UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2014
OR
☐
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-36187
EVOGENE LTD.
(Exact name of Registrant as specified in its charter)
Israel
(Jurisdiction of incorporation or organization)
13 Gad Feinstein Street
Park Rehovot P.O.B 2100
Rehovot 7612002, Israel
(Address of principal executive offices)
Ofer Haviv
President and Chief Executive Officer
Telephone: +972-8-931-1900
Facsimile: +972-8-946-6724
13 Gad Feinstein Street, Park Rehovot P.O.B 2100
Rehovot 76121, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary shares, par value NIS 0.02 per share
Name of each exchange on which registered
New York Stock Exchange
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: As of December 31, 2014, the
registrant had outstanding 25,350,954 ordinary shares, par value NIS 0.02 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No ⌧
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See the definitions of “accelerated filer” and “large accelerated filer” in Rule
12b-2 of the Exchange Act (Check one):
Large accelerated filer o
Accelerated filer ⌧
Non-accelerated filer o
Indicate by check mark which basis for accounting the registrant has used to prepare the financing statements included in this filing:
U.S. GAAP o
International Financial Reporting Standards as issued by the
International Accounting Standards Board ⌧
Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Item 17 o Item 18 o
Yes o No ⌧
2
EVOGENE LTD.
FORM 20-F
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
Introduction
Special Note Regarding Forward-Looking Statements
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Item 13.
Item 14.
Item 15.
Item 16.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
PART III
Item 17.
Item 18.
Item 19.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information On The Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Information
The Offer and Listing
Additional Information
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities other than Equity Securities
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
[Reserved]
Audit Committee Financial Expert
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
Corporate Governance
Mine Safety Disclosure
Financial Statements
Financial Statements
Exhibits
Signatures
Index to Consolidated Financial Statements
3
4
4
6
6
6
27
49
50
69
85
89
90
91
107
108
108
108
109
109
109
110
110
110
111
111
111
111
111
112
112
113
F-1
INTRODUCTION
In this annual report, the terms “Evogene,” “we,” “us,” “our” and “the company” refer to Evogene Ltd. and its subsidiary, Evofuel Ltd. References to “U.S. Dollars,” “$” or “dollars” are
to U.S. dollars and references to “NIS” or “shekels” are to New Israeli Shekels. Unless derived from our financial statements or otherwise noted, amounts presented in this annual report are
translated at the rate of $1.00 = NIS 3.889, the exchange rate between the NIS and the U.S. dollar reported by the Bank of Israel as of December 31, 2014.
This annual report includes other statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and
reports that we believe to be reliable sources. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources.
These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy
or completeness of the information. Although we believe that these sources are reliable and are not aware of any misstatements regarding the industry data presented in this annual report, we
have not independently verified the information contained in such publications. Certain estimates and forecasts involve uncertainties and risks and are subject to change based on various
factors, including those discussed under the headings “—Special Note Regarding Forward-Looking Statements” and “Item 3.D —Risk Factors” in this annual report.
Throughout this annual report, we refer to various trademarks, service marks and trade names that we use in our business. The “Evogene” design logo, “Evogene” and other trademarks
or service marks of Evogene Ltd. appearing in this annual report are the property of Evogene Ltd. We have several other registered trademarks, service marks and pending applications relating to
our computational technologies. Other trademarks and service marks appearing in this annual report are the property of their respective holders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical facts, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities
Act”, Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We
have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements include information concerning our possible or
assumed future results of our business, financial condition, results of operations, liquidity, anticipated growth strategies, anticipated trends in our industry, our potential growth opportunities,
plans and objectives. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes and
the negatives of those terms. These statements include but are not limited to:
§
§
§
§
§
§
§
§
our expectation regarding the future growth of the seed and ag-chemical market and larger agriculture market;
our ability to adapt to continuous technological change in our industry;
our ability to maintain our collaboration agreements with our current collaborators;
our ability to enter into new collaboration agreements and expand our research and development to new fields, traits and crops;
our ability to pursue new business models, such as a business model in which we pay for our own research and development costs and enter into collaboration agreements only in the
later stages of product development;
our expectation regarding the commercial trait value of our key products in yield and abiotic stress and biotic stress;
our expectation regarding regulatory approval of products developed by our collaborators;
our expectation that products containing our seed traits will be commercialized and we will earn royalties from the sales of such products;
4
§
§
§
§
§
§
our ability to successfully develop our ag-chemical operations, enter into collaboration agreements to develop ag-chemical products and eventually commercialize ag-chemical products;
our ability to successfully develop our Insect Resistance operations, enter into collaboration agreements to develop Insect Resistance products and eventually commercialize Insect
Resistance products;
our ability to successfully develop improved castor bean seed varieties that serve as a viable alternative second generation feedstock for biodiesel and for other usages;
our ability to maintain and recruit knowledgeable or specialized personnel to perform our research and development work;
our ability to assemble, store, integrate, and analyze significant amounts of public and proprietary genomic data;
our ability to improve our existing computational technologies and our screening and validation systems and to develop and launch new computational technologies and screening and
validation systems; and
§
our ability to patent the genes that we identify and to protect our trade secrets and proprietary know-how.
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and
expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections
about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity,
performance or achievements expressed or implied by the forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the
forward-looking statements, including, but not limited to, those factors described in “Item 3.D — Risk Factors,” “Item 4 — Information on the Company” and “Item 5—Operating and Financial
Review and Prospects.”
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. All of
the forward-looking statements we have included in this annual report are based on information available to us on the date of this annual report. Except as required by law, we undertake no
obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in our expectations or otherwise.
In this annual report, unless the context otherwise requires:
CERTAIN ADDITIONAL TERMS AND CONVENTIONS
§
§
§
§
§
§
§
§
§
references to the “IPO” refer to the initial public offering of our ordinary shares and the listing thereof on the New York Stock Exchange, which offering was consummated on November
26, 2013;
references to “ordinary shares”, “our shares” and similar expressions refer to our Ordinary Shares, par value NIS 0.02 per share;
references to the “articles of association” or “amended articles” are to our Amended and Restated Articles of Association, which became effective upon the closing of the IPO, as
subsequently amended;
references to the “Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;
references to the “Securities Act” are to the Securities Act of 1933, as amended;
references to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
references to the “NYSE” are to the New York Stock Exchange;
references to the “Listed Company Manual” are to the NYSE Listed Company Manual; and
references to the “SEC” are to the United States Securities and Exchange Commission.
5
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
Not applicable.
ITEM 3.
KEY INFORMATION
A. Selected Financial Data
The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with “Item 5. Operating and
Financial Review and Prospects” and our consolidated financial statements and related notes included in this annual report. Historical results are not necessarily indicative of the results that may
be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting
Standards Board.
The selected consolidated statements of comprehensive income (loss) data for each of the years in the three-year period ended December 31, 2014 and the consolidated balance sheet
data as of December 31, 2013 and December 31, 2014 are derived from our audited consolidated financial statements appearing in this annual report. The consolidated statements of
comprehensive income (loss) data for each of the years ended December 31, 2010 and December 31, 2011 and the consolidated balance sheet data as of December 31, 2011 and December 31, 2012
are derived from our audited consolidated financial statements that are not included in this annual report.
2010
Year ended December 31,
(in thousands, except share and per share data)
2012
2011
2013
2014
Consolidated Statements of Comprehensive Income (loss):
Revenues:
Research and development payments, including up-front payments
Share purchase related revenues
Total Revenue
Cost of revenues
Gross profit
Operating expenses:
Research and development, net
Business development
General and administrative
Total operating expenses
Operating loss
Financing income
Financing expenses
Income (loss) before taxes on income
Taxes on income
Net income (loss)
Other comprehensive loss:
Unrealized loss on derivatives
Total comprehensive income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Weighted average number of ordinary shares used in computing basic
income (loss) per share (1)
Weighted average number of ordinary shares used in computing diluted
income (loss) per share (1)
$
$
$
$
10,080
2,483
12,563
5,811
6,752
$
5,544
1,062
2,123
8,729
(1,977)
724
(5,717)
(6,970)
-
(6,970)
-
(6,970) $
(0.48) $
(0.48) $
12,055
2,846
14,901
8,247
6,654
$
6,384
1,136
2,317
9,837
(3,183)
5,023
(1,195)
645
-
645
-
645
0.04
0.03
$
$
$
13,914
3,158
17,072
9,552
7,520
$
7,252
1,159
2,235
10,646
(3,126)
972
(294)
(2,448)
74
(2,522)
-
(2,522) $
(0.14) $
(0.14) $
15,028
2,553
17,581
10,114
7,467
$
11,107
1,517
3,564
16,188
(8,721)
1,179
(1,336)
(8,878)
-
(8,878)
-
(8,878) $
(0.45) $
(0.45) $
14,198
313
14,511
9,709
4,802
14,022
1,851
4,185
20,058
(15,256)
2,242
(1,516)
(14,530)
-
(14,530)
(222)
(14,752)
(0.58)
(0.58)
14,824,703
17,505,136
18,421,568
19,532,010
25,100,556
14,824,703
18,731,118
18,421,568
19,532,010
25,100,556
6
Selected Consolidated Balance Sheet Data:
Cash and cash equivalents
Marketable securities
Short-term bank deposits
Trade receivables
Total current assets
Deferred revenues and other advances
Total liabilities
Working capital (2)
Shareholders’ equity
2011
2012
2013
2014
As of December 31,
$
$
6,465
34,672
17,652
800
60,570
11,710
19,801
51,490
48,089
$
24,262
30,868
-
1,542
57,322
8,379
16,596
47,823
48,259
$
95,454
31,452
-
1,913
129,552
2,535
12,564
120,978
124,747
5,213
80,040
30,046
1,183
118,371
1,964
11,504
110,452
116,082
The share capital of the company is composed of 25,350,954 ordinary shares as of December 31, 2014
_____________________
(1)
Basic net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income (loss) per share is
computed based on the weighted average number of ordinary shares outstanding during each period plus dilutive potential equivalent ordinary shares considered outstanding during
the period, in accordance with IAS 33, “Earnings per Share.”
(2)
Working capital is defined as total current assets less total current liabilities.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and
Exchange Commission, or the “SEC”, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could
be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those
anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Special Note
Regarding Forward-Looking Statements and Industry Data” on page 4.
7
Risks Related to Our Business and Industry
We may not be successful in developing commercial products.
Our success depends in part on our ability to identify genes that will improve selected crop traits. These genes are licensed to our collaborators to develop and commercialize seeds that
contain the genes. It may take at least six years, if at all, before the first seeds complete the development process and become commercially available. Certain of our agreements entitle us to
annual research and development payments and milestone payments in the event that specified milestones are met. While we currently do not earn royalties from the sale of seeds containing our
seed traits, our long-term growth strategy is based in part on the expectation that such royalties will comprise a significant portion of our revenues in the future. Pursuant to our collaboration
agreements, we are usually entitled to receive royalties on any product that integrates a trait over which we hold a patent for either an agreed upon duration of time or until our patent on the trait
expires. If seeds that contain our traits are never commercialized, we will not receive revenues from royalties on the products and may not earn a profit on the traits we develop, which could
materially and adversely affect our results of operations and our long-term growth strategy.
Seeds containing the traits that we develop may never become commercialized for any of the following reasons:
§
our partners may decide to discontinue, pause, or reduce the scope of, the development efforts for any of the products on which we collaborate.
§ we may fail to satisfy relevant milestones under the agreements with our collaborators;
§
§
§
§
§
our traits may not be successfully validated in the target plants or may not have the desired effect sought by our collaborators on the relevant crop;
our collaborators may be unable to obtain the requisite regulatory approvals for the seeds containing our traits;
our competitors may launch competing or more effective seed traits or seeds;
our collaborators may be unable to fully develop and commercialize products containing our seed traits or may decide, for whatever reason, not to commercialize such products; and
a market may not exist for seeds containing our traits or such seeds may not be commercially successful; and
§ we may be unable to patent our traits in the necessary jurisdictions.
Our product development cycle is lengthy and uncertain, and we may never earn royalties on the sale of products containing our seed traits.
Research and development in the seed and ag-chemical and larger agriculture industries is expensive and prolonged and entails considerable uncertainty. We may spend many years
and dedicate significant financial and other resources developing products that will never be commercialized. The process of discovering, developing and commercializing a seed trait (through
either genetic modification or advanced breeding) or an ag-chemical product involves several phases, and we estimate that it will take seven to thirteen years from discovery to commercialization
of a product containing our seed trait and at least twelve years in the case of an ag-chemical product. The timelines for development of products by our partners may extend beyond our
expectations for many reasons, such as:
§
§
§
our partners may revise the process of product development or make other decisions regarding their product development pipelines that may extend the period of product development.
our partners may prioritize other development activities ahead of development activities with respect to the products on which we collaborate;
our technology (traits or ag-chemical products) may not be successfully validated in the target plants or may not have the desired effect sought by our collaborators on the relevant
crop; and
§
our collaborators may be unable to obtain the requisite regulatory approvals for the seeds containing our technologies (traits or ag-chem products) within expected timelines.
8
We currently have 29 seed traits under development, of which 24 are developed with our collaborators, most of which are in Discovery and Phase I, with two products in Phase II. See
“Item 4.B—Business Overview—Product Development Cycle—Seed Trait Product Development Cycle” for a description of these phases. It may take at least six more years, if at all, before the
first products containing our seed traits complete the development process and become commercially available, however we have little to no certainty as to which, if any, of these products will
eventually reach commercialization. Because of the long product development cycle and the complexities and uncertainties associated with chemical and biotechnological research, there is
significant uncertainty as to whether we will ever generate significant royalties from the products that we are developing.
We derive substantially all of our current revenues from our strategic collaborations, most significantly with Monsanto and Bayer, and the termination or non-renewal of these
collaborations would have a material adverse effect on our results of operations.
We have entered into multiple collaboration agreements and related arrangements, most significantly with Monsanto Company, or Monsanto, and we have collaboration agreements
with most of the world’s leading seed and ag-chemical companies, including subsidiaries or affiliates of Monsanto, Bayer AG, or Bayer, under which we currently generate revenues through
research and development payments, up-front payments, milestone payments and revenues from shares purchased at a premium. Monsanto and Bayer are expected to continue to account for a
substantial amount of our revenues for the next few years. In particular, revenues from Monsanto accounted for 59.8%, 62.4% and 70.1% of our total revenues in the years ended December 31,
2014, 2013 and 2012, respectively. Revenues from Bayer accounted for 27.1%, 32.4%, and 24.1% of our total revenues in the years ended December 31, 2014, 2013 and 2012, respectively. Our
current agreement with Monsanto was signed in 2008 and was extended in November 2011 and again in October 2013. With respect to our abiotic stress activities under the extended agreement,
the collaboration period (i.e., the period of active computational discovery efforts, separate from validation efforts that may follow) is scheduled to expire in August 2016, and is followed by more
than a year of validation activities; for biotic stress activities, the collaboration period, including validation efforts, is scheduled to expire in August 2019. We entered into two separate multi-year
collaboration agreements with Bayer, the first covering rice in April 2009, the collaboration period under which expired in April 2012, and the second covering wheat in December 2010, the
collaboration period under which (i.e., the period for performance of research and development activities prescribed under the agreement) is scheduled to expire in the first quarter of 2017. See
“Item 4.B.Business Overview—Key Collaborations.” We are substantially dependent on Monsanto and, to a lesser extent, on Bayer and our other collaborators to pay us annual research and
development fees and milestone fees upon the occurrence of certain milestone events. The termination or non-renewal of our agreements with Monsanto and Bayer would have a material
adverse effect on our business, financial condition, results of operations and prospects.
There are only a few companies in our seed and ag-chemical market, and we rely on a limited number of collaborators to develop and commercialize products containing our technologies
(seed traits and ag-chemicals).
The seed and ag-chemical market is highly consolidated and dominated by a relatively small number of large companies. For example, according to Phillips McDougall’s 2012 Industry
Presentation on the Global Seed Market, in 2012, only five agricultural and seed companies, Monsanto, E.I. du Pont de Nemours and Company, or DuPont, Syngenta AG, or Syngenta, Bayer and
Limagrain Cereal Seeds, LLC, or Limagrain controlled more than 60% of market value in the global seed market. We are currently undertaking collaborations with these companies to develop
improved seeds. Due to the small number of companies in our market, there are limited opportunities for us to grow our business with new collaborators. In addition, if we fail to develop or
maintain our relationships with any of our current collaborators, we could not only lose our opportunity to work with that collaborator, but we could also suffer a reputational risk that could
impact our relationships with other collaborators in what is a relatively small industry community.
We are currently working either with collaborators or on independent projects to research and develop 29 different seed traits and ag-chemical products. While we seek to expand our
portfolio of traits in the future, the research and development required to discover and develop new traits is costly, time-intensive and requires significant infrastructure resources. Therefore, in
order to discover and develop new traits, we must either enter into new collaborations with seed and ag-chemical companies or develop the traits ourselves, independent of any collaborators. If
we are unable to enter into new collaborations, or if we do not have the resources to develop the capabilities necessary to discover and develop new seed traits independently, we may not be
able to expand our portfolio of traits, which could have a material adverse effect on our business prospects.
9
A decrease in research expenditures in the seed and ag-chemical markets may jeopardize the continuation of our collaborations with seed and ag-chemical companies and adversely
impact our ability to extend existing collaborations or enter into new ones.
The budget for, and size of, research and development expenditures of our existing and potential collaborators, may be reduced for several reasons, such as, for example, the decrease in
commodity prices that occurred in 2014 (one example of such decrease is corn prices which decreased from around 7 USD/bushel in mid-2013 to less than 4 USD/bushel in late 2014. This
development may, in turn, adversely impact the size of the research payments that we may receive from these collaborators, as well as our ability to extend existing collaborations or enter into
new ones.
We or our collaborators may fail to perform obligations under the collaboration agreements.
We are obligated under our collaboration agreements to perform research activities over a particular period of time. If we fail to perform our obligations under these agreements, in some
cases our collaborators may terminate our agreements with them and in other cases our collaborators’ obligations may be reduced and, as a result, our anticipated revenues may decrease. In
addition, any of our collaborators may fail to perform their obligations, which may hinder development and commercialization of products containing the traits we develop and materially and
adversely affect our future results of operations. Furthermore, the various payments we receive from our collaborators are our primary source of revenues. If our collaborators do not make these
payments, either due to financial hardship, disagreement under the relevant collaboration agreement or for any other reason, our results of operations and business could be materially and
adversely affected. If disagreements with a collaborator arise, any dispute with such collaborator may negatively affect our relationship with one or more of our other collaborators and may
hinder our ability to enter into future collaboration agreements, each of which could negatively impact our business and results of operations.
Our collaborators have significant resources and development capabilities and may develop their own products that compete with or negatively impact the advancement or sale of products
utilizing the traits we develop and license to them.
While we protect the traits we develop and license to our collaborators through both legal and contractual provisions, any of our collaborators could develop or pursue competing
products and traits that may ultimately prove more commercially viable than the traits we develop. Our collaborators are significantly larger than us and may have substantially greater resources
and development capabilities. The development or launch of a competing product by a collaborator may adversely affect the advancement and commercialization of any competing traits we
develop and any associated research and development payments, milestone and royalty payments.
We are working to develop novel ag-chemical products, and our efforts to enter this market may be unsuccessful.
In addition to our seed trait business, we are currently developing solutions for crop protection and enhancement through chemistry, or ag-chemistry. Although our computational
technologies PoinTar and PointHit are designed to develop such ag-chemical products, and although we continue to develop additional technologies, we still need to compile all the data that our
technologies need to analyze in order to discover and develop new products. We are developing these products through a novel approach, focused on biologically significant proteins called
“targets,” which is similar to certain approaches pharmaceutical companies undertake to develop new drugs. We currently do not have any collaborators for our ag-chemical products, and
therefore are currently funding our data-collection and research and development efforts relating to our ag-chemical products ourselves. Our efforts to develop novel ag-chemical products may
fail for a variety of reasons, including:
§ Our failure to compile a sufficient amount of data and to develop the technological tools necessary to discover and develop any ag-chemical products;
§ Our failure to enter into collaborations similar to those in our seed trait activity;
§ The failure of our relatively novel target-based approach to lead to an effective product or failure to identify chemical compounds that will display required level of performance; and
§ Our failure to obtain sufficient funding to fully execute our ag-chemical business plan.
10
Furthermore, even if we are able to discover and develop an effective product, it may not be successful if we are unable to find collaborators to undertake the advanced stages of
product development and to market and commercialize the product. If our efforts to develop ag-chemical products are unsuccessful, our results of operations could be negatively impacted.
Evofuel, our wholly owned subsidiary that develops seeds for biodiesel and other uses, may not be successful for a number of reasons.
Our wholly owned subsidiary Evofuel is currently developing improved, high-yield castor bean seeds to be used as a source of non-edible feedstock for the biodiesel market and other
industries. The renewable energy market in general and the biodiesel market more specifically are not well established and are evolving. Furthermore, the biodiesel market faces continuing
competition from traditional petroleum-based fuels, and demand for biodiesel fluctuates with changing oil and gas prices. Specifically in late 2014, crude oil prices are as low as were in 2008 –
nearly $50 per brl. in order for our castor bean seeds to be an attractive feedstock for biodiesel, we will need to demonstrate on a commercial scale that castor beans can reliably be used as a cost-
efficient feedstock for biodiesel production. We will also need to show that the production cost and sales price of castor bean-based biodiesel are competitive with those of traditional oil and
gas. The success of these operations will largely depend on our ability to address several unique challenges, including:
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the yields of our castor seed varieties on commercial scale under rain-fed conditions, securing economic viability as biodiesel feedstock;
the ability to harvest castor bean in an efficient mechanized manner;
the cost of producing castor bean grains, allowing grower profitability;
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the risk that farmers may decide not to grow “second season” replacement crops such as the castor bean;
the health and environmental risks posed by the castor bean seed, which contains a naturally occurring poison called ricin;
any regulatory concerns related to sales of castor beans, particularly related to the import of such beans and the potential effects of ricin; and
the sustainability of our production and the biodiesel end-product.
In addition, we have no prior experience operating as a seed company. We will therefore be operating in a new industry, with little knowledge of the dynamics involved in producing and
selling seeds.
Prior to addressing the biodiesel market, Evofuel expects to address other oil industries and take advantage of the premium oil prices paid by the industrial market. Furthermore, we are working to
design improved castor bean seeds and address each of these issues so that we are able to grow a sufficient and sustainable amount of castor bean plants at a low cost. We have entered into
strategic collaborations with SLC Agricola S.A., or SLC Agricola and Insolo Agroindustrial S/A, or Insolo, two agri-busniesses operating in farms in northeast Brazil; T6 Industrial S.A., or T6, a
leading Argentinian biodiesel producer; and CNH, a leader in development and commercialization of harvesting equipment, which we expect will eventually facilitate commercialization of the
castor beans we are currently developing. We are unable to foresee when significant sales will commence, and we do not expect to start selling seeds before 2016. Furthermore, there can be no
assurance that our collaborations with SLC Agricola, Insolo, T6 or CNH will ultimately result in a commercialized castor bean seed. If we are unable to adequately address any of these issues, we
may not find a market for our castor bean seeds and our results of operations could be materially and adversely affected.
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Even if we are entitled to royalties from our collaborators, we may not actually receive these royalties, or we may experience difficulties in collecting the royalties that we believe we are
entitled to.
After our collaborators launch commercial products containing our licensed genes, we will need to rely on the good faith of our collaborators to report to us the sales they earn from
these products and to accurately calculate the royalties we are entitled to, a process that will involve complicated and difficult calculations. Although we seek to address these concerns in our
collaboration agreements, such provisions may not be effective. Additionally, we may not be able to achieve our long-term goal of generating revenues from royalties, and in the coming years
our revenues will be entirely dependent on fees we earn for our research and development services and milestone payments from our collaborators.
We depend on our key personnel and, if we are not able to attract and retain qualified scientific and business personnel, we may not be able to grow our business or develop and
commercialize our products.
The vast majority of our workforce is involved in research and development. Our business is therefore dependent on our ability to recruit and maintain a highly skilled and educated
workforce with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, entomology, mathematics, computer science and other subjects relevant to our
operations. For example, approximately 28% of our staff holds a PhD. The number of qualified and highly educated personnel in Israel, where all of our operations are located, is limited and
competition for the services of such persons is intense. Although we have employment agreements with all of our employees, most of these agreements may be terminated upon short notice.
The failure to hire and retain skilled and highly educated personnel could limit our growth and hinder our research and development efforts.
We have recently begun to develop certain technologies (seed traits and ag-chemicals) independent of our collaborators, and we may need to finance the cost of the initial development
phase of such technologies ourselves.
Currently, our business plan is based primarily on the development of traits in collaboration with our collaborators through all six phases of the discovery-development-
commercialization process. We have, however, recently begun to develop certain traits independent of our collaborators and are developing such traits on our own during the discovery phase,
and may also undertake such independent discovery efforts during the Phase I or “proof of concept” phase, with a goal of making such traits available to collaborators during later phases, once
we have identified what we believe to be promising traits. While we believe that this will allow us to negotiate more favorable license terms with respect to such traits, the up-front cost to us of
developing traits without a collaborator (and therefore without external funding for the research and development expenditures we incur) in these early phases involves higher risks, since we
need to fund the research and development of such traits ourselves. If we are unsuccessful in discovering promising traits after having invested significant funds, or if we are unable to find
collaborators who are interested in such traits and willing to fund subsequent phases of development and commercialization, such failures could have a material and adverse effect on our
business, financial condition and results of operations.
Our business is subject to various government regulations and, if we or our collaborators are unable to obtain the necessary regulatory approvals, we may not be able to continue our
operations.
Our business is generally subject to two types of regulations: regulations that apply to how we operate and regulations that apply to products containing our seed traits. We apply for
and maintain the regulatory approvals necessary for our operations, particularly those covering our field trials, while our collaborators apply for and maintain regulatory approvals necessary for
the commercialization of products containing our seed traits. More recently, regulators have implemented delays in approving genetically engineered crops due to environmental concerns and
negative publicity. Field trials for our seed traits that are performed in Israel are subject to Israeli regulations, and field trials that are being executed in the U.S. by local subcontractors are
regulated by local regulation. We believe that our current activities are compliant with all currently applicable Israeli regulations, however we may become subject to new or revised regulations or
approvals in the future. Furthermore, any violation of these regulations could expose us to criminal penalties.
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The large-scale field trials that our collaborators conduct during advanced stages of product development are subject to regulations similar to those we are subject to. Pursuant to our
collaboration agreements, our collaborators also apply for the requisite regulatory approvals prior to commercialization of products containing our seed traits. In most of our key target markets,
including the United States and the European Union, regulatory approvals must be received prior to the importation of transgenic products. These regulatory regimes may be particularly
onerous; for example, the U.S. federal government’s regulation of biotechnology is divided among the United States Environmental Protection Agency, which regulates activity related to the
invention of plant pesticides and herbicides, the United States Department of Agriculture, which regulates the import, field testing and interstate movement of specific technologies that may be
used in the creation of transgenic plants, and the United States Food and Drug Administration, which regulates foods derived from new plant varieties. None of our seed traits is currently being
tested in large-scale field trial or is in the regulatory approval development stage. Once products containing our seed traits reach these stages, however, if our collaborators are unable to obtain
the requisite regulatory approvals or there is a delay in obtaining such approvals as a result of negative market perception or heightened regulatory standards, such products will not be
commercialized, which would negatively impact our business and results of operations.
Disruption to our IT system could adversely affect our reputation and have a material adverse effect on our business and results of operations.
Our computational technologies rely on our IT system to collect and analyze the genomic data we discover. We store significant amounts of data, and as of December 31, 2014, we had
compiled over 500 terabytes of data. Although we are developing back-up storage for our stored data, there can be no assurance that our back-up storage arrangements will be effective if it
becomes necessary to rely on them. Furthermore, we can provide no assurance that our current IT system is fully protected against third-party intrusions, viruses, hacker attacks, information or
data theft or other similar threats.
As we continue to develop our computational technologies and expand our genomic datasets, we may need to update our IT system and storage capabilities. However, if our existing or
future IT system does not function properly, or if the IT system proves incompatible with our new technologies, we could experience interruptions in data transmissions and slow response times,
preventing us from completing routine research and business activities. Furthermore, disruption or failure of our IT system due to technical reasons, natural disaster or other unanticipated
catastrophic events, including power interruptions, storms, fires, floods, earthquakes, terrorist attacks and wars could significantly impair our ability to deliver data related to our projects to our
collaborators on schedule and materially and adversely affect the outcome of our collaborations, our relationships with our collaborators, our business and our results of operations.
Development of our seed traits, particularly during our field trials, may be adversely affected by circumstances caused by us and those beyond our control.
The seed and ag-chemical industry is subject to various factors that make its operations relatively unpredictable from period to period. Our field tests may be adversely affected by
circumstances both caused by us and those beyond our control. Factors caused by us include any failure by us or our collaborators to follow proper agronomic practice or suggested protocols
for growing the model validation plants and crops for our field trials, and failure to identify and address diseases, insects and pests, such as birds that may eat the seeds we are evaluating.
Factors beyond our control include weather and climatic variations, such as droughts or heat stress, or other factors we are unable to identify. For example, if there was prolonged or permanent
disruption to the electricity, climate control or water supply operating systems in our greenhouses or laboratories, the plants on which we are testing our traits and the samples we store in
freezers, both of which are essential to our research and development activities, would be severely damaged or destroyed, adversely affecting our research and development activities and
thereby our business and results of operations. We have also experienced crop failures in the past for then-unknown reasons, causing delays in our achievement of milestones and delivery of
results, and necessitating that we re-start the field trials. Any field test failure we may experience is not covered by our insurance policy, and therefore could result in increased cost of the field
trials and development of our seed traits, which may negatively impact our business and results of operations.
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Consumer and government resistance to genetically modified organisms may negatively affect our public image and reduce sales of plants containing our traits.
We are active in the field of biotech research and development in seeds and crop protection, including genetically modified, or “GM” seeds. Foods made from such seeds are not
accepted by many consumers and in certain countries production of certain GM crops is effectively prohibited, including throughout the European Union, due to concerns over such products’
effects on food safety and the environment. The high public profile of biotechnology in food production and lack of consumer acceptance of products to which we have devoted substantial
resources could negatively affect our public image and results of operations. The prohibition on the production of certain GM crops in select countries and the current resistance from consumer
groups, particularly in Europe, to GM crops not only limits our access to such markets but also has the potential to spread to and influence the acceptance of products developed through
biotechnology in other regions of the world and may also influence regulators in other countries to limit or ban production of GM crops, which could limit the commercial opportunities to exploit
biotechnology.
GM crops are grown principally in the United States, Brazil and Argentina where there are fewer restrictions on the production of GM crops. If these or other countries where GM crops
are grown enact laws or regulations that ban the production of such crops or make regulations more stringent, we could experience a longer product development cycle for our products and may
even have to abandon projects related to certain crops or geographies, both of which would negatively affect our business and results of operations. Furthermore, any changes in such laws and
regulations or consumer acceptance of GM crops could negatively impact our collaborators, who in turn might terminate or reduce the scope of their collaborations with us or seek to alter the
financial terms of our agreements with them.
We have a history of operating losses and negative cash flow, and we may never achieve or maintain profitability.
We have a history of losses, and incurred operating losses of $15.3 million, $8.7 million and $3.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. Although we
are currently developing 29 distinct seed traits and ag-chemical products, there can be no assurance that these traits will result in commercially successful products. We expect to continue to
incur losses in future periods, until we begin earning royalties on the products we are currently developing and any new seed traits we develop in the future, which may not occur for at least six
more years, if at all. Because we will incur significant costs and expenses for these efforts before we obtain any incremental revenues from them, our losses in future periods could be significant.
In addition, we may find that these efforts are more expensive than we anticipate or that they do not result in profitability in the time period we anticipate, which would further increase our losses.
If we are unable to adequately control the costs associated with operating our business, including our costs of development and sales, our business, financial condition, operating results and
prospects will suffer.
The licenses we grant to our collaborators to use the genes we discover for specified traits in certain crops are exclusive. This limits our opportunities to license the genes that target the
same traits in the same crop to more than one collaborator.
The licenses we grant our collaborators to use the genes we discover and patent in certain crops are exclusive. That means that once genes are licensed to a collaborator in a specified
crop or crops, we are generally prohibited from licensing those genes to any third party. For example, in the Bayer Wheat Agreement, as defined herein, we are broadly prohibited from
collaborating on both GM trait discovery and advanced breeding for wheat, irrespective of the trait, with any party other than Bayer. The limitations imposed by these exclusive licenses could
prevent us from expanding our business and increasing our exposure to new licensees, both of which could adversely affect our business and results of operations.
Competition in seed traits and seeds is intense and requires continuous technological development. If we are unable to compete effectively, our financial results will suffer.
We currently face significant competition in the markets in which we operate. The markets for seed traits and ag-chemicals are intensely competitive and rapidly changing. Many
companies engage in research and development of seed traits and ag-chemicals, and speed in getting a new product to market can be a significant competitive advantage. As an example, over
the past decade some of our competitors have enhanced research and development budgets allocated for seeds that are more significant than our budget. In most segments of the seed and ag-
chemical market, the number of products available to the consumer is steadily increasing as new products are introduced. At the same time, an increasing number of products are coming off
patent and are thus available to generic manufacturers for production. We may be unable to compete successfully against our current and future competitors, which may result in price
reductions, reduced margins and the inability to achieve market acceptance for products containing our traits. In addition, many of our competitors have substantially greater financial, marketing,
sales, distribution and technical resources than us and some of our collaborators have more experience in research and development, regulatory matters, manufacturing and marketing. We
anticipate increased competition in the future as new companies enter the market and new technologies become available. Our technology may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or more of our competitors, which will prevent or limit our ability to generate revenues from the commercialization of
our technology.
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We may be required to pay royalties to employees who develop inventions that have been or will be commercialized by us, even if the rights to such inventions have been assigned to us and
the employees have waived their rights to royalties or other additional compensation.
Under the Israeli Patents Law, 5727-1967, if there is no agreement that prescribes whether, to what extent and on what conditions an employee is entitled to remuneration from commercialization
of an invention developed by or with the contribution of such employee, then such matter is decided by a government-appointed compensation and royalties committee, or the Committee,
established under the Patents Law. Recent decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions
despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration or the criteria or
circumstances under which an employee’s assignment of all rights and/or waiver of his or her right to remuneration will be disregarded. A significant portion of our intellectual property
(including our patents) has been developed by our employees in the course of their employment for us. All of our employees execute invention assignment agreements upon commencement of
employment, in which they assign their rights to potential inventions and acknowledge that they will not be entitled to additional compensation or royalties from commercialization of inventions.
However, given the foregoing uncertainty with respect to the enforceability of a waiver of the right to future royalties, we may be required to pay royalties to our employees who have invented
intellectual property that we have commercialized, which in turn may have a material adverse effect on our results of operations.
Our success depends on our ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our proprietary computational technologies, our traits and
their uses, as well as our ability to operate without infringing upon the proprietary rights of others. If we do not adequately protect our intellectual property, competitors may be able to use our
technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.
We treat our proprietary computational technologies, including unpatented know-how and other proprietary information, as trade secrets. We seek to protect these trade secrets, in part,
by entering into non-disclosure and confidentiality agreements with any third parties who have access to them, such as our consultants, independent contractors, advisors, corporate
collaborators and outside scientific collaborators. We also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with
whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies
for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if
any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such
technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, or if we
otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and competitive position could be harmed.
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Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation, decrease our operating revenues
and disrupt our business.
Laws and regulatory standards and procedures that impact our business are continuously changing. Responding to these changes and meeting existing and new requirements may be
costly and burdensome. Changes in laws and regulations may occur that could:
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impair or eliminate our ability to research and develop our products, including validating our products through field trials;
increase our compliance and other costs of doing business through increases in the cost to patent or otherwise protect our intellectual property or increases in the cost to our
collaborators to obtain the necessary regulatory approvals to commercialize and market the products we develop with them;
require significant product redesign or systems redevelopment;
render our products less profitable, obsolete or less attractive compared to competing products;
affect our collaborators’ willingness to do business with us;
reduce the amount of revenues we receive from our collaborators through milestone payments or royalties; and
discourage our collaborators from offering, and consumers from purchasing, products that incorporate our traits.
Any of these events could have a material adverse effect on our business, results of operations and financial condition. Legislators and regulators have increased their focus on plant
biotechnology in recent years, with particular attention paid to GM crops. Because our current products are primarily in the initial discovery and proof of concept development phase, the only
GM-related regulations that currently affect our business are related to our validation trials in Israel. We believe that we are currently in compliance with Israeli regulations related to growing GM
crops in Israel; however, if these regulations change, our validation trials may become costly and burdensome and could require us to relocate our trials outside of Israel or even change our
business model to have our collaborators perform validation trials.
While none of our products are currently available for sale, our future growth relies on the ability of our collaborators to commercialize and market our products, and any restrictions on
such activities could materially and adversely impact our business and results of operations. Any changes in regulations in countries where GM crops are grown or exported into could result in
our collaborators being unable or unwilling to develop, commercialize or sell products that incorporate our traits. In addition, we rely on patents and other forms of intellectual property
protection. Legislation and jurisprudence on patent protection in the key target markets where we seek patent protection, such as the United States and the European Union, is evolving and
changes in laws could affect our ability to obtain or maintain patent protection for our products. Any changes to these existing laws and regulations may materially increase our costs of
operation, decrease our operating revenues and disrupt our business. See “Item 4.B. Information on the Company—Business Overview—Government Regulation” and “Item 4.B. Business
Overview— Regulation of Products Containing Our Traits.”
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotech companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing biotech patents involves
technological and legal complexity, and is costly, time consuming, and inherently uncertain. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either
narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the
federal courts, and the U.S. Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that may weaken or undermine our ability to obtain new
patents or to enforce our existing patents and patents we might obtain in the future.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights
in some countries outside the United States are less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the
same extent as federal and state laws in the United States. Consequently, we are unable to prevent third parties from using our inventions in all countries outside the United States, or from selling
or importing products made using our inventions in and into the jurisdictions in which we do not have patent protection. Competitors may use our technologies in jurisdictions where we have
not obtained patent protection to develop their own products, and we may be unable to prevent such competitors from importing those infringing products into territories where we have patent
protection but enforcement is not as strong as in the United States. These products may compete with our product candidates and our patents and other intellectual property rights may not be
effective or sufficient to prevent them from competing in those jurisdictions. Moreover, farmers or others in the chain of commerce may raise legal challenges against our intellectual property
rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect. For example, the practice by some farmers of saving seeds from
non-hybrid crops (such as soybeans, canola and cotton) containing our biotechnological traits has prevented and may continue to prevent us from realizing the full value of our intellectual
property in countries outside of the United States.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions, including China, where we have filed patent
applications. The legal systems of certain countries, including China, have not historically favored the enforcement of patents or other intellectual property rights, which could hinder us from
preventing the infringement of our patents or other intellectual property rights and result in substantial risks to us. Proceedings to enforce our patent rights in the United States or foreign
jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and
our patent applications at risk of not issuing and could provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate and the
damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license from third parties.
If we or one of our collaborators are sued for infringing the intellectual property rights of a third party, such litigation could be costly and time consuming and could prevent us or our
collaborators from developing or commercializing our products.
Our ability to generate significant revenues from our products depends on our and our collaborators’ ability to develop, market and sell our products and utilize our proprietary
technology without infringing the intellectual property and other rights of any third parties. In the United States and abroad there are numerous third party patents and patent applications that
may be applied toward our proprietary technology, business processes or developed traits, some of which may be construed as containing claims that cover the subject matter of our products or
intellectual property. Because of the rapid pace of technological change, the confidentiality of patent applications in some jurisdictions, and the fact that patent applications can take many years
to issue, there may be currently pending applications that are unknown to us that may later result in issued patents upon which our product candidates or proprietary technologies infringe.
Similarly, there may be issued patents relevant to our product candidates of which we are not aware. These patents could reduce the value of the traits we develop or the genetically modified
plants containing our traits or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter
how valuable to our business. We may not be able to obtain such a license on commercially reasonable terms. There is a substantial amount of litigation involving patent and other intellectual
property rights in the biotech industry generally. If any third party patent or patent application covers our intellectual property or proprietary rights and we are not able to obtain a license to it,
we and our collaborators may be prevented from commercializing products containing our traits.
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As the agricultural biotech industry continues to develop, we may become party to, or threatened with, litigation or other adverse proceedings regarding intellectual property or
proprietary rights in our technology, processes or developed traits. Third parties may assert claims based on existing or future intellectual property rights and the outcome of any proceedings is
subject to uncertainties that cannot be adequately quantified in advance. Any litigation proceedings could be costly and time consuming and negative outcomes could result in liability for
monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. There is also no guarantee that we would be able to obtain a license under
such infringed intellectual property on commercially reasonable terms or at all. A finding of infringement could prevent us or our collaborators from developing, marketing or selling a product or
force us to cease some or all of our business operations. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and
scientific personnel may be diverted as a result of these proceedings, which could have a material adverse effect on us. Claims that we have misappropriated the confidential information or trade
secrets of third parties could similarly have a negative impact on our business.
We and our collaborators may disagree over our right to receive payments under our collaboration agreements, potentially resulting in costly litigation and loss of reputation.
Our ability to generate royalty payments from our collaboration agreements depends on our ability to clearly delineate our intellectual property rights under those agreements. We often
license patented genes or other intellectual property to our collaborators, who use or will use such intellectual property to develop and commercialize seeds with improved traits. However, a
collaborator may use our intellectual property without our permission, dispute our ownership of certain intellectual property rights or argue that our intellectual property does not cover their
marketed product. If a dispute arises, it may result in costly litigation, and our collaborator may refuse to pay us royalty payments while the dispute is ongoing. Furthermore, regardless of any
resort to legal action, a dispute with a collaborator over intellectual property rights may damage our relationship with that collaborator, and may also harm our reputation in the industry.
We have not yet registered our trademarks. Failure to secure those registrations could adversely affect our business.
We have not yet filed applications to register our trademarks and those applications may be rejected or not be allowed for registration, and registered trademarks may not be
successfully obtained, maintained or enforced. We are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the U.S. Patent
and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our
trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would, which could adversely affect our business.
We may be required to pay substantial damages as a result of product liability claims for which insurance coverage is not available.
Once products integrating our seed traits reach commercialization, product liability claims will be a commercial risk for our business, particularly as we are involved in the supply of
biotechnological products, some of which can be harmful to humans and the environment. Courts have levied substantial damages in the United States and elsewhere against a number of
companies in the agriculture industry in past years based upon claims for injuries allegedly caused by the use of their products. Product liability claims against us or our collaborators selling
products that contain our seed traits or allegations of product liability relating to seeds containing traits developed by us could damage our reputation, harm our relationships with our
collaborators and materially and adversely affect our business, results of operations, financial condition and prospects. We do not have product liability insurance coverage. Furthermore, while
our collaboration agreements typically require that our collaborators indemnify us for the cost of product liability claims brought against us, such indemnification provisions may not always be
enforced, and we may receive no indemnification if our own misconduct led to the claims.
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Our employment agreements with our employees and other agreements with our collaborators and third parties may not adequately prevent disclosure of trade secrets, know-how and other
proprietary information.
A substantial portion of our technologies and intellectual property is protected by trade secret laws. We rely on a combination of patent and other intellectual property laws as well as
our employment agreements with our employees and other agreements with our collaborators and third parties to protect and otherwise seek to control access to, and distribution of, our
proprietary information. These measures may not prevent disclosure, infringement or misappropriation of our confidential information. Our confidentiality, nondisclosure and assignment
agreements or covenants may be breached, and we may not have adequate remedies for such a breach that would effectively prevent the further dissemination of our confidential information.
We have limited control over the protection of trade secrets used by our collaborators and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In
addition, others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Laws regarding
trade secret rights in certain markets where we operate may afford little or no protection of our trade secrets. Failure to obtain or maintain trade secret protection could adversely affect our
business, sales and competitive position.
We may not be able to fully enforce covenants not to compete with our key employees, and therefore we may be unable to prevent our competitors from benefiting from the expertise of such
employees.
Our employment agreements with key employees, which include executive officers, contain non-compete provisions. These provisions prohibit our key employees, if they cease working
for us, from competing directly with us or working for our competitors for one year. Under applicable U.S. and Israeli laws, we may be unable to enforce these provisions. If we cannot enforce the
non-compete provisions with our key employees, we may be unable to prevent our competitors from benefiting from the expertise of such employees. Even if these provisions are enforceable,
they may not adequately protect our interests. The defection of one or more of our employees to a competitor could materially adversely affect our business, results of operations and ability to
capitalize on our proprietary information.
The prospective establishment of our new R&D facility in the U.S. signifies our entry into international operations, which will expose us to additional market and operational risks, and
failure to manage these risks may adversely affect our business and operating results.
As we have announced previously, we plan to establish a research and development facility in the Bio-Research and Development Growth (BRDG) Park on the campus of the Donald
Danforth Plant Science Center in St. Louis, Missouri, as part of our entry into the field of advanced solutions for insect control. Our physical presence in, and the accompanying expansion of
our operations into, the United States will expose us more significantly to some of the operational risks that accompany doing business internationally, including:
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fluctuations in foreign currency exchange rates;
potentially adverse tax consequences;
difficulties in staffing and managing foreign operations;
hiring and retention of employees and/or consultants under foreign employment laws with which we are not familiar;
laws and business practices that sometimes favor local competition;
compliance with complex foreign laws, treaties and regulations;
tariffs, trade barriers and other regulatory or contractual limitations on our ability to develop (and, when applicable in the future, sell) our solutions in certain foreign markets; and
being subject to the laws, regulations and the court systems of multiple jurisdictions.
Our failure to manage the market and operational risks associated with international operations effectively could limit the future growth of our business and adversely affect our operating results.
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Our operations are subject to various health and environmental risks associated with our use, handling and disposal of potentially toxic materials.
As part of our seed trait operations, we assist in the development of GM crops by inserting new genes into the genomes of certain plants. Though we introduce these genes in order to
improve plant traits, we cannot always predict the effect that these genes may have on the plant. In some cases, the genes may render the plant poisonous or toxic, or they may cause the plant to
develop other dangerous characteristics that could harm the plant’s surrounding environment. Furthermore, while we comply with relevant environmental laws and regulations, there is a risk
that, when testing genetically modified plants, the seeds of these plants may escape the greenhouse or field in which they are being tested and contaminate nearby fields. Poisonous or toxic
plants may therefore be inadvertently introduced into the wild, or possibly enter the food production system, harming the people and animals who come in contact with them.
Risks Relating to Our Incorporation and Location in Israel
Conditions in Israel could adversely affect our business.
We are incorporated under Israeli law and our principal offices and research and development facilities are located in Israel. Accordingly, political, economic and military conditions in
Israel directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Although Israel has entered
into various agreements with Egypt, Jordan and the Palestinian Authority, there has been an increase in unrest and terrorist activity, which began in September 2000 and has continued with
varying levels of severity into 2013. In mid-2006, Israel was engaged in an armed conflict with Hezbollah in Lebanon, resulting in thousands of rockets being fired from Lebanon and disrupting
most day-to-day civilian activity in northern Israel. Starting in December 2008, for approximately three weeks, Israel engaged in an armed conflict with Hamas in the Gaza Strip, which involved
rocket attacks against civilian targets in various parts of Israel and negatively affected business conditions in Israel. A similar conflict arose due to Hamas rocket attacks against Israeli civilian
targets in November 2012, and recently during July-August 2014, during which Israel responded to rocket attacks by engaging in an armed conflict with Hamas in the Gaza Strip. Our principal
place of business is located in Rehovot, Israel, which is approximately 30 miles from the nearest point of the border with the Gaza Strip. There can be no assurance that attacks launched from the
Gaza Strip will not reach our facilities, or that hostilities will not otherwise cause a significant disruption to our operations, such as preventing our employees from reaching our facilities and
limiting our ability to monitor and otherwise conduct the crop and other experiments we conduct at the facilities.
Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with
Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit materially our ability to sell our products to companies in
these countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial
condition of Israel, could adversely affect our operations and research and development, cause our revenues to decrease and adversely affect the share price of publicly traded companies
having operations in Israel, such as us.
In addition, our business insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government
currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses
or damages incurred by us could have a material adverse effect on our business and financial condition.
Our operations may be disrupted by the obligations of personnel to perform military service.
As of December 31, 2014, we had 207 full-time and 61 part-time employees, all of whom were based in Israel. Our employees in Israel, including executive officers, may be called upon to
perform up to 36 days (and in some cases more) of annual military reserve duty until they reach the age of 45 (and in some cases, up to 49) and, in emergency circumstances, could be called to
active duty. In response to increased tension and hostilities, since September 2000 there have been occasional call-ups of military reservists, including in connection with the mid-2006 war in
Lebanon and the December 2008, November 2012 and July-August 2014 conflicts with Hamas, and it is possible that there will be additional call-ups in the future. Our operations could be
disrupted by the absence of a significant number of our male employees related to military service or the absence for extended periods of one or more of our key employees for military service.
Such disruption could materially adversely affect our operations, business and results of operations.
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The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.
Our Israeli facilities have the status of an “Approved Enterprise” and “Beneficiary Enterprise” under the Israeli Law for the Encouragement of Capital Investments, 1959, or the
Investment Law, which makes us eligible for certain tax benefits under that law. For example, we are exempt from corporate tax for a period of two years and will be subject to a reduced corporate
tax rate of between 10% to 25% for the remainder of the benefit period, depending on the level of foreign investment in the company in each year.
In order to remain eligible for the tax benefits of an Approved Enterprise and Beneficiary Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its
regulations, as amended, and in a tax ruling we received in October 2010, or the Tax Ruling. If we do not meet these requirements, we may not be eligible to receive tax benefits and we could be
required to refund any tax benefits that we may receive in the future, in whole or in part, with interest. Further, the tax benefits available under the Investment Law may be terminated or reduced in
the future. If these tax benefits are terminated, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies in 2014 was
26.5% and remains the same for the 2015 tax year. See “Item 10.E.Taxation—Israeli Tax Considerations and Government Programs—General Corporate Tax Structure in Israel.”
Additionally, if we increase our activities outside of Israel (for example, through acquisitions) our expanded activities might not be eligible for inclusion in future Israeli tax benefit
programs. Finally, in the event of a distribution of a dividend from the income that will be tax exempt under the Investment Law, in addition to withholding tax at a rate of 20% (or a reduced rate
under an applicable double tax treaty), we will be subject to tax at the corporate tax rate applicable to our Approved Enterprise’s and Beneficiary Enterprise’s income on the amount distributed in
accordance with the reduced corporate tax applicable to such profits. See “Item 10.E.Taxation—Israeli Tax Considerations and Government Programs—Law for the Encouragement of Capital
Investments, 5719-1959.”
Exchange rate fluctuations between the U.S. dollar and the NIS may negatively affect our earnings and we have only partially hedged against such fluctuations.
Most of our revenues are denominated in U.S. dollars. The percentage of our revenues denominated in U.S. dollars accounted for 76.1%, 70.6% and 74.7% of our revenues in 2014, 2013
and 2012, respectively. We incur expenses primarily in NIS, however, and our expenses in NIS accounted for 88.8%, 91.7% and 89.8% of our expenses in 2014, 2013 and 2012, respectively. As a
result, any appreciation of the NIS relative to the U.S. dollar (as occurred in 2012 and 2013) would adversely impact our profitability due to the portion of our expenses that are incurred in NIS. As
of December 31, 2014, we held NIS/USD hedging contracts (forward contracts) designated as hedges of expected future operating expenses. If we continue to enter into hedging contracts in the
future, we may be unsuccessful in protecting against currency exchange rate fluctuations. Future currency exchange rate fluctuations could adversely affect our profitability. See “Item 11.
Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Risk.”
We have received Israeli government grants for certain of our research and development activities. The terms of these grants may require us to satisfy specified conditions in order to
develop and transfer technologies supported by such grants outside of Israel. In addition, in some circumstances, we may be required to pay penalties in addition to repaying the grants.
Our research and development operations have been partly financed through certain governmental grants, which impose certain restrictions on the transfer outside of Israel of the
underlying know-how and the manufacturing or manufacturing rights of the underlying products and technologies. As of December 31, 2014, we had received approximately $4.5 million
(approximately NIS 17.5 million) of such grants, on which interest of approximately $1 million (approximately NIS 3.7 million) had accrued as of such date. We may not receive the required
approvals should we wish to transfer this know-how, technology or manufacturing rights outside of Israel in the future or, if we receive such required approvals, they may be subject to certain
conditions and payment obligations. See “Item 5.B Liquidity and Capital Resources—Government Grants.”
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It may be difficult to enforce a U.S. judgment against us, our officers and directors and the Israeli experts named in this annual report in Israel or the United States, or to assert U.S.
securities laws claims in Israel or serve process on our officers and directors and these experts.
We are incorporated in Israel. None of our directors and executive officers is a resident of the United States, and the Israeli experts named in this annual report are located in Israel. The
majority of our assets are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil
liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States.
Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim
based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. 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 time-
consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
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 Israeli law and by our amended and restated articles of association, or our
“articles of association,” approved by our shareholders in May 2014 at our general shareholders meeting. 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 has a duty to act in good faith and in a customary manner in exercising its rights and
performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of
shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of
related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder
or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in the company has a duty
to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “Item 6.C Board Practices—Approval of Related Party Transactions
Under Israeli Law—Shareholder Duties.” Since Israeli corporate law underwent extensive revisions approximately 13 years ago, the parameters and implications of the provisions that govern
shareholder behavior have not been clearly determined. 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 make undesirable an acquisition of all or a significant portion of our shares or assets.
Israeli corporate law regulates mergers and requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject
to certain conditions). Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty
with Israel granting tax relief to such shareholders from Israeli tax. 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 certain 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. See “Item 10.B. Memorandum and Articles of Association—Acquisitions Under Israeli Law.”
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Furthermore, under the Encouragement of Industrial, Research and Development Law, 5744-1984, to which we are subject due to our receipt of grants from the Office of the Chief
Scientist of the Israeli Ministry of Economy, or OCS, a recipient of OCS grants such as us must report to the applicable authority of OCS any change in the holding of the means of control of our
company which transforms any non-Israeli citizen or resident into a direct interested party in our company. The OCS Guidelines interpretation issued by the OCS provides that prior OCS
approval is required for such change in the holding of the means of control.
These provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to
elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our
ordinary shares.
Risks Related to Our Ordinary Shares and the Trading of Our Ordinary Shares
The price of our ordinary shares may fluctuate significantly.
Our ordinary shares were first offered publicly in the United States after our initial public offering in the United States, or IPO, in November 2013, at a price of $14.75 per share, and our
ordinary shares have subsequently traded on the NYSE as high as $19.99 per share and as low as $8.20 and as of April 15, 2015 were trading at $10.01 per share.
However, the market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:
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actual or anticipated fluctuations in our results of operations;
variance in our financial performance from the expectations of market analysts;
announcements by us or our competitors of significant business developments, changes in relationships with our collaborators, acquisitions or expansion plans;
our involvement in litigation;
our sale, or the sale by our significant shareholders, of ordinary shares or other securities in the future;
failure to publish research or the publishing of inaccurate or unfavorable research;
§ market conditions in our industry and changes in estimates of the future size and growth rate of our markets;
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changes in key personnel;
the trading volume of our ordinary shares; and
general economic and market conditions.
Although our ordinary shares are listed on the New York Stock Exchange, or the “NYSE”, an active trading market on the NYSE for our ordinary shares may not be sustained. If an
active market for our ordinary shares is not sustained, it may be difficult to sell ordinary shares in the U.S.
In addition, the stock markets have recently experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary
shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted
against that company. If we were involved in any similar litigation we could incur substantial costs and our management’s attention and resources could be diverted.
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Future sales of our ordinary shares could reduce the market price of our ordinary shares.
The market price of our ordinary shares may decline if we or our shareholders sell substantial amounts of our ordinary shares, either the NYSE or the Tel Aviv Stock Exchange, or the
“TASE,” or if there is a public perception that these sales may occur in the future.
Raising additional capital by issuing securities may cause dilution to existing shareholders.
In the future, we may increase our capital resources by additional offerings of equity securities. Because our decision to issue equity securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our ordinary shares bear the risk of
our future offerings reducing the market price of our ordinary shares and diluting their shareholdings in us.
Our ordinary shares are traded on more than one market and this may result in price variations.
Our ordinary shares have been traded on the TASE since 2007, and are currently listed on NYSE. Trading in our ordinary shares on these markets will take place in different currencies
(U.S. dollars on NYSE and NIS on the TASE), and at different times (resulting from different time zones, trading days and public holidays in the United States and Israel). The trading prices of our
ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price of our
ordinary shares on NYSE.
We could become subject to parallel reporting obligations in Israel and the United States, which could increase compliance costs and divert management attention.
On July 28, 2013, our shareholders approved our plan to transition solely to U.S. reporting standards under the NYSE. However, should this change, in the future, we may become
subject to parallel reporting obligations in Israel and the United States. While similar in many respects, certain differences between Israeli and U.S. reporting schemes may impose on us
disclosure obligations that are more stringent than those generally applied to foreign private issuers whose securities are listed only in the United States. In addition, a requirement to comply
with the separate reporting obligations under U.S. and Israeli securities laws would require additional management attention and could burden us with additional costs.
The requirements of being a public company in the United States and Israel may strain our resources and distract our management, which could make it difficult to manage our business,
particularly after we are no longer an “emerging growth company.”
Changing laws, regulations and standards, in the United States or Israel, relating to corporate governance and public disclosure and other matters, may be implemented in the future,
which may increase our legal and financial compliance costs, make some activities more time consuming and divert management’s time and attention from revenue-generating activities to
compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to
practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a publicly traded company in the United States and Israel and being subject to
U.S. and Israeli rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially
higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit
committee, and qualified executive officers.
As a public company whose ordinary shares are listed in the United States, we will continue to incur significant accounting, legal and other expenses, including costs associated with
our reporting requirements under the Exchange Act. We could also incur additional costs associated with corporate governance requirements, including requirements under Section 404 and
other provisions of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” rules implemented by the SEC and the NYSE, and provisions of Israeli corporate law applicable to public
companies. The Exchange Act requires that we file annual and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we
maintain effective disclosure controls and procedures and internal controls over financial reporting. These rules and regulations could continue to increase our legal and financial compliance
costs, such as the cost of hiring consultants or testing compliance processes, and make some activities more time-consuming and costly. These activities may divert management’s attention
from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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As an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” we take advantage of certain temporary exemptions from various
reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and
regulations of the SEC thereunder). When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with
them.
As an “emerging growth company”, we are currently not required to obtain an auditor attestation regarding management’s assessment of our internal control. Further, if we are unable to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or if our internal control over financial reporting is not effective, the reliability of our financial statements may
be questioned and our share price may suffer.
As of this annual report, we are required to comply with the requirements of Section 404(a) of the Sarbanes-Oxley Act pursuant to which our management is required to report on the
effectiveness of our internal control over financial reporting. Accordingly, only in 2014 did we commence the process of determining whether our existing internal controls over financial reporting
systems are compliant with Section 404. This process requires the investment of substantial time and resources, including by our Chief Financial Officer and other members of our senior
management. We cannot predict whether we will need to implement remedial actions in the future in order to maintain effective control over financial reporting. The determination and any
remedial actions required could result in us incurring additional costs that we did not anticipate.
Further, under the JOBS Act, as of December 31, 2014, we are not required to obtain an auditor attestation to the effectiveness of our internal control over financial reporting under
Section 404(b) since, among other things, as of June 30, 2014, our market capitalization related to public holdings was under $700 million and our status as an “emerging growth company” was
preserved. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b)
December 31, 2018, the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering; (c) the date on which we have, during the previous three-year period,
issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. Unless we lose our status as an “emerging
growth company” under the JOBS Act, we will not be required to obtain an auditor attestation under Section 404(b) of the Sarbanes-Oxley Act until the year ended December 31, 2018. If some
investors find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act, there may be a less active trading market for our ordinary shares and our share
price may be more volatile.
Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a
result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to
implement any of the required changes to our internal control over financial reporting effectively or efficiently, it could adversely affect our operations, financial reporting and/or results of
operations and could result in an adverse opinion on internal controls from our independent auditors.
As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors,
and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the
Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the
Exchange Act, we are permitted to disclose limited compensation information for our executive officers on an individual basis and we are generally exempt from filing quarterly reports with the
SEC under the Exchange Act. Despite this, we have undertaken to our shareholders to report our financial results on a quarterly basis. Moreover, we are not required to comply with Regulation
FD, which restricts the selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is
reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. These exemptions and leniencies will reduce the frequency and scope of information
and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.
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As a foreign private issuer, we follow home country corporate governance practices instead of certain NYSE corporate governance 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, in reliance on Section 303A.11 of the Listed Company Manual, which permits a foreign private issuer to follow the corporate governance practices of its
home country, we have chosen to follow certain Israeli corporate governance practices instead of those otherwise required under the NYSE corporate governance standards for U.S. domestic
issuers. For example, in lieu of complying with certain NYSE corporate governance requirements, we follow home country practices in Israel with respect to separate executive sessions of
independent directors and non-management directors and the requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain
equity-based compensation plans, issuances that will result in a change of control of the company and issuances of more than 1% of our outstanding shares or voting power to our affiliates). In
addition, we did not adopt corporate governance guidelines, which are required of U.S. companies under NYSE rules. Accordingly, our shareholders are not afforded the same protection as
provided under NYSE corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on
NYSE may provide less protection than is accorded to investors of domestic issuers. For further discussion, see “Item 16G.Corporate Governance.”
While we take advantage of certain exemptions applicable to foreign private issuers under the U.S. federal securities laws and NYSE rules, our disclosure practices are still more
burdensome than many other Israeli companies whose securities are traded in the United States. Although not required to do so pursuant to the exemption for foreign private issuers under NYSE
corporate governance rules, we have undertaken to our shareholders to (i) continue reporting our financial results on a quarterly basis and (ii) continue disclosing management and board
compensation in accordance with the applicable requirements under the Israeli Securities Law. Providing this information imposes additional obligations on us that are unusual for Israeli
companies whose securities are traded in the U.S.
We may lose our status as a foreign private issuer, which would increase our compliance costs and could thereby negatively impact our results of operations.
We would lose our foreign private issuer status if (a) a majority of our outstanding voting securities were either directly or indirectly owned of record by residents of the United States
and (b)(i) a majority of our executive officers or directors were United States citizens or residents, (ii) more than 50 percent of our assets were located in the United States or (iii) our business were
administered principally outside the United States. Our loss of foreign private issuer status would make U.S. regulatory provisions mandatory. The regulatory and compliance costs to us under
U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S.
domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure
requirements, including the requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis. We may also be
required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs.
In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
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Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the
market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company,
or PFIC, for United States federal income tax purposes. According to these rules, a publicly traded non-U.S. corporation may treat the aggregate fair market value of its assets as being equal to
the sum of the aggregate value of its outstanding shares (“Market Capitalization”) and the total amount of its liabilities. We take the position that the excess of our Market Capitalization plus
liabilities over the book value of all of our assets (“Goodwill”) may generally be treated as a non-passive asset to the extent attributable to our non-passive activities. Based on certain estimates
of our gross income and gross assets and the nature of our business, were believe that we were classified as a PFIC in 2014 and we do not expect that we will be classified as a PFIC for the
taxable year ending December 31, 2015; however, because we currently hold, and expect to continue to hold, a substantial amount of cash and cash equivalents and other passive assets used in
our business, and because the value of our gross assets is likely to be determined in large party by reference to the market prices of our securities, we could be classified as a PFIC for a given
taxable year if our Market Capitalization were to decrease significantly.
If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary
income, rather than a capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Item 10.E.Taxation—
United States Federal Income Taxation”), and having interest charges apply to distributions by us and the proceeds of share sales. If we are characterized as a PFIC, certain elections may be
available that would alleviate some of the adverse consequences of PFIC status and result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do
not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC. See “Item 10.E.Taxation—United States Federal Income
Taxation—Passive Foreign Investment Company Considerations.”
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
Our History
Our company was founded in 2000 as Agro Leads Ltd., a division of Compugen Ltd. In 2002, the company was spun-off as an independent corporation under the laws of the State of
Israel, and changed its name to Evogene Ltd. Today, we are a plant genomics company that uses a comprehensive and integrated technology infrastructure to enhance seed traits underlying
crop performance and productivity through biotechnology and advanced breeding methods. Our business focuses on three distinct operations: (i) seed traits, (ii) ag-chemicals and (iii) seeds,
focusing on developing improved castor bean seeds to serve as feedstock source for biofuel and other industrial uses. In January 2012, we established Evofuel Ltd., our wholly owned subsidiary
incorporated in Israel, to focus on the development of improved castor bean seeds under our seeds activity. We currently participate in more than ten collaboration agreements with world-
leading seed and agriculture companies and work either with collaborators or on independent projects to research and develop 29 different seed traits and ag-chemical products in various stages
of development.
In June 2007, we completed an initial public offering in Israel and listed our ordinary shares on the TASE. We are registered with the Israeli Registrar of Companies in Jerusalem. Our
registration number is 51-283872-3. Our purpose as set forth in our articles of association is to engage in any lawful business.
In November 2013, we consummated our IPO and listed our ordinary shares on the NYSE.
Our principal executive offices are located at 13 Gad Feinstein Street, Park Rehovot P.O.B 2100, Rehovot 7612002, Israel and our telephone number is +972-8-931-1900. Our authorized
representative in the United States and agent for service of process in the United States, Puglisi & Associates, is located at 850 Library Avenue, Suite 204, Newark, Delaware 19711. Our website
address is www.evogene.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein.
In February 2015, we announced the signing of a Letter of Intent with plans to establish a research and development facility in the Bio-Research and Development Growth (BRDG) Park,
in St. Louis, Missouri, united states. The establishment of the facility is a key component of the Company's previously disclosed entry into the field of insect control.
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Principal Capital Expenditures
Our capital expenditures for fiscal years 2014, 2013 and 2012 amounted to $3.8 million, $1.8 million and $2.1 million, respectively. Our capital expenditures during those years consisted of
investments in property, plant and equipment and in intangible assets. We anticipate our capital expenditures in fiscal year 2015 to include payments for establishing new validation and data
generation capabilities, primarily for insect resistance traits; creating infrastructure for chemical screening and handling; and up-scaling our field trial activities toward commercialization of castor
seeds. We anticipate our capital expenditures in 2015 to be financed by proceeds from our IPO.
B. Business Overview
Overview
We are a plant genomics company that uses a comprehensive and integrated technology infrastructure to enhance seed traits underlying crop performance and productivity through
biotechnology and advanced breeding methods. We have strategic collaborations with world-leading agricultural companies, primarily to develop traits for improved yield and abiotic stress
tolerance (such as improved tolerance to drought, heat and salinity) and biotic stress resistance (such as resistance to disease, pests and insects). The products we develop are focused on
essential crops, including corn, soybean, wheat, rice and cotton. We also apply our technology infrastructure to two additional fields: (i) seed-external (such as herbicides and other ag-chemicals
applied by the grower in the field) and (ii) seeds, both of which have not yet generated revenue and are in the development stage.
We currently generate revenues primarily through research and development and milestone payments as traits move through development phases, and in the future we expect to receive
royalty revenues upon commercialization of products containing traits that we help our collaborators to develop. To date, we have identified and filed patent applications for over 4,000 novel
genes and genomic components for the improvement of key traits, hundreds of which are under development in our collaborators’ pipelines. We believe that the extension and renewal of some
of our main collaboration agreements highlight the value ascribed to our performance, our capabilities and our proprietary technology infrastructure. However, we are still in the development
stages, and it may take at least six more years, if at all, before the first seeds containing our traits complete the development process and become commercially viable. In our seeds business, we
expect to commercially launch our first castor varieties in Brazil in 2016. We have a history of losses and incurred operating losses of $15.3 million, $8.7 million and $3.1 million for the years ended
December 31, 2014, 2013 and 2012, respectively. For a breakdown of total revenues by segment and by geographic market, see “Item 5.A. Operating Results—Key Measures of Our
Performance—Segment Data” and “Item 5.A. Operating Results—Key Measures of Our Performance—Revenues—Geographical Breakdown of Revenues,” respectively.
Industry Background
The field of plant genomics, or the science of understanding and analyzing plant genomes to identify and impact biological elements affecting trait performance, continues to evolve.
Agricultural product innovation is increasingly driven by the ability to analyze data, in order to make direct discoveries and gain insights into key underlying biological phenomena of such
products. The seed and ag-chemical industry has witnessed a dramatic increase in the availability of genomic data. This is primarily as a result of the introduction of new technologies that
facilitate rapid generation of such data at a significantly lower cost. As a result, the key opportunity, and challenge, for plant trait improvement has shifted from data generation to data
integration and analysis of large volumes of data.
We believe that our competitive advantage is based on our continuously enhanced proprietary discovery and development infrastructure. This infrastructure is capable of integrating
and analyzing vast amounts of data, through the use of proprietary computational technologies comprised of advanced algorithms and predictive methodologies. Our computational
technologies are a key part of our broad technology infrastructure that also integrates extensive scientific expertise, public and proprietary genomic data and plant validation systems. Our
proprietary gene identification capabilities, which are scalable and adaptable to a large variety of crops and traits, together with our highly educated and experienced multidisciplinary team of
scientists, are, we believe, unique in the industry.
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Our Products
We are a plant genomics company that uses a comprehensive and integrated technology infrastructure to enhance seed traits underlying crop performance and productivity through
biotechnology and advanced breeding methods. Our business focuses on three distinct product-driven operations: (i) seed traits (divided into (a) yield and abiotic stress, and (b) biotic stress),
(ii) seed-external and (iii) seeds. We currently generate all of our revenues from our seed traits operations and a significant majority of our employees are focused on these operations. Our
operations in seed external and seeds are in the pre-revenue stage. We are evaluating M&A opportunities for inorganic growth in all our segments of operation.
Seed Traits
In this field, we use our expertise in plant genomics to improve plant performance through biotechnology and advanced breeding, helping address the global demand for food, feed and
fuel. Our proprietary computational technologies, validation techniques and other capabilities enable us to identify promising “candidate” genes and genetic markers, or SNPs (i.e., a single-
nucleotide polymorphism, which is essentially a DNA sequence variation that occurs when a single nucleotide, a basic gene “building block,” varies from one DNA sequence to another), that
have the potential to improve traits of interest, such as yield, drought tolerance, and disease resistance in commercial (or “target”) crops, such as corn, soybean, wheat, rice and cotton. The most
promising “candidate” genes will be used to develop improved biotechnological seeds or conventional seeds through certain advanced breeding methods (for example, one way to improve
conventional seeds when there is not enough genetic variation within the species, is the discovery of genes, that their down regulation can improve a specific trait. This is performed by
generating a population of mutated plants and then selection and evaluation of the plants that exhibit a beneficial mutation in the discovered genes); the SNPs will be used for conventional
seeds improvement through advanced breeding. In this field, we have entered into collaboration agreements with some of the world’s leading seed and ag-chemical companies, including
Monsanto, Bayer, Pioneer Hi-Bred International, a DuPont entity (“DuPont”), and Syngenta, which license the trait-improving genes that we generate with the goal of introducing these genes
into the seeds of commercial crops.
Our seed traits programs specialize in improving plant yield and increasing plant tolerance to abiotic stress (such as drought, heat and salinity) and resistance to biotic stress (such as
disease, pest and insect resistance) through both biotechnology and advanced breeding. The use of biotechnology, or the genetic modification of plants, involves the direct manipulation of a
plant’s genome by inserting a gene into the plant’s DNA. This method of plant improvement provides for a wider range of traits in a plant and usually results in more substantial seed trait
improvement compared to advanced breeding. Under the advanced breeding method, plants with favorable characteristics are selectively crossed through genomic-guided breeding schemes,
with the goal of eventually improving seed traits.
Our product development cycle for seed traits is comprised of six phases. See “—Product Development Cycle—Seed Trait Product Development Cycle.” Currently, we specialize in the
upstream portion of the development cycle, particularly in the Discovery phase (i.e., when candidate genes are identified and validated in model plants). In some cases, we also test candidate
genes in target plants. We license our most promising candidate genes to our collaborators with the intent that they will further develop and commercialize the products.
In the field of seed traits, we have over ten collaboration agreements with world leading seed and ag-chemical companies, covering a portfolio of 24 products as well as an additional 2
products developed internally and not under collaborations. The products are tailored to address specific market needs across various traits. Under these agreements, hundreds of genes we
have discovered are currently undergoing Phase I testing in our collaborators’ pipelines. In addition, under these collaboration agreements, our collaborators have committed to pay us
approximately $132 million in the form of research and development and related payments, as well as in the form of purchases of our ordinary shares at a premium. This does not include milestone
payments, which we are entitled to when our products advance from phase to phase, or royalties, which we expect to be entitled to once our products are sold to farmers. A substantial majority
of our collaborations currently focus on improving traits through biotechnology.
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The following table sets forth our products currently under development with our collaborators as well as internal product programs in the field of seed traits:
Trait (GM and/or non GM)
Product #
Yield and Abiotic Stress Tolerance (1)
1
2
3
4
5
6
7
8
9
10
11
Yield
Yield
Yield
Yield
Yield
Yield
Yield
Abiotic Stress Tolerance
Abiotic Stress Tolerance
Abiotic Stress Tolerance
Abiotic Stress Tolerance
12
13
14
15
16
17
18
Biotic Stress Resistance (3)
19
20
21
22
23
24
25
26
__________
Abiotic Stress Tolerance
Abiotic Stress Tolerance
Nitrogen Use Efficiency
Nitrogen Use Efficiency
Nitrogen Use Efficiency
Nitrogen Use Efficiency
Nitrogen Use Efficiency
Fusarium resistance
Lygus Hesperus
Asian rust resistance
Nematode resistance
Black sigatoka resistance
Beet Armyworm
Corn rootworm
Aphids
Crop
Collaborator
Corn
Soybean
Wheat
Cotton
Canola
Rice
Corn
Soybean
Wheat
Cotton
Canola
Rice
Corn
Wheat
Cotton
Canola
Rice
Corn
Cotton
Soybean
Soybean
Banana
Corn
Corn
Soybean
Monsanto, Biogemma (2), DuPont
Monsanto
Bayer
Monsanto
Monsanto, Viterra Inc., or Viterra
Bayer, Rasi Seeds Ltd., or Rasi Seeds
Food company (crop and collaborator name cannot be disclosed)
Monsanto, Biogemma, DuPont
Monsanto
Bayer
Monsanto, the Centre de Coopération Internationale en Recherche Agronomique pour le
Développement, or CIRAD
Monsanto
Rasi Seeds, DBN
Monsanto
Bayer
Monsanto
Monsanto
DBN
Monsanto
Marrone Bio Innovations
DuPont
Syngenta
Rahan Meristem (1998) Ltd.
Marrone Bio Innovations
Internal
Internal
(1)
(2)
(3)
Yield and abiotic stress tolerance refers to a plant’s yield stability over varying environmental conditions and tolerance to environmental stress factors, such as drought and fertilizer
utilization.
The shareholders of Biogemma SAS are Vilmorin & Cie (Limagrain Group), Euralis and RAGT, See “—Key Collaborations—Biogemma.”
Biotic stress resistance refers to a plant’s disease, pest or insect resistance.
Yield and Abiotic Stress
Initiated in 2004, our yield and abiotic stress programs focus on important seed traits that have a direct impact on crop production and productivity. Pursuant to these programs, we seek
to identify and prioritize genes capable of, among other things, increasing crop yield per acre of land, improving plants’ yield and abiotic stress tolerance (i.e., yield stability over varying
environmental conditions and tolerance to environmental stress factors, such as drought and fertilizer utilization). Major seed companies have declared their goal to significantly increase crop
yield to meet the growing needs of the world population. For instance, Monsanto has indicated that it plans to double the yield in its main crops by 2030. We believe that our advanced
technologies, expertise and know-how position us to play an important role in assisting these companies to achieve the ambitious goal of substantially increasing crop yields in the future.
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Since we initiated our yield and abiotic stress programs, we have assembled a substantial scientific knowledge center on plant mechanisms and biological pathways associated with
yield and abiotic stress traits. Currently, we generate proprietary genomic data from 200 different plant species, and have two model validation plants that can validate over 1,000 genes annually
under different greenhouse and tissue culture validation assays (i.e. tests designed to analyze plant performance under specific growth conditions, for instance, measuring a plant’s greenhouse
seed yield under simulated drought conditions).
We have entered into multiple collaborations in yield and abiotic stress, including multi-year collaborations with Monsanto and Bayer, as well as additional collaborations with seed and
ag companies such as Du-Pont, Biogemma, Rasi Seeds, a multinational consumer goods company, and CIRAD.
Our most significant collaborations in yield and abiotic stress include two multi-year agreements with:
§ Monsanto addressing yield, drought tolerance and fertilizer utilization in corn, soybean, cotton and canola through biotechnology. The collaboration period (i.e., the period of active
discovery efforts, separate from continuing validation efforts or continuing diligence and development obligations) under this agreement is eight years and entitles us to approximately
$67.4 million in research and development and up-front payments. The collaboration, initiated in 2008, originally focused on gene discovery using our ATHLETE™ computational
technology, but a 2011 expansion of the agreement added new research activities, including the use of our new proprietary computational technology, Gene2Product™, for increased
trait efficacy. The collaboration was extended and expanded for a second time in October 2013, further enlarging the scope of our research activities. On February 2015, we have
disclosed that more than 1,000 Evogene identified and validated candidate genes entered into Monsanto’s yield and abiotic stress product development pipeline and that Evogene's
new gene optimization program is being incorporated into the collaboration; and
§ Bayer addressing yield, drought tolerance and fertilizer utilization in wheat through both biotechnology and advanced breeding. The collaboration period under this agreement (i.e., the
period for performance of research and development activities prescribed under the agreement) is scheduled to expire in the first quarter of 2017 and entitles us to approximately € 12.6
million in research and development and up-front payments. Our collaboration with Bayer calls for the use of our gene discovery computational technology, ATHLETE™, as well as our
computational technology for advanced breeding, EvoBreed™. In July 2014, the agreement with Bayer was amended and the collaboration focus has shifted from discovery of additional
genes and SNP’s to the discovery of novel genomic promoters. Genomic promoters are segments of DNA that when used with appropriate genes are an essential component of
improving seed trait efficacy by determining the expression pattern for the genes in the plants.
Our agreements in the field of yield and abiotic stress, through December 31, 2014, have accounted for approximately $81.7 in revenues, and in the future could lead to substantial
royalty payments if our partners commercialize products that incorporate genes that we license to them. However, because the development cycle of products is lengthy, any revenue from
royalty payments may not be earned before six more years, if at all.
In recent years, we have continued to expand our technological capabilities, introducing new computational technologies and launching more advanced versions of our computational
technologies. In 2014, we launched PlaNet version 2.0, our advanced platform for predictive gene stacking. Gene stacking is seen by the agriculture industry as essential for enhancing the
efficacy of complex traits such as yield improvement. Using this advanced version of PlaNet, we are able to combine multiple genes that together will have an increased probability to improve a
desired trait. The upgrade more than doubles the platform’s interaction data sources and types, and incorporating improved algorithms for data analysis.
Together with new validation technologies and new data-collection tools, we continue to enhance our ability to correctly link candidate genes with specific traits. In order to support
this effort, in 2014 we conducted our first large data generation field test for corn in the United States. The test involved over 1,800 plots across 10 acres with the objective of gaining a more
detailed understanding of trait characteristics of corn, thereby improving our ability to predict more accurately the key trait features and underlying genetic attributes to focus on in order to
improve yield and abiotic stress tolerance for the crop.
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These capabilities and assets continue to expand as we enter into additional collaborations and pursue new products. For example, we expect to enter into new collaborations focusing
on yield and abiotic stress in the upcoming years for new crops, such as rice, sugar beet and other vegetables, and new traits, such as cold tolerance.
Biotic Stress
Initiated in 2007, our biotic stress programs focus on improving plant resistance to pests, insects and diseases, including nematodes, soil parasites that attack the roots of developing
plants, soybean rust, a severe fungal disease, Fusarium, a fungal stalk rot disease in corn, and several insect resistance traits. To perform research activities relating to biotic stress, we leverage a
significant amount of the expertise and know-how acquired in our yield and abiotic stress segment. At the same time, we seek to develop unique technological tools and capabilities aimed
specifically at biotic stress traits. As the resistance of pests, insects and diseases to existing products that address biotic stress increases, the seed industry is seeking more advanced
technological solutions to address these resistance issues. We believe that our cutting-edge technologies, expertise and know-how position us to play an important role in assisting the seed and
ag-chemical industry in addressing these resistance issues. The market potential for traits addressing insects and disease is estimated at $7.5B – $8.5B out of which the commercial value of insect
resistance products available in the market today is approximately $4.5B (source: Context Network, Cropnosis, internal analysis).
During 2014, we expanded our offering and capabilities with the entry to the field of insect resistance. Enhancement of our capabilities in this field includes the incorporation of very
large amounts of microbial genomic data to our data-bases, which until recently included only plant genomic data, in order to enable discovery of microbial genes that may assist plants to cope
with insects. We also initiated two internal discovery programs of genes predicted to improve resistance to two key insects, corn rootworm and soybean aphids as well as two additional
programs as part of a collaboration we entered with Marrone Bio Innovations Inc. addressing Lygus Hesperus and Beet Armyworm. We estimate that approximately $10 million of investment will
be required over the next few years to expand our existing knowledge base, computational capabilities, testing and validation capabilities to support this new field of activity. On February 2015,
we announced the establishment of our US R&D site at the Bio-Research and Development Growth (BRDG) Park, developed by Wexford Science & Technology, a BioMed Realty Company, on
the campus of the Donald Danforth Plant Science Center in St. Louis, Missouri. The site will initially be focused on validation of genes that will be discovered under Evogene's insect control
program, initially for corn rootworm and soybean aphids. The planned facility will incorporate both field specific modifications of the Company’s existing gene testing and validation
infrastructure and new capabilities for targeting these and other high impact pests. The site will feature state-of-the-art laboratories and insect rearing rooms and is projected to be fully
operational by the end of 2015.
Furthermore, as part of our insect resistance trait development activity, in 2014 we entered a collaboration with Marrone Bio Innovations Inc. (MBI), for discovery of novel modes of
biological action for insect control. The partnership leverages MBI's expertise in microbial-based solutions for pest control and our computational gene discovery capabilities in order to
separately develop and commercialize products by each of the companies. Specifically, Evogene is expected to develop biotechnology insect resistance seeds, while MBI will develop
biologically-based insecticides, under a revenue sharing arrangement from all insect control products developed through the collaboration. The target insects for the collaboration are Lygus
Hesperus, a sucking insect also known as the Western tarnished plant bug; and Spodoptera exigua, a chewing insect commonly known as Beet Armyworm, each of which currently causes
significant damage to a variety of major crops.
In the coming years, we plan to expand our presence in the field of disease, nematode resistance and insect resistance through new collaboration agreements. As we undertake new
collaborations under our biotic stress program – some potentially involving new crops such as corn, wheat, rice and cotton – we expect to broaden our genomic datasets, improve our scientific
know-how, update our computational technologies, and develop additional tailored validation assays.
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Seed external
Our seed external division utilizes our core competency in plant genomics and ‘big data’ integration and analysis to develop novel ag-chemical products. We currently focus on the
early stages of the product development pipeline, specifically on discovering new herbicides with novel ‘Modes of Action’. Our seed external operations are currently in the development stage
and are pre-revenue.
In the future, we plan to evaluate entry into discovery activity to address additional types of crop protection products such as insecticides and fungicides, as well as crop enhancer
products that improve yield performance and drought tolerance.
We initiated our seed external operations in 2012, initially in the area of herbicide discovery, aiming at leveraging our existing plant genomics assets and capabilities and applying them
for the discovery of biologically essential proteins and ncRNAs (targets), as well as chemical compounds that inhibit the ‘targets’ (hits), resulting with plant’s death, generating a herbicidal
effect.
Invasive plants, such as weeds, are a major cause of crop loss; they outgrow other plants and deprive crops of large amounts of water and nutrients – estimated to be a major factor in
yield loss in all agriculture crops, recently estimated at annual damage of $100B. Extensive use of herbicides, however, results in accelerated weed resistance, creating substantial weed-
management problems for growers. We are working to develop new herbicides with new mechanisms that can mitigate the challenge of increasing weed resistance.
Our herbicide discovery program is designed to assist ag-chemical producers in moving beyond the traditional methods of herbicide discovery by implementing a targeted approach
aimed at identifying and developing novel herbicides with new mechanisms (or 'Modes of Action', MOA) to cope with the growing resistance of weeds. We utilize our expertise in plant
genomics, as well as our advanced technologies and know-how, to leverage biology to drive chemical discovery, ultimately leading to new herbicides that display new MOAs. In essence, we
follow the same development process we use in our seed traits operations, beginning with the production of large genomic and chemicals datasets, moving to the analysis of data using our
proprietary computational technologies for data integration and analysis, and ending with validation in plants.
Similar to our seed trait product development cycle, the ag-chemical development cycle for herbicides begins with a discovery stage. We expect that we will specialize in the early stage
of the development cycle – aiming to identify novel hits with novel MOA. Specifically, we will use our proprietary computational technology, PoinTar, to perform “target discovery”, which
involves the identification of proteins or ncRNAs ‘targets’ that are important to plant function and performance. The ‘targets’ we will be seeking are those that, when inhibited (for instance by a
chemical), lead to plant or weed death. The candidate targets are then validated in model plants for the ability when inhibited to lead to plant death. We will also utilize a new computational
technology we have recently developed, PointHit, for the identification of chemicals that would inhibit these targets. The PointHit platform will utilize our recently established chemical database.
Following the in-silico discovery activity, we will perform in-planta screenings of chemicals to try and pinpoint those chemicals capable of influencing the targets that we have identified, and by
extension, creating significant impact on plants.
We have not yet entered into collaborations in the area of herbicide discovery. We expect that if we enter into collaborations in this field they will be structured similarly to our seed
trait collaborations. Our focus, accordingly, will lie in upstream discovery and development. We expect that our collaborators will perform the remaining steps in the product development cycle.
Screening will be followed by a “hit-to-lead” optimization process, in which the most promising chemical molecules are further assessed and optimized. If this process successfully indicates that
certain chemical molecules have a desired effective impact on plants, these molecules may be developed and commercialized into herbicides. In the final phases, any new chemical product will be
registered with the proper regulatory authorities and then launched for commercialization.
We are in the process of establishing our infrastructure and assets for our herbicide discovery activities. During 2014 and early 2015 we made progress in developing the required
infrastructure for herbicide discovery: a) The launch in February 2014 of our PoinTar discovery platform, aimed at identifying targets responsible for essential biological processes in weeds, b)
Establishment of a target validation system in plants c) Establishment of a chemical database, currently encompassing over 70 million chemicals, derived from a variety of available sources,
including synthetic and natural chemistry, d) The launch of our PointHit platform which will utilize the targets identified by the PoinTar platform to discover chemical molecules that inhibit the
target within the weed, resulting in weed death, e) Establishment of a robust screen in plants to test the predicted chemical compounds for herbicidal activity. Establishment of this infrastructure
enables us to initiate and progress our program for discovery of new herbicides with novel MOA under which we have to date discovered candidate targets, which are currently undergoing
validation in our target validation system.
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Currently, our product development pipeline includes the following three main products:
Product #
1
2
3
Seeds
Product
Non-selective herbicide
Grasses selective herbicide
Broadleaf selective herbicide
Crop
Row crops
Broadleaves
Grasses
Collaborator
Internal
Internal
Internal
Our wholly owned subsidiary, Evofuel Ltd., or Evofuel, develops seeds for second generation feedstock, intended for use in the alternative fuel industry. We initiated these operations
in 2007, which were spun-off from Evogene in January 2012 to operate as a separate company. We currently focus on the development of advanced high-yielding castor bean varieties which are
not GM and that can serve as a feedstock source for biofuel and other industrial uses, such as bio-polymers and lubricants. Our initial target market is Latin America, particularly Brazil and
Argentina, where large scale agriculture is well established as well as established markets for biofuels. We have entered into collaboration agreements with leading domestic companies in these
markets, and expect to benefit from their established agriculture production models.
Castor bean is grown today for its high-quality oil, which is used for various products in the bio-polymers and lubricants industries. Though treated as a “low-tech” crop in its key
production areas around the world (e.g., the castor bean is grown using traditional techniques such as hand picking), the castor bean plant holds great promise as a source for the alternative fuel
industry: oil comprises nearly 50% of the castor bean seed, and the plant itself contains innate characteristics of heat and drought tolerance. We believe that by leveraging our advanced
breeding capabilities and methods we can turn castor into a modern crop, having attractive economics as feedstock source for biofuel and other industrial uses, such as bio-polymers and
lubricants. Our offering includes a full 'package' to the grower for castor: (i) high yielding varieties with plant structure suitable for mechanized harvest; and (ii) best practices and
recommendations to growers on how to grow castor efficiently in large scale, including a customized solution for combine harvest. The latter is addressed through a collaboration with Case New
Holland (CNH), a global leader in designing, producing and selling agricultural and construction equipment. The collaboration, initiated in 2012, is aimed at development of a combine for efficient
and large scale castor harvest. Our castor product is designed to fit into a sustainable rotation model with soybean in Brazil, enabling large scale production on existing farm lands. This
agronomic model of “crop rotation” is based on the practice of sowing castor bean crops shortly after soybean harvests in order to replenish the soil and preserve its productivity. Key
advantage of the rotation model is economic – allowing the grower to produce more from his land, while undertaking only additional variable costs, as infrastructure is in place and fixed costs are
already incurred for the soybean.
Evofuel schedules to launch its first varieties in Brazil in 2016. We recently completed four years of field trials in Brazil, and were able to demonstrate improved yields of our castor bean
crop under rain-fed conditions compared to crops grown by local farmers, supporting the economics of using castor seed as an economically viable feedstock. Pre-commercial activities included
validation by BioOleo, a leading castor seed crusher in Brazil, that the grain harvested meets customer requirements for the down-stream industrial process. In addition to pursuing opportunities
in the biofuel market, we anticipate that in the first years following commercialization, our improved castor bean varieties will address the traditional castor oil markets, where the oil is used in a
range of industrial products such as bio-polymers, lubricants, paints and cosmetics.
Our primer partner in Brazil is SLC Agricola, a publicly traded Brazilian ag-business that grows 340,000 hectares of field crops. In 2010, we entered into collaboration with SLC Agricola,
focused on developing and adopting our improved castor bean varieties for commercial production in certain SLC farms in northeast Brazil under a rotation model with soybean. In March 2014
we expanded our collaboration agreement with SLC for the commercial production of Evofuel developed castor bean varieties in certain SLC farms in Brazil. Under the agreement, first sales of
castor grain to local oil producers are expected to take place during 2016. Under the terms of the agreement, Evofuel will provide SLC with seeds of its proprietary castor bean varieties and SLC
will be responsible for growing the crop on its farms in northeast Brazil. The resulting castor bean grain will be sold to local oil producers to address the industry need for castor oil and revenues
from such sales will be allocated between SLC and Evofuel.
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According to USDA’s Oilseeds and Products Annual Report estimates, in 2013/14, Brazil had over 29 million hectares dedicated to growing soybean, of which we estimate approximately
5 million hectares may be suitable for castor bean growth under the rotation model. Beyond Brazil, in 2012, we entered into a collaboration with T6, the leading biodiesel producer in Argentina.
The collaboration with T6 aims to develop high-yielding castor bean varieties as a key source for biodiesel production, with Argentina as the target market. Our agronomic model in Argentina is
still being evaluated with our partners. We believe that we stand to benefit from T6’s position as a large-scale producer and exporter of biodiesel, as T6 has a strategic interest in diversifying and
reducing the costs of its plant feedstock sources.
Our operations are currently in the development stages and we have not yet sold seeds or generated revenues from these operations. We expect that sales will not commence before
2016, however, we cannot guarantee that we will begin marketing and selling a product within this timeframe. Among other benchmarks, we believe that we will be able to begin commercializing
our castor bean seeds once we achieve yields on a commercial scale in the target markets and once we have equipment in place for mechanized harvesting on a commercial scale.
Product Development Cycle
Seed Trait Product Development Cycle
Developing and integrating seed traits into commercial seeds using advanced breeding or biotechnology takes, on average, between six and thirteen years. The length of the process
may vary depending on both the complexity of the trait and the type of crop involved. The length of the process of developing seed traits impacts the uncertainty of product development; for
example, during the development process, the gene may fail to address the performance criteria required to advance to later development stages, changes in the competitive landscape may occur
that could affect development and alternative methods of seed improvement may advance.
The development process for seed traits is divided into several discrete steps or “phases,” which generally include discovery, validation and development, and end with regulatory
approval and commercial launch of a seed product containing the trait. The process for developing seed traits is relatively similar for both biotechnology and advanced breeding. However, the
two differ significantly in later phases of development; for example, receiving regulatory approval for biotech seeds is a far more comprehensive and lengthy process than doing the same for
advanced breeding seeds.
The development process of biotech seed traits and their integration into commercial seeds is generally divided into six phases, as described below. Such process may vary among
different companies and depending on the specific crop and trait of interest. For example, with respect to development phase I (“Proof of Concept”, as further detailed below), in our experience,
the process of testing genes and SNPs by our partners may vary in terms of experimental set up, scope of activity, success criteria, and other aspects, which ultimately reflect on the duration of
such phase and its probability of success.
§ Discovery: The first step in the seed trait development process is Discovery, or the identification of candidate genes, or SNPs in the case of advanced breeding, potentially capable of
enhancing specified plant traits. These genes or SNPs are usually introduced into model plants, which serve as testing grounds to determine whether the gene or SNP will enhance the
specified trait. We usually employ our own advanced greenhouse facilities in Israel to perform model plant validation utilizing Arabidopsis for dicots, such as soybean, canola, cotton
and sunflower, and Brachypodium for monocots, such as corn and wheat. In our experience, using our technologies and methodologies, the Discovery phase typically lasts
approximately 18 months. According to Monsanto’s 2011 Investor Toolkit, this phase has an average probability of success of approximately 5% to reach a product.
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§ Phase I, or “Proof of Concept”: Upon successful validation of the genes or SNPs, promising candidate genes or SNPs are advanced to Phase I, a process called “proof of concept.” In
this phase, the genes or SNPs are inserted into target plants and their efficacy in improving plant performance is tested through greenhouse trials, field trials, or both. The goal of the
proof of concept phase is to determine which candidate genes or SNPs have the greatest potential to improve plant performance. Phase I is typically conducted by our collaborators in
their own facilities, although we are capable of conducting certain tests and actually do conduct them for some projects. In our experience, Phase I typically lasts between two to five
years, and according to Monsanto’s 2011 Investor Toolkit, has an average probability of success of approximately 25% to reach a product.
