same
terms as the Investor Exchange Warrants (See Note 5), exercisable for 367,356 ADSs, in the
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F14
aggregate, at the exercise price of $3.98 per ADS. The Exchange Warrants have been determined to warrant equity classification
and, as such, the fair value change through the exchange date will be included in warrant liability expense in the accompanying
statement of operations.
In December 2021, the Company concluded that the calculation of ADSs due to the 2020 Noteholders did not account for accrued
interest due when the ADSs were issued. The Company reached cash settlements with, and plans to issue additional ADSs to, the
2020 Noteholders to account for this. The estimated amount required to settle these obligations was determined to be
approximately $744,000 at December 31, 2021 and is included in accrued liabilities in the accompanying consolidated balance sheet
and in interest expense in the accompanying consolidated statement of operations.
Interest expense, at the stated interest rate, recognized in the year ended December 31, 2021, 2020 and 2019 was approximately
$202,000, $47,000, and $0, respectively. Accrued interest and estimated settlement costs at December 31, 2021, 2020 and 2019 was
approximately $744,000, $47,000, and $0, respectively, of which $697,000 was recognized in the year ended December 31, 2021.
NOTE 5 – BRIDGE FINANCING AND SECURITIES PURCHASE AGREEMENT (Primary Financing)
Bridge Financing
In connection with the Merger Agreement and the Securities Purchase Agreement (described below), Quoin Inc. entered into a
“Bridge Purchase Agreement” on March 24, 2021 with the Investor, pursuant to which the Investor agreed to purchase, and Quoin
Inc. agreed to issue notes (the “Bridge Notes”) in the aggregate principal amount of up to $5.0 million in exchange for an
aggregate purchase price of up to $3.8 million together with warrants. The Bridge Notes were purchased in three closings: (i) the
first purchase of $2.0 million on March 25, 2021 (Quoin Inc. received proceeds of $1.5 million less fees of $90,000); (ii) the second
purchase of $1.7 million in April 2021 (Quoin Inc. received proceeds of $1.25 million) ; and (iii) a third purchase of $1.3 million in
May 2021 (Quoin Inc. received proceeds of $1.0 million less fees of $185,000). The Bridge Notes were secured by a lien on Quoin
Inc.’s current and future assets, were senior to all other outstanding and future indebtedness of Quoin Inc. and included
covenants limiting future indebtedness, among others.
The Bridge Notes were issued with a 25% original issue discount, at an interest rate of 15% per annum and had a maturity date of
the earliest to occur of: (i) December 25, 2021, (ii) the date on which Quoin Inc.’s equity is registered under the Exchange Act or is
exchanged for equity so registered or (iii) immediately prior to the closing of the Merger
The Investor and Quoin Inc. agreed that if the Primary Financing is consummated, the Investor may, at its election, offset the
purchase price otherwise payable by Investor to Quoin Inc. pursuant to the Securities Purchase Agreement related to the Primary
Financing, by an amount equal to the outstanding amount under this Bridge Note, and, upon such setoff, the portion of this
Bridge Note shall be deemed to have been paid in its entirety and all obligations thereunder shall be deemed to be fully satisfied
without any further obligations on, or liability to, Quoin Inc.
The Company elected to account for the Bridge Notes using the fair value model due to the short maturity and likely conversion at
the closing of the Merger. The cumulative fair value of the Bridge Notes was estimated to be approximately $5.0 million at the date
of issuances, resulting in an increase in the fair value of approximately $1,250,000, which was recognized in the statement of
operations for the year ended December 31, 2021. The fair value adjustments also included $275,000 of debt issuance costs which
was also immediately recognized as a component of other expense. Management has estimated that the fair value had not
significantly changed from issuance to the Merger date. See Note 6.
The Bridge Notes were offset against the purchase price under the Securities Purchase Agreement related to the Primary
Financing and converted into 1,257,721 ADSs (including shares held in escrow for the benefit of the Investor) upon the
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
closing of the Primary Financing. The accrued interest amounting to $393,611 was paid in cash. Interest expense, at the stated
interest rate, recognized in the year ended December 31, 2021 was $393,611.
Warrants
Upon the funding of each Bridge Note tranches described above, the Investor received warrants (the “Bridge Warrants”) to
purchase a number of shares of Quoin Inc.’s common stock equal to the aggregate principal amount of the Bridge Notes. The
Bridge Warrants have a term of five years from the date all of the shares underlying the Bridge Warrants are freely tradable. The
Bridge Warrants also contain certain rights with regard to asset distributions and fundamental transactions. Quoin Inc. issued a
total of 1,238,429 Bridge Warrants in the year ended December 31, 2021.
Following the closing date of the Merger, on each of the tenth trading day, the fortyfifth day, the ninetieth day, and the one
hundred thirtyfifth day thereafter (each, a “Reset Date”), if the initial exercise price of the Bridge Warrants is greater than the
arithmetic average of 85% of the three lowest weighted average prices of the postMerger ordinary shares of the combined
company during the ten trading day period immediately preceding the applicable Reset Date (the “Reset Price”), the exercise price
of the Bridge Warrants will be reset to the Reset Price. Furthermore, the number of shares underlying Bridge Warrants will be
adjusted such that the aggregate number of shares of common stock issuable to the Investor reflects the Reset Price instead of the
initial exercise price. Adjustments to the exercise price and number of warrant shares are available to the Investor until the second
anniversary of the Registration Date, as defined in the Bridge Warrants. Upon the occurrence of a Fundamental transaction, as
defined in the Bridge Warrants, the warrant holder has the right to elect a cash settlement for the value of the warrant base on the
Black Scholes options pricing model.
The Company determined that the warrants met the criteria to be recorded as a liability instrument through the exchange date upon
the closing of the Primary Financing. The fair value of warrants was determined by a MonteCarlo simulation model to be
approximately $1.6 million at the date of issuance of the 495,374 warrants in connection with the first closing and $2.2 million at the
F15
date of issuance of the 743,055 (post exchange ratio) in connection with the second and third closing of the Bridge Notes See Note
6.
Upon the closing of the Primary Financing, the Bridge Warrants were exchanged for warrants to purchase 1,238,429 ADSs at a
fixed per share exercise price of $3.98 (“Investor Exchange Warrants”), as amended, which replaced the reset provisions and
modified the fundamental transaction requirements of the Bridge Warrants. The Investor Exchange Warrants and ordinary shares
underlying the Investor Exchange Warrants were registered with the SEC on the Registration Statement on Form F4. An
amendment to the Investor Exchange Warrants was entered into in September 2021, which replaced the reset provisions with a
fixed number of shares and exercise price.
Primary Financing
On October 28, 2021, the Company completed the private placement transaction with the Investor for an aggregate purchase price
of approximately $17.0 million (comprised of (x) the set off of approximately $5 million of Bridge Notes, and (y) approximately $12
million in cash from the Investor) (the “Primary Financing”), and the Investor paid the Company approximately $11,504,000, which
was net of $393,611 in accrued interest on the Bridge Notes. The Company incurred an additional approximate $1.4 million in costs
associated with the Primary Financing, which resulted in the net proceeds of approximately $10.1 million. The Company issued
4,276,252 ADSs to the Investor, consisting of 833,773 delivered to the Investor on or after the Merger closing and 3,442,479
initially held in an escrow account for the benefit of the Investor as per the terms of the Securities Purchase Agreement. All such
escrow shares were released to the Investor prior to December 31, 2021.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F16
Quoin Ltd. also was required to issue to the Investor, effective as of March 13, 2022, the 136th day following the consummation of
the Merger (i) Series A Warrant to purchase 4,276,252 ADSs (the “Series A Warrant”) (ii) Series B Warrant to purchase 4,276,252
ADSs (the “Series B Warrant”) and (iii) Series C Warrant to purchase 2,389,670 ADSs (“Series C Warrant” and, together with the
Series A Warrant and Series B Warrant, the “Investor Warrants”). The exercise price for the Investor Warrants is $3.98 per ADS,
with Series A Warrant having a fiveyear maturity, and Series B Warrant and Series C Warrant having a twoyear maturity. The
Company has the right to require the mandatory exercise of the Series C Warrant, subject to an effective registration statement
being in place for the resale of the shares underlying such warrants and the satisfaction of equity market conditions, as defined in
the Series C Warrant. As of the financial statement filing date, not all of the market related conditions were met. Upon the exercise
of the Series C Warrant in full, the Investor would also be granted an additional Series A Warrant to purchase 2,389,670 ADSs and
an additional Series B Warrant to purchase 2,389,670 ADSs at an exercise price of $3.98 per ADS.
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. When determining the fair value
measurements for assets and liabilities the Company considers the principal or most advantageous market in which it would
transact and the marketbased risk measurements or assumptions that market participants would use in pricing the asset or
liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. For certain instruments, including cash
and cash equivalents, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value
because of the short maturities of these instruments.
Fair value is estimated using various valuation models, which utilize certain inputs and assumptions that market participants
would use in pricing the asset or liability. The inputs and assumptions used in valuation models are classified in the fair value
hierarchy as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Quoted market prices for similar instruments in an active market; quoted prices for identical or similar assets and
liabilities in markets that are not active; and modelderived valuations inputs of which are observable and can be corroborated by
market data.
Level 3: Unobservable inputs and assumptions that are supported by little or no market activity and that are significant to the
fair value of the asset and liability. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining the appropriate hierarchy levels, the Company analyzes the assets and liabilities that are subject to fair value
disclosure. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to
their fair value measurement.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F17
The significant estimates used in the determining the fair value of the 2020 Notes warrants (Note 4) were as follows:
12/31/2021 (1)
12/31/2020
Stock price
$
1.82
$
3.98
Initial exercise price
$
3.98
$
3.98
Contractual Term
5.0
5.0
Volatility
89.2 %
98 %
Discount rate
1.26 %
0.81 %
(1) The warrants issued during 2020 were not exchanged for fixed term warrants until 2022, therefore the existing warrants were
still considered outstanding at December 31, 2021 and classified as a liability instrument.
The significant estimates used in such calculation of the fair value of the warrants issued in connection with the Bridge Financing
(Note 5) were as follows:
Transaction Date
Merger Date
March May 2021
10/28/2021
Stock price
$
3.98 (post exchange ratio)
$
11.64 (post exchange ratio)
Initial exercise price
$
3.98 (post exchange ratio)
$
3.98 (post exchange ratio)
Contractual Term
5.0
5.0
Volatility
92 %
89.2 %
Discount rate
0.98 %
1.18 %
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value
hierarchy at December 31, 2021 and 2020:
December 31, 2021
Level 1
Level 2
Level 3
Total
2020 Notes warrants
—
—
$
373,599
$
373,599
Total Warrant Liability
—
—
$
373,599
$
373,599
December 31, 2020
Level 1
Level 2
Level 3
Total
2020 Notes payable
$
—
$
—
$
1,213,333
$
1,213,333
Total Liabilities
$
—
—
$
1,213,333
$
1,213,333
The fair value of the convertible notes payable issued in 2020 was determined to be $1,213,333, resulting in a charge to operations
of $378,333 during 2020. The fair value adjustment from December 31, 2020 to their conversion to ADSs at the Merger date was not
material. The initial fair value of the Bridge Notes issued in 2021 was determined to be approximately $5,000,000, resulting in a
charge to operations of $1,250,000 during 2021. The fair value adjustment from the Bridge Notes issuances to their conversion to
ADSs upon the Merger date was not significant. The Bridge Notes and 2020 Notes were converted into ADSs at the Merger date.
See Notes 4 and 5.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
The following shows the movement of the warrant liability balance during 2021.
Bridge Financing
2020 Notes
Warrants
Warrants
Beginning Balance
$
—
$
—
Warrant value at issuance (recorded as warrant liability expense)
3,783,079
894,113
Change in Fair value of warrants
8,627,651
(520,514)
Reclassification of warrant liability to an equity instrument
(12,410,730)
—
Ending Balance
$
—
$
373,599
The change in fair value of the Bridge Note warrants are included in other expense in the accompanying consolidated financial
statements from the issuance date to the Merger Date. The Exchange warrants issued to the Investor on the Merger date was
determined to be an equityclassified instrument, and accordingly the warrant liability on such date of $12,410,730 was reclassified
to additional paid in capital on that date.
NOTE 7 – PREPAID EXPENSES
Prepaid expenses are as follows:
December 31,
2021
2020
Prepaid R&D costs
$
329,033
$
—
Prepaid insurance
684,191
—
Prepaid other expenses
2,250
—
Total
$ 1,015,474
$
—
NOTE 8 – ACCRUED EXPENSES
F18
Accrued expenses are as follows:
December 31,
2021
2020
Professional fees
$
144,377
$
173,095
Investor Relations fees
584,000
528,000
Payroll taxes
199,582
148,899
Payroll
557,937
—
Research contract expenses
193,537
105,052
Other expenses
5,976
5,802
Total
$ 1,685,409
$
960,848
NOTE 9 – ASSET ACQUISITION AND INLICENSED TECHNOLOGY
Polytherapeutics
On March 24, 2018, Quoin Inc. entered into a securities purchase agreement (the “Acquisition Agreement”), in which it agreed to
acquire all of the equity interests in Polytherapeutics, Inc. (the “Seller” or “Polytherapeutics”) for $40,833 and future royalties
provided Quoin Inc. commercializes products using the technology developed by the Seller. The terms of any royalty payments to
the Seller are 4.0% of the net revenue of royalty products, as defined in the Acquisition Agreement,
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F19
received by Quoin Inc. during the ten (10) year period commencing from the date of first sale of a royalty product. If a generic
product is introduced by a third party to the market, during the royalty period, the royalty fees shall be reduced from 4% to 2%. If,
during the royalty period, two or more generic products are introduced, the royalty fees shall be reduced from 2% to 0%.
The Seller had the option to repurchase the intellectual property for $100,000 if there were no products in clinical development
using such technology. The repurchase option was not exercised and has lapsed.
Quoin Inc. also entered into a research and consulting agreement which commits Quoin Inc. to pay the Seller for additional
research and development consulting services (See Notes 12 and 15).
Skinvisible
On October 17, 2019, Quoin Inc. entered into an exclusive license agreement with Skinvisible Inc. (“Skinvisible”), pursuant to
which Skinvisible granted a license to use certain patented technology for the development of products for commercial sale in the
orphan rare skin disease field, and for the use of a proprietary polymer deliver system technology. This technology is currently
being used in the development of QRX003. In exchange for the license, Quoin Inc. agreed to pay Skinvisible $1,000,000, as well as
development and sales milestone payments and a single digit royalty on all net sales, as defined.
The development milestones originally required payments upon achieving development milestones for the first Rare Skin Disease
drug product developed using the licensed technology and the first two Ketamine products, as defined. Payments were originally
due upon successful completions of certain clinical milestones ($7.5 million) and obtaining US and EU regulatory approval ($15
million). The sales milestones required for every licensed product commercialized by Quoin Inc. are $10 million upon achievement
of $100 million in sales being achieved in the annual period; $25 million upon achievement of $250 million in sales and $50 million
upon the achievement of $400 million in sales in an annual period. On January 27, 2021, Quoin Inc. and Skinvisible entered into an
amendment which modified the clinical milestone payment requirements such that $750,000 would be payable to Skinvisible upon
achievement of specified clinical milestones, and $21.75 million upon regulatory approval in the U.S. and EU respectively. No
development milestones, sales milestones or royalty payments were due through in 2019, 2020 or 2021.
The agreement has a termination clause that is triggered if no product has commenced clinical testing 12 months after the date of
the agreement or the latest subsequent amendment. On April 19, 2021, Quoin Inc. and Skinvisible entered into another amendment
which established the development deadline as December 31, 2022. Should the Company not commence clinical testing as defined
by the development deadline, the license agreement will terminate immediately except in certain circumstances as specified in the
agreement.
The license fee was originally due in two equal installments of $500,000 payable no later than December 31, 2019 and June 30, 2020,
which were not paid. The agreement was subsequently amended for payment due on July 31, 2020. On July 31, 2020, the agreement
was amended to further extend the payment until September 30, 2020. On September 30, 2020, the agreement was again amended,
requiring payment of the license fee only when outside financing is received, as defined in the agreement. On June 21, 2021, the
parties entered into an additional amendment which modified the payment terms and required a payment of $107,500 on June 26,
2021, a payment of $250,000 within 10 days of the Primary Financing, and the remaining $250,000 upon the earlier of approval of an
Investigatory New Drug application by the FDA or December 31, 2021. This amendment also eliminated the $750,000 clinical
milestone payments described above and reduced the milestone payment upon regulatory approval of the product containing the
Skinvisible technology in either the U.S. or E.U., whichever happens first to a total of $5,000,000.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F20
At December 31, 2021 and December 31, 2020, the license acquisition liability due was $250,000 and $875,000 respectively. In
March 2022, the Company paid $50,000 against this liability. The remaining license acquisition liability has not been paid in
accordance with the terms but has not impaired the Company’s rights to the technology as the Company is in the process of
renegotiating this payment with Skinvisible.
NOTE 10 INTANGIBLE ASSETS
Intangible assets are as follows:
December 31,
2021
2020
Acquired technology – Polytherapeutics
$
40,433
$
40,433
Technology license – Skinvisible
1,000,000
1,000,000
Total cost
1,040,433
1,040,433
Accumulated amortization
(231,829)
(127,785)
Net book value
$
808,604
$
912,648
The Company recorded amortization expense of approximately $104,000, $104,000, and $21,000 in the years ended December 31,
2021, 2020 and 2019, respectively. Amortization expense for each of the next 5 years is expected to be approximately $104,000, and
then approximately $288,000 thereafter.
NOTE 11 – RELATED PARTY TRANSACTIONS
Employment Agreements and Due to Officers/Founders
In March 2018, Quoin Inc. executed employment agreements with both of its officers who are also cofounders of Quoin Inc. The
employment agreements for both officers/founders allow for a onetime expense that covers the salaries they would have otherwise
been paid for efforts they undertook in the periods since inception. The salaries and benefits allowances provided for under the
employment agreements began to accrue as the services were being provided by the officers/founders and are included in Due to
Officers on the accompanying balance sheet.
Amounts due to the officers/founders consist of amounts specified in the employment agreements since inception through
December 31, 2021 as well as reimbursable travel expenses and other amounts paid by them to third parties on behalf of Quoin Inc.
The Company repaid $304,466, $50,000, and $0 of such amounts due to officers/founders in the year ended December 31, 2021,
2020 and 2019, respectively. Since the Merger closing, the Company has been repaying amounts due to officers/founders at a rate
of $25,000 each per month (See Note 17).
Amounts due to officers at December 31, 2021 and 2020 consisted of the following:
December 31,
2021
2020
Salaries and allowances
$
4,108,500
$
3,984,000
Invoices paid on behalf of the Company
615,232
904,913
Total
$
4,723,732
$
4,888,913
During 2021, the Company incurred $108,000 of consulting expense from related parties, primarily from a related party company
controlled by a member of the Board of Directors.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
See Note 4 for related party debt and Note 12 for employment agreements.
NOTE 12 – RESEARCH, CONSULTING AGREEMENTS AND COMMITMENTS
Research and consulting agreement
Quoin Inc. entered into a research and consulting agreement (the “Research Agreement”) which commits it to pay the former
owner of Polytherapeutics (the “Consultant” or “Seller”) to transfer the technical knowhow of Polytherapeutics with respect to
(i) good manufacturing practices (“GMP”), clinical and commercial manufacturing of the Company’s PolyDur polymer and
(ii) formulation development of products utilizing the Company’s PharmaDur polymer (See Note 9). The agreement
required monthly consulting payments of $20,833 beginning on July 31, 2018 and ending February 28, 2021 (the “PostClosing
Period”) for a total of $666,667 over the consulting period. Pursuant to an amendment, the PostClosing Period was revised to
terminate on December 31, 2020.
Through December 31, 2021 and the financial statement issuance date, the Company has not made any payments, the Consultant
has not performed any services and the Company has not incurred or accrued for any expenses. See Note 15 for Consultant’s
notification of breach of contract.
F21
Other research consulting agreements
Quoin Inc. entered into three consulting agreements with Axella Research LLC (“Axella”) to provide regulatory and pre
clinical/clinical services to the Company with respect to QRX003 and QRX004. The combined fees of the three agreements are
approximately $270,000, payable as milestones under the three agreements are met. Quoin Inc. has also engaged Axella for
additional services pursuant to separate work orders. Further, Quoin Inc. has two options to pay the milestones due 1) one half in
equity of Quoin Inc. (at a prenegotiated valuation) and onehalf in cash or 2) entirely in cash, in which case a discount of
approximately 20% would be applicable. The Company recognized research and development expenses for services provided and
milestones met of approximately $247,000, $50,000 and $25,000 for the years ended December 31, 2021, 2020 and 2019, respectively
and has accrued expenses of $193,537, $105,052 and $24,940 at December 31, 2021, 2020 and 2019, respectively.
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of three years with Therapeutics Inc. for
managing preclinical and clinical development for new products in the field of dermatology. The agreement required the execution
of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs
incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. The first work
order was entered into in late 2020 for a clinical study at an expected estimated cost of approximately $3.5 million and expected
timing through the first quarter of 2023. For the year ended December 31, 2021, the Company incurred approximately $340,000 of
research and development costs related to this agreement.
In November 2021, the Company entered into a commitment for research related services associated with Netherton Syndrome of
approximately $250,000 for an expected period of eighteen months, of which an initial $25,000 expense was incurred in 2021.
Employment agreements
The employment agreements entered into by Quoin Inc. with its two founders/officers provide for a combined base salary,
including monthly allowances, of $996,000 per annum, a discretionary bonus and certain allowances and benefits. In the event of
termination of the two founders/officers for reason other than cause, as defined in the employment agreements, the founders shall
be entitled to two years of based salary and bonus.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
In November 2021, the Company appointed and entered into an employment agreement with its Chief Financial Officer which
provides for a base salary of $360,000 per annum, a discretionary bonus and certain allowances and benefits.
In November 2021, the Board of Directors of the Company approved amendments to the employment agreements increasing base
level compensation by 10% for the two founders and increasing the annual target discretionary bonus to not less than 45% of
base salary for the two founders and the Chief Financial Officer. Further a transaction bonus related to the closing of the Merger
and private placements aggregating approximately $324,000 was paid to the two founders in November 2021. See Note 17
describing subsequent shareholder approval of the employment agreements of the two founders/officers.
Performance milestones and Royalties
See Note 9 for asset and inlicensed technology commitments.
Merger agreement commitment
In consideration for the Share Transfer disclosed in Note 1, the preclosing Cellect shareholders received a contingent value right
(“CVR”) entitling the holders to earnouts during the Payment Period (as such term is defined in the Share Transfer Agreement),
comprised mainly of payments upon sale, milestone payments, license fees and exit fees realized by EnCellX. In order to secure
such right, shares constituting 40% of EnCellX share capital are held in escrow by Altshuler Shaham Trusts Ltd.
In connection with the Share Transfer, Cellect entered into a CVR Agreement with Mr. Eyal Leibovitz, in the capacity of
Representative for the holders of CVRs, and Computershare Trust Company, N.A., a federally chartered trust company (the
“Rights Agent”). Under the terms of the CVR Agreement, the holders of the Cellect ADSs immediately prior to the Merger had the
right to receive, through their ownership of CVRs, their prorata share of the net Share Transfer consideration, making such
holders of CVRs the indirect beneficiaries of the net payments under the Share Transfer. CVRs were recorded in a register
administered by the Rights Agent but were not certificated.
Since the Company will not receive any net proceeds from the CVR’s, there is no asset or liability recorded in the consolidated
financial statements.
NOTE 13 – SHAREHOLDERS’ EQUITY AND SHARE OWNERSHIP AND RIGHTS
Quoin Inc.
Quoin Inc.’s authorized capital stock consisted of 10,000 shares of common stock. On March 5, 2018, in connection with the
incorporation as a Delaware corporation, Quoin Inc. issued 100 shares for a consideration of $100 split equally between the two
founders and officers of Quoin Inc. In connection with the Merger transaction, the two founders exchanged their shares in Quoin
Inc. for 3,003,652 ADSs in Quoin Ltd. All share and per share amounts have been adjusted to reflect this recapitalization.
Quoin Ltd.
As of December 31, 2021, Quoin Ltd.’s authorized share capital consisted of 12,500,000,000 ordinary shares, no par value. These
ordinary shares are not redeemable and do not have any preemptive rights. However, the Investor has certain approval rights in
connection with the issuance of additional shares. Holders of our ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders at a shareholders meeting. Shareholders may vote at
F22
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F23
shareholders meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adopt
shareholder resolutions by means of written consent in lieu of a shareholders meeting. The board of directors shall determine and
provide a record date for each shareholders meeting and all shareholders at such record date may vote. Unless stipulated
differently in the Companies Law or in the articles of association, all shareholders’ resolutions shall be approved by a simple
majority vote.
Under Israeli law, the Company may declare and pay dividends only if, upon the determination of our board of directors, there is
no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable
obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained
earnings or earnings generated over the two most recent years legally available for distribution according to our then last
reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the
date of distribution. In the event that the Company does not have retained earnings or earnings generated over the two most
recent years legally available for distribution, the Company may seek the approval of the court in order to distribute a dividend.
The court may approve our request if it determines that there is no reasonable concern that the payment of a dividend will prevent
the Company from satisfying our existing and foreseeable obligations as they become due.
The Bank of New York Mellon, as depositary, has registered and delivered American Depositary Shares, also referred to as ADSs.
Each ADS represents four hundred (400) ordinary shares (or a right to receive four hundred (400) ordinary shares). Each ADS will
also represent any other securities, cash or other property which may be held by the depositary. ADSs may be held either
(a) directly (1) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific
number of ADSs or (2) by having uncertificated ADSs, or (b) indirectly by holding a security entitlement in ADSs through a
broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC.
Warrants and Options
The following vested stock options and warrants were outstanding at December 31, 2021, exercisable into ADSs:
ADSs
Exercise Price
Year of maturity
Warrants held by 2020 noteholders
367,356
$
3.98
2026
Warrants held by Investor
1,238,429
$
3.98
2026
Warrants held by former Cellect warrantholders
110,263
$
0.20$11.00
20222024
Options held by former Cellect optionholders(1)
71,796
$
8.60$217.00
2022
Total
1,787,844
1)
The options held by former Cellect optionholders fully vested at the closing of the Merger and expire between January and
October 2022. The incremental fair value of the stock options at the closing of the Merger was not significant. The options
were issued under the Cellect Ltd. Employee Shares Incentive Plan (the “2014 Plan”). The 2014 Plan was amended and
restated and initial grants were made to Company officers and directors, approved at the Company Annual General Meeting
held on April 12, 2022. See Note 17.
The intrinsic value of the above stock options and warrants at December 31, 2021 was negligible.
Effective as of March 13, 2022, the Company issued warrants to the Investor under the terms of the Primary Financing, exercisable
into ADSs in the following aggregate amounts. See Note 17.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
ADSs
Exercise Price
Series A warrants
6,665,922
$
3.98
Series B warrants
6,665,922
$
3.98
Series C warrants (1)
2,389,670
$
3.98
Total
15,721,514
(1) The Company expects to issue each of 2,389,670 additional Series A and Series B Warrants to the Investor upon exercise of
the Series C Warrant, which are included in the totals in the table above.
NOTE 14 – INCOME TAXES
F24
The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis
differences. The Company maintains a valuation allowance to fully offset the gross deferred tax asset because it is not more likely
than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2021 and 2020. The
valuation allowance increased by approximately $2,178,000 and $515,000 for the years ended December 31, 2021 and 2020,
respectively.
Significant components of the Company’s deferred tax assets are as follows:
December 31,
2021
2020
Deferred tax assets:
Net operating losses carryforward
$
1,945,000
$
355,000
Due to officers
1,411,000
1,467,000
Accrued expenses and other
212,000
44,000
R&D credit carryforward
102,000
—
Debt related attributes
375,000
—
Total deferred tax assets
4,045,000
1,866,000
Valuation allowance
(4,045,000)
(1,866,000)
Deferred tax asset, net of valuation allowance
$
—
$
—
At December 31, 2021 and 2020, the Company had U.S. federal and state income tax net operating loss (“NOL”) carryforward of
approximately $6,482,000 and $1,180,000, respectively, that may be used to offset future taxable income. The Internal Revenue
Code (the “IRC”) contains limitations on the use of net operating loss carryforwards after the occurrence of a substantial
ownership change as defined by IRC Section 382. The Company has not performed a detailed analysis, however utilization of such
net operating loss carryforwards will likely be significantly limited due to the shares issued in the Primary Financing and the
Merger. At December 31, 2021, the Company had approximately $102,000 of federal research and development (“R&D”) tax credit
carryforwards. If not utilized, the federal R&D credits will begin to expire in 2038.
The income tax benefit for the years ended December 31, 2021 and 2020 differed from the amounts computed by applying the US
federal income tax rate of 21% primarily because of the increase in the valuation allowance and the tax impact of fair value
adjustments and other permanent items, which resulted in an effective tax rate of zero for both years.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The
CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
United States economy and fund a nationwide effort to curtail the effect of COVID19. While the CARES Act provides sweeping
tax changes in response to the COVID19 pandemic, some of the more significant provisions which are expected to impact the
Company’s financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss
carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain
provisions of the previously enacted Tax Cuts and Jobs Act. The Company has concluded that the CARES Act did not have a
material impact on its financial position, results of operations, or cash flows.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the benefits of
the CARES Act that were scheduled to expire. The Company evaluated the impact of the Consolidated Appropriations Act on its
consolidated financial statements and related disclosures and concluded that the impact is immaterial.
NOTE 15 CONTINGENCIES
From time to time, the Company may become involved in various legal matters arising in the ordinary course of business.
Management is unaware of any matters requiring accrual for related losses in the financial statements.
In February 2020, the seller of the equity interests in Polytherapeutics and party to the Research Agreement communicated with
Quoin Inc. threatening litigation for nonpayment and related breach of contract and immediate payment of all monthly payments
in the amount of $666,667. See Notes 9 and 12. The Consultant has not provided any services and has not complied with other
technical requirements under the Research Agreement, and therefore is considered to be in breach of contract. The Company and
the Consultant have had communications with respect to the duration, commencement date and payment of the consulting
services, but a revised agreement has not been reached. No lawsuits have been filed as of the financial statement issuance date.
Should a formal claim or lawsuit be filed, the Company believes it has meritorious defenses.
NOTE 16 – LICENSE AGREEMENTS
In November and December 2021, the Company entered into three license and supply agreements, whereby the Company is
entitled to a royalty or other proceeds from the specified product revenues in select nonUS markets from the licensee, if and
when the underlying products are approved and commercialized. No royalty revenues were received in 2021.
NOTE 17 SUBSEQUENT EVENTS
In March 2022, the Company paid an aggregate of $311,670 to two out of five 2020 noteholders in settlement of the amounts
included in accrued interest payable at the closing of the Merger. See Note 4.
In the first quarter of 2022, the Company entered into four license and supply agreements, whereby the Company will receive a
royalty or other proceeds from the specified product revenues in select nonUS markets from the licensor, if and when the
F25
underlying products are approved and commercialized.
Effective as of March 13, 2022, the Company issued warrants to purchase ADSs as follows:
●
Exchanged the existing warrants of 2020 noteholders (Note 4) for warrants on substantially the same terms as the
Investor Exchange Warrant (See Note 5), exercisable for 367,356 ADSs, in the aggregate, at the exercise price of $3.98 per
ADS.
●
Issued Series A Warrant, Series B Warrant and Series C Warrant to purchase 4,276,252 ADSs, 4,276,252 ADSs and
2,389,670 ADSs, respectively, at the exercise price of $3.98 per ADS, based on the terms of the Primary
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
F26
Financing.
The Company held a Special General Meeting on February 28, 2022, at which the Company’s shareholders adopted the Amended
and Restated Articles of Association of the Company.
In March 2022, the board of directors of the Company approved the Amended and Restated Equity Incentive Plan (the “Amended
Plan”) which increased the number of ordinary shares reserved for issuance under such equity incentive plan to 15% of the
Company’s outstanding ordinary shares on a fullydiluted basis, or 1,826,991,616 ordinary shares, represented by 4,567,479 ADSs.
The board of directors further approved the award of options to Officers and Directors in aggregate to acquire 3,957,142 ADSs
under the Amended Plan, and annual discretionary bonuses for Officers of $472,500 in aggregate. The Amended Plan and certain
individual option grants and bonuses were subject to shareholder approval at our Annual General Meeting, as described below.
The Company held its Annual General Meeting on April 12, 2022, and which the Company’s shareholders approved, among other
items, the following:
●
The increase in authorized share capital from 12.5 billion to 50 billion ordinary shares.
●
Modification of the annual compensation of the two founders to a combined base salary of $990,000 and to increase the
annual discretionary bonus to not less than 45% of the annual base salary.
●
The grant of an option to purchase up to 1,071,429 ADSs to each of the two founders under the Amended Plan, at an
exercise price per ADS of $1.40, to vest over a fouryear period.
●
The grant of an option to purchase 117,857 ADSs to each nonemployee director under the Amended Plan at an exercise
price per ADS of $1.40, to vest over a threeyear period, and (as an annual grant for 2022) an option to purchase 42,857
ADSs at an exercise price per ADS of $1.40, to vest over a threeyear period.
●
The terms of repayment of indebtedness to the two founders by providing monthly payments of $25,000 to each
founder.
EX2.5 2 qnrx20211231xex2d5.htm EXHIBIT 2.5
Exhibit 2.5
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE
HOLDER, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD (X) PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT OR (Y) TO AN ACCREDITED INVESTOR IN A PRIVATE
TRANSACTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
QUOIN PHARMACEUTICALS LTD.
FORM OF SERIES A WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
Warrant No.: A__
Date of Issuance: March 13, 2022 ("Issuance Date")
Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ___________________________, the registered holder hereof or its permitted assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in
effect, at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as
defined below), ___________________________ fully paid nonassessable ADSs, subject to adjustment as provided herein
(the "Warrant Shares" and such initial number of Warrant Shares, as adjusted pursuant to Section 2. Except as otherwise
defined herein, capitalized terms in this Warrant to Purchase American Depositary Shares (including any Warrants to Purchase
American Depositary Shares issued in exchange, transfer or replacement hereof, this "Warrant"), shall have the meanings set
forth in Section 18. This Warrant is one of the Series A Warrants to purchase American Depositary Shares (the "SPA
Warrants") issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of March 24, 2021 (the
"Subscription Date"), by and among the Company, Quoin Pharmaceuticals, Inc., a Delaware corporation, and the investors
(the "Buyers") referred to therein (as may be amended, amended and restated, supplemented or otherwise modified from time
to time in accordance with its terms, the "Securities Purchase Agreement"). Capitalized terms used herein and not otherwise
defined shall have the definitions ascribed to such terms in the Securities Purchase Agreement.
1.
EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance
Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of
the Holder's election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash by wire transfer of immediately available funds or (B) if the provisions of Section 1(d) are applicable,
by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)(1)).
The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder, nor shall any ink
original signature or medallion guarantee (or other type of guarantee or notarization) with respect to any Exercise Notice be
required. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining
number of Warrant Shares. On or before the first (1st) Trading Day following the date on which the Holder has delivered the
applicable Exercise Notice to the Company, the Company shall transmit by electronic mail an acknowledgment of confirmation
of receipt of the Exercise Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the
applicable Share Delivery Date, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust
Company ("DTC") Fast Automated Securities Transfer Program and (A) the applicable Warrant Shares are subject to an
effective resale registration statement in favor of the Holder or (B) if exercised via Cashless Exercise, at a time when Rule 144
would be available for resale of the applicable Warrant Shares by the Holder, credit such aggregate number of Warrant Shares
to which the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its
Deposit / Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program or (A) the applicable Warrant Shares are not subject to an effective resale registration statement in
favor of the Holder and (B) if exercised via Cashless Exercise, at a time when Rule 144 would not be available for resale of the
applicable Warrant Shares by the Holder, issue and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and
expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any,
including, without limitation, for same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date such Warrant Shares are credited to the Holder's DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise
pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no
event later than five (5) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but
rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any
and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant
(other than the Holder's income taxes). The Company's obligations to issue and deliver Warrant Shares in accordance with the
terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. While any SPA Warrants
remain outstanding, the Company shall use a transfer agent that participates in the DTC Fast Automated Securities Transfer
Program.
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means $3.98 per ADS, subject to
adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall fail for any reason or for no
reason to issue to the Holder on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, a certificate for the number of ADSs to which the Holder is entitled
and register such ADSs on the Company's share register or if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, to credit the Holder's balance account with DTC, for such number of ADSs to which the Holder is
entitled upon the Holder's exercise of this Warrant or (II) if the Registration Statement covering the resale of the Warrant Shares
that are the subject of the Exercise Notice (the "Unavailable Warrant Shares") is not available for the resale of such
Unavailable Warrant Shares and the Company fails to promptly, but in no event later than as is required pursuant to the
Registration Rights Agreement (x) so notify the Holder in writing and (y) deliver the Warrant Shares electronically without any
restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise
to the Holder's or its designee's balance account with DTC through its Deposit / Withdrawal At Custodian system (the event
described in the immediately foregoing clause (II) is hereinafter referred as a "Notice Failure" and together with the event
described in clause (I) above, an "Exercise Failure"), then, in addition to all other remedies available to the Holder, (X) the
Company shall pay in cash to the Holder on each day after the applicable Share Delivery Date and during such Exercise Failure
an amount equal to 1.5% of the product of (A) the number of Warrant Shares not issued to the Holder on or prior to the
applicable Share Delivery Date and to which the Holder is entitled, and (B) any trading price of the ADSs selected by the
Holder in writing as in effect at any time during the period beginning on the applicable date of delivery of the applicable Exercise
Notice and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its
Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise.
In addition to the foregoing, if on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to
the Holder and register such ADSs on the Company's share register or, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, credit the Holder's balance
account with DTC for the number of ADSs to which the Holder is entitled upon the Holder's exercise hereunder or pursuant to
the Company's obligation pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) ADSs relating to the applicable Exercise Failure (a "BuyIn"),
then the Company shall, within five (5) Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions and other outofpocket
expenses, if any) for the ADSs so purchased (the "BuyIn Price"), at which point the Company's obligation to deliver such
certificate (and to issue such ADSs) or credit the Holder's balance account with DTC for such ADSs shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or certificates representing such ADSs or credit the Holder's
balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the BuyIn
Price over the product of (A) such number of ADSs, times (B) any trading price of the ADS selected by the Holder in writing as
in effect at any time during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the
applicable Share Delivery Date. Nothing herein shall limit the Holder's right to pursue any other remedies available to it
hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect
to the Company's failure to timely deliver certificates representing ADSs (or to electronically deliver such ADSs) upon the
exercise of this Warrant as required pursuant to the terms hereof. Notwithstanding the forgoing, any payments made by the
Company to the Holder pursuant to this Section 1(c) shall be made without withholding or deduction for any taxes (as defined in
the Securities Purchase Agreement), unless required by law, in which case the Company will pay such additional amounts as will
result, after such withholding or deduction, in the receipt by the Holder of the amounts that would otherwise have been
receivable in respect thereof.
(d) Cashless Exercise.
(1) Notwithstanding anything contained herein to the contrary, if at any time following the earlier
of (x) April 28, 2022 and (y) the Demand Effectiveness Deadline (as defined in the Registration Rights Agreement) of the
Demand Registration Statement (as defined in the Registration Rights Agreement), if any, filed to register the Unavailable
Warrant Shares for resale by the Holder, a Registration Statement covering the resale of the Unavailable Warrant Shares is not
available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of ADSs determined
according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) (A x C)
B
For purposes of the foregoing formula:
A= the total number of ADSs with respect to which this Warrant is then being exercised.
B= as applicable: (i) the Weighted Average Price of the ADSs on the Trading Day immediately preceding the
date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to
Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to
Section 1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule
600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at
the option of the Holder, either (x) the Weighted Average Price of the ADSs on the Trading Day immediately
preceding the date of the applicable Exercise Notice or (y) the Bid Price of the ADSs on the principal
trading market for the ADSs as reported by Bloomberg as of the time of the Holder's execution of the
applicable Exercise Notice if such Exercise Notice is executed during "regular trading hours" on a Trading
Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of "regular
trading hours" on a Trading Day) pursuant to Section 1(a) hereof or (iii) the Weighted Average Price of the
ADSs on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and
such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of
"regular trading hours" on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(2) Intentionally omitted.
(3) For purposes of Rule 144(d), the Company hereby acknowledges and agrees that the
Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares for purposes of Rule 144(d), shall be deemed to have commenced, on the Shares Closing Date. The
Company agrees not to take any position contrary to this Section 1(d) as long as the rules and interpretations of the SEC in
effect as of the Subscription Date remain unchanged in this respect.
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Beneficial Ownership Limitation on Exercises. Notwithstanding anything to the contrary contained
herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to
exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and
void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other
Attribution Parties collectively would beneficially own in excess of 4.99% (the "Maximum Percentage") of the number of
Ordinary Shares outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of Ordinary Shares beneficially
owned by the Holder and the other Attribution Parties shall include the number of Ordinary Shares held by the Holder and all
other Attribution Parties plus the number of Ordinary Shares underlying the Warrant Shares issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of Ordinary
Shares which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by
the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or
warrants, including the Series B Warrants, Series C Warrants and the Exchange Warrants) beneficially owned by the Holder or
any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section
1(f). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). For purposes of this Warrant, in determining the number of
outstanding Ordinary Shares the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum
Percentage, the Holder may rely on the number of outstanding Ordinary Shares as reflected in (x) the Company's most recent
Annual Report on Form 20F, Report of Foreign Private Issuer on Form 6K or other public filing with the Securities and
Exchange Commission (the "SEC"), as the case may be, (y) a more recent public announcement by the Company or (z) any
other written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding (the
"Reported Outstanding Share Number"). If the Company receives an Exercise Notice from the Holder at a time when the
actual number of outstanding Ordinary Shares is less than the Reported Outstanding Share Number, the Company shall (i)
promptly notify the Holder in writing of the number of Ordinary Shares then outstanding and, to the extent that such Exercise
Notice would otherwise cause the Holder's beneficial ownership, as determined pursuant to this Section 1(f), to exceed the
Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be purchased pursuant
to such Exercise Notice (the number of Warrant Shares by which such purchase is reduced, the "Reduction Shares") and (ii)
as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the
Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2)
Trading Days confirm in writing by electronic mail to the Holder the number of Ordinary Shares then outstanding. In any case,
the number of outstanding Ordinary Shares shall be determined after giving effect to the conversion or exercise of securities of
the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported
Outstanding Share Number was reported. In the event that the issuance of Warrant Shares to the Holder upon exercise of this
Warrant results in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the
Maximum Percentage of the number of outstanding Ordinary Shares (as determined under Section 13(d) of the 1934 Act), the
number of Warrant Shares so issued by which the Holder's and the other Attribution Parties' aggregate beneficial ownership
exceeds the Maximum Percentage (the "Excess Shares") shall be deemed null and void and shall be cancelled ab initio and any
portion of this Warrant so exercised shall be reinstated, and the Holder shall not have the power to vote or to transfer the Excess
Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the
Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written
notice to the Company, the Holder may from
time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such
notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixtyfirst (61st) day after
such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other
Attribution Parties and not to any other holder of SPA Warrants that is not an Attribution Party of the Holder. For purposes of
clarity, the Ordinary Shares underlying the Warrant Shares issuable pursuant to the terms of this Warrant in excess of the
Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of
Section 13(d) or Rule 16a1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall
have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of
exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph
which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make
changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this
paragraph may not be waived and shall apply to a successor holder of this Warrant.
(g) Insufficient Authorized Shares. If at any time while this Warrant remains outstanding the Company
does not have a sufficient number of authorized and unreserved Ordinary Shares to satisfy its obligation to reserve for issuance
upon exercise of this Warrant at least a number of Ordinary Shares equal to the maximum number of Ordinary Shares as shall
from time to time be necessary to effect the exercise in full of all of this Warrant then outstanding without regard to any limitation
on exercise set forth herein and assuming that the Series C Warrant has been exercised in full by paying the Aggregate Exercise
Price (as defined in the Series C Warrants) in cash (without giving effect to any limitation on exercise set forth therein) (the
"Required Reserve Amount" and the failure to have such sufficient number of authorized and unreserved Ordinary Shares, an
"Authorized Share Failure"), then the Company shall immediately take all action necessary to increase the Company's
authorized Ordinary Shares to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this
Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized
Ordinary Shares. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such increase in authorized Ordinary Shares and to cause its board
of directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if any such time
of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of its issued and outstanding
Ordinary Shares to approve the increase in the number of authorized Ordinary Shares, the Company may satisfy this obligation
by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. In the event that
upon any exercise of this Warrant, the Company does not have sufficient authorized Ordinary Shares to deliver Warrant Shares
in satisfaction of such exercise, then unless the Holder elects to void such attempted exercise, the Holder may require the
Company to pay to the Holder within five (5) Trading Days of the applicable exercise, cash in an amount equal to the product of
(i) the number of Warrant Shares that the Company is unable to deliver pursuant to this Section 1(g) and (ii) the highest
Weighted Average Price of the ADSs during the period beginning on the date of such attempted exercise and the date that the
Company makes the applicable cash payment.
