NOTE 6 - COMMITMENTS

Royalty commitments

The Company is obligated to pay royalties to the OCS on proceeds from the sale of products developed from research and development activities that were funded, partially, by grants from the OCS. At the time the grants were received, successful development of the related projects was not assured.

In the case of failure of a project that was partly financed as described above, the Company is not obligated to pay any such royalties or repay funding received from the OCS.

Under the terms of the funding arrangements with the OCS, royalties of 3% to 6% are payable on the sale of products developed from projects funded by the OCS, which payments shall not exceed, in the aggregate, 100% of the amount of the grant received (dollar linked), plus, commencing upon January 1, 2001, interest at annual rate based on LIBOR. In addition, if the Company receives approval to manufacture products developed with government grants outside the State of Israel, it will be required to pay an increased total amount of royalties (possibly up to 300% of the grant amounts plus interest), depending on the manufacturing volume that is performed outside the State of Israel, and, possibly, an increased royalty rate.

Royalty expenses to the OCS are included in the statement of operations as a component of the cost of revenues and were approximately $1,950, $769 and $158 during the years ended December 31, 2009, 2010 and 2011, respectively.

At December 31, 2011, the maximum royalty amount payable by the Company under these funding arrangements is approximately $19,820 (without interest, assuming 100% of the funds are payable).

The Company is a party to certain research and license agreements. Under the agreements, the Company is obligated to pay royalties at varying rates from its future revenues. The aggregate royalties payable under all of the agreements is equal to a percentages of net sales of licensed products in the teens. Royalty expenses under the agreements are included in the statement of operations as a component of the cost of revenues and were approximately $1,625, $115 and $19 during the years ended December 31, 2009, 2010 and 2011, respectively.

Under each agreement, the Company is also obligated to pay milestone, licensing and other payments to the counterparties of the agreement. The payments under the agreements are for varying amounts and are subject to varying conditions. If all of the contingencies with respect to milestone payments under the research and license agreements are met, the aggregate milestone payments payable would be approximately $950 and would be payable, if at all, as the Company’s projects progress over the course of a number of years. In addition, milestone payments of $70 and $100 were paid in respect of the said agreements during the years ended December 31,2009 and 2010, respectively.

None of the agreements has a fixed termination date. Subject to earlier termination for other reasons, each agreement terminates after a certain number of years following the first commercial sale of any licensed product under the agreement or after a certain number of years without the initiation of commercial sales of any product under the agreement.

Subcontracting Agreements

The Company has entered into sub-contracting agreements with several clinical providers and consultants in Israel, the United States and certain other countries in connection with its primary product development process and with expenditure of the company’s manufacturing facilities. As of December 31, 2011, total commitments under said agreements were approximately $821.

Lease Agreements

The Company is a party to a number of lease agreements for its facilities, the latest of which expires in 2017. The Company has the option to extend certain of such agreements on three occasions for additional five-year periods, for a total of 15 additional years. Under the leases, the aggregate monthly rental payments are approximately $75. As of December 31, 2011, the Company provided bank guarantees of approximately $208, in the aggregate, to secure the fulfillment of its obligations under the lease agreements. The future minimum lease payments required in each of the next five years under the operating leases for such premises are approximately as follows: 2012 - $901, 2013 - $890, 2014 - $883, 2015 – $883 and 2016 – $638. Lease expenses totaled $780, $891 and $994 for the years ended December 31, 2009, 2010 and 2011, respectively.

Vehicle Lease and Maintenance Agreements

In July 2004, the Company entered into several three-year lease and maintenance agreements for vehicles which are regularly amended as new vehicles are leased. The current monthly lease fees aggregate approximately $46. The minimum expected lease payments for the years ending December 31, 2012, 2013 and 2014 are $514, $267 and $70, respectively.

Teva Agreement

On September 14, 2006, the Company entered into an agreement (the “Teva Agreement”) with Teva Pharmaceutical Industries Ltd. (“Teva”) under which the Company agreed to collaborate on the research and development of two proteins to be identified by Teva and the Company, using ProCellEx. The Teva Agreement also identifies additional matters for collaboration between Teva and the Company. Subsequently, two proteins were identified to be researched and developed under the agreement but in 2009, both of the projects were terminated for commercial reasons. Other elements of the Company’s collaboration with Teva are currently ongoing.

Yissum Agreement

On August 8, 2007, the Company signed an agreement with the Yissum Research and Development Company, the technology transfer arm of the Hebrew University of Jerusalem, Israel, and the Boyce Thompson Institute for Plant Research, at Cornell University, Ithaca, New York, to develop a proprietary plant cell-based acetylcholinesterase (AChE) and its molecular variants for the use in several therapeutic and prophylactic indications, including a biodefense program and organophosphate-based pesticide treatment. Pursuant to the agreement, the Company has received an exclusive worldwide right and license to certain technology, including patents and additional patent applications relating to AChE (the “Licensed Technology”), for all therapeutic and prophylactic indications. In consideration for the license, the Company is required to make certain milestone payments equal to up to $700, in the aggregate, upon its achievement of clinical milestones and royalties from sales derived from any drugs developed by the Company with the Licensed Technology. The agreement does not terminate until either party to the agreement elect to terminate the agreement, subject to certain terms and conditions set forth therein.