§ Phase II, or “Early Development”: In this phase, the field tests commenced in Phase I are expanded, and our collaborators evaluate various modes of use of the genes as well as other
characteristics in order to optimize the performance in the plant on a large scale across various geographical locations and varieties. The goal of the “Early Development” phase is to
identify the mode of use in which the genes or SNPs performed best and achieve the desired seed traits with commercially viable success rates. Based on our estimates, we expect Phase
II to last between approximately two to four years, and according to Monsanto’s 2011 Investor Toolkit, has an average probability of success of approximately 50% to reach a product.
§ Phase III, or “Advanced Development and Regulation”: In Phase III, extensive field tests are used to demonstrate the effectiveness of selected genes or SNPs in enhancing particular
traits. The process of obtaining regulatory approvals from government authorities is also initiated during this phase, and tests are performed to evaluate the potential environmental
impact of modified plants, including assessments of possible toxicity and allergenicity. According to Monsanto’s 2011 Investor Toolkit, Phase III typically lasts between one to two
years, and has an average probability of success of approximately 75% to reach a product.
§ Phase IV, or “Pre-Launch”: Phase IV involves finalizing the regulatory approval process and preparing for the launch and commercialization of new enhanced seeds. The range of
activities here includes preparing the seeds for commercial sales, formulation of a marketing strategy and preparation of marketing materials. According to Monsanto’s 2011 Investor
Toolkit, Phase IV typically lasts between one to three years, and has an average probability of success of approximately 90% to reach a product.
§ Product Launch: We expect that our strategic collaborators will also perform the last step of the development process, the actual launch and commercialization of the seed containing
the improved seed trait. Pursuant to our collaboration agreements, a successful product launch will trigger royalty payments from our collaborators, which are generally calculated as a
percentage of the additional sales value conferred by the improved seed trait.
As indicated, the estimated timeframes of phase duration and probability of success are mainly based on the figures presented in Monsanto’s 2011 Investor Toolkit as well as our
experience and estimates. The phases may overlap during the product development cycle, and the total development time for a particular product may be longer or shorter than the duration
presented above depending on a range of factors, including the type of crop and trait involved, the specifics of the development process undertaken by our partner, the amount of resources
available, or devoted to, particular research or collaboration projects, and changes to the product development process implemented by our partner.
All of our products are currently either in the Discovery, “Phase I” or “Phase II” stages.
Ag-Chemical Product Development Cycle
Our ag-chemical activities are still in the early stages. We are advancing in the process of developing the technologies and platforms that will enable our success in ag-chemicals. We
plan to pursue a streamlined product development cycle that will improve upon the traditional development models used in the ag-chemical industry.
Similar to our seed trait product development cycle, the ag-chemical development cycle for herbicides begins with a discovery stage. We expect, based on our extensive plant genomics
know-how and the strength of our technological infrastructure that we will specialize in the early stage of the development cycle. Specifically, we will use our proprietary computational
technology, PoinTar, to perform “target discovery,” which involves the identification of proteins that are important to plant function and performance. The targets we will be seeking are those
that, when inhibited (for instance by a chemical), lead to plant or weed death. We will also utilize our new computational technology platform, PointHit, for the identification of chemicals that
inhibit these targets. By utilizing our plant-based chemical screening platform, we will perform high throughput screenings of chemicals to validate those chemicals capable of influencing the
targets that we have identified, and by extension, creating significant impact on plants.
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While we have not yet entered into ag-chemical collaborations, we expect that, when we do, they will be structured similarly our seed trait collaborations. Our focus, accordingly, will lie
in upstream discovery and development – delivering herbicidal hits with new mode of action with a proven activity on plants to our partners. We expect that our collaborators will perform the
remaining steps in the product development cycle. Screening resulting with herbicidal hits delivered to partners will be followed by a “hit-to-lead” optimization process, in which the most
promising chemical molecules are further assessed and optimized. If this process successfully indicates that certain chemical molecules have a desired effective impact on plants, these molecules
may be developed and commercialized into herbicides. In the final phases, any new chemical product will be registered with the proper regulatory authorities and then launched for
commercialization.
Key Collaborations
Seed traits
Our seed trait projects are conducted through collaborations with leading seed and ag-chemical companies, with whom we share the development process of improving plant
performance. In most cases, we generate revenue from our collaboration agreements at three different points: first, we usually receive research and development services payments to cover the
costs of our research, including our gene discovery and validation efforts; second, we receive milestone payments when certain specified results are achieved, such as when a candidate gene
progresses to a later phase in the product development cycle, or when a product containing our traits is submitted for regulatory approval; finally, we expect to receive royalty payments once a
commercial product containing our traits is launched into the market. Royalty payments will generally be made for the longer of a specified number of years after product launch, or for the
duration of our applicable patents in the United States.
Our principal collaborations are with Monsanto and Bayer, which together accounted for 87% of our revenues for the year ended December 31, 2014, of which Monsanto accounted for
60% and Bayer accounted for 27% of our total revenues. We also have collaborations with other leading seed, ag-chemical, ag-biological and food companies, including DuPont, Syngenta,
Biogemma, Marrone Bio Innovations (MBI) and a multinational consumer goods company as well as companies such as Rahan Meristem, Rasi Seeds, CIRAD, Viterra, Zeraim Gedera and CBD
Technologies. These additional collaborations do not currently account for a material portion of our revenues.
Monsanto
2008 Collaboration Agreement, Amended and Restated in 2011 and 2013
Background and Duties
In August 2008, we entered into a Collaboration and License Agreement with Monsanto. This agreement was amended and restated on two occasions, first in November 2011 and again
in October 2013, in both cases extending and expanding the original agreement executed in 2008. This agreement, which we refer to as the “Monsanto Collaboration Agreement,” represents a
significant portion of our current revenues. Pursuant to the terms of the Monsanto Collaboration Agreement, Monsanto funds a research program in which we apply two different proprietary
computational technologies: (i) ATHLETE™, our computational gene discovery technology, used in this case to identify genes with the potential to improve yield, nitrogen use efficiency and
abiotic stress tolerance in corn, soybean, cotton and canola, and (ii) Gene2Product™, our computational gene optimization technology, used to improve gene performance through
recommendations on how to use the genes we identify in the target crop (e.g., corn). Furthermore, under the October 2013 amendment and restatement of the Monsanto Collaboration Agreement,
we have agreed to apply our computational technologies in the field of biotic stress to identify and offer optimization recommendations for genes providing resistance to Fusarium, a type of
fungi that is a main pathogen responsible for Stalk Rot disease in corn (a widespread, yield-reducing condition). All of the genes that we discover are to be tested and validated by us in our
model plants. To date, more than one thousand genes have been identified and validated by Evogene and entered Monsanto's product development pipeline for yield and abiotic stress
products. The collaboration period (i.e., the period of active computational discovery efforts, separate from validation efforts that may follow) for the yield and abiotic stress activities under the
Monsanto Collaboration Agreement has been extended from six to eight years, scheduled to expire in August 2016, and is followed by more than a year of validation activities. For the biotic
stress activities focusing on Fusarium resistance, the collaboration period, inclusive of validation efforts, is six years, scheduled to expire in August 2019.
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License Grants
Under the terms of the Monsanto Collaboration Agreement, we have granted Monsanto an exclusive, royalty-bearing, worldwide license under our patents and know-how to
commercially exploit and conduct research on (i) the genes we discover and patent under the collaboration, and (ii) the recommendations stemming from our gene-optimization activity under the
collaboration, each solely for transgenic applications in the specified crops. In addition, we have granted Monsanto certain ancillary research and development licenses, including, among others,
a non-exclusive license to use the genes we generate and patent and the recommendations under our gene-optimization activity for research purposes in certain plant species specified under the
agreement. As part of its consideration for these license grants, Monsanto agreed to provide us with research and development services payments, development milestone payments upon the
occurrence of certain milestone events, and royalties based on the value added to each product as a result of either incorporating our licensed genes, or of applying our licensed
recommendations under the gene-optimization activity. Royalty payments will generally be made for a specified number of years after product launch, or for the duration of our applicable patents
in the United States.
In addition to the licenses we have granted to Monsanto, we have agreed for the duration of the research program under the Monsanto Collaboration Agreement (x) to not license or
otherwise transfer to any third party the right to use in the specified crops for any transgenic application: (i) any gene we discover for the specified traits or (ii) any recommendation we make
under our gene-optimization activity for the specified traits, and (y) to not engage or pursue any collaboration or other activity with a goal of (i) discovering genes that confer the specified traits
in the specified crops for any transgenic application, or (ii) formulating recommendations with respect to gene-optimization for the specified traits in the specified crops for any transgenic
application.
Diligence Obligations
We and Monsanto both have minimum diligence obligations under the Monsanto Collaboration Agreement: our diligence obligations surround (i) the discovery and research of
candidate genes, and (ii) the discovery and research of recommendations using our gene-optimization technology, while Monsanto is obligated to test a specified number of these genes and
recommendations for the purpose of ultimately developing and commercializing products containing the genes. For example, we have agreed to perform a minimum number of computational
discovery efforts (or “discovery rounds”) and deliver a minimum number of genes to Monsanto. A failure by us to meet our diligence obligations may have the effect of eliminating or reducing
certain Monsanto diligence obligations, and diligence failures by Monsanto may result in the termination of certain of its licenses. While Monsanto has certain diligence obligations under the
Agreement, there is no express requirement that it actually commercialize any products using the genes that we license to it.
The effects of failures by either party to perform other obligations under the Monsanto Collaboration Agreement are limited to impacts on particular rights and obligations under the
agreement, and do not give rise to a general right to terminate the agreement entirely. For example, in the event of certain uncured breaches by Monsanto, some of the licenses we have granted
to it would remain in effect, while others would terminate. In the event that we breach certain provisions of the Monsanto Collaboration Agreement and fail to cure these breaches, Monsanto’s
licenses remain in effect but it may elect to cease further research activity, stop making annual research and data-generation payments for the relevant project, and have no further diligence
obligations with respect to the project.
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Change in Control
In the event that we experience a change of control, the majority of provisions under the Monsanto Collaboration Agreement would remain in full force and effect. However, if we come
under the control of one of Monsanto’s competitors: (i) the research portion of the Monsanto Collaboration Agreement may be terminated either fully or in part by Monsanto, and if it is not
terminated, we become subject to increased diligence obligations; and (ii) the timing of certain milestone payments and the duration of certain royalty payments due to us under the agreement
may also be affected.
Consideration and Costs
As of December 31, 2014, we had received approximately $50.9 million in research payments under the Monsanto Collaboration Agreement. This includes an up-front payment of $5
million paid upon entering into the agreement, as well as annual data generation and periodic research and development service payments. Between December 31, 2014 and the completion of our
research and development activities under the collaboration (i.e., our active discovery efforts, our continuing validation efforts and our continuing diligence obligations), which is scheduled to
occur in 2019, we received and expect to receive an additional $16.5 million in research and development services payments from Monsanto. Although we have not yet begun to earn milestone
payments or royalty payments, and may never earn such milestone payments or royalty payments, Monsanto is also obligated under the Monsanto Collaboration Agreement to provide us with
royalty payments on any sales or other transfers of products it develops containing our licensed genes. These royalty payments are generally calculated as a percentage of the premium charged
on the sale of the seeds containing our licensed genes compared to the sale of similar seeds without the genes.
In August 2008, Monsanto purchased 1,636,364 of our ordinary shares at a price per share of $11.00, for an aggregate investment of $18.0 million. In addition, as a condition to executing
the October 2013 amendment and restatement of the Monsanto Collaboration Agreement, we and Monsanto entered into a Put Option Agreement pursuant to which we can require Monsanto to
purchase additional amounts of our ordinary shares up to an aggregate amount of $12.0 million. In November 2013, Monsanto purchased 813,560 of our ordinary shares in our IPO at the initial
public offering price of $14.75, for an aggregate investment of $12.0 million. As a result of this investment, the Put Option Agreement was terminated upon the closing of our IPO. For more
information on Monsanto's holdings of our share capital see “Item 7.A. Major Shareholders.”
2007 Collaboration Agreement
We entered into our first collaboration agreement with Monsanto in September 2007. Under this agreement, structured according to an earlier business model, we granted Monsanto
certain research licenses and an option to obtain a commercial license to one or more of a group of genes with the potential to improve nitrogen use efficiency in corn, soybean, cotton and
canola. As of today, we have completed the performance of our obligations and are no longer performing any significant research under this agreement, and we have mutually agreed with
Monsanto that all candidate genes under this agreement are now licensed to Monsanto under the Monsanto Collaboration Agreement and available for further research, development and
commercialization by Monsanto under its terms.
Bayer
2010 Collaboration Agreement
Background and Duties
We have two research and development agreements with Bayer CropScience LP, an affiliate of Bayer CropScience AG, or Bayer. The later of the two agreements with Bayer is the
collaboration agreement entered into in December 2010, which we refer to as the Bayer Wheat Agreement.
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Amendment
On July 2014, we have announced an amendment to the Bayer Wheat Agreement. This amendment's main purpose was to shift the collaboration workplan from focusing on the
improvement of yield, nitrogen use efficiency, and abiotic stress tolerance of wheat through computational gene and SNP discovery to discovery of genomic promoters predicted to enable
desired traits in Wheat when used with appropriate genes (promoters are segments of DNA that determine how a gene will be expressed in the plant).
License Grants
Under the Bayer Wheat Agreement, as amended, we granted Bayer an exclusive, worldwide, royalty-bearing license under our patents and know-how to use, solely in wheat, certain
genes, SNPs and promoters we identify during the collaboration in order to grow, commercialize and sell wheat products containing those genes, SNPs, or promoters.
Diligence Obligations
Pursuant to the amended Bayer Wheat Agreement, both us and Bayer are subject to certain minimum diligence obligations, which relate to our respective responsibilities under the
agreement: our own diligence obligations surround the discovery of candidate genes, SNPs and promoters; Bayer’s diligence obligations include the evaluation of a specified number of genes,
SNPs and promoters for the purpose of ultimately developing and commercializing products containing the genes, SNPs or promoters. For example, we are obligated to provide Bayer with a
certain minimum number of reports reviewing candidate promoters that we have identified as having the potential to improve desired traits when used with appropriate genes in wheat; for its
part, Bayer may introduce our promoters into wheat plants and perform trials with the goal of ultimately developing and commercializing products containing our licensed promoters.
Various provisions under the Bayer Wheat Agreement lay out the consequences of either party’s failure to perform its diligence obligations. Absent certain extenuating circumstances,
if we fail or are delayed in delivering the specified number of gene, SNP or promoter reports, we may have to complete and deliver the missing deliverables over an extended timeframe. Under
certain circumstances, Bayer may also be able to terminate the research and development program under the agreement. If, on the other hand, Bayer does not fulfill its obligations, including its
development obligations, within the relevant timeframes under the agreement, Bayer may lose its license to the relevant genes or promoters, and for SNPs, Bayer’s license to the relevant SNPs
may become non-exclusive.
Change in Control
If we experience a change of control, the Bayer Wheat Agreement would remain in effect. However, if we come under the control of a Bayer competitor, Bayer may elect to terminate the
research and development collaboration, including all of our activities under the collaboration. In such a case, Bayer would no longer have to provide us with annual research payments.
Consideration and Costs
As of December 31, 2014, we had received approximately € 11.5 million in research payments under the Bayer Wheat Agreement, including an up-front payment upon entering the Bayer
Wheat Agreement. In March 2015, we received an additional amount of € 0.8 million. We are not expected to receive additional research and development payments during the collaboration
period. However, part of the payments received in 2014 and 2015, were accounted for as deferred revenues and will be recognized between now and the completion of our research and
development activities under the collaboration, which, subject to a right of earlier termination, is scheduled to occur in 2017. Bayer also agreed to make certain milestone payments upon the
achievement of agreed-upon results. In the event that Bayer launches commercial wheat products containing one or more of our licensed genes or SNPs, Bayer will have an obligation to provide
us with royalty payments based on the additional sales value conferred by the improved crop trait we identify for Bayer. Under our agreement, Bayer is required to use at least the specified levels
of diligence in developing and commercializing the applicable products. Furthermore, Bayer’s royalty obligations run for periods specified based on patent coverage in the applicable country
and/or a minimum period post-launch.
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In connection with entering into the Bayer Wheat Agreement, in January 2011 Bayer purchased 863,310 of our ordinary shares at a price per share of $13.90, for an aggregate investment
of approximately $12.0 million.
2009 Collaboration Agreement
Our first collaboration agreement with Bayer, entered into in April 2009, as amended and restated in June 2011, which we refer to as the “Bayer Rice Agreement,” required us to use our
seed trait know-how and our computational technologies to identify genes that have the potential to improve the yield of rice under standard, abiotic, and sub-optimal nutrient conditions. The
collaboration period under the Bayer Rice Agreement expired in April 2012. However, while this date marked the end of our own active research efforts with respect to rice-improving genes,
Bayer remains responsible under the agreement to provide us with milestone and royalty payments should it decide to advance our candidate genes or related technology in its product
development pipeline or license the genes or related technology in future rice products.
DuPont
2011 Collaboration Agreement
Background and Duties
In 2011, we entered a multi-year research and development collaboration with DuPont to improve resistance to Asian Soybean Rust, or “ASR”, a devastating fungal disease in soybean.
We amended and expanded the agreement with DuPont in October 2013. Pursuant to this collaboration, we apply our proprietary ATHLETE™ computational discovery technology to identify
relevant genes having the potential to improve in-plant resistance to ASR. Under the October 2013 amendment, we also added the application of our Gene2Product™ computational technology,
enabling us to improve the efficacy of desired traits. The collaboration period under this agreement, including the stages of data generation, gene discovery, and preliminary testing by DuPont,
is expected to last for approximately six years.
License Grants
Under the 2011 agreement, we granted DuPont a worldwide, royalty-bearing, exclusive license to develop and commercialize soybean products containing our licensed genes. We also
granted DuPont an option, limited in time, to obtain an exclusive license to use the licensed genes for certain products other than soybean.
Diligence Obligations
The research program under this agreement is to be carried out in accordance with agreed timelines set forth in a project plan. In addition, we have diligence obligations that require us
to identify a minimum number of genes intended to improve the target trait (i.e., ASR in-plant resistance), and to provide DuPont with a minimum number of reports describing such identified
genes. DuPont’s diligence obligations, on the other hand, require it to test a specified number of genes before advancing any qualified genes through its product development pipeline. If
DuPont fails to meet its obligations, some or all of the licenses it received under the agreement may terminate. In addition, under the 2011 agreement, DuPont is also obliged to use commercially
reasonable efforts to advance, develop and commercialize products containing our licensed genes. However, at all times, DuPont retains the discretion to stop advancing or developing any
products that it determines are not commercially viable, but only at the possible cost of losing some or all of the licenses it was granted.
Termination and Change in Control
Either party has the right to terminate the research project, with or without cause. The precise effects of such a termination depend on the point in time at which the right is exercised, but
generally, the agreement allows the non-terminating party to continue with the project alone and at its own cost.
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The 2011 agreement with DuPont does not automatically terminate upon our undergoing a change in control. However, if we experience a change in control to one of DuPont’s major
competitors, DuPont may elect to terminate the agreement entirely, or terminate certain unexercised co-investment options (described below). If the agreement is terminated as a result of our
change in control, DuPont’s licenses relating to genes that confer ASR-tolerance would terminate. Nevertheless, even following a change of control to a competitor, DuPont would retain a non-
exclusive, royalty bearing, worldwide license to the genes discovered under the collaboration for traits other than ASR in certain specific crops.
Consideration and Costs
As with our other research and development collaborations, our compensation under the 2011 agreement with DuPont is in the form of milestone payments and royalty payments based
on the sales of resulting products. However, unlike our other collaborators, DuPont is not funding the costs of our research and development through annual research and development services
payments; rather, we are funding the discovery phase using our own resources and a grant from the Israel-U.S. Binational Industrial Research and Development Foundation, or BIRD, while
DuPont is covering the cost of all downstream expenses. This arrangement likely provides us with higher milestone and royalty payments than in our other collaborations where our collaborators
fund both our research and their own development costs. In addition, we hold a contractual option to co-invest in the development costs for greater royalty percentages downstream if a product
is successfully commercialized.
Syngenta
Background and Duties
Our multiyear collaboration with Syngenta, commenced in June 2009 and amended and restated in September 2013, focuses on another highly sought soybean trait: soybean cyst
nematode, or SCN, resistance, along with resistance to other nematode species. The nematode is a soil parasite that attacks the roots of developing plants with significant yield-limiting results.
The agreement is focused on identifying and developing genes targeting this trait in soybeans. However, Syngenta has a right of first negotiation to expand the scope of the agreement to cover
additional crops. The research period under the agreement is expected to last until March 2017, and the collaboration is currently in Phase I testing by Syngenta.
Under this agreement, we use our ATHLETE™ computational technology to assemble and mine our genomic database in order to identify and prioritize genes with the potential to
improve nematode tolerance. In addition, we are also to apply our PlaNet computational technology to make “gene stacking” recommendations, indicating whether certain identified genes can be
combined with other genes to jointly impact SCN resistance. After we provide Syngenta with such genes, Syngenta is to validate the genes in the validation system generally used in Syngenta’s
product development program, a process that is currently ongoing. Syngenta is obliged to test a specified number of genes and use commercially reasonable efforts to evaluate and advance the
development of products containing our licensed genes, or alternatively, to abandon them, in which case we will have the right to develop and commercialize the applicable genes in the target
crops. If Syngenta fails to carry out its diligence obligations in regards to any relevant gene it may forfeit its rights and options to such gene in soybean.
License Grants
Pursuant to the agreement, we granted Syngenta an exclusive license to develop and commercialize, solely for transgenic applications, soybean products containing certain genes
identified as a result of the collaboration. Syngenta also holds an option to obtain a commercial license for non-transgenic application of the licensed genes in soybeans, although this option
must be exercised within a certain period following final gene selection. Finally, we also granted Syngenta a limited in time, first right to negotiate commercial licenses to use the licensed genes in
additional plant varieties. In return, Syngenta granted us an exclusive right to develop and commercialize products containing the licensed genes, with the payment of certain proceeds to
Syngenta, but only using crops other than those already reserved for Syngenta.
Diligence Obligations
Syngenta is required to use commercially reasonable efforts to evaluate and progress the licensed genes in its product development programs, with the aim of developing and
commercializing soybean products using our licensed genes. However, at all times, Syngenta retains the discretion to stop advancing or developing any products in its sole discretion, but only
at the possible cost of losing its rights to such genes. Among other things, the diligence obligations require Syngenta to perform minimum numbers of validation experiments.
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Termination and Change in Control
In addition to each party’s right to terminate the agreement upon a material breach by the other party, Syngenta may terminate the agreement (i) at any time without cause or (ii) if we
experience a change of control to certain identified Syngenta competitors, provided, however, that the termination right in respect of a change of control is subject to certain exceptions. In both
such cases, if Syngenta exercises its termination right, it must assign all of its rights in certain intellectual property to us, and we will then have the exclusive right to develop and commercialize
the licensed genes in any crop, without any obligation to Syngenta.
Consideration and Costs
In addition to milestone payments and royalty payments based on sales, Syngenta funds our research costs under the agreement.
Biogemma
Background and Duties
In 2006, we entered a joint research and collaboration agreement with Biogemma SAS, a subsidiary of Limagrain, focusing on improving yield and abiotic stress tolerance in corn. In
2010, we signed a license agreement, replacing the commercialization provisions of the 2006 agreement, and enabling Biogemma and its shareholders (Limagrain, RAGT, Euralis, Sofiproteol and
Unigrain) to pursue commercialization of corn products containing our licensed genes. This later agreement remains in effect. This marked the first time we entered into a license agreement with a
collaborator for genes that were already tested in field trials involving the target crops. The license agreement with Biogemma is also our only current agreement that has entered Phase II of our
product development cycle.
In the early stages of the 2006 agreement, we provided Biogemma with candidate genes that we identified using our ATHLETE™ computational technology, as well as data regarding
those genes. We and Biogemma then jointly selected the most promising candidate genes for further validation and testing.
License Grants
Under the 2010 license agreement, we granted Biogemma an exclusive, worldwide, royalty-bearing license to (i) transgenically introduce specified genes into Biogemma corn products for
research and development purposes, and (ii) commercialize and sell corn products containing our licensed genes. Pursuant to the license agreement, Biogemma will continue to test the impact of
the licensed genes in its own research and development program.
Diligence Obligations
Under the 2010 license agreement, Biogemma is required to use its best efforts to develop, launch and market corn products containing our licensed genes and must achieve certain
milestone events within specified timeframes. If it fails to meet those obligations, it may forfeit its license for the relevant gene.
Termination
In addition to each party’s right to terminate the 2010 agreement upon a material breach by the other party, or upon the commencement of bankruptcy proceedings against the other
party, Biogemma has the right to terminate the license agreement at any point, if Biogemma determines that the licensed genes will not result in a commercially viable product. Should Biogemma
exercise this right, Biogemma would forfeit its licenses.
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Consideration and Costs
The license agreement provides for several one-time research and development services payments to cover our prior research and development efforts, milestone payments, and royalty
payments. In 2010, Biogemma accounted for 16.9% of our revenues. Since then, our revenues from Biogemma have decreased substantially.
Marrone Bio Innovation Inc. (MBI)
Background and Duties
In 2014, we entered a multi-year collaboration with MBI targeting the joint discovery of novel modes of biological action for insect control, utilizing MBI's expertise in the microbial-
based solutions for pest control and plant health and our computational gene discovery capabilities, followed by the independent development and commercialization of new insect control
products by each of the companies. The research program under the agreement is to be carried out in accordance with a project plan, which sets forth the respective activities to be performed by
us and MBI under agreed timelines.
License Grants
Under the agreement, we and MBI obtain a worldwide, royalty-bearing, exclusive license to use genes and biochemicals identified under the collaboration, for us to develop and
commercialize biotechnology seed products and for MBI to develop and commercialize ag-biological products.
Termination
Either party has the right to terminate the research project, with or without cause. The precise effects of such a termination depend on the point in time at which the right is exercised.
Consideration and Costs
Each of MBI and us bears its costs in performing its activities under the research program, using its own resources and a grant from the Israel-U.S. Binational Industrial Research and
Development Foundation (BIRD). Under the terms of the agreement, either party is entitled to royalty payments from sales by the other party of commercial products containing genes or
biochemicals identified under the collaboration.
A Multinational Consumer Goods Company
Background and Duties
In October 2014, we entered into a Collaboration Agreement with a multinational consumer goods company, focusing on improving yield in a certain field crop through non-GM
methods. This is our first collaboration with a food producer and it differs in certain commercial aspects from the typical model of our collaborations with seed companies. The agreement
significantly limits the parties' freedom to disclose information on the nature of and the parties to the agreement.
In the framework of the collaboration, we utilize ATHLETE™, our computational gene discovery technology, to identify genes with the potential to improve the desired trait in the target
crop when the expression of such genes in the plant is modified. Unlike other collaborations where typically our partners test the performance of our genes in the target crops, under this
collaboration we generate new varieties of the target crop using a molecular biology method known as TILLING, and further test the performance of these new varieties before we deliver them to
our partner for further development. It is expected that our activities under the collaboration will be performed over a period of approximately three and a half years.
License Grants
Under the agreement, we grant the partner an exclusive worldwide license to our patents and know-how with respect to the genes we identify under the collaboration and to our rights in
the varieties of the target crop we deliver under the collaboration, to develop and commercialize varieties of the target crop through non-GM methods.
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Diligence Obligations
The agreement sets forth a scheme for the development by our partner of the varieties we generate. If our partner fails to achieve the milestones required under such scheme, we may
require it to forfeit its licenses to the relevant genes and varieties.
Termination
In addition to each party’s right to terminate the agreement upon a material breach by the other party, or upon the commencement of bankruptcy proceedings against the other party,
either party may terminate the agreement at any point, at its discretion. Upon termination, our partner would forfeit its licenses.
Consideration and Costs
The agreement provides for several one-time research and development payments to cover our research and development efforts, payable in increments subject to our deliveries under
the collaboration as well as for milestone payments by partner upon achievement of certain development milestones. The agreement does not provide for payment of royalties to us following
commercialization of a product containing our trait.
Other collaborations
We have also entered into several other collaboration and license agreements with other companies in the agriculture industry as follows:
§ In 2004, we entered a collaboration with the Centre de Coopération Internationale en Recherche Agronomique pour le Développement, or CIRAD, which is dedicated to research and
development of agricultural technology in developing countries, on the development of GM cotton showing improved abiotic stress resistance.
§ In 2004, we entered a collaboration agreement with Zeraim Gedera Ltd. for salt tolerance in tomato.
§ In 2007, we entered a collaboration agreement with Pioneer DuPont on the improvement of yield and tolerance to abiotic stress in corn and soybeans.
§ In 2007, we entered a collaboration with Rahan Meristem, or Rahan, an Israeli company dedicated to growing, cultivating and marketing banana plants, on the development of banana
varieties showing increased tolerance to the black sigatoka fungus.
§ In 2008, we entered a license agreement with CBD Technologies Ltd., for the license of certain promoters in cotton.
§ In 2008, we entered a collaboration with Viterra Inc., a publicly traded Canadian agriculture company that develops and tests varieties of grains and oilseeds, for the development of
transgenic canola and rapeseed plants that demonstrate improved yield and abiotic stress tolerance.
§ In 2012, we entered a collaboration with Rasi Seeds Ltd., or Rasi, a leading developer and marketer of rice seeds and other crops in India, in the field of yield and drought tolerance in
rice.
§ In 2013, we entered a collaboration with Beijing Dabeinong Technology Group Co., Ltd, a publicly traded Chinese developer and marketer of seeds, particularly rice, for improvement of
drought tolerance and the efficient use of fertilizer in rice.
Seeds
Evofuel's goal is to supply advanced seeds to agribusiness and large-scale growers, oil and biodiesel producers world-wide. Evofuel proposes to offer its customers a complete package
of sustainable advanced castor seeds with agronomic protocols guiding how castor crop should be grown and managed in order to be efficiently produced to address market needs. We
collaborate with leading agriculture and biofuel companies in order to develop castor varieties suitable for large scale production and to demonstrate castor economics in target locations (e.g.
Brazil and Argentina). While our core competencies rest in upstream-feedstock development, our collaborations are involved on downstream processes in value chain.
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SLC Agricola
In 2010, we entered into a collaboration agreement with SLC Agricola, a leading agribusiness and producer of soybean, corn and cotton in Brazil. We extended the term of the
collaboration agreement in 2011, and again in 2012. In September 2013, we completed our third year of field trials in SLC Agricola’s farms in northeast Brazil, and in 2014 we initiated advanced
product development and pre-commercial trials. Our goals under this agreement were to evaluate and identify castor bean varieties displaying economic yields under rain-fed conditions, and to
develop more effective agronomic methods for growing castor bean crops. In March 2014 we expanded our collaboration agreement with SLC for the commercial production of Evofuel-developed
castor bean varieties in Brazil, expected to take place during 2016. The agreement provides for the allocation between SLC and Evofuel of revenues from sales of castor bean grain to local oil
producers.
Pursuant to the Agreement, between 2014 and 2016, the companies will cooperate on scale up and pre-commercial activities for grain production, as well as development of best
practices for agronomic management of castor bean in SLC’s commercial production units. Evofuel will provide SLC Agricola with castor bean seeds that can be grown on SLC Agricola’s
plantations in northeast Brazil. We have also committed to providing SLC Agricola with technical growth protocols and guidance for growing the castor bean crops. SLC Agricola will be
responsible for providing the land, employees, equipment, and other infrastructure needed to grow the castor bean crops. Our employees manage and supervise the execution of the
collaboration agreement, visiting the SLC Agricola plantations and supervising the analysis and selection of the most promising castor bean varieties. Each party bears the costs incurred in
connection with its own activities under the collaboration agreement.
All intellectual property that results from the collaboration—whether in the form of data, inventions, growth protocols, patents, or trade secrets—vests solely with us, and does not
accrue to SLC Agricola. Both parties may terminate the agreement without cause, except that no termination is possible when any castor bean project has entered the growing season.
T6
In 2012, we entered into a collaboration agreement with T6, an Argentinian company that produces and supplies biodiesel to both domestic and foreign markets. The purpose of the
agreement with T6 is to determine whether certain castor bean varieties can be used as a sustainable and cost-effective source for the production of biodiesel. While this agreement was
originally set to expire in May 2014, in December 2013 it was extended until December 2014, and in December 2014 it was extended once again until December 2015.
Specifically, we are to provide T6 with castor bean seeds, and we are to guide and advise T6 with respect to castor bean growth protocols, storage and disposal. For its part, T6 is to
provide us with field-trial infrastructure, including land, labor and equipment. While T6 is responsible for collecting data from the field trials, our agronomists and breeders analyze and select
those castor bean varieties showing the greatest potential as second-generation biodiesel feedstock. T6 has agreed to refrain from growing, harvesting, or analyzing the castor bean varieties for
any purpose other than that specified in the agreement. T6 is prohibited, for instance, from attempting to commercialize castor bean products resulting from the collaboration. While we hold all
rights to the intellectual property created by and during the collaboration, T6 retains ownership of any intellectual property relating specifically to the conversion of castor oil into biodiesel. The
agreement specifies that we and T6 will work jointly to obtain any permits or licenses required to import and use castor bean seeds in Argentina. We and T6 have each agreed to fund our own
costs under the agreement. Either party can terminate the agreement without cause, except that no termination is possible when any project castor bean has entered the growing season.
Insolo Agroindustrial
In early 2015, we entered into a collaboration agreement with Insolo Agroindustrial S.A., a Brazilian agribusiness and producer of soybean in Piaui state in the northeastern part of Brazil.
46
The target of the two-year collaboration agreement is to evaluate the agronomic and economic benefits of growing Evofuel's castor varieties as a second crop solution for Insolo farms
located in the Cerrado, while developing the agronomic know-how to integrate castor into Insolo's production system. According to the collaboration agreement, Evofuel will provide Insolo with
castor bean seeds as well as technical growth protocols and agronomic guidance. Insolo, on its part, will provide the land, employees, equipment and other infrastructure required for growing the
castor bean crops.
All intellectual property rights relating to the castor varieties vest solely with us. Both parties may terminate the agreement at will, other than during the growing season.
Case New Holland – CNH
In December 2012 we entered an agreement with CNH Industrial Latin America Ltda., a subsidiary of CNH Industrial N.V., for the development of a customized combine for mechanized
harvesting solution for castor. The collaboration has recently been extended until December 2015.
The collaboration is set to introduce a customized solution for the large-scale harvesting of Evofuel castor bean varieties in Latin America based on adaptations to CNH Industrial’s
brands’ existing grain combine harvesters. The solution is custom-designed to harvest Evofuel proprietary dwarf castor varieties that are suitable for mechanized harvest.
Embrapa
In October 2014 we entered a joint research agreement with the Brazilian Agricultural Research Corporation (Embrapa), Brazil’s leading agricultural research institution, for the
advancement of castor cultivation in Brazil. The cooperation primarily focuses on technologies for controlling castor-specific diseases as well as practices for castor cultivation in rotation with
soybean.
Competition
Our market is characterized by intense commercial and technological change, and we face significant competition in many aspects of our business. The seed and ag-chemical market in
particular is highly consolidated and dominated by a relatively small number of large companies. In order to provide their customers (mostly farmers) with cutting-edge products, these companies
invest substantial resources in the development of seeds, traits, seed external products and agronomic methods and products. Part of these companies’ research and development activity is
conducted in-house and part of it is outsourced. Generally, the competitors in our industry can be divided into three groups: (i) seed and ag-chemical companies, including Monsanto, DuPont,
Syngenta, Bayer, Biogemma, BASF, Dow and KWS, with internal research and development units dedicated to development of seed traits and seed external products; (ii) small- to mid-size
biotech companies specializing in plant trait enhancement with their own seed trait development programs, including Targeted Growth, Inc., Hexima and Keygene; and (iii) academic and
agricultural research institutions that grant licenses to third parties for the use of identified genes and other DNA fragments.
We believe that our competitive advantage lies in our ability to assemble large amounts of genomic and phenotypic data and to analyze that data using our key computational
technologies, enabling us to identify and prioritize genes, targets and chemical molecules more accurately, efficiently and quickly than is common in our industry. In addition, we continue to
accumulate and expand our plant genomic database, drawing partly on publicly available data, partly on our plant experiments and field trials, and partly on research and experimentation results
from our collaborators. Certain seed and ag-chemical companies specializing in seed traits may, however, have genes that are in more advanced stages of product development and
commercialization, and these genes may relate to or directly compete with the same seed traits we are currently developing. To remain competitive in our industry, we pursue three main
strategies: first, we invest in the improvement of our key technologies, focusing especially on our proprietary computational technologies. Second, we focus on increasing our gene discovery
capabilities and improving our plant validation systems, thus enhancing our ability to discover and classify new genes in greater numbers. Finally, we seek to protect our intellectual property
rights through proper patent application and prosecution in the jurisdictions where we operate, including the United States, India, China, Brazil, Argentina and Canada.
47
Government Regulation
Our business is subject to regulation related to agriculture, health and the environment. To operate, we must obtain various permits and licenses from government authorities and
municipalities in our active jurisdictions, and we must maintain our compliance with the terms of those permits, licenses and other government standards as necessary. These laws and
regulations, particularly in relation to biotechnology, are not fully settled, but continue to evolve in order to keep pace with technological advances.
While our expertise may contribute to the downstream commercialization of enhanced seeds, we are not in the process of obtaining regulatory approvals required for the
commercialization of biotechnologically improved seeds. These approvals, when needed, will be obtained by our collaborators according to our collaboration agreements. Most of the key target
markets where we anticipate our collaborators will sell seeds containing our traits, including the United States, Brazil and Argentina, will require such regulatory approvals prior to the
commercialization of such products.
As an Israeli company, our activities in the fields of biotechnology and plant genomics are regulated by the Israel Ministry of Agriculture and Rural Development, or ISARD, and more
specifically by the ISARD’s Plants Protection and Inspection Services, or PPIS. Our activities are subject to various laws, regulations, orders and procedures, which require us, among other
things, to obtain permits for conducting experiments on genetically enhanced plants and to satisfy special conditions determined by the ISARD regarding the growing procedures of such seeds
and plants. Violation of these regulations may expose the company to criminal penalties. Pursuant to these regulations, we are also obligated to obtain separate permits to own and operate our
greenhouses and testing fields in Israel and we are routinely inspected by ISARD.
Our activities, as well as those of our subsidiary, Evofuel, in the field of seeds and biofuels, are regulated by the Ministry of Environmental Protection. Pursuant to these regulations, we
are required, among other things, to (i) obtain toxins permits, which allow us to conduct experiments using “hazardous materials,” as such term is defined in the applicable regulations, and (ii)
follow special rules regarding waste disposal. Violation of these regulations may expose the company to criminal penalties, administrative sanctions and responsibility to compensate the injured
for any environmental damages.
Regulations of Products Containing Our Traits
Regulatory approvals are required prior to the commercialization and importation of biotechnologically enhanced seeds in most countries. Most of the key target markets where we
anticipate our collaborators will sell seeds containing our traits, including the United States, European Union, Brazil and Argentina, will require such regulatory approvals prior to the
commercialization of such products. Additional regulatory approvals will be required for countries importing grain produced from seeds containing our traits, such as China, India and certain
countries in the European Union. Pursuant to our collaboration agreements in the field of seed traits, our collaborators will apply for all requisite regulatory approvals prior to commercialization of
the products we are developing with them.
Examples of regulations our collaborators may need to apply for include, in the United States, approvals required by the USDA prior to the commercial sale of genetically modified
products. The USDA’s review and deregulation process for biotech products is costly and time-intensive, with no guarantee of success. In the United States, collaborators may also need to seek
regulatory approval from the United States Environmental Protection Agency, or EPA, which regulates the marketing and use of new plant pesticides and herbicides. In addition, in Brazil, the
commercialization of biotech products is regulated by the National Technical Commission of Biosafety, Comissão Técnica Nacional de Biossegurança, or CTNBio under the Ministry of Science
and Technology. The approval process involves data collection and analysis, environmental impact assessments and public hearings on certain products, and is similarly costly and time-
intensive.
48
C. Organizational Structure
As of the date of this report, we held directly and indirectly the percentage indicated of the outstanding capital stock of the following subsidiaries:
Name of Subsidiary
Evofuel Ltd.
Evogene Inc.
Leviev-Evogene Namibia (PTY) Ltd.
D. Property, Plants and Equipment
Jurisdiction
Israel
Delaware
Namibia
Ownership
Interest
100%
100%
100%
Our principal facility is located in Rehovot, Israel and consists of 3,209 square meters (approximately 34,500 square feet) of leased office space. This facility accommodates our corporate
offices, our molecular labs and our Crop Protection labs. The lease for the corporate offices and molecular lab facility expires on December 31, 2015, and we have an option to renew the lease for
an additional three- year term. The lease for the Crop Protection labs expires on March 31, 2017 and we have an option to renew the lease for an additional 21 months.
We perform most of our research and plant validation work at our “Evogene Farm,” located on two adjacent lots we lease outside Rehovot. The first lot is subject to three leases. The
first lease covers approximately 1,110 square meters (or approximately 11,950 square feet) of land, and expires on April 30, 2017. The second lease covers approximately 13,000 square meters (or
approximately 140,000 square feet) of land, and expires on February 1, 2016. Pursuant to an extension option, we may extend the term of the second lease for an additional period of up to three
years. The third lease covers approximately 9,000 square meters (or approximately 97,000 square feet) of land, and expires on December 31, 2016. Pursuant to an extension option, we may extend
the term of the third lease for an additional period of up to five years. The lease for the second lot covers 10,000 square meters (approximately 108,000 square feet) and, pursuant to an extension
option, expires on October 1, 2016. The Evogene Farm contains 35 greenhouses, which are used for gene validation in model and target plants, plant propagation, and plant nurseries. In addition,
the Evogene Farm contains warehouses, office facilities and seed banks.
We are in the process of establishing a research and development facility in the Bio-Research and Development Growth (BRDG) Park, developed by Wexford Science & Technology, a
BioMed Realty Company, on the campus of the Donald Danforth Plant Science Center in St. Louis, Missouri. We signed on a Letter of Intent for approximately 6,000 square feet lab facility to
accommodate our Insect Resistance research.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
Not applicable.
49
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2014 and related notes and the
information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board.
This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. As a result of many factors, such as those set forth under “Item 3.D. Risk
Factors” and “Special Note Regarding Forward-Looking Statements,” our actual results may differ materially from those anticipated in these forward-looking statements.
Summary
We are a plant genomics company that uses a comprehensive and integrated technology infrastructure to enhance seed traits underlying crop performance and productivity through
biotechnology and advanced breeding methods. We have strategic collaborations with world-leading agricultural companies, primarily to develop traits for improved yield and abiotic stress
tolerance (such as improved tolerance to drought, heat and salinity) and biotic stress resistance (such as resistance to disease, pests and insects). The products we develop are focused on
essential crops, including corn, soybean, wheat, rice and cotton. We also apply our technology infrastructure to two additional fields: (i) seed-external (such as herbicides and other ag-chemicals
applied by the grower in the field) and (ii) seeds, both of which have not yet generated revenue and are in the development stage.
We were founded in 2000 as a division of Compugen Ltd., or Compugen, and spun-off as an independent company in January 2002.
In November 2013, we closed our IPO, at which time we sold a total of 5,750,000 ordinary shares. We received total net cash proceeds of $76.8 million, which represents gross proceeds
of $84.8 million net of underwriting discounts and commissions and other costs associated with the offering.
We currently generate all of our revenues from our seed trait business, and these revenues are principally derived from our collaboration agreements and related arrangements with our
collaborators. Our products are currently in the development stage.
We currently participate in more than ten collaboration agreements that cover 24 different products in various stages of development. Through these collaborations with some of the
world’s leading agricultural companies, such as Monsanto, Bayer, DuPont and Syngenta, we have developed a balanced and scalable business model. We currently generate revenues from our
collaboration agreements through both research and development services payments covering the costs of our gene identification and validation efforts, and milestone payments received upon
achieving certain specified results. Our collaboration agreements with these companies also usually provide that we are entitled to receive milestone payments and royalties on any seeds that
our collaborators commercialize that integrate a trait we have licensed to our collaborators. While we currently do not earn royalties from the sale of any such seeds, we expect to begin earning
revenues from royalties in at least six years, and our long-term growth strategy is based in part on the expectation that such royalties will comprise a significant portion of our future revenues.
The termination or non-renewal of our agreement with Monsanto and Bayer would have a material adverse effect on our business, financial condition, results of operations and prospects.
Our total revenues decreased by $3.1 million, or 17.5%, from $17.6 million for the year ended December 31, 2013 to $14.5 million for the year ended December 31, 2014. Our revenues
increased by $0.5 million, or 2.9%, from $17.1 million for the year ended December 31, 2012 to $17.6 million for the year ended December 31, 2013.
Our revenues from R&D payments decreased by $0.8 million, or 5.5%, from $15 million for the year ended December 31, 2013 to $14.2 million for the year ended December 31, 2014. Our
revenues from R&D payments increased by $1.1 million, or 8%, from $13.9 million for the year ended December 31, 2012 to $15 million for the year ended December 31, 2013.
50
Our future growth will depend, in part, on our ability to maintain and improve upon our collaboration agreements with our current collaborators and adapt to continuous technological
change in our industry. It will also depend in part on our ability to enter into new collaboration agreements and expand our research and development to new traits and crops.
In February 2015, we announced the signing of a Letter of Intent with plans to establish a research and development facility in the Bio-Research and Development Growth (BRDG) Park,
in St. Louis, Missouri, united states. The establishment of the facility is a key component of the Company's previously disclosed entry into the field of insect control.
In 2015, we expect to continue focusing on executing and advancing our existing collaborations by leveraging our relationships with industry leaders in order to expedite our genes and
genetic components towards commercialization with a view to generating significant milestone and royalty revenues and to enhance our competitive advantage by further investing in our
technology infrastructure and research and development capabilities. We also intend to further develop our ag-chemical operations as well as the activities of our subsidiary Evofuel. We also
intend to complement our revenue streams by selectively self-funding a larger portion of our direct initial research and development costs, with the goal of capturing a larger share of our
collaborators’ future revenues.
Key Measures of Our Performance
Revenues
Our revenues are principally derived from our collaboration agreements and related arrangements with our collaborators. A substantial majority of our current collaboration agreements
focus on developing traits to be integrated into seeds through genetic modification; our GM projects therefore generate the majority of our revenues from research and development services.
The other component of our seed trait operations, advanced breeding, generates only a small portion of our revenues from research and development services. Revenues from our collaborators
with Monsanto and Bayer, accounted together for approximately 87% of our revenues for the year ended December 31, 2014, of which Monsanto accounted for approximately 60% and Bayer
accounted for approximately 27% of our total revenues. See “Item 4.B. Business Overview—Key Collaborations.” Under our collaboration agreements and related arrangements, our revenues are
paid to us in the following four different forms of payments:
Periodic Payments for Research and Development Services
Periodic payments for research and development services are payments we receive primarily on a quarterly basis from our collaborators as consideration for the research and
development services we provide them. Revenues from periodic payments for research and development services performed under our collaboration agreements amounted to $13.7 million and
accounted for 94.4% of our total revenues for the year ended December 31, 2014. We have not yet generated any revenues from our ag-chemical business and from our seeds focusing on second
generation feedstock for biodiesel.