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Adjustment Upon Issuance of Ordinary Shares. If and whenever on or after the Subscription Date,
except for the issuance or deemed issuance of Excluded Securities, the Company publicly announces, issues or sells, enters into
a definitive, binding agreement pursuant to which the Company is required to issue or sell or, in accordance with this Section
2(a), is deemed to have issued or sold, any Ordinary Shares (including the issuance or sale of Ordinary Shares owned or held by
or for the account of the Company, but excluding, for the avoidance of doubt, Ordinary Shares deemed to have been issued or
sold by the Company in connection with any Excluded Securities) for a consideration per Ordinary Share (the "New Issuance
Price") less than a price (the "Applicable Price") equal to the quotient obtained by dividing (x) the Exercise Price in effect
immediately prior to such public announcement, issue or sale or deemed issuance or sale or entry into such a definitive, binding
agreement, by (y) the ratio of Ordinary Shares per ADS (which ratio shall, initially, be equal to four hundred (400)) (the
foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be
reduced to an amount equal to the product obtained by multiplying (x) the New Issuance Price, by (y) the ratio of Ordinary
Shares per ADS (which ratio shall, initially, be equal to four hundred (400)). For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:
(i)
Issuance of Options. If the Company in any manner grants or sells or enters into a definitive,
binding agreement pursuant to which the Company is required to grant or sell, or the Company publicly announces the
issuance or sale of, any Options and the lowest price per Ordinary Share for which one Ordinary Share is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such Ordinary Share shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such
price per Ordinary Share. For purposes of this Section 2(a)(i), the "lowest price per Ordinary Share for which one
Ordinary Share is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any one Ordinary Share upon the granting
or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option less any consideration paid or payable by the Company with respect to
such one Ordinary Share upon the granting or sale of such Option, upon exercise of such Option and upon conversion
exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the
Exercise Price shall be made upon the actual issuance of such Ordinary Shares or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Ordinary Share upon conversion, exercise or exchange
of such Convertible Securities.
(ii)
Issuance of Convertible Securities. If the Company in any manner issues or sells, or enters into a
definitive, binding agreement pursuant to which the Company is required to grant or sell or the Company publicly
announces the issuance or sale of, any Convertible Securities and the lowest price per Ordinary Share for which one
Ordinary Share is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such
Ordinary Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per Ordinary Share. For the purposes of this Section 2(a)
(ii), the "lowest price per Ordinary Share for which one Ordinary Share is issuable upon the conversion, exercise or
exchange thereof" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one Ordinary Share upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security less any consideration paid or payable by the Company
with respect to such one Ordinary Share upon the issuance or sale of such Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of the Exercise Price shall be made upon the
actual issuance of such Ordinary Shares upon conversion, exercise or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(iii)
Change in Option Price or Rate of Conversion. If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or
exchangeable for Ordinary Shares increases or decreases at any time, the Exercise Price in effect at the time of such
increase or decrease shall be adjusted to the Exercise Price, which would have been in effect at such time had such
Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of
this Section 2(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date
are increased or decreased in the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Ordinary Shares deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(a)
shall be made if such adjustment would result in an increase of the Exercise Price then in effect.
(iv)
Calculation of Consideration Received. If any Option and/or Convertible Security and/or
Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of
the Company (as reasonably determined by the Holder, the "Primary Security", and such Option and/or Convertible
Security and/or Adjustment Right, the "Secondary Securities"), together comprising one integrated transaction, (or one
or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A)
have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or
(C) are consummated under the same plan of financing) the aggregate consideration per Ordinary Share with respect to
such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per Ordinary Share for which
one Ordinary Share was issued (or was deemed to be issued pursuant to Section 2(a)(i) or Section 2(a)(ii), as
applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such
Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair
market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of
such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security,
if any, in each case, as determined on a per Ordinary Share basis in accordance with this Section 2(a)(iv). If any
Ordinary Shares, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor (for the purpose of determining the consideration paid for such Ordinary Shares,
Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will
be deemed to be the net amount of consideration received by the Company therefor. If any Ordinary Shares, Options or
Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received
by the Company (for the purpose of determining the consideration paid for such Ordinary Shares, Option or Convertible
Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of
such consideration, except where such consideration consists of publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be the arithmetic average of the Weighted Average Prices
of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any Ordinary Shares,
Options or Convertible Securities are issued to the owners of the nonsurviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining the
consideration paid for such Ordinary Shares, Option or Convertible Security, but not for the purpose of the calculation
of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and
business of the nonsurviving entity as is attributable to such Ordinary Shares, Options or Convertible Securities (as the
case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly
by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within
five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all
parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
Notwithstanding anything to the contrary contained herein, if a calculation pursuant to this Section 2(a)(iv) would result
in an Exercise Price that is lower than the par value of the Ordinary Shares, then the Exercise Price shall be deemed to
equal the par value of the Ordinary Shares.
(v)
Record Date. If the Company takes a record of the holders of Ordinary Shares or ADSs for
the purpose of entitling them (A) to receive a dividend or other distribution payable in ADSs, Ordinary Shares, Options
or in Convertible Securities
or (B) to subscribe for or purchase ADSs, Ordinary Shares, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the ADSs or Ordinary Shares deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vi)
No Readjustments. For the avoidance of doubt, in the event the Exercise Price has been
adjusted pursuant to this Section 2(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not
consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Exercise Price
be readjusted to the Exercise Price that would have been in effect if such Dilutive Issuance had not occurred or been
consummated.
(b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant,
with the prior written consent of the Holder, (i) reduce the then current Exercise Price and/or (ii) increase the then current
number of Warrant Shares, in each case, to any amount or number and for any period of time deemed appropriate by the Board
of Directors of the Company.
(c) Adjustment Upon Subdivision or Combination of Ordinary Shares or ADSs. If the Company at any
time on or after the Shares Closing Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding Ordinary Shares or ADSs into a greater number of Ordinary Shares or ADSs, as applicable, the
Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the Shares Closing Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding Ordinary Shares or ADSs into a smaller number of
Ordinary Shares or ADSs, as applicable, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this
Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Change in ADS Ratio. If after the Issuance Date the ratio of ADSs to Ordinary Shares is increased
or reduced, then the number of Warrant Shares to be delivered upon exercise of this Warrant will be reduced or increased
(respectively) in inverse proportion to the change in the such ratio and the Exercise Price per Warrant will be increased or
reduced (respectively) in proportion to the change in Ordinary Shares per ADS, so that the total number or Warrant Shares
underlying the this Warrant and the aggregate Exercise Price for this Warrant remain unchanged.
(e) Change from ADSs to Ordinary Shares. If after the Issuance Date all outstanding ADSs are
exchanged for Ordinary Shares and this Warrant then becomes exercisable for Ordinary Shares, then (i) the number of Ordinary
Shares to be delivered upon exercise of this Warrant will equal the number of Ordinary Shares underlying the Warrant Shares
issuable upon exercise of this Warrant immediately prior to such change (without regard to any limitation on exercise set forth
herein), (ii) the Exercise Price any other prices referenced herein shall be proportionately adjusted to reflect the price per
Ordinary Share rather than the price per ADS and
(ii) all references to ADSs adjusted to appropriately reference Ordinary Shares. Following such adjustments, the total number
or Warrant Shares underlying the this Warrant and the aggregate Exercise Price for this Warrant remain unchanged.
(f) Intentionally omitted.
(g) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and the number of Warrant Shares, as mutually determined by the Company's Board of Directors and the
Required Holders, so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(g) will
increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.
3.
RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to any or all holders of Ordinary Shares or ADSs, by way of
return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, Options,
evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after the Shares Closing Date, then, in each such case,
the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein
as if the Holder had held the number of Ordinary Shares underlying the Warrant Shares acquirable upon complete exercise of
this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the
Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or, if no such record is
taken, the date as of which the record holders of Ordinary Shares or ADSs, as applicable, are to be determined for the
participation in such Distribution (provided, however, that to the extent that the Holder's right to participate in any such
Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder
shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to beneficial ownership of such
Ordinary Shares as a result of such Distribution (and beneficial ownership) to such extent) and the portion of such Distribution
shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder
and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such
Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in
abeyance) to the same extent as if there had been no such limitation).
4.
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; CHANGE OF CONTROL.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time following
the Shares Closing Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares or ADSs (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares
underlying the Warrant Shares acquirable upon complete exercise of this Warrant (without regard to any limitations or
restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Ordinary Shares or ADSs, as applicable, are to be determined for the grant, issue or sale of such
Purchase Rights (provided, however, that to the extent that the Holder's right to participate in any such Purchase Right would
result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (and shall not be entitled to beneficial ownership of such Ordinary Shares as a
result of such Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in
abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any
Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in
abeyance) to the same extent as if there had been no such limitation).
(b)
Fundamental Transactions. If, at any time after the Issuance Date until this Warrant ceases to be
outstanding, a Fundamental Transaction occurs or is consummated, then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section
1(f) on the exercise of this Warrant), the number of shares of capital stock of the successor or acquiring corporation or of ADSs
of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable
as a result of such Fundamental Transaction by a holder of the number of ADSs for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in Section 1(f) on the exercise of this
Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one ADS in such
Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of ADSs
are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The Company shall cause any Successor Entity to assume in writing all of the obligations of the
Company under this Warrant in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and
substance reasonably satisfactory to the Required Holders and approved by the Required Holders (without unreasonable delay)
prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant
which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its Parent Entity)
equivalent to the ADSs acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise
of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to
such shares of capital stock (but
taking into account the relative value of the ADSs pursuant to such Fundamental Transaction and the value of such shares of
capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Required Holders. Upon the occurrence of any such Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the
provisions of this Warrant referring to the "Company" shall be added to the term "Company" under this Warrant (so that from
and after the occurrence or consummation of such Fundamental Transaction, each and every provision of this Warrant referring
to the "Company" shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and
severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right and
power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the
Company prior thereto under this Warrant with the same effect as if the Company and such Successor Entity or Successor
Entities, jointly and severally, had been named as the Company in this Warrant.
(c) Notwithstanding the foregoing, in the event of a Change of Control, at the request of the Holder
delivered before the ninetieth (90th) day after the occurrence or consummation of such Change of Control, the Company (or the
Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such
request (or, if later, on the effective date of the Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the effective date of such Change of Control; provided, however, that, if such
Change of Control is not within the Company's control, including not approved by the Company's Board of Directors, the
Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of consideration (and
in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to
the holders of ADSs of the Company in connection with such Change of Control, whether that consideration be in the form of
cash, stock or any combination thereof, or whether the holders of ADSs are given the choice to receive from among alternative
forms of consideration in connection with such Change of Control; provided, further, that if holders of ADSs of the Company
are not offered or paid any consideration in such Change of Control, such holders of ADSs will be deemed to have received
common stock of the Successor Entity (which Successor Entity may be the Company following such Change of Control) in such
Change of Control. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or
such other consideration) within the later of (i) five (5) Business Days of the Holder's election and (ii) the date of consummation
of the applicable Change of Control.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of
this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any Ordinary Shares receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Ordinary Shares underlying the Warrant Shares issuable
upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of
the SPA Warrants, the Required Reserve Amount of Ordinary Shares.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends
or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to
the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation,
upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing
in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no SPA Warrants for fractional Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to
the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new
Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of ADSs underlying the other new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant
which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein,
such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement. The Company shall provide
the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of
such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation
of such adjustment and (ii) at least fifteen (15) Business Days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Ordinary Shares or ADSs, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to
holders of Ordinary Shares or ADSs or (C) for determining rights to vote with respect to any Fundamental Transaction, Change
of Control, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise
specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9.
AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant
may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company has obtained the written consent of the Holder.
10.
GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and
construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or
proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in Section 10(f)
of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted
by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal
action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to realize on any
collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
11.
CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company
and all of the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.
12.
DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall cause the Transfer Agent to issue to the Holder the number of
Warrant Shares that is not disputed and the Company shall submit the disputed determinations or arithmetic calculations via
electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to
the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or
the Warrant Shares within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one (1) Business Day submit via electronic mail (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld, conditioned or delayed or (b) the disputed arithmetic calculation of the Warrant
Shares to an independent, outside accountant, selected by the Holder and approved by the Company, such approval not to be
unreasonably withheld, conditioned or delayed. The Company shall cause at its expense the investment bank or the accountant,
as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later
than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
13.
REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief). No
remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein
shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder
and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or other security being required.
14.
TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged
or assigned without the consent of the Company, except as may otherwise be required by Section 2(f) of the Securities Purchase
Agreement.
15.
SEVERABILITY.
If any provision of this Warrant is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity
or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this
Warrant as so modified continues to express, without material change, the original intentions of the Company and the Holder as
to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of the Company or the Holder or the practical
realization of the benefits that would otherwise be conferred upon the Company and the Holder. The Company and the Holder
will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s),
the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
16.
DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms
of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries, the Company shall contemporaneously with any such
receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8K or otherwise. In the
event that the Company believes that a notice contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of
any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
17.
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is
placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there
occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’ rights and
involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees and disbursements.
18.
CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following
meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Adjustment Right" means any right granted with respect to any securities issued in connection
with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2(a)(i) or Section 2(a)(ii))
of Ordinary Shares (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net
consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any
cash settlement rights, cash adjustment or other similar rights).
(c) "ADS" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(d) "Affiliate" shall have the meaning ascribed to such term in Rule 405 promulgated under the 1933
Act or any successor rule.
(e) "American Depositary Shares" shall have the meaning ascribed to such term in the Securities
Purchase Agreement.
(f) "Approved Stock Plan" means any employee benefit or incentive plan which has been approved by
the Board of Directors of the Company prior to or subsequent to the Issuance Date, pursuant to which the Company's securities
may be issued to any employee, officer, consultant or director for services provided to the Company.
(g) "Attribution Parties" means, collectively, the following Persons: (i) any investment vehicle,
including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or
indirectly managed or advised by the Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect
Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together
with the Holder or any of the foregoing and (iv) any other Person whose beneficial ownership of the Ordinary Shares would or
could be aggregated with the Holder's and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For
clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum
Percentage.
(h) "Bid Price" means, for any date, the price determined by the first of the following clauses that
applies: (a) if the ADSs are then listed or quoted on an Eligible Market, the bid price of the ADSs for the time in question (or the
nearest preceding date) on the Eligible Market on which the ADSs are then listed or quoted as reported by Bloomberg (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the ADSs are not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the ADSs are then reported in the Pink Open Market (f/k/a
OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per ADS so reported, or (c) in all other cases, the fair market value of an ADS as determined
by an independent appraiser selected in good faith by the Required Holders and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
(i) "Black Scholes Consideration Value" means the value of the applicable Option or Adjustment
Right (as the case may be) calculated using the BlackScholes
Option Pricing Model obtained from the "OV" function on Bloomberg determined as of the date of issuance and reflecting (i) a
riskfree interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option or
Adjustment Right (as the case may be) as of the date of issuance of such Option or Adjustment Right (as the case may be), (ii)
an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the issuance of such Option or Adjustment Right (as the
case may be), or, if the issuance of such Option or Adjustment Right (as the case may be) is not publicly announced, the date of
issuance of such Option or Adjustment Right (as the case may be), (iii) the underlying price per ADS used in such calculation
shall be the highest Weighted Average Price of the ADSs during the period beginning on the Trading Day prior to the execution
of definitive documentation relating to the issuance of such Option or Adjustment Right (as the case may be) and ending on (A)
the Trading Day immediately following the public announcement of the execution of definitive documents with respect to the
issuance of such Option or Adjustment Right (as the case may be), or, (B) if the execution of definitive documents with respect
to the issuance of such Option or Adjustment Right (as the case may be) is not publicly announced, the date of such issuance,
(iv) a remaining option time equal to the time between the date of the public announcement of the execution of definitive
documents with respect to the issuance of such Option or Adjustment Right (as the case may be) or, if the execution of definitive
documents with respect to the issuance of such Option or Adjustment Right (as the case may be) is not publicly announced, the
date of such issuance, (v) a zero cost of borrow and (vi) a 365 day annualization factor.
(j) "Black Scholes Value" means the value of this Warrant calculated using the BlackScholes Option
Pricing Model obtained from the "OV" function on Bloomberg determined as of the day immediately following the public
announcement of the applicable contemplated Change of Control, or, if such contemplated Change of Control is not publicly
announced, the date such Change of Control has occurred or is consummated, for pricing purposes and reflecting (i) a riskfree
interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of
request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable contemplated Change of
Control, or, if such contemplated Change of Control is not publicly announced, the date such Change of Control has occurred or
is consummated, (iii) the underlying price per ADS used in such calculation shall be the greater of (x) the highest Weighted
Average Price of the ADSs during the period beginning on the Trading Day prior to the execution of definitive documentation
relating to the applicable Change of Control and ending on (A) the Trading Day immediately following the public announcement
of such contemplated Change of Control, if the applicable contemplated Change of Control is publicly announced or (B) the
Trading Day immediately following the consummation of the applicable Change of Control if the applicable contemplated Change
of Control is not publicly announced and (y) the sum of the price per ADS being offered in cash, if any, plus the value of any
noncash consideration, if any, being offered in such Change of Control, (iv) a remaining option time equal to the time between
the date of the public announcement of the applicable contemplated Change of Control or, if such applicable contemplated
Change of Control is not publicly announced, the date such Change of Control has occurred or is consummated, (v) a zero cost
of borrow and (vi) a 365 day annualization factor.
(k) "Bloomberg" means Bloomberg Financial Markets.
(l) "Bridge Securities Purchase Agreement" means that certain Securities Purchase Agreement
dated as of March 24, 2021 by and between Quoin Pharmaceuticals, Inc. and the investors listed on the signature page attached
thereto.
(m) "Business Day" means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York, New York are authorized or required by law to remain closed; provided, however, for
clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to "stay at home",
"shelterinplace", "nonessential employee" or any other similar orders or restrictions or the closure of any physical branch
locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire
transfers) of commercial banks in The City of New York, New York generally are open for use by customers on such day.
(n) "Change of Control" means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Ordinary Shares in which holders of the Company’s voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold publicly traded securities and, directly or indirectly, are, in all material respect, the holders of the voting power of the
surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if
other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to
a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company. Notwithstanding
anything herein to the contrary, any transaction or series of transaction that, directly or indirectly, results in the Company or the
Successor Entity not having ADSs, Ordinary Shares or common stock, as applicable, registered under the 1934 Act and listed
on an Eligible Market shall be deemed a Change of Control.
(o) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Ordinary Shares or ADSs.
(p) "Eligible Market" means the Principal Market, the NYSE American, The Nasdaq Capital Market,
The Nasdaq Global Market or The New York Stock Exchange.
(q) Intentionally omitted.
(h) Intentionally omitted.
(r) Intentionally omitted.
(s) "Exchange Warrants" shall mean the Warrants to purchase shares of common stock, par value
$0.01 per share, of Quoin Pharmaceuticals, Inc. issued pursuant to the Bridge Securities Purchase Agreement, which upon
consummation of the transactions contemplated by the Merger Agreement will be exchanged for identical Warrants issued by the
Company to purchase ADSs (with references to shares of such common stock appropriately adjusted to reference ADSs and
with share amounts and share prices adjusted to reflect the
Exchange Ratio (as defined in the Merger Agreement)), which form is attached as Exhibit F to the Securities Purchase
Agreement.
(t) "Excluded Securities" means any Ordinary Shares issued or issuable or deemed to be issued in
accordance with Section 2(a)(i) or Section 2(a)(ii) by the Company: (i) under any Approved Stock Plan; provided, however,
that no more than three percent (3.0%) of the number of Ordinary Shares (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring relating to the Ordinary Shares after the Shares Closing Date (as
defined in the Securities Purchase Agreement)) issued and outstanding as of the Shares Closing Date are issued or issuable to
consultants pursuant to an Approved Stock Plan hereunder as Excluded Securities, (ii) upon exercise of any SPA Warrants, any
Series B Warrants, any Series C Warrants and any Exchange Warrants; provided, that the terms of such SPA Warrants, Series
B Warrants, Series C Warrants and Exchange Warrants are not amended, modified or changed on or after the Subscription
Date, (iii) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date; provided, that such issuance of Ordinary Shares upon exercise of such Options or
Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the date immediately
preceding the Subscription Date and such Options or Convertible Securities are not amended, modified or changed on or after
the Subscription Date, (iv) pursuant to the Merger Agreement or the Form F4 (as defined in the Securities Purchase
Agreement) or (v) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested
directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its Subsidiaries, an
operating company or an owner of an asset in a business synergistic with the business of the Company and shall be entered into
for bona fide reasons other than capital raising and shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing securities for the purpose of raising capital or to an
entity whose primary business is investing in securities.
(u) "Expiration Date" means the date sixty (60) months after the Warrant Closing Date (as defined in
the Securities Purchase Agreement) or, if such date falls on a Holiday, the next day that is not a Holiday.
(v) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including
through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether
or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company or any of its "significant subsidiaries" (as defined in Rule 102
of Regulation SX) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the
Company to be subject to or have its Ordinary Shares be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding Ordinary Shares,
(y) 50% of the outstanding Ordinary Shares calculated as if any Ordinary Shares held by all Subject Entities making or party to,
or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z)
such number of Ordinary Shares such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or
party to, such purchase, tender or exchange offer, become collectively the
beneficial owners (as defined in Rule 13d3 under the 1934 Act) of at least 50% of the outstanding Ordinary Shares, or (iv)
consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spinoff or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities,
individually or in the aggregate, acquire, either (x) at least 50% of the outstanding Ordinary Shares, (y) at least 50% of the
outstanding Ordinary Shares calculated as if any Ordinary Shares held by all the Subject Entities making or party to, or Affiliated
with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding;
or (z) such number of Ordinary Shares such that the Subject Entities become collectively the beneficial owners (as defined in
Rule 13d3 under the 1934 Act) of at least 50% of the outstanding Ordinary Shares, or (v) reorganize, recapitalize or reclassify
its Ordinary Shares, (B) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in
one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become
the "beneficial owner" (as defined in Rule 13d3 under the 1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding Ordinary Shares, merger,
consolidation, business combination, reorganization, recapitalization, spinoff, scheme of arrangement, reorganization,
recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary
voting power represented by issued and outstanding Ordinary Shares, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Ordinary Shares not held by all such Subject Entities as of the Subscription Date
calculated as if any Ordinary Shares held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate
ordinary voting power represented by issued and outstanding Ordinary Shares or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders
of the Company to surrender their Ordinary Shares without approval of the stockholders of the Company or (C) that the
Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions,
the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents,
the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which
may be defective or inconsistent with the intended treatment of such instrument or transaction. For the avoidance of doubt, in no
event shall the Merger (as defined in the Merger Agreement) completed on or before the Issuance Date be deemed to be a
"Fundamental Transaction."
(w) "Group" means a "group" as that term is used in Section 13(d) of the 1934 Act and as defined in
Rule 13d5 thereunder.
(x) "Holiday" means a day other than a Business Day or on which trading does not take place on the
Principal Market.
(y) "Lead Investor" means Altium Growth Fund, LP.
(z) "Merger Agreement" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(aa)
"Options" means any rights, warrants or options to subscribe for or purchase (i) Ordinary
Shares or ADSs or (ii) Convertible Securities.
(bb)
"Ordinary Shares" means (i) the Company's ordinary shares, no par value per share, including,
(bb)
O d a y S a es
ea s ( ) t e Co pa ys o d a y s a es, o pa va ue pe s a e,
c ud g,
without limitation, the Company's ordinary shares, no par value per share, underlying ADSs and (ii) any share capital into which
such Ordinary Shares shall be changed or any share capital resulting from a reclassification, reorganization or recapitalization of
such Ordinary Shares.
(cc) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable
Person, including such entity whose common capital or equivalent equity security is quoted or listed on an Eligible Market (or, if
so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such
entity, the Person or such entity designated by the Required Holders or in the absence of such designation, such Person or entity
with the largest public market capitalization as of the date of consummation of the Fundamental Transaction or Change of
Control, as applicable.
(dd) "Person" means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(ee) "Principal Market" means The Nasdaq Global Select Market or, if The Nasdaq Global Select
Market is not, as of the applicable date of determination, the primary Eligible market with respect to the ADSs, then such
primary Eligible Market.
(ff) Intentionally omitted.
(gg)
Intentionally omitted.
(hh) "Registration Rights Agreement" means that certain Registration Rights Agreement dated as of
the Subscription Date by and among the Company and the Buyers, as may be amended, amended and restated, supplemented
or otherwise modified from time to time in accordance with its terms.
(ii) "Registration Statement" shall have the meaning ascribed to such term in the Registration Rights
Agreement.
(jj) "Required Holders" means the holders of the SPA Warrants representing at least a majority of the
Ordinary Shares underlying the Warrant Shares issuable upon exercise of the SPA Warrants then outstanding (without regard to
any limitation on exercise set forth therein) and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates
holds any SPA Warrants.
(kk) "Rule 144" means Rule 144 promulgated under the 1933 Act or any successor rule.
(ll) Intentionally omitted.
(mm) "Series B Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement, including pursuant to Section 1(g) thereof.
(nn) "Series C Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement, including pursuant to Section 1(g) thereof.
(oo) "Share Delivery Date" means the earlier of (i) the second (2nd) Trading Day and (ii) the number
of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder delivers the
applicable Exercise Notice to the Company, so long as the Holder delivers the applicable Aggregate Exercise Price (or notice of
a Cashless Exercise) on or prior to the earlier of (i) the second (2nd) Trading Day following the date on which the Holder has
delivered the applicable Exercise Notice to the Company and (ii) the number of Trading Days comprising the Standard
Settlement Period following the date on which the Holder has delivered the applicable Exercise Notice to the Company
(provided that if the applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) has not been delivered to
the Company by such date, the applicable Share Delivery Date shall be one (1) Trading Day after the Holder has delivered the
applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) to the Company.
(pp)
"Shares Closing Date" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(qq) "Standard Settlement Period" means the standard settlement period, expressed in a number of
Trading Days, on the Principal Market with respect to the ADSs as in effect on the date of delivery of the applicable Exercise
Notice.
(rr) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such
Person, Persons or Group.
(ss)"Subsidiary" means any entity in which the Company, directly or indirectly, owns any of the capital
stock or holds an equity or similar interest.
(tt) "Successor Entity" means one or more Person or Persons (or, if so elected by the Holder, the
Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or Change of Control, as
applicable, or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which
such Fundamental Transaction or Change of Control, as applicable, shall have been entered into.
(uu) "taxes" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(vv) "Trading Day" means any day on which the ADSs are traded on the Principal Market.
(ww)
"Weighted Average Price" means, for any security as of any date, the dollar volumeweighted
average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York time (or such other
time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York time (or such
other
time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at
Price" function or, if the foregoing does not apply, the dollar volumeweighted average price of such security in the overthe
counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York time (or
such other time as such market publicly announces is the official open of trading), and ending at 4:00 p.m., New York time (or
such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar
volumeweighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open
Market (f/k/a OTC Pink) published by the OTC Markets Group, Inc. (or similar organization or agency succeeding to its
functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12 with the term "Weighted Average Price" being
substituted for the term "Exercise Price." All such determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or other similar transaction relating to the Ordinary Shares and/or the ADSs, as
applicable, during the applicable calculation period.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase American Depositary Shares to be
duly executed as of the Issuance Date set out above.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
QUOIN PHARMACEUTICALS LTD.
The undersigned holder hereby exercises the right to purchase _________________ American Depositary Shares
("Warrant Shares") of Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), evidenced by the attached Warrant to Purchase American Depositary Shares (the "Warrant"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________ Warrant Shares, resulting in a
delivery obligation of the Company to the Holder of __________ ADSs representing the
applicable Net Number.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of
the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance
with the terms of the Warrant.
4. Please issue the ADSs into which the Warrant is being exercised to the Holder, or for its benefit, as follows:
☐
Check here if requesting delivery as a certificate to the following name and to the following address:
Issue to:
Address:
Telephone Number:
Email Address:
☐
Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
DTC Participant:
DTC Number:
Account Number:
Authorization:
By:
Title:
Dated:
Account Number (if electronic book entry transfer):
Transaction Code
Number (if electronic
book entry transfer):
Date:
,
Name of Registered Holder
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Shareowner Services LLC
to issue the above indicated number of ADSs in accordance with the Transfer Agent Instructions dated as of March 21, 2022
from the Company and acknowledged and agreed to by Computershare Shareowner Services LLC.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EX2.6 3 qnrx20211231xex2d6.htm EXHIBIT 2.6
Exhibit 2.6
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE
HOLDER, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD (X) PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT OR (Y) TO AN ACCREDITED INVESTOR IN A PRIVATE
TRANSACTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
QUOIN PHARMACEUTICALS LTD.
FORM OF SERIES B WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
Warrant No.: B__
Date of Issuance: _______________ ("Issuance Date")
Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________ the registered holder hereof or its permitted assigns (the "Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at
any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as defined
below), __________________________fully paid nonassessable ADSs, subject to adjustment as provided herein (the
"Warrant Shares" and such initial number of Warrant Shares, as adjusted pursuant to Section 2. Except as otherwise defined
herein, capitalized terms in this Warrant to Purchase American Depositary Shares (including any Warrants to Purchase American
Depositary Shares issued in exchange, transfer or replacement hereof, this "Warrant"), shall have the meanings set forth in
Section 18. This Warrant is one of the Series B Warrants to purchase American Depositary Shares (the "SPA Warrants")
issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of March 24, 2021 (the "Subscription
Date"), by and among the Company, Quoin Pharmaceuticals, Inc., a Delaware corporation, and the investors (the "Buyers")
referred to therein (as may be amended, amended and restated, supplemented or otherwise modified from time to time in
accordance with its terms, the "Securities Purchase Agreement"). Capitalized terms used herein and not otherwise defined
shall have the definitions ascribed to such terms in the Securities Purchase Agreement.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance
Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of
the Holder's election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash by wire transfer of immediately available funds or (B) if the provisions of Section 1(d) are applicable,
by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)(1)) or
an Alternate Cashless Exercise (as defined in Section 1(d)(2)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder, nor shall any inkoriginal signature or medallion guarantee (or other type of guarantee or
notarization) with respect to any Exercise Notice be required. Execution and delivery of the Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st) Trading Day following the
date on which the Holder has delivered the applicable Exercise Notice to the Company, the Company shall transmit by
electronic mail an acknowledgment of confirmation of receipt of the Exercise Notice to the Holder and the Company's transfer
agent (the "Transfer Agent"). On or before the applicable Share Delivery Date, the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and (A)
the applicable Warrant Shares are subject to an effective resale registration statement in favor of the Holder or (B) if exercised
via Cashless Exercise or Alternate Cashless Exercise, at a time when Rule 144 would be available for resale of the applicable
Warrant Shares by the Holder, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC through its Deposit / Withdrawal At Custodian system, or
(Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or (A) the applicable
Warrant Shares are not subject to an effective resale registration statement in favor of the Holder and (B) if exercised via
Cashless Exercise or Alternate Cashless Exercise, at a time when Rule 144 would not be available for resale of the applicable
Warrant Shares by the Holder, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant
Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of
the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any, including, without
limitation, for same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder's DTC account or the date of delivery of the certificates
evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the
number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later
than five (5) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of
Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather
the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any and
all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant (other
than the Holder's income taxes). The Company's obligations to issue and deliver Warrant Shares in accordance with the terms
and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. While any SPA Warrants
remain outstanding, the Company shall use a transfer agent that participates in the DTC Fast Automated Securities Transfer
Program.
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means $3.98 per ADS, subject to
adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall fail for any reason or for no
reason to issue to the Holder on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, a certificate for the number of ADSs to which the Holder is entitled
and register such ADSs on the Company's share register or if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, to credit the Holder's balance account with DTC, for such number of ADSs to which the Holder is
entitled upon the Holder's exercise of this Warrant or (II) if the Registration Statement covering the resale of the Warrant Shares
that are the subject of the Exercise Notice (the "Unavailable Warrant Shares") is not available for the resale of such
Unavailable Warrant Shares and the Company fails to promptly, but in no event later than as is required pursuant to the
Registration Rights Agreement (x) so notify the Holder in writing and (y) deliver the Warrant Shares electronically without any
restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise
to the Holder's or its designee's balance account with DTC through its Deposit / Withdrawal At Custodian system (the event
described in the immediately foregoing clause (II) is hereinafter referred as a "Notice Failure" and together with the event
described in clause (I) above, an "Exercise Failure"), then, in addition to all other remedies available to the Holder, (X) the
Company shall pay in cash to the Holder on each day after the applicable Share Delivery Date and during such Exercise Failure
an amount equal to 1.5% of the product of (A) the number of Warrant Shares not issued to the Holder on or prior to the
applicable Share Delivery Date and to which the Holder is entitled, and (B) any trading price of the ADSs selected by the
Holder in writing as in effect at any time during the period beginning on the applicable date of delivery of the applicable Exercise
Notice and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its
Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise.
In addition to the foregoing, if on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to
the Holder and register such ADSs on the Company's share register or, if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer Program, credit the Holder's balance account with DTC for the
number of ADSs to which the Holder is entitled upon the Holder's exercise hereunder or pursuant to the Company's obligation
pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day the Holder purchases (in an
open market transaction or otherwise) ADSs relating to the applicable Exercise Failure (a "BuyIn"), then the Company shall,
within five (5) Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage commissions and other outofpocket expenses, if any)
for the ADSs so purchased (the "BuyIn Price"), at which point the Company's obligation to deliver such certificate (and to
issue such ADSs) or credit the Holder's balance account with DTC for such ADSs shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such ADSs or credit the Holder's balance account with
DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the BuyIn Price over the product of
(A) such number of ADSs, times (B) any trading price of the ADS selected by the Holder in writing as in effect at any time
during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the applicable Share Delivery
Date. Nothing herein shall limit the Holder's right to pursue any other remedies available to it hereunder, at law or in equity,
including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing ADSs (or to electronically deliver such ADSs) upon the exercise of this Warrant as
required pursuant to the terms hereof. Notwithstanding the forgoing, any payments made by the Company to the Holder
pursuant to this Section 1(c) shall be made without withholding or deduction for any taxes (as defined in the Securities Purchase
Agreement), unless required by law, in which case the Company will pay such additional amounts as will result, after such
withholding or deduction, in the receipt by the Holder of the amounts that would otherwise have been receivable in respect
thereof.
(d) Cashless Exercise.
(1) Notwithstanding anything contained herein to the contrary, if at any time following the earlier
of (x) April 28, 2022 and (y) the Demand Effectiveness Deadline (as defined in the Registration Rights Agreement) of the
Demand Registration Statement (as defined in the Registration Rights Agreement), if any, filed to register the Unavailable
Warrant Shares for resale by the Holder, a Registration Statement covering the resale of the Unavailable Warrant Shares is not
available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of ADSs determined
according to the following formula (a "Cashless Exercise"):
Net Number = (A x B) (A x C)
B
For purposes of the foregoing formula:
A= the total number of ADSs with respect to which this Warrant is then being exercised.
B= as applicable: (i) the Weighted Average Price of the ADSs on the Trading Day immediately preceding the
date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to
Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to
Section 1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule
600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at
the option of the Holder, either (x) the Weighted Average Price of the ADSs on the Trading Day immediately
preceding the date of the applicable Exercise Notice or (y) the Bid Price of the ADSs on the principal
trading market for the ADSs as reported by Bloomberg as of the time of the Holder's execution of the
applicable Exercise Notice if such Exercise Notice is executed during "regular trading hours" on a Trading
Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of "regular
trading hours" on a Trading Day) pursuant to Section 1(a) hereof or (iii) the Weighted Average Price of the
ADSs on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and
such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of
"regular trading hours" on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(2) Notwithstanding the foregoing, if on any Trading Day after April 28, 2022 the Weighted
Average Price of the ADSs is less than the Exercise Price for five (5) consecutive Trading Days, the Holder shall have the right,
at any time while the Weighted Average Price of the ADSs is less than the Exercise Price, at the Holder's sole option and as
elected by the Holder on the applicable Exercise Notice, to effect a Cashless Exercise hereunder, in whole or in part, but in lieu
of receiving such aggregate number of Warrant Shares as described in the formula set forth in Section 1(d)(1), the Holder shall
receive 1.0 ADS for each Warrant Share being exercised hereunder in such Cashless Exercise (each, an "Alternate Cashless
Exercise").
(3) For purposes of Rule 144(d), the Company hereby acknowledges and agrees that the
Warrant Shares issued in a Cashless Exercise or an Alternate Cashless Exercise shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares for purposes of Rule 144(d), shall be deemed to have commenced, on
the Shares Closing Date. The Company agrees not to take any position contrary to this Section 1(d) as long as the rules and
interpretations of the SEC in effect as of the Subscription Date remain unchanged in this respect.
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Beneficial Ownership Limitation on Exercises. Notwithstanding anything to the contrary contained
herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to
exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and
void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other
Attribution Parties collectively would beneficially own in excess of 4.99% (the "Maximum Percentage") of the number of
Ordinary Shares outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the
aggregate number of Ordinary Shares beneficially owned by the Holder and the other Attribution Parties shall include the number
of Ordinary Shares held by the Holder and all other Attribution Parties plus the number of Ordinary Shares underlying the
Warrant Shares issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made,
but shall exclude the number of Ordinary Shares which would be issuable upon (A) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of
the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible
notes or convertible preferred stock or warrants, including the Series A Warrants, Series C Warrants and the Exchange
Warrants) beneficially owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise
analogous to the limitation contained in this Section 1(f). For purposes of this Section 1(f), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). For
purposes of this Warrant, in determining the number of outstanding Ordinary Shares the Holder may acquire upon the exercise of
this Warrant without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding Ordinary Shares as
reflected in (x) the Company's most recent Annual Report on Form 20F, Report of Foreign Private Issuer on Form 6K or
other public filing with the Securities and Exchange Commission (the "SEC"), as the case may be, (y) a more recent public
announcement by the Company or (z) any other written notice by the Company or the Transfer Agent setting forth the number of
Ordinary Shares outstanding (the "Reported Outstanding Share Number"). If the Company receives an Exercise Notice
from the Holder at a time when the actual number of outstanding Ordinary Shares is less than the Reported Outstanding Share
Number, the Company shall (i) promptly notify the Holder in writing of the number of Ordinary Shares then outstanding and, to
the extent that such Exercise Notice would otherwise cause the Holder's beneficial ownership, as determined pursuant to this
Section 1(f), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares
to be purchased pursuant to such Exercise Notice (the number of Warrant Shares by which such purchase is reduced, the
"Reduction Shares") and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid
by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Trading Days confirm in writing by electronic mail to the Holder the number of Ordinary Shares
then outstanding. In any case, the number of outstanding Ordinary Shares shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party since
the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of Warrant Shares to
the Holder upon exercise of this Warrant results in the Holder and the other Attribution Parties being deemed to beneficially
own, in the aggregate, more than the Maximum Percentage of the number of outstanding Ordinary Shares (as determined under
Section 13(d) of the 1934
Act), the number of Warrant Shares so issued by which the Holder's and the other Attribution Parties' aggregate beneficial
ownership exceeds the Maximum Percentage (the "Excess Shares") shall be deemed null and void and shall be cancelled ab
initio and any portion of this Warrant so exercised shall be reinstated, and the Holder shall not have the power to vote or to
transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and
void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage
will not be effective until the sixtyfirst (61st) day after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of SPA Warrants that is not
an Attribution Party of the Holder. For purposes of clarity, the Ordinary Shares underlying the Warrant Shares issuable pursuant
to the terms of this Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder
for any purpose including for purposes of Section 13(d) or Rule 16a1(a)(1) of the 1934 Act. No prior inability to exercise this
Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any
portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in
this Section 1(f) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The
limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Warrant.
(g) Insufficient Authorized Shares. If at any time while this Warrant remains outstanding the Company
does not have a sufficient number of authorized and unreserved Ordinary Shares to satisfy its obligation to reserve for issuance
upon exercise of this Warrant at least a number of Ordinary Shares equal to the maximum number of Ordinary Shares as shall
from time to time be necessary to effect the exercise in full of all of this Warrant then outstanding without regard to any limitation
on exercise set forth herein and assuming that the Series C Warrant has been exercised in full by paying the Aggregate Exercise
Price (as defined in the Series C Warrants) in cash (without giving effect to any limitation on exercise set forth therein) (the
"Required Reserve Amount" and the failure to have such sufficient number of authorized and unreserved Ordinary Shares, an
"Authorized Share Failure"), then the Company shall immediately take all action necessary to increase the Company's
authorized Ordinary Shares to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this
Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized
Ordinary Shares. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders' approval of such increase in authorized Ordinary Shares and to cause its board
of directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if any such time
of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of its issued and outstanding
Ordinary Shares to approve the increase in the number of authorized Ordinary Shares,
the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information
Statement on Schedule 14C. In the event that upon any exercise of this Warrant, the Company does not have sufficient
authorized Ordinary Shares to deliver Warrant Shares in satisfaction of such exercise, then unless the Holder elects to void such
attempted exercise, the Holder may require the Company to pay to the Holder within five (5) Trading Days of the applicable
exercise, cash in an amount equal to the product of (i) the number of Warrant Shares that the Company is unable to deliver
pursuant to this Section 1(g) and (ii) the highest Weighted Average Price of the ADSs during the period beginning on the date of
such attempted exercise and the date that the Company makes the applicable cash payment.
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Adjustment Upon Issuance of Ordinary Shares. If and whenever on or after the Subscription Date,
except for the issuance or deemed issuance of Excluded Securities, the Company publicly announces, issues or sells, enters into
a definitive, binding agreement pursuant to which the Company is required to issue or sell or, in accordance with this Section
2(a), is deemed to have issued or sold, any Ordinary Shares (including the issuance or sale of Ordinary Shares owned or held by
or for the account of the Company, but excluding, for the avoidance of doubt, Ordinary Shares deemed to have been issued or
sold by the Company in connection with any Excluded Securities) for a consideration per Ordinary Share (the "New Issuance
Price") less than a price (the "Applicable Price") equal to the quotient obtained by dividing (x) the Exercise Price in effect
immediately prior to such public announcement, issue or sale or deemed issuance or sale or entry into such a definitive, binding
agreement, by (y) the ratio of Ordinary Shares per ADS (which ratio shall, initially, be equal to four hundred (400)) (the
foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be
reduced to an amount equal to the product obtained by multiplying (x) the New Issuance Price, by (y) the ratio of Ordinary
Shares per ADS (which ratio shall, initially, be equal to four hundred (400)). For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or sells or enters into a definitive, binding
agreement pursuant to which the Company is required to grant or sell, or the Company publicly announces the issuance
or sale of, any Options and the lowest price per Ordinary Share for which one Ordinary Share is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such Ordinary Share shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such
price per Ordinary Share. For purposes of this Section 2(a)(i), the "lowest price per Ordinary Share for which one
Ordinary Share is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any one Ordinary Share upon the granting
or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option less any
consideration paid or payable by the Company with respect to such one Ordinary Share upon the granting or sale of
such Option, upon exercise of such Option and upon conversion exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Exercise Price shall be made upon the actual
issuance of such Ordinary Shares or of such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Ordinary Share upon conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells, or enters into a
definitive, binding agreement pursuant to which the Company is required to grant or sell or the Company publicly
announces the issuance or sale of, any Convertible Securities and the lowest price per Ordinary Share for which one
Ordinary Share is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such
Ordinary Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per Ordinary Share. For the purposes of this Section 2(a)
(ii), the "lowest price per Ordinary Share for which one Ordinary Share is issuable upon the conversion, exercise or
exchange thereof" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one Ordinary Share upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security less any consideration paid or payable by the Company
with respect to such one Ordinary Share upon the issuance or sale of such Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of the Exercise Price shall be made upon the
actual issuance of such Ordinary Shares upon conversion, exercise or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options,
the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for
Ordinary Shares increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price, which would have been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or
decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and
the Ordinary Shares deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect.
(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or
Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of
the Company (as reasonably determined by the Holder, the "Primary Security", and such Option and/or Convertible
Security and/or Adjustment Right, the "Secondary Securities"), together comprising one integrated transaction, (or one
or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A)
have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or
(C) are consummated under the same plan of financing) the aggregate consideration per Ordinary Share with respect to
such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per Ordinary Share for which
one Ordinary Share was issued (or was deemed to be issued pursuant to Section 2(a)(i) or Section 2(a)(ii), as
applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such
Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair
market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of
such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security,
if any, in each case, as determined on a per Ordinary Share basis in accordance with this Section 2(a)(iv). If any
Ordinary Shares, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor (for the purpose of determining the consideration paid for such Ordinary Shares,
Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will
be deemed to be the net amount of consideration received by the Company therefor. If any Ordinary Shares, Options or
Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received
by the Company (for the purpose of determining the consideration paid for such Ordinary Shares, Option or Convertible
Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of
such consideration, except where such consideration consists of publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be the arithmetic average of the Weighted Average Prices
of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any Ordinary Shares,
Options or Convertible Securities are issued to the owners of the nonsurviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining the
consideration paid for such Ordinary Shares, Option or Convertible Security, but not for the purpose of the calculation
of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and
business of the nonsurviving entity as is attributable to such Ordinary Shares, Options or Convertible Securities (as the
case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly
by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within
five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all
parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the Company. Notwithstanding anything to the
contrary contained herein, if a calculation pursuant to this Section 2(a)(iv) would result in an Exercise Price that is lower
than the par value of the Ordinary Shares, then the Exercise Price shall be deemed to equal the par value of the Ordinary
Shares.
(v) Record Date. If the Company takes a record of the holders of Ordinary Shares or ADSs for the
purpose of entitling them (A) to receive a dividend or other distribution payable in ADSs, Ordinary Shares, Options or in
Convertible Securities or (B) to subscribe for or purchase ADSs, Ordinary Shares, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of the ADSs or Ordinary Shares deemed to
have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(vi) No Readjustments. For the avoidance of doubt, in the event the Exercise Price has been adjusted
pursuant to this Section 2(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not
consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Exercise Price
be readjusted to the Exercise Price that would have been in effect if such Dilutive Issuance had not occurred or been
consummated.
(b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant,
with the prior written consent of the Holder, (i) reduce the then current Exercise Price and/or (ii) increase the then current
number of Warrant Shares, in each case, to any amount or number and for any period of time deemed appropriate by the Board
of Directors of the Company.
(c) Adjustment Upon Subdivision or Combination of Ordinary Shares or ADSs. If the Company at any
time on or after the Shares Closing Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding Ordinary Shares or ADSs into a greater number of Ordinary Shares or ADSs, as applicable, the
Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the Shares Closing Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding Ordinary Shares or ADSs into a smaller number of
Ordinary Shares or ADSs, as applicable, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this
Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Change in ADS Ratio. If after the Issuance Date the ratio of ADSs to Ordinary Shares is increased
or reduced, then the number of Warrant Shares to be delivered upon exercise of this Warrant will be reduced or increased
(respectively) in inverse proportion to the change in the such ratio and the Exercise Price per Warrant will be increased or
reduced (respectively) in proportion to the change in Ordinary Shares per ADS, so that the total number or
Warrant Shares underlying the this Warrant and the aggregate Exercise Price for this Warrant remain unchanged.