Up-front Payments
We also derive a portion of our revenues from up-front payments made under our agreements with Monsanto and Bayer. Up-front payments primarily represent payments we received
upon entering into collaboration agreements for research and development services. These up-front payments are recognized as revenues over the duration of the relevant contract based on the
proportion of actual costs incurred for each reporting period to the estimated total costs of the collaboration. Revenues derived from up-front payments under our agreements with Monsanto
and Bayer amounted to approximately $0.5 million and accounted for approximately 3.4% of our total revenues for the year ended December 31, 2014.
Share Purchases
We also entered into share purchase agreements with Monsanto and Bayer, which were signed in contemplation of our collaboration agreements with them. We attribute the proceeds
from arrangements under these agreements to the value of our ordinary shares issued to Monsanto and Bayer at the time of the investments as well as to the services we perform under the
collaboration agreements. As a result, we recognize as revenues the excess payment, which is the consideration investors paid for our ordinary shares over the market value of our ordinary
shares traded on the TASE at the time of the investment. This excess payment is recognized as revenues beginning on the date of the investment, for the duration of the contract based on the
proportion of actual costs incurred for each reporting period to the estimated total costs of the collaboration. We also recorded revenues with respect to Monsanto’s put option. We recognized
as revenues the fair value of the put option with Monsanto throughout the term of the agreement, based on the proportion of actual costs incurred for each reporting period to the estimated total
costs of the collaboration. Total revenues from the excess amounts on the purchase of our ordinary shares by Monsanto and Bayer as well as the Monsanto put option amounted to $0.3 million
and accounted for approximately 2.2% of our total revenues for the year ended December 31, 2014.
51
Milestone Payments
We also derive, to a lesser extent at this stage of our business, a portion of our revenues from milestone payments paid by our collaborators upon the occurrence of certain specified
events pursuant to the agreements with our collaborators. We did not record revenues for the year ended December 31, 2014 from milestone payments.
Most of our agreements with collaborators also provide for royalty payments based on the sales or transfer of products our collaborators develop that contain the traits we discover and
license to them. The calculation of royalties varies by collaboration, and is typically based on the value that the trait we provide adds to the end product. For example, the royalties we expect to
be entitled to receive pursuant to our collaborations with Monsanto and Bayer will be a percentage of the commercial value conferred by the trait we provide on the end product Monsanto or
Bayer sells. Pursuant to our collaboration with Rasi Seeds, however, our royalties will be a percentage of the commercial value conferred by the trait we provide on the end product in addition to
a percentage of the net revenues of the end product. We have not yet generated revenues from such royalties, and may not commence generating significant royalties for at least six years.
Geographical Breakdown of Revenues
The following table presents net revenues by geographic breakdown of customers in dollars and as a percentage of net revenues for the periods indicated. This data refers to the
location of the customer to whom we directly sell and does not take into consideration the location of the end-user (to the extent it is different).
Geographical Region:
United States
Germany
France
Other
Total
Cost of Revenues
2014
Year ended December 31,
2013
2012
73 %
27 %
—
—
100 %
66 %
32 %
—
2 %
100 %
72 %
24 %
4 %
—
100.0 %
Cost of revenues primarily consists of development costs incurred in conjunction with our collaborations, which include salaries and related personnel costs (including share-based
compensation) for our research and development employees working on the collaborations, payments to third party suppliers that assist us in producing genomic data and the cost of disposable
materials (such as seeds, laboratory supplies, fertilizer, water and soil). Cost of revenues also includes operational overhead costs such as depreciation of our plant, property and equipment,
costs related to leasing and operating our office and laboratory facilities and greenhouses) and expenses related to retaining advisors, which primarily consist of biological experts.
Operating Expenses
Research and Development Expenses: Research and development expenses consist of costs related to our internal or independent research and development activities, as opposed to
development costs incurred in connection with our collaborations (which are included in cost of revenues). These activities include developing and improving our computational, scientific and
validation technologies, know-how and capabilities used by our various divisions as well as research and development focused on developing our ag-chemical and seeds focusing on second
generation feedstock for biodiesel operations. Research and development costs include salaries and related personnel costs (including share-based compensation), operational overhead costs,
which include costs related to leasing and operating our office, laboratory facilities and greenhouses, and depreciation of plant, property and equipment. Expenses related to our intellectual
property, such as legal and other costs associated with patent applications, are also included as research and development expenses. We expect that our research and development expenses will
continue to increase on an absolute basis as we develop our ag-chemical and insect resistance operations and expand our independent research and development projects.
52
Business Development Expenses: Business development expenses consist of costs primarily related to maintaining our relationships with our collaborators and establishing new
collaborations. These costs include salaries and related personnel costs (including share-based compensation), expenses incident to foreign business travel and legal expenses related to our
collaborations. We expect our business development expenses will remain at the current level.
General and Administrative Expenses: General and administrative expenses include salaries and related personnel costs (including share-based compensation) for our general and
administrative employees, HR activities and employee benefits and welfare ,consulting, insurance, legal and professional services and other expenses associated with being a US listed entity.
We expect that our general and administrative expenses will remain at the current level.
Financing Income and Expenses
Financing income consists primarily of interest income on our cash bank deposits and securities, foreign currency exchange income and income related to a revaluation of the marketable
securities we hold, which consist of corporate bonds and government treasury notes. Financing expenses consist primarily of expenses related to bank charges, foreign currency exchange
expense and associated fees and expenses related to a revaluation of the marketable securities we hold. The interest due on grants received from OCS is also considered a financial expense, and
is recognized beginning on the date we receive the grant until the date on which the grant is expected to be repaid through royalties paid to OCS. Financial income and expenses in the year
ended December 31, 2011 also include non-cash financial income and expenses related to revaluations of then-outstanding publicly traded warrants granted upon our initial public offering on the
TASE in 2007 based on the change in market price of our ordinary shares. Substantially all of these warrants were exercised and the remainder expired in May 2011.
Taxes on Income
We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carryforward tax losses totaling $31 million as of December 31, 2014, to be
carried forward indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carryforward tax losses.
Segment Data
Starting January 1, 2012, following the establishment of our Evofuel subsidiary, we split our operations into two operating segments: Evogene and Evofuel. The two segments perform
the following operations:
§ Evogene: Our Evogene segment develops technologies to improve plant performance through seed traits and ag-chemicals. Our seed trait operation utilizes our expertise in plant
genomics to address yield and abiotic stress and biotic stress traits through the genetic modification or advanced breeding of seeds. Our ag-chemical operations utilize this expertise to
develop novel crop protection and crop enhancement products, including herbicides.
§ Evofuel: Our Evofuel segment develops improved species of the castor bean plant for second generation feedstock intended for use in the alternative fuel industry, specifically
biodiesel, and other industrial uses.
53
The following table presents our revenues and operating loss by segment for the period presented:
Year ended December 31, 2014:
Revenues
Operating loss
Year ended December 31, 2013
Revenues
Operating loss
Year ended December 31, 2012
Revenues
Operating loss
Evogene
Evofuel
(in thousands)
Total
$
$
$
$
$
$
14,511
(13,078)
17,581
(7,500)
17,072
(1,993)
$
$
$
$
$
$
0
(2,178)
0
(1,221)
0
(1,133)
$
$
$
$
$
$
14,511
(15,256)
17,581
(8,721)
17,072
(3,126)
Our revenues for the year ended December 31, 2014 were generated entirely from the Evogene segment. Our Evogene segment includes revenues generated from our seed trait
operations and costs associated with both our seed trait and ag-chemical operations. We do not currently generate revenues in the Evofuel segment, as Evofuel is still in the development stage.
Both of these operating segments recorded losses in 2014. The primary drivers of loss for Evofuel in 2014 were research and development and business development expenses. We expect
Evofuel to start generating revenues in 2016.
Comparison of Period-to-Period Results of Operations
The following table sets forth our results of operations as a percentage of revenues for the periods indicated:
2012
Year Ended December 31,
2013
2014
Amount
% of Revenues
Amount
% of Revenues
Amount
% of Revenues
(in thousands)
Consolidated Statements of Comprehensive loss:
Revenues:
Research and development payments, including up-
front payments
Share purchase related revenues
Total Revenues
Cost of revenues
Gross profit
Operating Expenses:
$
Research and development, net
Business development
General and administrative
Total operating expenses
Operating loss
Financing income
Financing expenses
Loss before taxes on income
Taxes on income
Loss
Unrealized loss on derivatives
Total comprehensive loss
$
13,914
3,158
17,072
9,552
7,520
7,252
1,159
2,235
10,646
(3,126)
972
(294)
(2,448)
74
(2,522)
-
(2,522)
15,028
2,553
17,581
10,114
7,467
11,107
1,517
3,564
16,188
(8,721)
1,179
(1,336)
(8,878)
—
(8,878)
-
(8,878)
81.5% $
18.5
100
56.0
44.0
42.5
6.8
13.1
62.4
(18.4)
5.7
(1.7)
(14.4)
0.4
(14.8)
-
(14.8)% $
54
85.5% $
14.5
100
57.5
42.5
63.2
8.6
20.3
92.1
(49.6)
6.7
(7.6)
(50.5)
—
(50.5)
-
(50.5)% $
14,198
313
14,511
9,709
4,802
14,022
1,851
4,185
20,058
(15,256)
2,242
(1,516)
(14,530)
—
(14,530)
(222)
(14,752)
97.8%
2.2
100
66.9
33.1
96.6
12.8
28.8
138.2
(105.1)
15.5
(10.4)
(100.1)
—
(100.1)
(1.5)
(101.7)%
Year Ended December 31, 2013 Compared to Year Ended December 31, 2014
Revenues
Our total revenues decreased by $3.1 million, or 17.5%, from $17.6 million for the year ended December 31, 2013 to $14.5 million for the year ended December 31, 2014. The decrease in
total revenues resulted mainly from a decrease in share purchase related revenues, which decreased by $2.3 million, or 87.7%, from $2.6 million for the year ended December 31, 2013 to $0.3 million
for the year ended December 31, 2014.
Total Revenues include (i) research and development payments, including up-front payments, and (ii) share purchase related revenues. We anticipate that in the long term, our primary
sources of revenues and profits will be future royalties and other revenue sharing amounts, as well as castor seed sales by its wholly owned subsidiary Evofuel.
(i) Revenues from research and development payments include periodic payments for research and development services generated under the Company's collaboration agreements with
seed companies, as well as up-front payments received under the Company's agreements with collaborators, which are recognized as revenues over the duration of the relevant agreement. R&D
revenues for 2014 were $14.2 million, compared to $15 million for 2013. The decline was primarily related to the amendment to the Company’s Bayer collaboration work plan, whereby $1.7 million
of research payments will be recognized as revenues in 2015 and onwards. This decline was offset in part by an increase in revenues associated with a new collaboration signed in 2014 with a
leading consumer goods company and the expansion of activities in certain existing collaborations, including the Company’s agreements with Monsanto and Syngenta, which were extended and
expanded in late 2013.
(ii) Share purchase related revenues result from the required accounting treatment for the past acquisitions of Evogene ordinary shares by Monsanto and Bayer, as well as the put
option agreement that we entered into with Monsanto, all in conjunction with the research and development collaboration agreements signed with these partners. Share purchase related
revenues for 2014 were $0.3 million, compared to $2.6 million in 2013. The decline in share purchase related revenues derives mainly from the amendment of the agreement entered with Monsanto
and does not reflect any current cash flow.
Cost of Revenues
Cost of revenues decreased by $0.4 million, or 4%, to $9.7 million for the year ended December 31, 2014 from $10.1 million for the year ended December 31, 2013.
Gross Profit
Gross profit decreased by $2.7 million, or 35.7%, to $4.8 million for the year ended December 31, 2014 from $7.5 million for the year ended December 31, 2013. This decrease is mainly a
result of the decrease in share purchase related revenues, as described above.
Operating Expenses
Research and Development Expenses, net. Research and development expenses increased by $2.9 million, or 26.2%, to $14 million for the year ended December 31, 2014 from $11.1
million for the year ended December 31, 2013. The increase in these expenses largely relates to expansion of self-funded activities, primarily focused on the development of new computational
genomics and validation technologies in support of both existing and new activities, mainly in our key growth engines – insect resistance, ag-chemicals and Evofuel. This increase is primarily
attributable to an increase in salaries and benefits for research and development employees due to the hiring of additional research and development personnel, an increase in the cost of share-
based compensation and an increase in expenses related to purchasing materials and engagement with sub-contractors.
55
Business Development Expenses. Business development expenses increased by $0.4 million, or 22%, to $1.9 million for the year ended December 31, 2014 from $1.5 million for the year
ended December 31, 2013. The increase reflects the company’s decision to establish dedicated Business Development capabilities within each of its four operating divisions, as well as costs
associated with ongoing efforts to introduce the Company’s business proposition to prospective partners in new and existing areas and is attributable mainly to an increase in salaries and
benefits for business development employees.
General and Administrative Expenses. General and administrative expenses increased by $0.6 million, or 17.4%, to $4.2 million for the year ended December 31, 2014 from $3.6 million for
the year ended December 31, 2013. This increase is primarily derived from an increase of $0.4 million in non-cash share based compensation to $1.3 million in year ended December 31, 2014 from
approximately $0.9 million in the year ended December 31, 2013. The increase also relates to costs associated with being a US listed entity for four full quarters in 2014, which we only incurred for
one quarter in 2013, those expenses were mainly insurance and professional fees. The increase also reflects the continued growth across the company’s operations.
Financing Income and Expenses, Net.
Financing Income. Financing income increased by $1 million, or 90.2%, to $2.2 million for the year ended December 31, 2014 from $1.2 million for the year ended December 31, 2013. This
increase is primarily attributable to an increase in interest income and capital gains derived from marketable securities which we hold.
Financing Expenses. Financing expenses increased by $0.2 million, or 13.5% to $1.5 million for the year ended December 31, 2014 from $1.3 million for the year ended December 31, 2013.
Taxes on Income
We did not record or paid taxes on income for the year ended December 31, 2014 due to our loss carry forward.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2013
Revenues
Our revenues increased by $0.5 million, or 3%, to $17.6 million for the year ended December 31, 2013 from $17.1 million for the year ended December 31, 2012. The increase in revenues
resulted mainly from an increase in periodic payments, which increased by $2.1 million, or 50.4%, to $6.3 million for the year ended December 31, 2013 from $4.2 million for the year ended
December 31, 2012 partially off-set by:
(1) a decrease in revenues from Monsanto of $1.0 million, or 8.4%, to $11.0 million for the year ended December 31, 2013 from $12.0 million for the year ended December 31, 2012. This
decrease was due to a decrease in revenues from share purchases (partially non cash) recognized as a result of our amended and restated agreement with Monsanto that was
signed on October 2013.
(2) a decrease in revenues from milestones as no milestone payments were made in 2013 as compared with the one-time milestone payment we received of $0.7 million in 2012.
Cost of Revenues
Cost of revenues increased by $0.5 million, or 5.9%, to $10.1 million for the year ended December 31, 2013 from $9.6 million for the year ended December 31, 2012. Cost of revenues
primarily increased as a result of an increase in share-based compensation for employees.
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Gross Profit
Gross profit decreased by $0.05 million, or 0.7%, to $7.47 million for the year ended December 31, 2013 from $7.52 million for the year ended December 31, 2012. This decrease is primarily
a result of the increase in cost of revenues, as described above.
Operating Expenses
Research and Development Expenses, net. Research and development expenses increased by $3.9 million, or 53.2%, to $11.1 million for the year ended December 31, 2013 from $7.3
million for the year ended December 31, 2012. These expenses largely relate to self-funded activities primarily focused on the development of new computational genomics and validation
technologies in support of both existing and new activities, such as the areas of Biotic Stress and ag-chemicals. This increase is primarily attributable to an increase in salaries and benefits for
research and development employees due to the hiring of additional research and development personnel, an increase in the cost of share-based compensation and an increase in rent and
maintenance expenses.
Business Development Expenses. Business development expenses increased by $0.3 million, or 30.9%, to $1.5 million for the year ended December 31, 2013 from $1.2 million for the year
ended December 31, 2012. This increase primarily reflects our decision to create dedicated business development capabilities in each of our four areas of focus and is attributable to an increase in
salaries and benefits for business development employees, and by an increase in the cost of share-based compensation.
General and Administrative Expenses. General and administrative expenses increased by $1.4 million, or 59.5%, to $3.6 million for the year ended December 31, 2013 from $2.2 million for
the year ended December 31, 2012. This increase amongst others reflects the substantial growth across the company’s operations. The increase primarily derives from:
(1) Increase of $0.7 million in non-cash share based compensation to $0.9 million in year ended December 31, 2013 from approximately $0.2 million in the year ended December 31, 2012.
(2) One-time expenses of approximately $0.4 million in the year ended December 31, 2013 associated with our US IPO.
Financing Income and Expenses, Net.
Financing Income. Financing income increased by $0.2 million, or 21.3%, to $1.2 million for the year ended December 31, 2013 from $1.0 million for the year ended December 31, 2012.
This increase is primarily attributable to an increase in interest income derived from marketable securities which we hold.
Financing Expenses. Financing expenses increased by $1 million, or 354.4% to $1.3 million for the year ended December 31, 2013 from $0.3 million for the year ended December 31, 2012.
Financial expense increased primarily due to a net decrease in the fair value of marketable securities we hold.
Taxes on Income
We did not record or paid taxes on income for the year ended December 31, 2013 due to our loss carry forward.
Application of Critical Accounting Policies and Estimates
Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements included elsewhere in this annual
report. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the consolidated financial statements
and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external sources
and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material adverse effect on our reported
results.
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In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its
application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different
accounting treatment for similar transactions.
We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance as these policies relate to the
more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was
not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have
selected may have had a material impact on our financial condition or results of operations.
Revenue Recognition
We recognize revenues when such revenues and the costs incurred or to be incurred in respect of the transaction can be measured reliably and when it is probable that the economic
benefits associated with the transaction will flow to us.
We have entered into collaboration agreements under which we grant to our collaborators an exclusive license to intellectual property rights for the development and commercialization
of our proprietary products. The agreements contain multiple elements, including funding from periodic payments for research and development services, up-front payments, payments based on
achievement of specified milestones and royalties on sales of products sold by our collaborators that include the licensed traits.
We assess the criteria for recognition of revenue related to up-front payments and multiple components of revenue as outlined by IAS 18, Revenue. Judgment is necessary to determine
the period over which we will satisfy our obligations related to up-front payments, when revenue components can be recognized separately and how to allocate the related consideration for each
revenue component.
Revenues from periodic payments for research and development services are recognized throughout the services period based on the proportion of actual costs incurred for each
reporting period to the estimated total costs of the collaboration, subject to the enforceable rights. Up-front payments received upon entering into the license and collaboration agreements, in
exchange for the transfer of our patented genes to licensees, are also recognized as revenues over the duration of the relevant contract based on the proportion of actual costs incurred for each
reporting period to the estimated total costs of the collaboration.
Revenues from milestone events, which are contingent upon the occurrence of certain events specified in the collaboration agreement, are recognized as revenues when the milestones,
as defined in the particular agreement, are achieved.
Share-Based Compensation
We account for share-based compensation in accordance with the fair value recognition provision of IFRS guidance on share-based compensation. Under these provisions, share-based
compensation is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally
the vesting period of the respective award. Share-based compensation expense in 2014 was $3.2 million. We selected the binomial option-pricing model as the most appropriate method for
determining the estimated fair value of our share-based compensation. The determination of the grant date fair value of options using an option-pricing model is affected by estimates and
assumptions regarding a number of complex and subjective variables. These variables include the estimated period of time that we expect employees to hold their options, the expected volatility
of our share price over the expected term of the options (estimated using historical data from prior years, including historical forfeiture rates), share option exercise and cancellation behaviors,
risk-free interest rates (based on the yields of non-index-linked Bank of Israel treasury bonds with maturities similar to the expected term of the options for each option group), expected dividend
yields (assumed to be zero as we have historically not paid and do not intend to pay dividends on our ordinary shares) and the price of our ordinary shares on the TASE. Service and non-market
performance conditions attached to the transactions are not taken into account in determining fair value. If such factors change and we employ different assumptions for future grants, our
compensation expense, in connection with future grants, may differ significantly from the amounts that we have recorded in the past. In addition, our compensation expense is affected by our
estimate of the number of awards that will ultimately vest. In the future, if the number of equity awards that are forfeited by employees is lower than expected, the expense recognized in future
periods will be higher.
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Government Grants
Government grants are recognized when there is reasonable assurance that we will receive the grants and that we will comply with the attached conditions. Research and development
grants received from the OCS, BIRD and CIIRDF are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty-bearing sales.
A liability for the grant is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and the fair
value of the liability is accounted for as a government grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized
cost using the effective interest method. Royalty payments we make to repay the grant are treated as a reduction of the liability. If no economic benefits are expected from the research activity,
the grant receipts are recognized as a reduction of the related research and development expenses, in which case, the royalty obligation is treated as a contingent liability.
There is uncertainty regarding the estimates of future cash flows and the estimate of the capitalization rate that is used for determining the amount of the liability recognized. At the end
of each reporting period, we evaluate whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since we will not be required to pay royalties)
based on the best estimate of future sales, and if so, the appropriate amount of the liability is reduced with a corresponding reduction in research and development expenses.
Recently Issued Accounting Standards
A number of new standards, amendments to standards and interpretations are not yet in effect for the year ended December 31, 2014, and have not been applied in preparing our
consolidated financial statements as of that date.
Seasonality
Our revenues generally are not affected by seasonality.
B. Liquidity and Capital Resources
Our working capital requirements generally reflect the growth in our business and have historically been provided by cash raised from our investors, payments from our collaborators
and grants received from OCS, BIRD and CIIRDF. As of December 31, 2014, we had cash, marketable securities and short term bank deposits of $116.3 million and working capital of $110.5 million,
which is calculated by subtracting our current liabilities from our current assets. As of December 31, 2014, we had $3.7 million of outstanding indebtedness related to the grants received from
OCS, BIRD and CIIRDF. We expect that our working capital and capital investment needs will be funded for the foreseeable future mainly by our cash, cash equivalents, marketable securities and
bank deposits we hold as well as from payments from our collaborators. Currently, our principal uses of cash are to fund our operations. In the future, cash may serve us in effecting M&A
transactions for achieving inorganic growth in our different segments of operation.
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Cash Flows
The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Exchange rate differences—cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash Used in Operating Activities
2012
Year Ended December 31,
2013
(in thousands)
2014
$
$
(1,888)
18,485
1,111
89
17,797
$
$
(5,270)
(2,900)
79,408
(46)
71,192
$
$
(8,895)
(84,030)
2,666
18
(90,241)
Cash used in operating activities consists primarily of net income or loss adjusted for certain non-cash items. Adjustments to net income or loss for non-cash items include depreciation
and amortization, cost of share-based compensation and financing expenses. In addition, operating cash flows are impacted by changes in operating assets and liabilities, deferred revenues,
trade receivables, other receivables, trade payables and other payables.
Cash used in operating activities for the year ended December 31, 2014 was $8.9 million and resulted primarily from a net loss of $14.5 million, $1.2 million in decrease in trade payables
and other payables ,a decrease of $0.6 million in deferred revenues, and net financing income of $0.9 million, partially offset by $3.2 million in share-based compensation expenses, $2.2 million in
depreciation and amortization expenses, a decrease in trade and other receivables of $0.8 million and by $2.0 million in interest received during the year ended December 31, 2014.
Cash used in operating activities increased by $3.6 million from 2013 to 2014. Net cash used in operating activities was $5.3 million for the year ended December 31, 2013 which was
derived primarily from a net loss of $8.9 million, a decrease of $3.2 million in deferred revenues, and an increase in trade receivables of $0.3 million, partially offset by $2.7 million in share-based
compensation expenses, $2.0 million in depreciation and amortization expenses, $1.2 million in increase in other payables and trade payables and by $1.0 million in interest received during the
year ended December 31, 2013.
Cash used in operating activities increased by $3.4 million from 2012 to 2013. Net cash used in operating activities was $1.9 million for the year ended December 31, 2012 which was
derived primarily from net loss of $2.5 million, a decrease of $3.3 million in deferred revenues, an increase of $0.7 million in trade receivables - partially offset by $1.8 million in depreciation and
amortization expenses and $1.2 million in expenses related to share-based compensation a $1.2 million decrease in trade payables and other payables and $0.9 million in interest received.
Cash Provided by (Used in) Investing Activities
Cash used in investing activities was $84 million for the year ended December 31, 2014 and cash used in investing activities was $2.9 million for the year ended December 31, 2013. The
change primarily resulted from an increase in net purchases of marketable securities, investment in bank deposits and an increase in purchases of property, plant and equipment.
Cash provided by investing activities was $18.5 million for the year ended December 31, 2012 which was derived primarily from net proceeds from marketable securities and bank
deposits and purchases of property, plant and equipment.
Cash Provided by Financing Activities
Cash provided by financing activities was $1.1 million, $79.4 million, and $2.7 million for the year ended December 31, 2012, 2013 and 2014, respectively. In 2014 cash provided by
financing activities resulted primarily from exercise of options. In 2013 cash provided by financing activities resulted primarily from our US IPO closed in November 2013 and in 2012 cash
provided by financing activities resulted primarily from exercise of options.
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Government Grants
Our research and development efforts are financed, in part, through grants from OCS, BIRD and CIIRDF. From our inception through 2014, we received grants totaling $5.5 million from
OCS and repaid royalties on sales of products derived from the research financed by such grants of $2.4 million. We have also received grants totaling $0.5 million from BIRD and grants totaling
$0.3 million from CIIRDF, which we have not yet paid any royalties on. As of December 31, 2014, we had four active research grants under which we were receiving funding: one from OCS, two
from BIRD and one from the CIIRDF.
Under the Israeli R&D Law, royalties on the revenues derived from sales of products or services developed in whole or in part using grants from OCS are due to the Israeli government,
generally at a rate between 3.0% and 5.0%. The rate of the royalties payable to the Israeli government varies by the length of time a product has generated sales revenues. During the first three
years of sales of products developed as a result of OCS grants, we are required to pay royalties of 3.0% of our revenues, and from the fourth year on, we are required to pay royalties of 3.5% of
our revenues, in all cases, up to 100% of the amount of grants received by us from OCS plus interest at the London Interbank Offered Rate, or LIBOR. In addition to paying any royalty due, we
must abide by other restrictions associated with receiving such grants under the R&D Law. These restrictions may impair our ability to outsource development of products containing our traits,
engage in change of control transactions or otherwise transfer our know-how outside Israel and may require us to obtain the approval from OCS for certain actions and transactions and pay
additional royalties and other amounts to OCS.
We have two BIRD grants: (1) a joint development program with DuPont of research and development improvements to soybean rust resistance (2) a joint research and development
program with Marrone Bio Innovations for discovery of novel modes of biological action for insect control, Under the BIRD programs, the grant for the joint development with DuPont will be
repaid either (a) within 66 months from the original grant date, provided we do not generate royalties from the project and DuPont decides to continue the project or (b) through royalties at a rate
of 5% of revenues of the products developed through the project or 30% of the revenues generated by the advanced technology developed through the project, in an amount of up to 150% of
the total grant received. Should we choose to abandon the project, we will not be obligated to repay the grant, however we will also not be permitted to use the intellectual property developed
during the project. The grant for the joint development with Marrone Bio Innovations will be repaid either (a) within 60 months from the original grant date, provided we do not generate revenues
from the project and parties decide to continue the project or (b) through royalties at a rate of 5% of sales of products developed through the project or 30% of licensing income from products /
advanced technology developed through the project, in an amount of up to 150% of the total grant received. Should we choose to abandon the project, we will not be obligated to repay the
grant, however we will also not be permitted to use the intellectual property developed during the project.
The CIIRDF grant was also provided as part of a joint project with Saskatchewan Wheat Pool Inc., operating under the name of Viterra, to develop canola with improved yield and
abiotic stress tolerance. This grant will be repaid from income resulting from the commercialization of a product developed pursuant to the grant project, at a rate of 2.5% of royalties on sales of
such product, in an amount up to 100% of the total grant received. Alternatively, we may repay the grant as royalties of 2.5% of the income we receive from licensing the product developed
pursuant to the grant. Payment of such royalties is not required if commercial revenues are not generated as a result of the project.
See “Item 3.D.Risk Factors—Risks Relating to Our Incorporation and Location in Israel—we have received Israeli government grants for certain of our research and development
activities. The terms of these grants may require us to satisfy specified conditions in order to manufacture products and transfer technologies supported by such grants outside of Israel. We
may be required to pay penalties in addition to repayment of the grants.”
C. Research and Development, Patents and Licenses, etc.
Technology Infrastructure
We believe that we have achieved a unique position in the seed and ag-chemical industry through our ability to effectively integrate and analyze massive amounts of complex genomic
data for the purpose of improving plant performance. Our technology infrastructure facilitates all of our product-driven operations: seed traits, ag-chemicals and seeds. This infrastructure, which
is highly flexible and synergistic, provides us with the means of integrating our plant genomics core competencies. Specifically, our technology infrastructure is comprised of four enablers that
are key to our leading position in plant genomics: (i) plant science, chemical and insect know-how and expertise, continuously enriched through advances in our discovery programs as we
address new traits and crops; (ii) vast amounts of data generated in-house or collected from public sources, tailored to support hypotheses we develop based on our scientific know-how;
(iii) computational technologies that integrate, assemble and mine the vast amount of genomic data; and (iv) validation systems and assays in various plants and insects as well as screening
systems for chemicals, used to validate the discoveries made through our computational technologies.
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We continuously strive to improve and expand our technological capabilities. Since our initiation in 2002, we believe that we have developed valuable computational technologies
containing unique features that cannot be found elsewhere in our industry. We intend to continue investing in our research capabilities in order to expand our technological capabilities in plant
genomics and continue to provide innovative solutions to our collaborators.
Science and Know-how
Our research and development activities involve 162 employees as of December 31, 2014, amounting to approximately 78% of our total full-time workforce. Our staff possesses
multidisciplinary and wide-ranging expertise, with employees specializing in biology, chemistry, plant genetics, agronomics, mathematics, computer science and other related fields. Additionally,
59 of our employees hold a PhD. Our main physical research and development facilities are located near the agricultural and biotech hub in Rehovot, Israel, and we benefit from continuing
professional relationships with members of the agriculture and plant-science academy. Furthermore, we employ a Scientific Advisory Board composed of representatives from the Faculty of
Agriculture of the Hebrew University in Jerusalem, the Weizmann Institute of Science in Rehovot and other institutions of higher learning, as well as an experienced scientist from the industry.
Our internal research and development activities are divided into three groups. Our first group develops our technological infrastructure to facilitate ongoing projects, including our
computational technologies, our technologies to harvest genomic and phenotypic data and our validation systems. Our second group manages our trait discovery programs that focus on
identifying genes, SNPs and other DNA fragments pursuant to our collaboration agreements or internal independent research projects. Researchers in this group develop the hypotheses that
guide our trait discovery programs, design the type and scope of genomic data generation, determine data-mining queries run on our computational technologies and decide the type of model
plant validation to be used. Our third group, upon the instruction of the other groups, executes our trait discovery programs and new development, which include genomic data generation and
integration, computational discovery, gene cloning and insertion into plants and model system validation.
We are constantly improving our scientific skillset and know-how. As we enter into new collaborations involving new traits and new crops, we are able to leverage our existing know-
how and enrich our genomic knowledge and capabilities. We also intend to leverage this know-how to expand our operations into new markets in which we currently do not operate, as we did
when we commenced our ag-chemical operations in 2012.
Computational Technologies
Our computational technologies, utilized for data integration and analysis, are comprised of two main proprietary components: i) our databases generated via data integration capabilities
and ii) our computational analysis platforms, utilized to mine these databases within our on-going activities.
Proprietary Databases
In 2014, we expanded our database scope and data integration capabilities to leverage other sources and types of 'big data' in order to support our growth activities; our insect
resistance activity, focused on microbial genes as the potential source for novel resistance traits, as well as our activity in the field of ag-chemicals. As crop productivity is affected by the plant's
surroundings, including broad, diverse microbial populations, underlining genomics are now becoming readily available. In addition, in search of new ag-chemicals to serve agricultural needs,
initial steps towards mapping of the huge space of chemical data are taking place.
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We therefore added to our genomic database, previously comprising mainly of plant genes, genes from microbial sources. We also established a chemical database to support our ag-
chemical activity. The genomic and chemical databases are integrated, which enables leveraging data of interactions between genomic elements and chemicals. In addition, we are now in course
of developing an additional database, dedicated to microbial strains. This microbial database will first support our insect resistance activity, yet may also enhance other activities in the future,
such as discovery of microbials that may serve as the basis for ag-biological products.
Our databases draw in part on the public domain (primarily from academic institutions and research publications), and in part compile increasing amounts of proprietary data, generated
either in-house or received from our collaborators.
We continuously pursue and develop innovative approaches to data transmission and storage.
Our current database framework consists of the following:
§ Our genomic database is structured as gene centric, linking all available data relevant to a gene in a single assembled database. It covers over 14 million genes from 200 plant species,
and accounts for various data types, including phenotypic (i.e., data related to a plant’s observable characteristics, morphology, development and physiological properties) and
genotypic (i.e., data from the molecular level, derived from DNA, RNA or other sources). In 2014, we added genes from microbial sources to our genomic database, aiming at leveraging
these novel genes for our insect resistance activity. Currently incorporating only microbial genomics from public sources, we now have over 28 million microbial genes in our database.
This genomic database, including both its plant genes and newly added microbial genes, is continuously expanded to support on-going activities, with accumulating, tailored data
generated from our in-house field trials, as well as any newly available information from the public domain.
§ Our chemical database is structured as molecule centric, covering broad chemical collections, derived from publicly available sources of synthetic and natural chemistry. This database
currently comprises over 70 million chemicals, integrating multiple layers of data describing the chemicals' properties. Focus is attributed to the chemicals' potential activity for
agricultural usage as ag-chemicals. This database, along with its integration to our genomic database, serves our on-going ag-chemical activity, supporting our discovery of novel
chemicals to potentially serve as herbicides. The chemical database will continue to expand with data generated from in-house dedicated experiments, as well as incorporation of
available public data.
§
In 2014, we began to develop a third database, which will be structured as microbial strain centric. The database will comprise data on microbial strains isolated from plant
surroundings, along with characterizing layers of data. We have already established a preliminary collection of several thousands of microbials which have been isolated, and are
undergoing initial characterization. This will serve our insect resistant activity, as well as potential other activities in the future.
Overall, using field trials and advanced technologies for the collection and integration of different data types, we intend to continue developing and expanding our proprietary
databases. We focus in particular on continuing to compile data from microbial genomics for our genomic databases, and chemical data for our chemical database.
Computational Analysis Platforms
We have developed advanced proprietary computational analysis platforms, comprised of novel algorithms and methodologies designed to handle immense amounts of data. For
example, our ATHLETE™ technology mines genomic data on millions of genes, resulting in tens to hundreds of genes that we are able to predict will be “key” genes for improving a desired trait.
The analysis platforms are utilized through mining of our databases through hundreds of queries that utilize various methodologies and algorithms.
We believe the key features of our computational analysis platforms are:
§ Novel: Substantially all of the methodologies and tools utilized by our computational analysis platforms were developed in-house and are proprietary and unique in the industry.
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§ Reliable: We apply our methodologies and statistical tools to meaningfully sort the data we receive and have quality assurance processes to ensure the reliability of the outputs we
generate.
§ Flexible: Our computational analysis platforms are not restricted to a certain crop or trait, and thus permit us to continuously focus on new crops and traits and enter new fields in plant
genomics that foster product innovation.
§
Learning: As we generate new information related to our discovery efforts and validation results, we incorporate novel insights in order to improve the performance of our
computational analysis platforms and generate new computational solutions. We also continuously monitor and improve the performance of our existing tools and expand our
capabilities.
§ Efficient: In our experience, in most cases, a period of only six to nine months is required to complete the discovery process for “key” genes, SNPs or other DNA fragments.
We intend to continue improving our existing computational analysis platforms through novel methodologies and enhanced algorithms and developing new technologies, allowing us
to address new fields, within plant genomics and beyond, in light of the arising needs of seed and ag-chemical industry pipelines. Where appropriate, we may also enter agreements with third
parties to bolster our technological capabilities.
Currently, we operate and develop the following computational analysis platforms:
ATHLETE™
The ATHLETE™ computational analysis platform was launched in 2006 and is our central computational analysis platforms for plant gene identification, comprised of unique algorithmic
tools and novel data-mining concepts that allow generation of rapid and reliable lists of genes relevant to a target trait.
Using this technology, we are able to capture and dissect vast amounts of genomic data types from various plant species and other species and engage in the efficient discovery and
prioritization of hundreds of genes linked to desired traits. Fundamentally, ATHLETE™ relies on statistical analysis and biological rationales to determine whether a certain gene is linked to a
desired plant trait, facilitating the use of the gene to develop biotech-based traits. This technology mines our genomic, gene centric database, including the available information on the gene’s
biological activity, its molecular characteristics, and any available correlation between the gene’s phenotype and its activity in the molecular level, as well as the same type of information for
similar genes in other plant species. Through hundreds of queries, the system is able to prioritize the genes linked to a desired trait. ATHLETE™ is one of our most versatile technological tools
as well; we apply this tool to different traits and crops, all according to the needs of our various internal programs and collaboration agreements.
ATHLETE™ is the computational analysis platform used in most of our collaborations, including our broad, multi-year collaborations with Monsanto and Bayer. Though our
ATHLETE™ technology is already capable of cutting-edge data processing and analysis, we are continuing to make improvements and introduce new features to this technology, creating a
faster and more efficient analytical tool. We have improved various aspects of ATHLETE™ since the launch of the analysis platform in 2006, including the launch of version 4 in April 2012.
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Gene2Product™
The Gene2Product™ analysis platform was launched in 2013, although components of the platofrm have been used since 2010. Gene2Product™ is a unique computational analysis
platform to develop biotechnology seed traits—by high throughput optimization of selected gene function in a target crop (which we refer to as “mode of use”). This technology complements
our ATHLETE™ platform: efficacy of a gene depends not only on the presence or absence of the gene of interest, which is determined by ATHLETE™, but also on the optimization of the gene
with other factors related to the mode of use of such gene, which is determined by Gene2Product™. Such factors include the choice of gene variant for the crop of interest, the interaction of the
gene with other genes, the tissues in which the gene is expressed, the level and/or pattern of expression of the gene and the gene’s performance under changing environmental conditions.
Gene2Product™ is designed to improve trait efficacy for certain genes identified (for example by ATHLETE™) through the following tools:
•
PlaNet (Plant Network), which its 2.0 version was launched on March 2014, improves trait efficacy when approaching complex traits, such as yield, by predicting appropriate
combinations of the identified gene with additional genes, designed to jointly impact the trait when combined, and prioritize possible combinations with respect to their ability to
improve a given trait;
• GeneSpec (Gene Spectrum), which selects the preferred variants for the selected gene of interest for the crop of interest by identifying and classifying, up to 1,000 possible variants per
gene, through the use of novel algorithms, according to sequence-function and other relationships;
• RePack (Regulation Package), which predicts the regulation mode for the selected gene that will provide the optimal expression pattern, including predicting where in the plant the
expression would be beneficial and where it would be undesired in respect of tissue, organ, timing, level of expression and other aspects that can impact trait efficacy; and
• GeneDex (Gene Index), which predicts functional robustness of the selected gene across different genetic backgrounds and environmental conditions, providing multiple relative index
scores for each gene predicting such gene’s contributions with respect to each trait of interest across different combinations of such variables.
EvoBreed™
The EvoBreed™ computational analysis platform was launched in 2010. EvoBreed™ is our technology for discovery of SNPs, to enhance advanced plant breeding, designed to offer
reliable correlations between genetic data and plant phenotype. Like ATHLETE™, EvoBreed™ specializes in comprehensive cross analysis, tapping into the extensive genomic datasets we have
collected. The result is a prediction of SNP-to-trait association. The ultimate purpose of EvoBreed™ is to enable plant breeders to design optimal crosses between breeds, enhancing a desired
trait or set of traits, allowing for logical and insightful breeding decisions, to accelerate and correct the breeding process from start to end.
PoinTar
We developed a computational analysis platform for our ag-chemical division, PoinTar, which we launched on February 11, 2014. This technology specializes in the identification of
targets (proteins) for development of ag-chemicals such as herbicides, and examines data aimed to indicate the potential impact that a target, when inhibited, would have on a weed. Both our
gene centric database and its integrated chemical-centric database are mined by PoinTar to achieve this goal. In addition to incorporating tools available in ATHLETE™, PoinTar addresses the
structural characteristics of a target in order to predict the target’s likelihood of binding to a small chemical molecule for use as a herbicide through additional dedicated tools, developed to
address the specific needs and considerations related to herbicide target identification.
PointHit
We recently launched PointHit, a computational analysis platform for identifying chemical molecules that are predicted to be potential ag-chemicals, currently focusing on herbicide
applications. This analysis platform leverages biological rationale, discovering chemical molecules by optimizing between three key considerations: i) predicted binding to plant molecular
targets, discovered by PoinTar, ii) potential for ag-activity, namely probability to be absorbed by the plant and transported within the plant to reach the molecular target within the plant, and iii)
compliance with product desired attributes such as low cost of production, low toxicity and others. Overall, relying on 'big data' computational approaches, the PointHit platform is capable of
prioritizing 10's of millions of chemicals to a selected library of candidate herbicide hits. The designed libraries will then be screened on plants in order to validate which of the candidate
chemicals indeed exhibit herbicidal activity.
We continue to undertake efforts to improve our existing analysis platforms as well as develop new ones. In addition to the platforms mentioned above, we are currently putting efforts
in developing a platform discovery of genes of microbial origins that would serve as toxins that would potentially kill insects as part of our insect resistance program, as well as an additional
platform for microbial strain discovery.
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Screening and Validation Systems
Seed Traits
Yield and Abiotic Stress
Efforts to improve traits of interest in key crops require both the predictive tools of our computational technologies and the experimental tools of our validation systems, which allow us
to test the actual performance of our predictions in plants. Such validation efforts typically begin with model plant systems, utilizing Arabidopsis and Brachypodium, which offer a faster and
more efficient high throughput means of initially evaluating and prioritizing candidate genes, SNPs and other DNA fragments. Initial testing in model plants can usually provide a result within
one year, whereas validation in target crops such as corn usually requires two to three years. Once the prioritized genes pass proof of concept in the model plants, they then undergo further
validation in the target crops.
Our validation systems, which employ state-of-the-art facilities and techniques, allow high throughput and efficient plant validation of over 1,000 new genes per year. We primarily use
our validation systems to evaluate genes for yield, drought tolerance and nitrogen use efficiency. The plant validation process is cross-disciplinary, requiring the use of molecular biology and
plant transformation facilities, extensive greenhouse and growth chamber trials, and the application of advanced imaging and data-analysis techniques. Our candidate genes are first identified in
silico (i.e., via computer) using our advanced computational technologies. These genes are then cloned and transformed (or transferred) into model plants, which, due to their short life cycles,
well-known genomes and ease of cultivation, offer an efficient way of assessing gene impact. We use Arabidopsis as our model plant for dicots (i.e., a plant with two embryonic seed leaves such
as soybean, canola, cotton and sunflower) and Brachypodium as our model plant for monocots (i.e., plants with a single embryonic seed leaf such as corn, rice and wheat). We are able to
validate over 1,000 genes per year using the Arabidopsis model plant, with 16 types of experiments utilizing both our greenhouses and tissue-culture validation techniques. Through our
Brachypodium system, we are able to additionally test over 200 genes per year through six types of experiments that take place in our greenhouses and growth chambers. We believe that we are
the only company that has a high throughput Brachypodium model plant validation system.
Our molecular labs and tissue-culture facilities employ automated equipment and state-of-the-art technologies, greatly increasing our output of viable candidate genes. The bulk of the
validation process, however, is conducted across our 35 cutting-edge GM greenhouses on 33,960 square meters (or approximately 365,542 square feet) of farmland. Our greenhouses have the
capacity to accommodate over 23 established experiments at any given time. Each experiment involves dozens of genes and hundreds of model plants to allow for statistically meaningful results.
In addition, each greenhouse is rigorously controlled for temperature, irrigation, light, nitrogen, salinity and other variables, allowing for controlled testing, monitoring and continuous year-round
growth. Data from the plants are routinely acquired during the greenhouse trials and automatically fed into a statistical analysis system. The results are then evaluated by our trait researchers in
order to prioritize the most promising genes.
In certain cases, certain prioritized genes are introduced into target crops and assessed in field trials following experiments in model plants. We operate field trial sites in various
locations in Israel and collaborate with local partners to achieve more rapid and comprehensive field-test results.
Biotic Stress
In the field of biotic stress, we use our validation systems to test genes capabilities to enhance disease and insects resistance. Through 2014 we constructed a dedicated Crop
protection and health labs. These include three labs:
Disease lab - supports the validation efforts of genes which enhance the crop resistance to disease by utilizing for this purpose a walking chamber to support the growth of transgenic
plants. As transgenic plants we will use our Brachypodium model plant. Genes will be cloned in our molecular biology lab, transformed in the tissue culture lab and propagated by our plants
growth unit. Later they will be assayed for resistance in our dedicated disease lab.
66
Microbiology lab - supports toxin discoveries for resistance traits as well as microbials potentially to be developed at the future to ag-biological products.
At the farmland, we set up a dedicated greenhouse space for insect rearing and feeding experiments.
In February 2015, we announced the signing of a Letter of Intent with plans to establish a research and development facility in the Bio-Research and Development Growth (BRDG) Park,
in St. Louis, Missouri. The establishment of the facility is a key component of the Company's previously disclosed entry into the field of insect control and will allow us to validate genes for
insect resistance for vast and important insects, which are not allowed to be import in Israel.
In the field of insect resistance, we develop a dedicated expression system for toxic protein expression. This system will enable us to test the genes capability to harm important insects.
Seed External
In the field of ag-chemicals, we develop new systems to verify new plant targets and new herbicides candidates (Hits). We have the capability to verify approximately 200 new targets
annually in our screen system. In addition, we have the capability to screen thousands of new chemicals annually in dedicated systems that allow high throughput screening, in greenhouse
screening using weeds panel, as well as in target crops (such as corn), in order to measure the spectrum of activity of the herbicide candidate .
We constructed dedicated capabilities to the ag-chemicals activity, which includes ag-chemicals laboratory, growth chambers, imaging equipment, robot and logarithmic sprayer for
chemicals application and greenhouses.
The target validation process is cross-disciplinary, requiring the use of molecular biology and plant transformation facilities, growth chambers trials, and the application of advanced
imaging and data-analysis techniques. Our candidate targets are first identified in silico (i.e., via computer) using our advanced computational technologies. These targets are then down
regulated by cloning of RNAi elements into inducible vector and transformation into Arabidopsis. Plants are being grown in growth chambers, which are temperature and light controlled, and
monitored through imaging, including a CF imager, which is a dedicated infrastructure to monitor plants under stress.
The chemicals screening process is designed to allow the verification of thousands of compounds through high throughput Arabidopsis screening system. Chemical hits that
demonstrate activity will undergo advanced screening through greenhouses systems, which are currently under development. In high throughput screening systems, chemicals are applied to
plants by a robot and grown in our ag-chemicals laboratory, while in the greenhouse screen system, we use a logarithmic sprayer. This infrastructure enables accurate chemical application in a
robust manner.
We intend to continue to improve our plant validation & screening capabilities by developing validation systems for new product types, improving the capacity and quality of our
current validation systems and generally enhancing our facilities and quality assurance competencies. Where appropriate, we may also enter agreements with third parties to bolster our plant
validation capabilities.
Intellectual Property
Our intellectual property rights are important to our business, as they generally determine our eligibility to receive royalties for seed traits. To date, we have identified and sought patent
protection for over 4,300 plant genes linked to traits such as improved yield and drought tolerance. These genes are currently protected through more than 71 patents and 194 national patent
applications.
Our patenting process involves four stages as follows:
Provisional Filing. In most cases, soon after using ATHLETE™, our computational technology for gene discovery, we file a provisional application in the United States covering all the
genes we have identified that we believe are likely to convey a specific trait in plant species. The number of genes covered in each provisional application ranges between 50 and 200 genes.
67
PCT Filing. A PCT provisional is filed under the Patent Cooperation Treaty, or PCT, one year from the U.S. provisional filing. During this one year period, we insert the identified genes
into model plants and test whether the genes actually improve target traits. This validation data is added to the PCT provisional and provides the “reduction to practice” required to advance the
application.
National Filing. National filing is conducted for most countries a year and a half after the PCT filing. For Argentina, which has not signed the PCT, a national filing is made at the same
time as the PCT filing. Either we or our collaborators determine in which countries patent applications should be filed. If a collaborator requests that we file and prosecute a patent in a particular
country, the collaborator will usually pay for the filing fee and any associated costs. The main countries in which we file are the United States, Brazil, Argentina, Canada, Australia, India, and
certain other countries in Asia, South America and Europe.
Prosecution. In the countries in which we file national phase applications, we prioritize the prosecution of genes identified as the most likely commercial candidates based on
discussions with our collaborators.
Our in-house know-how is another important element of our intellectual property. Our employment and consulting agreements include undertakings regarding confidentiality and
assignment of inventions. Furthermore, the daily work at our various greenhouse sites, tissue culture facilities, and molecular labs involves the use of advanced mechanical tools, imaging
devices, and computer hardware and software. We have established closed networks and physical security systems to prevent unapproved access.
In addition to seeking patent applications, we are in the process of obtaining trademark registrations in certain jurisdictions that we consider material to the marketing of our proprietary
computational technologies, including ATHLETE™, Gene2Product™ and EvoBreed™. While we expect our patent applications to receive approval, and our trademark applications to mature into
registrations, we cannot be certain that we will obtain such results. Despite our efforts to protect our proprietary rights, unauthorized third parties may attempt to use, copy or otherwise obtain
and market or distribute our intellectual property rights or technology or otherwise develop products or solutions with the same functionality as our solutions. In addition, the laws of some
foreign countries provide less protection for proprietary rights than U.S. law. We face the occasional risk, moreover, that third parties may assert copyright, trademark and other intellectual
property rights against us. Such claims may result in direct or indirect liability as we have contractually agreed to indemnify certain parties for any damages suffered as a result of infringement by
us of any third-party intellectual property rights.
D. Trend Information
The world market experienced a decrease in commodity prices in 2014, (one example of such decrease is corn prices which decreased from around 7 USD/bushel in mid-2013 to less than
4 USD/bushel in late 2014). This decrease may adversely impact the size of research and development expenditures of our existing and potential collaborators, which may, in turn, adversely
impact the size of the research payments that we may receive, as well as our ability to extend existing collaborations or enter into new ones. For further information, please see Item 3.D Risk
Factors— Risks Related to our Business and Industry— Decrease in research expenditures in the seed and ag-chemical market may jeopardize the continuation of our collaborations with seed
and ag-chemical companies and adversely impact our ability to extend existing collaborations or enter into new ones.”
Other than as described immediately above or disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period
from January 1, 2014 to December 31, 2014 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that caused the
disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes
special purpose entities and other structured finance entities.
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F. Contractual Obligations
Our significant contractual obligations and commitments as of December 31, 2014 are summarized in the following table:
Less than 1
year
1-3 years
3-5 years Over 5 years
Total
Trade payables
Other payables(1)
Liabilities in respect of grants from OCS (undiscounted)(2)
Non-cancellable operating leases(3)
Total
$
$
$
1,984
3,854
584
549
6,971 $
_______________________________
$
(in thousands, unaudited)
—
—
1,459
—
—
1,981
$
107
1,566 $
—
1,981 $
$
—
—
104
—
104 $
1,984
3,854
4,128
656
10,622
(1) Consists of liabilities to employees for salaries and related personnel costs and accrued expenses to suppliers.
(2) Consists of the projected royalty payments of 3-3.5% on revenues derived from research and development projects that were funded in part by grants received from OCS.
(3) Consists of non-cancellable operating leases for our office space and motor vehicles.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this annual report.
Name
Executive officers
Ofer Haviv
Dr. Eyal Emmanuel
Sigal Fattal
Assaf Kacen
Dr. Hagai Karchi
Assaf Oron
Directors
Martin S. Gerstel(3)
Dr. Michael Anghel(1)(2)(3)(4)
Ziv Kop(2)(3)
Dr. Adina Makover(2)(3)
Akiva Mozes(3)
Leon Y. Recanati(3)
Dr. Simcha Sadan(1) (3)
Dr. Kinneret Livnat Savitzky(1)(2)(3)(4)
____________________________
(1) Member of our Audit Committee.
(2) Member of our Compensation and Nominating Committee.
(3) Independent director under the Listed Company Manual.
(4) External director. See “—External Directors.”
Age
Position
48
42
44
43
53
41
73
76
43
63
68
66
73
48
President and Chief Executive Officer
Executive Vice President R&D, Crop Protection
Chief Financial Officer
Executive Vice President of Technology Infrastructure
Chief Technology Officer and Executive Vice President of Development
Executive Vice President of Strategy and Business Development
Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
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Executive Officers
Ofer Haviv has served as our President and Chief Executive Officer since December 2004 after having joined our company in January 2002 as Chief Financial Officer. Mr. Haviv serves as
Chairman of the Board of Directors of each of Evogene Inc. and Evofuel Ltd., both subsidiaries of our company, and has held such positions since 2006 and 2012, respectively. From 2006 to 2007,
Mr. Haviv served as a director of our company. Mr. Haviv is a Certified Public Accountant and holds a B.A. in Accounting and Economics from Tel Aviv University.
Dr. Eyal Emmanuel has served as Executive Vice President R&D, Crop Protection since July 2014. Dr. Emmanuel originally joined Evogene in May 2006, and has since served in various
managerial R&D positions, leading several of the Company’s key research programs. Prior to his appointment to his current position in the Company, Dr. Emmanuel served as Vice President
R&D of the Company’s ag-chemicals division which was established in late 2012. Prior to joining Evogene, Dr. Emmanuel served as a researcher at LSRI, Israel’s premier life sciences research
center. Dr. Emmanuel holds a PhD and M.Sc. from the Weizmann Institute’s Department of Plant Science as well as a B.Sc. from the Hebrew University, Faculty of Agriculture. Dr. Emmanuel also
holds an MBA, from the College of Management - Academic Studies (COMAS), majoring in Bio-Medical Management.
Sigal Fattal has served as our Chief Financial Officer since May 2013. Ms. Fattal originally joined our company in June 2012 as our Chief Executive Officer’s assistant and was
appointed as our Vice President of Finance in October 2012. Prior to joining our company, Ms. Fattal served as the chief executive officer of wwCFO Ltd., from 2010 to 2012. Prior to that time, from
2008 to 2009 Ms. Fattal served as the chief financial officer at Cal International Ltd. and from 2006 to 2007 served as the Director of Finance and manager of the Economics Department at Cal Ltd.
Ms. Fattal holds a B.A. in Accounting and Economics, with honors, and an MBA specializing in finance and marketing, both from Tel Aviv University. Ms. Fattal is also a Certified Public
Accountant in Israel.
Assaf Kacen has served as our Executive Vice President of Technology Infrastructure since March 2011 after having joined our company in July 2009 as Vice President of Technology
Infrastructure. Mr. Kacen has also served as a director of our subsidiary, Evofuel Ltd., since January 2012. Prior to joining our company, Mr. Kacen served as a Solution Fit Product Manager at
Nokia Siemens Network, from 2008 to 2009. Prior to that, Mr. Kacen served as a Manager of the Software Development Group at Nokia Siemens Network from 2004 to 2008. Mr. Kacen holds an
MBA with a major in Finance from the Interdisciplinary Center Herzeliya, and a B.Sc. in Communication Systems Engineering from Ben-Gurion University.
Dr. Hagai Karchi joined our company from its origination in January 2002 as one of our founders, and has served as our Executive Vice President of Development and Chief
Technology Officer since September 2008. Dr. Karchi also serves as a director of Evogene Inc., our U.S. subsidiary, and has held such position since September 2006. Prior to serving in his
current position at our company, Dr. Karchi served as our Vice President of Development and Technologies from 2007 to 2008. Dr. Karchi holds a PhD in Plant Genetics and Genomics, earned
jointly from the Weizmann Institute of Science and the Hebrew University in Jerusalem, and an MA and BA in Plant Genetics, both of which were received from the Hebrew University in
Jerusalem.
Assaf Oron has served as our Executive Vice President of Strategy and Business Development since September 2008. After joining our company in March 2006, Mr. Oron served as
Business Development Director and then as Vice President of Business Development prior to his current position. Mr. Oron also serves as a director and chief executive officer of Evofuel Ltd,
our subsidiary, and has held those positions since January 2012. Prior to joining our company Mr. Oron served as CEO of ChondroSite Ltd., a biotechnology company that develops tissue
engineered products in the field of orthopedics, from 2004 to 2006. Prior to that Mr. Oron served as Senior Project Manager and Strategic Consultant at POC Ltd., a leading Israeli management
consulting company from 1999 to 2003. Mr. Oron holds an M.Sc in Biology (Bioinformatics) and a B.Sc in Chemistry and Economics, both from Tel Aviv University.
Directors
Martin S. Gerstel has served as our chairman of the board of directors since December 2004 and as a director since February 2004. In addition, Mr. Gerstel has served as the chairman of
Compugen Ltd., a predictive drug discovery and development company, since 1997, other than from February 2009 to February 2010, during which time he served as either chief executive officer
or co-chief executive officer, and, in both cases, as a member of the board of directors, chairman of Keddem Bioscience Ltd., a drug discovery company, since 2004, co-founder and co-chairman
of Itamar Medical Ltd., a medical device company, since 1997 and has been a board member of Yissum Ltd. and Yeda Ltd., two technology transfer companies, since 2003 and 1994, respectively.
He is a member of the board of governors and the executive committee of the Weizmann Institute of Science and the board of governors of The Hebrew University of Jerusalem. Prior to
relocating to Israel, Mr. Gerstel was co-chairman and chief executive officer of ALZA Corporation, a U.S. pharmaceutical company specializing in advanced drug delivery, which he helped to
found in 1968. Mr. Gerstel holds a B.S. from Yale University and an MBA from Stanford University.
70
Dr. Michael Anghel has served as an external director of our company since September 2007. Dr. Anghel has served as the chairman of Matach—The Israeli Educational Technology
Center since 2009 and as the chairman of Lahav—Executive Education Program in Tel Aviv University since 2005. Dr. Anghel also serves as a director in the following companies: BioLineRx Ltd.,
a drug development company, since 2010; Syneron Medical Ltd., a global aesthetic device company, since 2004; Partner Communications Company Ltd., a mobile network operator, since 2006;
Strauss Group Ltd., an Israeli food and beverage company, since 2008; Orbotech Ltd., a developer of automated optical inspection systems, since 2008; and Dan Hotels Ltd., an Israeli luxury
hotel chain, since 2008. Dr. Anghel earned a PhD in Business Management with a major in Finance and an MBA each from Columbia University and a BA in Economics from the Hebrew
University in Jerusalem.
Ziv Kop has served as a director of our company since January 12, 2014. Mr. Kop currently serves as chief operating officer and member of the board of directors of Outbrain Inc. a web-
based content discovery platform. Previously, and since its inception in 2003 until June 2013, Mr. Kop was a managing partner at GlenRock Israel., a private equity investment firm, where he
managed a portfolio of growth companies in the fields of advanced technologies and healthcare, and served on the board of more than ten private and public companies. Prior to his role at
GlenRock, Mr. Kop served as chief executive officer of POC Management Consulting, a leading Israeli consultancy in the field of strategic planning. Mr. Kop also currently serves as a director of
Kamada Ltd (NASDAQ:KMDA) and holds an LLB and MBA from Tel Aviv University Law School and Business School, respectively, and is a graduate of INSEAD’s Young Managers Program.
Dr. Adina Makover has served as a director of our company since February 2003. Dr. Makover also serves as a director of the following companies: GeneGrafts Ltd., a biotechnology
company, since 2006; Spine 21 Ltd., a medical device company, since 2008; EarlySense Ltd., a medical device company, since 2006; and PerfAction Technologies Ltd., a medical device company,
since 2007. She has also served as a board observer at Argo Medical Ltd., a medical device company in the rehabilitation field, since 2011. From 2006 to present, Dr. Makover has served as the
investment manager of the Life Sciences ventures at ProSeed Venture Capital Fund Ltd. Dr. Makover holds a PhD in Life Sciences earned jointly from the Weizmann Institute of Science and
Columbia University, and an MBA from Bar-Ilan University.
Akiva Mozes has served as a director of our company since March 11, 2014. He is a member of the Board of Directors of Strauss Group, Eucalyptus Industries Ltd., and Ein-Shemer
Rubber Industries Agricultural Cooperative Society Ltd. Since 2010, Mr. Mozes served as chairman of Oil Refineries Ltd (Bazan Group) and as president and chief executive officer of Israel
Chemicals, one of the world’s leading manufacturers of fertilizer and specialty chemicals. Mr. Mozes other prior chairman of the board positions include Dead Sea Works Ltd, Rotem Amfert
Negev Ltd, and Bromine Compounds Ltd. He holds several public advisory positions, is a member of the Tel-Aviv University Management committee, and has received a number of leading
industry and business awards. Mr. Mozes holds a BA in Economics and Political Science and an MBA, both from Hebrew University of Jerusalem.
Leon Y. Recanati has served as a director of our company since May 2005. Mr. Recanati has served as chairman and chief executive officer of GlenRock Israel Ltd. since 2003.
Previously, Mr. Recanati was chief executive officer and/or chairman of IDB Holding Corporation; Clal Industries Ltd.; Azorim Investment Development and Construction Co Ltd.; Delek Israel
Fuel Corporation; and Super-Sol Ltd. He also founded Clal Biotechnologies Industries Ltd., a biotechnology investment company operating in Israel. Mr. Recanati holds an MBA degree from the
Hebrew University of Jerusalem and Honorary Doctorates from the Technion Institute of Technology and Tel Aviv University.
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Dr. Simcha Sadan has served as a director of our company since February 2006. Dr. Sadan was a lecturer of the faculty of management at Tel Aviv University and the chairman of the
accounting department from 1978 to 1981. Over the course of the last five years, Dr. Sadan has served as a consultant to various companies and organizations. He also served as the chairman of
the board of directors of Powerbrook Spain S.L., a holding company of a Greek hotel and casino and as a director of various companies, including: companies under the group of Club Hotel Eilat
Ltd., a holding company of hotels and tourism companies; Elite Sports Center Ltd., a subsidiary of Tel Aviv University; Malrag Engineering and Construction Ltd., an infrastructure company;
Ofakim Ltd., a holding company of a motorcar dealer; Siemens Israel Ltd., an electric company; Rozen, Mintz Richter Ltd. (a cycles dealership); and Maariv Holdings Ltd. (a holding company of a
publishing house). Dr. Sadan serves as the chairman of the board of SYS Ltd and SMB Ltd., economic and finance consulting firms. Dr. Sadan holds in a PhD in Business Administration from the
University of California, at Berkeley, an MBA with a major in Finance and Accounting and a BA in Economics and Statistics, both from the Hebrew University in Jerusalem, and an LLB from Tel
Aviv University.
Dr. Kinneret Livnat Savitzky has served as an external director of our company since September 2010. She has been the chairperson of the compensation committee since December
2012 and has served as a member of the audit committee since September 2010. Since 2010, Dr. Savitzky has served as the chief executive officer of BioLineRx Ltd., a drug development company.
She also served on its board of directors from 2010 to 2011, and as its Vice President of Research and Development during 2004. From 2005 to 2009, she served as the General Manager of BioLine
Innovations Jerusalem Ltd., after having been employed by Compugen Ltd. from 1997 to 2004, where she last served as Vice President of Biology. Dr. Savizky holds a B.Sc. in Biology from the
Hebrew University in Jerusalem, as well as a M.Sc. in Biochemistry and a PhD. in Molecular Biology, both from Tel Aviv University, in Israel.
Arrangements for Election of Directors and Members of Management; Family Relationships
There are no arrangements or understandings with major shareholders, customers, suppliers or others related to the election of our board of directors or the appointment of members of
our senior management. There are furthermore no family relationships among any directors or members of our senior management.
B. Compensation
Compensation of Officers and Directors
The aggregate compensation, including non-cash share-based compensation (consisting of expenses related to option grants), accrued by us in respect of the year ended December 31,
2014 to all fourteen persons who served as directors and/or executive officers during that year, was approximately $3.6 million (excluding amounts related to the officers’ service in 2013 that were
paid and recorded in our financial statements in 2014). That amount includes approximately $1.8 million of gross compensation set aside or accrued for purposes of pension, severance,
retirement, car, phone or similar benefits or expenses, but does not include any business travel, relocation, professional and business association dues and expenses reimbursed to office holders,
and other expenses commonly reimbursed by companies in Israel.
Our compensation for our executive officers is paid pursuant to employment agreements and is based, in part, on each executive officer’s personal contribution to our management,
operations and our success, and is determined consistently with our compensation policy, which was approved by our shareholders at our special general meeting of shareholders on March 11,
2014. Each executive officer’s annual bonus is determined according to a formula that is consistent with the compensation policy and that links financial and qualitative -targets based goals and
metrics determined to specific objectives within the responsibility of the relevant executive officer. The financial target is uniform with respect to all of our executive officers, including our Chief
Executive Officer. Our Chief Executive Officer’s goals and objectives are determined by the compensation and nominating committee and our board of directors, and our board of directors has
authorized our Chief Executive Officer to set specific goals and objectives for each of our other executive officers. For each fiscal year, our board of directors determines the maximum target
bonus for each of our executive officers, including our Chief Executive Officer. In the case of our executive officers other than the Chief Executive Officer, assuming that the bonus terms conform
to the compensation policy, such terms only require approval by the compensation and nominating committee followed by the board of directors. For our Chief Executive Officer, the bonus terms
in general require approval by our shareholders as well.
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The following table presents information regarding compensation accrued in our financial statements for our five most highly compensated executive officers, namely our Chief
Executive Officer (Ofer Haviv), our Chief Financial Officer (Sigal Fattal), our Executive Vice President of Technology Infrastructure (Assaf Kacen), our Chief Technology Officer and Executive
Vice President of Development (Hagai Karchi) and our Executive Vice President of Strategy and Business Development, (Assaf Oron), for the year ended December 31, 2014.
Name and Position
Ofer Haviv
President and Chief Executive Officer
Sigal Fattal
Chief Financial Officer
Assaf Kacen
Executive Vice President of Technology Infrastructure
Hagai Karchi
Chief Technology Officer and Executive Vice President of Development
Assaf Oron
Executive Vice President of Strategy and Business Development
Salary and
related benefits
Bonus(2)
Value of Options
Granted(3)
Total
(in thousands, US$)(1)
349
208
215
207
234
87
37
37
37
41
736
205
161
160
206
1,172
450
413
404
481
(1) All amounts reported in the table are in terms of cost to the Company, as recorded in our financial statements.
(2) Bonus amounts shown in this table reflect bonuses accrued as of December 31, 2014 relating to the officers’ service in our company in 2014 and approved by our compensation and
nominating committee and by our board of directors in March 2015, in accordance with our compensation policy. The bonus to our Chief Executive Officer requires further approval by
our shareholders at the 2015 annual general meeting of our shareholders, expected to be held on May 5, 2015. Bonus amounts shown in this table do not include bonus amounts related
to the officers’ service in our company in 2013 that were paid and recorded in our financial statements in 2014.
(3) Consists of amounts recognized as non-cash expenses in our comprehensive statement of income for the year ended December 31, 2014 (“Share based-compensation” expenses).
Employment and Consulting Agreements with Executive Officers
We have entered into written employment agreements with all of our executive officers. Each of these agreements contains provisions regarding non-competition, confidentiality of
information and assignment of inventions. The non-competition provision applies for a period that is generally 12 months following termination of employment. The enforceability of covenants
not to compete in Israel and in the United States is subject to limitations. The employment agreement of each executive officer is terminable at will, upon 30 days written notice, by either side to
the agreement, except for the employment agreement with Mr. Ofer Haviv, our President and Chief Executive Officer, which is terminable at will, upon 90 days written notice, by either side to the
agreement.
Directors’ Service Contracts
There are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their service as
directors of our company.
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Director Compensation
Our directors are entitled to cash compensation and equity compensation as follows:
Cash Compensation
Until May 2014, only our external directors and directors classified as unaffiliated directors according to the Companies Law were entitle to receive fees for their service on our board and
its committees.
Commencing in May 2014, following approval by our compensation and nominating committee and our board and consistent with our compensation policy, all of our directors receive
annual fees and per-meeting fees for their service on our board and its committees, in amounts within the range provided for cash compensation for external and unaffiliated directors under the
Companies Law, as follows:
§ Annual fees in the amount of approximately $22,038 for directors not classified as experts and approximately $29,353 for directors classified as experts;
§
Per-meeting fees in the amount of approximately $848 for directors not classified as experts and $1,129 for directors classified as experts; 60% of such amounts for participation in
meetings via phone and 50% of such amounts for resolutions adopted in writing.
Following approval by our compensation and nominating committee and board of directors, at the 2015 annual general meeting of our shareholders, expected to be held on May 5, 2015,
an amendment to our compensation policy will be proposed for our shareholders’ approval, pursuant to which a chairman of the board who is deemed “active” will be entitled to increased
compensation relative to our other directors. According to such proposal, the board may determine that the chairman of the board is an active chairman in light of the chairman’s increased
involvement in our activities and his or her increased time investment in the performance of the duties accompanying his or her position compared to the other directors. If so determined, an
active chairman of our board will be entitled to (i) an annual fee of up to 3 times the average annual fee of the other directors and (ii) a per-meeting fee of up to 2 times the average per-meeting fee
of the other directors.
In addition, following approval by our compensation and nominating committee and board of directors and the determination by our board of directors that Mr. Martin Gerstel, our
chairman of the board, is an active chairman, at the 2015 annual general meeting of our shareholders, expected to be held on May 5, 2015, an amendment to the compensation of Mr. Gerstel will be
proposed, setting his fees as active chairman at approximately $6,428 per month. Mr. Gerstel has waived his right to receive the per-meeting fees that are payable to our other directors for so long
as he serves as the Company's active chairman of the board.
Equity Compensation
Under our compensation policy, each new non-employee director who is appointed to the board of directors is granted options to purchase 10,000 ordinary shares of the Company.
These options vest over a period of four years, with one-sixteenth of the options vesting at the end of each successive three-month period following the director's appointment, subject to
continued service through each vesting date. The chairman of the board is granted options to purchase twice the number of ordinary shares, on similar terms. During 2014, two of our directors—
Messrs. Ziv Kop and Akiva Mozes, who were appointed to the board in 2014— were granted options accordingly.
In addition, each non-employee director (except for our external directors) is granted annually, upon the anniversary of such director's appointment to the board, options to purchase
2,500 ordinary shares of the Company. These options vest over a period of one year commencing three years following such anniversary of the director's appointment to the board, with one
fourth of the options vesting at the end of each successive three-month period during such year, subject to continued service through each vesting date. The chairman of the board is granted
options to purchase twice the number of ordinary shares, on similar terms. During 2014, four of our directors (i.e. all of our directors except for the two directors appointed in 2014 and except for
our two external directors) were granted options accordingly.
Under our compensation policy, all option grants to directors are subject to the terms of our 2013 Share Option Plan, are granted at an exercise price equal to the higher of (i) the average
closing price of our ordinary shares on the Tel Aviv Stock Exchange, or TASE, during the 15 trading days prior to the options grant date, plus 5% and (ii) the closing price of our ordinary shares
on the TASE on the date of the option grant, and expire 10 years following the grant date thereof.
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Information regarding the options to purchase our ordinary shares (including number of options, exercise price and expiration date of all such options) held by each of our directors and
executive officers who beneficially owns greater than one percent, in the aggregate, of our ordinary shares, after including ordinary shares underlying options held by them, which, as of March
30, 2015, were exercisable or exercisable within 60 days, appears in the beneficial ownership table in Item 7.A below and in the footnotes thereto.
Option Plans
We maintain three share option and incentive plans: our Evogene Share Option Plan (2002), our Evogene Ltd. Key Employee Share Incentive Plan, 2003, and our Evogene Ltd. 2013
Share Option Plan, or the 2013 Plan. All such option and incentive plans provide for the grant of options to purchase our ordinary shares.
As of March 30, 2015, options to purchase 3,735,451 ordinary shares were outstanding under our option and incentive plans, having a weighted average exercise price of NIS 36.61 per
share, of which, options to purchase 2,296,999 ordinary shares were exercisable. An additional 1,396,134 ordinary shares remained available for future grant under our option and incentive plans
(all of which are available under our 2013 Plan) as of that date.
On January 12, 2015, following our board's approval to increase the pool of options available for issuance under our 2013 Plan by 1,000,000 ordinary shares, we filed a registration
statement on Form S-8 to register these shares. On March 22, 2015 our board approved a further increase of such pool by additional 2,000,000 shares, for which we intend to file an additional
registration statement on Form S-8.
Among other types of option awards, our share option and incentive plans provide for granting options in compliance with Section 102 of the Israeli Income Tax Ordinance, 1961, or the
Ordinance, which provides to employees, directors and officers, who are not controlling shareholders (i.e., who hold less than 10% of our share capital) and are Israeli residents, favorable tax
treatment for compensation in the form of shares or options issued or granted, as applicable, to a trustee under the “capital gains track” for the benefit of the relevant employee, director or officer
and are (or were) to be held by the trustee for at least two years after the date of grant or issuance. Under the “capital gains track”, we are not allowed to deduct an expense with respect to the
grant or issuance of the options or shares.
The 2013 Plan also permits us to grant options to U.S. residents. Under an addendum to the 2013 Plan that our board adopted in March 2015, or the US Addendum, the board may grant
options to U.S. residents to purchase ordinary shares, in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code. We intend to seek
shareholder approval for the US Addendum as well a related increase in the ordinary shares reserved for issuance under the 2013 Plan, in accordance with the applicable provisions of the Code.
Options granted under our plans are subject to vesting schedules and generally expire 10 years from the grant date. The plans address the treatment of vested and unvested options
upon the termination of employment of the option holder as well as upon consummation of a merger or consolidation of our company, or sale of all or substantially all of our shares or assets. The
plans also provide for certain lock up arrangements (generally, for a 180-day period) to which option holders and holders of shares issued upon exercise of options will be subject upon
consummation of a public offering, similarly to our directors and executive officers.
The plans are administered by our board.
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C. Board Practices
Board of Directors
Under the Companies Law and our articles of association, the supervision of the management of our business is vested in our board of directors. Our board of directors may exercise all
powers and may take all actions that are not specifically granted to our shareholders or to executive management. Our Chief Executive Officer (referred to as a “general manager” under the
Companies Law) is responsible for our day-to-day management. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment
agreement that we have entered into with him. All other executive officers are appointed by the Chief Executive Officer and are subject to the terms of any applicable employment agreements that
we may enter into with them.
Under our articles of association, our board of directors must consist of not less than three and no more than seven directors, not including two external directors as required by the
Companies Law. See “—External Directors.”
Currently our board of directors consists of eight directors, two of whom are external directors. Other than external directors, for whom special election requirements apply under the
Companies Law, our directors are elected annually, by a simple majority vote of holders of our voting shares participating and voting at the annual meeting of our shareholders, for a one-year
term, from the annual general meeting of our shareholders at which they are elected until the next annual general meeting and until their respective successors are elected and qualified or until
their earlier removal by our shareholders at a general meeting, or upon the occurrence of certain events, in accordance with the Companies Law and our articles of association.
In addition, under our articles of association, our board of directors may appoint directors to fill vacancies or as new directors for a term of office that lasts until the next annual meeting
of our shareholders. In the event of a vacancy resulting in the board consisting of less than the minimum number of directors required by our articles of association, our board of directors may
only act in order to convene a general meeting of our shareholders for the purpose of electing such additional number of directors.
The re-election of each of our board members, other than the two external directors, will be brought for shareholder approval at our 2015 annual meeting.
Additionally, we have two external directors, who serve for terms of three years each and may be elected for an unlimited number of additional three-year terms (beyond their initial three
year terms) under certain circumstances (as described under “—External Directors” below). External directors may be removed from office only under the limited circumstances (as described
under “—External Directors” below) set forth in the Companies Law. See “—External Directors.”
Further, pursuant to a share purchase agreement we entered into with Bayer in December 2010 and as amended in June 2013, Bayer also has the right to appoint one observer to our
board of directors so long as Bayer holds at least 3% of our issued and outstanding shares. In each case, the observer is entitled to be advised reasonably in advance of board meetings, and is
to receive copies of all material distributed in connection with such meetings. The observer would not have any voting rights. To date, neither Monsanto nor Bayer has appointed an observer.
Chairman of the Board
Our articles of association provide that the chairman of the board is appointed by the members of the board of directors and serves as chairman of the board throughout his term as a
director, unless resolved otherwise by the board of directors. Under the Companies Law, the general manager or a relative of the general manager 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 general manager, in each case without shareholder approval consisting of a majority vote of the
shares present and voting at a shareholders meeting, provided that either:
§
§
such majority includes at least 2/3 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; or
the total number of shares of non-controlling shareholders who do not have a personal interest in such appointment voting against such appointment does not exceed two percent of
the aggregate voting rights in the company.
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In addition, a person subordinated, directly or indirectly, to the general manager may not serve as the chairman of the board of directors; the chairman of the board may not be vested
with authorities that are granted to those subordinated to the general manager; and the chairman of the board may not serve in any other position in the company or a controlled company, except
that he may serve as a director or chairman of a subsidiary.
External Directors
Under the Companies Law, the board of directors of a company whose shares are publicly traded is required to include at least two members who qualify as external directors. The
qualifications of an “external director,” as detailed below, are mandated statutorily by the Companies Law, and are distinguishable in certain ways from the criteria for serving as an “independent
director” under the Listed Company Manual. Although it is possible for a director to qualify as an “external director” under the Companies Law without qualifying as an “independent director”
under the Listed Company Manual, or vice-versa, in many instances, directors will either qualify as both or neither. The terms of service of external directors, as characterized by the unique
duration of their term of office, the special majority required for their election, the regulation of their compensation and their required service on board committees (in each case, as described
below), are each mandated by the Companies Law. While these terms are paralleled in certain instances by corresponding service conditions applicable to independent directors under the Listed
Company Manual and our articles of association, the details of those conditions often differ. Dr. Michael Anghel and Dr. Kinneret Livnat Savitzky qualify and currently serve as our external
directors. Each of our external directors will be subject to re-election for an additional three-year term at a shareholders meeting. The principal requirements with respect to external directors are
set forth below.
The Companies Law provides for special approval requirements for the election of external directors. External directors must be elected by a majority vote of the shares present and
voting at a shareholders meeting, 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 election (other than a
personal interest which is not derived from a relationship with a controlling shareholder), present and voting at such meeting; or
the total number of shares of non-controlling shareholders who do not have a personal interest in such election (other than a personal interest which is not derived from a relationship
with a controlling shareholder) voting against the election of an external director does not exceed two percent of the aggregate voting rights in the company.
After an initial term of three years, external directors may be reelected to serve in that capacity for up to two additional terms of three years each, and for a company such as ours with
shares listed on the NYSE, for an unlimited number of additional three-year terms, subject to certain requirements set forth in the Companies Law and the regulations promulgated thereunder.
External directors may be removed from office by the same shareholder vote percentage required for their election or by a court, but only under limited circumstances. If there are fewer
than two external directors on the board of directors, 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.
The audit committee and the compensation and nominating committee must each include all external directors then serving on the board of directors. Each other committee of the board
of directors that exercises powers of the board of directors must include at least one external director. Under the Companies Law, external directors of a company are prohibited from receiving,
directly or indirectly, any compensation from the company other than for their services as external directors, which compensation is determined prior to their appointment and in general may not
be changed throughout the term of their service as external directors.
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The Companies Law provides that a person is not qualified to serve as an external director if, as of the appointment date or at any time during the two years preceding his or her
appointment, that person or a relative, partner or employer of that person, any person to whom that person is subordinate (whether directly or indirectly), or any entity under that person’s
control, had any affiliation or business relationship (which terms are defined in the Companies Law) with the company, any controlling shareholder or relative of a controlling shareholder or an
entity that, as of the appointment date is, or at any time during the two years preceding that date was, controlled by the company or by any entity controlling the company.
§
§
§
§
The following additional qualifications apply to an external director:
a person may not be elected as an external director if he or she is a relative of a controlling shareholder;
if a company does not have a controlling shareholder or a holder of 25% or more of the voting power, then a person may not be elected as an external director if he or she (or his or her
relative, partner, employer or any entity under his or her control) has, as of the date of the person’s election to serve as an external director, any affiliation with the then chairman of the
board of directors, Chief Executive Officer, a holder of 5% or more of the issued share capital or voting power, or the most senior financial officer of the company;
a person may not serve as an external director if he or she (or his or her relative, partner, employer, a person to whom he or she is subordinated or any entity under his or her control) has
business or professional relations with anyone with whom affiliation is prohibited as described above, and even if these relations are not on a regular basis (other than de minimis
relations); and
a person may not continue to serve as an external director if he or she accepts, during his or her tenure as an external director, direct or indirect compensation from the company for his
or her role as a director, other than the amounts prescribed under the regulations promulgated under the Companies Law, indemnification, the company’s undertaking to indemnify such
person and insurance coverage.
The Companies Law provides additional requirements with respect to external directors as well as certain limitations on the relationship between external directors and their affiliates, on
the one hand, and companies, on the other hand, following termination of the external directors’ service. Among others, the Companies Law provides that if at the time an external director is
appointed all members of the board of directors who are not controlling shareholders or their relatives are of the same gender, the external director must be of the other gender.
Pursuant to the regulations promulgated under the Companies Law, a person may be appointed as an external director only if he or she either has professional qualifications or has
accounting and financial expertise (as defined in those regulations). In addition, at least one of the external directors must be determined by our board of directors to have accounting and
financial expertise and the board is required to determine the minimum number of board members who are required to possess accounting and financial expertise. In determining the number of
directors required to have such expertise, the members of 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 at least one of our directors must possess accounting and financial expertise. In this regard, our board of directors has determined that two
of our current directors, Dr. Michael Anghel, an external director, and Dr. Simcha Sadan, each possess “accounting and financial” expertise, while the other external director, Dr. Kinneret Livnat
Savitzky, possesses “professional qualifications”.
Audit Committee
Listing Requirements
Under the Listed Company Manual, 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.
Our audit committee consists of Dr. Michael Anghel, Dr. Simcha Sadan and Dr. Kinneret Livnat Savitzky. Dr. Michael Anghel serves as the Chairman of the audit committee. All members
of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Listed Company Manual. Our board of directors has determined
that that each of Dr. Michael Anghel and Dr. Simcha Sadan is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience required under the Listed
Company Manual.
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Each of the members of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for
independence of board and committee members under the Listed Company Manual.
Companies Law Requirement
Under the Companies Law, the board of directors of a public company must appoint an audit committee. The audit committee must be comprised of at least three directors, including all
of the external directors, and a majority of its members must be unaffiliated directors. An unaffiliated director is an external director or a director who is appointed or classified as such, and who
meets the qualifications of an external director (other than the professional qualifications/accounting and financial expertise requirement), whom the audit committee has confirmed to meet the
external director qualifications, and who has not served as a director of the company for more than nine consecutive years (with any period of up to two years during which such person does not
serve as a director not being viewed as interrupting a nine-year period). For Israeli companies traded on certain foreign stock exchanges, including NYSE, a director who qualifies as an
independent director for the purposes of such director’s membership on the audit committee in accordance with the rules of such stock exchange may also be deemed to be an unaffiliated
director under the Companies Law. Generally, such person may not exceed the nine-year limitation described above. However, a director of an Israeli company traded on such foreign stock
exchange may nevertheless continue to be considered an unaffiliated director for unlimited additional periods of three years each, subject to certain conditions set forth in the Companies Law.
Dr. Michael Anghel and Dr. Kinneret Livnat Savitzky, our external directors, are also unaffiliated directors.
The audit committee may not include the chairman of the board, any director employed by the company or who regularly provides services to the company (other than as a board
member), a controlling shareholder or any relative of the controlling shareholder, or any person who is affiliated with the controlling shareholder. The chairman of the audit committee must be an
external director.
Audit Committee Role
Our board of directors (following the approval by our audit committee) has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with
the rules of the SEC and the Listed Company Manual, which include:
§
§
§
§
retaining and terminating our independent auditors, subject to the approval of the board of directors and shareholders;
pre-approval of audit and non-audit services to be provided by the independent auditors;
reviewing with management and our independent directors our financial reports prior to their submission to the SEC; and
approval of certain transactions with office holders and other related-party transactions.
The charter of the audit committee is available on our website at http://investors.evogene.com/corporate-governance.aspx.
Additionally, under the Companies Law, an audit committee is required, among other things, to (i) identify deficiencies in the administration of the company (including by consulting
with the internal auditor), and recommend remedial actions with respect to such deficiencies, (ii) review and approve certain related party transactions, including determining whether or not such
transactions are extraordinary transactions or insignificant transactions, and (iii) adopt procedures with respect to processing employee complaints in connection with deficiencies in the
administration of the company, and the appropriate means of protection afforded to such employees. In addition, the audit committee is responsible for overseeing the internal control procedures
of the company. Under the Companies Law, the approval of the audit committee is required for specified actions and transactions with office holders and controlling shareholders. See “—
Approval of Related Party Transactions under Israeli Law.” However, the audit committee may not approve an action or a transaction with a controlling shareholder or with an office holder
unless at the time of approval the majority of the members of the audit committee are present, of whom a majority must be unaffiliated directors and at least one of whom must be an external
director.
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Compensation and Nominating Committee
Our compensation and nominating committee consists of Dr. Michael Anghel, Mr. Ziv Kop, Dr. Adina Makover, and Dr. Kinneret Livnat Savitzky (chairman of the committee). Our board
of directors has adopted a compensation policy setting forth the responsibilities of the committee consistent with NYSE rules and the Companies Law, which include:
§
§
§
§
reviewing and recommending an overall compensation policy with respect to our Chief Executive Officer and other executive officers, as described below under “—Compensation
Policy”;
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, including evaluating their performance
in light of such goals and objectives;
reviewing and approving the granting of options and other incentive awards; and
reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
Our board of directors (following approval by our compensation and nominating committee and our board of directors) has adopted a compensation and nominating committee charter.
The charter governs the required composition, meeting procedures and other matters related to the terms of operation of the committee. The charter also describes the responsibilities of the
committee with respect to its role as our nominating committee under the Listed Company Manual, including advising our board of directors in selecting individuals who are best able to fulfill the
responsibilities of a director or executive officer of our company. The charter of
is available on our website at
http://investors.evogene.com/corporate-governance.aspx.
the compensation and nominating committee
Each of the members of our compensation and nominating committee is independent under the Listed Company Manual. Under the Companies Law, all external directors must be
members of, and constitute a majority of the members of, the compensation committee, and each remaining committee member must be a director whose compensation does not exceed an amount
that may be paid to an external director.
Compensation Policy
Under an amendment to the Companies Law that was adopted in December 2012, in addition to appointing a compensation and nominating committee, we are required to establish a
policy regarding the terms of engagement of office holders (which include directors and senior executive officers), or a compensation policy. The compensation policy serves as the basis for
determining the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of
employment or engagement. The compensation policy must relate to certain factors specified in the Companies Law, including advancement of the company’s objectives, the company’s
business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its
operations. The Companies Law describes what factors have to be considered by, and what principles must be included in, the compensation policy.
We adopted the Compensation Policy for Officers of Evogene Ltd. upon the recommendation of our compensation and nominating committee and our board of directors. Our
shareholders approved this policy at the special general meeting of shareholders held in March 2014. Following approval by our compensation committee and board of directors, at the 2015
annual general meeting of our shareholders, an amendment to our compensation policy will be proposed for shareholder approval, providing for differentiated compensation for an active
chairman of the board. For additional information, see “Item 6.B. Compensation—Compensation of Officers and Directors.”
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Compensation of Directors and Officers
Under the Companies Law, the compensation of each of our directors and our Chief Executive Officer requires the approval of our compensation and nominating committee, the
subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of our shareholders at a general meeting (in the
case of a company’s chief executive officer, the shareholder approval must include the special majority described under “—Exculpation, Insurance and Indemnification of Office Holders” below.
The compensation of any other office holder (who is neither a director nor our Chief Executive Officer), if consistent with our compensation policy, requires the approval of our compensation and
nominating committee, followed by our board of directors. Compensation of any such office holder that deviates from our compensation policy will also require shareholder approval. External
directors are entitled to remuneration subject to the provisions and limitations set forth in the regulations promulgated under the Companies Law. For additional information, see “Item 6.B.
Compensation—Compensation of Officers and Directors.”
Corporate Development Committee
Our board of directors has formed a corporate development committee (replacing our former finance committee), on which Mr. Martin Gerstel, Mr. Akiva Mozes, Mr. Leon Recanati and
Dr. Simcha Sadan serve as members. The corporate development committee assists our board of directors in fulfilling its oversight responsibilities across the principal areas of corporate
development for our company and its subsidiaries. This committee may also assist the board by reviewing such matters as corporate and division strategy and M&A opportunities and making
recommendations for consideration by our board of directors.
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee (subject to the limits imposed by
the Companies Law on who may be appointed as an internal auditor). Under the Companies Law, the internal auditor may be an employee of the company but not an office holder, or an affiliate,
or a relative of an office holder or affiliate, and he may not be the company’s independent accountant or its representative.
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. Doron Cohen, CPA, has been appointed as our internal auditor and he has
served in such role since November 19, 2009. Mr. Cohen is a certified internal auditor and a partner of Fahn Kanne Control Management Ltd, an affiliate of Grant Thornton LLP.
Our internal auditor also fulfills the internal audit function required by NYSE corporate governance rules and provides management and the audit committee ongoing assessments of our
risk management processes and system of internal control.
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. Each person listed in the table under “Item 6.A—Directors and Senior Management” is an office
holder under the Companies Law. 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 (i) information on the appropriateness of a given action submitted for his or her approval or performed by
virtue of his or her position; and (ii) all other important information pertaining to these actions. The duty of loyalty includes a duty to (i) refrain from any conflict of interest between the
performance of his or her duties in the company and his or her personal affairs; (ii) refrain from any activity that is competitive with the business of the company; (iii) refrain from exploiting any
business opportunity of the company in order to receive a personal gain for himself or herself or others; and (iv) 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.
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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 have and all related material information known to
him or her concerning any existing or proposed transaction with the company. If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is
required for the transaction, unless the company’s articles of association provide for a different method of approval. Our articles of association provide that for non-extraordinary interested party
transactions, the board of directors may delegate its approval, or may provide a general approval to certain types of non-extraordinary interested party transactions. Every interested party
transaction requires that our board of directors determine affirmatively that the transaction is favorable to the company. Approval first by the company’s audit committee and subsequently by
the board of directors is required for an extraordinary transaction, meaning any transaction that is not in the ordinary course of business, not on market terms or that is likely to have a material
impact on the 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 has a
personal interest in the approval of such a transaction then all of the directors may participate in 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.
Pursuant to the Companies Law, extraordinary transactions with our office holders who are not directors require audit committee approval and subsequent approval by our board of
directors. Compensation, insurance, indemnification or exculpation arrangements for office holders who are not directors require approval by our compensation and nominating committee,
followed by our board of directors and, if deviating from our compensation policy, our shareholders. Compensation arrangements with directors, including in their capacities as executive officers,
or with or our Chief Executive Officer, as well as insurance (unless exempted under the applicable regulations), indemnification or exculpation of directors or our Chief Executive Officer, require
the approval of the compensation and nominating committee, the board of directors and our shareholders, in that order. If the transaction or compensation arrangement of the office holder
brought for approval amends an existing arrangement, then only the approval of the audit committee or compensation and nominating committee (as appropriate) is required if that committee
determines that the amendment is not material in relation to the existing arrangement.
Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions
Pursuant to the Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public
company. We currently do not have a controlling shareholder.
An extraordinary transaction between a public company and a controlling shareholder, or in which a controlling shareholder has a personal interest, requires the approval of a
company’s audit committee, board of directors and shareholders in that order. For the terms of compensation (or insurance, indemnification or exculpation) of a controlling shareholder who is an
office holder, the approval by our compensation and nominating committee is required in lieu of audit committee approval. The shareholder approval for any such extraordinary transaction or
compensatory arrangement must fulfill one of the following requirements:
§
§
at least a majority of the voting rights in the company held by shareholders who have no personal interest in the transaction and who are present and voting (in person or by proxy) at
the general meeting, must be voted in favor of approving the transaction or arrangement (for this purpose, abstentions are disregarded); or
the voting rights held by shareholders who have no personal interest in the transaction or arrangement and who are present and voting (in person or by proxy) at the general meeting,
and who vote against the transaction, do not exceed two percent of the voting rights in the company.
82
Shareholder Duties
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in an acceptable manner toward the company and other shareholders and to refrain from abusing his or
her power with respect to the company, including, among other things, in voting at a general meeting and at shareholder class meetings 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
interested party transactions that require shareholder approval.
In addition, a shareholder has a general duty to refrain from discriminating against other shareholders. Certain shareholders also have a duty of fairness toward the company. These
shareholders include any controlling shareholder, any shareholder who knows that it has the power to determine the outcome of a shareholder vote and any shareholder who has the power to
appoint or to prevent the appointment of an office holder of the company or exercise any other rights available to it under the company’s articles of association with respect to the company. The
Companies Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of
the duty of fairness. Israeli courts have not yet interpreted the scope or nature of any of these duties.
Approval of Private Placements
Under the Companies Law, a significant private placement of securities requires approval by the board of directors and the shareholders by a simple majority. A private placement is
considered a significant private placement if it results in a person becoming a controlling shareholder, or if all of the following conditions are met:
§
§
§
the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance;
some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and
the transaction will increase the relative holdings of a shareholder who holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to
become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.
Exculpation, Insurance and Indemnification of Office Holders
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. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend or distribution to
shareholders.
An Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or
following an event, provided a provision authorizing such indemnification is contained in its articles of association:
§
financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify
an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen
based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the
circumstances, and such undertaking shall detail the abovementioned events and amount or criteria;
83
§
§
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority
authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no
financial liability, 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
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf
or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal
intent.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed 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, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the
company;
a breach of the duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder;
a financial liability imposed on the office holder in favor of a third party;
a financial liability imposed on the office holder in favor of a third party harmed by a breach in an administrative proceeding; and
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an administrative proceeding instituted against him or her.
§ An Israeli company may not indemnify or insure an office holder against any of the following:
§
§
§
§
a breach of the duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of the duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation and nominating committee and the board of directors
and, with respect to directors and our Chief Executive Officer, also by our shareholders (with a special majority among non-controlling shareholders who have no personal interest in such
approval).
Our articles of association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act which was performed by virtue of being an
office holder. Our shareholders have approved an amendment to our articles of association that extends such indemnification and insurance to cover omissions by our office holders (in their role
as such) as well. Our office holders are currently covered by a directors’ and officers’ insurance policy.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us
as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law. This indemnification is limited to events determined as foreseeable by the board of
directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances.