(e) Change from ADSs to Ordinary Shares. If after the Issuance Date all outstanding ADSs are
exchanged for Ordinary Shares and this Warrant then becomes exercisable for Ordinary Shares, then (i) the number of Ordinary
Shares to be delivered upon exercise of this Warrant will equal the number of Ordinary Shares underlying the Warrant Shares
issuable upon exercise of this Warrant immediately prior to such change (without regard to any limitation on exercise set forth
herein), (ii) the Exercise Price any other prices referenced herein shall be proportionately adjusted to reflect the price per
Ordinary Share rather than the price per ADS and (ii) all references to ADSs adjusted to appropriately reference Ordinary
Shares. Following such adjustments, the total number or Warrant Shares underlying the this Warrant and the aggregate Exercise
Price for this Warrant remain unchanged.
(f) Intentionally omitted.
(g) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and the number of Warrant Shares, as mutually determined by the Company's Board of Directors and the
Required Holders, so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(g) will
increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to any or all holders of Ordinary Shares or ADSs, by way of return
of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, Options,
evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after the Shares Closing Date, then, in each such case,
the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein
as if the Holder had held the number of Ordinary Shares underlying the Warrant Shares acquirable upon complete exercise of
this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the
Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or, if no such record is
taken, the date as of which the record holders of Ordinary Shares or ADSs, as applicable, are to be determined for the
participation in such Distribution (provided, however, that to the extent that the Holder's right to participate in any such
Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder
shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to beneficial ownership of such
Ordinary Shares as a result of such Distribution (and beneficial ownership) to such extent) and the portion of such Distribution
shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder
and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such
Distribution (and
any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the
same extent as if there had been no such limitation).
4.
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; CHANGE OF CONTROL.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time following
the Shares Closing Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares or ADSs (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares underlying the Warrant
Shares acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this
Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of
Ordinary Shares or ADSs, as applicable, are to be determined for the grant, issue or sale of such Purchase Rights (provided,
however, that to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (and shall not be entitled to beneficial ownership of such Ordinary Shares as a result of such
Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in abeyance for
the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to
the same extent as if there had been no such limitation).
(b)
Fundamental Transactions. If, at any time after the Issuance Date until this Warrant ceases to be
outstanding, a Fundamental Transaction occurs or is consummated, then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section
1(f) on the exercise of this Warrant), the number of shares of capital stock of the successor or acquiring corporation or of ADSs
of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable
as a result of such Fundamental Transaction by a holder of the number of ADSs for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in Section 1(f) on the exercise of this
Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one ADS in such
Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of ADSs
are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction. The Company shall cause any Successor Entity to assume in writing all of the
obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance reasonably satisfactory to the Required Holders and approved by the Required Holders
(without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder
in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity
(or its Parent Entity) equivalent to the ADSs acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the
exercise price hereunder to such shares of capital stock (but taking into account the relative value of the ADSs pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Required Holders. Upon the
occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Warrant referring to the "Company" shall be added to the
term "Company" under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction,
each and every provision of this Warrant referring to the "Company" shall refer instead to each of the Company and the
Successor Entity or Successor Entities, jointly and severally), and the Successor Entity or Successor Entities, jointly and
severally with the Company, may exercise every right and power of the Company prior thereto and the Successor Entity or
Successor Entities shall assume all of the obligations of the Company prior thereto under this Warrant with the same effect as if
the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company in this
Warrant.
(c) Notwithstanding the foregoing, in the event of a Change of Control, at the request of the Holder
delivered before the ninetieth (90th) day after the occurrence or consummation of such Change of Control, the Company (or the
Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such
request (or, if later, on the effective date of the Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the effective date of such Change of Control; provided, however, that, if such
Change of Control is not within the Company's control, including not approved by the Company's Board of Directors, the
Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of consideration (and
in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to
the holders of ADSs of the Company in connection with such Change of Control, whether that consideration be in the form of
cash, stock or any combination thereof, or whether the holders of ADSs are given the choice to receive from among alternative
forms of consideration in connection with such Change of Control; provided, further, that if holders of ADSs of the Company
are not offered or paid any consideration in such Change of Control, such holders of ADSs will be deemed to have received
common stock of the Successor Entity (which Successor Entity may be the Company following such Change of Control) in such
Change of Control. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or
such other consideration) within the later of (i) five (5) Business
Days of the Holder's election and (ii) the date of consummation of the applicable Change of Control.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of
this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any Ordinary Shares receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Ordinary Shares underlying the Warrant Shares issuable
upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of
the SPA Warrants, the Required Reserve Amount of Ordinary Shares.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends
or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to
the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and
deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares
then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing
in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such
surrender; provided, however, that no SPA Warrants for fractional Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to
the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new
Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of ADSs underlying the other new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant
which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein,
such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement. The Company shall provide
the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of
such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation
of such adjustment and (ii) at least fifteen (15) Business Days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Ordinary Shares or ADSs, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to
holders of Ordinary Shares or ADSs or (C) for determining rights to vote with respect to any Fundamental Transaction, Change
of Control, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise
specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may
be amended or waived and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written
consent of the Holder.
10.
GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and
construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in
Section 10(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to
realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the
Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
11.
CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company
and all of the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.
12.
DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall cause the Transfer Agent to issue to the Holder the number of
Warrant Shares that is not disputed and the Company shall submit the disputed determinations or arithmetic calculations via
electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to
the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or
the Warrant Shares within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one (1) Business Day submit via electronic mail (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld, conditioned or delayed or (b) the disputed arithmetic calculation of the Warrant
Shares to an independent, outside accountant, selected by the Holder and approved by the Company, such approval not to be
unreasonably withheld, conditioned or delayed. The Company shall cause at its expense the investment bank or the accountant,
as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later
than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
13.
REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief). No
remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein
shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder
and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being
required.
14.
TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged
or assigned without the consent of the Company, except as may otherwise be required by Section 2(f) of the Securities Purchase
Agreement.
15.
SEVERABILITY.If any provision of this Warrant is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity
or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this
Warrant as so modified continues to express, without material change, the original intentions of the Company and the Holder as
to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of the Company or the Holder or the practical
realization of the benefits that would otherwise be conferred upon the Company and the Holder. The Company and the Holder
will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s),
the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
16.
DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms
of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries, the Company shall contemporaneously with any such
receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8K or otherwise. In the
event that the Company believes that a notice contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of
any such indication,
the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.
17.
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is
placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there
occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’ rights and
involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees and disbursements.
18.
CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following
meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Adjustment Right" means any right granted with respect to any securities issued in connection
with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2(a)(i) or Section 2(a)(ii))
of Ordinary Shares (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net
consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any
cash settlement rights, cash adjustment or other similar rights).
(c) "ADS" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(d) "Affiliate" shall have the meaning ascribed to such term in Rule 405 promulgated under the 1933
Act or any successor rule.
(e) "American Depositary Shares" shall have the meaning ascribed to such term in the Securities
Purchase Agreement.
(f) "Approved Stock Plan" means any employee benefit or incentive plan which has been approved by
the Board of Directors of the Company prior to or subsequent to the Issuance Date, pursuant to which the Company's securities
may be issued to any employee, officer, consultant or director for services provided to the Company.
(g) "Attribution Parties" means, collectively, the following Persons: (i) any investment vehicle,
including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or
indirectly managed or advised by the Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect
Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together
with the Holder or any of the foregoing and (iv) any other Person whose beneficial ownership of the Ordinary Shares would or
could be aggregated with the Holder's and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For
clarity, the purpose of the
foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(h) "Bid Price" means, for any date, the price determined by the first of the following clauses that
applies: (a) if the ADSs are then listed or quoted on an Eligible Market, the bid price of the ADSs for the time in question (or the
nearest preceding date) on the Eligible Market on which the ADSs are then listed or quoted as reported by Bloomberg (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the ADSs are not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the ADSs are then reported in the Pink Open Market (f/k/a
OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per ADS so reported, or (c) in all other cases, the fair market value of an ADS as determined
by an independent appraiser selected in good faith by the Required Holders and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
(i) "Black Scholes Consideration Value" means the value of the applicable Option or Adjustment
Right (as the case may be) calculated using the BlackScholes Option Pricing Model obtained from the "OV" function on
Bloomberg determined as of the date of issuance and reflecting (i) a riskfree interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of such Option or Adjustment Right (as the case may be) as of the date of issuance
of such Option or Adjustment Right (as the case may be), (ii) an expected volatility equal to the greater of 100% and the 100
day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public
announcement of the issuance of such Option or Adjustment Right (as the case may be), or, if the issuance of such Option or
Adjustment Right (as the case may be) is not publicly announced, the date of issuance of such Option or Adjustment Right (as
the case may be), (iii) the underlying price per ADS used in such calculation shall be the highest Weighted Average Price of the
ADSs during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance
of such Option or Adjustment Right (as the case may be) and ending on (A) the Trading Day immediately following the public
announcement of the execution of definitive documents with respect to the issuance of such Option or Adjustment Right (as the
case may be), or, (B) if the execution of definitive documents with respect to the issuance of such Option or Adjustment Right
(as the case may be) is not publicly announced, the date of such issuance, (iv) a remaining option time equal to the time between
the date of the public announcement of the execution of definitive documents with respect to the issuance of such Option or
Adjustment Right (as the case may be) or, if the execution of definitive documents with respect to the issuance of such Option or
Adjustment Right (as the case may be) is not publicly announced, the date of such issuance, (v) a zero cost of borrow and (vi) a
365 day annualization factor.
(j) "Black Scholes Value" means the value of this Warrant calculated using the BlackScholes Option
Pricing Model obtained from the "OV" function on Bloomberg determined as of the day immediately following the public
announcement of the applicable contemplated Change of Control, or, if such contemplated Change of Control is not publicly
announced, the date such Change of Control has occurred or is consummated, for pricing purposes and reflecting (i) a riskfree
interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of
request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as
of the Trading Day immediately following the public announcement of the applicable contemplated Change of Control, or, if such
contemplated Change of Control is not publicly announced, the date such Change of Control has occurred or is consummated,
(iii) the underlying price per ADS used in such calculation shall be the greater of (x) the highest Weighted Average Price of the
ADSs during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the applicable
Change of Control and ending on (A) the Trading Day immediately following the public announcement of such contemplated
Change of Control, if the applicable contemplated Change of Control is publicly announced or (B) the Trading Day immediately
following the consummation of the applicable Change of Control if the applicable contemplated Change of Control is not publicly
announced and (y) the sum of the price per ADS being offered in cash, if any, plus the value of any noncash consideration, if
any, being offered in such Change of Control, (iv) a remaining option time equal to the time between the date of the public
announcement of the applicable contemplated Change of Control or, if such applicable contemplated Change of Control is not
publicly announced, the date such Change of Control has occurred or is consummated, (v) a zero cost of borrow and (vi) a 365
day annualization factor.
(k) "Bloomberg" means Bloomberg Financial Markets.
(l) "Bridge Securities Purchase Agreement" means that certain Securities Purchase Agreement
dated as of March 24, 2021 by and between Quoin Pharmaceuticals, Inc. and the investors listed on the signature page attached
thereto.
(m) "Business Day" means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York, New York are authorized or required by law to remain closed; provided, however, for
clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to "stay at home",
"shelterinplace", "nonessential employee" or any other similar orders or restrictions or the closure of any physical branch
locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire
transfers) of commercial banks in The City of New York, New York generally are open for use by customers on such day.
(n) "Change of Control" means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Ordinary Shares in which holders of the Company’s voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold publicly traded securities and, directly or indirectly, are, in all material respect, the holders of the voting power of the
surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if
other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to
a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company. Notwithstanding
anything herein to the contrary, any transaction or series of transaction that, directly or indirectly, results in the Company or the
Successor Entity not having ADSs, Ordinary Shares or common stock, as applicable, registered under the 1934 Act and listed
on an Eligible Market shall be deemed a Change of Control.
(o) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Ordinary Shares or ADSs.
(p) "Eligible Market" means the Principal Market, the NYSE American, The Nasdaq Capital Market,
The Nasdaq Global Market or The New York Stock Exchange.
(q) Intentionally omitted.
(h) Intentionally omitted.
(r) Intentionally omitted.
(s) "Exchange Warrants" shall mean the Warrants to purchase shares of common stock, par value
$0.01 per share, of Quoin Pharmaceuticals, Inc. issued pursuant to the Bridge Securities Purchase Agreement, which upon
consummation of the transactions contemplated by the Merger Agreement will be exchanged for identical Warrants issued by the
Company to purchase ADSs (with references to shares of such common stock appropriately adjusted to reference ADSs and
with share amounts and share prices adjusted to reflect the Exchange Ratio (as defined in the Merger Agreement)), which form
is attached as Exhibit F to the Securities Purchase Agreement.
(t) "Excluded Securities" means any Ordinary Shares issued or issuable or deemed to be issued in
accordance with Section 2(a)(i) or Section 2(a)(ii) by the Company: (i) under any Approved Stock Plan; provided, however,
that no more than three percent (3.0%) of the number of Ordinary Shares (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring relating to the Ordinary Shares after the Shares Closing Date (as
defined in the Securities Purchase Agreement)) issued and outstanding as of the Shares Closing Date are issued or issuable to
consultants pursuant to an Approved Stock Plan hereunder as Excluded Securities, (ii) upon exercise of any SPA Warrants, any
Series A Warrants, any Series C Warrants and any Exchange Warrants; provided, that the terms of such SPA Warrants, Series
A Warrants, Series C Warrants and Exchange Warrants are not amended, modified or changed on or after the Subscription
Date, (iii) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date; provided, that such issuance of Ordinary Shares upon exercise of such Options or
Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the date immediately
preceding the Subscription Date and such Options or Convertible Securities are not amended, modified or changed on or after
the Subscription Date, (iv) pursuant to the Merger Agreement or the Form F4 (as defined in the Securities Purchase
Agreement) or (v) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested
directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its Subsidiaries, an
operating company or an owner of an asset in a business synergistic with the business of the Company and shall be entered into
for bona fide reasons other than capital raising and shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing securities for the purpose of raising capital or to an
entity whose primary business is investing in securities.
(u) "Expiration Date" means the date twentyfour (24) months after the Registration Date or, if such
date falls on a Holiday, the next day that is not a Holiday.
(v) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including
through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether
or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company or any of its "significant subsidiaries" (as defined in Rule 102
of Regulation SX) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the
Company to be subject to or have its Ordinary Shares be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding Ordinary Shares,
(y) 50% of the outstanding Ordinary Shares calculated as if any Ordinary Shares held by all Subject Entities making or party to,
or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z)
such number of Ordinary Shares such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or
party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d3 under the
1934 Act) of at least 50% of the outstanding Ordinary Shares, or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a reorganization, recapitalization, spinoff or scheme of arrangement) with one
or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the
outstanding Ordinary Shares, (y) at least 50% of the outstanding Ordinary Shares calculated as if any Ordinary Shares held by
all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase
agreement or other business combination were not outstanding; or (z) such number of Ordinary Shares such that the Subject
Entities become collectively the beneficial owners (as defined in Rule 13d3 under the 1934 Act) of at least 50% of the
outstanding Ordinary Shares, or (v) reorganize, recapitalize or reclassify its Ordinary Shares, (B) that the Company shall, directly
or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity
individually or the Subject Entities in the aggregate to be or become the "beneficial owner" (as defined in Rule 13d3 under the
1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange,
reduction in outstanding Ordinary Shares, merger, consolidation, business combination, reorganization, recapitalization, spinoff,
scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at
least 50% of the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares, (y) at least 50% of
the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares not held by all such Subject Entities
as of the Subscription Date calculated as if any Ordinary Shares held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares or other equity
securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction
requiring other stockholders of the Company to surrender their Ordinary Shares without approval of the stockholders of the
Company or (C) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or
more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a
manner otherwise than in strict
conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which
may be defective or inconsistent with the intended treatment of such instrument or transaction. For the avoidance of doubt, in no
event shall the Merger (as defined in the Merger Agreement) completed on or before the Issuance Date be deemed to be a
"Fundamental Transaction."
(w) "Group" means a "group" as that term is used in Section 13(d) of the 1934 Act and as defined in
Rule 13d5 thereunder.
(x) "Holiday" means a day other than a Business Day or on which trading does not take place on the
Principal Market.
(y) "Lead Investor" means Altium Growth Fund, LP.
(z) "Merger Agreement" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(aa)
"Options" means any rights, warrants or options to subscribe for or purchase (i) Ordinary
Shares or ADSs or (ii) Convertible Securities.
(bb)
"Ordinary Shares" means (i) the Company's ordinary shares, no par value per share, including,
without limitation, the Company's ordinary shares, no par value per share, underlying ADSs and (ii) any share capital into which
such Ordinary Shares shall be changed or any share capital resulting from a reclassification, reorganization or recapitalization of
such Ordinary Shares.
(cc) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable
Person, including such entity whose common capital or equivalent equity security is quoted or listed on an Eligible Market (or, if
so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such
entity, the Person or such entity designated by the Required Holders or in the absence of such designation, such Person or entity
with the largest public market capitalization as of the date of consummation of the Fundamental Transaction or Change of
Control, as applicable.
(dd) "Person" means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(ee) "Principal Market" means The Nasdaq Global Select Market or, if The Nasdaq Global Select
Market is not, as of the applicable date of determination, the primary Eligible market with respect to the ADSs, then such
primary Eligible Market.
(ff) "Registrable Securities" shall have the meaning ascribed to such term in the Registration Rights
Agreement.
(gg)
"Registration Date" means the first date all Registrable Securities (without regard to any
Cutback Shares (as defined in the Registration Rights Agreement)) are
registered by the Company for resale by the Holder pursuant to one or more effective Registration Statement(s).
(hh) "Registration Rights Agreement" means that certain Registration Rights Agreement dated as of
the Subscription Date by and among the Company and the Buyers, as may be amended, amended and restated, supplemented
or otherwise modified from time to time in accordance with its terms.
(ii) "Registration Statement" shall have the meaning ascribed to such term in the Registration Rights
Agreement.
(jj) "Required Holders" means the holders of the SPA Warrants representing at least a majority of the
Ordinary Shares underlying the Warrant Shares issuable upon exercise of the SPA Warrants then outstanding (without regard to
any limitation on exercise set forth therein) and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates
holds any SPA Warrants.
(kk) "Rule 144" means Rule 144 promulgated under the 1933 Act or any successor rule.
(ll) "Series A Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(mm) Intentionally omitted.
(nn) "Series C Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement, including pursuant to Section 1(g) thereof.
(oo) "Share Delivery Date" means the earlier of (i) the second (2nd) Trading Day and (ii) the number
of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder delivers the
applicable Exercise Notice to the Company, so long as the Holder delivers the applicable Aggregate Exercise Price (or notice of
a Cashless Exercise or Alternate Cashless Exercise) on or prior to the earlier of (i) the second (2nd) Trading Day following the
date on which the Holder has delivered the applicable Exercise Notice to the Company and (ii) the number of Trading Days
comprising the Standard Settlement Period following the date on which the Holder has delivered the applicable Exercise Notice
to the Company (provided that if the applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise or
Alternate Cashless Exercise) has not been delivered to the Company by such date, the applicable Share Delivery Date shall be
one (1) Trading Day after the Holder has delivered the applicable Aggregate Exercise Price (or applicable notice of a Cashless
Exercise or Alternate Cashless Exercise) to the Company.
(pp)
"Shares Closing Date" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(qq) "Standard Settlement Period" means the standard settlement period, expressed in a number of
Trading Days, on the Principal Market with respect to the ADSs as in effect on the date of delivery of the applicable Exercise
Notice.
(rr) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such
Person, Persons or Group.
(ss)"Subsidiary" means any entity in which the Company, directly or indirectly, owns any of the capital
stock or holds an equity or similar interest.
(tt) "Successor Entity" means one or more Person or Persons (or, if so elected by the Holder, the
Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or Change of Control, as
applicable, or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which
such Fundamental Transaction or Change of Control, as applicable, shall have been entered into.
(uu) "taxes" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(vv) "Trading Day" means any day on which the ADSs are traded on the Principal Market.
(ww)
"Weighted Average Price" means, for any security as of any date, the dollar volumeweighted
average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York time (or such other
time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York time (or such
other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar volumeweighted average price of such security in the
overthecounter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York
time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00 p.m., New York
time (or such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no
dollar volumeweighted average price is reported for such security by Bloomberg for such hours, the average of the highest
closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or
Pink Open Market (f/k/a OTC Pink) published by the OTC Markets Group, Inc. (or similar organization or agency succeeding
to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any
of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12 with the term "Weighted Average Price" being
substituted for the term "Exercise Price." All such determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or other similar transaction relating to the Ordinary Shares and/or the ADSs, as
applicable, during the applicable calculation period.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase American Depositary Shares to be
duly executed as of the Issuance Date set out above.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
QUOIN PHARMACEUTICALS LTD.
The undersigned holder hereby exercises the right to purchase _________________ American Depositary Shares
("Warrant Shares") of Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), evidenced by the attached Warrant to Purchase American Depositary Shares (the "Warrant"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________ Warrant Shares, resulting in a
delivery obligation of the Company to the Holder of __________ ADSs representing the
applicable Net Number.
____________
an "Alternative Cashless Exercise" with respect to _______________ Warrant Shares,
resulting in a delivery obligation of the Company to the Holder of __________ ADSs.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of
the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance
with the terms of the Warrant.
4. Please issue the ADSs into which the Warrant is being exercised to the Holder, or for its benefit, as follows:
☐
Check here if requesting delivery as a certificate to the following name and to the following address:
Issue to:
Address:
Telephone Number:
Email Address:
☐
Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
DTC Participant:
DTC Number:
Account Number:
Authorization:
By:
Title:
Dated:
Account Number (if electronic book entry transfer):
Transaction Code
Number (if electronic
book entry transfer):
Date:
,
Name of Registered Holder
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Shareowner Services LLC
to issue the above indicated number of ADSs in accordance with the Transfer Agent Instructions dated as of March 21, 2022
from the Company and acknowledged and agreed to by Computershare Shareowner Services LLC.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EX2.7 4 qnrx20211231xex2d7.htm EXHIBIT 2.7
Exhibit 2.7
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE
HOLDER, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD (X) PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT OR (Y) TO AN ACCREDITED INVESTOR IN A PRIVATE
TRANSACTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
QUOIN PHARMACEUTICALS LTD.
FORM OF SERIES C WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
Warrant No.: C__
Date of Issuance: ____________________ ("Issuance Date")
Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ___________________________, the registered holder hereof or its permitted assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in
effect, at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as
defined below), ___________________________fully paid nonassessable ADSs, subject to adjustment as provided herein
(the "Warrant Shares" and such initial number of Warrant Shares, as adjusted pursuant to Section 2. Except as otherwise
defined herein, capitalized terms in this Warrant to Purchase American Depositary Shares (including any Warrants to Purchase
American Depositary Shares issued in exchange, transfer or replacement hereof, this "Warrant"), shall have the meanings set
forth in Section 18. This Warrant is one of the Series C Warrants to purchase American Depositary Shares (the "SPA
Warrants") issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of March 24, 2021 (the
"Subscription Date"), by and among the Company, Quoin Pharmaceuticals, Inc., a Delaware corporation, and the investors
(the "Buyers") referred to therein (as may be amended, amended and restated, supplemented or otherwise modified from time
to time in accordance with its terms, the "Securities Purchase Agreement"). Capitalized terms used herein and not otherwise
defined shall have the definitions ascribed to such terms in the Securities Purchase Agreement.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance
Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of
the Holder's election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash by wire transfer of immediately available funds or (B) if the provisions of Section 1(d) are applicable,
by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)(1)).
The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder, nor shall any inkoriginal
signature or medallion guarantee (or other type of guarantee or notarization) with respect to any Exercise Notice be required.
Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of
Warrant Shares. On or before the first (1st) Trading Day following the date on which the Holder has delivered the applicable
(
)
g
y
g
pp
Exercise Notice to the Company, the Company shall transmit by electronic mail an acknowledgment of confirmation of receipt of
the Exercise Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the applicable Share
Delivery Date, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program and (A) the applicable Warrant Shares are subject to an effective resale
registration statement in favor of the Holder or (B) if exercised via Cashless Exercise, at a time when Rule 144 would be
available for resale of the applicable Warrant Shares by the Holder, credit such aggregate number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its Deposit /
Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer
Program or (A) the applicable Warrant Shares are not subject to an effective resale registration statement in favor of the Holder
and (B) if exercised via Cashless Exercise, at a time when Rule 144 would not be available for resale of the applicable Warrant
Shares by the Holder, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which
the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer
Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any, including, without limitation, for
same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the
date such Warrant Shares are credited to the Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a)
and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant
Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than five (5)
Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number
of Warrant Shares with
respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but
rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any
and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant
(other than the Holder's income taxes). The Company's obligations to issue and deliver Warrant Shares in accordance with the
terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. While any SPA Warrants
remain outstanding, the Company shall use a transfer agent that participates in the DTC Fast Automated Securities Transfer
Program.
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means $3.98 per ADS, subject to
adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall fail for any reason or for no
reason to issue to the Holder on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, a certificate for the number of ADSs to which the Holder is entitled
and register such ADSs on the Company's share register or if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, to credit the Holder's balance account with DTC, for such number of ADSs to which the Holder is
entitled upon the Holder's exercise of this Warrant or (II) if the Registration Statement covering the resale of the Warrant Shares
that are the subject of the Exercise Notice (the "Unavailable Warrant Shares") is not available for the resale of such
Unavailable Warrant Shares and the Company fails to promptly, but in no event later than as is required pursuant to the
Registration Rights Agreement (x) so notify the Holder in writing and (y) deliver the Warrant Shares electronically without any
restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise
to the Holder's or its designee's balance account with DTC through its Deposit / Withdrawal At Custodian system (the event
described in the immediately foregoing clause (II) is hereinafter referred as a "Notice Failure" and together with the event
described in clause (I) above, an "Exercise Failure"), then, in addition to all other remedies available to the Holder, (X) the
Company shall pay in cash to the Holder on each day after the applicable Share Delivery Date and during such Exercise Failure
an amount equal to 1.5% of the product of (A) the number of Warrant Shares not issued to the Holder on or prior to the
applicable Share Delivery Date and to which the Holder is entitled, and (B) any trading price of the ADSs selected by the
Holder in writing as in effect at any time during the period beginning on the applicable date of delivery of the applicable Exercise
Notice and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its
Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise.
In addition to the foregoing, if on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to the Holder
and register such ADSs on the Company's share register or, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit the Holder's balance
account with DTC for the number of ADSs to which the Holder is entitled upon the Holder's exercise hereunder or pursuant to
the Company's obligation pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) ADSs relating to the applicable Exercise Failure (a "BuyIn"),
then the Company shall, within five (5) Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions and other outofpocket
expenses, if any) for the ADSs so purchased (the "BuyIn Price"), at which point the Company's obligation to deliver such
certificate (and to issue such ADSs) or credit the Holder's balance account with DTC for such ADSs shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or certificates representing such ADSs or credit the Holder's
balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the BuyIn
Price over the product of (A) such number of ADSs, times (B) any trading price of the ADS selected by the Holder in writing as
in effect at any time during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the
applicable Share Delivery Date. Nothing herein shall limit the Holder's right to pursue any other remedies available to it
hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect
to the Company's failure to timely deliver certificates representing ADSs (or to electronically deliver such ADSs) upon the
exercise of this Warrant as required pursuant to the terms hereof. Notwithstanding the forgoing, any payments made by the
Company to the Holder pursuant to this Section 1(c) shall be made without withholding or deduction for any taxes (as defined in
the Securities Purchase Agreement), unless required by law, in which case the Company will pay such additional amounts as will
result, after such withholding or deduction, in the receipt by the Holder of the amounts that would otherwise have been
receivable in respect thereof.
(d) Cashless Exercise.
(1) Notwithstanding anything contained herein to the contrary, if at any time following the
Demand Effectiveness Deadline (as defined in the Registration Rights Agreement) of the Demand Registration Statement (as
defined in the Registration Rights Agreement), if any, filed to register the Unavailable Warrant Shares for resale by the Holder, a
Registration Statement covering the resale of the Unavailable Warrant Shares is not available for the resale of such Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of ADSs determined according to the following formula (a
"Cashless Exercise"):
Net Number = (A x B) (A x C)
B
For purposes of the foregoing formula:
A= the total number of ADSs with respect to which this Warrant is then being exercised.
B= as applicable: (i) the Weighted Average Price of the ADSs on the Trading Day immediately preceding the
date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to
Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to
Section 1(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule
600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at
the option of the Holder, either (x) the Weighted Average Price of the ADSs on the Trading Day immediately
preceding the date of the applicable Exercise Notice or (y) the Bid Price of the ADSs on the principal
trading market for the ADSs as reported by Bloomberg as of the time of the Holder's execution of the
applicable Exercise Notice if such Exercise Notice is executed during "regular trading hours" on a Trading
Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of "regular
trading hours" on a Trading Day) pursuant to Section 1(a) hereof or (iii) the Weighted Average Price of the
ADSs on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and
such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of
"regular trading hours" on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(2) Intentionally omitted.
(3) For purposes of Rule 144(d), the Company hereby acknowledges and agrees that the
Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares for purposes of Rule 144(d), shall be deemed to have commenced, on the Shares Closing Date. The
Company agrees not to take any position contrary to this Section 1(d) as long as the rules and interpretations of the SEC in
effect as of the Subscription Date remain unchanged in this respect.
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Beneficial Ownership Limitation on Exercises. Notwithstanding anything to the contrary contained
herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to
exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and
void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other
Attribution Parties collectively would beneficially own in excess of 9.99% (the "Maximum Percentage") of the number of
Ordinary Shares outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of Ordinary Shares beneficially
owned by the Holder and the other Attribution Parties shall include the number of Ordinary Shares held by the Holder and all
other Attribution Parties plus the number of Ordinary Shares underlying the Warrant Shares issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of Ordinary
Shares which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by
the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or
warrants, including the Series A Warrants, Series B Warrants and the Exchange Warrants) beneficially owned by the Holder or
any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section
1(f). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). For purposes of this Warrant, in determining the number of
outstanding Ordinary Shares the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum
Percentage, the Holder may rely on the number of outstanding Ordinary Shares as reflected in (x) the Company's most recent
Annual Report on Form 20F, Report of Foreign Private Issuer on Form 6K or other public filing with the Securities and
Exchange Commission (the "SEC"), as the case may be, (y) a more recent public announcement by the Company or (z) any
other written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding (the
"Reported Outstanding Share Number"). If the Company receives an Exercise Notice from the Holder at a time when the
actual number of outstanding Ordinary Shares is less than the Reported Outstanding Share Number, the Company shall (i)
promptly notify the Holder in writing of the number of Ordinary Shares then outstanding and, to the extent that such Exercise
Notice would otherwise cause the Holder's beneficial ownership, as determined pursuant to this Section 1(f), to exceed the
Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be purchased pursuant
to such Exercise Notice (the number of Warrant Shares by which such purchase is reduced, the "Reduction Shares") and (ii)
as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the
Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2)
Trading Days confirm in writing by electronic mail to the Holder the number of Ordinary Shares then outstanding. In any case,
the number of outstanding Ordinary Shares shall be determined after giving effect to the conversion or exercise of securities of
the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported
Outstanding Share Number was reported. In the event that the issuance of Warrant Shares to the Holder upon exercise of this
Warrant results in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the
Maximum Percentage of the number of outstanding Ordinary Shares (as determined under Section 13(d) of the 1934 Act), the
number of Warrant Shares so issued by which the Holder's and the other Attribution Parties' aggregate beneficial ownership
exceeds the Maximum Percentage (the "Excess Shares") shall be deemed null and void and shall be cancelled ab initio and any
portion of this Warrant so exercised shall be reinstated, and the Holder shall not have the power to vote or to transfer the Excess
Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company
shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the
Company, the Holder may from
time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such
notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixtyfirst (61st) day after
such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other
Attribution Parties and not to any other holder of SPA Warrants that is not an Attribution Party of the Holder. For purposes of
clarity, the Ordinary Shares underlying the Warrant Shares issuable pursuant to the terms of this Warrant in excess of the
Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of
Section 13(d) or Rule 16a1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall
have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of
exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph
which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make
changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this
paragraph may not be waived and shall apply to a successor holder of this Warrant.
(g) Insufficient Authorized Shares. If at any time while this Warrant remains outstanding the Company
does not have a sufficient number of authorized and unreserved Ordinary Shares to satisfy its obligation to reserve for issuance
upon exercise of this Warrant at least a number of Ordinary Shares equal to the maximum number of Ordinary Shares as shall
from time to time be necessary to effect the exercise in full of all of this Warrant then outstanding without regard to any limitation
on exercise set forth herein (the "Required Reserve Amount" and the failure to have such sufficient number of authorized and
unreserved Ordinary Shares, an "Authorized Share Failure"), then the Company shall immediately take all action necessary to
increase the Company's authorized Ordinary Shares to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for this Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an
increase in the number of authorized Ordinary Shares. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its stockholders' approval of such increase in authorized
Ordinary Shares and to cause its board of directors to recommend to the stockholders that they approve such proposal.
Notwithstanding the foregoing, if any such time of an Authorized Share Failure, the Company is able to obtain the written
consent of a majority of its issued and outstanding Ordinary Shares to approve the increase in the number of authorized Ordinary
Shares, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information
Statement on Schedule 14C. In the event that upon any exercise of this Warrant, the Company does not have sufficient
authorized Ordinary Shares to deliver Warrant Shares in satisfaction of such exercise, then unless the Holder elects to void such
attempted exercise, the Holder may require the Company to pay to the Holder within five (5) Trading Days of the applicable
exercise, cash in an amount equal to the product of (i) the number of Warrant Shares that the Company is unable to deliver
pursuant to this Section 1(g) and (ii) the highest Weighted Average Price of the ADSs during the period beginning on the date of
such attempted exercise and the date that the Company makes the applicable cash payment.
(h) Issuance of Series A Warrants and Series B Warrants. Upon each exercise of this Warrant whereby
the Holder pays the applicable Aggregate Exercise Price in cash, whether such exercise is pursuant to Section 1(a) or Section
1(i), the Company shall, on the applicable Share Delivery Date, along with delivering the Warrant Shares issuable to the Holder
upon exercise of this Warrant, issue (i) a Series A Warrant and (ii) a Series B Warrant, each to purchase a number of ADSs
equal to the number of Warrant Shares issuable to the Holder upon such exercise of this Warrant (without any regard to any
limitation on exercise included therein).
(i) Mandatory Exercise at the Company's Election.
(1) If at any time from and after the Demand Effectiveness Deadline (as defined in the
Registration Rights Agreement) of the Demand Registration Statement (as defined in the Registration Rights Agreement)
registering the Warrant Shares subject to the applicable Mandatory Exercise (as defined below) for resale by the Holder, no
Equity Conditions Failure has occurred during the Equity Conditions Measuring Period, the Company shall have the right to
require the Holder and all, but not less than all, holders of the other SPA Warrants, to exercise all or any portion of this Warrant
and the other SPA Warrants, as designated in the applicable Mandatory Exercise Notice (as defined below), into fully paid,
validly issued and nonassessable ADSs in accordance with Section 1(a) hereof at the Exercise Price on the Mandatory Exercise
Date (as defined below) (a "Mandatory Exercise") provided that if any Mandatory Exercise requires the exercise of less than
all of this Warrant and the other SPA Warrants that then remain outstanding, such Mandatory Exercise shall be for a number of
ADSs that would, in the aggregate, cause the Holder and the holders of the other SPA Warrants to pay in the aggregate an
Aggregate Exercise Price in cash to the Company that is not less than $1,000,000. The Company may exercise its right to
require exercise under this Section 1(i)(1) by delivering a written notice thereof by electronic mail and overnight courier to the
Holder and all, but not less than all, of the holders of the other SPA Warrants and the Transfer Agent (a "Mandatory Exercise
Notice" and the date the Holder and all the holders of the other SPA Warrants receive such notice is referred to as a
"Mandatory Exercise Notice Date"). Each Mandatory Exercise Notice shall be irrevocable. Each Mandatory Exercise
Notice shall (i) state (a) the Trading Day on which the applicable Mandatory Exercise shall occur, which shall be the tenth (10th)
Trading Day immediately following the related Mandatory Exercise Notice Date (a "Mandatory Exercise Date"), (b) the
aggregate number of SPA Warrants which the Company has elected to be subject to such Mandatory Exercise from the Holder
and all of the holders of the other SPA Warrants pursuant to this Section 1(i)(1) (and analogous provisions under the other SPA
Warrants) and (c) the number of ADSs to be issued to the Holder on such Mandatory Exercise Date and (ii) certify that there
has been no Equity Conditions Failure on any day during the period beginning on the first day of the Equity Conditions
Measuring Period prior to the applicable Mandatory Exercise Notice Date through the related Mandatory Exercise Notice Date.
If the Company confirmed that there was no such Equity Conditions Failure as of the applicable Mandatory Exercise Notice
Date but an Equity Conditions Failure occurs between such Mandatory Exercise Notice Date and the related Mandatory
Exercise Date (a "Mandatory Exercise Interim Period"), the Company shall provide the Holder and each holder of the other
SPA Warrants a subsequent notice to that effect. If there is an Equity Conditions Failure (which is not waived in writing by the
Holder) during a Mandatory Exercise Interim Period, then the applicable Mandatory Exercise shall be null and void with respect
to all or any part designated by the Holder of the unexercised portion of this Warrant subject to the applicable Mandatory
Exercise and the Holder shall be entitled to all the rights of a
holder of this Warrant with respect to such portion of this Warrant. Notwithstanding anything to the contrary in this Section 1(i)
(1), until a Mandatory Exercise has occurred, the portion of this Warrant subject to such Mandatory Exercise may be exercised,
in whole or in part (but subject to Section 1(f)), by the Holder into ADSs pursuant to Section 1(a). All exercises of this Warrant
by the Holder after a Mandatory Exercise Notice Date and prior to the related Mandatory Exercise Date shall reduce the
portion of this Warrant required to be exercised on the applicable Mandatory Exercise Date, unless the Holder otherwise
indicates in the applicable Exercise Notice. If the Company elects to cause a Mandatory Exercise pursuant to Section 1(i)(1),
then it must simultaneously take the same action in the same proportion with respect to all of the other SPA Warrants.
(2) Notwithstanding the foregoing, if (i) the Company has elected to effect a Mandatory
Exercise pursuant to Section 1(i)(1), (ii) the Company is permitted pursuant to Section 1(i)(1) to effect a Mandatory Exercise if
not for the Equity Condition set forth in clause (iv) of such definition, (iii) such Mandatory Exercise would violate the Equity
Condition set forth in clause (iv) of such definition, and prior to the applicable Mandatory Exercise Date the Holder has
delivered to the Company a written notice (A) stating that such Mandatory Exercise would result in a violation of Section 1(f)
and (B) specifying the portion of the Warrant with respect to which such Mandatory Exercise would result in a violation of
Section 1(f) if such Mandatory Exercise were effected in full (such amount so specified is referred to herein as a "Designated
Blocker Amount"), the Holder shall pay the Aggregate Exercise Price with respect to the portion of this Warrant that is subject
to the applicable Mandatory Exercise (including the Aggregate Exercise Price with respect to the Designated Blocker Amount)
and the Company shall hold the ADSs issuable to the Holder pursuant to such Mandatory Exercise of the Designated Blocker
Amount in abeyance for the Holder until such time or times as its right thereto would not result in the Holder and its other
Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall give notice thereof to the
Company and pay the Aggregate Exercise Price with respect to such portion of this Warrant that was subject to the applicable
Mandatory Exercise and that would no longer result in a violation of the Equity Condition set forth in clause (iv) of such definition
and the Holder shall be promptly, but in any event within two (2) Trading Days of such notice, delivered such ADSs to the extent
as if there had been no such limitation. In the event the Company fails to timely deliver the Warrant Shares on the applicable
Mandatory Exercise Date, the Holder shall be entitled to all the remedies set forth in Section 1(c) as if the Holder had delivered
an Exercise Notice to the Company and the Company failed to deliver the applicable Warrant Shares on the related Share
Delivery Date. For the avoidance of doubt, from and after the applicable Mandatory Exercise Date, no adjustment to the
number of Warrant Shares pursuant to Section 2(f) shall apply to any portion of this Warrant subject to the related Mandatory
Exercise.
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Intentionally omitted.
(b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant,
with the prior written consent of the Holder, (i) reduce the then current Exercise Price and/or (ii) increase the then current
number of Warrant Shares, in each case,
to any amount or number and for any period of time deemed appropriate by the Board of Directors of the Company.
(c) Adjustment Upon Subdivision or Combination of Ordinary Shares or ADSs. If the Company at any
time on or after the Shares Closing Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding Ordinary Shares or ADSs into a greater number of Ordinary Shares or ADSs, as applicable, the
Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the Shares Closing Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding Ordinary Shares or ADSs into a smaller number of
Ordinary Shares or ADSs, as applicable, the Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this
Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Change in ADS Ratio. If after the Issuance Date the ratio of ADSs to Ordinary Shares is increased
or reduced, then the number of Warrant Shares to be delivered upon exercise of this Warrant will be reduced or increased
(respectively) in inverse proportion to the change in the such ratio and the Exercise Price per Warrant will be increased or
reduced (respectively) in proportion to the change in Ordinary Shares per ADS, so that the total number or Warrant Shares
underlying the this Warrant and the aggregate Exercise Price for this Warrant remain unchanged.
(e) Change from ADSs to Ordinary Shares. If after the Issuance Date all outstanding ADSs are
exchanged for Ordinary Shares and this Warrant then becomes exercisable for Ordinary Shares, then (i) the number of Ordinary
Shares to be delivered upon exercise of this Warrant will equal the number of Ordinary Shares underlying the Warrant Shares
issuable upon exercise of this Warrant immediately prior to such change (without regard to any limitation on exercise set forth
herein), (ii) the Exercise Price any other prices referenced herein shall be proportionately adjusted to reflect the price per
Ordinary Share rather than the price per ADS and (ii) all references to ADSs adjusted to appropriately reference Ordinary
Shares. Following such adjustments, the total number or Warrant Shares underlying the this Warrant and the aggregate Exercise
Price for this Warrant remain unchanged.
(f) Intentionally omitted.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to any or all holders of Ordinary Shares or ADSs, by way of return
of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, Options,
evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after the Shares Closing Date, then, in each such case,
the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein
as if the Holder had held the number of Ordinary Shares underlying the Warrant Shares acquirable upon complete exercise of
this Warrant (without regard to any limitations or restrictions on exercise of this
Warrant, including without limitation, the Maximum Percentage) immediately before the date of which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record holders of Ordinary Shares or ADSs, as applicable,
are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holder's right to
participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to
beneficial ownership of such Ordinary Shares as a result of such Distribution (and beneficial ownership) to such extent) and the
portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto
would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the
Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any
subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
4.
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; CHANGE OF CONTROL.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time following
the Shares Closing Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares or ADSs (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares underlying the Warrant
Shares acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this
Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of
Ordinary Shares or ADSs, as applicable, are to be determined for the grant, issue or sale of such Purchase Rights (provided,
however, that to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (and shall not be entitled to beneficial ownership of such Ordinary Shares as a result of such
Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in abeyance for
the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to
the same extent as if there had been no such limitation).
(b)
Fundamental Transactions. If, at any time after the Issuance Date until this Warrant ceases to be
outstanding, a Fundamental Transaction occurs or is consummated, then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section
1(f) on the exercise of this Warrant), the number of shares of capital stock of the successor or acquiring corporation or of ADSs
of the Company, if it is the surviving
corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental
Transaction by a holder of the number of ADSs for which this Warrant is exercisable immediately prior to such Fundamental
Transaction (without regard to any limitation in Section 1(f) on the exercise of this Warrant). For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one ADS in such Fundamental Transaction, and the Company shall
apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of ADSs are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause
any Successor Entity to assume in writing all of the obligations of the Company under this Warrant in accordance with the
provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders (without unreasonable delay) prior to such Fundamental Transaction and shall,
at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of
shares of capital stock of such Successor Entity (or its Parent Entity) equivalent to the ADSs acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into
account the relative value of the ADSs pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form
and substance to the Required Holders. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Warrant referring to the "Company" shall be added to the term "Company" under this Warrant (so that from and after the
occurrence or consummation of such Fundamental Transaction, each and every provision of this Warrant referring to the
"Company" shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and
the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right and power of the
Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the Company prior
thereto under this Warrant with the same effect as if the Company and such Successor Entity or Successor Entities, jointly and
severally, had been named as the Company in this Warrant.
(c) Notwithstanding the foregoing, in the event of a Change of Control, at the request of the Holder
delivered before the ninetieth (90th) day after the occurrence or consummation of such Change of Control, the Company (or the
Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such
request (or, if later, on the effective date of the Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the effective date of such Change of Control; provided, however, that, if such
Change of Control is not within the Company's control, including not approved by the Company's Board of Directors, the
Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of
consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being
offered and paid to the holders of ADSs of the Company in connection with such Change of Control, whether that consideration
be in the form of cash, stock or any combination thereof, or whether the holders of ADSs are given the choice to receive from
among alternative forms of consideration in connection with such Change of Control; provided, further, that if holders of ADSs
of the Company are not offered or paid any consideration in such Change of Control, such holders of ADSs will be deemed to
have received common stock of the Successor Entity (which Successor Entity may be the Company following such Change of
Control) in such Change of Control. The payment of the Black Scholes Value will be made by wire transfer of immediately
available funds (or such other consideration) within the later of (i) five (5) Business Days of the Holder's election and (ii) the date
of consummation of the applicable Change of Control.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of
this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any Ordinary Shares receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Ordinary Shares underlying the Warrant Shares issuable
upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of
the SPA Warrants, the Required Reserve Amount of Ordinary Shares.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, the Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends
or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this
Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders
of the Company generally, contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to
the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of
Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation,
upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing
in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such
surrender; provided, however, that no SPA Warrants for fractional Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to
the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new
Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of ADSs underlying the other new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant
which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein,
such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement. The Company shall provide
the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of
such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation
of such adjustment and (ii) at least fifteen (15) Business Days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Ordinary Shares or ADSs, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to
holders of Ordinary Shares or ADSs or (C) for determining rights to vote with respect to any Fundamental Transaction, Change
of Control, dissolution or liquidation; provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the
time of exercise specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may
be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of the Holder.