84
The maximum indemnification amount set forth in such agreements is limited to an amount equal to 25% of our shareholders’ equity as reflected in our most recent consolidated financial
statements prior to the date on which the indemnity payment is made. Our shareholders have approved an amendment to such indemnification agreements that provides that if the amount equal
to 25% of our shareholders’ equity is insufficient to cover all indemnity amounts payable with respect to all indemnifiable directors and executive officers, such amount will be allocated among
our directors and executive officers pro rata, in accordance with their relative culpabilities, as finally determined by a court with respect to a particular claim. The maximum amount set forth in
such agreements is in addition to any amount paid (if paid) under insurance and/or by a third party pursuant to an indemnification arrangement. In the opinion of the SEC, indemnification of
directors and office holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.
D. Employees
As of December 31, 2014, we had 207 full-time employees and 61 hourly, part-time employees, all of whom are based in Israel. The following table shows the breakdown of our full-time
workforce as of the dates indicated:
Department
Management
Project management
Research and development
Intellectual property
Business development
General and administrative
Total
2012
As of December 31,
2013
2014
6
8
127
3
4
20
168
5
4
152
3
4
24
192
6
6
162
3
8
22
207
Israeli labor laws govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick
days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally
requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the
U.S. Social Security Administration. Our employees have pension plans that comply with the applicable Israeli legal requirements.
While none of our employees is party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israeli Ministry of
the Economy. These provisions primarily concern pension fund benefits for all employees, insurance for work-related accidents, recuperation pay and travel expenses.
We have never experienced any employment-related work stoppages and believe our relationships with our employees are good.
E. Share Ownership
For information regarding the share ownership of our directors and executive officers, please refer to “Item 6.B. Compensation—Option Plans” and “Item 7.A. Major Shareholders.”
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our shares as of March 30, 2015 by:
§
each person or entity known by us to own beneficially more than 5% of our outstanding shares;
85
§
§
each of our directors and executive officers individually; and
all of our executive officers and directors as a group.
The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC, and generally includes any ordinary shares over which a person exercises sole or
shared voting or investment power, or the right to receive the economic benefit of ownership. For purposes of the table below, we deem shares subject to options or warrants that are currently
exercisable or exercisable within 60 days of the date of March 30, 2015, to be outstanding and to be beneficially owned by the person holding the options or warrants for the purposes of
computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person.
For the purpose of calculating the percentage of shares beneficially owned by any shareholder, this table lists applicable percentage ownership based on 25,359,704 ordinary shares
outstanding as of March 30, 2015. Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares, except
to the extent that authority is shared by spouses under community property laws.
Unless otherwise noted below, each shareholder’s address is c/o Evogene Ltd., 13 Gad Feinstein Street, Park Rehovot P.O.B 2100, Rehovot 7612002, Israel. The shareholders listed
below (including our directors and executive officers) do not have any different voting rights from any of our other shareholders. We know of no arrangements that would, at a subsequent date,
result in a change of control of our company. A description of any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the past
three years is included under “Item 7.B. Related Party Transactions.”
Name of Beneficial Owner
Principal Shareholders
Entities affiliated with Psagot Investment House Ltd. (1)
Monsanto Company(2)
Entities affiliated with Waddell & Reed Financial, Inc. (3)
Entities affiliated with Migdal Insurance & Financial Holdings Ltd. (4)
Entities affiliated with Harel Insurance , Investments & Financial Services Ltd. (5)
Executive Officers and Directors
Ofer Haviv
Dr. Eyal Emmanuel
Sigal Fattal
Assaf Kacen
Dr. Hagai Karchi
Assaf Oron
Martin S. Gerstel
Dr. Michael Anghel
Ziv Kop
Dr. Adina Makover
Akiva Mozes
Leon Y. Recanati
Dr. Simcha Sadan
Dr. Kinneret Livnat Savitsky
All directors and executive officers as a group (14 persons)
_______________________________
*
Less than 1%.
86
Shares Beneficially Held
Number
Percentage of
Class
2,476,361
1,636,364
3,059,732
2,155,450
1,537,294
574,063(6)
62,662(7)
86,721(8)
143,404(9)
353,750(10)
56,250(11)
407,756(12)
18,750(13)
3,125(14)
16,424(15)
2,500(16)
860,735(17)
56,025(18)
11,250(19)
2,653,415
9.76%
6.45%
12.07%
8.50%
6.06%
2.26%
*
*
*
1.39%
*
1.61%
*
*
*
*
3.39%
*
*
10.46%
(1)
(2)
(3)
(4)
(5)
(6)
This information is based upon a Schedule 13G/A filed by Psagot Investment House Ltd. with the SEC on February 18, 2015. These ordinary shares are held for members of the
public through, among others, portfolio accounts managed by Psagot Securities Ltd., Psagot Exchange Traded Notes Ltd., mutual funds managed by Psagot Mutual Funds Ltd.,
and provident funds and pension funds managed by Psagot Provident Funds and Pension Ltd., according to the following segmentation: (i) 703,349 ordinary shares beneficially
owned by portfolio accounts managed by Psagot Securities Ltd.; (ii) 749,634 ordinary shares beneficially owned by Psagot Exchange Traded Notes Ltd.; (iii) 109,023 ordinary shares
beneficially owned by mutual funds managed by Psagot Mutual Funds Ltd. (of this amount, 9,450 ordinary shares may also be considered beneficially owned by Psagot Securities
Ltd., but are not included in the shares beneficially owned by Psagot Securities Ltd.); and (iv) 914,356 ordinary shares beneficially owned by provident funds managed by Psagot
Provident Funds and Pension Ltd. Each of the foregoing companies is a wholly-owned subsidiary of Psagot Investment House Ltd. The subsidiaries operate under independent
management and make their own independent voting and investment decisions. Any economic interest or beneficial ownership in any of the securities covered by this report is held
for the benefit of owners of the portfolio accounts, holders of the exchange-traded notes, or for the benefit of the members of the mutual funds, provident funds, or pension funds,
as the case may be. The principal address of Psagot Investment House Ltd. is 14 Ahad Ha’am Street, Tel Aviv 65142, Israel.
This information is based upon a Schedule 13G filed by Monsanto Company with the SEC on February 13, 2015. Monsanto Company is a Delaware corporation and is listed on the
NYSE and possesses voting and dispositive investment power over these ordinary shares. The principal address for Monsanto Company is 800 North Lindbergh Boulevard, St.
Louis, Missouri 63167, USA.
This information is based upon a Schedule 13G/A filed with the SEC on February 13, 2015 jointly by (i) Waddell & Reed Financial, Inc., or “WRF”; (ii) Waddell & Reed Financial
Services, Inc., or “”WRFS”, a subsidiary of WRF; (iii) Waddell & Reed Inc., or “WRI”, a broker-dealer and subsidiary of WRFS; (iv) Waddell & Reed Investment Management
Company, or “WRIMCO”, an investment advisory subsidiary of WRI; and (v) Ivy Investment Management Company, or “IICO”, an investment advisory subsidiary of WRF.
According to this Schedule 13G filed with the SEC on February 13, 2015, the investment advisory contracts grant IICO and WRIMCO investment power over securities owned by
their advisory clients and the investment sub-advisory contracts grant IICO and WRIMCO investment power over securities owned by their sub-advisory clients and, in most
cases, voting power. Any investment restriction of a sub-advisory contract does not restrict investment discretion or power in a material manner. Therefore, IICO and/or WRIMCO
may be deemed the beneficial owner of the securities covered by this statement under Rule 13d-3 of the Exchange Act. These ordinary shares are held according to the following
segmentation with direct or indirect voting and dispositive power as indicated: WRI: 3,059,732 (indirect); WRFSI: 1,330,502 (indirect); WRI: 1,330,502 (indirect); WRIMCO: 1,330,502
(direct); and IICO: 1,729,230 (direct). The principal address for these entities is 6300 Lamar Avenue, Overland Park, KS 66202.
This information is based upon a Schedule 13G filed by Migdal Insurance & Financial Holdings Ltd., or “Migdal”, with the SEC on February 10, 2015. According to this Schedule
13G, 2,155,450 ordinary shares are held for members of the public through, among others, provident funds, mutual funds, pension funds and insurance policies, which are managed
by subsidiaries of Migdal, according to the following segmentation: (i) 1,115,409 ordinary shares are held by Profit participating life assurance accounts; (ii) 777,947 ordinary shares
are held by Provident funds and companies that manage provident funds and (iii) 132,712 ordinary shares are held by companies for the management of funds for joint investments
in trusteeship, each of which subsidiaries operates under independent management and makes independent voting and investment decisions. Finally, 129,382 ordinary shares are
beneficially held for their own account (Nostro account). The principal address of Migdal is 4 Efal Street; P.O. Box 3063; Petach Tikva 49512, Israel.
This information is based upon a Schedule 13G/A filed by Harel Insurance Investments & Financial Services Ltd., or “Harel”, with the SEC on February 12, 2015. According to this
Schedule 13G/A (i) 1,530,347 ordinary shares are held for members of the public through, among others, provident funds, mutual funds, pension funds and insurance policies, which
are managed by subsidiaries of Harel, (ii) 4,747 ordinary shares are held by third party client accounts managed by a subsidiary of Harel as portfolio managers, which subsidiary
operates under independent management and makes independent investment decisions and has no voting power in the securities held in such client accounts, and (iii) 2,200
ordinary shares are beneficially held for Harel's own account (Nostro account). The principal address of Harel is Harel House, 3 Abba Hillel Street, Ramat Gan 52118, Israel.
Consists of 574,063 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015, of which, options to purchase
130,000 ordinary shares expire on June 11, 2017, options to purchase 150,000 ordinary shares expire on August 24, 2019, options to purchase 200,000 ordinary shares expire on June
19, 2020, and options to purchase 94,063 ordinary shares expire on July 17, 2023. The weighted average exercise price of these options is NIS 26.39.
87
(7)
(8)
(9)
(10)
(11)
(12)
Consists of 62,662 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise
price of these options is NIS 39.91.
Consists of 86,721 ordinary shares which are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise price of these options is NIS 40.10.
Consists of 143,404 ordinary shares issuable upon exercise of options that which are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average
exercise price of these options is NIS 33.35.
Includes 263,750 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015, of which, options to purchase
35,000 ordinary shares expire on June 11, 2017, options to purchase 60,000 ordinary shares expire on August 24, 2019, options to purchase 125,000 ordinary shares expire on June 19,
2020, and options to purchase 43,750 ordinary shares expire on July 15, 2023. The weighted average exercise price of these options is NIS 27.79. Also includes 90,000 ordinary
shares held by Dr. Karchi.
Consists of 56,250 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise
price of these options is NIS 45.03.
Includes 58,750 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015, of which, options to purchase 37,500
ordinary shares expire on June 11, 2017, options to purchase 7,500 ordinary shares expire on July 20, 2018, options to purchase 5,000 ordinary shares expire on April 9, 2020, options
to purchase 5,000 ordinary shares expire on June 11, 2020, and options to purchase 3,750 ordinary shares expire on September 17, 2021. The weighted average exercise price of these
options is NIS 14.78. Also includes 349,006 ordinary shares consisting of: (a) 133,815 ordinary shares held by Martin Gerstel and (b) 215,191 ordinary shares held by Shomar
Corporation over which Martin Gerstel and his wife Mrs. Shoshana Gerstel possess voting and investment power.
(13)
Consists of 18,750 ordinary shares which are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise price of these options is NIS 16.77.
(14)
(15)
(16)
(17)
(18)
(19)
Consists of 3,125 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise
price of these options is NIS 71.05.
Includes 15,000 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise price
of these options is NIS 19.10. Also includes 1,424 ordinary shares held by Dr. Makover.
Consists of 2,500 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise
price of these options is NIS 71.05.
Includes 21,875 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015, of which, options to purchase 12,500
ordinary shares expire on 12,500 ordinary shares expire on June 11, 2017, options to purchase 2,500 ordinary shares expire on July 20, 2018, options to purchase 2,500 ordinary
shares expire on April 9, 2020, options to purchase 2,500 ordinary shares expire on June 11, 2020, and options to purchase 1,875 ordinary shares expire on September 17, 2021. The
weighted average exercise price of these options is NIS 16.22. Also includes 838,859 ordinary shares held by Mr. Recanati.
Includes 21,875 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise price
of these options is NIS 16.22. Also includes 34,150 ordinary shares, held by S.M.B. Ltd., over which Dr. Sadan possesses voting and investment power.
Consists of 11,250 ordinary shares issuable upon exercise of options that are currently exercisable or exercisable within 60 days of March 30, 2015. The weighted average exercise
price of these options is NIS 31.86.
Changes in Percentage Ownership by Major Shareholders
Over the course of 2014, there were increases in the percentage ownership of some of our pre-existing major shareholders, including (i) entities affiliated with Waddell & Reed Financial,
Inc. (from 8.93% to 12.07%) and (ii) entities affiliated with Migdal Insurance & Financial Holdings Ltd. (from 7.14% to 8.50%), while there were decreases in the percentage ownership of other of
our pre-existing major shareholders, including (x) the entities affiliated with Psagot Investment House Ltd. (from 10.29% to 9.76%) and (y) Monsanto Company (from 9.81% to 6.45%).
Record Holders
As of March 30, 2015, all of our ordinary shares held of record in the United States, representing 22.67% of our total number of outstanding ordinary shares, were registered in the name
of one record shareholder—Cede & Co., as nominee for the Depository Trust Company. The number of record holders is not representative of the number of beneficial holders of our ordinary
shares, nor is it representative of where such beneficial holders reside, since the shares held in the name of Cede & Co. are listed for trading on the NYSE and are beneficially owned by a wide
range of underlying beneficial shareholders who hold their shares in “street name.” In particular, we are aware, based on public filings, that two of our principal beneficial shareholders,
Monsanto Company and Waddell & Reed Financial, Inc, who together held 18.52% of our outstanding ordinary shares, have addresses in the United States.
88
B. Related Party Transactions
Except as described below or elsewhere in this annual report, since January 1, 2014, we have had no transaction , nor do we have any presently proposed transaction, and neither we nor
our subsidiaries have had any loan, nor do we or our subsidiaries have any presently proposed loan, involving any related party described in Item 7.B of Form 20-F promulgated by the SEC.
Agreements with Directors and Officers
Employment Agreements
We have entered into written employment agreements with all of our executive officers. Each of these agreements contains provisions regarding non-competition, confidentiality of
information and assignment of inventions. The non-competition provision applies for a period that is generally 12 months following termination of employment. The enforceability of covenants
not to compete in Israel and in the United States is subject to limitations.
Options
See “Item 6.B. Compensation—Option Plans”.
Indemnification Agreements
Our articles of association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act which was performed by virtue of being an
office holder. They also allow us to 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. In furtherance of such allowance we have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to
us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law. See “Item 6.C. Board Practices— Exculpation,
Insurance and Indemnification of Office Holders.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Consolidated financial statements
We have appended our consolidated financial statements at the end of this annual report, starting at page F-2, as part of this annual report.
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently involved in any pending or contemplated legal
proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material
legal proceedings in the future. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other
factors.
89
Dividend Policy
Since our inception, we have not declared or paid any cash or other form of dividends on our ordinary shares. We currently intend to retain any earnings for use in our business and do
not currently intend to pay cash dividends on our ordinary shares. Dividends, if any, on our outstanding ordinary shares will be declared by and subject to the discretion of our board of
directors. Even if our board of directors decides to distribute dividends, the form, frequency and amount of such dividends will depend upon our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors our board of directors may deem relevant.
In addition, the distribution of dividends may be limited by Israeli law, which permits the distribution of dividends only out of distributable profits. See “Item 10.B. Memorandum and
Articles of Association—Dividend and Liquidation Rights.” In addition, if we pay a dividend out of income derived during the tax exemption period from the portion of the company’s facilities
that have been granted Approved Enterprise status, we may be required to recapture the deferred corporate tax with respect to the amount distributed. See “Item 10.E.Taxation—Israeli Tax
Considerations and Government Programs—Law for the Encouragement of Capital Investments, 5719-1959.”
B. Significant Changes
No significant changes have occurred since December 31, 2014, except as otherwise disclosed in this annual report.
ITEM 9.
THE OFFER AND LISTING
A. Listing Details
Our ordinary shares have been trading on the TASE since 2007 and on the NYSE since November 2013, in both cases under the symbol “EVGN.” The following table sets forth, for the
periods presented, the reported high and low closing sale prices of our ordinary shares on the TASE in NIS and U.S. dollars, and the reported high and low closing sale prices of our ordinary
shares on the NYSE in U.S. dollars.
Tel Aviv Stock Exchange
NIS
Price Per Ordinary Share
Low
High
U.S.$
Price Per Ordinary Share
Low
High
New York Stock Exchange
U.S.$
Price Per Ordinary Share
Low
High
Annual:
2015 (up to April 15, 2015)
2014
2013
2012
2011
2010
Quarterly:
Second Quarter 2015 (up to April 15, 2015)
First Quarter 2015
Fourth Quarter 2014
Third Quarter 2014
Second Quarter 2014
First Quarter 2014
Fourth Quarter 2013
Third Quarter 2013
Second Quarter 2013
First Quarter 2013
Most Recent Six Months:
April 2015 (up to April 15, 2015)
March 2015
February 2015
January 2015
December 2014
November 2014
41.17
69.82
68.80
39.00
42.40
40.80
37.90
41.17
48.77
55.01
68.08
69.82
68.80
54.78
46.24
41.42
37.90
40.17
41.17
39.23
42.06
43.33
32.49
34.12
36.34
29.58
25.20
25.40
35.62
32.49
34.12
43.52
55.57
61.62
55.36
41.44
37.52
36.34
35.62
35.06
32.61
32.49
34.32
34.12
90
10.45
20.10
19.62
10.31
12.02
11.46
9.53
10.45
13.38
16.06
19.61
20.10
18.38
15.49
12.54
11.13
9.53
10.21
10.45
9.94
10.54
11.40
8.28
8.81
9.73
7.43
7.10
6.55
8.96
8.28
8.81
12.32
16.15
17.66
15.67
11.61
10.51
9.73
8.96
8.81
8.31
8.28
8.78
8.81
10.42
19.91
19.99
—
—
—
10.01
10.42
13.09
16.16
19.25
19.91
19.99
—
—
—
10.01
9.82
10.42
9.90
10.51
11.15
8.20
8.74
16.74
—
—
—
8.73
8.20
8.74
12.45
16.28
17.41
16.74
—
—
—
8.73
8.82
8.34
8.20
8.87
8.74
B. Plan of Distribution
Not applicable.
C. Markets
See “—Listing Details” above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
For a discussion of the provisions of the company’s articles of association with respect to the powers of directors, see “Item 6.C. Board Practices.”
Objects and Purposes
Our registration number with the Israeli Registrar of Companies is 51-283872-3. Our purpose as set forth in article 4 of our articles of association is to engage in any legal business.
Voting
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at
shareholder 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
shareholder meeting. Shareholder voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the
future. Except as otherwise disclosed herein, an amendment to our articles of association to change the rights of our shareholders requires the prior approval of a simple majority of our shares
represented and voting at a general meeting and of the holders of a class of shares whose rights are being affected (or the consent in writing of all the holders of such class of shares).
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Share Ownership Restrictions
The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except that citizens of
countries that are in a state of war with Israel may not be recognized as owners of ordinary shares.
Transfer of Shares
Fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited by another
instrument, Israeli law or the rules of a stock exchange on which the shares are traded.
Election of Directors
Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association, our directors, other than external directors, are elected at
each annual general meeting of the shareholders, upon expiration of a one year term of office, by the holders of a simple majority of our ordinary shares present in person or by proxy at such
meeting (excluding abstentions). As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented at a shareholder meeting and voting thereon
(excluding abstentions) have the power to elect any or all of our directors, subject to the special approval requirements for external directors described under “Item 6.C.Board Practices—External
Directors.” Vacancies on our board of directors, resulting from a resignation or other termination of service by a then serving director, may be filled by a vote of a simple majority of the directors
then in office as described under “Item 6.C.Board Practices—Board of Directors.” For additional information regarding the election of and voting by directors, please refer to “Item 6.C. Board
Practices—Board of Directors.”
Dividend and Liquidation Rights
Under Israeli law, we may declare and pay a dividend only if, upon the reasonable determination of our board of directors, the distribution will not prevent us from being able to meet the
terms of our existing and contingent 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 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 and earnings legally available for distribution, as defined in the Companies Law, we may seek the approval of the
court in order to distribute a dividend. The court may approve our request if it is convinced 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.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata basis. Dividend and liquidation
rights 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. See “Item
8.A.Consolidated Statements and Other Financial Information—Dividend Policy.”
Shareholder Meetings
Under the Companies Law, we are required to convene an annual general meeting of our shareholders once every calendar year, not more than 15 months following the preceding annual
general meeting. Our board of directors may convene a special general meeting of our shareholders and is required to do so at the request of two directors or one quarter of the members of our
board of directors, or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting power. All
shareholder meetings require prior notice of at least 14 days and, in certain cases, 35 days. The chairperson of our board of directors or another one of our directors authorized by our board of
directors presides over our general meetings. If either of such persons is not present within 15 minutes from the appointed time for the commencement of the meeting, the directors present at
such meeting shall appoint one of our directors as the chairperson for such meeting, and if they fail to do so, then the shareholders present shall appoint one of our directors to act as
chairperson, and if no director is present, then one of the shareholders present at such meeting shall act as chairperson. Subject to the provisions of the Companies Law and the regulations
promulgated thereunder, only shareholders of record on a date decided upon by the board of directors, which may be between four and 40 days prior to the date of the meeting (depending on
the type of meeting and whether written proxies are being used) are entitled to participate and vote at general meetings of shareholders.
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Quorum
Under our amended and restated articles of association, the quorum required for a meeting of shareholders consists of at least two shareholders present in person, by proxy or by
written ballot, who hold or represent between them at least 25% of our voting power. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the
same time and place (without requirement of additional notification to the shareholders), or to a later time, if indicated in the notice to the meeting or to such other time and place as determined by
the board of directors in a notice to our shareholders. At the reconvened meeting, if a quorum is not present within half an hour from the appointed time for the commencement of the meeting, the
meeting will take place so long as at least one shareholder is present (regardless of the voting power held or represented by any such shareholder(s)), unless the meeting was called pursuant to a
request by our shareholders, in which case the quorum required is the number of shareholders required to call the meeting as described under “—Shareholder Meetings” above.
Resolutions
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority of the voting rights
represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution (excluding abstentions).
Access to Corporate Records
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our shareholder register, including with respect to material shareholders,
our articles of association, our financial statements and any document we are required by law to file publicly with the Israeli Companies Registrar or the Israeli Securities Authority. Any
shareholder who specifies the purpose of its request may request to review any document in our possession that relates to any action or transaction with a related party which 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 impair our interests.
Modification of Class Rights
The rights attached to any class of share (to the extent that we may have separate classes of shares in the future), such as voting, liquidation and dividend rights, may be amended by
adoption of a resolution by the holders of a majority of our shares represented at the meeting and the holders or a majority of the shares of that class present at a separate class meeting, or
otherwise in accordance with the rights attached to such class of shares, as set forth in our articles of association.
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Acquisitions under Israeli Law
Full Tender Offer
A person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the target company’s voting rights or the target company’s issued and
outstanding share capital (or of a class thereof), 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 (or the applicable class). If (a) the shareholders who did not accept the offer hold less than 5% of the issued and outstanding share capital of the company (or
the applicable class) and the shareholders who accept the offer constitute a majority of the offerees that do not have a personal interest in the acceptance of the tender offer or (b) the
shareholders who did not accept the tender offer hold less than 2% 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. A shareholder who had its shares so transferred may petition the court within six months from the date of acceptance of
the full tender offer, regardless of whether such shareholder agreed to the offer, to determine whether the tender offer was for less than fair value and whether the fair value should be paid as
determined by the court. However, an offeror may provide in the offer documents that a shareholder who accepted the offer will not be entitled to appraisal rights as described in the preceding
sentence, as long as the offeror and the company disclosed the information required by law in connection with the tender offer. If (a) the shareholders who did not accept the tender offer hold
5% or more of the issued and outstanding share capital of the company (or of the applicable class) or the shareholders who accept the offer constitute less than a majority of the offerees that do
not have a personal interest in the acceptance of the tender offer, or (b) the shareholders who did not accept the tender offer hold 2% or more of the issued and outstanding share capital of the
company (or of the applicable class), the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital
(or of the applicable class) from shareholders who accepted the tender offer.
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 if as a result of the acquisition the purchaser
would become a holder of 25% or more of the voting rights in the company. This rule does not apply if there is already another holder of 25% or more of the voting rights in the company.
Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a
holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company. These requirements
do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding 25% or more of the voting
rights in the company and resulted in the acquirer becoming a holder of 25% or more of the voting rights in the company, or (iii) was from a holder of more than 45% of the voting rights in the
company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. A special tender offer may be consummated only if (i) at least 5% of the voting
power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to
the offer (excluding controlling shareholders, holders of 25% or more of the voting rights in the company and any person having a personal interest in the acceptance of the tender offer).
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer, or shall abstain from expressing any
opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office holder in a target company who, in his or her capacity as an office holder, performs an action the
purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for
damages, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, office holders of the target company
may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
If a special tender offer is accepted, then shareholders who did not respond to or that had objected the offer may accept the offer within four days of the last day set for the acceptance
of the offer. In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or
entity 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 undertook to effect such an offer or merger in the initial special tender offer.
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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, a majority of
each party’s shareholders. The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a reasonable
concern that as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, such determination taking into account the financial status of
the merging companies. If the board of directors determines that such a concern exists, it may not approve a proposed merger. Following the approval of the board of directors of each of the
merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.
For purposes of the shareholder vote, unless a court rules otherwise, if one of the merging companies (or any person who holds 25% or more of the outstanding shares or the right to
appoint 25% or more of the directors of one of the merging companies) holds shares in the other merging company, the merger will not be deemed approved if a majority of the shares voted at the
shareholders meeting by shareholders other than the other party to the merger, or 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, vote against the merger. In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of
shareholders. If the transaction would have been approved but for the separate approval of each class 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 value of the
parties to the merger and the consideration offered to the shareholders. If a merger is with a company’s controlling shareholder or if the controlling shareholder has a personal interest in the
merger, then the merger is instead subject to the same special majority approval that governs all extraordinary transactions with controlling shareholders (as described above under “Item
6.C.Board Practices—Approval of Related Party Transactions under Israeli Law—Disclosure of Personal Interests of Controlling Shareholders and Approval of Certain Transactions”).
Under the Companies Law, each merging company must inform its secured creditors of the proposed merger plans. 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.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger is filed with the Israeli Registrar of Companies
and 30 days have passed from the date that shareholder approval of both merging companies is obtained.
Antitakeover Measures under Israeli Law
Besides the requirements described above with respect to tender offers and mergers, Israeli law and our articles of association enable the implementation of additional measures that may
delay or prevent a takeover attempt and thereby preclude our shareholders from realizing a potential premium over the market value of our ordinary shares that they hold. Our articles of
association allow our company to increase its registered share capital and provide that the increased capital will be divided into shares having ordinary, preferred or deferred rights or any other
special rights, or may be subject to terms and restrictions in respect of dividend, repayment of capital, voting or other terms, in each case provided that the general meeting of our shareholders
approves via a simple majority of shares present (in person or by proxy) and voting. Israeli law also permits the issuance of preferred stock. However, the TASE rules and regulations prohibit a
listed company from having more than one class of shares listed, and the TASE’s current position is that a listed company may not issue or list preferred shares. Therefore, assuming that the
TASE’s current position does not change, as long as our ordinary shares are listed on the TASE, we will be prohibited from issuing preferred stock.
To date, the legality of a poison pill as an additional antitakeover measure has not been examined in Israel.
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C. Material Contracts
Underwriting Agreement
Other than as described in other parts of this annual report, we have no other material contracts other than those described immediately below.
We entered into an underwriting agreement between us and Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc., as representatives of the underwriters, on November
20, 2013, with respect to the ordinary shares sold in our IPO. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of such liabilities.
D. Exchange Controls
Other than general anti-money laundering regulations, there are currently no Israeli currency control regulations in effect that restrict our import or export of capital to or from the State
of Israel, or the availability of cash and cash equivalents for use by our affiliated companies. Under the Bank of Israel Law, 5770-2010, the Governor of the Bank of Israel, with the approval of the
monetary policy committee of the Bank of Israel, is authorized to issue an administrative order restricting the transfer of funds to or from Israel. However, such an order is only likely to be issued
under emergency circumstances and only for a temporary period, if necessary for the achievement of the goals of the Bank of Israel or the carrying out of its responsibilities under Israeli law.
Furthermore, Israel has agreed, pursuant to international agreements to which it is a party (including incident to Israel’s having joined the International Monetary Fund) to allow for the free flow
of capital to and from within its borders. Certain transactions nevertheless require the filing of reports with the Bank of Israel.
Similarly, there are no currently effective Israeli governmental laws, decrees, regulations or other legislation that restrict the payment of dividends or other distributions with respect to
our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding some transactions. However,
legislation remains in effect under which currency controls can be imposed by administrative action at any time.
E. Taxation
Israeli Tax Considerations and Government Programs
The following is a brief summary of the material Israeli income tax laws applicable to us, and certain Israeli Government programs that benefit us. This section also contains a discussion
of material Israeli income tax consequences concerning the ownership and disposition of our ordinary shares purchased by investors in the IPO. This summary does not discuss all the aspects
of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law.
Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Because parts of this discussion are based on
new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed
in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law,
which change could affect the tax consequences described below.
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income. As of 2014 the corporate tax rate is 26.5%. However, the effective tax rate payable by a company that
derives income from an Approved Enterprise, a Beneficiary Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are
subject to the prevailing corporate tax rate.
96
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies”.
The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company which was incorporated in Israel, of which 90% or more of its income in any tax year,
other than income from certain government loans, is derived from an “Industrial Enterprise” owned by it and located in Israel. An “Industrial Enterprise” is defined as an enterprise whose
principal activity in a given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of
the Industrial Enterprise, commencing in the year in which such rights were first exercised;
under limited conditions, an election to file consolidated tax returns together with related Israeli Industrial Companies; and
expenses related to a public offering are deductible in equal amounts over a three-year period, commencing in the year of the offering.
§
§
§
Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority. We believe that we currently qualify as an Industrial
Company within the meaning of the Industry Encouragement Law. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will
be available in the future.
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production
facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).
The Investment Law was significantly amended effective April 1, 2005 (the “2005 Amendment”), and further amended as of January 1, 2011 (the “2011 Amendment”). Pursuant to the
2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted
subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the
Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue
to enjoy such benefits, provided that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment apply.
Tax Benefits Prior to the 2005 Amendment
An investment program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred to as an “Approved Enterprise”, is entitled
to certain benefits. A company that wished to receive benefits as an Approved Enterprise must have received an approval from the Investment Center of the Israeli Ministry of Economy
(formerly the Ministry of Industry, Trade and Labor), or the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved
Enterprise, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset.
97
In general, an Approved Enterprise is entitled to receive a cash grant from the Government of Israel and certain tax benefits under the “Grant Track” or an alternative package of tax
benefits under the Alternative Track. The tax benefits available under any certificate of approval relate only to taxable income attributable to the specific Approved Enterprise and are contingent
upon meeting the criteria set out in the certificate of approval. Income derived from activity that is not approved by the Investment Center or not integral to the activity of the Approved
Enterprise does not enjoy tax benefits.
The tax benefits under the Alternative Track include an exemption from corporate tax on a company’s undistributed income derived from an Approved Enterprise for at least the first two
years of the benefits period (depending on the geographic location of the Approved Enterprise facility within Israel) and the taxation of income generated from an Approved Enterprise at a
reduced corporate tax rate of up to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year, as detailed below. The benefits period
is ordinarily seven years commencing with the year in which the Approved Enterprise first generates taxable income. The benefits period is limited to 12 years from the operational year as
determined by the Investment Center or 14 years from the start of the tax year in which approval of the Approved Enterprise is obtained, whichever is earlier.
A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors’ Company, or an FIC, which is a company with a level of
foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to
profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to
whether a company qualifies as an FIC is made on an annual basis. A company that qualifies as an FIC and has an Approved Enterprise program is eligible for an extended ten-year benefits
period. As specified above, depending on the geographic location of the Approved Enterprise within Israel, income derived from the Approved Enterprise program may be exempt from tax on its
undistributed income for a period of between two to ten years, and will be subject to a reduced corporate tax rate for the remainder of the benefits period. The tax rate for the remainder of the
benefits period will be 25%, unless the level of foreign investment is 49% or more, in which case the tax rate will be 20% if the foreign investment is 49% or more but less than 74%; 15% if 74% or
more but less than 90%; and 10% if 90% or more.
If a company elects the Alternative Track and distributes a dividend out of income derived by its Approved Enterprise during the tax exemption period, it will be subject to corporate tax
in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which
would have been otherwise applicable if such income had not been tax-exempted under the Alternative Track. In addition, dividends paid out of income attributed to an Approved Enterprise (or
out of dividends received from a company whose income is attributed to an Approved Enterprise) are generally subject to withholding tax at source at the rate of 15% or at a lower rate as may be
provided under an applicable tax treaty. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years
thereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at a lower rate under an applicable tax treaty. In the case of an FIC, the 12-year limitation on reduced
withholding tax on dividends does not apply.
The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an Approved Enterprise
program during the first five years in which the equipment is used.
The benefits available to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific certificate
of approval. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, adjusted to the Israeli consumer price index, and interest, or other monetary
penalties.
One of our facilities has Approved Enterprise status granted by the Investment Center, which made us eligible for certain tax benefits under the Alternative Track.
Tax Benefits Subsequent to the 2005 Amendment
The 2005 Amendment applies to new investment programs and investment programs with an election year commencing after 2004, but does not apply to investment programs approved
prior to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment became effective (April 1, 2005)
will remain subject to the provisions of the Investment Law as in effect on the date of such approval.
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The 2005 Amendment changed certain provisions of the Investment Law. As a result of the 2005 Amendment, a company was no longer required to obtain the advance approval of the
Investment Center in order to receive the tax benefits previously available under the Alternative Track (the certificate of approval from the Investment Center will only be necessary for receiving
cash grants). Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set forth in the 2005
Amendment. A company is entitled to approach the Israel Tax Authority for a pre-ruling regarding its eligibility for benefits under the 2005 Amendment.
Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income
from export to specific markets with a population of at least 14 million in 2012 (such export criteria will further increase in the future by 1.4% per annum) and meet additional criteria stipulate in the
amendment (referred to as a “Beneficiary Enterprise”). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets certain conditions,
including exceeding a minimum investment amount specified in the Investment Law. Such investment entitles a company to receive “Beneficiary Enterprise” status with respect to the investment,
and may be made over a period of no more than three years from the end of the year in which the company chose to have the tax benefits apply to its Beneficiary Enterprise.
The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Beneficiary Enterprise depends on, among other things, the geographic location in Israel of
the Beneficiary Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income
generated by the Beneficiary Enterprise for a period of between two to ten years, depending on the geographic location of the Beneficiary Enterprise in Israel, and a reduced corporate tax rate of
between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year if it is a qualified FIC.
A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income attributed to its Beneficiary Enterprise during the tax exemption period will be
subject to corporate tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) at the
corporate tax rate which would have otherwise been applicable. Dividends paid out of income attributed to a Beneficiary Enterprise (or out of dividends received from a company whose income is
attributed to a Beneficiary Enterprise) are generally subject to withholding tax at source at the rate of 15% or at a lower rate as may be provided in an applicable tax treaty. The 15% tax rate is
limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. After this period, the withholding tax is applied at a
rate of up to 30%, or at a lower rate under an applicable tax treaty. In the case of an FIC, the 12-year limitation on reduced withholding tax on dividends does not apply.
The benefits available to a Beneficiary Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations. If a company does not meet these
conditions, it would be required to refund the amount of tax benefits, adjusted to the Israeli consumer price index, and interest, or other monetary penalties.
On October 24, 2010, we received a tax ruling from the Israel Tax Authority, according to which, among other things, our activity has been qualified as an “industrial activity”, as defined
in the Investment Law and is also eligible to tax benefits as a Beneficiary Enterprise, which will apply to the turnover attributed to such enterprise. The benefits available to us under this tax
ruling are subject to the fulfillment of conditions stipulated in the ruling. If we do not meet these conditions, the ruling may be abolished which would result in adverse tax consequences to us.
Tax Benefits Under the 2011 Amendment
The 2011 Amendment canceled the availability of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated
by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes a company
incorporated in Israel that is not wholly-owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the
2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its preferred income attributed to its Preferred Enterprise in 2011 and 2012, unless the
Preferred Enterprise is located in a specified development zone, in which case the rate will be 10%. Such corporate tax rate was reduced from 15% and 10% for non-specified and specified
development zones to 12.5% and 7%, respectively, in 2013 and then increased to 16% and 9%, respectively, in 2014 and thereafter. Our facilities are not located in a specified development zone.
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As of 2014, dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or at a lower rate as may be provided in
an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if such dividends are subsequently distributed to individuals or
non-Israeli company a withholding of 20% or such lower rate as may be provided in an applicable tax treaty, will apply). The 2011 Amendment also provided transitional provisions to address
companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the
provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted
to an Approved Enterprise which chose to receive grants and certain tax benefits under the Grant Track before the 2011 Amendment became effective will remain subject to the provisions of the
Investment Law as in effect on the date of such approval, and subject to certain conditions; (ii) the terms and benefits included in any certificate of approval that was granted to an Approved
Enterprise under the Alternative Track before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval,
provided that certain conditions are met; and (iii) a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment became effective, provided
that certain conditions are met.
We have reviewed and evaluated the implications and effect of the benefits under the 2011 Amendment, and, while potentially eligible for such benefits, we have not yet chosen to be
subject to the tax benefits introduced by the 2011 Amendment.
From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantial reduction of any of the
benefits available under the Investment Law could materially increase our tax liabilities.
Taxation of Our Non-Israeli Shareholders
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders. Generally, a non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company
that were purchased after the company was listed for trading on a stock exchange outside of Israel should be exempt from Israeli tax so long as the shares were not held through a permanent
establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25%
or more in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Additionally, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
A sale of shares by a non-Israeli resident may also be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the United States-Israel
Tax Treaty, the disposition of shares by a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset and is entitled to claim the benefits
afforded to such person by the treaty, is generally exempt from Israeli capital gains tax unless, among other things, (i) the capital gain arising from the disposition can be attributed to a permanent
establishment of the shareholder in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month period preceding
the disposition, subject to certain conditions; or (iii) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant
taxable year. In each case, the sale, exchange or disposition of such shares would be subject to Israeli tax, to the extent applicable; however, under the United States-Israel Tax Treaty, the United
States resident would be permitted to claim a credit for the Israeli tax against the United States federal income tax imposed with respect to the sale, exchange or disposition, subject to the
limitations in United States laws applicable to foreign tax credits.
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In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli
tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in
transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for
Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli resident, and, in the absence of
such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of Non-Israeli Shareholders on Receipt of Dividends. Non-Israeli residents are generally subject to Israeli tax on the receipt of dividends paid on our ordinary shares at the
rate of 25%, which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial
shareholder” at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone
or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of
the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds
any of the aforesaid rights how to act, regardless of the source of such right. Dividends paid on publicly traded shares, which are registered with and held by a nominee company, to non-Israeli
residents are generally subject to Israeli withholding tax at a rate of 25% (whether the recipient is a “substantial shareholder” or not), unless a different rate is provided under an applicable tax
treaty between Israel and the shareholder’s country of residence and provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance.
However, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an Approved
Enterprise, or a Beneficiary Enterprise (and 20% if the dividend is distributed from income attributed to a Preferred Enterprise), unless a reduced tax rate is provided under an applicable tax treaty.
In this regard, under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a United States
resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated from an Approved Enterprise, a
Beneficiary Enterprise or a Preferred Enterprise, that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend
is distributed as well as during the previous tax year, is 12.5%, provided that no more than 25% of the gross income for such preceding year consists of certain types of dividends and interest.
We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability. Notwithstanding the foregoing, dividends distributed from
income attributed to an Approved Enterprise or a Beneficiary Enterprise are subject to withholding tax at the rate of 15% for such a United States corporate shareholder, provided that the
condition related to our gross income for the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from an Approved Enterprise or a
Beneficiary Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. United States residents who
are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for Untied States federal income tax purposes in the amount of the taxes withheld, subject to detailed
rules contained in United States tax legislation.
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel in respect of such income, provided that
(i) such income was not derived from a business conducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is
required to be filed.
Excess Tax
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 2% on annual income exceeding NIS 811,560 for 2014, which amount is linked to the annual
change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain, subject to the provisions of an applicable tax treaty.
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United States Federal Income Taxation
The following is a description of the material United States federal income tax consequences to U.S. Holders (as defined below) of the acquisition, ownership and disposition of our
ordinary shares. This description addresses only the United States federal income tax consequences to holders of our ordinary shares that hold such ordinary shares as capital assets. This
description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
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banks, financial institutions or insurance companies;
real estate investment trusts, regulated investment companies or grantor trusts;
dealers or traders in securities, commodities or currencies;
tax-exempt entities;
certain former citizens or long-term residents of the United States;
persons that received our shares as compensation for the performance of services;
persons that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes;
partnerships (including entities classified as partnerships for United States federal income tax purposes) or other pass-through entities, or holders that will hold our shares through such
an entity;
§ U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; or
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holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares.
Moreover, this description does not address the United States federal estate, gift or alternative minimum tax consequences, or any state, local or foreign tax consequences, of the
acquisition, ownership and disposition of our ordinary shares.
This description is based on the United States Internal Revenue Code of 1986, as amended (the “Code”), existing, proposed and temporary United States Treasury Regulations and
judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. Each of the foregoing is subject to change, which change could apply retroactively
and could affect the tax consequences described below. There can be no assurances that the U.S. Internal Revenue Service will not take a different position concerning the tax consequences of
the acquisition, ownership and disposition of our ordinary shares or that such a position would not be sustained.
For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof,
including the District of Columbia;
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise
primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
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A “Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income
tax purposes).
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If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership
will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership is encouraged to consult its tax advisor as to its tax consequences.
Unless otherwise indicated, this description assumes that we are not, and will not become, a “passive foreign investment company,” or “PFIC,” for United States federal income tax
purposes. See “—Passive Foreign Investment Company Considerations.”
You are encouraged to consult your advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary
shares.
Distributions
If you are a U.S. Holder, the gross amount of any distribution that we pay you with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom generally will
be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States federal income
tax principles. To the extent that the amount of any cash distribution exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it
will be treated first as a tax-free return of your adjusted tax basis in our ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under
United States federal income tax principles. Therefore, if you are a U.S. Holder you should expect that the entire amount of any cash distribution generally will be reported as dividend income to
you; provided, however, that distributions of ordinary shares to U.S. Holders that are part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal
income tax. Subject to the PFIC rules discussed below, non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term
capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and the absence of
certain risk reduction transactions. Moreover, such reduced rate shall not apply if we are a PFIC for the taxable year in which we pay a dividend, or were a PFIC for the preceding taxable year.
Dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders.
If you are a U.S. Holder, dividends that we pay you with respect to our ordinary shares will be treated as foreign source income, which may be relevant in calculating your foreign tax
credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United States federal income
tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should
constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do
not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you are encouraged to consult your tax advisor to
determine whether and to what extent you will be entitled to this credit.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” if you are a U.S. Holder, you generally will recognize an amount of gain or loss on the
sale, exchange or other disposition of our ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition and your tax basis in our ordinary
shares, and such gain or loss will be capital gain or loss. The tax basis in an ordinary share generally will equal the cost of such ordinary share. If you are a non-corporate U.S. Holder, capital gain
from the sale, exchange or other disposition of ordinary shares generally will be eligible for a preferential rate of taxation applicable to capital gains, if your holding period for such ordinary shares
exceeds one year. The deductibility of capital losses for United States federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes
generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.
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Passive Foreign Investment Company Considerations
If we were to be classified as a “passive foreign investment company,” or PFIC, in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or
eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current
basis.
A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look-through rules, either:
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at least 75% of its gross income is “passive income”; or
at least 50% of the average quarterly value of its gross assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) is attributable to
assets that produce “passive income” or are held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the
disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-U.S.
corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of
the other corporation and as receiving directly its proportionate share of the other corporation’s income. For publicly traded corporations, the PFIC asset test described above is applied using
the fair market value of the non-U.S. corporation’s assets. For purposes of a the PFIC asset test, a publicly traded non-U.S. corporation may treat the aggregate fair market value of its assets as
being equal to the sum of the aggregate value of its outstanding stock (“Market Capitalization”) and the total amount of its liabilities. We intend to take the position that the excess of a non-U.S.
corporation’s Market Capitalization plus liabilities over the book value of all of its assets (“Goodwill”) may generally be treated as a non-passive asset to the extent attributable to the non-
passive activities of such corporation. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ordinary shares, we will continue to be treated as a PFIC with
respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet the tests described above.
Based on certain estimates of our gross income and gross assets and the nature of our business, we do not believe that we were classified as a PFIC for the taxable year ending
December 31, 2015. However, because PFIC status is based on our income, assets and activities for the entire taxable year, and our Market Capitalization, it is not possible to determine whether
we will be characterized as a PFIC for the 2015 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature, and
our status in future years will depend on our income, assets, activities and Market Capitalization in those years. In addition, because we currently hold, and expect to continue to hold, a
substantial amount of cash and cash equivalents and other passive assets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to
the market prices of our securities, we would likely become a PFIC for a given taxable year if our Market Capitalization were to decrease significantly. Thus, there can be no assurance that we will
not be considered a PFIC for any taxable year.
If we were a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to
you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or your
holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated
as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized in each year had been
subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC,
which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below), and (c) the interest charge
generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years.
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, then in lieu of being subject to the tax and interest charge rules discussed above, a U.S.
Holder may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method, provided that such ordinary shares are “regularly traded” on a “qualified
exchange.” In general, our ordinary shares will be treated as “regularly traded” for a given calendar year if more than a de minimis quantity of our ordinary shares are traded on a qualified
exchange on at least 15 days during each calendar quarter of such calendar year. Our ordinary shares have been authorized for listing on the New York Stock Exchange. However, no assurance
can be given that our ordinary shares will be regularly traded on a “qualified exchange” for purposes of the mark-to-market election. In addition, because a mark-to-market election cannot be
made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules discussed above with respect to such holder’s indirect interest in any investments we
hold that are treated as an equity interest in a PFIC for United States federal income tax purposes.
If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC, such U.S. Holder will include in each year that we are a PFIC as ordinary income the excess of
the fair market value of such U.S. Holder’s ordinary shares at the end of the year over such U.S. Holder’s adjusted tax basis in the shares. Such U.S. Holder will be entitled to deduct as an
ordinary loss in each such year the excess of such U.S. Holder’s adjusted tax basis in the ordinary shares over their fair market value at the end of the year, but only to the extent of the net
amount previously included in income as a result of the mark-to-market election. If a U.S. Holder makes an effective mark-to-market election, in each year that we are a PFIC, any gain such U.S.
Holder recognizes upon the sale or other disposition of such U.S. Holder’s ordinary shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent
of the net amount of previously included income as a result of the mark-to-market election.
A U.S. Holder’s adjusted tax basis in the ordinary shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-
market rules discussed above. If a U.S. Holder makes an effective mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years
unless the ordinary shares are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. U.S. Holders are encouraged to consult their tax advisers
about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances.