10.
GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and
construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in
Section 10(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to
realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the
Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
11.
CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company
and all of the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.
12.
DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall cause the Transfer Agent to issue to the Holder the number of
Warrant Shares that is not disputed and the Company shall submit the disputed determinations or arithmetic calculations via
electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to
the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or
the Warrant Shares within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one
(1) Business Day submit via electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld,
conditioned or delayed or (b) the disputed arithmetic calculation of the Warrant Shares to an independent, outside accountant,
selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, conditioned or delayed.
The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the
time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation,
as the case may be, shall be binding upon all parties absent demonstrable error.
13.
REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other
Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief). No remedy
contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein shall limit
the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The
Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or
threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
14.
TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged
or assigned without the consent of the Company, except as may otherwise be required by Section 2(f) of the Securities Purchase
Agreement.
15.
SEVERABILITY.If any provision of this Warrant is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity
or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this
Warrant as so modified continues to express, without material change, the original intentions of the Company and the Holder as
to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of the Company or the Holder or the practical
realization of the benefits that would otherwise be conferred upon the Company and the Holder. The Company and the Holder
will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s),
the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
16.
DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms
of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the
Company or its Subsidiaries, the Company shall contemporaneously with any such receipt or delivery publicly disclose such
material, nonpublic information on a Current Report on Form 8K or otherwise. In the event that the Company believes that a
notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to the
Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to
presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its
Subsidiaries.
17.
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is
placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there
occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’ rights and
involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees and disbursements.
18.
CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following
meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Adjustment Right" means any right granted with respect to any securities issued in connection
with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2(a)(i) or Section 2(a)(ii))
of Ordinary Shares (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net
consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any
cash settlement rights, cash adjustment or other similar rights).
(c) "ADS" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(d) "Affiliate" shall have the meaning ascribed to such term in Rule 405 promulgated under the 1933
Act or any successor rule.
(e) "American Depositary Shares" shall have the meaning ascribed to such term in the Securities
Purchase Agreement.
(f) "Approved Stock Plan" means any employee benefit or incentive plan which has been approved by
the Board of Directors of the Company prior to or subsequent to the Issuance Date, pursuant to which the Company's securities
may be issued to any employee, officer, consultant or director for services provided to the Company.
(g) "Attribution Parties" means, collectively, the following Persons: (i) any investment vehicle,
including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or
indirectly managed or advised by the Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect
Affiliates of the
Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder
or any of the foregoing and (iv) any other Person whose beneficial ownership of the Ordinary Shares would or could be
aggregated with the Holder's and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the
purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(h) "Bid Price" means, for any date, the price determined by the first of the following clauses that
applies: (a) if the ADSs are then listed or quoted on an Eligible Market, the bid price of the ADSs for the time in question (or the
nearest preceding date) on the Eligible Market on which the ADSs are then listed or quoted as reported by Bloomberg (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the ADSs are not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the ADSs are then reported in the Pink Open Market (f/k/a
OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per ADS so reported, or (c) in all other cases, the fair market value of an ADS as determined
by an independent appraiser selected in good faith by the Required Holders and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
(i) "Black Scholes Consideration Value" means the value of the applicable Option or Adjustment
Right (as the case may be) calculated using the BlackScholes Option Pricing Model obtained from the "OV" function on
Bloomberg determined as of the date of issuance and reflecting (i) a riskfree interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of such Option or Adjustment Right (as the case may be) as of the date of issuance
of such Option or Adjustment Right (as the case may be), (ii) an expected volatility equal to the greater of 100% and the 100
day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public
announcement of the issuance of such Option or Adjustment Right (as the case may be), or, if the issuance of such Option or
Adjustment Right (as the case may be) is not publicly announced, the date of issuance of such Option or Adjustment Right (as
the case may be), (iii) the underlying price per ADS used in such calculation shall be the highest Weighted Average Price of the
ADSs during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance
of such Option or Adjustment Right (as the case may be) and ending on (A) the Trading Day immediately following the public
announcement of the execution of definitive documents with respect to the issuance of such Option or Adjustment Right (as the
case may be), or, (B) if the execution of definitive documents with respect to the issuance of such Option or Adjustment Right
(as the case may be) is not publicly announced, the date of such issuance, (iv) a remaining option time equal to the time between
the date of the public announcement of the execution of definitive documents with respect to the issuance of such Option or
Adjustment Right (as the case may be) or, if the execution of definitive documents with respect to the issuance of such Option or
Adjustment Right (as the case may be) is not publicly announced, the date of such issuance, (v) a zero cost of borrow and (vi) a
365 day annualization factor.
(j) "Black Scholes Value" means the value of this Warrant calculated using the BlackScholes Option
Pricing Model obtained from the "OV" function on Bloomberg determined as of the day immediately following the public
announcement of the applicable contemplated Change of Control, or, if such contemplated Change of Control is not publicly
announced, the date such Change of Control has occurred or is consummated, for pricing purposes and reflecting (i) a riskfree
interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of
request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable contemplated Change of
Control, or, if such contemplated Change of Control is not publicly announced, the date such Change of Control has occurred or
is consummated, (iii) the underlying price per ADS used in such calculation shall be the greater of (x) the highest Weighted
Average Price of the ADSs during the period beginning on the Trading Day prior to the execution of definitive documentation
relating to the applicable Change of Control and ending on (A) the Trading Day immediately following the public announcement
of such contemplated Change of Control, if the applicable contemplated Change of Control is publicly announced or (B) the
Trading Day immediately following the consummation of the applicable Change of Control if the applicable contemplated Change
of Control is not publicly announced and (y) the sum of the price per ADS being offered in cash, if any, plus the value of any
noncash consideration, if any, being offered in such Change of Control, (iv) a remaining option time equal to the time between
the date of the public announcement of the applicable contemplated Change of Control or, if such applicable contemplated
Change of Control is not publicly announced, the date such Change of Control has occurred or is consummated, (v) a zero cost
of borrow and (vi) a 365 day annualization factor.
(k) "Bloomberg" means Bloomberg Financial Markets.
(l) "Bridge Securities Purchase Agreement" means that certain Securities Purchase Agreement
dated as of March 24, 2021 by and between Quoin Pharmaceuticals, Inc. and the investors listed on the signature page attached
thereto.
(m) "Business Day" means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York, New York are authorized or required by law to remain closed; provided, however, for
clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to "stay at home",
"shelterinplace", "nonessential employee" or any other similar orders or restrictions or the closure of any physical branch
locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire
transfers) of commercial banks in The City of New York, New York generally are open for use by customers on such day.
(n) "Change of Control" means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Ordinary Shares in which holders of the Company’s voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold publicly traded securities and, directly or indirectly, are, in all material respect, the holders of the voting power of the
surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if
other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to
a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company. Notwithstanding
anything herein to the contrary, any transaction or series of transaction that, directly or indirectly, results in the Company or the
Successor Entity not having ADSs,
Ordinary Shares or common stock, as applicable, registered under the 1934 Act and listed on an Eligible Market shall be
deemed a Change of Control.
(o) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Ordinary Shares or ADSs.
(p) "Eligible Market" means the Principal Market, the NYSE American, The Nasdaq Capital Market,
The Nasdaq Global Market or The New York Stock Exchange.
(q) "Equity Conditions" means each of the following conditions: (i) on each day during the Equity
Conditions Measuring Period, all Warrant Shares and all Ordinary Shares underlying the Warrant Shares issuable upon exercise
of the portion of this Warrant that is subject to the Mandatory Exercise requiring the satisfaction of the Equity Conditions shall be
subject to one or more Registration Statements that are effective and available for the resale of all such Warrant Shares and such
Ordinary Shares, in accordance with the terms of the Registration Rights Agreement and there shall not have been any Grace
Periods (as defined in the Registration Rights Agreement) and there shall be no need for registration under any applicable federal
or state securities laws; (ii) on each day during the Equity Conditions Measuring Period, the ADSs are designated for quotation
on the Principal Market or any other Eligible Market and shall not have been suspended from trading on such exchange or
market nor shall delisting or suspension by such exchange or market been threatened, commenced or pending either (A) in
writing by such exchange or market or (B) by falling below the then effective minimum listing maintenance requirements of such
exchange or market; (iii) on each day during the Equity Conditions Measuring Period, the Company shall have delivered the
Warrant Shares pursuant to the terms of this Warrant, the other SPA Warrants, the Series A Warrants, the Series B Warrants
and the Exchange Warrants to the Holder on a timely basis as set forth in Section 1(a) hereof (and analogous provisions under
the other SPA Warrants, the Series A Warrants, the Series B Warrants and the Exchange Warrants); (iv) all Ordinary Shares
underlying the Warrant Shares issuable upon exercise of the portion of this Warrant that is subject to the Mandatory Exercise on
the Mandatory Exercise Date requiring the satisfaction of the Equity Conditions may be issued in full without violating Section
1(f) hereof (and analogous provisions under the other SPA Warrants); (v) all Warrant Shares and all Ordinary Shares underlying
the Warrant Shares issuable upon exercise of the portion of this Warrant that is subject to the Mandatory Exercise on the
Mandatory Exercise Date requiring the satisfaction of the Equity Conditions may be issued in full without violating the rules or
regulations of the Principal Market or any other applicable Eligible Market; (vi) the Company shall have no knowledge of any
fact that would reasonably be expected to cause the Registration Statements required pursuant to the Registration Rights
Agreement not to be effective and available for the resale of the Warrant Shares and the Ordinary Shares underlying the Warrant
Shares issuable upon exercise of the portion of this Warrant that is subject to the Mandatory Exercise requiring the satisfaction of
the Equity Conditions; (vii) on each day during the Equity Conditions Measuring Period, the Company shall have been in
compliance with and shall not have breached any provision, covenant, representation or warranty of any Transaction Document;
(viii) on each day during Equity Conditions Measuring Period, the Holder shall not be in possession of any material, nonpublic
information received from the Company, any Subsidiary or its respective agent or Affiliates; (ix) the Warrant Shares and the
Ordinary Shares underlying the Warrant Shares issuable upon exercise of the portion of this Warrant that is subject to the
Mandatory Exercise
requiring the satisfaction of the Equity Conditions are duly reserved and authorized and such Warrant Shares are listed and
eligible for trading without restriction on an Eligible Market; and (x) on each Trading Day during the Equity Conditions
Measuring Period, the daily dollar trading volume of the ADSs on the Principal Market as reported by Bloomberg shall be at
least $250,000.
(g) "Equity Conditions Failure" means that as of the applicable date of determination, the Equity
Conditions have not each been satisfied (or waived in writing by the Holder; provided that the Equity Conditions set forth in
clause (iv) and clause (v) of the definition of "Equity Conditions" shall not be waivable by the Holder).
(r) "Equity Conditions Measuring Period" means the period beginning fifteen (15) Trading Days
prior to the Mandatory Exercise Notice Date through and including the Mandatory Exercise Date.
(s) "Exchange Warrants" shall mean the Warrants to purchase shares of common stock, par value
$0.01 per share, of Quoin Pharmaceuticals, Inc. issued pursuant to the Bridge Securities Purchase Agreement, which upon
consummation of the transactions contemplated by the Merger Agreement will be exchanged for identical Warrants issued by the
Company to purchase ADSs (with references to shares of such common stock appropriately adjusted to reference ADSs and
with share amounts and share prices adjusted to reflect the Exchange Ratio (as defined in the Merger Agreement)), which form
is attached as Exhibit F to the Securities Purchase Agreement.
(t) "Excluded Securities" means any Ordinary Shares issued or issuable or deemed to be issued in
accordance with Section 2(a)(i) or Section 2(a)(ii) by the Company: (i) under any Approved Stock Plan; provided, however,
that no more than three percent (3.0%) of the number of Ordinary Shares (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring relating to the Ordinary Shares after the Shares Closing Date (as
defined in the Securities Purchase Agreement)) issued and outstanding as of the Shares Closing Date are issued or issuable to
consultants pursuant to an Approved Stock Plan hereunder as Excluded Securities, (ii) upon exercise of any SPA Warrants, any
Series A Warrants, any Series B Warrants and any Exchange Warrants; provided, that the terms of such SPA Warrants, Series
A Warrants, Series B Warrants and Exchange Warrants are not amended, modified or changed on or after the Subscription
Date, (iii) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date; provided, that such issuance of Ordinary Shares upon exercise of such Options or
Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the date immediately
preceding the Subscription Date and such Options or Convertible Securities are not amended, modified or changed on or after
the Subscription Date, (iv) pursuant to the Merger Agreement or the Form F4 (as defined in the Securities Purchase
Agreement) or (v) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested
directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its Subsidiaries, an
operating company or an owner of an asset in a business synergistic with the business of the Company and shall be entered into
for bona fide reasons other than capital raising and shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing
securities for the purpose of raising capital or to an entity whose primary business is investing in securities.
(u) "Expiration Date" means the date twentyfour (24) months after the Registration Date or, if such
date falls on a Holiday, the next day that is not a Holiday.
(v) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including
through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether
or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company or any of its "significant subsidiaries" (as defined in Rule 102
of Regulation SX) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the
Company to be subject to or have its Ordinary Shares be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding Ordinary Shares,
(y) 50% of the outstanding Ordinary Shares calculated as if any Ordinary Shares held by all Subject Entities making or party to,
or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z)
such number of Ordinary Shares such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or
party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d3 under the
1934 Act) of at least 50% of the outstanding Ordinary Shares, or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a reorganization, recapitalization, spinoff or scheme of arrangement) with one
or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the
outstanding Ordinary Shares, (y) at least 50% of the outstanding Ordinary Shares calculated as if any Ordinary Shares held by
all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase
agreement or other business combination were not outstanding; or (z) such number of Ordinary Shares such that the Subject
Entities become collectively the beneficial owners (as defined in Rule 13d3 under the 1934 Act) of at least 50% of the
outstanding Ordinary Shares, or (v) reorganize, recapitalize or reclassify its Ordinary Shares, (B) that the Company shall, directly
or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity
individually or the Subject Entities in the aggregate to be or become the "beneficial owner" (as defined in Rule 13d3 under the
1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange,
reduction in outstanding Ordinary Shares, merger, consolidation, business combination, reorganization, recapitalization, spinoff,
scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at
least 50% of the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares, (y) at least 50% of
the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares not held by all such Subject Entities
as of the Subscription Date calculated as if any Ordinary Shares held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and outstanding Ordinary Shares or other equity
securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction
requiring other stockholders of the Company to surrender their Ordinary Shares without approval of the stockholders of the
Company or (C) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or
more
related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent,
or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion
of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction. For the
avoidance of doubt, in no event shall the Merger (as defined in the Merger Agreement) completed on or before the Issuance
Date be deemed to be a "Fundamental Transaction."
(w) "Group" means a "group" as that term is used in Section 13(d) of the 1934 Act and as defined in
Rule 13d5 thereunder.
(x) "Holiday" means a day other than a Business Day or on which trading does not take place on the
Principal Market.
(y) "Lead Investor" means Altium Growth Fund, LP.
(z) "Merger Agreement" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(aa)
"Options" means any rights, warrants or options to subscribe for or purchase (i) Ordinary
Shares or ADSs or (ii) Convertible Securities.
(bb)
"Ordinary Shares" means (i) the Company's ordinary shares, no par value per share, including,
without limitation, the Company's ordinary shares, no par value per share, underlying ADSs and (ii) any share capital into which
such Ordinary Shares shall be changed or any share capital resulting from a reclassification, reorganization or recapitalization of
such Ordinary Shares.
(cc) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable
Person, including such entity whose common capital or equivalent equity security is quoted or listed on an Eligible Market (or, if
so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such
entity, the Person or such entity designated by the Required Holders or in the absence of such designation, such Person or entity
with the largest public market capitalization as of the date of consummation of the Fundamental Transaction or Change of
Control, as applicable.
(dd) "Person" means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(ee) "Principal Market" means The Nasdaq Global Select Market or, if The Nasdaq Global Select
Market is not, as of the applicable date of determination, the primary Eligible market with respect to the ADSs, then such
primary Eligible Market.
(ff) "Registrable Securities" shall have the meaning ascribed to such term in the Registration Rights
Agreement.
(gg)
"Registration Date" means the first date all Registrable Securities (without regard to any
Cutback Shares (as defined in the Registration Rights Agreement)) are registered by the Company for resale by the Holder
pursuant to one or more effective Registration Statement(s).
(hh) "Registration Rights Agreement" means that certain Registration Rights Agreement dated as of
the Subscription Date by and among the Company and the Buyers, as may be amended, amended and restated, supplemented
or otherwise modified from time to time in accordance with its terms.
(ii) "Registration Statement" shall have the meaning ascribed to such term in the Registration Rights
Agreement.
(jj) "Required Holders" means the holders of the SPA Warrants representing at least a majority of the
Ordinary Shares underlying the Warrant Shares issuable upon exercise of the SPA Warrants then outstanding (without regard to
any limitation on exercise set forth therein) and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates
holds any SPA Warrants.
(kk) "Rule 144" means Rule 144 promulgated under the 1933 Act or any successor rule.
(ll) "Series A Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(mm) "Series B Warrants" shall have the meaning ascribed to such term in the Securities Purchase
Agreement, including pursuant to Section 1(g) thereof.
(nn) Intentionally omitted.
(oo) "Share Delivery Date" means the earlier of (i) the second (2nd) Trading Day and (ii) the number
of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder delivers the
applicable Exercise Notice to the Company, so long as the Holder delivers the applicable Aggregate Exercise Price (or notice of
a Cashless Exercise) on or prior to the earlier of (i) the second (2nd) Trading Day following the date on which the Holder has
delivered the applicable Exercise Notice to the Company and (ii) the number of Trading Days comprising the Standard
Settlement Period following the date on which the Holder has delivered the applicable Exercise Notice to the Company
(provided that if the applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) has not been delivered to
the Company by such date, the applicable Share Delivery Date shall be one (1) Trading Day after the Holder has delivered the
applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) to the Company.
(pp)
"Shares Closing Date" shall have the meaning ascribed to such term in the Securities Purchase
Agreement.
(qq) "Standard Settlement Period" means the standard settlement period, expressed in a number of
Trading Days, on the Principal Market with respect to the ADSs as in effect on the date of delivery of the applicable Exercise
Notice.
(rr) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such
Person, Persons or Group.
(ss)"Subsidiary" means any entity in which the Company, directly or indirectly, owns any of the capital
stock or holds an equity or similar interest.
(tt) "Successor Entity" means one or more Person or Persons (or, if so elected by the Holder, the
Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or Change of Control, as
applicable, or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which
such Fundamental Transaction or Change of Control, as applicable, shall have been entered into.
(uu) "taxes" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(vv) "Trading Day" means any day on which the ADSs are traded on the Principal Market.
(ww)
"Weighted Average Price" means, for any security as of any date, the dollar volumeweighted
average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York time (or such other
time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York time (or such
other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar volumeweighted average price of such security in the
overthecounter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York
time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00 p.m., New York
time (or such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no
dollar volumeweighted average price is reported for such security by Bloomberg for such hours, the average of the highest
closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or
Pink Open Market (f/k/a OTC Pink) published by the OTC Markets Group, Inc. (or similar organization or agency succeeding
to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any
of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12 with the term "Weighted Average Price" being
substituted for the term "Exercise Price." All such determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or other similar transaction relating to the Ordinary Shares and/or the ADSs, as
applicable, during the applicable calculation period.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase American Depositary Shares to be
duly executed as of the Issuance Date set out above.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES
QUOIN PHARMACEUTICALS LTD.
The undersigned holder hereby exercises the right to purchase _________________ American Depositary Shares
("Warrant Shares") of Quoin Pharmaceuticals Ltd., an Israeli company formerly known as Cellect Biotechnology Ltd. (the
"Company"), evidenced by the attached Warrant to Purchase American Depositary Shares (the "Warrant"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________ Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________ Warrant Shares, resulting in a
delivery obligation of the Company to the Holder of __________ ADSs representing the
applicable Net Number.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the
Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance
with the terms of the Warrant.
4. Please issue the ADSs into which the Warrant is being exercised to the Holder, or for its benefit, as follows:
◻
Check here if requesting delivery as a certificate to the following name and to the following address:
Issue to:
Address:
Telephone Number:
Email Address:
◻
Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
DTC Participant:
DTC Number:
Account Number:
Authorization:
By:
Title:
Dated:
Account Number (if electronic book entry transfer):
Transaction Code
Number (if electronic
book entry transfer):
Date:
,
Name of Registered Holder
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Shareowner Services LLC
to issue the above indicated number of ADSs in accordance with the Transfer Agent Instructions dated as of March 21, 2022
from the Company and acknowledged and agreed to by Computershare Shareowner Services LLC.
QUOIN PHARMACEUTICALS LTD.
By:
Name:
Title:
EX2.8 5 qnrx20211231xex2d8.htm EXHIBIT 2.8
Exhibit 2.8
The following description of our securities registered pursuant to the Securities Exchange Act of 1934 is a summary of the material terms of our articles of
association, Israeli corporate law and such securities. This description contains all material information concerning such securities but does not purport to
be complete.
DESCRIPTION OF ORDINARY SHARES
Ordinary Shares
As of April 12, 2022, our authorized share capital consisted of 50,000,000,000 ordinary shares, no par value. As of April 12, 2022, there were 3,354,653,999
ordinary shares outstanding (which excludes 2,641,693 ordinary shares held in treasury). All of our outstanding ordinary shares are validly issued, fully paid and
nonassessable. Our ordinary shares are not redeemable and do not have any preemptive rights.
Articles of Association
The following are summaries of material provisions of our articles of association and the Israeli Companies Law, as amended (the “Companies Law”), insofar as
they relate to the material terms of our ordinary shares.
Purposes and Objects of the Company
Our purpose is set forth in Section 2 of our articles of association and includes every lawful purpose.
Registration Number
Our number with the Israeli Registrar of Companies is 520036484.
Voting Rights
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholders meeting.
Shareholders may vote at shareholders meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adopt
shareholder resolutions by means of written consent in lieu of a shareholders meeting. The board of directors shall determine and provide a record date for each
shareholders meeting and all shareholders at such record date may vote. Unless stipulated differently in the Companies Law or in the articles of association, all
shareholders’ resolutions shall be approved by a simple majority vote. As a general rule, an amendment to our articles of association requires the prior approval
of a simple majority of our shares represented and voting at a general meeting.
Transfer of Shares
Our ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless the transfer is
restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership or voting of our ordinary shares by
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nonresidents of Israel is not restricted in any way by our articles of association or Israeli law, except for ownership by nationals of some countries that are, or
have been, in a state of war with Israel.
Amendment of Share Capital
Our articles of association enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be
approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital. In addition, transactions that
have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings and profits, or an issuance of
shares for less than their nominal value (which would be applicable to our company should our articles be changed so as to permit the issue of shares having a
nominal value, however our shares currently have no nominal value), require a resolution of our board of directors and court approval.
Dividends
Under Israeli law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the
distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the
distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years
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legally available for distribution according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more
than six months prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally
available for distribution, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it determines thatthere is
no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
Shareholders Meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year and in any event no later than 15 months after
the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as special meetings. Our board
of directors may call special meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies
Law and our articles of association provide that our board of directors is required to convene a special meeting upon the written request of (1) any two of our
directors or one quarter of the directors then in office; or (2) one or more shareholders holding, in the aggregate either (a) 5% of our issued share capital and 1%
of our outstanding voting rights, or (b) 5% of our outstanding voting rights.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings of
a company are the shareholders of record on a date to be decided by the board of directors which for us, as a company listed on an exchange outside Israel, may
be between four and forty days prior to the date of the meeting.
The Companies Law and our articles of association require that resolutions regarding the following matters must be passed at a general meeting of our
shareholders:
·
amendments to our articles of association;
·
appointment or termination of our auditors;
·
appointment and dismissal of External Directors, if and to the extent any are required to be appointed;
·
increases or reductions of our authorized share capital;
·
a merger;
·
authorizing the Chairman of the board of directors or his relative to serve as the company’s Chief Executive Officer or be vested with such authority;
or authorizing the company’s Chief Executive Officer or his relative to serve as the Chairman of the board of directors or be vested with such authority; and
·
approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;
Under the Companies Law and our articles of association, notice of any annual or special shareholders meeting be provided at least 14 days prior to the meeting,
and if the agenda of the meeting includes the appointment or removal of directors, the approval of office holders' compensation or transactions with office
holders or interested or related parties, approval of a merger, or authorization of the Chairman of the board or his relative to serve as or be vested with
authorities of the Chief Executive Officer, or of the Chief Executive Officer to serve as or be vested with authorities of the Chairman of the board, notice must be
provided at least 35 days prior to the meeting.
Quorum
The quorum required for our general meetings of shareholders consists of two or more shareholders present in person, by proxy or by other voting instrument in
accordance with the Companies Law and our articles of association, who hold or represent, in the aggregate, at least 25% of the total outstanding voting rights
(instead of 33 1/3% of the issued share capital required under the Nasdaq Listing Rules), within half an hour from the time the meeting was designated to start.
A meeting adjourned for lack of a quorum will be adjourned for one week, to the same day in the following week and at the same time and place, or to a later date
if so specified in the notice of the meeting, or to another day or place determined by our board of directors in a notice to shareholders. At the reconvened
meeting, if a quorum is not present within half an hour from the scheduled time, any number of our shareholders present in person or by proxy shall constitute a
lawful quorum.
Resolutions
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law. Under the
Companies Law, certain actions require the approval of a special majority, including: (i) an extraordinary transaction with a controlling shareholder or in which a
controlling shareholder has a personal interest, or any
3
transaction regarding the terms of employment or other engagement of a controlling shareholder or a controlling shareholder's relative, other than certain
exceptions as provided by regulatory relief – all as described in "Disclosure of Personal Interest of Controlling Shareholders and Approval of Certain
Transactions" above, (ii) matters related to the compensation of our Chief Executive Officer, other than special circumstances under which our compensation
committee can exempt such transactions from shareholder approval, as described in "Compensation Committee and Compensation Policy" above, (iii) the
adoption of a compensation policy, as described in "Compensation Committee and Compensation Policy" above, (iv) compensation arrangements or grants that
are exceptions to the guidelines under our compensation policy, (v) authorization of our Chief Executive Officer to serve as or be vested with the authorities of
the Chairman of our board of directors, or for the Chairman of our board of directors to serve as or be vested with the authorities of our Chief Executive Officer,
and (vi) appointment of External Directors, if any are appointed (see "External Directors" above).
The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other
shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power – see Shareholder Duties above for more details.
Dissolution
Generally under Israeli law, a resolution for the voluntary winding up of a company requires the approval of holders of 75% of the voting rights represented at
the meeting, in person, by proxy or by written ballot and voting on the resolution.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares (including holders of
entitlements to shares, after deducting the nominal value (if any) of such shares and the price which would have been paid in order to exercise the right to such
shares), in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or
distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Access to Corporate Records
Under the Companies Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its register of
shareholders and material shareholders, articles of association, financial statements and any document it is required by law to file publicly with the Israeli
Companies Registrar. Any of our shareholders may request to review any document in our possession that relates to any action or transaction with a related
party, interested party, or office holder that requires shareholder approval under the Companies Law. We may deny a request to review a document if we
determine that the request was not made in good faith, that the document contains a trade secret or patent, or that the document’s disclosure may otherwise
prejudice our interests.
Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of a public Israeli company, and who would as a result hold over 90% of the target company’s issued and outstanding share
capital, is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding
shares of the company. A person wishing to acquire shares of a public Israeli company, and who would as a result hold over 90% of the issued and outstanding
share capital of a certain class of shares, is required to make a tender offer to all of the shareholders who hold shares of that class for the purchase of all of the
issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the
company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law, provided that a
majority of the offerees that do not have a personal interest in such tender offer, have accepted the tender offer. Alternatively, if shareholders who do not accept
the tender offer represent less than 2% of the company’s issued and outstanding share capital (or less than 2% of the applicable class of shares), approval by a
majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer. A shareholder whose shares are so
transferred may petition the court regarding the fair value to be paid in consideration of such shares, within six months from the date of acceptance of the full
tender offer; this right of petition applies to all offeree shareholders, unless the acquirer stipulated in the tender offer that a shareholder accepting the offer may
not seek appraisal rights, and prior to the acceptance of the full tender offer, the acquirer and the company disclosed the information required by law in
connection with a full tender offer. To the extent a court so petitioned determines that the offered value was less than the fair value per share, the court may
order the difference to be paid.
Special Tender Offer
The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a "special tender offer" complying with the
relevant provisions of the Companies Law if, as a result of the acquisition, the purchaser would
become a holder of 25% or more of the voting rights in the company, if there did not previously exist a holder of 25% or more of the voting rights in the
company, or if, as a result of the acquisition, the purchaser would become a holder of more than 45% of the voting rights in the company, if there did not
previously exist a holder of more than 45% of the voting rights in the company. This requirement does not apply if the acquisition: (a) occurs in the context of a
private placement by the company that received shareholder approval as a private placement giving the offeree 25% or 45% of the company's voting rights (as
the case may be); (b) is from a holder of 25% or more of the voting rights in the company and results in the acquirer becoming a holder of 25% or more of the
voting rights in the company; or (c) is from a holder of more than 45% of the voting rights in the company and results in the acquirer becoming a holder of more
than 45% of the voting rights in the company.
In the event that a special tender offer is made, the target company’s board of directors is required to express its opinion on the advisability of the offer, or may
abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention.
A special tender offer must be directed to all offerees, and the offerees may give notice of their agreement or opposition to the special tender offer. The special
tender offer will be consummated only if: (a) at least 5% of the voting rights attached to the company’s outstanding shares will be acquired by the offeror and (b)
among those shareholders who gave notice of their position (excluding any controlling shareholders of the offeror, holders of 25% or more of the voting rights in
the target company, and any person having a personal interest in the acceptance of the tender offer, including relatives or corporations under the control of any
of the above), the number of shares whose holders agreed to the offer exceeds the number of shares whose holders objected to the offer.
If a special tender offer is accepted by the procedure described above, then shareholders who did not respond to or who objected the offer may accept the offer
within four days of the last day set for the acceptance of the offer.
An office holder in a company which is the target of a special tender offer who, in his or her capacity as an office holder, performs an act or omits to act for in
4
order to cause the failure of an existing or foreseeable special tender offer, or to impair the likelihood of its acceptance, is liable to the offeror and offerees for
damages, unless such office holder acted in good faith and had reasonable grounds to believe that such act or omission was beneficial to the company. As a safe
harbor, office holders of the target company may negotiate with a potential purchaser in order to improve the terms of a special tender offer, or negotiate with
third parties in order to obtain a competing offer.
In the event that a special tender offer is accepted, the purchaser, any person or entity controlling or controlled by the purchaser, or under common control with
the purchaser, may not make a subsequent tender offer for the purchase of shares of the target company, and may not enter into a merger with the target
company, for a period of one year from the date of the offer, unless the purchaser or such person or entity undertakes to effect such an offer or merger as
a special tender offer in compliance with the Companies Law requirements.
Under regulations enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares are listed for
trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange include provisions limiting the percentage
of control which may be acquired, or provide that the purchaser is required to make a tender offer to the public. However, the opinion of the Israeli Securities
Authority (the "ISA") is that such exemption does not apply with respect to companies whose shares are listed for trading on stock exchanges in the United
States, including Nasdaq, which, in the ISA's opinion, do not provide for sufficient legal restrictions on obtaining control or an obligation to make a tender offer
to the public.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain conditions described under the Companies
Law are met, by each party's shareholders by a majority vote as described below.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares voted at the
shareholders meeting held by shareholders who are not the other party to the merger, or held by any person who holds 25% or more of the outstanding shares or
the right to appoint 25% or more of the directors of the other party to the merger (including relatives or entities in control of the above), vote against the merger.
If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a
court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and
reasonable, taking into account the relative value of the merger parties and the consideration offered to the shareholders. If the nonsurviving entity of the
merger has more than one class of shares, the merger must be approved by each class of shareholders. If a merger is with a company's controlling shareholder or
if a controlling shareholder has a personal interest in the merger, then the merger will be subject to the special majority approval required for an extraordinary
transaction with a controlling shareholder (see: Approval of Related Party Transactions under Israeli Law – Declaration of Personal Interest of Controlling
Shareholders and Approval of Certain Transactions). In the context of mergers (as well as other related party transactions), a "controlling shareholder" under
Israeli law is deemed to include any shareholder
holding 25% or more of the voting rights in the company if no other shareholder owns more than 50% of the voting rights in the company, and two or more
shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder for such purpose.
The Companies Law requires the board of directors of a merging company to discuss and determine whether, in its view, there exists a reasonable concern that as
a result of the proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, and if not, the board of directors may not
approve the merger. The Companies Law requires each merging company to inform its secured creditors of the proposed merger plan. Upon the request of a
creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result
of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the
rights of creditors.
A merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger is filed with the Israeli Registrar of
Companies, and 30 days have passed from the date the merger was approved by the shareholders of each merging company.
Antitakeover Measures
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain
preferred rights, distributions or other matters, and shares having preemptive rights. As of the date of this report, we do not have any authorized or issued
classes of shares other than our ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares,
depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential
premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which
requires the prior approval of the holders of a majority of our shares at a general meeting. Shareholders voting in such meeting will be subject to the restrictions
provided in the Companies Law as described above.
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
The Bank of New York Mellon (the “Depositary”), as depositary, has registered and delivered American Depositary Shares, also referred to as ADSs. Each
ADS represents four hundred (400) ordinary shares (or a right to receive four hundred (400) ordinary shares) deposited with The Bank of New York Mellon in
Manchester, United Kingdom, as custodian for the Depositary. The Depositary’s corporate trust office at which the ADSs will be administered is located at 240
Greenwich Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at 240 Greenwich Street, New York, New
York 10286.
ADSs may be held either (a) directly (1) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific
number of ADSs or (2) by having uncertificated ADSs, or (b) indirectly by holding a security entitlement in ADSs through a broker or other financial institution
that is a direct or indirect participant in The Depository Trust Company, also called DTC. If ADSs are held directly by the holder, then that holder is registered
as such, and is referred to in our description here an ADS holder. An indirect holder of ADSs indirectly must rely on the procedures of the holder’s broker or
other financial institution to assert the rights of ADS holder described in this Exhibit.
Registered holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.
We will not treat registered ADS holders as one of our shareholders, and they will not have shareholder rights. Israeli law governs shareholder rights. The
depositary will be the holder of the ordinary shares underlying ADSs. A registered holder of ADSs will have ADS holder rights. A deposit agreement among us,
the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the
depositary. New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement
and the form of ADR.
5
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on ordinary shares or other
deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares
your ADSs represent.
6
Cash. The depositary will convert any cash dividend or other cash distribution we pay in nonU.S. currency on the ordinary shares into U.S. dollars, if it can do
so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be
obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold
the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency, and it will not be liable
for any interest.
Before making a distribution, the depositary will deduct any withholding taxes, or other required governmental charges. See “Taxation” below. The depositary
will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the
depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.
Shares. The depositary may distribute additional ADSs representing any ordinary shares we distribute as a dividend or free distribution. The depositary will
only distribute whole ADSs. It will sell ordinary shares which would require it to deliver a fraction of an ADS (or ADSs representing those shares) and
distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent
the new shares. The depositary may sell a portion of the distributed ordinary shares (or ADSs representing those shares) sufficient to pay its fees and expenses
in connection with that distribution.
Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional ordinary shares or any other rights, the
depositary may (1) exercise those rights on behalf of ADS holders, (2) distribute those rights to ADS holders or (3) sell those rights and distribute the net
proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To the extent the depositary does not do any of those things, it
will allow the rights to lapse. In that case, you will receive no value for them. The depositary will exercise or distribute rights only if we ask it to and provide
satisfactory assurances to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate
and distribute those securities or, in the case of ordinary shares, new ADSs representing the new ordinary shares, to subscribing ADS holders, but only if ADS
holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights or ADSs or other
securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.
Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in
the same way as it does with nonU.S. currency. Alternatively, it may decide to hold what we distributed, in which case ADSs will also represent the newly
distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory
evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees
and expenses in connection with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS
holders, and the securities distributed may be subject to restrictions on transfer.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to
register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs,
shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it
is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver ADSs upon deposits of ordinary shares or evidence of rights to receive ordinary shares with the custodian. Upon payment of its
fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs
and will deliver the ADSs to or upon the order of the person or persons that made the deposit.
How can ADS holders withdraw the deposited securities?
ADS holders may surrender ADSs for the purpose of withdrawal at the Depositary’s account at DTCC (BNYM’s DTC participant #2504). Upon payment of
its cancellation fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares
and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates in accordance with the Cancellation
Instruction provided to The Bank of New York Mellon.
How do ADS holders interchange between certificated ADSs and uncertificated ADSs?
ADS holders may surrender ADS to the depositary for the purpose of exchanging ADS for uncertificated ADSs. The depositary will cancel that ADS and will
send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Upon receipt by the depositary of a proper
instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and
deliver to the ADS holder an ADS evidencing those ADSs.
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Voting Rights
ADS holders may instruct the depositary how to vote the number of deposited ordinary shares their ADSs represent. If we request the depositary to solicit
your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders’ meeting and send or make voting materials available
to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be
valid, they must reach the depositary by a date set by the depositary.
The depositary will try, as far as practical, subject to the laws of Israel and the provisions of our articles of association or similar documents, to vote or to have
its agents vote the ordinary shares or other deposited securities as instructed by ADS holders. If we do not request the depositary to solicit your voting
instructions, you can still send voting instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.
Except by instructing the depositary as described above, ADS holders will not be able to exercise voting rights, unless they surrender your ADSs and withdraw
the ordinary shares. However, ADS holders may not know about the meeting sufficiently in advance to withdraw the ordinary shares. In any event, the
depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed.
We cannot assure that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote ordinary shares. In addition,
the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that
ADS holders may not be able to exercise voting rights and there may be nothing they can do if your ordinary shares are not voted as requested.
In order to give ADS holders a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request
the Depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least thirty days in
advance of the meeting date.
Fees and Expenses
Persons depositing or withdrawing shares or ADS
holders must pay:
For:
$5.00 (or less) per 400 ADSs (or portion of 400 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
$0.05 (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
$0.05 (or less) per ADSs 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 ADS or share underlying an ADS, for example, 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 bookentry 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 feeattracting 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 dealers 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 currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor,
broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction 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 the most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement.
The methodology used to determine exchange rates used in currency conversions is available upon request.
Payment of Taxes
ADS holders are responsible for any taxes or other governmental charges payable on their ADSs or on the deposited securities represented by any of their
ADSs. The depositary may refuse to register any transfer of ADSs or allow a withdrawal of the deposited securities represented by your ADSs, until such taxes
or other charges are paid. It may apply payments owed to the ADS holder or sell deposited securities represented by the ADSs to pay any taxes owed and the
ADS holder will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale
and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.
Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities
The depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs and
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subject to any conditions or procedures the depositary may establish.
If deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for
surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.
If there is any change in the deposited securities such as a subdivision, combination or other reclassification, or any merger, consolidation, recapitalization or
reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited securities,
the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the depositary decides it would not be
lawful and to hold the replacement securities because those securities could not be distributed to ADS holders or for any other reason, the depositary may
instead sell the replacement securities and distribute the net proceeds upon surrender of the ADSs.
If there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs
representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADSs identifying the new deposited securities.
9
If there are no deposited securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs have
become apparently worthless, the depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the ADS holders.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without consent of the ADS holders for any reason. If an amendment adds or
increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or
similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS
holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold your ADSs, to agree to the
amendment and to be bound by the ADRs and the deposit agreement as amended.
How may the deposit agreement be terminated?
The depositary will initiate termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement if
·
60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and
accepted its appointment;
·
we delist our ordinary shares from an exchange on which they were listed and do not list the ordinary shares on another exchange;
·
we appear to be insolvent or enter insolvency proceedings all or substantially all the value of the deposited securities has been
distributed either in cash or in the form of securities;
·
there are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or
·
there has been a replacement of deposited securities.
If the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time after the termination
date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is
holding under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not surrendered their
ADSs. Normally, the depositary will sell as soon as practicable after the termination date.
After the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that
the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities if it would interfere with the selling process. The
depositary may refuse to accept a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will
continue to collect distributions on deposited securities, but, after the termination date, the depositary is not required to register any transfer of ADSs or
distribute any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any notices or perform any
other duties under the deposit agreement except as described in this paragraph.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and
the depositary:
·
are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
·
are not liable if we are or it is prevented or delayed by law or circumstances beyond our or its control from performing our or its
obligations under the deposit agreement;
·
are not liable if we or it exercises discretion permitted under the deposit agreement;
·
are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made
10
available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach
of the terms of the deposit agreement;
·
have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your
behalf or on behalf of any other person;
·
are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and
·
may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the
proper person.
In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:
·
payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for
the transfer of any ordinary shares or other deposited securities;
·
satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
·
compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of
transfer documents.
The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any
time if the depositary or we think it advisable to do so.
Right to Receive the Ordinary Shares Underlying ADSs
ADS holders have the right to cancel their ADSs and withdraw the underlying ordinary shares at any time except:
·
when temporary delays arise because: (1) the depositary has closed its transfer books or we have closed our transfer books; (2)
the transfer of ordinary shares is blocked to permit voting at a shareholders meeting; or (3) we are paying a dividend on our shares;
·
when you owe money to pay fees, taxes and similar charges; or
·
when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or
to the withdrawal of ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Prerelease of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a prerelease of the ADSs. The depositary
may also deliver ordinary shares upon cancellation of prereleased ADSs (even if the ADSs are canceled before the prerelease transaction has been closed out).
A prerelease is closed out as soon as the underlying ordinary shares are delivered to the depositary. The depositary may receive ADSs instead of ordinary
shares to close out a prerelease. The depositary may prerelease ADSs only under the following conditions: (1) before or at the time of the prerelease, the
person to whom the prerelease is being made represents to the depositary in writing that it or its customer owns the ordinary shares or ADSs to be deposited;
(2) the prerelease is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out
the prerelease on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a
result of prerelease, although the depositary may disregard the limit from time to time if it thinks it is appropriate to do so.
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Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, or DRS, and Profile Modification System, or
Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holdings of uncertificated ADSs and
holdings of security entitlements in ADSs through DTC and a DTC participant. Profile is a feature of DRS that allows a DTC participant, claiming to act on
behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC
account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the
depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and
delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform
Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary
through the DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder communications; inspection of register of holders of ADSs
The depositary will make available for your inspection at its office all communications from us that we make generally available to holders of deposited
securities. The depositary will send you copies of those communications or otherwise make those communications available to you upon our request. You have
a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
EX4.30 6 qnrx20211231xex4d30.htm EXHIBIT 4.30
Exhibit 4.30
EXCLUSIVE LICENSE AGREEMENT
This agreement (hereinafter "Agreement"), effective as of this 17th day of October, 2019 (hereinafter the “Effective Date”), is
by and between the Skinvisible Pharmaceuticals, Inc. a Nevada corporation and having its principal place of business at 6320
South Sandhill Road, Suite 10, Las Vegas, Nevada, 89120 (“Skinvisible”) and Quoin Pharmaceuticals, Inc., a Delaware
corporation having a place of business located at 42127 Pleasant Forest Court, Ashburn, VA, 20148 (hereinafter
“Licensee”).
1.0
Preamble
1.1
Skinvisible is the owner of the Patent Rights as defined below.
1.2
Skinvisible desires that the Patent Rights be used for the development of products for commercial sale in the Field in
the Territory, and to this end desires to license the Patent Rights to a company capable of such development.
1.3
Licensee desires to acquire a license to the Patent Rights so that it can develop products in the Field in the Territory.
Licensee is under no contractual or other obligation that encumbers, restricts, or limits any of the rights granted by Skinvisible
under this Agreement.
2.0
Definitions
2.1
Terms defined in this Article 2.0, and parenthetically defined elsewhere in this Agreement, will throughout this
Agreement have the meaning here or there provided. Defined terms may be used in the singular or in the plural, as sense
requires.
2.2
“Affiliate” means any corporation or other business entity that controls, is controlled by, or is under common control
with the Licensee or Skinvisible. “Controls,” “control” or “controlled” as used in this paragraph means direct or indirect
ownership of more than fifty percent (50%) of the voting stock of such corporation, or more than a fifty percent (50%)
interest, direct or indirect, in the decisionmaking authority of such other unincorporated business entity.
2.3
“Confidential Information” means information that is marked as confidential, or, if orally or visually disclosed, is
indicated at the time of disclosure as confidential and provided in written form within thirty days. Notwithstanding the
foregoing, the Receiving Party will have no obligation of confidentiality relating to any information of the Disclosing Party that:
(i)
is disclosed by the Disclosing Party without restriction on further dissemination or is otherwise disclosed by
the Receiving Party in compliance with the terms of the Disclosing Party’s prior written approval; or
(ii)
at the time of receipt by the Receiving Party was independently known or developed by the Receiving Party,
or becomes independently known to the Receiving Party thereafter, and can be so documented by written records; or
(iii)
at any time becomes generally known to the public or otherwise publicly available through no fault of
Receiving Party; or
(iv)
has been or is made available to Receiving Party by a third party having the lawful right to do so without
breaching any obligation of nonuse or confidentiality to Disclosing Party; or
(v)
the Receiving Party is obligated to disclose in order to comply with applicable laws or regulations, or with a
court or administrative order, provided that the Receiving Party (i) promptly notifies the Disclosing Party, and (ii)
cooperates reasonably with the Disclosing Party’s efforts to contest or limit the scope of such disclosure.