In certain circumstances, a U.S. equityholder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a “qualified electing fund” election to include in
income its share of the corporation’s income on a current basis. However, a U.S. Holder may make a qualified electing fund election with respect to the ordinary shares only if we agree to furnish
you annually with a PFIC annual information statement as specified in the applicable Treasury regulations.
We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders are encouraged to consult
their tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular circumstances.
If we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this paragraph would apply to indirect distributions and gains deemed to be realized by U.S.
Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
If a U.S. Holder owns ordinary shares during any year in which we are a PFIC and the U.S. Holder recognizes gain on a disposition of our ordinary shares or receives distributions with
respect to our ordinary shares, the U.S. Holder generally will be required to file an IRS Form 8621 with respect to the company, generally with the U.S. Holder’s federal income tax return for that
year. If our company were a PFIC for a given taxable year, then you are encouraged to consult your tax advisor concerning your annual filing requirements.
U.S. Holders are encouraged to consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules.
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Backup Withholding Tax and Information Reporting Requirements
United States backup withholding tax and information reporting requirements may apply to certain payments to certain holders of stock. Information reporting generally will apply to
payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a United States payor or United States middleman, to a holder
of our ordinary shares, other than an exempt recipient (including a payee that is not a United States person that provides an appropriate certification and certain other persons). A payor will be
required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States
payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or
establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the beneficial owner’s
United States federal income tax liability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is timely furnished
to the Internal Revenue Service.
Foreign Asset Reporting
Certain U.S. Holders who are individuals are required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception for shares
held in accounts maintained by financial institutions). U.S. Holders are encouraged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their
ownership and disposition of our ordinary shares.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their
dividend income and net gains from the disposition of ordinary shares. Each U.S. Holder that is an individual, estate or trust is encouraged to consult its tax advisors regarding the applicability
of the Medicare tax to its income and gains in respect of its investment in the ordinary shares.
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares. You are
encouraged to consult your tax advisor concerning the tax consequences of your particular situation.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are currently subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations of these requirements by filing reports with
the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to
file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to file with
the SEC, within 120 days after the end of each subsequent fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion
expressed, by an independent public accounting firm. We also intend to furnish the SEC reports on Form 6-K containing unaudited quarterly financial information.
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You may inspect and copy such material without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain
copies of such material from the SEC at prescribed rates by writing to the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other
material that are filed through the SEC’s Electronic Data Gathering, Analysis and Retrieval, or “EDGAR” system.
We also file annual and special reports and other information with the Israeli Securities Authority through its fair disclosure electronic system called MAGNA. You may review these
filings on the website of the MAGNA system operated by the Israeli Securities Authority at www.magna.isa.gov.il or on the website of the TASE at www.tase.co.il.
Our ordinary shares are quoted on the TASE and the NYSE. Information about us is also available on our website at http://www.evogene.com. Our website and the information
contained therein or connected thereto will not be deemed to be incorporated into this annual report and you should not rely on any such information in making your decision whether to
purchase our ordinary shares.
I. Subsidiary Information
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation
risks to minimize any adverse effects on our business as a result of those factors. For sensitivity analysis of our exposure to foreign currency exchange fluctuations and changes in market prices
of listed securities, see Note 13e to our consolidated financial statements as of and for the year ended December 31, 2014 included elsewhere in this annual report.
Foreign Currency Risk
Most of our revenues are denominated in U.S. dollars. The percentage of our revenues denominated in U.S. dollars accounted for approximately 76.1%, 70.6% and 74.7% of our revenues
in the year ended December 31, 2014, 2013 and 2012, respectively. We incur expenses primarily in NIS, however, and our expenses in NIS accounted for approximately 89%, 92% and 90%, of our
expenses in the year ended December 31, 2014, 2013 and 2012, respectively. As a result, any appreciation of the NIS relative to the U.S. dollar would adversely impact our profitability due to the
portion of our expenses that are incurred in NIS.
As of December 31, 2014, the Company held NIS/USD hedging contracts (forward contracts) designated as hedges of expected future salaries expenses, for expected future payments to
government authorities and to Israeli suppliers, OCS royalties payments and for rent payments.
The main terms of these positions were set to match the terms of the hedged items. Cash flow hedges of the expected wage costs, government authorities payments and rent payments
in January-April 2015 was estimated as highly effective, and December 31, 2014 other comprehensive income in the amount of about $ 222 thousands, was included in equity in Accumulated
other comprehensive loss.
The following table presents information about the changes in the exchange rates of the NIS against the U.S. dollar:
Period
2014
2013
2012
2011
2010
Change in Average Exchange Rate of
the NIS against the U.S. dollar (%)
(0.9)
(6.4)
7.8
(4.1)
(5.1)
107
Our exposure related to exchange rate changes on our net asset position denominated in currencies other than USD varies with changes in our net asset position. Net asset position
refers to financial assets, such as trade receivables and cash, less financial liabilities, such as trade payable and other payables. The impact of any such transaction gains or losses is reflected in
finance expenses. Our most significant exposure relates to a potential change in the exchange rates of the U.S. dollar and the NIS. Assuming a 10% decrease in the U.S. dollar relative to the NIS,
and assuming no other change, our finance expenses would have increased by $0.2 million in 2012, increase by $0.5 million in 2013, and increase by $0.3 million 2014 due to our negative current
net asset position denominated in U.S. dollars in 2012, 2013 and 2014.
Our results of operations are also impacted by currency translation gains and losses on monetary assets and liabilities, primarily cash deposits, denominated in currencies other than the
U.S. dollar. Such gains or losses only impact the dollar value of our non-dollar denominated cash deposits and result from changes in reported values due to exchange rate fluctuations between
the beginning and the end of reporting periods. Due to the limited amount of non-dollar denominated cash deposits, the amount of finance expenses recorded has been relatively insignificant.
Commodity Price Risk
Operating in the agribusiness sector, changes in certain commodity prices may affect our reported operating results and cash flows. We currently are not exposed to commodity price
risks, however the prospects of our wholly owned subsidiary Evofuel will depend on biofuel and oil and natural gas prices, and the royalties we may receive from our collaborators on the sales
and transfers of GM seeds containing the traits we develop could be affected by fluctuations in seed commodity prices. As of December 31, 2014, we did not have any hedge arrangements in
place to protect our exposure to commodity price fluctuations.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
The effective date of the registration statement, File No. 333-191315, for our IPO of ordinary shares, par value NIS 0.02 per share, was November 20, 2013. The offering commenced on
November 21, 2013 and was closed on November 26, 2013. Credit Suisse Securities and Deutsche Bank Securities acted as joint book-running managers for the offering, and Oppenheimer & Co.
and Piper Jaffray & Co. acted as co-managers. We registered and sold 5,750,000 of our ordinary shares in our IPO. The aggregate offering price of the shares registered was approximately $84.8
million, as was the aggregate price of the shares sold. The total expenses of the offering, including underwriting discounts and commissions, were approximately $8 million. The net proceeds that
we received from the offering were approximately $76.8 million.
A portion of the net proceeds from our IPO has been used to enhance our seed traits operation, to develop and expand our ag-chemical operations, to further develop and commercialize
our Evofuel activities and to fund our working capital and capital expenditures. The balance is held in cash, short term deposit and marketable securities.
108
None of the net proceeds of our IPO was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class
of our equity securities, or to any of our affiliates.
ITEM 15.
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, including 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 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2014. Based on such evaluation, our Chief Executive Officer and chief financial officer have concluded that, as of
December 31, 2014, our disclosure controls and procedures were effective such that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive
Officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control system has been designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting
and the preparation and fair presentation of our published consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making our assessment, our management used the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on such assessment, our
management has concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on those criteria.
(c) Attestation Report of Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting because the Jumpstart
Our Business Startups Act provides an exemption from such requirement as we qualify as an emerging growth company..
(d) Changes in internal control over financial reporting
During the period covered by this report, no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act), have occurred 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 Dr. Michael Anghel and Dr. Simcha Sadan qualifies as an audit committee financial expert, as defined by the rules of the SEC, and has
the requisite financial experience required by the Listed Company Manual. In addition, each of Dr. Anghel and Dr. Sadan is independent, as such term is defined in Rule 10A-3(b)(1) under the
Exchange Act and the Listed Company Manual.
109
ITEM 16B.
CODE OF ETHICS
We have adopted a Code of Ethics and Proper Business Conduct applicable to our executive officers, directors and all other employees, which is a “code of ethics” as defined in this
Item 16B of Form 20-F promulgated by the SEC. We have also implemented a training program for new and existing employees concerning our Code of Ethics and Proper Business Conduct. A
copy of the code is delivered to every employee of Evogene Ltd. and all of its subsidiaries, and is available to investors and others on our website at http://investors.evogene.com/corporate-
governance.aspx or by contacting our investor relations department. Information contained on, or that can be accessed through, our website does not constitute a part of this Form 20-F and is
not incorporated by reference herein. Under Item 16B of Form 20-F, if a waiver or amendment of the Code of Business Conduct and Ethics applies to our principal executive officer, principal
financial officer, principal accounting officer, controller or other persons performing similar functions and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F,
we will disclose such waiver or amendment (i) on our website within five business days following the date of amendment or waiver in accordance with the requirements of Instruction 4 to such
Item 16B or (ii) through the filing of a Form 6-K. We granted no waivers under our Code of Ethics and Proper Business Conduct in 2014.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services.
We paid or accrued the following fees for professional services rendered by Ernst & Young, an independent registered public accounting firm, for the years ended December 31, 2014
and 2013:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
2013
2014
$
$
131,611
265,526
10,000
–
407,137
$
$
140,000
–
10,000
–
150,000
“Audit fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, such
as consents and assistance with and review of documents filed with the SEC.
“Audit-related fees” are the aggregate fees billed mainly for services rendered by our auditors in connection with our registration statement on Form F-1 related to our IPO. These fees
also include consultations in the regular course of business.
“Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance, transfer pricing and tax advice on actual or
contemplated transactions.
Our audit committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy,
which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services
in the categories of audit service, audit-related service and tax services that may be performed by our independent accountants.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
110
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
Except as otherwise indicated, we are in compliance with corporate governance standards as currently applicable to us under Israeli, U.S., SEC and NYSE laws, rules and regulations.
Under the Listed Company Manual, as a foreign private issuer, 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 Listed Company Manual for U.S. domestic issuers. We currently follow the provisions of the Companies Law, rather
than the Listed Company Manual, solely with respect to the following requirements:
§ Executive sessions of independent directors. Israeli law does not require executive sessions of independent directors. Although all of our current directors are “independent directors”
under the applicable NYSE criteria, we do not intend to comply with this requirement if we have directors who are not independent.
§
Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the Companies Law, which include (i) 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), (ii) transactions
concerning the compensation, indemnification, exculpation and insurance of the chief executive officer; (iii) the compensation policy recommended by the compensation and nominating
committee of our board of directors and approved by our board of directors (and any amendments thereto); (iv) extraordinary transactions with, and the terms of employment or other
engagement of, a controlling shareholder (if and when this becomes relevant to our company), (v) amendments to our articles of association, and (vi) certain non-public issuances of
securities. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. We will not, however, seek shareholder approval for
any of the following events described in the Listed Company Manual:
o
o
o
issuance of more than 1% of our outstanding ordinary shares (or voting power) to our affiliates;
an issuance that will result in a change of control of our company; and
adoption of, or material changes to, our equity compensation plans.
§ Corporate governance guidelines. The NYSE requires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things:
director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing
education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under the Companies Law and we have not adopted such
guidelines.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17.
FINANCIAL STATEMENTS
Not applicable.
PART III
111
ITEM 18.
FINANCIAL STATEMENTS
See pages F-2 through F-48 of this annual report.
ITEM 19.
EXHIBITS
See exhibit index incorporated herein by reference.
112
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its
SIGNATURES
behalf.
Date: April 30, 2015
Evogene Ltd.
By: /s/ Ofer Haviv
Name: Ofer Haviv
Title: President and Chief Executive Officer
113
ANNUAL REPORT ON FORM 20-F
INDEX OF EXHIBITS
Exhibit No.
1.1
1.2
4.1
4.2
4.3
4.4.1
4.4.2
4.5
4.6
4.7
8.1
12.1
12.2
13.1
13.2
15.1
Description
Amended and Restated Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 to Evogene’s Registration Statement on Form F-1, as amended
(Registration No. 333-191315))
Amendments to Articles 19 and 21 of the Amended and Restated Articles of Association of the Registrant (incorporated by reference to Appendix A to Evogene's proxy
statement for its 2014 annual general meeting of shareholders, annexed as Exhibit 99.1(a) to Evogene’s Report of Foreign Private Issuer on Form 6-K, furnished to the SEC on April
8. 2014)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 to Evogene’s Registration Statement on Form F-1, as amended (Registration No. 333-191315))
Evogene Share Option Plan (2002) (incorporated by reference to Exhibit 10.10 to Evogene’s Registration Statement on Form F-1, as amended (Registration No. 333-191315))
Evogene Ltd. Key Employee Share Incentive Plan, 2003 (incorporated by reference to Exhibit 10.11 to Evogene’s Registration Statement on Form F-1, as amended (Registration
No. 333-191315))
The Evogene Ltd. 2013 Share Option Plan (incorporated by reference to Exhibit 10.12 to Evogene’s Registration Statement on Form F-1, as amended (Registration No. 333-191315))
2015 U.S. Addendum to Evogene Ltd. 2013 Share Option Plan
Second Amended and Restated Collaboration Agreement, dated October 27, 2013, by and between Monsanto Company and Evogene Ltd., (incorporated by reference to Exhibit
10.1 to Evogene’s Registration Statement on Form F-1, as amended (Registration No. 333-191315)) †
Wheat Collaboration and License Agreement, dated December 10, 2010, by and between Bayer CropScience AG and Evogene Ltd., as amended on October 14, 2012 and on July
21, 2014 (incorporated by reference to Exhibits 10.6 and 10.7 to Evogene’s Registration Statement on Form F-1, as amended (Registration No. 333-191315)) †
Evogene Ltd. Officers’ Compensation Policy (incorporated by reference to Appendix A to Evogene's proxy statement for its special general meeting of shareholders held on
March 11, 2014, annexed as Exhibit 99.1 to Evogene’s Report of Foreign Private Issuer on Form 6-K, furnished to the SEC on February 10, 2014)
List of subsidiaries of the Registrant
Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
Certificate of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
Certificate of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002
Consent of Kost Forer Gabbay and Kasierer, a member of Ernst & Young
† Confidential treatment has been requested for portions of this document. The omitted portions of this document have been filed with the SEC.
114
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EVOGENE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2014
IN U.S. DOLLARS
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F - 1
Page
F-2
F-3
F-4
F-5
F-6 - F-7
F-8 - F-48
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Evogene Ltd.
We have audited the accompanying consolidated balance sheets of Evogene Ltd. (the "Company") and its subsidiaries as of December 31, 2014 and 2013 and the related consolidated
statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2014 and 2013 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Tel-Aviv, Israel
April 30, 2015
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
F - 2
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Marketable securities
Short-term bank deposits
Trade receivables
Other receivables
LONG-TERM ASSETS:
Long-term deposits
Plant, property and equipment, net
Long-term investment
Intangible assets, net
CURRENT LIABILITIES:
Trade payables
Other payables
Liabilities in respect of grants from the Chief Scientist
Deferred revenues and other advances
LONG-TERM LIABILITIES:
Liabilities in respect of grants from the Chief Scientist
Deferred revenues and other advances
Severance pay liability, net
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value:
Authorized − 150,000,000 ordinary shares; Issued and outstanding –25,350,954 and 24,901,327 shares at December 31, 2014
and 2013, respectively
Share premium and other capital reserve
Accumulated other comprehensive loss
Accumulated deficit
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
EVOGENE LTD. AND ITS SUBSIDIARIES
Note
2014
2013
December 31,
$
$
$
7
8
9
10
6
11
12
5
12
5
14
17
$
5,213
1,000
80,040
30,046
1,183
889
95,454
-
31,452
-
1,913
733
118,371
129,552
21
8,812
382
-
9,215
28
7,215
471
45
7,759
127,586
$
137,311
$
1,984
3,854
570
1,511
7,919
3,103
453
29
3,585
140
175,553
(222)
(59,389)
116,082
2,014
4,363
625
1,572
8,574
3,008
963
19
3,990
137
169,469
-
(44,859)
124,747
$
127,586
$
137,311
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share and per share data)
Revenues:
Research and development payments, including
up-front payments
Share purchase related revenues
Total Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development, net
Business development
General and administrative
Total operating expenses
Operating loss
Financing income
Financing expenses
Loss before taxes on income
Taxes on income
Net loss
Other comprehensive loss:
Unrealized loss on derivatives
Total comprehensive loss
Basic and diluted net loss per share
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
EVOGENE LTD. AND ITS SUBSIDIARIES
Note
21
19a
19b
19c
19d
19e
19e
15
20
2014
Year Ended December 31,
2013
2012
$
$
14,198
313
$
15,028
2,553
14,511
9,709
4,802
14,022
1,851
4,185
20,058
(15,256)
2,242
(1,516)
(14,530)
-
17,581
10,114
7,467
11,107
1,517
3,564
16,188
(8,721)
1,179
(1,336)
(8,878)
-
$
$
$
$
(14,530) $
(8,878) $
(222) $
-
$
(14,752) $
(8,878) $
(0.58) $
(0.45) $
13,914
3,158
17,072
9,552
7,520
7,252
1,159
2,235
10,646
(3,126)
972
(294)
(2,448)
74
(2,522)
-
(2,522)
(0.14)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands
EVOGENE LTD. AND ITS SUBSIDIARIES
Share
capital
Share Premium
and other capital
reserve
Accumulated
other comprehensive
loss
Put Option
Accumulated
Deficit
Total
Balance as of January 1, 2013
$
102
$
91,902
-
$
(7,764) $
(35,981) $
Net loss
Shares issued, net
Issuance and exercise of put options
Exercise of options
Share-based compensation
-
32
-
3
-
-
76,764
(4,483)
2,556
2,730
Balance as of December 31, 2013
137
169,469
Net loss
Exercise of options
Other comprehensive loss
Share-based compensation
-
3
-
-
-
2,854
-
3,230
-
-
-
-
-
-
-
-
(222)
-
Balance as of December 31, 2014
$
140
$
175,553
$
(222)
$
The accompanying notes are an integral part of the consolidated financial statements.
-
-
7,764
-
-
-
-
-
-
-
-
F - 5
(8,878)
-
-
-
-
(44,859)
(14,530)
-
-
-
48,259
(8,878)
76,796
3,281
2,559
2,730
124,747
(14,530)
2,857
(222)
3,230
$
(59,389)
$
116,082
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to profit and loss items:
Depreciation and amortization
Share-based compensation
Financing expenses (income), net
Taxes on income
Gain on disposal of property, plant and equipment
Changes in asset and liability items:
Decrease (increase) in trade receivables
Decrease (increase) in other receivables
Decrease in long term deposits
Increase (decrease) in trade payables
Increase (decrease) in other payables
Increase in severance pay liability, net
Decrease in deferred revenues
Cash received (paid) during the year for:
Interest received
Taxes withheld by customers
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from sale of marketable securities
Purchase of marketable securities
Proceeds from (investment in) bank deposits, net
Increase in restricted cash
Net cash provided by (used in) investing activities
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
EVOGENE LTD. AND ITS SUBSIDIARIES
2014
Year Ended
December 31,
2013
2012
$
(14,530) $
(8,878) $
(2,522)
2,249
3,230
(926)
-
-
4,553
730
58
7
(267)
(895)
10
(571)
(928)
2,010
-
2,042
2,730
157
-
-
4,929
(345)
(81)
15
292
940
8
(3,191)
(2,362)
1,041
-
(8,895)
(5,270)
(3,564)
-
31,195
(80,615)
(30,046)
(1,000)
(84,030)
(1,613)
-
18,157
(19,444)
-
-
(2,900)
1,835
1,173
(678)
74
(33)
2,371
(742)
331
5
231
974
-
(3,331)
(2,532)
869
(74)
(1,888)
(2,963)
34
15,697
(11,935)
17,652
-
18,485
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from financing activities:
Proceeds from issuance of shares, net
Proceeds from exercise of warrants and options
Proceeds from the Chief Scientist grants (Note 12)
Repayment of the Chief Scientist grants (Note 12)
Net cash provided by financing activities
Exchange rate differences - cash and cash equivalent balances
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Significant non-cash activities:
Acquisition of property, plant and equipment
Long term investments
Issuance expenses
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
EVOGENE LTD. AND ITS SUBSIDIARIES
2014
Year Ended
December 31,
2013
2012
-
2,857
339
(530)
2,666
18
(90,241)
95,454
77,014
2,559
348
(513)
79,408
(46)
71,192
24,262
$
$
$
$
5,213
$
95,454
$
536
$
-
$
-
$
299
$
471
$
218
$
-
1,519
484
(892)
1,111
89
17,797
6,465
24,262
101
-
-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:– GENERAL
EVOGENE LTD. AND ITS SUBSIDIARIES
a.
Evogene Ltd. ("Company") is a plant genomics biotech company that is engaged in research and development in the field of plant improvement. The Company was
founded in 2000 as a division of Compugen Ltd. ("Compugen") and spun-off as an independent company in January 2002. The Company uses a comprehensive and
integrated technology infrastructure to enhance seed traits underlying crop performance and productivity through biotechnology and advanced breeding methods. The
Company's business focuses on three distinct operations: (i) seed traits, (ii) ag-chemicals and (iii) seeds, focusing on developing improved castor bean seeds to serve as
feedstock source for biofuel and other industrial uses.
The Company’s securities are listed for trading on the Tel Aviv Stock Exchange (“TASE”) and the New York Stock Exchange (“NYSE”).
During November 2013, the Company completed initial public offering in the United States of 5,750,000 ordinary shares at the price to the public of $14.75 per share for total
net proceeds of $ 76.8 million, net of issuance expenses.
b.
The Company principally derives its revenues from collaboration arrangements. Revenues from its major collaborators accounted together for 87%, 94% and 94% for the
years ended December 31, 2014, 2013 and 2012, respectively. As to major customers, see Note 21(c). If a major customer decides to terminate its collaboration agreement
with the Company, the Company may not be able to make up the lost revenue and it may have a material adverse effect on its results of operations.
c.
The Company has two fully owned subsidiaries – Evofuel Ltd. (“Evofuel”) and Evogene Inc.
On January 1, 2012, Evogene established Evofuel, which is engaged in the development of improved species of the castor bean plant, which may serve as a source for
extraction of oil for the biodiesel industry and other industrial uses.
Evogene Inc. was incorporated in Delaware, United States. As of December 31, 2014 Evogene Inc. is not active.
d.
On February 8, 2015 the company announced it has signed a Letter of Intent with plans to establish a research and development facility in the Bio-Research and
Development Growth (BRDG) Park, in St. Louis, Missouri, united states. The establishment of the facility is a key component of the Company's previously disclosed entry
into the field of insect control.
e.
Definitions
In these Financial Statements –
The Company
- Evogene Ltd.
Subsidiary
- A company which the Company has a control over (as defined in IFRS 10) and whose financial statements are consolidated with the Company'
Financial Statements.
F - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
EVOGENE LTD. AND ITS SUBSIDIARIES
The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.
a.
Basis of presentation of the financial statements:
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").
The Company's financial statements have been prepared on a cost basis, except for: investment property; available-for-sale financial assets; financial assets and liabilities
(including derivatives) which are presented at fair value through profit or loss.
The Company has elected to present profit or loss items using the function of expense method.
b.
The operating cycle:
The Company’s operating cycle is one year.
c.
Consolidated financial statements:
The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the
Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which
control is obtained and ends when such control ceases.
The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using
uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are
eliminated in full in the consolidated financial statements.
d.
Functional currency, presentation currency and foreign currency:
1.
Functional currency and presentation currency:
The presentation currency of the financial statements is the U.S. dollar.
The Company and its subsidiaries determine the functional currency of each entity, and this currency is used to separately measure each entity's financial position
and operating results. The Company's functional currency is the U.S. dollar.
F - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
The Company’s revenues were denominated mostly in U.S. dollars because of the Company’s collaboration agreement with Monsanto. This collaboration
accounted for 63%, 62% and 70% of the Company’s revenues during 2014, 2013 and 2012, respectively. The Company’s costs were mostly denominated in NIS,
mainly due to payroll and related costs. To further support the Company’s determination in light of these mixed indicators, the Company has analyzed the currency
in which funds from financing activities are generated or held and the currency in which receipts from operating activities are usually retained.
Funds from financing activities were principally derived from significant funds raised in U.S. dollars in 2007, 2008, 2011 and 2013 from the public and from the
Company’s major collaborators, Monsanto and Bayer CropScience LP ("Bayer"). These funds were maintained mostly in U.S. dollars. A majority of the Company’s
marketable securities are denominated in U.S. dollars as well.
The Company operates and plans its activities in U.S. dollars and accordingly its periodic budgets and internal management reports are prepared and monitored
using the U.S. dollar as the primary currency. Further, the Company is mostly influenced by the U.S. regulatory environment.
This currency is used to separately measure each entity’s financial position and operating results.
2.
Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition,
monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange rate at that date.
Exchange rate differences, other than those capitalized to qualifying assets or accounted for as hedging transactions in equity, are recognized in profit or loss. Non-
monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-
monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate
prevailing at the date when the fair value was determined.
e.
Cash and cash equivalents:
Cash equivalents are highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of deposit.
f.
Short-term deposits:
Short-term bank deposits are with a maturity of more than three months from the deposit day but less than one year.
F - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g.
Government grants:
EVOGENE LTD. AND ITS SUBSIDIARIES
Government grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the attendant conditions.
Government grants received from the Office of the Chief Scientist in Israel ("OCS"), the Israel-U.S. Binational Industrial Research and Development Fund ("BIRD") and the
Canada-Israel Industrial Research and Development Foundation ("CIIRDF") are recognized upon receipt as a liability if future economic benefits are expected from the
research project that will result in royalty-bearing sales.
A liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and
the fair value of the liability is accounted for as a Government grant and recognized as a reduction of research and development expenses. After initial recognition, the
liability is measured at amortized cost using the effective interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected
from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated
as a contingent liability in accordance with IAS 37.
In each reporting date, the Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since the Company
will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest method, and if so, the appropriate amount of the
liability is derecognized against a corresponding reduction in research and development expenses.
Amounts paid as royalties are recognized as settlement of the liability.
h.
Leases:
The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with
the following principles as set out in IAS 17.
The Company is only involved in operating lease transaction as a lessee.
Leases in which substantially all the risks and rewards of ownership of the leased asset are not transferred to the Company are classified as operating leases. Lease
payments are recognized as an expense in profit or loss on a straight-line basis over the lease term.
i.
Property, plant and equipment:
Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related
investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with plant and equipment.
F - 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
EVOGENE LTD. AND ITS SUBSIDIARIES
Laboratory equipment
Computers and peripheral equipment
Office equipment and furniture
Leasehold improvements
Motor vehicles
%
15-33.33
33.33
6
see below
15
Mainly %
15
Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held by the Company and intended to be
exercised) and the expected life of the improvement.
The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in
accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.
j.
Intangible assets:
Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs.
Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The
amortization period and the amortization method for an intangible asset are reviewed at least at each year end.
Amortization expenses in respect of intangible assets in the statements of comprehensive loss for 2014, 2013 and 2012 totaled $45, $44 and $45, respectively. The expenses
were included in research and development expenses.
Research and development expenditures:
Research expenditures are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal
project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company's
intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits;
the availability of adequate technical, financial and other resources to complete the intangible asset; and the ability to measure reliably the respective expenditure asset
during its development.
Since Company research and development projects are often subject to regulatory approval procedures and other uncertainties, the conditions for the capitalization of
costs incurred before receipt of approvals are not normally satisfied and, therefore, research and development expenses are recognized in profit or loss when incurred.
F - 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.
Impairment of non-financial assets:
EVOGENE LTD. AND ITS SUBSIDIARIES
The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not
recoverable.
If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher
of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks
specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset
belongs. Impairment losses are recognized in profit or loss.
An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since
the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been
determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment
loss of an asset presented at cost is recognized in profit or loss.
l.
Revenue recognition:
Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to
the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration
received.
The following are the specific revenue recognition criteria which must be met before revenue is recognized:
-
-
Revenues from such agreements that do not contain a general right of return and are composed of multiple elements such as license, services, royalties and
milestone events are allocated to the different elements and are recognized in respect of each element separately. An element constitutes a separate accounting unit
if and only if it has a separate value to the customer. Revenue from the different element is recognized when the criteria for revenue recognition have been met and
only to the extent of the consideration that is not contingent upon completion or performance of future services in the contract.
Revenues from the provision of research and development services as part of the Company's collaboration agreements are recognized as service revenues.
Recognition of the service is throughout the services period and is determined based on the proportion of actual costs incurred for each reporting period to the
estimated total costs, subject to the enforceable rights.
F - 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
-
Revenues from milestone events stipulated in the agreements are recognized upon the occurrence of a substantive element specified in the agreement.
Deferred revenues:
Deferred revenues are unearned amounts including up-front payments received from customers not yet recognized as revenues. Up-front payments received upon entering
into the collaboration agreements are initially deferred when received and then recognized as service revenues over the duration of the relevant contract based on the
proportion of actual costs incurred for each reporting period to the estimated total costs of the collaboration.
m.
Taxes on income:
Current or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income (loss) or equity.
1.
Current taxes:
The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments
required in connection with the tax liability in respect of previous years.
2.
Deferred taxes:
Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax
purposes.
Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled, based on tax laws that have been enacted or
substantively enacted by the reporting date.
Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Temporary differences for which
deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is
probable.
n.
Financial instruments:
1.
Financial assets:
Financial assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except for financial assets measured at fair
value through profit or loss in respect of which transaction costs are recorded in profit or loss.
F - 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
After initial recognition, the accounting treatment of financial assets is based on their classification as follows:
a)
Financial assets at fair value through profit or loss:
This category includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.
b)
Loans and receivables:
Loans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans are
measured based on their terms at amortized cost plus directly attributable transaction costs using the effective interest method and less any impairment
losses. Short-term borrowings are measured based on their terms, normally at face value.
c)
Available-for-sale financial assets:
Available-for-sale financial assets are (non-derivative) financial assets that are designated as available for sale or are not classified in any of the other three
classification categories stipulated in IAS 39. After initial recognition, available-for-sale financial assets are measured at fair value. Gains or losses from fair
value adjustments, except for interest, exchange rate differences that relate to debt instruments and dividends from an equity instrument, are recognized in
other comprehensive income (loss). When the investment is disposed of or in case of impairment, the other comprehensive income (loss) is transferred to
profit or loss.
2.
Financial liabilities:
Financial liabilities are initially recognized at fair value. Loans and other liabilities measured at amortized cost are presented less direct transaction costs.
After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:
a)
Financial liabilities at amortized cost:
After initial recognition, loans and other liabilities are measured based on their terms at amortized cost less directly attributable transaction costs using the
effective interest method.
F - 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b)
Financial liabilities at fair value through profit or loss:
EVOGENE LTD. AND ITS SUBSIDIARIES
Financial liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on liabilities held for trading
are recognized in profit or loss.
Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments.
A liability may be designated upon initial recognition at fair value through profit or loss, subject to the provisions of IAS 39.
3.
Offsetting financial instruments:
Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off
the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but also in the event of bankruptcy or
insolvency of one of the parties. In order for the right of set-off to be currently available, it must not be contingent on a future event, there may not be periods
during which the right is not available, or there may not be any events that will cause the right to expire.
4.
Derecognition of financial instruments:
a)
Financial assets:
A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Company has transferred its contractual
rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has
transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
b)
Financial liabilities:
A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is
extinguished when the debtor (the Company) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from
the liability.
F - 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
When an existing financial liability is exchanged with another liability from the same lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability and the recognition of a new
liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss. If the exchange or modification is not substantial,
it is accounted for as a change in the terms of the original liability and no gain or loss is recognized on the exchange. When evaluating whether the change in
the terms of an existing liability is substantial, the Company takes into account both quantitative and qualitative considerations.
o.
Derivative financial instruments designated as hedges:
The Company enters into contracts for derivative financial instruments such as forward currency contracts to hedge risks associated with foreign exchange rate
fluctuations.
Any gains or losses arising from changes in the fair values of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss.
Hedges which meet the criteria for hedge accounting are accounted for as follows:
Cash flow hedges:
The effective portion of the change in the fair value of the hedging instrument is recognized in other comprehensive income (loss) while any ineffective portion is
recognized immediately in profit or loss.
Amounts recognized as other comprehensive income (loss) are reclassified to profit or loss when the hedged transaction affects profit or loss, such as when the hedged
income or expense is recognized or when a forecasted transaction occurs.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in other comprehensive income (loss) are reclassified to profit
or loss. If the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognized in other
comprehensive income (loss) remain in other comprehensive income (loss) until the forecast transaction or firm commitment occurs.
p.
Fair value measurement:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
F - 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal
market, in the most advantageous market.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
Fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of
relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input
that is significant to the entire fair value measurement:
Level 1
Level 2
Level 3
- Quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Inputs other than quoted prices included within Level 1 that are observable directly or indirectly.
- Inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market
q.
Provisions:
data).
A provision in accordance with IAS 37 is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
r.
Employee benefit liabilities:
The Company and its subsidiaries have several employee benefit plans:
1.
Short-term employee benefits:
Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the
employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are
recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Company has a legal or
constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.
F - 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
2.
Post-employment benefits:
EVOGENE LTD. AND ITS SUBSIDIARIES
The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.
The Company and its subsidiaries have defined contribution plans pursuant to section 14 to the Severance Pay Law under which the Company and its subsidiaries
pay fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all
employee benefits relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense when contributed concurrently with
performance of the employee's services.
s.
Share-based payment transactions:
The Company's employees and other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions.
Equity-settled transactions:
The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an
acceptable option pricing model.
As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments granted.
The cost of equity-settled transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance and/or
service conditions are to be satisfied ending on the date on which the relevant employees become entitled to the award.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied.
F - 19
EVOGENE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t.
Income (loss) per share:
Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of ordinary shares outstanding during
the period.
Potential ordinary shares are included in the computation of diluted earnings per share when their conversion decreases earnings per share from continuing operations.
Potential ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings
per share. The Company's share of earnings of investees is included based on its share of earnings per share of the investees multiplied by the number of shares held by
the Company.
u.
Other capital reserve:
Assets and liabilities derived from a transaction between the Company and a controlling shareholder are recognized at their fair value on the date of the transaction. The
difference between the fair value and the consideration stipulated in the transaction is recorded within shareholders’ equity. A charge to equity essentially constitutes a
dividend resulting in a reduction in retained earnings. A credit to equity essentially constitutes an investment by the shareholder which is presented as a component of
shareholders’ equity, "Share premium and other capital reserve".
The amount recorded in shareholders’ equity will not be transferred to the statement of income, even if in subsequent periods the items that were the subject of the
transactions are derecognized from the financial statements.
NOTE 3:-
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUPMTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS
In the process of applying the significant accounting policies, the Group has made the following judgments which have the most significant effect on the amounts recognized in the
financial statements:
a.
Judgments:
Revenue:
The Company assesses the criteria for recognition of revenue related to up-front payments and multiple components as outlined by IAS 18, "Revenue". Judgment is
necessary to determine over which period the Company will satisfy its obligations related to up-front payments and when components can be recognized separately and
the allocation of the related consideration to each component.
b.
Estimates and assumptions:
The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and
on the reported amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.
F - 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUPMTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by the Company that may result in
a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
-
-
-
-
-
Government grants:
Government grants received from the OCS, BIRD and CIIRDF are recognized as a liability if future economic benefits are expected from the research and
development activity that will result in royalty-bearing sales. There is uncertainty regarding the estimated future cash flows used to measure the amount of the
liability.
Legal claims:
In estimating the likelihood of outcome of legal claims filed against the Company and its investees, the companies rely on the opinion of their legal counsel. These
estimates are based on the legal counsel's best professional judgment, taking into account the stage of proceedings and legal precedents in respect of the different
issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates.
Determining the fair value of an unquoted financial asset:
The fair value of unquoted financial assets in Level 3 of the fair value hierarchy is determined using valuation techniques, generally using future cash flows
discounted at current rates applicable for items with similar terms and risk characteristics. Changes in estimated future cash flows and estimated discount rates, after
consideration of risks such as liquidity risk, credit risk and volatility, are liable to affect the fair value of these assets.
Determining the fair value of share-based payment transactions:
The fair value of share-based payment transactions is determined upon initial recognition by an acceptable option pricing model. The inputs to the model include
share price and exercise price and assumptions regarding expected volatility, expected life of share option and expected dividend yield.
Determining the fair value of the put option
The fair value of the put option is determined using an acceptable option pricing model and recorded as part of shareholders' equity in accordance with IAS 32,
"Financial Instruments: Presentation".
The assumptions used in the model include the expected volatility, expected life, expected dividend and risk-free interest rate (see also Note 5a).
F - 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION
IFRS 9, "Financial Instruments":
EVOGENE LTD. AND ITS SUBSIDIARIES
In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "Financial Instruments: Recognition and
Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies to all assets in the scope of IAS 39.
According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are measured at amortized cost only if both of
the following conditions are met:
-
-
The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between debt instruments to be measured at fair
value through profit or loss and debt instruments to be measured at fair value through other comprehensive income (loss).
Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit or loss or in other comprehensive income
(loss), in accordance with the election by the Company on an instrument-by-instrument basis. If equity instruments are held for trading, they should be measured at fair value
through profit or loss.
According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected.
According to IFRS 9, changes in fair value of financial liabilities which are attributable to the change in credit risk should be presented in other comprehensive income (loss). All
other changes in fair value should be presented in profit or loss.
IFRS 9 also prescribes new hedge accounting requirements.
IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.
The Company believes that the amendments to IFRS 9 are not expected to have a material impact on the financial statements.
F - 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:- MAJOR COLLABORATION AGREEMENTS
EVOGENE LTD. AND ITS SUBSIDIARIES
a.
On August 27, 2008, the Company signed investment and collaboration agreements with Monsanto. Under the investment agreement, Monsanto invested $18 million for
the issuance of 1,636,364 ordinary shares, NIS 0.02 par value each, and a put option exercisable at a fixed price of $13.89 per share for the issuance of additional 863,637
shares.
The collaboration agreement also included payments for research and development services of up to $35 million. Pursuant to the agreement, the Company agreed to use its
proprietary computational platform to discover genes with the potential to improve specified plant traits, and to validate those genes in the Company’s model plant system.
Monsanto received an exclusive license to use these genes for the purpose of research and to possibly commercialize seeds with improved traits.
In addition, Monsanto agreed to provide the Company with milestone payments upon the achievement of certain agreed results in the product development process, as
well as with royalty payments on future income generated by the sale of seeds containing licensed genes. Monsanto was given the right to either expand or reduce the
scope of the collaboration activities.
As the share purchase agreement and the collaboration agreement were signed in contemplation of each other and the execution of the collaboration agreement was
stipulated as a condition to the closing of the share purchase agreement, the agreements were treated as a multiple-elements arrangement. Following the closing of the
agreements, the Company determined that the total consideration under the share purchase agreement, comprised of the $18,000 in cash and the fair value of the put
option, should be allocated to two identifiable elements within this multiple-elements arrangement: (1) an equity investment in the Company’s ordinary shares and (2)
research and development services performed under the collaboration agreement. Share capital and premium were recorded based on the market price of the shares on the
TASE on the closing date. The put option was considered an equity instrument reduced from the Company’s equity, and its fair value was calculated using the Black &
Scholes option pricing model at the issuance of the option. The cash consideration Monsanto paid for the ordinary shares exceeding their market value along with the fair
value of the put option were recorded as deferred revenues from research and development services to be recognized over the term of the agreement.
Accordingly, the total consideration received under the share purchase agreement was allocated as follows: share capital and premium of $9,529 based on the market price
of the ordinary shares on the TASE at the closing date, a put option of $4,433 and deferred revenue of $12,882.
On November 28, 2011, the Company signed an agreement to amend and restate the 2008 collaboration with Monsanto. Accordingly, the collaboration period was extended
by one year, and collaboration activities were expanded as well to include the use of the Company’s gene-optimization platform. Monsanto agreed to pay the Company an
additional $12,000 for research and development services over the life of the extended agreement.
In addition, as part of the amended and restated 2011 agreement, the original put option ("original put option") was replaced by a new put option ("new put option").
Under the new put option, the Company may require Monsanto to invest $12,000 against an issue of 500,000 ordinary shares of the Company, at $24.00 per share. The new
put option is exercisable between February 1, 2014 and August 31, 2014.
F - 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:- MAJOR COLLABORATION AGREEMENTS (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
The fair value of the new put option and the original put option at the amendment date were also calculated using the Black & Scholes option pricing model, and were
determined to be $7,764 and $5,160, respectively. While the additional increase in the value of the original put option of $727 was recorded as share premium, reflecting the
benefit derived from the revaluation of an equity instrument within the Company’s equity, the increase in value as a result of the modification of the put option amounting
to $2,604 was also attributed to deferred revenue from research and development services to be recognized over the term of the agreement because the modification was
performed in conjunction with the extension of the collaboration period and expansion of the collaboration activities under the amended agreement with Monsanto.
Under the amended and restated 2011 agreement, the Company also granted Monsanto an option to extend the collaboration period by an additional two years, up to
August 31, 2016. If the option is exercised, Monsanto will provide the Company with a one-time payment of $6,000 at the time of exercise, and pay an additional $26,000 for
research and development services over the term of the extended collaboration.
Furthermore, if Monsanto exercises the extension option by February 2014, the new put option will be amended, such that Monsanto may be required to purchase only
214,286 ordinary shares at $28.00 per share, for an aggregate investment of $6,000.
On October 27, 2013, the Company signed an additional agreement with Monsanto (the "New Agreement") to amend and restate the collaboration contract between the
two companies dated August 2008 as amended and restated on November 2011.
Under the New Agreement, the collaboration period for yield and abiotic stress activities was extended by an additional two years, to August 2016. Furthermore, a new
program has been added to the collaboration, which focuses on resistance to conditions of biotic stress in corn.
Monsanto agreed to pay the Company an additional $20,000 over the life of the extended agreement and to improve milestone payments and royalty payments with respect
to genes that have been or will be identified and licensed under the collaboration between the companies.
In addition, as a condition to executing the New Agreement, the companies also signed a contract in which Monsanto granted the Company a new put option, as detailed
below (the "Put Option Agreement").
Under the Put Option Agreement, the put option originally granted by Monsanto to the Company under the contract for Monsanto’s investment in the Company from
August 2008, as amended in 2011, was canceled. Instead, Monsanto granted the Company a new put option (the "2013 Put Option") which gives the Company the right to
require Monsanto to purchase new ordinary shares of the Company up to an aggregate amount of $12,000 (the "Investment Amount"), with the new shares priced at a
specified average closing price on either the TASE or the NYSE (or such other U.S. stock exchange, as applicable) at the time of the put option is exercised but in any event
at a price not lower than $14 per share and not higher than $34 per share. In addition, if Monsanto purchases, directly or through a subsidiary, any of the Company’s
securities in the context of an initial public offering in the United States prior to February 1, 2016, Monsanto’s aggregate purchase amount under the put option will be
reduced by the amount actually invested in such an initial public offering.
F - 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:- MAJOR COLLABORATION AGREEMENTS (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
The exercise period of the 2013 Put Option shall begin on the earlier of (1) 180 days after the closing of an initial public offering in the U.S., or (2) February 1, 2016. The
Company’s right to exercise the New Put Option shall terminate on the latest of July 15, 2016, although it may terminate at an earlier date if the Company exercises the put
option within the permitted timeframe after the closing of the initial public offering.
As Monsanto purchased the Company's securities in the context of the initial public offering in the United States, Monsanto's aggregate purchase amount of the Put
option was fully reduced and as such, the 2013 put option has expired (see also Note 17(g)).
The fair value of the put option under the put Option Agreement and the 2011 amended put option at the amendment date in October 2013 were also calculated using the
Monte Carlo option pricing model, and were determined to be $739 and $3,727, respectively. While the decrease in the value of 2011 amended put option of $4,037 was
recorded as decrease in share premium, reflecting the change derived from the revaluation of an equity instrument within the Company’s equity, the decrease in value as a
result of the modification of the put option amounting to $2,988 was also attributed to decrease in deferred revenue from research and development services to be
recognized over the term of the agreement because the modification was performed in conjunction with the extension of the collaboration period and expansion of the
collaboration activities under the amended agreement with Monsanto.
The following table presents the various types of revenues recorded by the Company in connection with the agreements with Monsanto during all periods presented:
Periodic research and development payments
Up-front payments
Allocated revenues from share purchase agreement and put option
Total
2014
Year ended December 31,
2013
2012
$
$
$
8,667
203
(195)
$
8,400
561
2,010
8,569
699
2,700
8,675
$
10,971
$
11,968
b.
On December 12, 2010, the Company signed share purchase and collaboration agreements with Bayer. The collaboration agreement focuses on the improvement of yield,
nitrogen use efficiency, and abiotic tolerance (or the increased resistance to conditions such as drought, heat and salinity) of wheat. Pursuant to the share purchase
agreement, which closed on January 10, 2011, Bayer invested $12,000 in the Company in exchange for 863,310 ordinary shares at $13.90 per share, NIS 0.02 par value.
Over the course of the collaboration period, Bayer agreed to provide the Company with up-front payments and payments for research and development services
amounting to € 15,400 (or $21,000). In addition, Bayer agreed to provide the Company with milestone payments upon the achievement of agreed-upon results, as well as
with royalty payments based on future revenue from the sale of improved wheat seeds. Under the agreement, the Company granted Bayer an exclusive license to research,
develop and commercialize the sequences identified during the collaboration. The Company also agreed to not license any collaboration sequences to third parties during
the course of the agreement.
F - 25
EVOGENE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:- MAJOR COLLABORATION AGREEMENTS (Cont.)
As the share purchase agreement and the collaboration agreement were signed in contemplation of each other and the execution of the collaboration agreement was
stipulated as a condition to the closing of the share purchase agreement, these agreements were treated as a multiple-elements arrangement. Following the closing of the
agreements, the Company determined that the total consideration under the share purchase agreement of $12,000 should be allocated to two identifiable elements within
this multiple-elements arrangement: (1) an equity investment in the Company’s ordinary shares and (2) research and development services performed under the
collaboration agreement.
Share capital and premium were recorded based on the market price of the shares on the TASE on the closing date. Accordingly, the consideration received under the
share purchase agreement was allocated as follows: share capital and premium of $9,582 based on the market price of the ordinary shares on the Tel Aviv Stock Exchange
on the closing date and the consideration Bayer paid for the ordinary shares exceeding their market value in the amount of $2,394 was recorded as deferred revenues from
research and development services to be recognized over the term of the agreement.
In July 2014, the remaining work plan under the collaboration agreement with Bayer has been amended, pursuant to which the Company will shift from discovery of
additional genes and SNPs to discovery of genomic promoters predicted to enable the desired traits when used with appropriate genes (promoters are segments of DNA
that determine how the gene will be expressed in the plant).
The following table presents the various types of revenues recorded by the Company in connection with the agreements with Bayer during all periods presented:
Periodic research and development payments and other payments
Up-front payments
Allocated revenues from share purchase agreement
Total
NOTE 6: - LONG-TERM INVESTMENT
2014
Year ended December 31,
2013
2012
$
$
$
3,131
297
508
$
4,833
322
543
3,936
$
5,698
$
3,392
265
458
4,115
On February 4, 2013, the Company signed an agreement with private Israeli company, according to which the Company undertook to provide the private Israeli company with rights
to use its greenhouses and facilities, including support for the private Israeli company's development process for the following consideration:
a.
b.