2.4
“Field” means all prescription drug products for indications listed in Appendix B except for the Exclusions listed.
2.5
“First Commercial Sale” means the initial transfer by or on behalf of Licensee or its Affiliate in exchange for cash or
some equivalent of product to be sold commercially. This does not include clinical supplies or product samples.
2.6
“Licensed Product” means any tangible materials developed using the Polymer, the Patent Rights or Technical
Information in the Field. For the avoidance of doubt, Licensed Products excludes any product where an ingredient is any
form of cannabis (from marijuana or hemp) whether natural, synthetic or otherwise derived, or hemp seed oil.
2.7
“Net Sales Revenue” means the gross amount of monies or cash equivalent or other consideration that is invoiced by
Licensee or Affiliate to unrelated third parties for sale or transfer of Licensed Products, less (a) all trade, quantity, and cash
discounts actually allowed and taken; (b) credits and allowances actually granted and taken on account of rejections, returns,
or billing errors; (c) packing costs; (d) transportation; (e) insurance; (f) taxes, duties, tariffs, or other governmental charges
imposed on the sale of the Licensed Product, including value added taxes or other governmental charges otherwise measured
by the amount paid for the Licensed Product, but specifically excluding taxes based on the net income of the seller.
Page 2 of 19
2.8
“Patent Rights” means those patents and patent applications listed in Appendix A and all patents claiming priority
thereto or arising therefrom.
2.8.1
“Patent Rights” includes patents and patent applications, whether domestic or foreign, including all
provisionals, divisionals, continuations, reissues, reexaminations, renewals, extensions, and supplementary protection
certificates of any such patents and patent applications.
2.8.2
Only to the extent that claims issuing therefrom obtain the benefit of a priority date of any of the foregoing
applications and contain one or more claims directed to the invention or inventions disclosed in 2.8.1., “Patent Rights” also
includes continuationsinpart, and all divisionals and continuations of these continuationsinpart, patents arising therefrom,
and foreign patents, extensions, and supplemental protection certificates and applications corresponding thereto
2.9
“Polymer”: shall mean Skinvisible’s proprietary polymer delivery system technology covered by those patents and
patent applications listed in Appendix A and all patents claiming priority thereto or arising therefrom and developed using the
Technical Information for the Licensed Products.
2.10 “Sublicense” means the present, future or contingent transfer of the license, right, or option granted under Article 3.0. to
import, make, have made, use, and sell the Licensed Product including the clinical development of the Licensed Product.
2.11
"Sublicensee” means any third party to whom Licensee has granted a sublicense pursuant to Article 4.0 of this
Agreement to make, have made, use, and/or sell the Licensed Product under the Patent Rights, provided the third party has
agreed in writing with Licensee to accept the conditions and restrictions agreed to by Licensee in this Agreement.
2.12
“Territory” means all countries in the world.
2.13
“Technical Information” means as it applies to Licensed Products only; any technical facts, data, or advice, written or
oral (in the form of information contained in patents and patent applications, reports, letters, drawings, specifications, testing
procedures, training and operational manuals, bills of materials, photographs and the like) developed prior to the Effective
Date of this Agreement that: (a) is directly related to the Patent Rights; (b) was developed at Skinvisible; and (c) is owned or
in the possession of Skinvisible.
3.0
Grant of Rights
3.1
Grant. Subject to Licensee's compliance with Articles 8.0 (Licensing Fees and Royalty) and 9.0 (Payments and
Reports), and all other provisions of this Agreement, and to the reservation of rights in Paragraphs 3.2, Skinvisible hereby
grants to Licensee, and Licensee accepts, an exclusive, royaltybearing license, with the right to Sublicense, in the Field under
the Patent Rights and Technical Information to import, make, have made, and use, and sell Licensed Products in the Territory.
Once the License Fee in clause 7.1 has been fully paid, the grant of rights shall fully come into effect. Until then Licensee’s
rights will be limited to R&D, clinical trial and regulatory submission uses only.
3.2
No Other Rights Implied. This Agreement confers no license or rights by implication, estoppel, or otherwise under any
patent applications or patents of Skinvisible other than the Patent Rights defined in Paragraph 2.8 and Appendix A attached
hereto, regardless of whether such patents are dominant or subordinate to the Patent Rights.
4.0
Sublicensing
4.1
Right to Sublicense. During the term of exclusivity of the license granted in Section 3.1 of this Agreement, Licensee
will have the right to grant Sublicenses to Licensed Products in the Field and Territory. For clarity, the Licensee does not have
the right to Sublicense the formulation development of the Licensed Product.
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4.2
Obligations of Licensee. With respect to the right to Sublicense granted pursuant to this Section, Licensee shall:
4.2.1
assume responsibility for its Sublicensees and not grant any rights that are inconsistent with the rights and
obligations of this Agreement. Any act or omission of a Sublicensee that would be a breach of this Agreement if
performed by Licensee will be deemed a breach by Licensee of this Agreement;
5.0
Confidential Information
5.1
Patent and Technical Information. Licensee acknowledges that it has previously received copies of all patents and
patent applications comprising the Patent Rights. Skinvisible agrees to provide Licensee with Technical Information upon
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request, however only on an as needed basis. For clarity, Skinvisible is not obligated to provide all confidential information
regarding all Polymer formulations, only those formulations Skinvisible deems relevant to the Licensed Product and only at the
time it is being used for a specific Licensed Product’s development by the Licensee. Prior to 50% of the License Fee being
paid, the Licensee is restricted to Technical Information for a maximum of two (2) Polymers for 2 product formulations.
Pursuant to this Agreement, all information and correspondence relating to the Patent Rights received from Skinvisible or
Skinvisible's patent counsel and all Technical Information is considered Skinvisible's Confidential Information, whether or not
marked as confidential.
Skinvisible acknowledges that it has previously received copies of confidential business information of Licensee. Pursuant to
this Agreement, all information and correspondence relating to Licensee’s confidential business information received from
Licensee is considered the Licensee’s Confidential Information, whether or not marked as confidential.
5.2
Confidentiality Obligation. Beginning on the Effective Date of this Agreement and continuing throughout the term of
this Agreement and shall survive the termination of this Agreement, whether upon expiration or termination by either party,
neither party will at any time, without the express prior written consent of the other, disclose or otherwise make known or
available to any third party any Confidential Information of the other party. The receiving party will utilize reasonable
procedures to safeguard the Confidential Information of the disclosing party, including releasing such Confidential Information
only to its employees, agents, or Affiliates on a “needtoknow” basis and those individuals shall be bound to the same
confidentiality obligations as defined in this Agreement. Licensee is authorized to release Confidential Information to potential
Sublicensees for the purpose of negotiating and granting a Sublicense, provided that Licensee takes reasonable precautions to
safeguard such Confidential Information of Skinvisible. The Licensee, its employees, agents or Affiliates, shall not use
Skinvisible’s Confidential Information in any manner that would breach this Agreement. Licensee shall not use Technical
Information for the development of any products or for any other purpose outside of the scope of this Agreement even after a
specific Skinvisible patent has expired.
5.3
Licensee’s Confidential Information. Except as required by law, Skinvisible will maintain in confidence all information
provided by Licensee as Licensee's Confidential Information. In the event of a request for such information, Skinvisible agrees
to inform Licensee of such request.
6.0 Patent Prosecution and Cost Recovery
6.1
Patent Prosecution. Skinvisible or its designee will have sole control over the filing, prosecution, maintenance, and
management of any and all issued patents and pending and future patent applications encompassing the Patent Rights, as of
the Effective Date of this Agreement;. Skinvisible will select all outside counsel for prosecution of the Patent Rights and
such counsel will represent Skinvisible in such prosecution. Skinvisible will keep Licensee fully informed, at Licensee’s
expense, of all prosecution related actions, including submitting to Licensee copies of all official actions and responses, and
will reasonably cooperate with Licensee to whatever extent is reasonably necessary to provide Licensee the full benefit of the
license granted herein. Each party will promptly inform the other as to all matters that come to its attention that may affect the
preparation, filing, prosecution, or maintenance of the Patent Rights and permit a reasonable amount of time for each other to
provide comments and suggestions with respect to the preparation, filing, and prosecution of Patent Rights, which comments
and suggestions will be considered by the other party.
6.2
Extension of Licensed Patent(s). Licensee may request that Skinvisible have the normal term of any Patent Rights
extended or restored under a country’s procedure of extending patent term for time lost in governmental regulatory approval
processes, and the expense of doing so shall be borne by Licensee. Licensee shall assist Skinvisible to take whatever action is
necessary to obtain such extension. In the case of such extension, royalties pursuant to Article 8.0 shall be payable until the
end of the extended life of the patent. In the event that Licensee does not elect to extend Patent Rights, Skinvisible may, at its
own expense, effect the extension of such patents.
7.0 Licensing Fees, Milestone Payments and Royalties
7.1
License Fee. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee agrees to
pay to Skinvisible a onetime, nonrefundable, noncreditable license issue fee of one million USD dollars (USD $1,000,000)
(“License Fee”). In the event that the Licensee’s initial funding event is equal to or greater than ten million USD (USD
$10,000,000), the full License Fee shall be payable immediately upon the successful closing of the initial funding event. In the
event that any funding event is less than USD$10,000,000, Licensee will pay Skinvisible a nonrefundable 10% of the net
amount raised in any funding event until the full License Fee is paid, with a minimum nonrefundable payment of five hundred
thousand USD dollars (USD $500,000) due no later than December 31, 2019 (“First Half Payment”) and the balance due no
later than March 31, 2020. This Agreement will automatically terminate if the First Half Payment is not paid by December
31st, 2019 or the full License Fee is not paid by March 31, 2020. Licensee agrees to hold bimonthly update calls with
Skinvisible on the status of funding until such time the full License Fee is paid.
7.2
Earned Royalties.
7.2.1 During the term of this Agreement, Licensee agrees to pay to Skinvisible an earned royalty of five percent
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g
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(5%) of Licensee’s Net Sales Revenue for each Licensed Product for the last to expire of the Patent Rights or
Extension of Patent Rights (the “Royalty Period”), .Earned royalty payments are due and payable within forty
five (45) days of the end of each calendar quarter.
7.2.2 In the event that Licensee Sublicenses a Licensed Product to a Third Party, the Licensee agrees to pay
Skinvisible 25% of the revenue received as royalty payments (“Royalty Revenue”) from the Third Party up to
a maximum royalty of 5% of Sublicensee’s net sales.
7.2.3 Reduction of Royalty Fees. For Licensed Product sold by Licensee or an
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Affiliate, if, during the Royalty Period, any third party makes available for purchase a Generic Product (as
defined below), the Royalty Fees with respect to such Royalty Products shall be reduced from 5% to 2.5%
with respect to Net Revenue from the country in which such Generic Product is sold. If, during the Royalty
Period, one or more third parties make available for purchase two or more Generic Products, the Royalty
Fees with respect to such Royalty Products shall be reduced from 2.5% to 1% with respect to Net Revenue
from the country in which such Generic Products are sold. For Licensed Product sold by a Sublicensee, if,
during the Royalty Period, any third party makes available for purchase a Generic Product (as defined below),
the Royalty Fees due to Skinvisible with respect to such Licensed Products shall be reduced to 15% of
Licensee’s Royalty Revenue with respect to Net Revenue from the country in which such Generic Product is
sold. If, during the Royalty Period, one or more third parties make available for purchase two or more
Generic Products, the Royalty Fees due to Skinvisible with respect to such Licensed Products shall be
reduced from 15% to 5% of Licensee’s Royalty Revenue from the country in which such Generic Products
are sold. As used herein, “Generic Product” means any product approved by the FDA or another applicable
domestic or foreign regulatory authority to be deemed generically equivalent to the Royalty Product
irrespective of its formulation but with the same active ingredient as the Licensed Product.
7.3
Milestone Payments. Licensee agrees to pay Skinvisible the following milestone payments for Licensed Products for
the first Rare Skin Disease Product and the first two (2) Ketamine Products to reach each milestone as set forth below (the
“First Products”). For the avoidance of doubt, if a clinical milestone is reached by Licensee the full Milestone Payment is due
to Skinvisible. If the clinical milestone is reached by a Sublicensee of the Licensed Product then 25% of the Milestone
Payment is due to Skinvisible. Milestones are described below:
7.3.1 Clinical Milestones and Milestone Payments:
(i)
Successful completion of Phase 2 testing: $2.5 million
(ii)
Successful completion of Phase 3 testing: $5.0 million.
(iii)
Regulatory approval in US: $10 million
(iv)
Regulatory approval in EU: $5.0 million
7.3.2 Sales Milestones. Sales Milestones shall be paid for each and every Licensed Product commercialized by Licensee or
its affiliates as follows when Licensee’s net sales for each Licensed Product achieves the following levels in any one calendar
year. No Sales Milestones will be paid for sublicensed products.
(a) $10 million for $100 million in sales.
(b) $25 million for $250 million in sales.
(c) $50 million for $400 million in sales.
7.3.3 Milestone Notification. Licensee must notify Skinvisible in writing within thirty (30) days upon the achievement of
each milestone. Payment of the appropriate milestone payment shall be made within sixty (60) days of achievement of each
milestone. No sales milestone payments will be made for any sublicensed product.
7.4 Royalty Stacking: If, during the term of this Agreement, Licensee is required to obtain one
or more licenses from any third party (“Third Party License(s)”) in order to avoid infringing such third party’s patent(s) in the
development, manufacture, or sale of the Licensed Products, and the total royalty payable by the Licensee on the Licensed
Products under this Agreement and to all Third Party License(s) exceeds 20% of the Net Sales Value, the Skinvisible’s royalty
rate shall be reduced proportionately, but in no event shall Skinvisible royalty rate fall below 3% except as under the
conditions outlined in section 8.3.
7.5 Minimum Timeline of First Licensed Product: Licensee agrees to commence clinical testing on at least one Licensed
Product in the Field within 12 months from the Effective Date (“Development Deadline”) where clinical testing is defined as a
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study in which one or more human subjects are prospectively assigned to one or more interventions including a Licensed
Product to evaluate the effects of those interventions on healthrelated biomedical or behavioral outcomes In the event that
Licensee has not commenced such testing by the Development Deadline, this Agreement will terminate immediately unless
initiation of such testing has been materially delayed by the FDA or another regulatory authority by putting the product on a
clinical hold which would then put the Development Deadline on hold. Licensee will promptly inform Skinvisible if it receives a
clinical hold from the FDA or another regulatory authority and Licensee will respond to the request in a timely fashion. . In the
event Licensee concludes that successful resolution of the clinical hold is not feasible then Licensee will promptly inform
Skinvisible that it is ceasing further development of that Licensed Product and Skinvisible will have the right to use or license
its technology for that particular indication including the same active ingredient. Skinvisible, however, will not use any of the
use of Licensees confidential information. When the clinical hold has been fully lifted, the clock on the 12 month commitment
will resume for an additional 12 month period.
8.0 Payment and Reports
8.1
Reports.
8.1.1 Royalty Reports. With each royalty payment, Licensee must include a report setting forth such particulars of
the business conducted by Licensee, Affiliate, and each Sublicensee during the preceding calendar quarter as
will be pertinent to royalty accounting as specified in this Agreement. This report must include at least (a) the
number of units of Licensed Products sold; (b) gross amounts billed or invoiced for Licensed Products; (d) net
revenues received from each Sublicensee during the most recently complete calendar quarter; (e) discounts
and allowances and any other deductions; and (f) calculation of total royalties due Skinvisible.
8.1.2 Clinical Status Reports. Licensee agrees to provide Skinvisible with written quarterly updates on the status of
the clinical development and Clinical Milestones for the first Rare Skin Disease Product and the first two (2)
Ketamine Licensed Products in addition to development and commercial updates for all other Licensed
Products.
8.2
Payments.
8.2.1
Royalties shall accrue when Licensee has received payment from a third Party or Sublicensees for Licensed
Products delivered to a third party or Sublicensee.
8.2.2
Licensee must pay earned royalties to Skinvisible quarterly within forty five
(45) days of each of the following dates: March 31, June 30, September 30, and December 31 of each year.
8.3
Form of Payments. All payments required under this Agreement must be made in U.S. dollars by check or money
order payable to Skinvisible Nevada, and delivered to Skinvisible as specified in this Agreement; or, if so directed in writing
by Skinvisible, in such currency, form, and to such account as Skinvisible may designate. The royalties on sales in currencies
other than U.S. Dollars must be calculated using the appropriate foreign exchange rate for such currency quoted in The Wall
Street Journal on the last business day of the calendar quarter in which the Net Sales Revenue occurred.
9.0
Polymer Sourcing
Polymer Manufacturing: Licensee shall, and at its sole expense for any setup, validation or other costs associated with
transferring the manufacturing knowhow of the Polymer manufacturing and validation, have the GMP Polymer be
manufactured by an alternate supplier or suppliers which will be preapproved by Skinvisible, and such approval shall not be
unreasonably withheld Skinvisible will work with Licensee and will promptly transfer manufacturing process to such alternate
supplier or suppliers. Any alternate supplier shall be required to agree to the same Confidentiality obligations of the Licensee
as defined in this Agreement. Prior to the Licensee manufacturing its own GMP Polymer, Skinvisible agrees not to charge
Licensee a markup on any nonGMP Polymer which it supplies that is used solely for clinical studies or any other non
commercial use, however limited to a reasonable quantity that Skinvisible is able to manufacture and supply.
10
Record Keeping
10.1 Records. Licensee and its Affiliates must keep complete and accurate records and books of account containing all
information necessary for the computation and verification of the amounts to be paid hereunder. Licensee must keep these
records and books for a period of three (3) years following the end of the Licensee’s fiscal year to which the information
pertains.
10.2 Audit Rights. Skinvisible shall have the right annually at their own expense and on a confidential basis to have an
independent certified public accountant reasonably acceptable to Licensee review such records, at the Licensee’s offices upon
reasonable notice and during reasonable business hours, for the purposes of verifying royalties payable to Skinvisible
hereunder. Such accountant shall execute a suitable confidentiality agreement reasonably acceptable to the Licensee prior to
conducting such audit. Such accountant may disclose to Skinvisible only its conclusions regarding the accuracy and
completeness of Royalty Payments and of records related thereto, and shall not disclose the Licensee’s confidential business
information to Skinvisible without the prior written consent of Licensee. All underpayments discovered pursuant to this
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p
p y
p
section 4.4, plus interest at the then prevailing prime interest rate published by Citicorp, New York, New York, U.S.A., on
the amount underpaid shall be promptly paid to Skinvisible; provided, however, that such underpayment is discovered within
two (2) years of the payment due date. Skinvisible shall incur the expense of the audit only if it is determined that Skinvisible
received ninety percent (90%) or more of the amounts owed for the period audited and in all other circumstances the
Licensee shall incur the expense of the audit.
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11.0
Term and Termination of Agreement
11.1 Term. The term of this Agreement will commence on the Effective Date and will continue until the last of the Patent
Rights expires (such expiration to occur only after expiration of extensions of any nature to such patents which may be
obtained under applicable statutes or regulations in the respective countries of territory, such as the Drug Price Competition
and Patent Term Restoration Act of 1984 in the U.S.A. and similar patent extension laws in other countries), unless sooner
terminated in accordance with the provisions set forth in this Article 11.0 (Term and Termination of Agreement) of this
Agreement.
11.2
Termination for Breach. Skinvisible may terminate this Agreement effective ninety (90) days after Licensee’s receipt of
Skinvisible’s Notice of Termination, if Licensee (a) is in default in payment of royalties or in providing reports, or (b) materially
breaches this Agreement and, in each case, does not cure such breach within ninety (90) days after receiving the Notice of
Termination by Skinvisible. Licensee agrees that any and all diligence requirements are material license terms, as are all royalty
and payment requirements.
11.3
Termination for Bankruptcy. This Agreement and the license granted hereunder will terminate immediately in the event
that: (a) Licensee seeks liquidation, reorganization, dissolution or windingup of itself, is insolvent or evidence exists as to its
insolvency, or Licensee makes any general assignment for the benefit of its creditors; (b) a petition is filed by or against
Licensee, or any proceeding is initiated by or against Licensee, or any proceeding is initiated against Licensee as a debtor,
under any bankruptcy or insolvency law, unless the laws then in effect void the effectiveness of this provision; (c) a receiver,
trustee, or any similar officer is appointed to take possession, custody, or control of all or any part of Licensee’s assets or
property; or (d) Licensee adopts any resolution of its Board of Directors or stockholders for the purpose of effecting any of
the foregoing.
11.4
Licensee’s Right to Terminate. Licensee will have a right to terminate this Agreement with or without cause, upon
ninety (90) days prior written notice to Skinvisible.
11.5
No Other Remedies Affected. The provisions under which this Agreement may be terminated will be in addition to
any and all other legal remedies which either party may have for the enforcement of any and all terms hereof, and do not in any
way limit any other legal remedy such party may have.
11.6
Termination Ends Grant of Rights. Termination of this Agreement will terminate all rights and licenses granted to
Licensee under Paragraph 3.0 of this Agreement.
11.7
Effect of Termination on Financial Obligations. Termination by Skinvisible or Licensee under the options set forth in
this Agreement will not relieve Licensee from any financial obligations to Skinvisible arising from this Agreement that accrue
prior to or after termination, or from performing according to any and all other provisions of this Agreement that survive
termination.
11.8
In the event that there remain no valid, enforceable, and infringed Patent Rights for any patents listed in Appendix 1 or
Extended Patent Rights, then following termination Licensee and
any Sublicensees will have no further obligation to pay royalties thereon or to account to Skinvisible therefor.
11.9
Final Report. Within ninety (90) days of termination of this Agreement, Licensee shall submit a final report. Any
royalty payments or patent expense reimbursements due to Skinvisible will become immediately due and payable upon
termination.
11.10
Disposition of Licensed Products on Hand. Upon termination of this Agreement, Licensee may dispose of all
previously made or partially made Licensed Product within a period of ninety (90) days of the Effective date of such
terminations provided that the sale of such Licensed Product by Licensee or its Affiliate, shall be subject to the terms of this
Agreement, including but not limited to the rendering of reports and payment of royalties required under this Agreement.
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12.0
Notices
Any notice or other communication will be in writing and will be deemed to have been properly given and be effective (i) upon
the date of delivery if delivered in person, , or courier service or sent by telecopy, facsimile transmission or other electronic
means of transmitting written documents with confirmation of receipt; or to the respective addresses set forth below, or to
such other address as either party will designate by written notice given to the other party, or (ii) five days after mailing, if
mailed by firstclass or certified mail, postage paid, or to the respective addresses below
In the case of Licensee:
Quoin Pharmaceuticals
42127 Pleasant Forest Court
Ashburn, VA 20148
ATTN: Michael Myers, Ph.D
Email: mmyers@quoinpharma.com
Cell: 703 9804182
In the case of Skinvisible:
Mr. Terry Howlett
Skinvisible Pharmaceuticals, Inc.
6320 S. Sandhill Road, Unit 10, Las Vegas, NV 89120
email terry@skinvisible.com
Telephone No.:702.433.7154
14.0 Proprietary Rights
Licensee will not, by performance under this Agreement, obtain any ownership interest in Patent Rights or any other
proprietary rights or information of Skinvisible, its officers, inventors, employees, students, or agents.
15.0
Patent Infringement
15.1
Notification of Infringement. Skinvisible and Licensee will promptly notify each other of any infringement or possible
infringement of the Patent Rights, as well as any facts that may affect the validity, scope, or enforceability of the Patent Rights,
of which either party becomes aware. Both parties shall use reasonable efforts and cooperation to terminate infringement
without litigation.
15.2
Rights to Sue for Infringement. Pursuant to this Agreement and the provisions of Chapter 29 of Title 35, United
States Code, Licensee may a) bring suit in its own name, at its own expense, and on its own behalf for infringement of
presumably valid claims in the Patent Rights and defend in its own name, at its own expense, any allegation of invalidity or
non infringement of any of the Patent Rights brought in a declaratory judgment action or raised by way of counterclaim or
affirmative defense in an infringement suit brought by the Licensee; b) in any such suit, enjoin infringement and collect for its
use damages, profits, and awards of whatever nature recoverable for such infringement; and c) settle any claim or suit for
infringement of the Patent Rights provided, however, that Skinvisible will have the first right to take such actions and will have
a continuing right to intervene in such suit. Licensee will take no action to compel Skinvisible either to initiate or to join in any
such suit for patent infringement. Licensee may request Skinvisible to initiate or join any such suit if necessary to avoid
dismissal of the suit. Should Skinvisible be made a party to any such suit, Licensee must reimburse Skinvisible for any costs,
expenses, or fees that Skinvisible incurs as a result of such motion or other action, including any and all costs incurred by
Skinvisible in opposing any such motion or other action. Upon Licensee's payment of all costs incurred by Skinvisible as a
result of Licensee's joint motion or other action, these actions by Licensee will not be considered a default in the performance
of any material obligation under this Agreement. In all cases, Licensee will keep Skinvisible reasonably apprised of the status
and progress of any litigation. Before Licensee commences an infringement action, Licensee must notify Skinvisible and give
careful consideration to the views of Skinvisible in deciding whether to bring suit.
15.3
Skinvisible will cooperate fully with Licensee in connection with an infringement action initiated under Paragraph 15.2.
Skinvisible will promptly provide access to all necessary documents and render reasonable assistance in response to a request
by Licensee.
16.0
Patent Validity
16.1
If any claim challenging the validity or enforceability of any Patent Rights will be brought against Licensee, Licensee
will promptly notify Skinvisible. Skinvisible, at its option, will have the right, within thirty (30) days after notification by
Licensee of such action, to intervene and take over the sole defense of the claim at Skinvisible’s expense.
16.2
If a third party challenges the validity or enforceability of any of Patent Rights and Licensee ceases to receive revenue
from the Licensed Products affected, any payments due Skinvisible will be deferred until such time as the Patent Rights are
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determined to be valid or enforceable by a final judgment of a court of competent jurisdiction from which no appeal can be or
is taken or when Licensee begins receiving revenue from the affected Licensed Products.
17.0 Use of Names
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Nothing contained in this Agreement will be construed as conferring any right to use in advertising, publicity or other
promotional activities any name, trade name, trademark or other designation of a party hereto including any contraction,
abbreviation or simulation of any of the foregoing, unless the express written permission of the other party has been obtained,
provided that both parties may state the existence of this Agreement and the fact that both parties entered into it.
18.0 Representations and Warranties
18.1 Skinvisible Representations. Skinvisible represents and warrants as of the Effective Date of this Agreement that it: (a) has
an ownership interest in the Patent Rights; (b) the list of the Patent Rights contained in Appendix A is accurate and complete in
all respects; (c) has the right to grant the license in and to Patent Rights set forth in this Agreement; and (d) it has not granted
any licenses under the Patent Rights in the Field, except to Ovation Sciences Inc. for Cannabis products only as defined in
Appendix B Field, which would conflict with the rights granted herein.
18.2 Disclaimers. Nothing in this Agreement will be construed as:
18.2.1 A representation or warranty by Skinvisible as to the patentability, validity, scope, or usefulness of Patent Rights;
18.2.2 A representation or warranty by Skinvisible that anything made, used, sold, or otherwise disposed of under any
license granted in this Agreement is or will be free from infringement of thirdparty patents or other proprietary rights, or
Skinvisible patents or other proprietary rights not included in Patent Rights;
18.2.3 An obligation to bring or prosecute actions or suits against third parties for patent infringement;
18.2.4 An obligation to furnish any knowhow not provided in Patent Rights; or
SKINVISIBLE EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED,
PERTAINING TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PATENT
RIGHTS, THE LICENSED PRODUCTS, OR ANYTHING ELSE LICENSED, DISCLOSED, OR OTHERWISE
PROVIDED TO LICENSEE UNDER THIS AGREEMENT. SKINVISIBLE'S TOTAL LIABILITY UNDER THIS
AGREEMENT IS LIMITED TO THE COSTS AND FEES PAID TO SKINVISIBLE UNDER THIS AGREEMENT.
19.0
Indemnification
19.1
INDEMNIFICATION BY LICENSEE. EACH PARTY WILL NOTIFY THE OTHER OF ANY CLAIM,
LAWSUIT OR OTHER PROCEEDING RELATED TO THE PATENT RIGHTS. LICENSEE AGREES THAT
IT WILL DEFEND, INDEMNIFY AND HOLD HARMLESS SKINVISIBLE, ITS AFFILIATES OR ASSIGNS,
ITS FACULTY MEMBERS, SCIENTISTS, RESEARCHERS, EMPLOYEES, OFFICERS, TRUSTEES AND
AGENTS AND EACH OF THEM (THE “INDEMNIFIED PARTIES”), FROM AND
AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION, LAWSUITS OR OTHER PROCEEDINGS (THE
“CLAIMS”) FILED OR OTHERWISE INSTITUTED AGAINST ANY OF THE INDEMNIFIED PARTIES
RELATED DIRECTLY OR INDIRECTLY TO OR ARISING OUT OF THE DESIGN, PROCESS,
MANUFACTURE OR USE BY LICENSEE, ITS SUBLICENSEEES OR ANY OF THEIR CUSTOMERS OF
THE LICENSED PRODUCTS AND ANY EMBODIMENT OF THE PATENT RIGHTS; PROVIDED,
HOWEVER, THAT SUCH INDEMNITY WILL NOT APPLY TO ANY CLAIMS ARISING FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PARTY. LICENSEE WILL
ALSO ASSUME RESPONSIBILITY FOR ALL COSTS AND EXPENSES RELATED TO SUCH CLAIMS FOR
WHICH IT IS OBLIGATED TO INDEMNIFY THE INDEMNIFIED PARTIES PURSUANT TO THIS
PARAGRAPH 19.1, INCLUDING, BUT NOT LIMITED TO, THE PAYMENT OF ALL REASONABLE
ATTORNEYS' FEES AND COSTS OF LITIGATION OR OTHER DEFENSE.
19.2
INDEMNIFICATION BY SKINVISIBLE. SKINVISIBLE AGREES THAT IT WILL DEFEND,
INDEMNIFY AND HOLD HARMLESS LICENSEE, SUBLICENSEES AND THEIR EMPLOYEES,
CONSULTANTS, DIRECTORS, OFFICERS, CUSTOMERS AND AGENTS AND EACH OF THEM (THE
Page 13 of 19
“INDEMNIFIED PARTIES”), FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION,
LAWSUITS OR OTHER PROCEEDINGS (THE “CLAIMS”) FILED OR OTHERWISE INSTITUTED BY
THIRD PARTIES AGAINST ANY OF THE INDEMNIFIED PARTIES RELATED DIRECTLY OR
INDIRECTLY TO OR ARISING OUT OF THE BREACH OF SKINVISIBLE OF ITS REPRESENTATIONS IN
SECTION 18.1 OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT SUCH INDEMNITY WILL NOT
APPLY TO ANY CLAIMS ARISING FROM THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF ANY INDEMNIFIED PARTY. SKINVISIBLE WILL ALSO ASSUME RESPONSIBILITY
FOR ALL COSTS AND EXPENSES RELATED TO SUCH CLAIMS FOR WHICH IT IS OBLIGATED TO
INDEMNIFY THE INDEMNIFIED PARTIES PURSUANT TO THIS PARAGRAPH 19.2, INCLUDING, BUT
NOT LIMITED TO, PAYMENT OF ALL REASONABLE ATTORNEYS’ FEES AND COSTS OF LITIGATION
OR OTHER DEFENSE.
19.3
NOTICE. IT SHALL BE A CONDITION PRECEDENT TO AN INDEMNIFIED PARTY’S RIGHT TO
SEEK INDEMNIFICATION UNDER PARAGRAPH 19.1 OR 19.2 THAT SUCH PARTY SHALL (A)
PROMPTLY NOTIFY THE INDEMNIFYING PARTY OF A CLAIM AS SOON AS IT BECOMES AWARE OF
SUCH CLAIM, (B) ALLOW THE INDEMNIFYING PARTY TO ASSUME CONTROL OF THE DEFENSE OF
SUCH CLAIM, AND (C) COOPERATE WITH THE INDEMNIFYING PARTY IN SUCH DEFENSE.
19.4
Special Damages. Neither party shall be liable for any indirect, special, consequential, or other similar damages
whatsoever whether grounded in tort, strict liability, contract or otherwise. The Skinvisible shall not have any responsibility or
liability whatsoever with respect to Licensed Products.
20.0
Applicable Laws
Page 14 of 19
20.1
Compliance with Laws. Licensee will abide by all applicable federal, state, and local laws and regulations pertaining to
the management and commercial deployment of Licensed Products under this Agreement.
20.2
Export Control Laws. It is understood that Skinvisible is subject to United States laws and regulations controlling the
export of technical data, computer software, laboratory prototypes, and other commodities (including the Arms Export
Control Act, as amended, and the Export Administration Act of 1979), and that its obligations hereunder are contingent on
compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities
may require a license from the United States Government and/or written assurances by Licensee that Licensee will not export
data or commodities to certain foreign countries without prior approval of the United States Government. Skinvisible
represents neither that a license will not be required nor that, if required, such a license will be issued.
20.3
Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of
Nevada, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws. In any action or
proceeding between any of the parties arising out of or relating to this Agreement or any of the Contemplated Transactions,
each of the parties: (i) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the State
of Nevada or to the extent such court does not have subject matter jurisdiction, the Superior Court of the State of Nevada or
the United States District Court for the District of Nevada, (ii) agrees that all claims in respect of such action or proceeding
shall be heard and determined exclusively in accordance with clause (i) of this Section 20.3, (iii) waives any objection to laying
venue in any such action or proceeding in such courts, (iv) waives any objection that such courts are an inconvenient forum or
do not have jurisdiction over any party, and (v) agrees that service of process upon such party in any such action or
proceeding shall be effective if notice is given in accordance with this Agreement.
21.0
Dispute Resolution
21.1
The parties will negotiate in good faith any controversy or disputed claim by either party arising under or related to this
Agreement. If no resolution of such controversy or disputed claim is reached between the parties within ninety days of the
commencement of negotiations, then either party may proceed to resort to the courts of the State of Nevada for resolution.
The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Nevada and to the
jurisdiction of the United States District Court for the State of Nevada for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or
based upon this Agreement except in the state courts of Nevada or the United States District Court for the State of Nevada,
and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or
proceeding, any claim that it is not subject personally to the jurisdiction of the abovenamed courts, that its property is exempt
or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue
of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by
such court. The parties agree that the remedy at law for any breach or threatened breach by a party may, by its nature, be
inadequate, and that in addition to damages, the other parties will be entitled to a restraining order, temporary and permanent
injunctive relief, specific performance, and other appropriate equitable relief, without showing or
Page 15 of 19
proving that any monetary damage has been sustained.
21.2
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER
TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALLENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE),
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS
SUBSECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE
PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER
WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
23.0 Prevailing Party. In any action at Law or suit in equity to enforce this Agreement or the rights of any of the
parties under this Agreement, the prevailing Party in such action or suit shall be entitled to receive a reasonable
sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.
24.0
General
24.1
Severability. If any provision of this Agreement will be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions will not be in any way affected or impaired thereby.
24.2
No Waiver. No omission or delay of either party hereto in requiring due and punctual fulfillment of the obligations of
any other party hereto will be deemed to constitute a waiver by such party of its rights to require such due and punctual
fulfillment, or of any other of its remedies hereunder.
24.3
Amendments. No amendment or modification hereof will be valid or binding upon the parties unless it is made in
writing, cites this Agreement, and is signed by duly authorized representatives of Skinvisible and Licensee.
24.4
Assignment. This Agreement, and any rights or obligations hereunder, may be assigned by Skinvisible but will not be
assigned, transferred, or delegated in whole or in part by Licensee, except in connection with a merger of Licensee or a sale
of all or substantially all of Licensee’s assets, without Skinvisible’s express written approval, such approval not to be
unreasonably withheld. Any attempted assignment, transfer or delegation in breach of this provision will be deemed to be void
and to have no effect, and will entitle Skinvisible to terminate this Agreement upon written notice to Licensee. Except as
otherwise provided, this Agreement will be binding upon and inure to the benefit of the parties’ successors and lawful assigns.
24.5
Headings. The headings of the several sections of this Agreement are inserted for
convenience and reference only, and are not intended to be a part of or to affect the meaning or interpretation of this
Agreement.
24.6
Skinvisible's Disclaimers. Neither Skinvisible, its Affiliates or Assigns, nor any of its faculty members, scientists,
researchers, employees, officers, trustees or agents assume any responsibility for the manufacture, product specifications, sale,
or use of the Licensed Products that are manufactured by or sold by Licensee. Skinvisible makes no guaranty that the
Licensed Products can be developed or will be clinically effective for the intended outcome or receive regulatory approval in any
jurisdictions of the Territory.
24.7
No Endorsement. By entering into this Agreement, Skinvisible neither directly nor indirectly endorses any product or
service provided, or to be provided, by Licensee whether directly or indirectly related to this Agreement. Licensee will not
state or imply that this Agreement is an endorsement by Skinvisible or its employees.
24.8
Independent Contractors. The parties hereby acknowledge and agree that each is an independent contractor and that
neither party will be considered to be the agent, representative, master or servant of the other party for any purpose
whatsoever, and that neither party has any authority to enter into a contract, to assume any obligation, or to give warranties or
representations on behalf of the other party. Nothing in this relationship will be construed to create a relationship of joint
venture, partnership, fiduciary or other similar relationship between the parties.
24.9
Reformation. The parties hereby agree that neither party intends to violate any public policy, statutory or common law,
rule, regulation, treaty or decision of any government agency or executive body thereof of any country or community or
association of countries, and that if any word, sentence, paragraph or clause or combination thereof of this Agreement is
Page 16 of 19
found, by a court or executive body with judicial powers having jurisdiction over this Agreement or any of the parties hereto,
in a final, unappealable order, to be in violation of any such provision in any country or community or association of countries,
such words, sentences, paragraphs or clauses or combination will be inoperative in such country or community or association
of countries, and the remainder of this Agreement will remain binding upon the parties hereto.
24.10 Force Majeure. No liability hereunder will result to a party by reason of delay in performance caused by force
majeure, that is, circumstances beyond the reasonable control of the Party, including, without limitation, acts of God, fire,
flood, earthquake, war, terrorism, civil unrest, labor unrest, or shortage of or inability to obtain material or equipment.
24.11
Survival. Paragraphs 5.2 (Confidential Information) and 11.7, 11.8 and 11.10 (Term and Termination); and Articles
10.0 (Record Keeping), 18.0 (Representations and Warranties), 19.0 (Indemnification), 20.0 (Applicable Law), 21.0
(Dispute Resolution) and 22.0 (Attorneys Fees), and other provisions that by their context would survive, will survive the
termination of this Agreement.
24.12 Entire Agreement. This Agreement embodies the entire understanding of the parties and supersedes all previous
communications, representations, or understandings, either oral or written, between the parties relating to the subject matter
hereof.
Page 17 of 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above.
QUOIN PHARMACEUTICALS,
INC.
SKINVISIBLE
PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
By:
/s/ Terry Howlett
Name: Michael Myers
Name: Terry Howlett
Title:
Chairman / CEO
Title:
President & CEO
Date:
Date:
APPENDIX A
Patent Rights as of the Effective Date
Application
Date
Reg. No.
Registration
Date
Title
Expiry
Date
1/4/2000
6582683
6/24/2003
DERMAL BARRIER COMPOSITION
1/4/2020
8/20/2001
6756059
6/29/2004
TOPICAL COMPOSITION, TOPICAL COMPOSITION
PRECURSOR, AND METHODS FOR MANUFACTURING AND
USING
8/20/2021
8/15/2005
7674471
3/9/2010
TOPICAL COMPOSITION, TOPICAL COMPOSITION
PRECURSOR, AND METHODS FOR MANUFACTURING AND
USING
2/27/2024
5/23/2002
8481058
7/9/2013
TOPICAL COMPOSITION, TOPICAL COMPOSITION
PRECURSOR, AND METHODS FOR MANUFACTURING AND
USING
1/4/2020
3/14/2005
8318818
11/27/2012
TOPICAL COMPOSITION, TOPICAL COMPOSITION
PRECURSOR, AND METHODS FOR MANUFACTURING AND
USING
7/10/2025
10/19/2007
9149490
10/6/2015
ACNE TREATMENT COMPOSITION AND METHODS FOR
USING
2/17/2029
4/14/2009
8299122
10/30/2012
METHOD FOR STABILIZING RETINOIC ACID, RETINOIC ACID
CONTAINING COMPOSITION, AND METHOD OF USING A
RETINOIC ACID CONTAINING COMPOSITION
4/14/2029
2/5/2010
8735422
5/27/2014
CATIONIC PHARMACEUTICALLY ACTIVE INGREDIENT
CONTAINING COMPOSITION, AND METHODS FOR
MANUFACTURING AND USING
4/10/2030
Page 18 of 19
Page 19 of 19
APPENDIX B
Field
·
Orphan Rare Skin Diseases including those listed below utilizing any compound with the exception of Cannabis as
defined below in Exclusions
·
Netherton Syndrome
·
Epidermolysis Bullosa (Simplex, Dystrophic, Recessive Dystrophic, Junctional)
·
Autosomal Recessive Congenital Ichthyosis
·
ZunichKaye Syndrome
·
SjogrenLarsson Syndrome
·
Lamellar Ichthyosis
·
Kindler Syndrome
·
Ichthyosiform Erythroderma
·
Transdermal and topical ketamine products (“Ketamine Product”) for all indications whether currently identified or
unidentified by Licensee except for Cannabis as defined below in Exclusions. For the avoidance of doubt, Skinvisible
shall retain and may develop and commercialize or outlicense rights to develop and commercialize competing products
that contain an active ingredient other than ketamine, in all its forms, in the same indication as Licensee’s Ketamine
Products.
Exclusions: Field excludes the right to any Licensed Product that contains any form of cannabis, whether from marijuana or
hemp, whether natural, synthetic or otherwise derived, or hemp seed oil (“Cannabis”).
EX4.31 7 qnrx20211231xex4d31.htm EXHIBIT 4.31
Exhibit 4.31
EXCLUSIVE LICENSE AGREEMENT RENEWAL
THIS RENEWAL OF THE EXCLUSIVE LICENSE AGREMEMENT (this “Renewal”) is made and entered into
as of May 8, 2020, by and among Skinvisible, Inc., a Nevada corporation (referred to as “SKINVISIBLE” ), and Quoin
Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties hereby agree to renew and extend the EXCLUSIVE LICENSE AGREEMENT as follows:
1.
Section 7.0 License Fee. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee
agrees to pay to Skinvisible a onetime, nonrefundable, noncreditable license issue fee of one million USD dollars
(USD $1,000,000) (“License Fee”). In the event that the Licensee’s initial funding event is equal to or greater than ten
million USD (USD $10,000,000), the full License Fee shall be payable immediately upon the successful closing of the
initial funding event. In the event that any funding event is less than USD$ 10,000,000, Licensee will pay Skinvisible a
nonrefundable 10% of the net amount raised in any funding event until the full License Fee is paid, due no later than July
31, 2020. This Agreement will automatically terminate if the License Fee is not paid by July 31, 2020. Licensee agrees
to hold bimonthly update calls with Skinvisible on the status of funding until such time the full License Fee is paid.
2.
All other terms and conditions of the Exclusive License Agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE, INC.
By:
/s/ Terry Howlett
Name: Terry Howlett
Title: President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name: Michael Myers, Ph.D.
Title: President & Chief Executive Officer
EX4.32 8 qnrx20211231xex4d32.htm EXHIBIT 4.32
Exhibit 4.32
FIRST AMENDMENT TO THE
EXCLUSIVE LICENSE AGREEMENT
by and among
SKINVISIBLE, INC.,
QUOIN PHARMACEUTICALS, INC.,
Dated as of October 17, 2019
FIRST AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT
THIS AMENDMENT TO THE EXCLUSIVE LICENSE AGREMEMENT (this “Amendment”) is made and
entered into as of July 31, 2020, by and among Skinvisible, Inc., a Nevada corporation (referred to as “SKINVISIBLE” ), and
Quoin Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties hereby amend the EXCLUSIVE LICENSE AGREEMENT as follows:
1.
Section 7.0 License Fee. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee
agrees to pay to Skinvisible a onetime, nonrefundable, noncreditable license issue fee of one million USD dollars
(USD $1,000,000) (“License Fee”). In the event that the Licensee’s initial funding event is equal to or greater than ten
million USD (USD $10,000,000), the full License Fee shall be payable immediately upon the successful closing of the
initial funding event. In the event that any funding event is less than USD$ 10,000,000, Licensee will pay Skinvisible a
nonrefundable 10% of the net amount raised in any funding event until the full License Fee is paid, due no later than
September 30, 2020. This Agreement will automatically terminate if the License Fee is not paid by September 30,
2020. Licensee agrees to hold bimonthly update calls with Skinvisible on the status of funding until such time the full
License Fee is paid.
2.
All other terms and conditions of the Exclusive License Agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE, INC.
By:
/s/ Terry Howlett
Name:
Terry Howlett
Title:
President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name:
Michael Myers, Ph.D.
Title:
President & Chief Executive Officer
EX4.33 9 qnrx20211231xex4d33.htm EXHIBIT 4.33
Exhibit 4.33
SECOND AMENDMENT TO THE
EXCLUSIVE LICENSE AGREEMENT RENEWAL
by and among
SKINVISIBLE, INC.,
QUOIN PHARMACEUTICALS, INC.,
Dated as of May 8, 2020
SECOND AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT RENEWAL
THIS AMENDMENT TO THE EXCLUSIVE LICENSE AGREMEMENT RENEWAL (this “Amendment”)
is made and entered into as of September 30, 2020, by and among Skinvisible, Inc., a Nevada corporation (referred to as
“SKINVISIBLE” ), and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT RENEWAL dated May 8,
2020;
WHEREAS, the Parties have entered into the FIRST AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated July 31, 2020;
WHEREAS, the Parties hereby amend the EXCLUSIVE LICENSE AGREEMENT RENEWAL as follows:
1.
Section 7.0 License Fee. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee
agrees to pay to Skinvisible a onetime, nonrefundable, noncreditable license issue fee of one million USD dollars
(USD $1,000,000) (“License Fee”) payable as follows:
1.1
The Licensee is currently raising Initial Bridge Financing targeted to be a total of $3,000,000. Upon receipt
of the Initial Bridge Financing, Licensee shall pay Skinvisible 10% of the total amount of Initial Bridge
Financing.
1.2
The Licensee has agreed terms with Altium Capital for a Second Bridge Financing totaling $3.750,000
across three tranches. The Second Bridge Financing will be paid to the Licensee upon the signing of a
definitive merger agreement with a publicly listed company. Upon receipt of each tranche of the Second
Bridge Financing, Licensee shall pay Skinvisible 10% of each tranche of the Second Bridge Financing.
1.3
The Licensee has a greed terms with Altium Capital for an Investment in the company totaling $21,500,000
30,000,000. This Investment will be paid to the Licensee upon the successful closing of a reverse merger
with a publicly listed company. Upon receipt of the Investment, Licensee shall pay Skinvisible the remaining
outstanding balance of the License Fee.
2.
All other terms and conditions of the Exclusive License Agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE, INC.
By:
/s/ Terry Howlet
Name:
Terry Howlett
Title:
President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name:
Michael Myers, Ph.D.
Title:
President & Chief Executive Officer
EX4.34 10 qnrx20211231xex4d34.htm EXHIBIT 4.34
Exhibit 4.34
THIRD AMENDMENT TO THE
EXCLUSIVE LICENSE AGREEMENT RENEWAL
by and among
SKINVISIBLE, INC.,
QUOIN PHARMACEUTICALS, INC.,
Dated as of January 27, 2021
THIRD AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT RENEWAL
THIS AMENDMENT TO THE EXCLUSIVE LICENSE AGREMEMENT RENEWAL (this “Amendment”)
is made and entered into as of January 27, 2021, by and among Skinvisible, Inc., a Nevada corporation (referred to as
“SKINVISIBLE” ), and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT RENEWAL dated May 8,
2020;
WHEREAS, the Parties have entered into the FIRST AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated July 31, 2020;
WHEREAS, the Parties have entered into the SECOND AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated September 30, 2020;
WHEREAS, the Parties hereby amend the EXCLUSIVE LICENSE AGREEMENT RENEWAL as follows:
1. Section 7.3.1 Clinical Milestones and Milestone Payments:
(i)
Successful completion of Phase 2 testing: $250,000
(ii)
Successful completion of Phase 3 testing: $500,000
(iii)
Regulatory approval in US: $14,500,000
(iv)
Regulatory approval in EU: $7,250,000
2. All other terms and conditions of the Exclusive License Agreement Renewal and Amendments shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE, INC.
By:
/s/ Terry Howlett
Name: Terry Howlett
Title:
President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name: Michael Myers, Ph.D.
`
Title:
President & Chief Executive Officer
EX4.35 11 qnrx20211231xex4d35.htm EXHIBIT 4.35
Exhibit 4.35
FOURTH AMENDMENT TO THE
EXCLUSIVE LICENSE AGREEMENT and RENEWAL
by and among
SKINVISIBLE PHARMACEUTICALS, INC.,
QUOIN PHARMACEUTICALS, INC.,
Dated as of April 19, 2021
FOURTH AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT RENEWAL
THIS AMENDMENT TO THE EXCLUSIVE LICENSE AGREMEMENT RENEWAL (this “Amendment”)
is made and entered into as of April 19, 2021, by and among Skinvisible Pharmaceuticals, Inc., a Nevada corporation
(referred to as “SKINVISIBLE” ), and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT RENEWAL dated May 8,
2020;
WHEREAS, the Parties have entered into the FIRST AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated July 31, 2020;
WHEREAS, the Parties have entered into the SECOND AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated September 30, 2020;
WHEREAS, the Parties have entered into the THIRD AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL date January 27, 2021;
WHEREAS, the Parties hereby amend the EXCLUSIVE LICENSE AGREEMENT RENEWAL as follows:
1. Section 7.5 Minimum Timeline of First Licensed Product: Licensee agrees to commence clinical testing on at least one
Licensed Product in the Field by December 31, 2022 (“Development Deadline”) where clinical testing is defined as a
study in which one or more human subjects are prospectively assigned to one or more interventions including a Licensed
Product to evaluate the effects of those interventions on healthrelated biomedical or behavioral outcomes In the event
that Licensee has not commenced such testing by the Development Deadline, this Agreement will terminate immediately
unless initiation of such testing has been materially delayed due to the inability of Skinvisible to provide GMP grade
polymer or as a result of a delay by the FDA or another regulatory authority by putting the product on a clinical hold
which would then put the Development Deadline on hold. Licensee will promptly inform Skinvisible if it receives a clinical
hold from the FDA or another regulatory authority and Licensee will respond to the request in a timely fashion. . In the
event Licensee concludes that successful resolution of the clinical hold is not feasible then Licensee will promptly inform
Skinvisible that it is ceasing further development of that Licensed Product and Skinvisible will have the right to use or
license its technology for that particular indication including the same active ingredient. Skinvisible, however, will not use
any of the use of Licensees confidential information. When the clinical hold has been fully lifted, the clock on the 12
month commitment will resume for an additional 12 month period.
2. All other terms and conditions of the Exclusive License Agreement, Renewal and Amendments shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE PHARMACEUTICALS, INC.
By:
/s/ Terry Howlett
Name: Terry Howlett
Title:
President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name: Michael Myers, Ph.D.
Title:
President & Chief Executive Officer
EX4.36 12 qnrx20211231xex4d36.htm EXHIBIT 4.36
Exhibit 4.36
FIFTH AMENDMENT TO THE
EXCLUSIVE LICENSE AGREEMENT and RENEWAL
by and among
SKINVISIBLE, INC.,
QUOIN PHARMACEUTICALS, INC.,
Dated as of June 14, 2021
FIFTH AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT RENEWAL
THIS AMENDMENT TO THE EXCLUSIVE LICENSE AGREMEMENT RENEWAL (this “Amendment”)
is made and entered into as of June 14, 2021, by and among Skinvisible, Inc., a Nevada corporation (referred to as
“SKINVISIBLE” ), and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Licensee”).
RECITALS
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT dated October 17, 2019;
WHEREAS, the Parties have entered into the EXCLUSIVE LICENSE AGREEMENT RENEWAL dated May 8,
2020;
WHEREAS, the Parties have entered into the FIRST AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated July 31, 2020;
WHEREAS, the Parties have entered into the SECOND AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated September 30, 2020;
WHEREAS, the Parties have entered into the THIRD AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated January 27, 2021;
WHEREAS, the Parties have entered into the FOURTH AMENDMENT TO THE EXCLUSIVE LICENSE
AGREEMENT RENEWAL dated April 19, 2021;
WHEREAS, the Parties hereby amend the EXCLUSIVE LICENSE AGREEMENT RENEWAL as follows:
7.1 License Fee. As partial consideration for the rights conveyed by Skinvisible under this Agreement, Licensee agrees to pay to
Skinvisible a onetime, nonrefundable, noncreditable license issue fee of one million USD dollars (USD $1,000,000) (“License
Fee”). To date, Licensee has paid three hundred ninetytwo thousand five hundred US dollars (USD $392,500) of this fee as
part of the First Half of the License Fee. The balance of the First Half Payment is one hundred seven thousand five hundred US
dollars (USD $107,500) which shall be paid within 5 business days of the Effective Date of this Amendment. A further payment
of two hundred fifty thousand dollars ($250,000) is due no later than 10 business days after receipt by Licensee of additional
funding by Altium Capital. The remaining balance of two hundred fifty thousand dollars ($250,000) will be paid on the earlier of
either after FDA approves IND application by Licensee containing Skinvisible Technology or December 31st , 2021.
7.3.2 Clinical Milestones and Milestone Payments:
(i)
Successful completion of Phase 2 testing: $0
(ii)
Successful completion of Phase 3 testing: $0
(iii)
Regulatory approval in either the US or EU, whichever happens first: $5,000,000
1. All other terms and conditions of the Exclusive License Agreement, Renewal and Amendments shall remain unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written.
SKINVISIBLE PHARMACEUTICALS, INC.
By:
/s/ Terry Howlett
Name: Terry Howlett
Title:
President & Chief Executive Officer
QUOIN PHARMACEUTICALS, INC.
By:
/s/ Michael Myers
Name: Michael Myers, Ph.D.
Title:
President & Chief Executive Officer
EX4.37 13 qnrx20211231xex4d37.htm EXHIBIT 4.37
Exhibit 4.37
THE SYMBOL “[****]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT
BECAUSE
IT IS BOTH (i) NOT MATERIAL, AND (ii) THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL
QUOTATION # 0042102
Tech Transfer and Clinical Manufacture for
QRX003 Topical Lotion
Confidential Quotation for Quoin Pharmaceuticals, Inc.
Prepared for Denise Carter
Date: April 08, 2021
Ferndale Contract Manufacturing
780 West Eight Mile Road
Ferndale, Michigan 48220
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
Overview
In response to a quote request from Quoin Pharmaceuticals, Inc. (“QUOIN”); Ferndale Contract Manufacturing (“FCM”) is offering a proposal to
complete the transfer of QRX003 Topical Lotion (the “Product”) for the purpose of producing early phase clinical supplies.
Version 01: Updated with new dates
Version 02: Switched the quote from Therapeutics to Quoin Pharmaceuticals
Contacts
For Quoin Pharmaceuticals
Denise Carter
Chief Operating Officer
Email: dcarter@quoinpharma.com
For FCM
Primary Development Contact
Project Management
Dean Gibson
Phone (office): (248) 586 8429
Phone (cell): (248) 840 7679
Email: dgibson@ferndalelabs.com
Support Contacts
Quality Control
Daniel Hill
Phone (office): (248) 586 8566
Email: dhill@ferndalelabs.com
Quality Assurance
Suzanne Cooper
Phone (office): (248) 586 8548
Phone (cell): (248) 417 4256
Email: scooper@ferndalelabs.com
Staffing
Analytical development and testing to be conducted by our Analytical Method Development team headed up by Daniel Hill, VP, Quality
Control. Product manufacture and packaging to be performed by the Process Development and Manufacturing groups, with oversight by
Project Management. All activities will be reviewed and released by our Quality Assurance group headed by Ms. Suzanne Cooper, VP of
Quality Assurance.
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
Summary of Activities
PreDevelopment Activities
The formulation has been previously developed by Quoin and will be provided to FCM along with the manufacturing procedures. FCM will
review the information and prepare for the initial development batch production.
1.
Quoin/QUOIN to supply the active pharmaceutical ingredient (the “API”) and supporting documentation. NonGMP samples can
be used for early development purposes.
2.
FCM will source and purchase all the necessary excipients and components for the development program. NonGMP samples can
be used for early development purposes. Several excipients may need to be adjusted to comply with future pharmaceutical
requirements.
3.
FCM/QUOIN will finalize raw material, bulk product and finished product specifications for the program.
4.
QUOIN to provide sample of the previously produced Product for analytical purposes (if available).
5.
FCM will develop the viscosity method utilizing the Brookfield Rheometer DVIII instrumentation.
Duration: 2 months
Analytical Methods (Drug Substance)
FCM will complete an initial assay method verification for the API. FCM will perform ID (FTIR) testing on any new excipients used for the
program. Additional activities will be listed as optional items.
1.
FCM will complete phase appropriate verification for the API assay/impurity method following the provided methodology from the
manufacturer. FCM will provide a report upon completion.
2.
Optional: FCM will complete a full validation of the API assay/impurity method inclusive of forced degradation activities.
Additional duration will be required to complete this task and will be listed in brackets below.
3.
FCM will create development raw material specifications for the API and new excipients. The specifications will include full
inspection, sampling and testing for identification. Assay/impurity testing will be included as part of the API specification.
4.
QUOIN will review and approve all specifications.
5.
Raw materials will be ordered and tested against the approved specifications.
Duration: 2 months (3.5 months if method validation is required)
Analytical Methods (Drug Product)
FCM will complete method verification for the assay and microbial methods only. The assay method will be initially provided by QUOIN.
1.
QUOIN will provide the initially developed assay method for the Drug Substance. FCM will evaluate and develop a phase
appropriate Drug Product assay method for active and preservative. FCM will complete a method verification on the Product assay
and provide a report.
2.
Optional: FCM will complete a full validation of the assay/impurity method. Note: This activity should only be completed on the
final developed formulation and concentration. There is the possibility the Drug Product may require two separate methods for
assay and impurity. Additional duration and costs will apply.
3.
FCM will develop and verify a droplet (globule size) microscopic method. FCM will provide a final report.
4.
FCM will complete the verification of the microbial analysis methods and AET by USP <51>.
5.
FCM will develop and validate a cleaning detection method for the Drug Product. This is required before proceeding to scaleup
production.
Duration: 3 months (4.5 months if method validation)
Development Batch Manufacture
FCM will initially produce labscale development batches (approximately 23 batches). The lab scale batches will serve to familiarize FCM
with the process, fine tune the formulation, and be used for initial evaluation (compatibility) of at least two bottle types. The following
activities will be performed in order to complete the development batch manufacturing:
1.
A series of lab scale vehicle batches will be produced (approximately 12kg). Samples from the lab scale batches will be taken from
the mixing vessel and tested for assay, viscosity, and microscopy. This will confirm the suitability and comparability of the mixing
instructions.
2.
The batches will also evaluate the adjustments needed with the final excipients chosen. Several of the current ingredients are not
considered pharmaceutical grade. Alternates will need to be evaluated.
3.
FCM will fill one batch into at least two bottle options (polypropylene and high density polyethylene) and place on an informal
stability program.
4.
Complete UV scan for each of the formulations. Provide report.
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
5.
Samples will be stored under room temperature (25 ± 2°C/60 ± 5% RH), intermediate (30 ± 2°C/65 ± 5% RH) and accelerated (40 ±
2°C/75 ± 5% RH) conditions for at least 3 months. Samples will be evaluated on a monthly basis (appearance, assay (CU), pH,
viscosity, SG, droplet size, and micro.
6.
FCM will complete AET (USP <51>) on a development batch to confirm acceptability of the preservative system.
7.
FCM will develop the proposed mixing procedure for the early phase clinical batches (@ 100kg). QUOIN will review and approve
final batch records.
Duration: 2 months (batch production)
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
Scaleup Batch Manufacture
FCM will initially produce a vehicle development scaleup batch @ 100kg in the Ross PVM40 mixer system. The scaleup batch will serve to
familiarize FCM with the process and be used for initial evaluation of bottle filling. The following activities will be performed in order to
complete the development scaleup batch manufacturing:
1.
An initial scaleup vehicle batch will be produced (Size: 100kg). Samples from the scaleup batch will be taken from the mixing
vessel and tested for assay (preservative), viscosity, and microscopy. This will confirm the suitability of the mixing instructions.
2.
FCM will complete an engineering test run on the bottle option chosen.
3.
FCM will finalize the bulk production batch record for the clinical program based on the finding above.
Early phase Clinical Batch Production
FCM will manufacture a total of five GMP batches (one vehicle and two batches each of two active concentrations). The batches will be
filled into bottles. The batches will be used for completing an early clinical phase programs and supportive stability.
1.
The required components and bottles needed for the early phase clinical batches will ordered.
2.
Batch documentation will be prepared by FCM and approved by QUOIN.
3.
All raw materials will be fully inspected and tested against the approved specifications before use in the batch production.
4.
A total of five batches will be produced; each at 100kg. (2 batches each of two active concentrations and one batch of vehicle).
Bulk samples will be taken from the batches for analytical testing per the approved specifications.
5.
The batches will each be filled into the chosen bottles. FCM will complete finished product analysis per approved specifications.
FCM will complete the necessary labeling for the Products.
6.
The batches will be reviewed and released by Quality Assurance and QUOIN.
7.
FCM will ship the supplies to QUOIN's clinical site locations.
8.
Samples will be stored under room temperature conditions (25 ± 2°C/60 ± 5% RH) and tested at 1, 3, 6, 9, 12, 18, and 24 months).
9.
Samples will be stored under intermediate conditions (30 ± 2°C/65 ± 5% RH) and tested at 1, 3, 6, 9, and 12 months). Intermediate
testing will be initiated in the event of a failure under accelerated conditions.
10. Samples will be stored under accelerated conditions (40 ± 2°C/75 ± 5% RH) and tested at 1, 3, and 6 months).
11. At each point, the product will be analyzed per the stability specifications and an analytical report will be provided.
Duration 1 month (batch production and release)
Pricing and Timing
Activity
Completion
Costs
Predevelopment Activities
1.
Project Management activities
May/21
$[****]
2.
Order necessary excipients samples for early development work
May/21
$[****]1
PreDevelopment Total
$[****]
Analytical Development
1.
Verification of the viscosity and microbial methods
$[****]
2.
Development and validation of cleaning method
$[****]
3.
Verification of the Drug Substance assay/impurity method and report
Sept/21
$[****]
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
4.
Development and verification of the Drug Product Assay method (active/impurity
and preservatives).
$[****]
5.
Development and verification of a droplet size microscopic method
$[****]
Analytical Development Total
$[****]
Analytical Development Optional
1.
Validation of the Substance method and report
$[****]
2.
Final development and validation of the Drug Product Assay (active and
preservative) and impurity methods
Nov/21
$[****]
Analytical Development Total
$[****]
Development Batch Manufacture
1.
Manufacture 23 lab scale development batches plus testing
May/June/21
$[****]
2.
Additional formulation adjustments as required.
$[****]
3.
Informal stability program for bottle options
$[****]
Development Batches Total
$[****]
Scaleup Batch Manufacture
1.
Manufacture scaleup development batch plus testing
Sept/21
$[****]
2.
Filling Engineering trial and testing
$[****]
Scaleup Batches Total
$[****]
Clinical Batch Manufacture
1.
Purchase, testing and release of necessary excipients and components
Aug/21
$[****]1
2.
Manufacture four active and one vehicle GMP batches. Filling into bottle option
and analytical testing.
Oct/21
$[****]
3.
Stability program
$[****]
a.
Room Temperature Program (5 lots)
$[****]
b.
Intermediate Program (5 lots)
$[****]
c.
Accelerated Program (5 lots)
$[****]
NonClinical Batches and Stability Total
$[****]
Project Total
$[****]
Project Total inclusive of Optional activities
$[****]
1Costs for the parts, excipients and components will be adjusted based on actual costs incurred. [] represents the optional activity costs if
activated.
780 West Eight Mile Road, Ferndale, Michigan 48220
www.ferndalelabsmfg.com
Additional Services
During the execution of the project, QUOIN and FCM may agree to changes or additions to the scope described in this quotation. These
changes/additions will be summarized in a project amendment and billed at an hourly rate to be agreed upon between by both parties.
Payment Schedule/Terms
1
Upon approval of quotation
$[****]
2
Completion of analytical method activities
$[****]
3
Completion of development batch manufacture
$[****]
4
Completion of clinical batch production
$[****]
5
Completion of each pull stability pull point
$[****]
All invoices are due within 30 days of receipt.
Quote is valid for 30 days from date of issuance.
Approval
Quoin Pharmaceuticals, Inc. agrees and accepts the terms of this quotation.
QUOIN PHARMACEUTICALS, INC.
Signature
/s/ Denise Carter
Date
April 9, 2021
Printed Name
Denise Carter
Title
Chief Operating Officer
EX4.38 14 qnrx20211231xex4d38.htm EXHIBIT 4.38
Exhibit 4.38
THE SYMBOL “[****]” DENOTES PLACES WHERE CERTAIN IDENTIFIED
INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE
IT IS BOTH (i) NOT MATERIAL, AND (ii) THE TYPE THAT THE REGISTRANT
TREATS AS PRIVATE OR CONFIDENTIAL
DEVELOPMENT AND SUPPLY AGREEMENT
This Development and Supply Agreement (this “Agreement”) is entered into as of January 13, 2021 by and between
TOPCHEM PHARMACEUTICALS LIMITED, a limited company registered in the Republic of Ireland
(“Manufacturer”), QUOIN PHARMACEUTICALS LIMITED, a limited company registered in Delaware, USA
(“Consumer”).
WHEREAS, the Parties (as hereinafter defined) wish to enter into an agreement pursuant to which Manufacturer will
develop the API and sell the API to Consumer;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and agreements set forth in this
Agreement, and other good and valuable consideration the sufficiency of which is acknowledged, the Parties agree as follows:
1.
DEFINITIONS
For purposes of this Agreement, the following words and phrases shall bear the respective meanings assigned to them below
(and cognate expressions shall bear corresponding meanings):
1.1
“Affiliate” means, with respect to any Party, any Person that is Controlled by, Controls, or is under common
Control with, that Party.
1.2
“Agreement” means this Agreement, as duly amended from time to time.
1.3
“API” means [****], which meets the Specifications.
1.4
“Business Day” means a day (not being a Saturday or Sunday) on which banks are open for business in the
Republic of Ireland.
1.5
“cGMP” means current good manufacturing practices in accordance with the rules, regulations and guidances
promulgated by the FDA.
1.6
“Control” means, with respect to a Party, the direct or indirect beneficial ownership of more than fifty percent
(50%) of the voting interest in, or more than fifty percent (50%) in the equity of, or the right to appoint more than fifty percent
(50%) of the directors or management of such Party.
1.7
“Effective Date” means the date on which this Agreement is signed by the later of the Parties to sign this
Agreement.
1.8
“FDA” means the United States Food and Drug Administration and all agencies under its direct control or any
successor organization.
TopChem Pharma Quoin Pharma Development & Supply Agreement
1.9
“Finished Product” means the finished dosage product or products Manufactured by Consumer or its licensee
with the API supplied by Manufacturer.
1.10
“Force Majeure” has the meaning given such term in Section 12.
1.11
“GAAP” means generally accepted accounting principles in the United States.
1.12
“Intellectual Property” means any trade secret, knowhow and data whether technical or nontechnical as
well as any development of invention whether or not patentable, concerning the Finished Product or API, its Manufacture,
marketing and sale.
1.13
“Loss” means any liability, loss, cost, damage or expense, including, without limitation, reasonable attorneys’
fees and expenses.
1.14
“Manufacture” means, along with other forms of the word, the manufacturing, handling, packaging, labeling,
storage and/or disposal of any API or Finished Products, as the case may be, and of the raw materials and components used in
connection with the preparation thereof.
1.15
“Order” shall mean a purchase order issued by Consumer to Manufacturer for delivery of agreed services or
for a certain quantity of API specifying the exact quantity of API required, the desired delivery date(s) and shipping
instructions, if any.
1.16
“Party” means Manufacturer or Consumer and “Parties” means both of them.
1.17
“Person” means any individual, partnership, association, corporation, trust or legal person or entity.
1.18
“PreExisting Intellectual Property” means all Intellectual Property owned, conceived, developed, first
reduced to practice or otherwise made or acquired by a Party prior to the Effective Date hereof or outside of the services
performed under this Agreement, including all modifications, adjustments or improvements thereto. For avoidance of doubt,
PreExisting Intellectual Property may be Manufacturer PreExisting Intellectual Property or Consumer PreExisting Intellectual
Property as the case may be.
1.19
“Quality Agreement” means the quality agreement to be entered into by the Parties as required, in form and
content to be agreed by all parties.
1.20
“Regulatory Approval” means the receipt of approval from any Regulatory Authorities of the acceptance of
the use of the API in the Finished Product.
1.21
“Regulatory Authorities” means any and all bodies and organizations, including, without limitation, the FDA,
which regulate the Manufacture, importation, distribution, use and sale of API and/or the Finished Products.
1.22
“Regulatory Filing” means the preparation, submission and registration of the API to Regulatory Authorities
by the either Party or subcontracted third parties.
1.23
“Specifications” means the specifications required by Consumer as attached hereto as Annex B or are
hereafter provided to Manufacturer.
1.24
“Term” has the meaning given such term in Section 10.1.
TopChem Pharma Quoin Pharma Development & Supply Agreement
1.25
“Territory” means all global countries with no exceptions.
1.26
“Third Party Manufacturer” means any Person (including any Affiliate of Consumer) that Manufactures and
supplies Finished Product to Consumer or a ThirdParty Seller pursuant to a license or other contractual arrangement with
Consumer.
1.27
“Third Party Seller” means any Person (including any Affiliate of Consumer) that sells Finished Product to
customers pursuant to a license or other contractual arrangement with Consumer.
2.
DEVELOPMENT, QUALIFICATION & REGULATORY FILING
2.1
Manufacturer shall develop the API as per the scope and costs outlined in Annex A hereto.
2.2
Manufacturer shall: (a) provide Consumer with any and all information related to the API which is necessary or
advisable for the preparation, prosecution and maintenance of any regulatory filings.
2.3
Consumer shall be liable for all Regulatory Filing costs.
2.4
Consumer shall use API obtained from Manufacturer in the Finished Product and Manufacturer agrees to
supply Consumer with mutually agreed quantities of API for such purposes.
2.5
Manufacturer shall not supply or sell the API or provide to any third parties with the exception of such Third
Party Manufacturers or ThirdParty Sellers that may be engaged by Consumer to produce the Finished Product.
3.
DELIVERY; RISK OF LOSS
3.1
API covered by each Order accepted by Manufacturer shall be packed for shipment and stored in accordance
with cGMP and the Quality Agreement. Consumer’s Order number (or other numbers as required and determined) and
quantity shipped shall be marked or tagged on each package and bill of lading.
3.2
Manufacturer shall ship API to Consumer or a ThirdParty Seller or ThirdParty Manufacturer as set forth in
the respective Orders. Manufacturer shall (i) conduct quality control tests on the API prior to shipment in accordance with
applicable law and the Quality Agreement; (ii) at Consumer’s request furnish samples of the API to Consumer or the Third
Party Manufacturer or Third Party Seller; and (iii) deliver with each shipment a certificate of analysis for the API included in
such shipment in accordance with the Specifications.
3.3
Terms of shipment will be DDU (Incoterms © 2010), Consumer’s specified warehouse or place of operations.
API will be delivered, and title and risk of loss shall pass to Consumer when delivered. All deliveries from Manufacturer will
be made on or before the delivery date specified in each Order confirmed in writing by Manufacturer.
3.4
If at any time during the Term, Manufacturer is or expects that it will be unable, in full or in part, to satisfy
Consumer’s requirements for API for any reason, Manufacturer shall promptly so notify Consumer, detailing the extent to
which it will not
TopChem Pharma Quoin Pharma Development & Supply Agreement
meet such requirements. Consumer without limiting any other remedy available to it, may in its discretion meet the shortfall
therein from any alternate source or sources.
4.
WARRANTY; ACCEPTANCE
4.1
Manufacturer warrants that at the time of delivery of API by Manufacturer hereunder, such API (a) shall be
free from defects in workmanship and materials; (b) will be in good and merchantable quality and conform to the
Specifications; and (c) will have been Manufactured, stored and packaged for shipment in accordance with cGMP in effect at
the time thereof and with the Quality Agreement, and in compliance with all applicable laws, regulations and ordinances of any
Regulatory Authority having jurisdiction over the Manufacture and delivery of API.
4.2
Consumer shall have the right to reject all or part of any shipment of API delivered by Manufacturer if it fails to
conform to the warranty contained in Section 4.1 herein, provided that Consumer delivers written notice within thirty (30) days
from the date of receipt of such shipment. If Consumer does not notify within such thirty (30) day period, as applicable, or
decides not to test the API prior to use, the API shall be deemed accepted by Consumer. If Consumer rejects any API,
Consumer shall send samples of such allegedly defective API concurrently with or as soon as practicable following Consumer’s
written notice pursuant to this Section 4.2 for the purpose of confirming such noncompliance. Manufacturer shall review such
samples as soon as practicable but in no instance more than thirty (30) days following the delivery of the samples pursuant to
this Section 4.2. If a dispute arises as to whether the API conforms to the warranty contained in Section 4.1 which is not
resolved within thirty (30) days of the delivery of the samples of the API in question, then the matter (along with related
samples, batch records or other evidence, as appropriate) shall be submitted to an independent testing laboratory agreed to by
each of Consumer and Manufacturer. The determination of the independent testing laboratory will be binding upon the Parties.
If it is determined that the API was not in conformance with the warranty in Section 5.1 upon delivery, then Manufacturer will
credit Consumer account for the price invoiced for the portion of nonconforming API and the cost of any testing and evaluation
by the testing laboratory will be born solely by Manufacturer. Otherwise, Manufacturer will have no liability to Consumer with
respect to such alleged nonconformance and the cost of any testing and evaluation by the testing laboratory will be borne solely
by Consumer
5.
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1
Consumer hereby represents and warrants to Manufacturer that (a) Consumer is a limited company duly
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organized and existing under the laws of the Republic of Ireland, (b) it has the requisite authority to enter into this Agreement
and to perform its obligations hereunder, (c) this Agreement is a legal, valid and binding agreement of Consumer, enforceable
against Consumer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or similar laws in effect which affect the enforcement of creditors’ rights generally and
by equitable limitations on the availability of specific remedies (d) Consumer is not aware of any contractual or other restriction,
limitation or condition which might affect adversely its ability to perform hereunder, and (e) Consumer is in material compliance
with all laws and regulations applicable to the conduct of its business.
5.2
Manufacturer represents and warrants that it will develop the API using its commercially reasonable best
efforts. Manufacturer further represents and warrants to
TopChem Pharma Quoin Pharma Development & Supply Agreement
Consumer that (a) it is a corporation organized and existing under the laws the Republic of Ireland (b) it has the requisite
authority to enter into this Agreement and to perform its obligations hereunder, (c) this Agreement is a legal, valid and binding
agreement of Manufacturer enforceable against Manufacturer in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization, or similar Laws in effect which affect the enforcement
of creditors’ rights generally and by equitable limitations on the availability of specific remedies, (d) it is not aware of any
contractual or other restriction, limitation or condition which might affect adversely its ability to perform hereunder, and (e)
Manufacturer is in material compliance with all applicable laws and regulations.
5.3
Each of Consumer and Manufacturer further represents, warrants and covenants: (i) that it will assign to its
performance of this Agreement personnel qualified to perform the activities consistent with the technical requirements of this
Agreement; and (ii) that none of such Party’s personnel to be assigned to this Agreement have or shall have been subject to
debarment under the United States Generic Drug Enforcement Act or any other penalty or sanction by the applicable
Regulatory Authority.
5.4
The representations, warranties, covenants and undertakings contained in this Agreement are continuous in
nature and shall be deemed to have been given by each Party at execution of this Agreement and at each stage of performance
hereunder.
6.
REGULATORY INSPECTIONS AND COMMUNICATIONS
6.1
Consumer will keep Manufacturer aware of registrations related to API and Manufacturer. Each of the Parties
agrees to cooperate to the extent reasonably requested by the other in connection with any communications with the FDA or
any other Regulatory Authority related to API.
6.2
Consumer shall have the right, to inspect with those of its representatives, representatives of Consumer’s
Affiliates or representatives of any ThirdParty Seller those areas of the facilities of Manufacturer where API is Manufactured
for Consumer, to meet with personnel knowledgeable with respect to such services and to review the pertinent records relating
to the Manufacturing and quality control of the API. In addition to and not as a part of the foregoing rights, Consumer shall
have the right to inspect the facilities of Manufacturer with reasonable advance written notice in the event (a) Manufacturer is in
default under this Agreement, (b) in the event of either Party’s receipt of notice of deficiency from any Regulatory Authority
regarding the API.
7.
COMPLAINT HANDLING AND ADVERSE DRUG REACTION REPORTS
7.1
Consumer shall be responsible for reporting all adverse drug events and responding to all adverse drug reports
received from third parties regarding the Finished Products.
7.2
If Consumer determines, after investigating an adverse event report, that the characteristics or quality of the
API supplied under this Agreement may have been a factor in the adverse event, then Consumer shall notify Manufacturer
immediately.
7.3
Nothing in this Section 7 shall be deemed a waiver of any of Consumer’s rights with respect to indemnity owed
by Manufacturer pursuant to Section 9.
TopChem Pharma Quoin Pharma Development & Supply Agreement
7.4
Consumer shall be solely responsible for receiving, recording and responding to all customer inquiries and
complaints and all reports of alleged adverse events relating to the Finished Product, and for reporting all such matters to
appropriate Regulatory Authorities in accordance with applicable law. Manufacturer shall provide Consumer with any
technical information relating to manufacture or stability of the API reasonably necessary to enable Consumer to perform all
such activities and to determine whether the adverse event, customer inquiry or complaint involves nonconformance or defect in
the API or necessitates a recall or other corrective or market action. Should Manufacturer receive any notice or inquiry
regarding adverse events, it shall immediately transmit them to Consumer.
8.
RECALLS AND WITHDRAWALS
To the extent permitted or required by law, any decision to recall, withdraw or cease distribution of any Finished Product as a
result of a violation of applicable law or regulation, or because the Finished Product presents a possible safety risk, shall be
made by Consumer. Consumer will promptly notify Manufacturer of any such decision to recall, withdraw or cease distribution.
Consumer shall indemnify and hold harmless Manufacturer against any and all reasonable Losses (including the value of
inventory of API or raw material) which Manufacturer may incur as a result of any recall, withdrawal or cessation of distribution
of Finished Products initiated by Consumer but only to the extent that the basis for the recall, withdrawal or cessation is caused
solely by Consumer.
9.
INDEMNIFICATION AND LIMITATIONS
9.1
Manufacturer shall indemnify, defend and hold Consumer, its directors, shareholders, officers, employees and
Affiliates, harmless against all losses, damages, third party claims, proceedings, demands and liabilities, including reasonable
legal expenses and attorneys’ fees (collectively, “Losses”) arising out of (i) the material breach of any of Manufacturer’s
obligations, warranties and representations under this Agreement, or (ii) the death of or injury to any person or any damage to
property, resulting from Manufacturer’s operations and provision of Manufacturing services, except to the extent such Losses
are caused by Consumer’s gross negligence or willful misconduct or by Consumer’s breach of the Agreement.
9.2
Consumer shall indemnify, defend and hold Manufacturer, its directors, officers, employees and Affiliates
harmless against all Losses, arising out of (i) the material breach of any of Consumer’s obligations, warranties and
representations under this Agreement, or (ii) the death of or injury to any person or any damage to property, resulting from side
effects, characteristics or defects of the Finished Product, except to the extent such Losses are caused by Manufacturer’s
negligence or willful misconduct, its breach of the Agreement.
9.3
Consumer shall indemnify, defend and hold Manufacturer, its directors, officers, employees and Affiliates
harmless against all Losses, arising out of any third party claims of patent infringement or other litigation involving the API,
except to the extent such Losses are caused by Manufacturer’s negligence or willful misconduct.
9.4
Except as expressly set forth in Sections 9.1 through 9.3, above, with respect to amounts payable to third
parties, no Party shall be responsible to the other Party for such other Party’s lost profits or indirect, incidental, special,
exemplary, punitive or consequential
TopChem Pharma Quoin Pharma Development & Supply Agreement
damages, including loss or damage to goodwill or reputation, whether foreseeable or not, that are in any way related to this
Agreement.
9.5
Upon the occurrence of an event that requires indemnification under this Agreement, the Party entitled to be
indemnified (“Indemnified Party”) will give prompt written notice to the Party obligated to indemnify (“Indemnifying Party”)
providing reasonable details of the nature of the event and basis of the indemnity claim. The Indemnifying Party will then have
the right, at its expense and with counsel of its choice, to defend, contest, or otherwise protect against any such action. The
Indemnified Party will also have the right, but not the obligation, to participate, at its own expense in the defense thereof with
counsel of its choice. The Indemnified Party shall cooperate to the extent reasonably necessary to assist the Indemnifying Party
in defending, contesting or otherwise protesting against any action, provided that the reasonable cost in doing so will be paid by
the Indemnifying Party. If the Indemnifying Party fails within thirty (30) Business Days after receipt of notice to notify the
Indemnified Party of its intent to defend, or to defend, contest or otherwise protect against the action or fails to diligently
continue to provide the defense after undertaking to do so, the Indemnified Party will have the right upon ten (10) Business
Days’ prior written notice to the Indemnifying Party to defend, settle and satisfy any action and recover the costs of the same
from the Indemnifying Party.
9.6
In the event that in determining the respective obligations of indemnification under this Section 9, it is found that
the fault of the Indemnified Party or its respective Affiliates, contributes to any Losses for which the Indemnifying Party is
otherwise liable hereunder, then each Party shall be responsible for that portion of the indemnifiable Losses to which its fault
contributed.
9.7
Without limiting its obligations hereunder, Consumer shall maintain, commencing with the Effective Date and
continuing throughout the Term, sufficient product liability insurance coverage to satisfy its obligations hereunder. Consumer
shall, upon request, provide to Manufacturer certificates of insurance, evidencing such insurance. Without limiting its obligations
hereunder, Manufacturer shall maintain, commencing with the Effective Date and continuing throughout the Term, sufficient
product liability insurance coverage to satisfy its obligations hereunder. Manufacturer shall, upon request, provide to Consumer
certificates of insurance, evidencing such insurance.
10.
TERM AND TERMINATION
10.1
This Agreement shall become effective upon the Effective Date and, unless earlier terminated as provided
below, shall remain in full force and effect until the second (2nd) anniversary of the Effective Date (the “Initial Term”).
Thereafter, the Agreement will automatically be extended for successive one (1) year periods (each such period, a “Renewal
Term”) unless notice is given six (6) months in advance by either Party of its intent not to renew. The Initial Term together with
all Renewal Terms shall be the “Term.”
10.2
Consumer may, but is not required to, terminate the Agreement immediately by providing written notice to
Manufacturer upon the occurrence of any of the following events:
10.2.1 the liquidation or dissolution of Manufacturer,
TopChem Pharma Quoin Pharma Development & Supply Agreement
10.2.2 The cessation of all or substantially all of Manufacturer’s business operations;
10.2.3 The commencement by Manufacturer of insolvency proceedings, or the commencement against
Manufacturer of insolvency proceedings that are not dismissed within sixty (60) days from the date of commencement;
10.2.4 The failure of the Manufacturer to develop a manufacturing process generating API meeting the
Specification.
10.3
If a Party breaches a material term or condition of this Agreement, the nonbreaching Party shall have the right
to terminate this Agreement after thirty (30) days’ prior written notice to the other Party unless any such default or breach is
cured within said thirty (30) days. Termination for breach of a material item under this Section 10.3 shall be in addition to all
other rights and remedies available to the nonbreaching Party at law or in equity.
10.4
Neither the expiration nor the termination of this Agreement shall relieve the Parties of their obligation incurred
prior to such expiration or termination. All provisions that, by their express or implied terms, are meant to survive termination
of the Agreement shall continue irrespective of such termination.
10.5
The Manufacturer may, but is not required to, terminate the Agreement immediately by providing written notice
to the Consumer upon the occurrence of any of the following events:
10.5.1 Failure by the Consumer to place any order of the API in a twelve month period.
10.5.2 Failure by the Consumer to adhere to the payment terms as set out in Annex A.
11.
FORCE MAJEURE
Except for the obligation of a Party to make payments to the other Party pursuant to this Agreement (which will not be deferred
or extended for any reason), neither Manufacturer nor Consumer will be responsible to the other for any failure to perform or
delay in performing if the failure or delay is due to any strike, riot, civil commotion, sabotage, act of terrorism, embargo, war or
act of God or other cause beyond its reasonable control (“Force Majeure”). Notwithstanding the foregoing, if any delay in the
performance by either Party of its obligations under this Agreement shall continue for a period of four (4) months or more, then
the Party not suffering the Force Majeure event may terminate this Agreement by written notice to the other Party and each of
Manufacturer and Consumer shall be relieved from all duties and obligations under this Agreement, except those duties and
obligations accruing prior to such termination.
12.
CONFIDENTIALITY; INTELLECTUAL PROPERTY
TopChem Pharma Quoin Pharma Development & Supply Agreement
12.1
In carrying out the terms of this Agreement it may be necessary that one Party disclose to the other certain
information, which is considered by the disclosing Party to be proprietary and of a confidential nature. As used herein
“Confidential Information” means any and all information, including Intellectual Property that is disclosed under this
Agreement as set forth below and that Consumer or Manufacturer, as the case may be, considers to be and treats as
proprietary and confidential. Confidential Information includes, but shall not be limited to Intellectual Property, plans,
processes, compositions, formulations, specifications, samples, systems, techniques, analyses, production and quality control
data, testing data, marketing and financial data, and such other information or data relating to any finished drug product or
active pharmaceutical ingredient, or its Manufacture, marketing or sale. Confidential Information also includes the existence
and the terms of this Agreement or any license or arrangement with any Third Party Manufacturer or Third Party Seller.
12.2
The recipient of any Confidential Information shall not use it for any purpose other than for purposes of
performing its obligations under this Agreement. The Party receiving any Confidential Information will divulge it only to those of
its officers, shareholders, directors, employees, advisors, authorized Third Parties and Affiliates (and such Affiliates’ officers,
directors, employees and advisors) who have a need to know it as a part of the receiving Party’s obligations hereunder and the
receiving Party shall cause said officers, directors, employees, advisors, authorized Third Parties and Affiliates (and such
Affiliates’ officers, directors, employees and advisors) shall hold the information in confidence pursuant to this Agreement. The
recipient of any Confidential Information shall not disclose it to any third party, except as otherwise contemplated in this
subsection, without the written consent of the disclosing Party.
12.3
The obligations of confidentiality and nondisclosure as provided herein will terminate seven (7) years from the
expiration or termination of this Agreement; provided, however, that with respect to any Confidential Information constituting
proprietary Intellectual Property such as trade secret and knowhow, such obligations shall extent until such Confidential
Information is made available to the public without restriction and without violating any confidentiality obligations hereunder or
otherwise protecting the same. This Section 12 will impose no obligation upon the recipient of any Confidential Information
with respect to any portion of the received information that (a) was known to or in the possession of the recipient prior to the
disclosure; or (b) is or becomes publicly known through no fault attributable to the recipient; or (c) is provided to the recipient
from a source independent of the disclosing Party that is not subject to a confidential or fiduciary relationship with the disclosing
Party concerning the information; or (d) is generated by the recipient independently of any disclosure from the disclosing Party;
or (e) is required by law to be disclosed to government officials who shall be informed of the confidential nature of such
information.
12.4
Upon expiration or earlier termination of this Agreement, the recipient of any Confidential Information shall, as
the disclosing Party may direct in writing, either destroy or return to the disclosing Party all Confidential Information disclosed
together with all copies thereof, provided, however, the recipient may retain one archival copy thereof for the purpose of
determining any continuing obligations of confidentiality, and provided further, however, that any archival copy will remain
subject to the obligations of confidentiality and nondisclosure hereunder.
12.5
Confidential Information disclosed hereunder shall remain the property of the disclosing Party. Disclosure of
Confidential Information shall not obligate either Party to
TopChem Pharma Quoin Pharma Development & Supply Agreement
enter into any future agreement relating to such Confidential Information, nor to undertake any other obligation not otherwise
set forth in this Agreement. Subject to the express provisions of this Agreement, neither execution and delivery of this
Agreement nor delivery of Confidential Information hereunder shall constitute a grant, by implication, estoppel or otherwise, of
any right in or license under any present or future invention, trade secret, trademark, copyright, or patent, now or hereafter
owned or controlled by either Party. This Agreement shall not be construed as a teaming, joint venture, or other similar
arrangement.
12.6
Manufacturer and Consumer shall respectively own the Manufacturer PreExisting Intellectual Property and
Consumer PreExisting Intellectual Property.
12.7
The terms of this Section 13 will survive termination of this Agreement.
13.
GENERAL PROVISIONS
13.1
Successors and Assigns. This Agreement shall be binding upon each of the Parties and each of their respective
successors and assigns, if any.
13.2
Assignment.
13.2.1 Except as provided in Section 13.2.2, neither Party may assign or otherwise transfer this Agreement, or
any rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other Party.
13.2.2 Notwithstanding the foregoing:
a.
either Party may, without the consent of but upon prior written notice to the other Party, assign
this Agreement or its rights or obligations under this Agreement to an Affiliate; provided the assigning Party shall
be responsible for such Affiliate’s compliance with the terms and conditions of this Agreement and primary
obligor for all or any obligations and liabilities assigned to such Affiliate under the terms of this Agreement;
b.
either Party may also make an assignment or transfer of this Agreement (in whole or in part)
without the other Party’s prior written consent to (A) any successor to all or substantially all of the business and
assets of such Party, whether in a merger, consolidation, sale of stock, sale of all or substantially all of its assets,
or other similar transaction, provided that the assigning Party gives thirty (30) days’ prior written notice to the
other Party, or (B) in connection with the sale or transfer of all or substantially all of the assets related to this
Agreement by Consumer, provided that any such successor or assignee of rights and/or obligations under this
subsection (B) shall, in a writing delivered to Manufacturer, expressly assume performance of such rights and/or
obligations; and this Agreement shall be binding on, and inure to the benefit of, each Party hereto, its successors,
and permitted assigns;
c.
In addition, nothing in this Agreement shall preclude Consumer from providing its lenders with a
security interest in its rights under this Agreement in accordance with the terms of their security and collateral
agreements in connection with any credit facility provided by such lenders to Consumer or preclude such lenders
from foreclosing upon such security interest
TopChem Pharma Quoin Pharma Development & Supply Agreement
in accordance with the terms of such security and collateral agreements (including, without limitation, by means
of the sale of the assets or stock of Consumer to a third party including Consumer’s rights and responsibilities
under this Agreement), and any such action by such lenders shall not be deemed to be a change of control for
purposes of this Agreement; and
d.
Consumer shall have the right, by written notice to Manufacturer from time to time, to designate
any Affiliate of Consumer that shall be entitled to purchase API directly from Manufacturer pursuant to this
Agreement, in which event such Affiliate shall, with respect to such individual orders of API, be deemed the
“Consumer” and shall have all rights and obligations of Consumer hereunder.