15% of the private Israeli company’s shares on an outstanding basis. The shares are subject to reverse vesting over a period of 36 months.
The Company also was granted with anti-dilution option up to an aggregate investment of $4,000 in the private Israeli company.
F - 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 6: - LONG-TERM INVESTMENT (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
c.
A three years access to the system being developed by the private Israeli company including an option to purchase the system for $200 which is exercisable over the term
of the agreement.
The Company recorded as other investment the total value of the above three elements of the consideration amounting to $365, which was determined based on a third party
valuation.
The total consideration of $365 was deferred and will be recognized over a period of 36 months. The investment in the private Israeli company will be accounted for as an available
for sale investment under the provisions of IAS 39 and accordingly changes in fair value will be recorded in other comprehensive income (loss). Gains or losses from changes in fair
value of the anti-dilution option and the option to purchase the system will be recorded in profit or loss. The three elements are financial assets classified as level 3 in the fair value
hierarchy in IFRS 13.
As of December 31, 2013, based on third party valuation, the total consideration amounts to $471. The fair value of the shares was determined using a DCF model.
As of December 31, 2014, based on third party valuation, the total consideration amounts to $382. The fair value of the shares was determined using a DCF model.
NOTE 7:- CASH AND CASH EQUIVALENTS
Cash for immediate withdrawal in NIS
Cash for immediate withdrawal in US$
Cash for immediate withdrawal in Euro and other currencies
Cash equivalents in NIS bank deposits (1)
Cash equivalents in US$ bank deposits
December 31,
2014
2013
$
$
164
3,819
116
1,114
-
$
5,213
$
124
11,979
830
305
82,216
95,454
(1)
As of the reporting date, the NIS deposits bear interest of 0.14%. The bank deposits are for periods ranging from one day to one month.
NOTE 8: - MARKETABLE SECURITIES
Financial assets measured at fair value through profit or loss:
Corporate bonds and government treasury notes
$
80,040
$
31,452
December 31,
2014
2013
F - 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - OTHER RECEIVABLES
Prepaid expenses
Accrued bank interests
Government authorities
Other receivable
NOTE 10:- PLANT, PROPERTY AND EQUIPMENT
Balance at December 31, 2014:
EVOGENE LTD. AND ITS SUBSIDIARIES
December 31,
2014
2013
$
$
213
229
194
253
$
889
$
207
15
314
197
733
Laboratory
Equipment
Computers and
Peripheral
Equipment
Office Equipment
and Furniture
Leasehold
Improvements
Vehicles
Total
Cost:
Balance at January 1, 2014
Additions
$
$
2,890
660
$
2,153
575
Balance at December 31, 2014
3,550
2,728
$
209
-
209
$
9,510
2,517
12,027
Accumulated Depreciation:
Balance at January 1, 2014
Additions
Balance at December 31, 2014
1,951
388
2,339
1,550
382
1,932
74
13
87
4,009
1,404
5,413
$
49
49
98
12
17
29
Depreciated cost at December 31, 2014
$
1,211
$
796
$
122
$
6,614
$
69
$
14,811
3,801
18,612
7,596
2,204
9,800
8,812
F - 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- PLANT, PROPERTY AND EQUIPMENT (Cont.)
Balance at December 31, 2013:
EVOGENE LTD. AND ITS SUBSIDIARIES
Laboratory
Equipment
Computers and
Peripheral
Equipment
Office Equipment
and Furniture
Leasehold
Improvements
Vehicles
Total
Cost:
Balance at January 1, 2013
Additions
$
$
2,639
251
$
1,729
424
Balance at December 31, 2013
2,890
2,153
$
199
10
209
$
8,384
1,126
9,510
Accumulated Depreciation:
Balance at January 1, 2013
Additions
Balance at December 31, 2013
1,560
391
1,951
1,192
358
1,550
62
12
74
2,780
1,229
4,009
$
49
-
49
5
7
12
Depreciated cost at December 31, 2013
$
939
$
603
$
135
$
5,501
$
37
$
13,000
1,811
14,811
5,599
1,997
7,596
7,215
NOTE 11:- OTHER PAYABLES
Employees and payroll accruals
Government authorities
Hedging instruments
Accrued expenses
NOTE 12: - GRANTS FROM THE CHIEF SCIENTIST
Balance at January 1
Grants received
Royalties paid
Amounts recorded in profit or loss
Balance at December 31
F - 29
December 31,
2014
2013
$
$
2,375
356
386
737
$
3,854
$
December 31,
2014
2013
$
$
3,633
339
(530)
231
$
3,673
$
2,992
609
-
762
4,363
3,651
348
(513)
147
3,633
EVOGENE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12: - GRANTS FROM THE CHIEF SCIENTIST (Cont.)
The Company received research and development grants from the OCS, and undertook to pay royalties of 3%-3.5% of revenues derived from research and development projects
that were financed by the OCS, of up to 100% of the grants received. As of December 31, 2014, the Company received grants amounting to $5,461, (including interest), while total
royalties paid as of that date amounted to $2,437.
The Company received research and development grants from BIRD, and undertook to pay royalties of 5% of revenues derived from research and the development projects that
were financed by BIRD, of up to 150% of all grants received. As of December 31, 2014, the Company received grants in the amount of $ 508 (including interest). No royalties have
yet been paid through December 31, 2014 as no revenues were derived from products developed using these grants.
The Company received research and development grants from CIIRDF, and undertook to pay royalties of 2.5% of revenues derived from research and the development projects that
were financed by CIIRDF, of up to 100% of all grants received. As of December 31, 2014, the Company received grants amounting to $334. No royalties have yet been paid through
December 31, 2014 as no revenues were derived from products developed using these grants.
NOTE 13:- FINANCIAL INSTRUMENTS
a.
Classification of financial instruments by fair value hierarchy:
As of December 31, 2014
Financial assets:
Marketable securities
Long-term investment
Financial Liabilities:
Derivative financial liabilities
As of December 31, 2013
Financial assets:
Marketable securities
Long-term investment
Level 2
Fair value hierarchy
Level 3
Total
$
$
$
$
$
80,040
-
$
-
382
80,040
382
386
80,426
$
-
382
$
386
80,808
Level 2
Fair value hierarchy
Level 3
Total
31,452
-
31,452
$
$
-
471
471
$
$
31,452
471
31,923
F - 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- FINANCIAL INSTRUMENTS (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
During 2014 there was no transfer due to the fair value measurement of any financial instrument from Level 1 to Level 2, and furthermore, there were no transfers to or from
Level 3 due to the fair value measurement of any financial instrument.
b.
Financial risk factors:
The Company and its subsidiaries’ operations are exposed to various financial risks, such as market risk (foreign currency risk, price risk), credit risk, and liquidity risk. The
Company and its subsidiaries’ comprehensive risk management plan focuses on measures to minimize possible negative effects on the financial performance of the
Company and its subsidiaries.
The Company's Board of Directors has provided guidelines for risk management, and specific policies for various risk exposures, such as foreign currency risk, interest-rate
risk, credit risk, and the use of derivative financial instruments, non-derivative financial instruments, and excess-liquidity investments.
1.
Market Risk:
a)
Foreign currency risk:
The Company operates primarily in Israel, and has an exchange rate risk as it incurs fixed expenses in New Israel Shekels, which differs from its functional
currency.
b)
Price risk:
The Company has investments in bonds, classified as financial instruments, which are measured at fair value through profit and loss. Accordingly, the
Company and its subsidiaries are exposed to a risk from changes in fair value, determined by Stock Exchange prices.
In addition, the investment in the private Israeli company is accounted for as an available for sale investment and accordingly changes in fair value will be
recorded in other comprehensive income (loss).
2.
Credit Risk:
The Company holds cash and cash equivalents, short-term investments and other financial instruments with various financial institutions. Its policy is to spread its
investments among various institutions. In accordance with this policy, the Company invests its funds with stable financial institutions.
The Company has no trade receivables balances past due, and accordingly has not recognized any provision for doubtful accounts.
F - 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- FINANCIAL INSTRUMENTS (Cont.)
3.
Liquidity Risk:
The following table presents the repayment dates of the Company and its subsidiaries’ financial liabilities, by contractual terms, in nominal amounts (including
interest payments):
EVOGENE LTD. AND ITS SUBSIDIARIES
Balance at December 31, 2014:
Trade payables
Other payables
Liabilities in respect of grants from
Up to 1 Year
1,984
$
3,854
1 Year To 2
Years
2 Years
To 3 Years
3 Years to 4
Years
4 Years to 5
Years
$
$
-
-
$
-
-
$
-
-
the Chief Scientist
584
637
822
1,050
Over 5 Years
-
$
-
$
104
-
-
931
Total
1,984
3,854
4,128
9,966
$
6,422
$
637
$
822
$
1,050
$
931
$
104
$
Balance at December 31, 2013:
Trade payables
Other payables
Liabilities in respect of grants from
Up to 1 Year
2,014
$
4,363
the Chief Scientist
908
595
448
438
1 Year To 2
Years
2 Years
To 3 Years
3 Years to 4
Years
4 Years to 5
Years
$
$
-
-
$
-
-
$
-
-
Over 5 Years
-
$
-
$
1,524
Total
2,014
4,363
4,417
-
-
504
$
7,285
$
595
$
448
$
438
$
504
$
1,524
$
10,794
c.
Fair Value:
The carrying amounts of cash and cash equivalents, short-term investments, other receivables, trade payables and other payables approximate their fair values due to the
short-term maturities of such instruments.
Liabilities in respect of grants from the Chief Scientist are capitalized using a discount rate, of approximately 5%, that reflects the applicable market rate of interest at the
date the grants are received which approximates the fair value at the respective balance sheet date. The liability is classified as level 3 in the fair value hierarchy in IFRS 13.
F - 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- FINANCIAL INSTRUMENTS (Cont.)
d.
Sensitivity tests relating to changes in market factors:
Sensitivity test to changes in the NIS exchange rate:
Gain (loss) from the change:
Increase of 5% in exchange rate
Decrease of 5% in exchange rate
Sensitivity test to changes in the market price of listed securities:
Gain (loss) from the change:
Increase of 5% in market price
Decrease of 5% in market price
Sensitivity tests and principal work assumptions:
EVOGENE LTD. AND ITS SUBSIDIARIES
December 31,
2014
2013
$
$
$
$
133 $
(133) $
227
(227)
4,002 $
(4,002) $
1,573
(1,573)
The selected changes in the relevant risk variables were determined based on management's estimate as to reasonable possible changes in these risk variables.
e.
Hedging activities and derivatives:
Cash flow hedges:
As of December 31, 2014, the Company held NIS/USD hedging contracts (forward contracts) designated as hedges of expected future salaries expenses, for expected future
payments to government authorities and to Israeli suppliers, OCS royalties payments and for rent payments.
The main terms of these positions were set to match the terms of the hedged items.
Cash flow hedges of the expected wage costs, the government authorities payments and rent payments in January-April 2015 was estimated as highly effective, and
December 31, 2014 other comprehensive loss in the amount of about $ 222 thousands, was included in equity in Accumulated other comprehensive loss.
NOTE 14:- SEVERANCE PAY LIABILITY
Labor laws and the Severance Pay Law in Israel (the "Severance Law") require the Company to pay compensation to employees if they are dismissed or when they retire, or to make
routine deposits with defined contribution plans under Section 14 of the Severance Pay Law, as described below. The Company's liability for this is treated as a post-employment
benefit. The Company's liability for employee benefits is based on a valid labor agreement, the employee's salary, and the applicable terms of employment, which together generate a
right to severance compensation.
Post-employment employee benefits are financed by deposits with defined deposit plans, as detailed below.
F - 33
EVOGENE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SEVERANCE PAY LIABILITY (Cont.)
Section 14 to the Severance Law applies to part of the compensation payments, pursuant to which the fixed contributions paid by the group into pension funds and/or policies of
insurance companies release the group from any additional liability to employees for whom said Contributions were made. These contributions and contributions for compensation
represent defined contribution plans.
2014
Year ended December 31,
2013
2012
Expenses - defined contribution plan
$
835
$
722
$
556
NOTE 15:- TAXES ON INCOME
a.
Tax rates applicable to the Company:
1.
The Israeli corporate tax rate was 26.5% in 2014 and 25% in 2012 and 2013.
On December 5, 2011, the "Knesset" (Israeli parliament) passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others,
cancels effective from 2012, the scheduled reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in
the corporate tax rate to 25%, as above, the real capital gain tax rate and the real betterment tax rate were also increased accordingly.
On July 30, 2013, the "Knesset" approved the second and third readings of the Economic Plan for 2013-2014 ("the Budget Law") which consists, among others, of
fiscal changes whose main aim is to enhance the collection of taxes in those years.
On August 5, 2013, the "Knesset" issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013
("the Budget Law"), which consists, among others, of fiscal changes whose main aim is to enhance the collection of taxes in those years.
These changes include, among others, increasing the corporate tax rate from 25% to 26.5%, cancelling the reduction in the tax rates applicable to privileged
enterprises (9% in development area A and 16% elsewhere) and, in certain cases, increasing the rate of dividend withholding tax within the scope of the Law for the
Encouragement of Capital Investments to 20% effective from January 1, 2014. There are also other changes such as taxation of revaluation gains effective from
August 1, 2013. The provisions regarding revaluation gains will become effective only after the publication of regulations defining what should be considered as
"retained earnings not subject to corporate tax" and regulations that set forth provisions for avoiding double taxation of overseas assets. As of the date of approval
of these financial statements, these regulations have not been issued.
The change in tax rates did not have a material effect on the Company's financial statements.
F - 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- TAXES ON INCOME (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
b.
Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 (the "Investment Law"):
Under the Investment Law, the Company has been granted "Approved Enterprise" and "Beneficiary Enterprise" status which provides certain benefits, including tax
exemptions and reduced tax rates. Income not eligible for Approved Enterprise and Beneficiary Enterprise benefits is taxed at a regular rate.
During the benefit period, the Company is tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%-25% for a period of five to
eight years (depending on the level of foreign investments in the Company) of the benefit period.
The benefit entitlement period starts from the first year that the Approved/Beneficiary plant first earned taxable income, and is limited to 14 years from the year in which the
approval was obtained, or 12 years from completion of the investment or commencement of production.
In the event of distribution of dividends from the said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the
Approved and Beneficiary Enterprise's income. The tax-exempt income attributable to the "Approved Enterprise" program mentioned above can be distributed to
shareholders without subjecting the Company to taxes only upon the complete liquidation of the Company. Tax-exempt income generated under the Company's
"Beneficiary Enterprise" program will be subject to taxes upon dividend distribution or complete liquidation.
The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the Law and regulations published thereunder. Should the
Company fail to meet such requirements in the future, income attributable to its Approved Enterprise and Privileged Enterprise programs could be subject to the statutory
Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such programs.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 68):
In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which
prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The Amendment became effective as of January 1, 2011.
According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire privileged income under its status as a
privileged company with a privileged enterprise. Commencing from the 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a
certain tax year and from that year and thereafter, it will be subject to the amended tax rates. The tax rates under the Amendment are: 2011 and 2012 - 15% (in development
area A - 10%) and in 2013 - 12.5% (in development area A - 7%).
F - 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:- TAXES ON INCOME (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):
On August 5, 2013, the "Knesset" issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which
consists of Amendment 71 to the Law for the Encouragement of Capital Investments ("the Amendment"). According to the Amendment, the tax rate on preferred income
form a preferred enterprise in 2014 and thereafter will be 16% (in development area A - 9%).
The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at
a rate of 20%.
The Company has evaluated the effect of the adoption of the Amendment on its financial statements, and as of the date of the approval of the financial statements, the
Company believes that it will not apply the Amendment. Accordingly, the Company has not adjusted its deferred tax balances as of December 31, 2014. The Company may
change its position in the future.
c.
Tax assessments:
The Company received assessments that are considered final, up to and including the 2010 tax year.
d.
Net operating carry-forward losses for tax purposes and other temporary differences:
As of December 31, 2014, the Company and its Israeli subsidiary have carry-forward losses amounting to approximately $31 million, which can be carried forward for an
indefinite period.
e.
Deferred taxes:
The Company did not recognize deferred tax assets for carry-forward losses and other temporary differences, because their utilization in the foreseeable future is not
probable.
f.
Theoretical tax:
The reconciliation between the tax expense, assuming that all the income and expenses, gains and losses in the statement of income were taxed at the statutory tax rate and
the taxes on income recorded in profit or loss (0%), relates to carryforward tax losses and other temporary differences for which deferred tax assets were not recorded.
F - 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:- COMMITMENTS AND CONTINGENT LIABILITIES
a.
The Company leases office space and motor vehicles under operating leases. Future minimum lease payments under non-cancelable operating leases for the years ended
December 31, are as follows:
EVOGENE LTD. AND ITS SUBSIDIARIES
2015
2016
2017 and after
$
$
549
94
13
656
The Company has provided a NIS 1 million bank guarantee to secure compliance with office rental payment requirements.
As of December 31, 2014, the Company has deposited $41, in respect of vehicle operating leases.
b.
Claims
The Company is involved in certain claims arising in the normal course of business. However, the Company believes that the ultimate resolution of these matters will not
have a material adverse effect on its financial position, results of operations, or cash flows.
NOTE 17:- SHAREHOLDERS' EQUITY
a.
General:
All ordinary shares, options, warrants, per share data and exercise prices included in these financial statements for all periods presented have been adjusted to reflect the 1-
for-2 reverse share split effected on November 19, 2013.
b.
Share capital:
Ordinary shares of NIS 0.02 par value each
150,000,000
25,350,954
150,000,000
24,901,327
December 31, 2014
December 31, 2013
Authorized
Issued and
Outstanding
Authorized
Issued and
Outstanding
Number of Shares
c.
Changes in share capital:
Share capital issued and outstanding:
Outstanding at January 1, 2013
Issuances of Share capital following initial public offering in the United States
Exercise of options
Outstanding at December 31, 2013
Exercise of options
Outstanding at December 31, 2014
F - 37
Number of
Shares
NIS Par
Value
18,738,290
374,766
5,750,000
413,037
115,000
8,261
24,901,327
498,027
449,627
8,993
25,350,954
507,019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17: - SHAREHOLDERS' EQUITY (Cont.)
d.
Rights attached to shares:
EVOGENE LTD. AND ITS SUBSIDIARIES
1.
2.
Voting rights at the general meeting, rights to dividends, rights upon liquidation of the Company and the right to appoint directors of the Company.
The shares are traded on the Tel Aviv Stock Exchange ("TASE") and New York Stock Exchange ("NYSE").
e.
Capital management in the Company:
The Company's objectives in managing capital are as follows:
To maintain its ability to ensure the continuity of the business, and thus to generate a return to equity holders, investors and other parties.
The Company manages its capital structure and makes adjustments following changes in economic conditions and the risk-nature of its operations. In order to maintain or
to adjust the necessary capital structure, the Company takes various steps, such as raising funds by capital issues.
f.
Other capital reserve:
The capital reserve included as part of the Company’s shareholders’ equity is a result of prior years’ transactions with Compugen, which was formerly the controlling
shareholder of the Company.
Those transactions included the receipt of a loan in the amount of $900 and a license to use Compugen’s technology. Eventually, the loan, including the accrued interest,
was forgiven and the license was extended several times in consideration of the issuance of the Company’s ordinary shares with a total fair value of $185.
The terms of those transactions were a result of the relationship between the Company and Compugen and did not represent a transaction that may have been entered into
between unrelated parties. Therefore, the benefit of these transactions for the Company resulting from both the forgiveness of the loan and the issuance of the ordinary
shares for the license rights was recorded as a capital contribution to shareholders’ equity with a total amount of $1,156.
g.
Capital issuances:
1.
2.
On October 27, 2013, the Company signed an additional agreement with Monsanto (the "New Agreement") to amend and restate the collaboration contract between
the two companies dated August 2008 as amended and restated on November 2011, as described in Note 5(a). In November, 2013, and in accordance with the
collaboration agreement, the Company issued 813,560 Ordinary shares, NIS 0.02 par value each.
In November, 2013, the Company completed initial public offering in the United States of 5,750,000 ordinary shares (including 813,560 Ordinary shares issued to
Monsanto as described above) at the price to the public of $14.75 per share.
The gross proceeds from the above mentioned offering were $84.8 million. The net proceeds were $ 76.8 million
F - 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18: - SHARE- BASED COMPENSATION
a.
Expenses recognized in the financial statements:
EVOGENE LTD. AND ITS SUBSIDIARIES
The expense recognized in the Company's financial statements for services provided by employees and service-providers is as follows:
2014
Year Ended December 31,
2013
2012
Share-based compensation
$
3,230
$
2,730
$
1,173
Share-based payment transactions that were granted by the Company to its employees are as described below.
b.
Share-based payment plan for employees and service-providers:
1.
2.
3.
Under the Company's 2002 option plan ("2002 Plan") the Company may grant options to its directors and consultants. Options granted under the 2002 Plan may be
exercised up to 10 years from the grant date, or until the expiry date (as defined by the Plan), whichever is earlier. The plan expired on March 13, 2012, however, on
May 14, 2012 the Company's Board of Directors approved an extension of the plan's term in respect solely of consultants up to March 13, 2017.
In December 2003, an additional option plan was approved ("2003 Plan"), under which, the Company may grant options to its directors and employees. Options
granted under the 2003 Plan may be exercised up to 10 years from the grant date, or until the expiry date (as defined by the Plan) whichever is earlier.
In January 2013, a third plan was approved ("2013 Plan"), under which the Company may grant options to its directors and employees. Options granted under the
2013 Plan may be exercised up to 10 years from the grant date, or until the expiry date (as defined by the Plan) whichever is earlier.
The vesting period of the options is four years, unless otherwise determined for a specific grant. Each option may be exchanged for 1 Ordinary share, NIS 0.02 par
value. Options forfeited or not exercised prior to expiry, may be granted in the future.
During 2012, the Company issued 324,000 options, exercisable into 324,000 Ordinary shares, NIS 0.02 par value each of the Company, for exercise prices ranging from NIS
33.48 to NIS 35.84 per share, to various employees and consultants. The fair value of the options determined upon grant date was $1,085.
On July 17, 2013, the board of directors of the Company approved an issuance to its employees of 600,000 options exercisable into 600,000 ordinary shares of the Company,
NIS 0.02 par value each, for an exercise price of NIS 44.28 ($12.38) per share. The fair value of the options determined at their grant date using binomial model was
approximately $2,166. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 26.37-
60.13%; risk free interest rate, 1.14-6.34%; and share price of NIS 43.62 ($12.20).
F - 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18: - SHARE- BASED COMPENSATION (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
On May 7, 2014, the board of directors of the Company approved an issuance to its employees of 252,000 options exercisable into 252,000 ordinary shares of the Company,
NIS 0.02 par value each, for an exercise price of NIS 64.55 ($18.72) per share. The fair value of the options determined at their grant date using binomial model was
approximately $1,564. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 53.52%; risk
free interest rate, 3.64%; and share price of NIS 59.76 ($17.33).
On November 9, 2014, the board of directors of the Company approved an issuance to its employees of 256,000 options exercisable into 256,000 ordinary shares of the
Company, NIS 0.02 par value each, for an exercise price of NIS 45.39 ($11.91) per share. The fair value of the options determined at their grant date using binomial model
was approximately $881. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 52.55%;
risk free interest rate, 2.56%; and share price of NIS 39.66 ($10.41).
c.
Option grants to key officers and directors:
On October 24, 2012, the Company issued 17,500 options, exercisable into 17,500 Ordinary shares, NIS 0.02 par value each of the Company, for exercise prices ranging from
NIS 31.52 to NIS 33.41 per share, to serving directors. The fair value of the options determined upon grant date was $76.
On July 17, 2013, the board of directors of the Company approved an issuance to its directors of 12,500 options exercisable into 12,500 ordinary shares, NIS 0.02 par value
each of the Company, for an exercise price of NIS 42.47 ($11.92) per share. The determined fair value of the options at their grant date using binomial model was
approximately $66. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 25.83-59.01%;
risk free interest rate, 1.27-5.89%; and share price of NIS 47.12 ($13.22).
On July 17, 2013, the board of directors of the Company approved an issuance to its key officers of 400,000 options exercisable into 400,000 ordinary shares of the
Company, NIS 0.02 par value each, for an exercise price of NIS 44.28 ($12.38) per share. The fair value of the options determined at their grant date using binomial model
was approximately $1,659. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 26.37-
60.13%; risk free interest rate, 1.14-6.34%; and share price of NIS 43.62 ($12.20).
On September 22, 2013, the board of directors of the Company approved an issuance to the Company’s President and Chief Executive Officer of 215,000 options exercisable
into 215,000 ordinary shares of the Company, NIS 0.02 par value each, for an exercise price of NIS 48.18 ($13.70) per share. The grant was approved by the Company's
shareholders in October 2013 at a general shareholders meeting. The fair value of these options using the binomial model is approximately $1,644. The main assumptions
used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 55.14%; risk free interest rate, 0.91-6.11%; and share price
of NIS 59.68 ($16.96).
On March 20, 2014, the board of directors of the Company approved an issuance to its directors of 20,000 options exercisable into 20,000 ordinary shares of the Company,
NIS 0.02 par value each, for an exercise price of NIS 71.05 ($20.39) per share. The fair value of the options determined at their grant date using binomial model was
approximately $179. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price, 58.77%; risk
free interest rate, 3.67%; and share price of NIS 67.06 ($19.25).
F - 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18: - SHARE- BASED COMPENSATION (Cont.)
EVOGENE LTD. AND ITS SUBSIDIARIES
On August 17, 2014, the board of directors of the Company approved an issuance to its directors of 12,500 options exercisable into 12,500 ordinary shares of the Company,
NIS 0.02 par value each, for an exercise price of NIS 61.21 ($17.66) per share. The fair value of the options determined at their grant date using binomial model was
approximately $68. The main assumptions used by the Company in determining the fair value were:
dividend yield, 0%; expected volatility of the share price, 54.60%; risk free interest rate, 3.01%; and share price of NIS 45.17 ($13.03).
On November 9, 2014, the board of directors of the Company approved an issuance to certain of its key officers of 173,800 options exercisable into 173,800 ordinary shares
of the Company, NIS 0.02 par value each, for an exercise price of NIS 47.66 ($12.51) per share. The fair value of the options determined at their grant date using binomial
model was approximately $668. The main assumptions used by the Company in determining the fair value were: dividend yield, 0%; expected volatility of the share price,
52.55%; risk free interest rate, 2.56%; and share price of NIS 39.66 ($10.41).
d.
Options exercised:
During 2012, 2013, and 2014 employees and consultants exercised 426,687, 413,037 and 449,627 options, respectively, into total of 1,289,351 Ordinary shares, NIS 0.02 par
value each of the Company, for a total consideration of $ 1,519, $ 2,559 and $ 2,857, respectively.
e.
Share options activity:
The following table summarizes the number of share options, the weighted average exercise price, and the changes that were made in the option plans to employees,
consultants and directors:
Outstanding at January 1
Grants
Exercised
Forfeited
Outstanding at December 31
Exercisable at December 31
2014
2013
2012
Number of
Options
Weighted
Average
Exercise Prices
($)
Number of
Options
Weighted
Average
Exercise Prices
($)
Number of
Options
Weighted
Average
Exercise Prices
($)
3,565,793
714,300
(449,627)
(59,704)
3,770,762
2,166,364
9.08
14.80
6.14
11.73
9.75
7.57
2,811,941
1,227,500
(413,037)
(60,611)
3,565,793
2,009,850
6.56
12.61
6.55
10.13
9.08
6.84
3,015,900
341,500
(426,687)
(118,772)
2,811,941
1,825,445
5.78
9.22
3.70
8.20
6.56
5.63
F - 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18: - SHARE-BASED COMPENSATION (Cont.)
The following table summarizes information about share options outstanding at December 31, 2014:
Range of exercise prices ($)
0.4-4.09
6.63-8.90
9.10-11.62
11.91-18.72
Total
EVOGENE LTD. AND ITS SUBSIDIARIES
Options outstanding
Average
remaining
contractual
life
Weighted
average
exercise
price
2.53
5.53
8.47
9.22
6.93
2.32
7.57
11.59
14.75
9.75
Number
outstanding
395,773
1,344,781
1,361,283
668,925
3,770,762
f.
g.
h.
The weighted average outstanding remaining contractual term of the options as of December 31, 2014 is 6.93 years (as of December 31, 2013, it is 7.20 years).
The weighted average fair value of options granted during 2014 was NIS 16.94 ($4.68) (for options granted during 2013, the fair value was NIS 15.85 ($4.51)).
The fair value of the Company's share options granted to employees and directors for the years ended December 31, 2014, 2013 and 2012 was estimated using binomial
model using the following assumptions:
Dividend yield (%)
Expected volatility of the share prices (%)
Risk-free interest rate (%)
Expected life of the options (years)
Share price (US$/NIS)
2014
2013
2012
-
53-59
2.56-3.67
4.66
13.01/47.26
-
26-60
0.91-6.34
4.64
13.05/46.46
-
25-65
1.87-6.81
4.12
9.34/35.98
The expected life of the options is based on historical data and is not necessarily indicative of the future exercise patterns of the options.
The expected volatility of the share prices reflects the assumption that the historical volatility of the share prices is reasonably indicative of expected future trends.
F - 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 19:- STATEMENTS OF COMPREHENSIVE LOSS - ADDITIONAL INFORMATION
a.
Cost of revenues:
Salaries and benefits
Share-based compensation
Sub-contractors and consultants
Materials
Depreciation
Patents and related costs
Rentals and maintenance
b.
Research and development:
Salaries and benefits
Share-based compensation
Materials and sub-contractors
Plant growth and greenhouse maintenance
Rentals and office maintenance
Patents
Depreciation and amortization
Consulting
Other
Participation by the Chief Scientist and other parties
c.
Business development:
Salaries and benefits
Share-based compensation
Travel
Legal
Other
d.
General and administrative:
Salaries and benefits
Share-based compensation
Consultation
Professional fees
Other
F - 43
EVOGENE LTD. AND ITS SUBSIDIARIES
2014
Year Ended December 31,
2013
2012
$
$
5,030
708
1,087
954
999
76
855
$
5,423
706
1,172
947
1,010
125
731
$
9,709
$
10,114
$
2014
Year Ended December 31,
2013
2012
$
$
8,173
897
928
573
1,285
131
1,250
224
653
(92)
$
6,663
746
308
676
1,213
82
1,031
259
331
(202)
$
14,022
$
11,107
$
2014
Year Ended December 31,
2013
2012
$
$
1,287
347
139
55
23
$
971
342
98
88
18
5,443
364
1,307
951
912
80
495
9,552
3,915
364
675
275
638
72
923
279
229
(118)
7,252
732
164
103
50
110
$
1,851
$
1,517
$
1,159
2014
Year Ended December 31,
2013
2012
$
$
1,780
1,278
105
899
123
$
1,801
936
167
596
64
$
4,185
$
3,564
$
1,354
281
96
239
265
2,235
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 19: - STATEMENTS OF COMPREHENSIVE LOSS - ADDITIONAL INFORMATION (Cont.)
e.
Financing income and expenses
Financing income:
Exchange differences, net
Change in the fair value of marketable securities
Interest income
Revaluation of Investment
Financing expenses:
Bank expenses and commissions
Change in the fair value of marketable securities
Revaluation of put option
Hedging instruments
Devaluation of Investment
Revaluation of liabilities to the Chief Scientist
EVOGENE LTD. AND ITS SUBSIDIARIES
2014
Year Ended December 31,
2013
2012
$
$
18
-
2,224
-
$
32
-
1,041
106
$
2,242
$
1,179
$
2014
Year Ended December 31,
2013
2012
$
$
200
832
-
164
89
231
$
87
809
293
-
-
147
$
1,516
$
1,336
$
61
42
869
-
972
89
-
-
-
-
205
294
NOTE 20:- NET LOSS PER SHARE
Details of the number of shares and loss used in the computation of net loss per share:
2014
Weighted
number of
shares *)
Loss
Year ended December 31,
2013
Weighted
number of
shares *)
Loss
2012
Weighted
number of
shares *)
Net
income
Number of shares and net loss for the
computation of basic and diluted
net loss per share
25,100,556
(14,530)
19,532,010
(8,878)
18,421,568
(2,522)
*)
To compute diluted net loss per share, potential ordinary shares, detailed below, have not been taken into account due to their anti-dilutive effect:
2014
2013
2012
Options to employees and consultants under share-based payment plans
3,770,762
3,565,793
2,811,941
F - 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 21:-
OPERATING SEGMENTS
a.
General:
EVOGENE LTD. AND ITS SUBSIDIARIES
Commencing January 1, 2012, the Company operates in two segments. The segments were determined on the basis of information considered by the Chief Operating
Decision-Maker ("CODM") for purposes of decision-making on the allocation of resources and evaluation of performance. The following Company's segments are
engaged in business activities for which they earn revenues and incur expenses, their results are reviewed by the CODM and discrete financial information is available:
Evogene segment
Evofuel segment
-
-
Services for the development of gene sequence technology (D.N.A. sequences responsible for the production of proteins –
"genes") and other D.N.A. sequences in plants ("D.N.A. sequences").
Services for the development of improved species of the castor oil plant, which may serve as a source for extracting oil for
the bio diesel fuel industry.
Segments performance is determined based on operating loss reported in the financial statements. The results of a segment reported to the CODM include items attributed
directly to a segment, as well as other items, which are indirectly attributed using reasonable assumptions.
b.
The following table presents our revenues and operating loss by segments:
For the Year Ended December 31, 2014
Revenues
Operating loss
Net financing income
Loss before taxes on income
Evogene
Evofuel
Adjustments
Total
$
$
14,511
$
- $
(13,078) $
(2,178) $
-
-
$
$
$
14,511
(15,256)
726
(14,530)
F - 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 21:- OPERATING SEGMENTS (Cont.)
For the Year Ended December 31, 2013
Revenues
Operating loss
Net financing expenses
Loss before taxes on income
For the Year Ended December 31, 2012
Revenues
Operating loss
Net financing expenses
Loss before taxes on income
EVOGENE LTD. AND ITS SUBSIDIARIES
$
$
$
$
Evogene
Evofuel
Adjustments
Total
17,581
$
- $
(7,500) $
(1,221) $
-
-
$
$
$
17,581
(8,721)
(157)
(8,878)
Evogene
Evofuel
Adjustments
Total
17,072
$
- $
(1,993) $
(1,133) $
-
-
$
$
$
17,072
(3,126)
678
(2,448)
c.
Major customers:
Revenues from major customers each of whom amounts to 10% or more, of total revenues:
Customer A (shareholder)
Customer B (shareholder)
See also Note 22 (a).
d.
Geographical information:
Revenues based on the location of the customers, are as follows:
United States
Germany
France
Other
F - 46
2014
Year Ended December 31,
2013
2012
60%
27%
62%
32%
70%
24%
2014
Year Ended December 31,
2013
2012
73%
27%
-
-
66%
32%
-
2%
100%
100%
72%
24%
4%
-
100%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 22:- BALANCES AND TRANSACTIONS WITH KEY OFFICERS AND CERTAIN SHAREHOLDERS
EVOGENE LTD. AND ITS SUBSIDIARIES
The certain shareholders refer to Monsanto and Bayer which as at December 31, 2014 to the best of the Company’s knowledge hold approximately 6.45% and 3.41%,
respectively, of the Company's ordinary shares and are also major customers (see also Notes 5, 21(c)).
a.
b.
Balances:
Balance at December 31, 2014:
Receivables
Other payables
Balance at December 31, 2013:
Receivables
Other payables
c.
Benefits to directors:
Key Officers
Certain
Shareholders
$
$
$
-
374 $
1,003
-
Key Officers
Certain
Shareholders
$
$
- $
695 $
2,106
-
2014
Year ended December 31,
2013
2012
Compensation to directors not employed by the Company or on its behalf
$
289
$
140
$
Number of directors received the above compensation by the Company
8
3
d.
Salary and Benefits to key officers:
Salary and related benefits (including one-time IPO bonus in 2013 )
Share-based compensation
In
Number of people that received salary and benefits
F - 47
2014
Year ended December 31,
2013
2012
$
$
$
$
1,935
1,637
3,572
6
$
$
1,831
1,291
3,122
5
71
3
1,188
441
1,629
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 22:- BALANCES AND TRANSACTIONS WITH KEY OFFICERS AND CERTAIN SHAREHOLDERS (Cont.)
e.
Transactions:
For the year ended December 31, 2014
Revenues
Cost of revenues
Research and development expenses
Business development expenses
General and administrative expenses
For the year ended December 31, 2013
Revenues
Cost of revenues
Research and development expenses
Business development expenses
General and administrative expenses
For the year ended December 31, 2012
Revenues
Cost of revenues
Research and development expenses
Business development expenses
General and administrative expenses
F - 48
EVOGENE LTD. AND ITS SUBSIDIARIES
Key Officers
Certain
Shareholders
$
- $
185
1,035
937
1,415
(12,611)
(635)
-
-
-
$
3,572
$
(13,246)
Key Officers
Certain
Shareholders
$
- $
373
531
852
1,366
(16,669)
(470)
-
-
-
$
3,122
$
(17,139)
Key Officers
Certain
Shareholders
$
- $
302
390
440
497
(16,083)
(225)
-
-
-
$
1,629
$
(16,308)
Evogene Ltd.
2015 U.S. Addendum
EXHIBIT 4.4.2
1. Purpose of the Addendum: This Addendum shall form an integral part of The Evogene Ltd. 2013 Share Option Plan (the “Plan”) of Evogene Ltd. (the “Company”), and it shall
apply only to Employees and Non-Employees who are (i) deemed residents of the United States for purposes of U.S. tax laws; and (ii) employed by the Company or any of its U.S. Subsidiaries, as
defined below.
This Addendum modifies the Plan so that it shall comply with the requirements set by the U.S. Internal Revenue Code of 1986, and the Securities Act of 1933(as defined below).
The Plan and this Addendum are complimentary to each other and shall be read and deemed as one. Any requirements provided in this Addendum shall be in addition to the requirements
provided in the Plan and in the U.S. Option Agreement (as defined below). In the event of a conflict, whether explicit or implied, between the provisions of the Plan and this Addendum, the latter
shall govern and prevail.
2.
Definitions:
2.1.
2.2.
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meaning in this Addendum.
For the purposes of this Addendum, the following terms shall have the meaning ascribed thereto as set forth below:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
"Addendum" means this 2015 U.S. Addendum, as amended from time to time.
"Applicable Laws" means the requirements relating to the adoption and administration of stock option plans under U.S. state corporate laws, U.S. federal
and state securities laws, the Code (as defined below), any rules and regulation promulgated thereunder, any stock exchange or quotation system on
which the Shares may be listed or quoted and the Applicable Laws of any other country or jurisdiction where Options (are, or will be, granted under the
Plan, including, but not limited to, applicable state tax laws.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
"Disability" with regard to Incentive Stock Options and Non-Statutory Stock Options (both as defined below), total and permanent disability, as defined
in Section 22(e)(3) of the Code.
"DesignatedBeneficiary" shall mean any individual designated by an Optionee determined by the Board, to receive amounts due the Optionee in the
event of the Optionee’s death. In the absence of an effective designation by the Optionee, Designated Beneficiary shall mean the Optionee’s estate.
“Employee” shall mean any employee (including any officer whether or not a Director) of the Company, or of any corporation which is then a Parent or a
Subsidiary (as defined below), who has been designated by the Board to participate in the Plan.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
"Incentive Stock Option" shall mean an Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the
Code.
"IPO" means an initial underwritten public offering of the Shares of the Company pursuant to an effective registration statement under the United States
Securities Act of 1933, as amended.
"NonqualifiedStock Option" shall mean an Option that is not an Incentive Stock Option.
“U.S. Option Agreement” shall mean a written agreement, to be entered into between the Company and an Optionee, which shall set forth the terms and
conditions of the Options granted to such Optionee under this Addendum.
"U.S Optionee" shall mean Employees or Non-Employees who are (i) deemed residents of the United States for the purpose of U.S. tax laws; and (ii)
employed by the Company or any of its U.S. Subsidiaries, as defined below.
(m)
"Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code.
3.
4.
5.
6.
7.
(n)
(o)
(p)
"SecuritiesAct" shall mean the Securities Act of 1933, as amended.
“Subsidiary” means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.
"Ten-Percent Stockholder" shall mean an Employee, who, at the time an Option is to be granted to him, owns (within the meaning of Section 422(b)(6) of
the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a Subsidiary (or, if
applicable, a Parent Corporation).
Administration: Further to the authorities of the Board, as detailed in Section 2.2 of the Plan, with regard to this Addendum, the Board shall have full power and authority, at all
times, to: (i) designate Options as an: Incentive Stock Option and Nonqualified Stock Option to be issued to U.S. residents; and (iii) determine any other matter and execute any
document which are necessary or desirable for, or incidental to, the administration of the Addendum and the grant of Options hereunder.
Eligibility: Subject to the terms and conditions of the Plan, Nonqualified Stock Options may be granted only to Non-Employees of the Company and/or of Parent/Subsidiary of the
Company. Incentive Stock Options and/or Nonqualified Stock Options may be granted to Employees.
Terms of Options.
5.1.
Terms of Options.
(a)
(b)
(c)
(d)
Price. The exercise price for the Shares subject to an Option, or the manner in which such exercise price is to be determined, shall be determined by the
Board, provided that, the exercise price per Share of any Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share as of the
date the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder).
Value of Shares. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Shares with respect to which
all Incentive Stock Options granted under this Addendum, the Plan and all other option plans of the Company become exercisable for the first time by
each Optionee during any calendar year shall not exceed one hundred thousand United States dollars ($100,000) with respect to such Optionee. To the
extent that the aggregate Fair Market Value of Shares with respect to which the Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar years exceeds one hundred thousand United States dollars ($100,000), such Options shall be treated as Nonqualified Stock Options.
The foregoing shall be applied by taking options into account in the order in which they were granted, with the Fair Market Value of any Share to be
determined at the time of the grant of the Option. In the event the foregoing results in the portion of an Incentive Stock Option exceeding the one
hundred thousand United States dollars ($100,000) limitation, only such excess shall be treated as a Nonqualified Stock Option.
Term. Options shall be for such term as the Board shall determine, provided that no Option shall be exercisable after the expiration of ten years from the
date it is granted (five years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder).
Exercise Following Termination. Notwithstanding anything else in the Plan to the contrary, Incentive Stock Options that are not exercised within ninety
(90) days following termination of Optionee's employment in the Company or its Affiliates and Subsidiaries, or within one year in case of termination of
Optionee's employment in the Company or its Affiliates and Subsidiaries due to a disability (within the meaning of section 22(e)(3) of the Code), shall be
deemed to be Nonqualified Stock Options.
Adjustments to Incentive Stock Options. Any Option Agreement providing for the grant of Incentive Stock Options shall indicate that adjustments made pursuant to the Plan
with respect to Incentive Stock Options could constitute a “modification” of such Incentive Stock Options (as that term is defined in Section 424(h) of the Code) or could cause
adverse tax consequences for the holder of such Incentive Stock Options and that the holder should consult with his or her tax advisor regarding the consequences of such
“modification” on his or her income tax treatment with respect to the Incentive Stock Option.
Notice to Company of Disqualifying Disposition: Each Employee who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the
Employee makes a Disqualifying Disposition of any Shares acquired upon the exercise of an Incentive Stock Option. A Disqualifying Disposition is any disposition (including any
sale) of such Shares before a date which is both (a) two (2) years after the date the Employee was granted the Incentive Stock Options, and (b) one (1) year after the date the
Employee acquired Shares by exercising the Incentive Stock Option. If the Employee has died before such Share is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
2
8.
9.
10.
11.
12.
Withholding of Taxes: As a condition to the exercise of an Option and the continued holding of shares received upon exercise of an Option, to the extent required by law, no later
than the date as to which an amount first becomes includible in the gross income of an Optionee for federal income tax purposes with respect to any award granted under the Plan
and this Addendum, the Optionee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, or local taxes of any
kind required by law or the Company to be withheld with respect to such amount. The obligations of the Company under the Plan and this Addendum shall be conditional on
such payment or arrangements and the Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Optionee. In its discretion, the Board may permit an Optionee to satisfy withholding obligations by delivering previously owned Shares or by electing to
have Shares withheld.
Nontransferability: No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an
Option may be exercised during the lifetime of such Optionee only by the Optionee or his guardian or legal representative; provided, however that an Optionee may designate a
Designated Beneficiary to exercise his Option or other rights under the Plan and this Addendum after his death and, in the discretion of the Board, Options may be transferable
pursuant to a Qualified Domestic Relations Order (“QDRO”), as determined by the Board or its designee.
Section 409A of the Code: To the extent applicable, this Addendum, the Plan and any agreement hereunder shall be interpreted in accordance with Section 409A of the Code.
Notwithstanding any provision of this Addendum or the Plan to the contrary, in the event that the Board determines that any Option may be subject to Section 409A of the Code,
the Board may adopt such amendments to this Addendum, the Plan and such agreement or adopt other policies and procedures (including amendments, policies and procedures
with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (a) exempt the Option from Section 409A of the Code and/or preserve
the intended tax treatment of the benefits provided with respect to the Award or (b) comply with the requirements of Section 409A of the Code.
Governing Tax Law: This Addendum and all instruments issued thereunder or in connection therewith shall be governed by and construed and enforced in accordance with the
tax laws of the U.S. and the laws of the State of New York, without giving effect to the principles of conflict of laws.
Effectiveness: This Addendum shall be effective with respect to Options granted prior to or after its adoption by the Company.
3
Name of Subsidiary
Evofuel Ltd.
Evogene Inc.
Leviev-Evogene Namibia (PTY) Ltd.
List of Subsidiaries
Jurisdiction
Israel
Delaware
Namibia
EXHIBIT 8.1
Ownership Interest
100%
100%
100%
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
EXCHANGE ACT RULE 13A-14(A)/15D-14(A)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 12.1
I, Ofer Haviv, certify that:
1. I have reviewed this annual report on Form 20-F of Evogene Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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 (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
/s/ Ofer Haviv
Ofer Haviv
President and Chief Executive Officer
Date: April 30, 2015
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
EXCHANGE ACT RULE 13A-14(A)/15D-14(A)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 12.2
I, Sigal Fattal, certify that:
1. I have reviewed this annual report on Form 20-F of Evogene Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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 (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
/s/ Sigal Fattal
Sigal Fattal
Chief Financial Officer
Date: April 30, 2015
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.1
In connection with the Annual Report of Evogene Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Ofer Haviv, do certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 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.
/s/ Ofer Haviv
Ofer Haviv
President and Chief Executive Officer
Date: April 30, 2015
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.2
In connection with the Annual Report of Evogene Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Sigal Fattal, do certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 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.
/s/ Sigal Fattal
Sigal Fattal
Chief Financial Officer
Date: April 30, 2015
The Board of Directors of Evogene Ltd.:
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-193788 and 333-201443) of Evogene Ltd. of our report dated April 30, 2015,
with respect to the consolidated financial statements of Evogene Ltd. and its subsidiaries included in the annual report on Form 20-F of Evogene Ltd for the year ended December 31, 2014.
EXHIBIT 15.1
/s/ Kost, Forer, Gabbay & Kasierer
KOST, FORER, GABBAY & KASIERER
A Member of Ernst & Young Global
Tel Aviv, Israel
Date: April 30, 2015