13.3
Notices. Any notice, request, instruction or other communication required or permitted to be given under this
Agreement must be in writing and must be given by sending the notice properly addressed to the other Party’s address shown
below (or any other address as either Party may indicate by notice in writing to the other from time to time) (a) by hand or by
prepaid registered or certified mail, return receipt requested, , or (b) via nationally recognized overnight courier.
If to Manufacturer:
TopChem Pharmaceuticals Limited
Ballymote Business Park
Ballymote, County Sligo, F56 RX08
Republic of Ireland
Email: donal@topchempharma.com
with a copy to:
margaret@topchempharma.com
If to Consumer:
QUOIN PHARMACEUTICALS
42127 Pleasant Forest
Ashburn, VA 20148. USA
Attn: Dr Michael Myers
Email: mmyers@quoinpharma.com
with a copy to:
dcarter@quoinpharma.com
All such notices shall be deemed given when received.
13.4
Announcements. Except to the extent required by law, neither Manufacturer nor Consumer will publish,
disclose or otherwise announce the existence of this Agreement or the terms hereof without the consent of the other Party,
which consent will not be unreasonably withheld; provided however that each of Manufacturer and Consumer may disclose the
existence of this Agreement to its officers, shareholders, directors, employees, advisors, Third Party Manufacturers, Third
Party Sellers and Affiliates (and such Affiliates’ officers, directors, employees and advisors) in accordance with Section 12.2.
13.5
Waiver. The failure of any Party to terminate or seek redress for a breach of, or to insist upon strict
performance of any term, covenant, condition or provision contained
TopChem Pharma Quoin Pharma Development & Supply Agreement
in this Agreement will not be deemed to be a waiver by such Party of its right to the respective remedy or measure in the future.
13.6
Governing Law. This Agreement will be governed and construed in accordance with the laws of Ireland,
except for its conflict of law provisions. Manufacturer expressly agrees to consent to service of process and personal
jurisdiction in all courts located in Ireland and to binding arbitration in Ireland. Manufacturer also expressly agrees to recognize
any final judgment or order stemming from a court or binding arbitration panel. The Parties shall, before the commencement of
any litigation or arbitration proceedings, attempt in good faith to settle their dispute by mediation.
13.7
No Partnership of Joint Venture. Manufacturer and Consumer will at all times act as independent parties
without the right or authority to bind the other with respect to any agreement, representation or warranty made with or to any
third party. Except as otherwise stated herein, Manufacturer and Consumer each will be responsible for all costs, expenses,
taxes and liabilities arising from the conduct of its own business, as well as from the activities of its officers, directors, or
employees, and each will hold harmless and indemnify the other from those obligations.
13.8
Entire Agreement. With the exception of the Quality Agreement agreed by Consumer and Manufacturer, this
Agreement contains the entire and only agreement between the Parties with respect to the Manufacture and sale of the API and
no oral statements or representations or written matter not contained in this Agreement will have any force or effect. This
Agreement may not be amended or modified in any way except by writing executed by authorized representatives of both
Parties.
13.9
Partial Invalidity. If any portion of this Agreement is determined to be illegal or otherwise unenforceable, that
portion, to the extent permitted by law, shall be treated as deleted from this Agreement and the remaining portions of this
Agreement will continue to be in full force and effect according to the terms hereof.
13.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an
original and all of which, when taken together, shall constitute one agreement.
13.11
Section Headings. Section headings in this Agreement are intended solely for convenience of reference and
shall be given no effect in the interpretation of this Agreement.
13.12 Annexes and Schedules. All annexes and schedules to this Agreement, signed by both Parties, whether
attached at the time of signature hereof or at any time thereafter, shall be construed as an integral part of this Agreement.
13.13 No License. Except as expressly set forth in this Agreement, nothing herein shall be deemed to constitute a
grant to either Party of any license or other right under patents, designs, copyrights or other industrial or intellectual property
rights, now or hereafter belonging to the other Party.
[Signature Page to Follow.]
TopChem Pharma Quoin Pharma Development & Supply Agreement
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date written at the beginning of this
Agreement.
CONSUMER:
MANUFACTURER:
QUOIN PHARMACEUTICALS LIMITED
TOPCHEM PHARMACEUTICALS
LIMITED
By: /s/ Michael Myers
By: /s/ Donal Coveney
Name: Michael Myers
Name: Donal Coveney
Title: President & CEO
Title: Managing Director
TopChem Pharma Quoin Pharma Development & Supply Agreement
ANNEX A – SCOPE OF DEVELOPMENT & SUPPLY API
The Manufacturer will develop a process for the manufacture of the API, analysis of the API and to supply [****].
1. Basis of Costing
It is assumed that TopChem purifies commercially available nonGMP grade API via a crystallisation or other purification
process. The process will NOT be validated. Analytical methods will be developed to assure the quality of the product. ICH
standards will be adhered to in the development of the specification. All analytical methods will be qualified but NOT validated.
2. Development & Supply Summary & Costs
The Project deliverables and costs are summarized as follows:
3. Process Development and Analytical Method Development. Cost €[****] (as detailed in Appendix 1)
a.
Deliverables: Develop purification process suitable for scaleup to GMP manufacture. Develop analytical
methods and draft specification. Supply lab sample meeting specification.
4. Dedicated Capital Expenditure: Cost €[****] (as detailed in Appendix 2).
5. Scaleup, Clinical Trial Batch and Test Methods Qualification. Cost €[****] (as detailed in Appendix 3).
a.
Based on [****] (Prevalidation).
b. Deliverables: [****].
6. Payment Terms
Credit terms are strictly 30 days and the following milestone payments apply:
1. Development – 50% up front, balance on delivery of stated deliverables.
2. Capital 50% up front, balance on completion of capital equipment qualification.
3. PreValidation/Clinical Trial Batch 50% up front, balance on shipping of the 1kg Clinical Trial Batch.
VAT at 23% is chargeable to Irish registered customers unless the appropriate VAT exemption is provided. No VAT is
chargeable to international customers.
7. Exclusions
The following are specifically excluded from the scope of this proposal:
a.
Analytical method validation
TopChem Pharma Quoin Pharma Development & Supply Agreement
b. Process Validation
c.
Stability studies
d. Any additional analytical methods over and above Annex B Specifications as requested by Consumer or any
regulatory authority.
DETAILED COSTING in APPENDICES 1, 2, & 3 – following two pages
TopChem Pharma Quoin Pharma Development & Supply Agreement
APPENDIX 1 – DEVELOPMENT PHASE ACTIVITIES AND COSTS
[****]
APPENDIX 2 – CAPITAL EXPENDITURE
[****]
TopChem Pharma Quoin Pharma Development & Supply Agreement
APPENDIX 3 – SCALEUP, CLINICAL TRIAL BATCH & ANALYTICAL METHODS QUALIFICATION
[****]
TopChem Pharma Quoin Pharma Development & Supply Agreement
ANNEX B – SPECIFICATIONS
Appearance:
[****]
Identification:
[****]
Assay:
[****]
Purity:
[****]
Loss on Drying:
[****]
Residual solvents:
[****]
Residue on Ignition:
[****]
pH/acidity:
[****]
Microbiological impurities: [****]
EX4.39 15 qnrx20211231xex4d39.htm EXHIBIT 4.39
Exhibit 4.39
MASTER SERVICE AGREEMENT
This Master Service Agreement, (“Master Agreement”) effective November 2, 2020 (“Effective Date”), is made by and between Therapeutics,
Inc., a Delaware corporation with corporate offices located at 9025 Balboa Avenue, Suite 100, San Diego, CA 92123 (hereinafter
“THERAPEUTICS” or “TI”) and Quoin Pharmaceuticals Ltd. with corporate offices located at 42127 Pleasant Forest Ct, Ashburn, VA 20148
(hereinafter “QUOIN”), singly referred to as a “Party” or collectively as the “Parties”.
WHEREAS, QUOIN and THERAPEUTICS desire to enter into this Master Agreement to provide the terms and conditions upon which QUOIN
may engage THERAPEUTICS from timetotime for the purpose of managing the preclinical and clinical development of its new products in the
field of dermatology, and other related services or projects, by executing individual Work Orders (as defined below) specifying the details of the
service and the related terms and conditions.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, and
intending to be legally bound hereby, QUOIN and THERAPEUTICS agree as follows:
1.
Definitions
(a)
“Act” means the United States Federal Food, Drug, and Cosmetic Act.
(b)
“Active Pharmaceutical Ingredient” as used herein shall mean the active drug or biologic substance or substances contained in the
Study Drug.
(c)
“FDA” as used herein shall mean the United States Food and Drug Administration.
(d)
“IND” as used herein shall mean an Investigational New Drug Application, as defined by the FDA.
(e)
“IRB” as used herein shall mean the board(s) established pursuant to 21 CFR Part 56 for the purpose of reviewing clinical
investigations.
(f)
“Investigator(s)” as used herein shall mean a licensed physician or other licensed medical practitioner who is a qualified clinical
investigator willing and able, and engaged to conduct a clinical investigation of the Study Drug as set forth in a Protocol.
(g)
“NDA/BLA” as used herein shall mean a New Drug Application or Biologic License Application, respectively, as defined by the FDA,
or foreign equivalent.
(h)
“Project” as used herein shall mean those specific composite goals, objectives, activities, times, durations, costs and responsibilities
described in a Work Order.
(i)
“Protocol” as used herein shall mean particular preclinical or clinical testing procedures and conditions for the clinical evaluation of the
Study Drug used from time to time, during the Term (as defined in Section 3(a)).
(j)
“Services” as used herein shall mean the services to be provided to QUOIN by THERAPEUTICS pursuant to a Work Order (as defined
in Section 2).
(k)
“Study” as used herein shall mean the preclinical or clinical research described in a Protocol for which THERAPEUTICS is engaged by
QUOIN to perform Services as described on a Work Order.
(l)
“Study Drug” as used herein shall be defined in a Work Order and shall mean the drug, biologic, or similar product including any and all
of its components, and including related test articles being tested in a Study for which THERAPEUTICS is providing Services as
described in a Protocol or product development plan.
(m)
Additional terms and conditions are defined in the section indicated in the table below:
Defined Term
Section
Change Order
Section 2(b)
Claims
Section 11(a)
Confidential Information
Section 6(a)
Discloser
Section 6(a)
Initial Term
Section 3(a)
QUOIN Indemnitees
Section 11(a)
Recipient
Section 6(a)
Subsequent Term
Section 3(a)
THERAPEUTICS Indemnitees
Section 11(a)
Third Party
Section 11(e)
Work Order
Section 2(a)
2.
Work Orders, Nature of Work
(a)
Work Orders The details of each Project under this Master Agreement shall be separately specified in writing in a work order signed
by each Party (together with any Change Order with respect thereto, a “Work Order”). Each Work Order will include, as applicable, the
Protocol title or project description, a description of the Services to be performed by THERAPEUTICS, the specifications of the
applicable Study Drug including the Active Pharmaceutical Ingredient, the estimated timeline, budget and payment schedule and such
other terms as shall be agreed upon by the Parties. The terms of this Master Agreement shall be automatically incorporated into the
terms of any Work Order. This Master Agreement and each Work Order, independent from other Work Orders, constitute the entire
agreement for a Project. To the extent any terms or provisions of a Work Order conflict with the terms and provisions of this Master
Agreement, the terms and provisions of this Master Agreement shall control, unless otherwise expressly set forth in the Work Order.
(b)
Change Orders Any material change in a Work Order shall require execution of an amendment to the Work Order (a “Change Order”).
Each Change Order shall set forth the changes to the applicable task, responsibility, duty, budget, timeline or other matters. A Change
Order will only become effective upon the execution of the Change Order by both Parties.
(c)
Transfer of Obligations Notwithstanding any other provision of this Master Agreement, and in addition to any other specific
responsibilities of THERAPEUTICS which are set forth herein, pursuant to 21 CFR Part 312.52, QUOIN may, from time to time, transfer to
THERAPEUTICS, and if it so agrees THERAPEUTICS may assume, all or some of the specific obligations of QUOIN as '‘Sponsor”
under the Act. A description of such obligations to be transferred to THERAPEUTICS will be provided in each Work Order. It is agreed
that the same description and extent of obligations transferred will be included in Section #13 of any applicable INDs filed on Form FDA
1571. THERAPEUTICS agrees to cany out diligently all transferred obligations that it agrees to assume.
(d)
Performance of Services THERAPEUTICS agrees to use reasonable efforts to diligently perform, and to cause its employees, officers,
permitted subcontractors and representatives to diligently perform the Services in accordance with the terms and conditions of this
Master Agreement and each Work Order and with the standard of care customary in the contract research organization industry. Such
efforts may include, without limitation, implementing reasonable procedures such as bonuses and other incentives for timely completion
of the Services. EXCEPT AS SET FORTH IN THIS SECTION 2(d) OR ELSEWHERE IN THIS MASTER AGREEMENT, THERAPEUTICS
MAKES NO OTHER COVENANTS, REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SERVICES, EXPRESS OR
IMPLIED, AND THERAPEUTICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER.
3.
Term and Termination
(a)
This Master Agreement shall commence on the Effective Date and shall have an initial term of three (3) years (the “Initial Term”), unless
earlier terminated as provided herein. The Initial Term will be automatically renewed for additional one (1) year terms (“Subsequent
Term(s)”). The Initial Term and any Subsequent Terms shall be referred to collectively as the “Term”.
(b)
QUOIN may terminate this Master Agreement for any reason upon ninety (90) days prior written notice to THERAPEUTICS.
(c)
Either Party may terminate any Work Order and this Master Agreement as it applies to such Work Order, upon written notice to the
other Party, if the other Party materially breaches such Work Order and this Master Agreement as it applies to such Work Order. Both
Parties agree to allow the breaching Party a reasonable time, but not more than ninety (90) days, to use reasonable efforts to correct
such a breach (other than a breach of payment obligations, as to which this sentence and the next sentence do not apply) and provide
reasonably satisfactory evidence of corrective actions in a timely manner. Failure to cure such a breach within such 90day period shall
entitle the nonbreaching Party to terminate the applicable Work Order and this Master Agreement as it applies to such Work Order,
immediately by written notice to the breaching Party. In case of any breach in a payment obligation under a Work Order, the non
breaching Party shall be entitled to terminate that Work Order and this Master Agreement as it applies to such Work Order, effective
upon the expiration of five (5) business days after notice of such breach from the nonbreaching Party to the breaching Party, if the
breaching Party fails to cure the breach of such payment obligation within such five (5) business day period.
(d)
QUOIN may terminate any Work Order for any reason upon ninety (90) days prior written notice to THERAPEUTICS, subject to Section
3(h).
(e)
If either Party believes termination of any Work Order is necessary to protect the safety or welfare of the Study subjects, then such
Party shall have the right to terminate the applicable Work Order upon written notice to the other Party; provided, however, that after
receipt of such notice of termination, the Parties shall commence any winddown activities for any ongoing Study for which the Parties
have any responsibility hereunder in which any Study subject dosing has commenced. QUOIN shall be responsible for any costs
associated with such winddown activities.
(f)
In the event of termination of this Master Agreement or any Work Order, QUOIN and THERAPEUTICS agree to discuss, cooperate and
coordinate termination of activities being conducted by THERAPEUTICS. As soon as reasonably possible after receipt of any written
termination notice by either Party, THERAPEUTICS will use commercially reasonable efforts to stop initiation of any tasks or activities
not yet started as of the date of termination notice, whether to be conducted by THERAPEUTICS or a third party, unless another plan of
termination is agreed to by both Parties. However, both Parties acknowledge noncancelable costs may exist and will require payment
as detailed in Section 3(h). In all cases of termination, a reasonable plan of action for cessation of activities will be agreed to by both
Parties (such agreement not to be unreasonably conditioned, delayed or withheld) in order to ensure an orderly cessation of ongoing
tasks and activities and in order to protect the safety and rights of patients, as well as to facilitate compliance with the legal
responsibilities of all Parties involved according to applicable local, federal and/or state laws, regulations and ordinances.
THERAPEUTICS will use commercially reasonable efforts to terminate all Work Order associated tasks according to the plan so agreed
to by both Parties.
(g)
Upon termination of this Master Agreement or any Work Order, THERAPEUTICS will, at QUOIN’s written request, promptly provide
QUOIN with a copy of all records relating to Project performance and all periodic reports and/or patient records, maintaining
confidentiality.
(h)
Should QUOIN choose to terminate a Work Order prior to completion for any reason other than THERAPEUTICS’ material breach of this
Master Agreement or any Work Order or THERAPEUTICS’ insolvency or bankruptcy, QUOIN agrees to pay THERAPEUTICS:
(i)
all reasonable direct fees, including monthly fees for project management, medical monitoring, transfer of records or similar fees
earned hereunder for Services performed up to the effective date of termination in accordance with the terms of the Work Order
being terminated;
(ii)
all noncancelable costs for third party contracted Services and other expenses, including THERAPEUTICS’s related
administrative fees, incurred in connection with any Work Order being terminated to the date of termination; and
(iii)
a separate termination fee equal to 10% of the remaining clinical Study Work Order budget,
(i)
In the event a Work Order is terminated by QUOIN before conclusion by reason of any uncured material breach by THERAPEUTICS
pursuant to Section 3(c) above, any thirdparty passthrough costs associated with terminating the Work Order, e.g. laboratory costs,
etc. will be:
(i)
borne by THERAPEUTICS if attributable to THERAPEUTICS’s material breach of its obligations under the Master Agreement
or Work Order and previously paid to THERAPEUTICS;
(ii)
borne by QUOIN if not previously paid to THERAPEUTICS; or
(iii)
borne by and as between QUOIN and THERAPEUTICS as they agree (such agreement not to be unreasonably conditioned,
delayed or withheld) if neither of the above (i) and (ii) applies,
(j)
Sections 3(f, g, h, and i), 5(b), 6, 7, 8, 10, 11, 12, 13, 15, 16(c), 24, 25 and 27 shall survive any expiration or termination of this Master
Agreement to the extent of the terms detailed in each respective Section.
4.
Work Order Compensation
(a)
Unless otherwise provided for and agreed to in a particular Work Order, the following shall apply with respect to all payments by
QUOIN for Services under a Work Order:
(i)
THERAPEUTICS will be compensated for its Services, itemized expenses, and pass through costs, net of discounts, incurred
in the performance of the Services pursuant to the budget and payment schedule set forth in each respective Work Order.
(ii)
All income related taxes (and penalties thereon) imposed by the United States or any state or locality of the United States on
any payment by QUOIN to THERAPEUTICS shall be the responsibility of THERAPEUTICS. With respect to any other taxes
imposed on THERAPEUTICS or required to be withheld by QUOIN from any amount payable to THERAPEUTICS under this
Master Agreement or any Work Order (“Other Taxes”), in addition to all other amounts payable to THERAPEUTICS under this
Master Agreement or any Work Order,
QUOIN shall pay to THERAPEUTICS the amount necessary so that THERAPEUTICS will have received all amounts so
payable to THERAPEUTICS as if no Other Taxes were imposed on THERAPEUTICS or required to be so withheld from any
amount payable to THERAPEUTICS.
(iii)
THERAPEUTICS will submit monthly invoices to QUOIN which shall contain sufficient itemizations for fees, expenses and
passthrough costs related to a Work Order.
(iv)
THERAPEUTICS will invoice QUOIN promptly upon achievement of agreed to milestones (if other than monthly), as set forth
in the applicable Work Order, for payment of Services.
(v)
Invoices shall be payable in U.S. dollars by QUOIN within thirty (30) days from the date of the invoice (late payments will incur
interest at a rate equal to 1.5% for each 30 day period, or part thereof, an invoice remains unpaid after the due date).
(b)
If any portion of an invoice is disputed, then QUOIN shall notify THERAPEUTICS in writing and shall pay the undisputed amounts in
compliance with Section 4(a)(v) and the Parties shall use good faith efforts to reconcile the disputed amount as soon as practicable.
THERAPEUTICS shall maintain adequate accounting records for all receipts and disbursements of supplies and monies directly related
to any Work Order. QUOIN shall be permitted to audit these records, at QUOIN’s expense, during normal business hours upon
reasonable notice to THERAPEUTICS. THERAPEUTICS will be reimbursed for reasonable expenses, including related labor expenses
related to all audit activities.
(c)
It is the Parties’ expectation that the budget for any Work Order relating to Services to be provided by THERAPEUTICS will be
negotiated by the Parties prior to submitting a formal Work Order for Services.
5.
Personnel
(a)
The Services with respect to each Project shall be performed by THERAPEUTICS under the direction of a Project Manager. Subject to
the terms and conditions of any Work Order and this Master Agreement as it applies thereto, THERAPEUTICS will perform its Services
in a professional and timely manner and will ensure that the personnel or subcontractors it uses to perform the Services are
appropriately trained and qualified. QUOIN shall be entitled in good faith to request that the Project Manager be removed and replaced
with a new Project Manager, and THERAPEUTICS shall make reasonable efforts to honor such request. QUOIN shall, upon request, be
entitled to review credentials of all other personnel providing Services as per the Work Order and in good faith may request that any
staff member be replaced and THERAPEUTICS shall make reasonable efforts to honor such request.
(a)
NON SOLICITATION
(i)
Nonsolicitation by QUOIN QUOIN agrees that during the Term of this Master Agreement, and for a period of two (2) years
after the termination of this Master
Agreement, QUOIN will not directly or indirectly solicit any personnel of THERAPEUTICS or its then current contractors to
leave the service of THERAPEUTICS or any such contractor to become employed by QUOIN.
(ii)
Nonsolicitation by THERAPEUTICS THERAPEUTICS agrees that during the Term of this Master Agreement, and for a
period of two (2) years after the termination of the Master Agreement, THERAPEUTICS will not directly or indirectly solicit any
personnel of QUOIN to leave the service of QUOIN to become employed by THERAPEUTICS.
(iii)
Enforceability The provisions of this NonSolicitation Section shall be construed as enforceable in both law and equity,
including by temporary or permanent restraining orders, notwithstanding the existence of any claim or cause of action by either
Party against the other Party whether predicated on this Master Agreement or otherwise.
6.
Confidentiality
(a)
Any confidential and proprietary information (“Confidential Information”) of a Party (“Discloser”) acquired by the other Party
(“Recipient”) under this Master Agreement or any Work Order, including, without limitation, the results of any Study or Project, shall
not be disclosed to any third party who does not have a need to know such Confidential Information for purposes of performing
Recipient’s obligations under this Master Agreement or any Work Order, without the prior written authorization from Discloser.
Recipient shall use the Confidential Information only for the purpose of fulfilling its obligations under this Master Agreement or any
Work Order. Recipient represents and warrants that it has obtained or will obtain agreements with its employees and agents (including
subcontractors) to maintain the confidentiality of all Confidential Information as provided herein.
(b)
The obligations of Recipient with regard to Confidential Information shall continue for a period of seven (7) years from the date that
such Confidential Information is acquired by Recipient.
(c)
The obligations of Recipient regarding the confidentiality and nondisclosure of Confidential Information as provided in this section
shall not apply to information that:
(i)
is already known to Recipient without prior disclosure from Discloser, as shown by Recipient’s prior written records;
(ii)
Recipient can demonstrate by written records was developed for or by Recipient, independent of any Confidential Information
of the Discloser;
(iii)
becomes publicly available through no fault of Recipient;
(iv)
is received from a third party that has the legal right to disclose it to Recipient; or
(v)
is required by law to be disclosed; provided that Recipient notifies Discloser in writing of its intention to disclose Confidential
Information with sufficient time to allow Discloser to seek a protective order or file an application for confidential treatment as
may be permissible.
(d)
Recipient acknowledges that the disclosure of Confidential Information without Discloser’s express permission may cause Discloser
irreparable harm and that the breach or threatened breach of nondisclosure provisions of this Master Agreement may entitle Discloser
to seek injunctive relief, in addition to any other legal remedies that may be available.
7.
Ownership and Inventions
(a)
THERAPEUTICS shall have no claim to any materials, documents and information, programs and suggestions of every kind and
descriptions evidencing Confidential Information of QUOIN that may be provided by QUOIN to THERAPEUTICS, and
THERAPEUTICS hereby assigns to QUOIN all data or reports resulting from any Study or prepared by THERAPEUTICS in connection
with the Services performed hereunder,.
(b)
THERAPEUTICS shall retain and preserve one (1) copy only of all materials, documents and information, program and suggestions
provided by QUOIN to THERAPEUTICS and all data and reports resulting from Services performed hereunder for a period of two (2)
years after the NDA has been approved by the FDA or a Project has been discontinued. At the end of such two (2) year period,
THERAPEUTICS shall give QUOIN written notice of its intent to destroy any of such material at least thirty (30) days prior to
destruction. If QUOIN requests such material, THERAPEUTICS shall provide such material to QUOIN at QUOIN’S expense. Failure of
QUOIN to request such material or to respond to such notice within the thirty (30) day period shall constitute QUOIN’s acquiescence to
the destruction of such material.
(c)
THERAPEUTICS hereby assigns to QUOIN any and all right, title and interest that THERAPEUTICS may have in any discoveries or
inventions by THERAPEUTICS directly arising from the Services provided to QUOIN pursuant to this Master Agreement and/or Work
Order that are directly related to the Active Pharmaceutical Ingredient, regardless of inventorship, unless otherwise agreed to by the
Parties. THERAPEUTICS will promptly disclose in writing to QUOIN or its nominee any and all such inventions and discoveries of
which THERAPEUTICS becomes aware. Whenever requested to do so by QUOIN, THERAPEUTICS will execute any and all
applications, assignments or other instruments and give testimony reasonably necessary for QUOIN to apply for and obtain patent
letters in the United States or any foreign country or to otherwise protect QUOIN’s interests, therein, at QUOIN’s sole cost and expense,
including the payment of THERAPEUTICS’ standard rates thereof. These obligations shall continue beyond the termination of this
Master Agreement for a period of one (1) year and shall be binding upon THERAPEUTICS’ successors, assignees, administrators and
legal representatives.
8.
Access to Records
THERAPEUTICS will permit representatives of QUOIN and/or any authorized regulatory authorities to have access at reasonable times to
THERAPEUTICS’s premises for the purpose of observing performance of the Services and/or reviewing resulting data.
9.
Adverse Experience Reporting
Pursuant to any Protocol attached to any Work Order, THERAPEUTICS agrees throughout the duration of this Master Agreement, to promptly
notify QUOIN of any information concerning any serious or unexpected event or injury, and the severity thereof, associated with the clinical
uses, studies, investigations or tests, whether or not determined to be attributable to any Study Drug.
10.
Publications
Project results may not be published or publicly disclosed, in whole or in part, by THERAPEUTICS or its affiliates without the prior express
written consent of QUOIN.
11.
Indemnification
(a)
QUOIN agrees to indemnify, defend and hold harmless THERAPEUTICS, its respective officers, trustees, affiliates, agents, servants,
employees and successors and (hereafter collectively referred to as “THERAPEUTICS Indemnitees”) from and against any and all
losses, costs (including the reasonable costs of providing medical care), expenses (including reasonable attorneys’ fees and charges),
claims, actions, liability and/or suits (collectively, “Claims”) by a Third Party (as defined in subsection (e) below) suffered or incurred by
a THERAPEUTICS Indemnitee as a result of (i) bodily injury to a patient or Studyrelated personnel in any Study being conducted
pursuant to this Master Agreement or any Work Order directly or indirectly caused by administration of a Study Drag or any procedure
under the Protocol or (ii) QUOIN’s gross negligence or any intentional or reckless misconduct by QUOIN, except to the extent that any
such Claims are caused by the gross negligence or intentional or reckless misconduct of any THERAPEUTICS Indemnitee.
QUOIN shall further indemnify, defend and hold harmless the THERAPEUTICS Indemnitees from any Claim by a Third Party In contract
or tort (including strict liability claims) or based on any other legal theory that relate to the safety or efficacy of the Active
Pharmaceutical Ingredient or any component of the Study Drug.
(b)
THERAPEUTICS agrees to provide QUOIN with prompt notice of any such ThirdParty Claim. In the event the aforesaid indemnity is
invoked, QUOIN shall have the right, but not the obligation, to manage and control the defense and settlement of any and all such
actions and lawsuits, and shall have the right to select and engage counsel of its own choice. THERAPEUTICS shall cooperate
reasonably with QUOIN in the defense of any and all actions and lawsuits. No THERAPEUTICS Indemnitee shall be entitled to
compromise or settle any such ThirdParty Claim without prior written approval of QUOIN (such approval not to be unreasonably
conditioned, delayed or withheld)
(c)
THERAPEUTICS agrees to indemnify, defend and hold harmless QUOIN, its parents, subsidiaries and affiliates, as well as the officers,
directors, employees and agents of each (hereafter collectively referred to as “QUOIN Indemnitees”) against and in respect of any and
all Third Party Claims suffered or incurred by any QUOIN Indemnitee resulting from THERAPEUTICS’s gross negligence or intentional
or reckless misconduct.
(d)
QUOIN agrees to provide THERAPEUTICS with prompt notice of any such ThirdParty Claims. In the event the aforesaid indemnity is
invoked, THERAPEUTICS shall have the right, but not the obligation, to manage and control the defense and settlement of any and all
such actions and lawsuits, and shall have the right to select and engage counsel of its own choice. QUOIN shall cooperate reasonably
with THERAPEUTICS in the defense of any and all actions and lawsuits. No QUOIN Indemnitee shall be entitled to compromise or
settle any such ThirdParty Claim without prior written approval of THERAPEUTICS (such approval not to be unreasonably
conditioned, delayed or withheld).
(e)
For purposes of these Indemnification provisions, “Third Party” shall mean any person or entity which is neither a Party to this
Agreement nor an affiliate of a Party. For purposes of these Indemnification provisions, an “affiliate” shall mean any person or entity
who directly or indirectly controls, is controlled by or is under common control with a Party to this Agreement by means of at least fifty
(50%) percent ownership or more of the voting stock or similar interest. For purposes of this definition, “control,” “controls” or
“controlled” means ownership directly or through one or more Affiliates, of fifty percent (50%) or more of the shares of stock entitled to
vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interests in the case of any
other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby a Party appoints or elects or
has the right to appoint or elect the majority of the board of directors or equivalent governing body of a corporation or other entity, or
the ability to cause the direction of the management or policies of a corporation or other entity. The Parties acknowledge that in the
case of certain entities organized under the laws of certain countries outside of the United States, the maximum percentage ownership
permitted by law for a foreign investor may be less than fifty percent (50%), and that in such case such lower percentage shall be
substituted in the preceding sentence; provided that such foreign investor has the power to direct the management and policies of such
entity.
12.
Force Majeure and Delays
In the event either Party shall be delayed or hindered in or prevented from the performance of any act required hereunder by reasons of strike,
lockouts, labor troubles, inability to procure materials, failure of power or restrictive government or judicial orders, or decrees, riots, insurrection,
war, acts of terrorism, acts of God, inclement weather or other similar reason or cause beyond that Party’s control (not including the inability of a
Party’s software to perform datadependent calculations properly), then performance of such act (except for the payment of money owed) shall
be excused for the period of such delay; provided, however, if such delay continues in excess of eight (8) weeks, either Party may terminate the
affected Work Order(s) without penalty under any Work Order, except that QUOIN shall be obligated to pay THERAPEUTICS (a) all reasonable
direct fees earned under this Master Agreement or the terminated Work Order(s) up to the effective
date of termination in accordance with the terms of the terminated Work Order(s), as described in subsection (i) of Section 3(h), and (b) all non
cancelable costs incurred in connection with the terminated Work Order(s) to the date of termination, as described in subsection (ii) of Section
3(h).
13.
Notices
Whenever any notice is to be given pursuant to this Master Agreement, it must be in writing using postage prepaid firstclass certified mail with
return receipt requested, delivery prepaid nationally recognized overnight carrier, or facsimile to the addresses set forth below:
THERAPEUTICS:
Therapeutics, Inc.
9025 Balboa Avenue, Suite 100
San Diego, CA 92123
Attn: Daniel J. Piacquadio, M.D., President and CEO
QUOIN:
Quoin Pharmaceuticals Ltd.
42127 Pleasant Forest Ct
Ashburn, VA 20148
Attn: Michael Myers, Ph.D., Chairman & CEO
Such notice shall be effective five days after deposit if sent by mail, the next business day if sent by overnight carrier and upon receipt of
electronic confirmation of delivery if sent by facsimile.
14.
Legal Compliance
THERAPEUTICS shall perform all work under this Master Agreement and any Work Order in conformity in all material respects with all applicable
federal, state and local laws and regulations including but not limited to the Act and the regulations promulgated pursuant thereto, as amended
from time to time. For purposes of QUOIN providing the FDA with certification pursuant to Section 306(k) of the Act, THERAPEUTICS warrants
that no person working under the supervision of THERAPEUTICS that will be performing Services pursuant to this Master Agreement or any
Work Order has been debarred or convicted of crimes pursuant to Sections 306(a) and (b) of the Act and under the U.S. Generic Drug
Enforcement Act of 1992, 21 U.S.C. §§335(a) and (b), as amended. THERAPEUTICS agrees to notify QUOIN as soon as practicable upon
THERAPEUTICS’ learning of the occurrence of any such debarment, conviction, or inquiry relating to a potential debarment, of any person
performing Services pursuant to this Master Agreement or any Work Order and agrees that said person shall be immediately prohibited from
performing Services under this Master Agreement or any Work Order.
QUOIN covenants and represents that it shall not request THERAPEUTICS to perform assignments or tasks that violate any applicable law or
regulation.
15.
Regulatory Inspections
(a)
Responsibilities of THERAPEUTICS: If any governmental or regulatory authority conducts or gives notice to THERAPEUTICS of its
intent to conduct an inspection of THERAPEUTICS or any study site or take any other regulatory action with respect to the Services
provided under this Master Agreement or any Work Order, THERAPEUTICS
shall (a) cooperate with QUOIN and reasonably act to obtain the cooperation of any Investigator(s); (b) provide QUOIN prior notice of
any inspection or other regulatory action; and (c) allow QUOIN the right to be present at any such inspection at THERAPEUTICS.
QUOIN shall have primary responsibility of preparing and THERAPEUTICS shall cooperate in the preparation of any responses which
may be required by any governmental or regulatory authority with regard to any such inspection or regulatory action, and any required
followup actions. QUOIN shall have the sole opportunity to challenge any order of a regulatory or governmental activity affecting its
IND, NDA or any Project. If THERAPEUTICS has attempted to comply with the provisions of this Section 15 but is nevertheless
required by a governmental or regulatory authority to comply with its demand or request, then compliance by THERAPEUTICS shall
not cause a breach of this Master Agreement. THERAPEUTICS will be reimbursed reasonable expenses by QUOIN, including daily
labor rate expenses related to all regulatory inspections.
(b)
THERAPEUTICS Support of Study Site for Audit: In the event that a clinical site is notified by any governmental or regulatory
authority of an inspection or audit of a study under any prior completed or current Work Order, upon QUOIN’s consent,
THERAPEUTICS will provide audit assistance to that site in preparation for the inspection. THERAPEUTICS will be reimbursed for
reasonable expenses, including travel reimbursement and labor expenses at daily rates, related to all regulatory inspections.
Inspection/audit fees charged by the sites will be billed directly to QUOIN, if applicable.
16.
Insurance
(a)
THERAPEUTICS and QUOIN each represents that it maintains and will continue in force during the Term of this Master Agreement, at
its sole cost and expense, the minimum insurance coverage listed below. Each Party shall provide to the other certificates of insurance
evidencing the insurance required hereunder and will provide prompt written notice to the other Party prior to any cancellation of such
coverage or material change in such coverage.
(i)
Comprehensive automobile liability insurance for vehicles furnished by such Party or used by such Party in the performance of
this Master Agreement or any Work Order with bodily injury and property damage limits of at least $1,000,000 each occurrence,
combined single limit;
(ii)
Commercial general liability insurance with bodily injury and property damage minimum limits of $1,000,000 each occurrence,
with an aggregate combined single limit of at least $2,000,000;
(iii)
Excess liability insurance with minimum limits of $1,000,000 per occurrence/aggregate combined single limit which shall be
excess of the coverage described in Section 16(a)(i) and Section 16(a)(ii) above; and
(iv)
With respect to QUOIN only, product and clinical trials liability insurance in the amount of at least $5,000,000 combined single
limit with the obligation to continue for a minimum of three (3) years beyond the termination of the Study.
(b)
To the extent permitted by law, the insurance set forth above as well as any other coverage agreed to be purchased hereunder shall
contain waivers of subrogation and/or rights of recovery as to claims against the other Party. This waiver shall not apply if the
responsible Party was grossly negligent.
(c)
THERAPEUTICS shall be identified as an additional insured under QUOIN’s product and clinical trials liability insurance described in
Section 16(a)(iv) above.
(d)
THERAPEUTICS and QUOIN agree that with regard to this Master Agreement, the insurance coverage to be provided hereunder shall
be considered as primary insurance and not contributory with any similar instance which the other Party and/or its employees and
agents may maintain on their own behalf.
17.
Assignment
Other than to a successor to all or substantially all its assets, this Master Agreement and each Work Order may not be assigned by either Party
without the other Party’s prior written consent, which consent shall not be unreasonably conditioned, delayed or withheld.
18.
Independent Contractors
For purpose of this Master Agreement, the relationship between the Parties is that of an independent contractor and neither Party shall have the
authority to bind or act on behalf of the other Party without its prior written consent. Nothing contained in the Master Agreement shall be
construed to create the relationship of principal and agent or employer and employee between QUOIN and THERAPEUTICS, or their respective
employees, servants, agents or independent contractors.
19.
Relationship with Investigators
If a particular Work Order obligates THERAPEUTICS to contract with an Investigators) or investigative site, then any such contract shall be on a
form mutually acceptable to THERAPEUTICS and QUOIN, and any material changes to such form shall require prior written approval by QUOIN.
QUOIN will be responsible for promptly reviewing, commenting on and/or approving such form contracts and proposed changes.
20.
Advertising
THERAPEUTICS shall not issue any information or statement to the press or public relating to the results of any Study without the prior written
consent of QUOIN. Neither Party shall use the name or trademarks of the other Party in any announcement, publication or promotional material
or in any form of public distribution, including file Party’s website or any social networking media without the prior written consent of the other
Party except as required by applicable law, any court or administrative order or any Work Order.
Notwithstanding the foregoing provisions of this Section 20, THERAPEUTICS shall have the right to include the name of QUOIN in any listing
of clients, the type of services provided and the respective fees charged or forecasted to be charged for the sole purpose of providing such
information to board members, financial institutions, accounting firms and prospective equity or debt investors in THERAPEUTICS.
21.
Mutual Representations
Each Party represents that: (a) it has the right and authority to enter into this Master Agreement and to perform its obligations hereunder and
required pursuant to each Work Order; (b) the person executing this Master Agreement has the authority to do so; and (c) it is not a party to any
existing agreement or arrangement that would prevent it from entering into this Master Agreement or would adversely affect its performance
under this Master Agreement. These representations will also apply with respect to the execution of each Work Order by such Party.
22.
Severability
If any provision of this Master Agreement or any Work Order shall be deemed void in whole or in part for any reason whatsoever, the remaining
provisions shall remain in full force and effect.
23.
Estoppel
The waiver or forbearance by either Party or the failure by either Party to claim a breach of any provision of this Master Agreement or any Work
Order shall not be deemed to constitute a waiver or estoppel with respect to any subsequent breach or with respect to any provision thereof.
24.
Applicable Law
This Master Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts
of law principles thereof. Each Party hereby irrevocably consents to submit to the exclusive jurisdiction of the state and federal courts located in
Cook County, Illinois relating to any claim, dispute or disagreement arising out or in any way related to this Master Agreement or the legal
relationships established herein or any Work Order, and each Party consents to the personal jurisdiction of such courts.
25.
Descriptive Heading
The descriptive heading of the Master Agreement sections are inserted for convenience only and shall not control or affect the meaning or
construction of any provision hereof.
26.
Binding Effect
The Master Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and assigns.
27.
Entire Understanding
This Master Agreement and each Work Order represents the entire understanding of the Parties with respect to the subject matter hereof. Any
modification to this Master Agreement or any Work Order must be in writing and signed by both Parties.
28.
Multiple Counterparts
This Master Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same instrument. In the event that any signature is delivered by facsimile transmission or by email delivery of a
“.pdf' format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf' signature page were an original thereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Master Agreement as of the Effective Date.
THERAPEUTICS, INC.
QUOIN PHARMACEUTICALS LTD.
By:
/s/ Daniel J. Piacquadio
By:
/s/ Michael Myers
Name: Daniel J. Piacquadio, M.D.
Name: Michael Myers, Ph.D.
Title:
President and CEO
Title:
Chairman & CEO
EX4.40 16 qnrx20211231xex4d40.htm EXHIBIT 4.40
Exhibit 4.40
THE SYMBOL “[****]” DENOTES PLACES WHERE CERTAIN IDENTIFIED
INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE
IT IS BOTH (i) NOT MATERIAL, AND (ii) THE TYPE THAT THE
REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL
Term Sheet for Agreement
between
AXELLA RESEARCH, LLC
and
QUOIN PHARMACEUTICALS
This Term Sheet (the “Term Sheet”) sets forth the understanding of the mutual intentions of Axella Research, LLC (“Axella”) and Quoin
Pharmaceuticals (“QUOIN”) regarding a proposed transaction (the “Transaction”) whereby Axella will provide (i) regulatory consulting, (ii) pre
clinical and clinical consulting. In accordance with supplying the services described below Axella would receive either cash payment or equity in
QUOIN in the form of stocks or shares, at Quoin’s sole discretion subject to the terms defined below.
1.
Structure of Transaction
1.
The Transaction shall be structured as a Services Agreement pursuant to which Axella
would be granted cash payment or equity in QUOIN, in exchange for the deliverables in
accordance with the terms generally as described below.
2.
Additionally, in consideration for Axella accepting in kind compensation for the services
rendered, Quoin will grant Axella first right of refusal for providing future CRO services for
subsequent steps in obtaining FDA approval for its pipeline of products.
2.
Compliance with
Government Regulations
Government Regulations
·
Axella will perform all its services, work and studies in accordance with applicable law and
government regulation and customary industry practices. Axella will comply with all laws
applicable to the care and use of experimental materials, conditions and in any case needed
shall provide humane care and treatment in accordance with the most acceptable current
practices.
Visits by Government Agencies
·
Axella shall notify QUOIN of any request from any government agency or any other third
party to inspect or otherwise gain access to the information, data, or materials pertaining to
the Services performed by Axella. Axella agrees to permit inspection of such information,
data, or materials by authorized representatives of government agencies as required by law
and to allow QUOIN to be present at any such inspection.
3.a
PreIND Scope of Work
provided by Axella
1
Work with Quoin and gather relevant information/data/document, and organize
information/data/document from Quoin. Work with Quoin to review, revise, update, and/or write
up report on documents/information/data needed for PreIND of QRX003, such as but not limited
to those listed below:
· Company information, including contact and address
· Product information, including composition and formulation
· manufacturing of product
· preclinical studies, including study reports
2
Draft and revise according to comments from Quoin, and finalize the clinical protocol.
3
Interact, and communicate with FDA to request a PreIND meeting
4
Assemble and write up the PreIND document, in FDA required format
5
Esubmisson of meeting package to FDA at least 30 day prior to the FDA meeting
5
Coordinate with FDA, and organize a PreIND meeting with FDA
6
Participate in the PreIND meeting with FDA, such as but not limited to those listed below:
· prepare for, attend, and moderate the meeting
· record key information during the meeting
· follow up on key issues, via written communication with FDA
· obtain written response from FDA on the outcome of the PreIND meeting
3.b
PreIND Information
provided by QUOIN
Quoin is to provide the following information/documents:
Clinical:
1. Specific information on the assay on skin biopsy samples.
2. Input on study design of the clinical protocol.
Preclinical:
1. Available toxicology data, preferably in the form of study reports, if these are available.
CMC:
1. Batch record for GMP manufacturing of QRX003.
2. Batch record for the placebo lot, manufactured GMP. (Preferred).
3.c
IND Scope of Work
provided by Axella
1
Work with Quoin to gather and organize relevant information/data/document from
Quoin, based on FDA comments provided from the preIND meeting. Work with Quoin
to obtain, review, revise, update, and/or write up report on documents/information/data
needed for IND filing.
2
Draft, and revise based on comments from Quoin, and finalize IND and clinical protocol
according to FDA comments from the PreIND meeting and new information/data
collected after preIND meeting.
3
Assemble and write up the IND document and clinical protocol, in FDA required format.
4
Esubmit IND document to FDA.
5
Promptly address questions from the FDA during the 30day review period, and esubmit
all responses to the FDA, so that IND can be activated within 30 days upon FDA receipt
of IND.
6
Follow up with FDA to obtain the "Study May Proceed" letter to indicate IND
activation.
3.d
IND Information provided
by QUOIN
Quoin is to provide the following information/documents, unless they are provided during PreIND
meeting preparation:
Clinical:
1. Specific information on the assay on skin biopsy samples.
2. Study report from any assay validation studies performed on human biological samples.
3. Input on study design of the clinical protocol.
Preclinical:
1. Available toxicology data, preferably in the form of study reports.
2. Study reports of all studies requested by the FDA at the PreIND meeting.
CMC:
1. Batch record for GMP manufacturing of QRX003.
2. Certificate of Analysis of the GMP lot of the study drug, with all QC tests consistent with FDA's
comments provided at the PreIND meeting.
3. Batch record for the placebo lot, manufactured GMP.
4. Certificate of Analysis of the GMP lot of placebo.
4.
Milestones
(i)
Preparation and submission of preIND document
(ii)
Receipt of FDA written response from PreIND meeting
(iii)
Receipt of an FDA acceptance of IND submission
5.
Deliverables
(i)
Equity Agreement, if applicable
(ii)
PreIND meeting package
(iii)
IND Submission Package
6.
Ownership of materials
QUOIN will have title to all products and information developed as a result of work performed under
the Agreements contemplated by this term sheet, whether before or after definitive agreements are
executed, that relate to QUOIN’s products in development or Confidential Information, unless
otherwise agreed to in writing. Axella will assign and hereby does assign to QUOIN the rights to any
patentable inventions discovered as a result of performing the Services for QUOIN. Axella will
provide QUOIN with reasonable assistance to obtain such patents. Axella shall not, without the
prior written consent of the Company, utilize the Confidential Information or any derivatives,
continuations, additions, developments or improvements thereof to any use and /or to compete,
either directly or indirectly, with the business of the Company.
7.
Use of Subcontractors
·
Axella may use of subcontractors to provide Services with QUOIN’s prior written consent,
provided that, (i) Axella will be fully liable for the performance of such subcontractor and for
compliance by such subcontractor with the terms of the applicable agreements with QUOIN, and
(ii) the agreement between Axella and such subcontractor must be consistent with Axella’s
obligations to QUOIN.
·
Axella will ensure that its agreement with any permitted subcontractor includes the assignment
of any Inventions to QUOIN or to the Axella, with the right of further transfer to QUOIN. Axella
agrees not to make any use of any funds, space, personnel, facilities, equipment or other
resources of a third party in performing Services, nor take any other action, that would result in a
third party owning or having a right in the results of Services or Inventions.
·
Axella has, and will engage, employees and permitted subcontractors and/or consultants
(“Axella's Personnel”) with the proper skill, training and experience to provide Services. Axella
will
be solely responsible for paying Axella's Personnel and providing any employee benefits that
they are owed. Before providing Services, all Axella's Personnel must have agreed in writing to
(i) confidentiality obligations consistent with the terms of the Agreement between Axella and
QUOIN, and (ii) effectively vest in Axella any and all rights that such personnel might otherwise
have in the results of their work.
8.a.
Fees for Service
The fees for services being provided by Axella as contemplated in section 3 of this document are
$[****] for the PreIND scope (section 3.a) and $[****] for IND scope (section 3.c), for a combined
total value of $[****] At Quoin’s discretion, for the first 6 months from execution of this agreement,
these fees may be payable in cash or in equity. After 6 months, Axella shall be entitled to the equity
distribution and have the discretion to accept cash if offered by Quoin.
8.b
Calculation for Equity and
Vesting Schedule
In the event that Quoin elects to pay for services in equity, the parties mutually agree to set the
valuation of QUOIN at USD$[****]. This will entitle Axella to a 0.65% equity position upon
completion of the milestones set forth in section 4.
Upon completion of the following milestones, Axella will receive equity according to the following
vesting schedule:
Milestone
Equity
(i)
Preparation and submission of preIND document
0.2%
(iii)
Receipt of FDA written response on PreIND meeting
0.2%
(iv)
Receipt of an FDA decision letter on the IND submission
0.25%
TOTAL
0.65%
8.b
Payment Schedule of Cash
Payment
In the event that Quoin elects to pay for services in cash payments will be due according to the
following milestones:
Milestone
Payment
Due
(i)
Preparation and submission of preIND document
$[****]
(iii)
Receipt of FDA written response from PreIND meeting
$[****]
(iv)
Submission of FDA acceptance of IND Application
$[****]
TOTAL
$[****]
9.
Closing Date
It is anticipated that the closing of the Transaction shall take place on or about Novemberr 1, 2019.
10.
Conditions to Closing:
The closing of the Transaction is subject to and contingent upon:
·
the execution by the parties of definitive agreements, containing the provisions outlined above
and certain representations, warranties, and other terms and conditions mutually acceptable to
the parties and such other subscriptionrelated documents as the Company reasonably requires
(the “Definitive Agreements”).
11.
Costs:
The Parties acknowledge and agree that each shall be responsible for its own expenses in connection
with its individual assessment as to whether to proceed with the Transaction.
12.
Expiration
This Term Sheet shall be effective as of the date of execution of this document and continue until
ninety (90) days thereafter (the “Term Sheet Period”) when it will expire unless extended.
13.
Confidentiality
This Term Sheet and all information provided by QUOIN to Axella in connection with the agreements
or work contemplated hereunder is Confidential Information of QUOIN and is subject to the
Confidential Disclosure and NonUse Agreement between QUOIN and Axella.
14.
Indemnity
Axella shall indemnify QUOIN from any claims by Axella’s employees or third party claims arising out
of Axella’s negligent acts or intentional misconduct during the conduct of the Services. Axella will
not be liable to indemnify QUOIN against any loss or expense resulting from any claim arising out of
QUOIN’s use or marketing of any substance or method which is the subject of the Services unless the
same results from Axella’s breach of the Definitive Agreements or negligence or willful misconduct.
QUOIN shall indemnify Axella from any claim or expense arising out of QUOIN’s use or marketing of
any such substance or method unless the same results from Axella’s breach of the Definitive
Agreements or negligence or willful misconduct.
15.
Assignment
Axella shall not be permitted to assign any of its rights and/or obligations as set under this agreement
to any other party without QUOIN's prior written approval.
16.
Counterparts
This Term Sheet may be executed in two or more counterparts, in facsimile or PDF format and each
such counterpart executed shall for all purposes be deemed an original, and all counterparts together
shall constitute but one and the same instrument. This Term Sheet shall be binding upon all
signatories hereof who sign below.
17.
Binding Law
This Term Sheet shall be governed by the laws of the State of New York.
18.
No ThirdParty
Beneficiary
There are no thirdparty beneficiaries of this Term Sheet and no person or entity, other than the
Parties hereto shall be entitled to enforce this Term Sheet.
19.
Amendments
Any amendment or revision to this Term Sheet, the services outline must be proposed in writing by
either party and accepted in writing by the other party before such amendment or revision shall
become effective and binding.
Please sign and date this Term Sheet in the space provided below.
AXELLA RESEARCH, LLC
QUOIN PHARMACEUTICALS
By: /s/ Aci Kamelhar
By: /s/ Michael Myers
Name: Avi Kamelhar
Name: Michael Myers
Title: CEO
Title: CEO
Date: October 29, 2019
Date: October 29, 2019
EX4.41 17 qnrx20211231xex4d41.htm EXHIBIT 4.41
Exhibit 4.41
THE SYMBOL “[****]” DENOTES PLACES WHERE CERTAIN IDENTIFIED
INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE
IT IS BOTH (i) NOT MATERIAL, AND (ii) THE TYPE THAT THE
REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL
Term Sheet for Agreement
between
AXELLA RESEARCH, LLC
and
QUOIN PHARMACEUTICALS
QRX003 FOR EPIDERMOLYSIS BULLOSA
This Term Sheet (the “Term Sheet”) sets forth the understanding of the mutual intentions of Axella Research, LLC (“Axella”) and
Quoin Pharmaceuticals (“QUOIN”) regarding a proposed transaction (the “Transaction”) whereby Axella will provide (i)
regulatory consulting, (ii) preclinical and clinical consulting. In accordance with supplying the services described below Axella
would receive 50% cash payment and the other 50% in cash or equity in QUOIN in the form of stocks or shares, or 100% in
cash payment, at Quoin’s sole discretion subject to the terms defined below.
1.
Structure of
Transaction
1. The Transaction shall be structured as a Services Agreement pursuant to which
Axella would be granted an all cash payment or a combination of 50% cash and
50% equity in QUOIN, in exchange for the deliverables in accordance with the
terms generally as described below.
2. Additionally, in consideration for Axella accepting in kind compensation for the
services rendered, Quoin will grant Axella first right of refusal to match the
winning proposal from an alternate CRO for providing future CRO services for
subsequent steps in obtaining FDA approval for its pipeline of products provided
that Axella has the proven capability to perform such services itself.
2.
Compliance with
Government
Regulations
Government Regulations
●
Axella will perform all its services, work and studies in accordance with
applicable law and government regulation and
customary industry practices. Axella will comply with all laws applicable to the
care and use of experimental materials, conditions and in any case needed shall
provide humane care and treatment in accordance with the most acceptable
current practices.
Visits by Government Agencies
·
Axella shall notify QUOIN of any request from any government agency or any
other third party to inspect or otherwise gain access to the information, data, or
materials pertaining to the Services performed by Axella. Axella agrees to permit
inspection of such information, data, or materials by authorized representatives of
government agencies as required by law and to allow QUOIN to be present at
any such inspection.
3.a
PreIND Scope of
Work provided by
Axella
1
Work with Quoin and gather relevant information/data/document, and organize
information/data/document from Quoin. Work with Quoin to review, revise,
update, and/or write up report on documents/information/data needed for Pre
IND package of QRX003, such as but not limited to those listed below:
· Company information, including contact and address
· Product information, including composition and formulation
· manufacturing of product
· preclinical studies, including study reports
2
Draft, revise according to comments from Quoin, and finalize the clinical protocol.
3
Interact, and communicate with FDA to request a PreIND Sub meeting with
FDA
4
Assemble and write up the PreIND document, in FDA required format
5
Esubmission of meeting package to FDA at least 30 day prior to the FDA
meeting
5
Coordinate with FDA, and organize a PreIND meeting with FDA
6
PreIND meeting with FDA, such as but not limited to those listed below:
· prepare for, attend, and moderate the meeting
· Record key information during the meeting
· follow up on key issues, via written communication with FDA
· obtain written response from FDA on the outcome of the PreIND meeting
3.b
PreIND Information
provided by QUOIN
Quoin is to provide the following information/documents:
Clinical:
1. Specific information on the assay on skin biopsy samples.
Preclinical:
1. Toxicology data, preferably in the form of study reports.
CMC:
1. Batch record for GMP manufacturing of QRX003.
2. Batch record for the placebo lot, manufactured GMP. (Preferred).
3.c
IND Scope of Work
provided by Axella
1
Work with Quoin to gather and organize relevant information/data/document from
Quoin, based on FDA comments provided from the preIND meeting. Work with
Quoin to obtain, review, revise, update, and/or write up report on
documents/information/data needed for IND filing.
2
Revise or rewrite IND according to FDA comments from the PreIND meeting,
and finalize the clinical protocol.
3
Assemble and write up the IND document, in FDA required format.
4
Esubmit IND document to FDA.
5
Promptly address questions from the FDA during the 30day review period, and e
submit all responses to the FDA, so that IND can be activated within 30 days upon
FDA receipt of IND.
6
Follow up with FDA to obtain the "Study May Proceed" letter to indicate IND
activation.
3.d
IND Information
provided by QUOIN
Quoin is to provide the following information/documents, unless they are provided during
PreIND meeting preparation:
Clinical:
1. Specific information on the assay on skin biopsy samples.
2. Study report from assay validation studies of assay human biological samples.
Preclinical:
1. Toxicology data, preferably in the form of study reports.
2. Study reports of all studies requested by the FDA at the PreIND meeting.
CMC:
1. Batch record for GMP manufacturing of QRX003.
2. Certificate of Analysis of the GMP lot of the study drug, with all QC tests consistent
with FDA's comments provided at the PreIND meeting.
3. Batch record for the placebo lot, manufactured GMP.
4. Certificate of Analysis or the GMP lot of placebo.
4.
Milestones
(i)
Preparation and submission of preIND document
(ii)
Receipt of FDA written response from PreIND meeting
(iii) Receipt of an FDA acceptance of IND submission
5.
Deliverables
(i)
Equity Agreement, if applicable
(ii)
PreIND meeting package
(iii) IND Submission Package
6.
Ownership of
materials
QUOIN will have title to all products and information developed as a result of work
performed under the Agreements contemplated by this term sheet, whether before or after
definitive agreements are executed, that relate to QUOIN’s products in development or
Confidential Information, unless otherwise agreed to in writing. Axella will assign and
hereby does assign to QUOIN the rights to any patentable inventions discovered as a
result of performing the Services for QUOIN. Axella will provide QUOIN with
reasonable assistance to obtain such patents.
Axella shall not, without the prior written consent of the Company, utilize the
Confidential Information or any derivatives, continuations, additions,
developments or improvements thereof to any use and /or to compete, either directly
or indirectly, with the business of the Company
7.
Use of Subcontractors
·
Axella may use of subcontractors to provide Services only with QUOIN’s prior
written consent, provided that, (i) Axella will be fully liable for the performance of
such subcontractor and for compliance by such subcontractor with the terms of the
applicable agreements with QUOIN, and (ii) the agreement between Axella and such
subcontractor must be consistent with Axella’s obligations to QUOIN.
·
Axella will ensure that its agreement with any permitted subcontractor includes the
assignment of any Inventions to QUOIN . Axella agrees not to make any use of any
funds, space, personnel, facilities, equipment or other resources of a third party in
performing Services, nor take any other action, that would result in a third party
owning or having a right in the results of Services or Inventions.
·
Axella has, and will engage, employees and permitted subcontractors and/or
consultants (“Axella's Personnel”) with the proper skill, training and experience to
provide Services. Axella will be solely responsible for paying Axella's Personnel and
providing any employee benefits that they are owed. Before providing Services, all
Axella's Personnel must have agreed in writing to (i) confidentiality obligations
consistent with the terms of the Agreement between Axella and QUOIN, and (ii)
effectively vest in Axella any and all rights that such personnel might otherwise have in
the results of their work.
8.a.
Fees for Service
The fees for services being provided by Axella as contemplated in section 3 of this
document are $[****] for the PreIND scope (section 3.a) and $[****] for IND
scope (section 3.c), for a combined total value of $[****]. At Quoin’s discretion these
fees may be payable entirely in cash or in a 50:50 combination of cash and equity.
8.b
Calculation for Equity
and Vesting Schedule
if Payments are 50%
Cash and 50% Equity
In the event that Quoin elects to pay for 50% of services in equity and 50% in cash, the
parties mutually agree to set the valuation of QUOIN at USD$[****]. This will entitle
Axella to a 0.21% equity position upon completion of the milestones set forth in section
4.
Upon completion of the following milestones Axella will receive cash and equity
according to the following vesting schedule:
Milestone
Equity
Cash
(i)
Preparation and submission of
preIND document
0.07%
$[****]
(ii)
Receipt of FDA written
response from PreIND
meeting
0.07%
$[****]
(iii)
Receipt of an FDA decision
letter on the IND submission
0.07%
$[****]
TOTAL
0.21%
$[****]
8.b
Payment Schedule of
All Cash Payment
In the event that Quoin elects to pay for services in 100% cash, the Service Fees will be
reduced by 20% and payments will be due according to the following milestones:
Milestone
Payment Due
(i)
Preparation and submission of preIND document
$[****]
(ii)
Receipt of FDA written response from PreIND meeting
$[****]
(iii)
Submission of FDA acceptance of IND Application
$[****]
TOTAL
$[****]
9.
Closing Date
It is anticipated that the closing of the Transaction shall take place on or about January 10,
2020.
10.
Conditions to
Closing:
The closing of the Transaction is subject to and contingent upon:
·
the execution by the parties of definitive agreements, containing the provisions
outlined above and certain representations, warranties, and other terms and conditions
mutually acceptable to the parties and such other subscriptionrelated documents as the
Company reasonably requires (the “Definitive Agreements”).
11.
Costs:
The Parties acknowledge and agree that each shall be responsible for its own expenses in
connection with its individual assessment as to whether to proceed with the Transaction.
12.
Expiration
This Term Sheet shall be effective as of the date of execution of this document and
continue until ninety (90) days thereafter (the “Term Sheet Period”) when it will expire
unless extended.
13.
Confidentiality
This Term Sheet and all information provided by QUOIN to Axella in connection with the
agreements or work contemplated hereunder is
Confidential Information of QUOIN and is subject to the Confidential Disclosure and
NonUse Agreement between QUOIN and Axella.
14.
Indemnity
Axella shall indemnify QUOIN from any claims by Axella’s employees or third party
claims arising out of Axella’s negligent acts or intentional misconduct during the conduct
of the Services. Axella will not be liable to indemnify QUOIN against any loss or
expense resulting from any claim arising out of QUOIN’s use or marketing of any
substance or method which is the subject of the Services unless the same results from
Axella’s breach of the Definitive Agreements or negligence or willful misconduct.
QUOIN shall indemnify Axella from any claim or expense arising out of QUOIN’s use
or marketing of any such substance or method unless the same results from Axella’s
breach of the Definitive Agreements or negligence or willful misconduct.
15.
Assignment
Axella shall not be permitted to assign any of its rights and/or obligations as set under this
agreement to any other party without QUOIN's prior written approval.
16.
Counterparts
This Term Sheet may be executed in two or more counterparts, in facsimile or PDF
format and each such counterpart executed shall for all purposes be deemed an original,
and all counterparts together shall constitute but one and the same instrument. This Term
Sheet shall be binding upon all signatories hereof who sign below.
17.
Binding Law
This Term Sheet shall be governed by the laws of the State of New York.
18.
No ThirdParty
Beneficiary
There are no thirdparty beneficiaries of this Term Sheet and no person or entity, other
than the Parties hereto shall be entitled to enforce this Term Sheet.
19.
Amendments
Any amendment or revision to this Term Sheet, the services outline must be proposed in
writing by either party and accepted in writing by the other party before such amendment
or revision shall become effective and binding.
Please sign and date this Term Sheet in the space provided below.
AXELLA RESEARCH, LLC
QUOIN PHARMACEUTICALS
By: /s/ Avi Kamelhar
By:
Name: Avi Kamelhar
Name:
Title: CEO
Title:
Date: January 11, 2020
Date: January 11, 2020
EX4.42 18 qnrx20211231xex4d42.htm EXHIBIT 4.42
Exhibit 4.42
THE SYMBOL “[****]” DENOTES PLACES WHERE CERTAIN IDENTIFIED
INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE
IT IS BOTH (i) NOT MATERIAL, AND (ii) THE TYPE THAT THE
REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL
Term Sheet for Agreement
between
AXELLA RESEARCH, LLC
and
QUOIN PHARMACEUTICALS
QRX004 FOR EPIDERMOLYSIS BULLOSA
This Term Sheet (the “Term Sheet”) sets forth the understanding of the mutual intentions of Axella Research, LLC (“Axella”) and
Quoin Pharmaceuticals (“QUOIN”) regarding a proposed transaction (the “Transaction”) whereby Axella will provide (i)
regulatory consulting, (ii) preclinical and clinical consulting. In accordance with supplying the services described below Axella
would receive 50% cash payment and the other 50% in cash or equity in QUOIN in the form of stocks or shares, or 100% in
cash payment, at Quoin’s sole discretion subject to the terms defined below.
1.
Structure of
Transaction
1. The Transaction shall be structured as a Services Agreement pursuant to which
Axella would be granted an all cash payment or a combination of 50% cash and
50% equity in QUOIN, in exchange for the deliverables in accordance with the
terms generally as described below.
2. Additionally, in consideration for Axella accepting in kind compensation for the
services rendered, Quoin will grant Axella first right of refusal to match the
winning proposal from an alternate CRO for providing future CRO services for
subsequent steps in obtaining FDA approval for its pipeline of products provided
that Axella has the proven capability to perform such services itself.
2.
Compliance with
Government
Regulations
Government Regulations
●
Axella will perform all its services, work and studies in accordance with
applicable law and government regulation and customary industry practices.
Axella will comply with all laws
applicable to the care and use of experimental materials, conditions and in any
case needed shall provide humane care and treatment in accordance with the
most acceptable current practices.
Visits by Government Agencies
·
Axella shall notify QUOIN of any request from any government agency or any
other third party to inspect or otherwise gain access to the information, data, or
materials pertaining to the Services performed by Axella. Axella agrees to permit
inspection of such information, data, or materials by authorized representatives of
government agencies as required by law and to allow QUOIN to be present at
any such inspection.
3.a
PreIND Scope of
Work provided by
Axella
1
Work with Quoin and gather relevant information/data/document, and organize
information/data/document from Quoin. Work with Quoin to review, revise, update,
and/or write up report on documents/information/data needed for PreIND package
of QRX004, such as but not limited to those listed below:
· Company information, including contact and address
· Product information, including composition and formulation
· manufacturing of product
· preclinical studies, including study reports
2
Draft, revise according to comments from Quoin, and finalize the clinical protocol.
3
Interact, and communicate with FDA to request a PreIND Sub meeting with FDA
4
Assemble and write up the PreIND document, in FDA required format
5
Esubmission of meeting package to FDA at least 30 day prior to the FDA meeting
5
Coordinate with FDA, and organize a PreIND meeting with FDA
6
PreIND meeting with FDA, such as but not limited to those listed below:
· prepare for, attend, and moderate the meeting
· Record key information during the meeting
· follow up on key issues, via written communication with FDA
· obtain written response from FDA on the outcome of the PreIND meeting
3.b
PreIND Information
provided by QUOIN
Quoin is to provide the following information/documents:
Clinical:
1. Specific information on the assay on skin biopsy samples.
Preclinical:
1. Toxicology data, preferably in the form of study reports.
CMC:
1. Batch record for GMP manufacturing of QRX004.
2. Batch record for the placebo lot, manufactured GMP. (Preferred).
3.c
IND Scope of Work
provided by Axella
1
Work with Quoin to gather and organize relevant information/data/document from
Quoin, based on FDA comments provided from the preIND meeting. Work with
Quoin to obtain, review, revise, update, and/or write up report on
documents/information/data needed for IND filing.
2
Revise or rewrite IND according to FDA comments from the PreIND meeting, and
finalize the clinical protocol.
3
Assemble and write up the IND document, in FDA required format.
4
Esubmit IND document to FDA.
5
Promptly address questions from the FDA during the 30day review period, and e
submit all responses to the FDA, so that IND can be activated within 30 days upon
FDA receipt of IND.
6
Follow up with FDA to obtain the "Study May Proceed" letter to indicate IND
activation.
3.d
IND Information
provided by QUOIN
Quoin is to provide the following information/documents, unless they are provided during
PreIND meeting preparation:
Clinical:
1. Specific information on the assay on skin biopsy samples.
2. Study report from assay validation studies of assay human biological samples.
Preclinical:
1. Toxicology data, preferably in the form of study reports.
2. Study reports of all studies requested by the FDA at the PreIND meeting.
CMC:
1. Batch record for GMP manufacturing of QRX004.
2. Certificate of Analysis of the GMP lot of the study drug, with all QC tests consistent
with FDA's comments provided at the PreIND meeting.
3. Batch record for the placebo lot, manufactured GMP.
4. Certificate of Analysis or the GMP lot of placebo.
4.
Milestones
(i)
Preparation and submission of preIND document
(ii)
Receipt of FDA written response from PreIND meeting
(iii)
Receipt of an FDA acceptance of IND submission
5.
Deliverables
(i)
Equity Agreement, if applicable
(ii)
PreIND meeting package
(iii) IND Submission Package
6.
Ownership of
materials
QUOIN will have title to all products and information developed as a result of work
performed under the Agreements contemplated by this term sheet, whether before or
after definitive agreements are executed, that relate to QUOIN’s products in
development or Confidential Information, unless otherwise agreed to in writing. Axella
will assign and hereby does assign to QUOIN the rights to any patentable inventions
discovered as a result of performing the Services for QUOIN. Axella will provide
QUOIN with reasonable assistance to obtain such patents.
Axella shall not, without the prior written consent of the Company, utilize the
Confidential Information or any derivatives, continuations, additions,
developments or improvements thereof to any use and /or to compete, either directly
or indirectly, with the business of the Company
7.
Use of
Subcontractors
·
Axella may use of subcontractors to provide Services only with QUOIN’s prior
written consent, provided that, (i) Axella will be fully liable for the performance of
such subcontractor and for compliance by such subcontractor with the terms of the
applicable agreements with QUOIN, and (ii) the agreement between Axella and such
subcontractor must be consistent with Axella’s obligations to QUOIN.
·
Axella will ensure that its agreement with any permitted subcontractor includes the
assignment of any Inventions to QUOIN . Axella agrees not to make any use of any
funds, space, personnel, facilities, equipment or other resources of a third party in
performing Services, nor take any other action, that would result in a third party
owning or having a right in the results of Services or Inventions.
·
Axella has, and will engage, employees and permitted subcontractors and/or
consultants (“Axella's Personnel”) with the proper skill, training and experience to
provide Services. Axella will be solely responsible for paying Axella's Personnel and
providing any employee benefits that they are owed. Before providing Services, all
Axella's Personnel must have agreed in writing to (i) confidentiality obligations
consistent with the terms of the Agreement between Axella and QUOIN, and (ii)
effectively vest in Axella any and all rights that such personnel might otherwise have in
the results of their work.
8.a.
Fees for Service
The fees for services being provided by Axella as contemplated in section 3 of this
document are $[****] for the PreIND scope (section 3.a) and $[****] for IND
scope (section 3.c), for a combined total value of $[****]. At Quoin’s discretion these
fees may be payable entirely in cash or in a 50:50 combination of cash and equity.
8.b
Calculation for
Equity and Vesting
Schedule if Payments
are 50% Cash and
50% Equity
In the event that Quoin elects to pay for 50% of services in equity and 50% in cash, the
parties mutually agree to set the valuation of QUOIN at USD$[****]. This will entitle
Axella to a 0.25% equity position upon completion of the milestones set forth in section 4.
Upon completion of the following milestones Axella will receive cash and equity according
to the following vesting schedule:
Milestone
Equity
Cash
(i)
Preparation and submission of
preIND document
0.083%
$[****]
(ii)
Receipt of FDA written
response from PreIND
meeting
0.083%
$[****]
(iii)
Receipt of an FDA decision
letter on the IND submission
0.084%
$[****]
TOTAL
0.25%
$[****]
8.b
Payment Schedule of
All Cash Payment
In the event that Quoin elects to pay for services in 100% cash payments, the Fees for
Service will be reduced by 20% and will be due according to the following milestones:
Milestone
Payment Due
(i)
Preparation and submission of preIND document
$[****]
(ii)
Receipt of FDA written response from PreIND meeting
$[****]
(iii)
Submission of FDA acceptance of IND Application
$[****]
TOTAL
$[****]
9.
Closing Date
It is anticipated that the closing of the Transaction shall take place on or about January 10,
2020.
10.
Conditions to
Closing:
The closing of the Transaction is subject to and contingent upon:
·
the execution by the parties of definitive agreements, containing the provisions
outlined above and certain representations, warranties, and other terms and
conditions mutually acceptable to the parties and such other subscriptionrelated
documents as the Company reasonably requires (the “Definitive Agreements”).
11.
Costs:
The Parties acknowledge and agree that each shall be responsible for its own expenses in
connection with its individual assessment as to whether to proceed with the Transaction.
12.
Expiration
This Term Sheet shall be effective as of the date of execution of this document and
continue until ninety (90) days thereafter (the “Term Sheet Period”) when it will expire
unless extended.
13.
Confidentiality
This Term Sheet and all information provided by QUOIN to Axella in connection with
the agreements or work contemplated hereunder is Confidential Information of QUOIN
and is subject to the Confidential Disclosure and NonUse Agreement between QUOIN
and Axella.
14.
Indemnity
Axella shall indemnify QUOIN from any claims by Axella’s employees or third party
claims arising out of Axella’s negligent acts or intentional misconduct during the conduct
of the Services. Axella will not be liable to indemnify QUOIN against any loss or
expense resulting from any claim arising out of QUOIN’s use or marketing of any
substance or method which is the subject of the Services unless the same results from
Axella’s breach of the Definitive Agreements or negligence or willful misconduct.
QUOIN shall indemnify Axella from any claim or expense arising out of QUOIN’s use
or marketing of any such substance or method unless the same results from Axella’s
breach of the Definitive Agreements or negligence or willful misconduct.
15.
Assignment
Axella shall not be permitted to assign any of its rights and/or obligations as set under this
agreement to any other party without QUOIN's prior written approval.
16.
Counterparts
This Term Sheet may be executed in two or more counterparts, in facsimile or PDF
format and each such counterpart executed shall for all purposes be deemed an original,
and all counterparts together shall constitute but one and the same instrument. This Term
Sheet shall be binding upon all signatories hereof who sign below.
17.
Binding Law
This Term Sheet shall be governed by the laws of the State of New York.
18.
No ThirdParty
Beneficiary
There are no thirdparty beneficiaries of this Term Sheet and no person or entity, other
than the Parties hereto shall be entitled to enforce this Term Sheet.
19.
Amendments
Any amendment or revision to this Term Sheet, the services outline must be proposed in
writing by either party and accepted in writing by the other party before such amendment
or revision shall become effective and binding.
Please sign and date this Term Sheet in the space provided below.
AXELLA RESEARCH, LLC
QUOIN PHARMACEUTICALS
By: /s/ Avi Kamelhar
By:
Name: Avi Kamelhar
Name:
Title: CEO
Title:
Date: January 11, 2020
Date: January 11, 2020
EX8.1 19 qnrx20211231xex8d1.htm EXHIBIT 8.1
Exhibit 8.1
Subsidiaries of Quoin Pharmaceuticals Ltd.
The following table sets forth the name and jurisdiction of incorporation of our significant subsidiary as of the date hereof.
Name of Subsidiary
Jurisdiction of
Incorporation
Quoin Pharmaceuticals, Inc.
Delaware
Polytherapuetics, Inc.*
New Jersey
* This entity’s affairs were wound up in 2018, and, since that time, it has not had any assets, liabilities, or business
operations. This entity is being dissolved.
EX11.1 20 qnrx20211231xex11d1.htm EXHIBIT 11.1
EXHIBIT 11.1
Quoin Pharmaceuticals Ltd.
Code of Business Conduct and Ethics
Adopted as of October 28, 2021
1.
Introduction
Ethics are important to Quoin Pharmaceuticals Ltd. (together with its subsidiaries, “Quoin”) and its directors, officers and employees (each an”
Associate”). Quoin is committed to the highest ethical standards and to conducting its business with the highest level of integrity.
The Quoin Code of Business Conduct and Ethics (the “Code”) has four primary functions:
To establish and clearly communicate our standards of business conduct, our ethical principles and our expectations;
To ensure that business policies and practices continue to be aligned with those standards and principles;
To establish responsibility for monitoring compliance;
To set forth the manner in which perceived violations of ethical principles are to be reported.
The Code applies to all Associates.
2.
Ethics
Quoin is committed to the ideals of uncompromising honesty and integrity. All Quoin Associates are expected to adhere to the highest
standards of ethics; to be honest and ethical in dealing with each other, with shareholders and with customers, vendors and all other third
parties.
All Quoin Associates must respect the rights of fellow Associates and third parties. All actions must be free from discrimination, libel, slander or
harassment.
Each person must be accorded equal opportunity, regardless of age, race, sex, sexual preference, color, creed, religion, national origin, marital
status, veteran’s status, handicap or disability.
Misconduct (any violation of this Code) will be addressed as it is identified with appropriate disciplinary action. Misconduct cannot be excused
because it was directed or requested by another.
All Quoin Associates are expected to alert management whenever an unethical, dishonest or illegal act is discovered or suspected, as further
provided for in this Policy.
The following areas frequently give rise to ethical concerns. A violation of the standards contained in this Code will result in corrective action,
including possible dismissal.
Should any Quoin Associate have any questions concerning this Policy, please direct them to the Chief Financial Officer of Quoin (the “CFO”).
The CFO may consult outside counsel with respect to any issue relating to this Policy.
3.
Conflicts of Interest
Conflicts of interest arise whenever actions are based on interests other than those of Quoin.
All Quoin Associates must avoid any personal activity, investment or association that may interfere with using good judgment concerning
Quoin’s best interests.
No Quoin Associate may not exploit his or her position or relationship with Quoin for personal gain.
All Quoin Associates should avoid even the appearance of such a conflict. For example, a conflict of interest may arise if:
An Associate causes Quoin to engage in business transactions with relatives or friends;
An Associate uses information of Quoin, a customer or supplier for your own personal gain, or the personal gain of relatives or friends;
An Associate have a financial interest in Quoin’s customers, suppliers or competitors;
An Associate receives a loan or guarantee of obligations, from Quoin or from a third party, as a result of his position at Quoin; or
An Associate competes, or prepares to compete, with Quoin while still employed by it.
Employees who are involved in or are aware of a transaction involving any of the relationships described above, must report the transaction to
the CFO. Directors and officers shall report such transactions to the Chairman of Quoin’s Audit Committee. All transactions between Quoin and
any employee or member of the Associate’s immediate family, or any entity in which such employee or a member of his or her immediate family
has a significant financial interest, must be approved by the CFO. Transactions described in the previous sentence between Quoin and any
director or officer or member of such person’s immediate family, or any entity in which such person or member of his or her immediate family has a
significant financial interest, must be approved by the Board of Directors.
There may be other situations in which a conflict of interest may arise. If an Associate has any questions or concerns about any situation, he or
she should follow the guidance outlined in the section below on Reporting Ethical Violations.
4.
Public Reporting of Financial and Nonfinancial Information
Quoin is a publicly traded company in the U.S. and thus, subject to the Securities Act of 1933, the Securities Exchange Act of 1934 and numerous
other laws, rules and regulations promulgated thereunder (the “Securities Laws”). The U.S. Securities and Exchange Commission (the “SEC”)
requires companies to maintain disclosure controls and procedures designed to ensure that information required by the Securities Laws to be
disclosed by publicly held companies is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms. It is, therefore, imperative that all disclosures contained in Quoin’s public filings and other public communications are full, fair, accurate,
timely and understandable.
Every Associate who participates in the information gathering process for Quoin’s public filings and other public communications is responsible
for the timeliness and accuracy of the information contained therein. Those persons having responsibility for particular areas of Quoin’s periodic
reports such as the Form 20F and the Form 6K (if any) must report to the Board on an ongoing basis the following matters which come to their
attention:
Deviations from or changes to the current public information available for Quoin;
Changes in risks, or new risks, to Quoin as they are identified; and changes that may affect Quoin’s financial results.
Quoin may establish a separate Disclosure Policy that may provide who may communicate information to the press and the financial
analyst community
All Quoin Associates should review Quoin’s Disclosure Policy and discuss all questions that they may have with the CFO.
Our employees who work in the Financial Department hold an important and elevated role in corporate governance. They are empowered to
ensure that shareholder interests are appropriately balanced, protected and preserved. Accordingly, all financial managers are expected to
uphold the following standards:
To provide information that is accurate, complete, objective, relevant, timely and understandable;
To comply with laws, rules and regulations of federal, state, provincial and local governments, and appropriate regulatory agencies;
To act in good faith, responsibly, with due care, competence and diligence, without misrepresenting facts or allowing their independent
judgment to be subordinated;
To respect the confidentiality of information acquired in connection with their activities for Quoin, except when authorized or otherwise
legally obligated to disclose;
To share knowledge and to maintain skills needed to perform their jobs;
To proactively promote ethical behavior as a responsible partner among peers in the workplace and community; and
To achieve responsible use of and control over all assets and resources employed by or entrusted to them.
Compliance with all governmental laws, rules and regulations applicable to Quoin is mandatory and any violations thereof are considered
violations of this Code. Mistakes should never be covered up, but should be immediately fully disclosed and corrected, if possible.
All Quoin Associates that have any questions about their duties with regard to public reporting, should ask the CFO.
5.
Bribes and Kickbacks
A kickback or bribe includes any item intended to improperly obtain favorable treatment. Other than for modest gifts given or received in the
normal course of business (e.g., coffee mugs, pens and other logoed promotional materials or business lunches), neither you nor your relatives
may give gifts to, or receive gifts from, Quoin’s customers and suppliers. Other gifts may be given or accepted only with prior approval of the
CFO. In no event should you put Quoin or yourself in a position that would be uncomfortable if knowledge of the gift was made public. Dealing
with government employees is often different than dealing with private persons. Many governmental bodies strictly prohibit the receipt of any
gratuities by their employees, including meals and entertainment. All Quoin associates must be aware of and strictly follow these prohibitions.
6.
Conducting Business Outside of the United States and the Foreign Corrupt Practices Act
Quoin has an international presence and thus, certain Associates or other affiliates of the company may find it necessary to interact with foreign
governments or officials in the furtherance of Quoin’s business activities. In any dealings with foreign officials, candidates, or political parties,
Quoin and its Associates, consultants, agents, subsidiaries, distributors, resellers and representatives, must comply with the following policy.
Generally, Quoin policies, the U.S. Foreign Corrupt Practices Act (“FCPA”), and applicable foreign laws prohibit payments to, and business
relationships with, government officials (“government officials” may include employees of entities that are state owned, in whole or part, public
international organizations and political parties or political candidates) that could be construed as bribes or attempts to influence government
behavior.
All Quoin Associates may not give, offer, promise, or authorize direct or indirect payments to foreign officials for the purpose of obtaining or
retaining business for Quoin. Payments include money, gifts, or anything of value, and need not actually be delivered, but merely have been
intended for a corrupt purpose, to violate the FCPA.
It is therefore illegal and against Quoin policy for any Associate or other Quoin representative to offer or give anything of value that is intended
to:
influence any act or decision of a foreign official in his or her official capacity;
induce the official violate a lawful duty of his position or to use his influence improperly; or
obtain an improper advantage for Quoin.
Quoin and individuals may face significant civil and criminal punishment in both the United States and in other countries, including
imprisonment, for violating the FCPA and local laws.
Acknowledging that in certain foreign localities, payments to local government officials may be customary to expedite processes such as the
granting of a business license or similarly routine governmental action, the FCPA contains a narrow exception for such payments.
In every case, prior to making, promising, or offering any such payment, any Associate or affiliate of Quoin must consult with the CFO should
uncertainties arise. Furthermore, if it is determined that a payment meets this narrow exception, it must be recorded accurately by the accounting
department, as it is an independent violation of the FCPA to mischaracterize any such payment in the financial records. Both the consultation
with the CFO and the accounting treatment of the payment must be documented in writing.
7.
Quality and Regulatory Compliance
Quoin is subject to numerous international, federal and state laws concerning the design, clinical development, manufacture, distribution and
promotion of its products. The Federal Food, Drug, and Cosmetic Act (the “FDC Act”) is the primary regulatory statute governing Quoin’s
activities. The FDC Act is implemented by the U.S. Food and Drug Administration (the “FDA”) through the promulgation of regulations and by
the issuance of guidelines and other informal notices regarding compliance requirements.
FDA regulations applicable to medical devices, biologics and pharmaceuticals encompass a wide variety of activities including: product
clearance; labeling, advertising, and promotion; reporting requirements; establishment registration and product listing; current good
manufacturing practices; and preclinical studies and clinical studies. Other federal agencies also have applicable laws, regulations and
guidelines, as do individual state governments.
Quoin has established policies and procedures to ensure that our activities are conducted in compliance with the federal and state laws and
regulations pertaining to FDAregulated products. In addition to legal compliance, Quoin Associates are required to maintain the highest ethical
and scientific standards in researching and developing Quoin’s products.
Associates are further required to be scrupulously accurate in data submitted to FDA, publications, or any other party. You will adhere to all
standards and procedures necessary to ensure rigorous scientific inquiry and will interact with federal and state agencies in a forthright manner
designed to ensure the safe and effective use of its products. Additionally, in accordance with Quoin’s objective, Associates are required to
manufacture Quoin’s products in a manner designed to ensure their safety, integrity, and suitability for patients, and to market and sell its
products in an honest and balanced manner that provides health professionals with the information necessary to use its products appropriately.
Clinical studies will be conducted in such a fashion as to safeguard the welfare of subjects and ensure the scientific integrity of the research.
Associates will maintain accurate and complete records of all data related to FDAregulated products in order to comply with FDA regulations.
This work includes research and development, preclinical and clinical studies, manufacturing, marketing, quality control and quality assurance,
regulatory and other activities as determined by our Chief Executive Officer (“CEO”).
As part of Quoin’s quality system, Associates are required to maintain reliable documentation. The accuracy of data in our records, including
full disclosure, lack of material omission, and integrity of the data is your priority.
Any Associate who alters or falsifies data, destroys or fails to maintain product related data, or omits data from records that are needed to
provide full information regarding a commercial or development stage product is acting in violation of this Code.
In case of any questions related to quality and regulatory compliance, you should consult with your supervisor, or the head of
Quality/Regulatory departments.
8.
Improper Use or Theft of Quoin Property
Every Associate must safeguard Quoin property from loss or theft, and may not take such property for personal use. Quoin property includes
such items as biological materials, chemicals, laboratory equipment and machinery, inventory, vehicles, software, computers, office equipment,
and supplies as well as confidential information such as nonpublic personal information about customers, customer lists, and proprietary
product information, to name a few.
You must appropriately secure all Quoin property within your control to prevent its unauthorized use.
9.
Fair Dealing
No Quoin Associate should take unfair advantage of anyone through manipulation, abuse of privileged information, misrepresentation of facts,
or any other unfairdealing practice.
10.
Fair Competition and Antitrust Laws
Quoin must comply with all applicable fair competition and antitrust laws. These laws attempt to ensure that businesses compete fairly and
honestly and prohibit conduct seeking to reduce or restrain competition. If you are uncertain whether a contemplated action raises unfair
competition or antitrust issues, you should raise the issue with the CFO.
11.
Insider Trading
If an Associate has material nonpublic information relating to Quoin, it is our policy that neither that person (nor any of his/her relatives) may
buy or sell any Quoin securities or engage in any other action to take advantage of, or pass on to others, that information. This policy also
applies to information relating to any other company, including our customers, partners or suppliers, obtained in the course of
employment. Officers, directors and employees should carefully review and comply with Quoin’s separate Insider Trading Policy, if and when
such policy is adopted. Questions regarding insider trading should be addressed to the CFO.
12.
Waivers and Amendments of the Code
Any waiver of any provision of this Code for any of our directors or executive officers, or any amendment of this Code, must be approved in
writing by our Audit Committee (or Board of Directors is an Audit Committee has not been formed) and must be disclosed to shareholders and to
others, along with the reasons for such waiver, as required by applicable laws and regulations in the manner or manners required thereby. Any
waiver of any provision of this Code with respect any other Associate must be approved in writing by our CFO. Waivers will be granted only as
permitted by law and in extraordinary circumstances.
13.
Reporting Ethical Violations
Your conduct can reinforce an ethical atmosphere and provide influence on the conduct of fellow Associates. Associates are empowered by the
Code to act in situations where they have the authority or feel comfortable enough to stop unethical behavior.
If the unethical behavior is prevented by the actions taken by an Quoin Associate, then no report is necessary. However, in case that an Quoin
Associate was aware of any violations of this Code and feels powerless to stop them, he or she must report them to the CFO, his or her direct
supervisor or the Chief Executive Officer of the company.
If an Quoin Associate is still concerned after speaking with Quoin officers or feel uncomfortable speaking with them (for whatever reason), he or
she may contact the Chairman of Quoin’s Audit Committee by phone (844)7220576 or via Web portal URL:
https://www.whistleblowerservices.com/QNRX and/or the Chairman of Board of Directors at the following address: 42127 Pleasant Forest Court,
Ashburn, VA 20148.
The addressing can be done anonymously and should include copies of relevant documents.
Quoin’s policy prohibits discrimination, harassment and retaliation against any Associate who in good faith provides any information or
otherwise assists in any investigation or proceeding regarding any potential violation of this Policy.
14.
Accountability for Adherence to the Code
The CFO shall report to the Audit Committee on all material issues relating to this Policy. The Audit Committee enforces this Code by evaluating
all alleged violations of this Code after all of the pertinent information has been gathered and appropriate action will be determined with the
involvement of counsel.
If an alleged violation of this Code has been reported to it, the Audit Committee shall determine whether that violation has occurred and, if so,
shall determine the disciplinary measures to be taken against any Associate who has violated this Code. The disciplinary measures, which may
be invoked at the discretion of the Audit Committee, include, but are not limited to, counseling, oral or written reprimands, warnings, probation or
suspension without pay, termination of employment or other relationship with us and restitution.
Quoin is committed to upholding this Code and is supporting all Associates who aid in this endeavor.
Quoin will not tolerate any form of retaliation for reporting suspected violations of this Code.
Employee Name
Signature
Date
EX12.1 21 qnrx20211231xex12d1.htm EXHIBIT 12.1
Exhibit 12.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)
I, Dr. Michael Myers, certify that:
1.
I have reviewed this Annual Report on Form 20F of Quoin Pharmaceuticals Ltd. (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a15(e) and 15d15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f)
and 15d15(f)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d)
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over
financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company's auditors and the audit committee of the company’s board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company's internal control over financial reporting.
Date: April 13, 2022
/s/ Dr. Michael Myers
Dr. Michael Myers
Chief Executive Officer
EX12.2 22 qnrx20211231xex12d2.htm EXHIBIT 12.2
Exhibit 12.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a14(a) or 15d14(a)
I, Gordon Dunn, certify that:
1.
I have reviewed this Annual Report on Form 20F of Quoin Pharmaceuticals Ltd. (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a15(e) and 15d15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the
Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company’s board of directors:
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's
internal control over financial reporting.
Date: April 13, 2022
/s/ Gordon Dunn
Gordon Dunn
Chief Financial Officer
EX13.1 23 qnrx20211231xex13d1.htm EXHIBIT 13.1
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2021 (the “Report”) by Quoin
Pharmaceuticals Ltd. (the “Company”), the undersigned, as Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, that, to my knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: April 13, 2022
/s/ Dr. Michael Myers
Name: Dr. Michael Myers
Title: Chief Executive Officer
EX13.2 24 qnrx20211231xex13d2.htm EXHIBIT 13.2
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 20F for the period ended December 31, 2021 (the “Report”) by Quoin
Pharmaceuticals Ltd. (the “Company”), the undersigned, as Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002, that, to my knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: April 13, 2022
/s/ Gordon Dunn
Name: Gordon Dunn
Title: Chief Financial Officer
EX15.1 25 qnrx20211231xex15d1.htm EXHIBIT 15.1
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in Registration Statements on Form S8 (Registration Nos. 333214817, 333220015, 333225003 and 333232230)
and on Form F3 (Registration Nos. 333219614 and 333229083) of Quoin Pharmaceuticals Ltd. of our report dated April 13, 2022 relating to the consolidated financial
statements of Quoin Pharmaceuticals Ltd. for the year ended December 31, 2021 included in this Annual Report on Form 20F for the year ended December 31, 2021.
/s/ Friedman LLP
East Hanover, New Jersey
April 13, 2022
EX16.1 26 qnrx20211231xex16d1.htm EXHIBIT 16.1
Exhibit 16.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have read Quoin Pharmaceuticals Ltd. statements included under Item 16F(a) of Form 20F dated April 13, 2022 and agree with such
statements concerning our firm. We have no basis to agree or disagree with other statements of the registrant contained therein.
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
April 13, 2022